Charles Arms - Director of Corporate Communications Mary Junck - Executive Chairman Kevin Mowbray - President and Chief Executive Officer Ronald Mayo - Vice President, Chief Financial Officer and Treasurer.

Andrew Galvan - Odeon Capital Group LLC Barry Lucas - Gabelli & Company.

Welcome to the Lee Enterprises’ 2017 First Quarter Webcast and Conference Call. The 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..

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

Also with us on today’s call, and available for questions, are Bib Fleck, Vice President-Sales and Marketing; Paul Farrell, Vice President of Sales; and James Green, Vice President, Digital. Earlier today, we issued a news release with preliminary results for our December quarter. It’s available at lee.net, as well as major financial websites.

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

During the call, we will make reference to certain non-GAAP financial measures, which are defined in our news release. Reconciliations to the relevant GAAP measures are included in tables accompanying the release. Finally, as previously announced, the Daily Herald and Provo Utah was sold in August of 2016.

All operating revenue and expense comparisons discussed on this morning’s call exclude operations of the Daily Herald. And now to open the discussion is our Executive Chairman, Mary Junck..

Thank you, Charles, and good morning, everyone, and thank you so much for joining our conference call. The first quarter of 2017 fiscal year was highlighted by strong digital revenue growth, operating expense reductions exceeding guidance and continued debt reduction.

While total revenue was softer in the first quarter than in the previous quarter, we believe the growth initiatives we have implemented will improve revenue performance in the remainder of 2017.

And in fact, we’re currently seeing improvement in the revenue trend and with significant improvement in our cost guidance, we believe that we will continue to report strong adjusted EBITDA throughout the fiscal year. Total digital revenue grew 6.5% in the quarter compared to last year and totaled more than $26 million.

We’re extremely well-positioned to drive digital revenue growth moving forward. Later in the call, Kevin will discuss our digital growth strategies in more detail. Cash costs excluding unusual matters decreased 6% in Q1.

This significantly outpaces the annual cost guidance we issued last quarter, and Ron will provide new cost guidance for the fiscal year later in the call. Debt reductions totaled $17.8 million for the quarter, and the principal amount of debt at the end of the quarter was $599.4 million.

We believe that these reductions create value for our shareholders and we’ll continue to use substantially all available cash to reduce debt. Before I turn it over to Kevin and Ron to discuss the December quarter in more detail, I want to speak briefly about fake news, a topic that has gotten a great deal of attention lately.

The growth of fake news underscores the importance of professional journalism and for more than a century Lee news organizations have provided credible and accurate news and information to our local community. We operate under journalistic principles, including accuracy, fairness, balance and timeliness.

We provide a depth and continuity of coverage that can’t be found from other local news sources, and as we’ve said repeatedly before, our focus is providing a strong local news report. We encourage and involve the community in our journalistic efforts and we vigorously defend the First Amendment.

Further, we believe our reputation as a trusted local news source is invaluable in retaining and growing audiences for our local content. This quarter, we’re launching a marketing campaign to promote our journalistic principles and our trust in place in local communities using social media in our digital and print platforms.

Now, here is our CEO, Kevin Mowbray to further discuss the December quarter and our plans moving forward..

Thank you, Mary. As Mary mentioned, we upbeat about our digital performance in the first quarter. Digital advertising grew 6.8%, including growth in mobile advertising, up 20.6%, as we grew unique visitors 8.6% over the same quarter in the prior year.

Digital ad revenue represented 24.6% of total advertising revenue for the company in the December quarter. We’re focused on growing digital audience and revenue each and every quarter. Our digital lead sales program has made a significant contribution to this growth.

In each of our markets, we’ve invested in highly skilled sales professionals with in-depth knowledge of digital media. Our digital leads not only sell robust digital marketing solutions, but also coach our sales staff and expand our overall digital expertise. Our strong performance in digital reflects the success of our strategic initiatives.

Our digital sweeps program, which drives audience grow through additional high engagement content during times of increased demand for digital advertising has proven to be highly effective at growing revenue by driving impressions and improving CTM.

In addition, in the first quarter, we’ve launched an initiative to begin sharing our best content throughout our enterprises, using a centralized digital content center. By showing exclusive stories, databases, photos and videos across multiple local digital platforms, we engage more readers throughout the day.

Further, our internal syndication of the syndicated press content provides our audiences with complete entirely national and international report without leaving our platform.

Because all of our properties use the TownNews Content Management System, our digital content center can easily distribute content across all of our properties to help drive the audience.

We continue to see headwinds in print advertiser – in print advertising, particularly with the big box retailers, which was a significant contributor to our overall 7.2% revenue decline in the quarter. We continue to take aggressive steps to address the retail sector.

At Lee, we’re most keenly focused on the local controllable revenue, and our strong relationships with local decision-makers makes the difference. Local controllable retail revenue represents 48.6% of total advertising revenue, and by far, it’s where we see the most upside. The Edison project is aimed at this category.

In the last few weeks, it’s been launched in 15 of our top markets, which comprised 56.9% of the company’s total advertising revenue. Using Edison, we’ve completely transformed our local sales model for the SMB retail segment.

We’ve simplified how we go to market by combining our digital print product and the package is designed to deliver stronger digital presence, increased frequency in print, and extend advertising commitments, all of which we believe improves ROI for our customers.

Feedback from advertisers has been strong and many advertisers are renewing their commitment. The average spend of advertisers using an Edison package is up and their digital spend has grown, as well. We’re encouraged by our results so far. Subscription revenue decreased 1.9% for the quarter.

But I remain very optimistic that fiscal year 2017 will be another year of strong performance in this category, as we continue to implement our strategy is sound pricing principle, additional premium content revenue, and reduced customer churn.

To reduce customer churn, we’ve recently established a team of highly trained retention specialists from our call centers and expect to improve our customer retention and subscription revenue performance going forward. Now, here is Ron Mayo, our CFO with some additional financial highlights..

Thank you, Kevin. The company continues to produce strong adjusted EBITDA. In the December quarter, adjusted EBITDA totaled $43.3 million. As mentioned earlier, we continue to use all available cash flow to pay down debt.

Debt was reduced $17.8 million for the quarter and $104.6 million for the past 12 months, making the principal amount of debt at the end of the quarter $599.4 million. Interest expense decreased 12.8%, or $2.2 million in the quarter, and $8.7 million in the last 12 months due to our substantial quarterly debt payment.

We will continue to drive down interest costs, as we will use substantially all available cash to further reduce debt. With lower debt and strong adjusted EBITDA, the company’s leverage net of cash is now 3.9 times the last 12 months adjusted EBITDA.

You should also note that the upcoming March quarter marks a significant change that will impact the second lien term loan moving forward. Currently, quarterly excess cash from Pulitzer properties, as defined, must be offered to the second lien debt holders. However, the debt holder has the right to decline the payment.

After March 2017, they no longer have the right and must accept all excess cash flow payments at par. We expect additional interest savings in the future from these excess cash flow payments, as the second lien is ours highest cost of capital. We also continue to pursue select opportunities to monetize our real estate.

While we have transactions in various stages, the timeline associated with closing this sale is somewhat difficult to predict. In the event, a property formerly owned by Pulitzer, so those proceeds would be used to repay the second lien term loan at par.

As Mary mentioned, the December quarterly cash costs, excluding unusual matters decreased 6% compared to last year. Compensation decreased 5.1%, primarily as a result of reduced staffing levels, the majority of which are associated with our ongoing business transformation and outsourcing.

Newsprint and ink expense increased 3.1% in the quarter, as a result of the cumulative effect of several Newsprint price increases throughout fiscal 2016, which we will – which we have continued to pay. These increases were partially offset by a reduction in Newsprint usage.

We will cycle most of the Newsprint price increases in Q2 and Q3 of fiscal 2017. Other operating expenses decreased 8.1% in the quarter, primarily driven by lower delivery postage and other print-related costs, which were offset in part by our continued investment to grow digital revenue.

As a result of recent changes implemented in our business, we have new cost guidance for the year. We now expect cash costs, excluding unusual matters will decrease between 5% and 6% in fiscal 2017. We also have the following guidance on income taxes, pension contributions, and capital expenditures.

We do not expect to make any material state or federal income tax payments, or pension contributions in fiscal 2017. Capital expenditures are expected to be $7 million for the fiscal year. Lastly, we expect to file our 10-Q with the SEC tomorrow, and as always, they will include additional information on our results and expectations.

As a reminder, we no longer include separate Lee legacy and Pulitzer financial data in our press release. An 8-K will be filed with supplemental information tomorrow. This concludes our remarks. The team will remain on the line for any questions you may have.

And following the questions asked by the telephone, we will answer any submitted during the webcast. Operator, please open the line for questions..

Thank you. At this time, we will be conducting a question-and-answer session [Operator Instructions]. One moment please while we poll for questions and please state your name and company, prior to asking your questions. Your line is now open. You may proceed with your question..

Hi, this is Andrew Galvan from Odeon Capital Group. Good morning, folks..

Good morning..

Hi, there..

Good morning..

Wanted to ask question on the second lien term loan paydowns.

What do you estimate about ballpark could be paid down starting in April on an annual basis?.

Well, I mean, obviously, it’ s going to be depend on performance of the Pulitzer assets and we’re just – we’re not giving any guidance on our total debt paydowns or our debt paydowns relative to that.

And I think if you want to come up with a proxy for that and you can look at what has historically been offered that we provide in our documentation and make your own estimates from there. But the Pulitzer assets should continue to perform in a similar ratio that they have with the Lee legacy assets in the past..

It would be comparable you think to – well, okay.

If I look to last year – last year’s numbers, it would point to something in the order of about $20 million or so, is that roughly about right?.

We didn’t offer that much. Last year, the excess cash offered to them was a little over $10 million..

A little below $10 million, okay..

A little over $10 million and about $0.5 of that was accepted..

Got it. Thank you.

In terms of the revenue initiatives that you discussed earlier, or that Kevin discussed earlier, could you talk a little bit more deeply about what the trajectory is with the cadence? How quickly will we see this take effect do you think? And any other color you can share on what exactly those are would be helpful?.

Sure. I’d be happy to do. This is Kevin. I would say regarding circulation, most of it’s really tied to a timing issue. As I mentioned in my remarks, we’re very optimistic that we’re going to have another strong year of performance in circulation.

We’ve got upcoming rate action that’s in the work, amped up retention and new premium content that are really going to be the key drivers in the second-half of the fiscal year gets us much optimism on that category. As it relates to advertising revenue really seeing the success in local controllable retail.

And as I mentioned, that’s where we have the most upside. And that program is driving increased commitment from advertisers, larger print commitments, and we’re seeing our digital then increase as well there also seeing some terms of moderating and classified.

Our auto revenue turn has been cut in about half,and our other classified category is growing tied to a new obit initiative we have underway that is tied to redesigning or obituary sections in both print and digital along with new product introductions that have been resonating well in that category.

We’re also seeing a bit of a moderating trend on static key accounts based on an improvement from what we experienced in Q1..

[indiscernible].

Well, yes, what we call static key accounts, the big box retailers..

Got it. Okay. Thank you very much..

Your line is now open caller..

Thanks. Barry Lucas at Gabelli. Good morning, Mary..

Good morning..

I was hoping and Kevin just answered to other question. But any other color that gives you, or provides the confidence that that the trends are going to improve, because when you – everything you hear about Amazon eating every retailers launch and you see the importance of that category, which was still two-thirds of total advertisers.

So what do you see in your crystal ball that makes you think it’s going to give any better?.

This is Mary. Well, I’d say a couple of things. One is, we hear the same things that you do that major retail is in a very competitive situation. And that doesn’t help us, and in fact, that’s one of the key factors related to the decline in advertising from major retailers.

But the flipside is and the plus side is, we’re seeing some good traction in the early days in our Edison project, as well as a number of initiatives that are aimed at local, what we call, local controllable retail things like The Big Pitch and other initiatives such as that, we’ve seen some good traction in that regard.

And as Kevin mentioned, some of the trends in classified, we see moderating a little bit. And then lastly, I would say, our digital growth actually accelerated in this quarter and we’re very upbeat about that.

So the combination of all of that makes us optimistic about what we’re going to see going forward versus what we saw in the fourth quarter, and in fact, we’ve been seeing it currently..

Great. Thanks.

And one on the core side, Ron, maybe you could breakdown the usage and price in terms of that Newsprint and ink expense line?.

Yes, I mean….

Again, it seems a little unusual?.

Yes. Well, it was – there was about an overall 15% price increase over the course of last year. And if you look at the December 2015 quarter, that was one of the low points of pricing. And then our price increases in January, February, April, May, June.

So it’s a total cumulative price increases that were announced were at $75 a metric ton throughout the year. And then it didn’t – it moderated after that and there were no increases in our September quarter, or this current December quarter. And then the total decrease was around 12%. So that’s kind of where we end up with a 3% increase..

Great. Thanks for that. I appreciate it..

There are no further questions from callers. I’ll now turn the call back over to our host, Charles Arms to discuss questions from the webcast..

Thank you.

Our first question from the webcast is regarding the mix shelf that was recently registered, can you provide some color on the $750 million mix shelf that was recently registered?.

Yes, I mean, it basically replaces an existing shelf registration that was due to expire. The terms of that were identical to the one that will actually expire next week. But we’ll be filing the final amended one of this shelf registration.

So it required under our one agreement that we have this shelf registration out there, and it’s just merely replacement of an existing document..

Yes.

What was the free cash flow for the year?.

Well, the free cash flow is going to be disclosed, or the availability for you to calculate that in the 8-K that I referred to in my closing remarks. So the free cash flow will actually give you a little headline before you get the number in the way we calculated.

So I’ve taken adjustment EBITDA plus the contributions that we get or distributions that we get from Madison and Tucson, less capital expenditure, less income tax payments, and less interest. It declined about $3 million in the quarter versus the same quarter of the prior year. But the details of that will be filed in an 8-K tomorrow..

Well, that does come to the end of our questions from the web. So I’ll turn it back over to Mary for closing remarks..

Well, again, let me thank you for joining the call. And let me also say that, we are confident that we have the right strategies and tactics in place to provide a bright future for Lee and its shareholders.

As Kevin and I, both noted earlier, while total revenue was softer in this quarter than the previous quarter, we believe the growth initiatives that we’ve implemented will improve revenue performance in the remainder of 2017.

As we also noted, we’re currently seeing improvement in the revenue trend and with significant improvement in our cost guidance, we believe we’ll continue to report strong adjusted EBITDA throughout the fiscal year.

Our steady cash flow has and will continue to keep up ahead of schedule in retiring our debt, which we believe increases shareholder value. As always, we’re focused on performing at a high-level in maintaining our place among industry leaders in margins and other key performance measures.

And again, we appreciate so much of your time today and your interest in Lee. Thank you so much for joining the call..

Thank you. Ladies and gentlemen, at this time we’ve reached the end of our question-and-answer session. This concludes our call..