Charles Arms - Director, Corporate Communications Mary Junck - Chairman and CEO Kevin Mowbray - EVP and COO Ron Mayo - VP and CFO Paul Farrell - VP, Digital Sales James Green - VP, Digital.

Andrew Galvan - Odeon Capital.

Welcome to the Lee Enterprises’ Fourth Quarter and Fiscal 2015 Webcast and Conference Call. This call is being recorded and will be available for replay beginning later this morning at lee.net. At the close of the planned remarks, there will be an opportunity for questions. Several analysts have been invited to participate.

Also participants accessing this call by webcast may submit written questions through the website and they will be answered during the call as time permits. Otherwise, you will receive a response later. A link to the live webcast can be found at www.lee.net. Now I will turn the call over to your host, Charles Arms, Director of Corporate Communications.

Please go ahead sir..

Good morning and thank you for joining us. Speaking on today’s call will be Mary Junck, our Chairman and Chief Executive Officer; Kevin Mowbray, Executive Vice President and Chief Operating Officer; and Ron Mayo, Vice President and Chief Financial Officer.

Also with us on the call are Paul Farrell, Vice President of Sales; James Green, Vice President of Digital and Nathan Bekke, Vice President of Consumer Sales and Marketing. Earlier today, we issued a news release with preliminary results for our September quarter and 2015 fiscal year. It is available at lee.net, as well as major financial websites.

As a reminder, our discussion today will include forward-looking statements that are based on our current expectations and are subject to certain risks, trends and uncertainties that could cause actual results to differ materially. Such factors are described in our news release this morning and also in our SEC filings.

During the call, we will reference certain non-GAAP financial measures. Reconciliations to the relevant GAAP measures are included in tables accompanying our news release.

We will also report changes in comparable revenue and cash cost that exclude the impact of a change to fee-for-service arrangements with our carriers, which requires a reclassification of delivery costs, resulting in a grossing up of both revenue and costs. This reclassification has no impact on operating cash flow or operating income.

To open our discussion is our CEO, Mary Junck..

Thank you, Charles, and good morning, everyone, and thank you for joining the conference call this morning to review our fourth quarter and yearend results. We are on the right path in fiscal 2015 we advanced these transformations in several significant ways. We intensified our local advertising sales approach.

We redesigned all of our products both print and digital. We launched Phase II of our regional design centers and continued retooling our business model. You'll hear more about these efforts from Kevin later in the call. We expect these initiatives will have a positive impact on 2016 and they help to fuel good results in the fourth quarter.

We believe our strategy of providing high quality local news which drives frequency and engagement with our large audiences will allow us to accelerate digital revenue growth, grow subscriber revenue and continue to deliver strong free cash flow to reduce our debt.

Here is a few comments on the fourth quarter, our trend of strong growth in digital revenue continued as total digital revenue grew almost 24% for the quarter including revenue from full access in Town News.

On a comparable basis, subscription revenue increased 6.1% compared to the same quarter of the prior year due to full access and premium day pricing initiatives.

Digital advertising and marketing services revenue along with subscription in Town News now combined to make up nearly 47% of our total revenue and we see opportunity for continued growth in all of these categories. In the fourth quarter, operating cash flow grew 5% and adjusted EBITDA grew 7.5% compared to same quarter of prior year.

I want to specifically mention the outstanding results at two of our larger newspaper subsidiaries, Madison Newspapers and Tucson Newspapers which are accounted for under the equity method. Combined, our share of adjusted EBITDA from these operations for the quarter grew 4.3%.

The company received $2.9 million in dividends from Madison and Tucson in the quarter and the $11 million for the year. Some other highlights from the quarter include digital advertising revenue was up 5.1% and digital advertising represented 21.6 of total ad revenue in the quarter. Mobile advertising which is included in digital increased 10.6%.

Digital services revenue primarily Town News increased 11.3% to $3.3 million. Total advertising and marketing services revenue decreased 9% driven primarily by reduced print and in search volume from major retailers and big box stores. Overall revenue on a comparable basis decreased 4.4% in the fourth quarter.

This is an improvement from the June quarterly trend. As I mentioned at the outset, we launched several key strategic initiatives in 2015 which help to fuel our good results in the fourth quarter. We expect these programs will have a positive impact on 2016 as well.

Kevin will share more on these in just a moment, but finally Lee has produced strong free cash flow for the several years and we expect that to continue in 2016, we'll drive revenue carefully manage cost and maintain our industry leading margins.

Now here is Kevin with more detail on our key areas of focus and as you'll hear, Kevin is recuperating from a tough case of laryngitis..

Thank you Mary. As Mary mentioned earlier in 2015, we began to refine and develop both our print and digital products to increase frequency and length and engagement with our readers. Our strength is our local audiences and it continues to be the premier source of news and information in the markets we serve.

In these largest markets, we reached 76% of all adults to our print and digital platforms including more than 70% of adults under 40 years old. These large local audiences are highly valuable to our advertisers. We're well into the rollout of our redesigned digital platforms.

Our new Flex Templates improved performance and offer a common contemporary look and feel across all of our digital platforms. We're implementing Phase II of the Lee design centers named the Da Vinci project, which allows us to streamline our print newspaper design with best-in-class design templates.

This not only improves design and the reader experience, but it also reduces the time it takes to build a high quality page, filling up our newsrooms to produce even more local news. We're very pleased with our progress with these initiatives. This year our common goal live audience.

As Mary mentioned with intensified or local advertising sales efforts. To drive local ad revenue, we've doubled the number of elite sellers and strengthened our big pitch program in that larger local accounts.

They make more than 2000 big pictures in fiscal 2016 and for our small and mid-sized businesses we're providing a simplified turnkey solution that combine print and digital marketing services such as display, mobile, switch engine management and website development.

We've development more than 1000 websites for businesses in our local markets and we'll aggressively target more. Website development is particularly attractive as it promotes longevity with the customer which leads to additional sales opportunities.

Further, our sales organizations have become increasingly skilled of driving substantial digital revenue growth through targeted display, SEO and SEM. We expect this growth to accelerate in 2016. A consistent bright spot of the past few quarters has been our programmatic effort.

Through proactive and persistent yield management, we continue to see gains in this area and because we manage the content on our sites through our local newsrooms we can drive larger audiences during the periods of higher programmatic demand.

For example, our holiday suites are currently underway and our newsrooms are focused on creating additional high quality singular content to increase online audience engagement driving both pages and time spend on our sites which translates the higher digital revenue. In 2015, our subsidiary Town news developed its IQ program.

This program significantly increases our ability to select user data, understand their preferences and establish profiles for visitors to Town News managed sites. As a result, we are now providing contextual first party data about our users to advertisers which translates to much higher advertising rates.

We expect to see continued subscription revenue growth in 2016 with selective price increases in premium day. Our premium day program delivers high value, additional content for a surcharge on select days. The content is produced either to our own enterprises or through partners such as the Meredith Corporation.

The other content has been very well received by our readers and we anticipate continued success with this program. Now here is Ron Mayo with some additional financial highlights..

Thank you Kevin. We've reported earnings of $0.18 per diluted common share for the quarter compared to earnings of $0.06 a year ago. Excluding unusual matters, adjusted earnings per diluted common share totaled $0.10 compared with $0.02 a year ago.

Total cash cost excluding subscription-related expense reclassification and workforce adjustment cost decreased 7.8% that significantly exceeded our previous release guidance of 5.5% to 6%. We also exceed the cash cost guidance for fiscal 2015 and we'll continue to implement our business transformation and related cost reductions in the coming year.

In fiscal year 2016 we expect cash cost reductions excluding workforce reductions as compared to the prior year to be in the 3.5% to 4% range. We reduced debt by 19.1 million in the fourth quarter and 78.9 million in fiscal year 2015. We expect to continue to reduce our debt at a similar pace in 2016.

As of September 27, 2015, the principal amount of debt was 725.9 million, cash interest expense was reduced 4.9 million in fiscal year 2015 as a result of debt reductions providing free cash flow for additional debt reduction.

With the retirement of the new filter notes in June of 2015 excess cash flow from filter businesses as defined in the credit agreement was now be offered to holders of the second lien debt.

For the September quarter, approximately 3.3 million of the second lien excess cash flow payment was not rejected and accordingly in November of 2015, 3.3 million of the second lien debt was repaid at par. Lee also has more than 10 million of real estate assets was to sale including properties and Bloomington, Illinois; Portage, Wisconsin; and St.

Louis, Missouri at September 27, 2015. In October 2015, we closed the sale of the Provo, Utah land and building, netting $2.3 million, which was used to repay the 2nd Lien Term Loan at par.

In the past twelve months, we have reduced the 2nd Lien Term Loan our highest cost to capital by over $10 million as very much earlier, we continue to produce strong and steady free cash flow and remain highly committed to maintaining our industry leading cash flow margins.

In 2016, we’ll continue to strengthen the company’s capital structure by using substantially all our free cash flow to reduce debt. Lastly, we expect our 10-K, we expect to fall our 10-K with the SEC tomorrow and as always, we will include additional information on our results and expectations..

This concludes our remarks, and the team will remain on the line for any questions you may have. Operator, please open the line for questions..

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Now, we’ll take your first question..

Hi, good morning. It’s Andrew Galvan from Odeon. I was wondering if you could talk a little bit about some of your end markets, any trends you’re seeing by geography, by market size that can help us think about how the business is doing..

This is Mary.

Why don’t I lead off that and then other can jump in? I would say that the pattern is pretty similar across all of our markets with the exception of a couple there are in oil related market which have a lot of headwinds right now places like Casper - to some degree billing into some degree rapid city but otherwise we see a pretty similar pattern across the company and I don’t know if anybody else said on to that.

No. I think that describes it, I think we’re talking about on our last call particularly with employment revenue in our energy markets and that does have a little bit of spill over into how the economies in those markets goes well but everything else is fairly similar we’re seeing as a trend line is..

And one of the thing I would add to it that you might be interested in it. We have several markets in the fourth quarter and on the year who had positive revenue growth year-over-year which we’re very excited about it..

That’s great.

And when you think about what carrying in for now Q1 of FY16 I assume to seeing still some pressures in those markets that have oil and gas exposures, any other trends you’re seeing in this quarter?.

We’re seeing the same sort of headwinds I’d call it in the energy markets as we saw in the fourth quarter. And I would also add that October was a little bit slow but it looks as now we’ve picked up some significant theme in November and December..

Okay. Then final question.

Any just as we think about this quarter, any one times or substantial changes as we think about this Christmas season relative to the year ago?.

I think no. What I would say….

Yeah. This is Ron. I don’t think we’ve seen - I wasn’t here in the last Christmas season perhaps with that, but I don’t think its materially from just looking it that raw data on that and obviously there has been some changes as I think we've all read about with the retail markets and how more shopping has been done online.

So I think that trend will continue to impact retail advertising and retail spending going forward. But I think overall it's not materially different than last quarter..

Okay great. Thanks so much guys..

On the retail side of the business..

Got it..

Thank you Andrew..

And we'll take our next question from [indiscernible]. Your line is open. You may be muted..

Hi, this is Barry Lucas [ph]. I'm sorry. I've got couple. Mary if we could maybe more for one for Ron and couple for you. But just on the debt repayment, should we think about the amount that you've described that was for fiscal '16 as similar to '15 and that ballpark.

Does that all get directed towards the second lien notes or is there some different allocation that's required under the terms of the borrowing agreements..

Well, all the legacy cash flow will ultimately go to pay down the first lien term loans. The dollar amounts that will go to pay down the second lien term loan will be dependent upon the amount of excess cash flow payments that we ultimately generate and then the extent to which they're accepted on that.

So I think if you want to look at it in a one way versus the other, the second lien is only going to get paid down through the extent that the second or the excess cash flow payment is not accepted for reject excuse me for the payment there. And to the extent, we actually were selling those assets.

Everything else is pretty much going towards the first lien..

First lien okay..

Right, so that's where you see the majority of the payments as we're looking at '16..

Okay. And second item is on the real estate, you've successfully monetized several parcels of excess real estate.

Is there a way to think about the aggregate value with the real estate and then how much of that could ultimately be realized either now right sales or sale leasebacks or - do you have - I guess do you have a target in value in mind?.

We don't have a target value in mind, I mean we're not really looking at doing any kind of sale leasebacks on our land. We don't think that's a prudent use of capital because you're effectively with the rate, the cap rates were the upper end of our capital structure.

So not highly positive for us and frankly with the new changes they're going to put through and lease accounting it's going to all end up back on the balance sheet as debt anyway. So we're looking at each one of our properties and to the extent we do not need that property on an ongoing basis.

So it's typically a building but we've owned for a long time, it far exceeds the capacity what we need to do the transformation that we're going through in the business where we can sell the building and ultimately our goal is to find lease property that at a similar rate for what we're paying for and the utilities, property taxes and insurance that we're able to lease similar space that in a lot of cases is frankly more useful because it's more modern space as to some of the older space that we're currently operating at that.

One of the gating issue for us selling a lot of properties although you could do it in a sell leaseback again that's not our preference. As we still own a lot of production facilities that include the office building for the newspaper.

So there are combined buildings and that makes a little more difficult unless you do want to do that the sale leaseback..

Great. And maybe there is two on the operating part of the business. And in particular on the ability to monetize mobile traffic and maybe you could just - maybe Kevin has just described. The success you're having and or the difficulty it is whether because of view ability or validity and validation issues are.

How are you addressing those issues if you could?.

Well this is Mary I'm going to give Kevin a bye because his voice condition and hand it over to Paul Farrell who is our VP of Sales but before I do one thing I would say is we’ve had really big success monetizing our mobile traffic over the last actually four or five years and we continue to do very well, Paul may be you can put some speculation around..

Yeah, no I mean it’s just been a great success for us in four years and counting and we’re continuing to see double-digit growth in the mobile space and part of that is just the increasing appeal of these audiences on the phone and part of their ability to put new format on our phone whether it be high impact or larger sites been or at they have great appeal and acute results for our customers..

Okay. Last item is going to be expenses and ability to continue to take cost out in a very difficult revenue environment..

Well, let me lead off with that and then I’ll hand it over to Ron but as both of you who have apologized for a while now we have a really strong record on good cost control and we like to describe it as being largely driven by business transformation in other words we’re running the business in a different way than we did in previous years which enables us to be more productive.

So as we go forward we have a number of business transformation project on the plate and we intend to keep trying to run our business in a more efficient way which helps us to reduce cost and as our business has evolved it’s enabled us to do this and Ron can provide can provide some….

Just to give you a little more color around what we’re looking at we don’t have any one specific initiative that is going to individually make a dramatic cost reduction it’s really a combination of a lot of small initiatives that add up to where we’re getting the majority of our changes.

So just the name appeal the things that we have going on and we haven’t mentioned our Da Vinci project which is our design center we are in the process of closing down one of our design centers in Lincoln to consolidate that we’ll gain some efficiencies out of that process and so at least some dollar savings that are associated with that we’re combining our circulation, call centers and introducing a greater more robust IVR interactive voice response on that so we can have fewer humans involved and that part of the business we have staff reductions in the year and this is combined with all of our initiatives as well of about 2.5% on that and we’re also concentrating our sales and marketing efforts and this has been a little more smart about how we’re spending our promotional dollars on gaining and retaining new subscribers so we’ll be able to do that part of the cost of our business at a lower cost as well.

I mean those are the big highlight things that we’re going through I mean everything we’re looking at is when you think about it and we just went through our budgeting process I mean it’s really back to as zero based budgeting and looking at how can we trend everything we do and do it in a more cost efficient manner..

Great. Thanks very much, Ron..

And ladies and gentlemen, at this time we have reached the end of our question-and-answer session I would like to turn the floor back to our management team for any closing remarks..

This is Charles Arms. We do have several questions that came from our webcast and I would I'm going to read those aloud and then invite our management team to answer those.

First question is as Digital impressions deliver ever increasing targeting do you anticipate increased digital CPMs and can you comment on how this might insulate revenue at legacy media like the newspapers?.

And we have our digital experts here on the line James Green so James why don’t you take a crack at that?.

Sure. Thanks Mary. Really when it comes down to we’re seeing some increased digital CPMs from the target point whenever we use targeting primary from a first party data set as Kevin mentioned in his remarks.

Yes, we’re seeing those increase in CPMs and it is beneficial for us we’re seeing obviously smaller impression buys which releases more and more inventory to programmatic standpoint but what makes us so unique is as Kevin mentioned as we have newsrooms that produce content and allow the first party data that we accumulate as a result of the fact that folks reading our content online.

So we continue to see benefit from that..

And I think we have a significant thing here that I'd like to point on and we mentioned it in our remark and James alluded to it just now is that our news rooms are focused on providing really terrific print products.

But they have also become very adept at driving our digital audience in a big way and we are able to monetize that on the digital side very successfully..

Second question is what percentage of EBITDA is from digital versus print?.

Unfortunately, that's not the way we manage the business from an EBITDA perspective. We have our business of revenue and expense but we don't break out digital as a separate business component other than from a revenue perspective.

So it's not something that we can offer what percentage of our EBITDA, it's a combined consolidated business and frankly when we go to market what we believe our strength is and I think you can see it in our audience is our audience is very diversified between print and digital and because of that we are out selling to our advertisers.

It's about buying the right combination of print and digital that drives the highest audience that you are seeking to get and pricing that accordingly. So I'm not sure you been having what percentage of your EBITDA comes from digital is that meaningful because it's a combined integrated business..

Next question, do you see the possibility of total revenues ever rising again?.

Well, this is Mary again.

I would answer that by saying yes I do and here is how that will happen or could happen and we noted this in our comments in the quarter - in our fourth quarter 47% of our total revenue grew and so the flip side is 53% didn't, but if you do the math and you can keep the 47% growing and maybe even get it to be a bigger [hook] and the balance that's not growing be a little bit better.

The math works out that we're in positive territory. So that's what we are aiming for here at Lee and we have a number of initiatives which we alluded to that aim to drive revenue from our local controllable accounts the big pitches one as well as the many other initiatives that you heard about.

So that's a long answer to this question which is yes I do think revenue can rise again..

Do you expect any tailwinds from presidential election related ad spending?.

We have an effort underway that's actually fairly aggressive where we're going after political revenue. Especially from the presidential candidates and we received some small digital buys and we aim to keep swinging the bat at that so to speak. In a presidential year we historically haven't gotten much. But we are keeping our fingers crossed.

I would say also in the presidential election year where there are others senatorial elections, house elections, we tend to do pretty well. So I would anticipate we get at least some modest amount of revenue in 2016. But we are holding our breath on how much of it will be related to the presidential election..

Will the company be in a position in 2016 to look at acquisition of the digital media properties and higher long term growth areas?.

We periodically ask this question as debt has been reduced and our answer is in the short term our main focus for our cash flow is to pay down our debt.

However, having said that if some really good opportunity came along for an acquisition either an adjacent newspaper or some other sort of opportunities that we considered really terrific we would take a look at it. But as I said and as we said before the main use of our cash flow is to pay down debt..

And that concludes our questions from the web..

Well, this is Mary again. Let me just close off the call by saying I really appreciate all of you joining us today. We appreciate your time and interest in Lee and we wish you very happy holidays. Thank you, again..

And that does conclude today's conference. Again thank you for your participation..