Good day, everyone, and welcome to the Lee Enterprises 2016 second 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. Thank you for joining us. Speaking on today'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 Paul Farrell, Vice President, Sales; and Nathan Bekke, Vice President, Consumer Sales and Marketing. Earlier today, we issued a news release with the preliminary results for our March quarter. 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. These 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 reference 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. And now to open our discussion is our Executive Chairman, Mary Junck.

Thank you, Charles, and good morning, everyone, and thank you for joining our call this morning. In the second quarter we continued on our transformational path marked by digital revenue growth, cost reductions through improved efficiencies and substantial debt reduction. We were also challenged in certain revenue categories, particularly classified in major retail print advertising. Kevin and Ron will share more details on the quarter later in the call. But, first, I'd like to speak briefly about our plans for this calendar year and the future. We are expanding and accelerating the transformation of our company and have several key initiatives underway, all aimed at driving revenue, financial performance and delivering top-quality local news, information and advertising to our large audiences. We are completely changing the way we sell local advertising to maximize our opportunities. Local accounts, accounts where our local sales teams have direct contact with advertising decision makers forms the core of our business. And just as a remainder, we have more sales people on the street in markets than all of our competitors combined. We've labeled this program, the Edison Project, and is directly aimed at these local advertisers. We're restructuring the local sales teams to ensure that we have the best strength of our sales people aimed at the right local account. And the teams will go to market with a standardized set of smartly priced audience packages, designed to easily communicate the combined power of our digital and print audiences. Edison has been tasted in several of our markets and we're encouraged by the results. We are also changing the structure of our newsrooms to produce even more local stories and to further emphasize our position as the top local news provider in our markets. The successful implementation of the daVinci Project is nearly complete.…

Thank you, Mary. As Mary mentioned, and I think it bears repeating, in the second quarter digital revenue growth continue to grow in mid single-digit, cash cost reductions exceeded guidance and debt was reduced significantly. Digital advertising revenue, fueled by strong digital retail, grew 5.9% and represented 22.9% of total ad revenue in the quarter. Digital services revenue, which is primarily driven by TownNews.com, increased 11.5% to $3.4 million. Our digital [ph] elite program is driving strong locally sold digital and we continue to see positive results in national programmatic revenue, growing over 30% in the quarter. We maintained very good programmatic rates and have seen rate improvement. Mobile advertising revenue, which is included in digital advertising, increased 18.2%. Total digital revenue, including digital services, grew 6.7% for the quarter, while the advertising and marketing services revenue decreased 9.5% in the quarter mostly related to challenges in print classified and major retail. Shifts in print advertising demand continue to be a challenge. However, in the third and fourth quarters we're cycling through prior year's lower print volume and the slowdown in our energy market, we believe year-over-year declines will be smaller. Also, while subscription revenue was down 3% in the quarter, we're optimistic the trend will improve for the remainder of the fiscal year with retention, start pressure, premium days and pricing. We're also transforming how we market to subscribers. We've centralized subscriber marketing and introduce sophisticated direct marketing tools to target new subscribers and improve retention. Overall, revenue decreased 6.2% in the second quarter, and again, we don't believe this is the trend moving forward. We don't expect this rate of decline to continue in the third and fourth quarters. Our business transformation continues and we're diversifying our revenue streams and pursuing new ones. In a number of our markets we've seen successes with event marketing, sponsorship, media partnership and other new ways to capitalize on our trusted brands and generate revenue. Moving ahead, we'll be identifying the best opportunities in disseminating these programs for all of our market. Now, here is Ron Mayo with some additional financial highlights.

Thank you, Kevin. As we stated in the past, we're committed to reducing debt, because we believe it translates directly into equity value for our shareholders. In the second quarter, debt was reduced by $47.5 million, including $3.1 million of the second lien term loan, $10 million of the notes and $34.4 million of the first lien term loan. A portion of the second quarter debt reductions was due to the receipt of $30.6 million from an insurance settlement. In the past 12 months, we have reduced debt by $107.8 million and at the end of the second quarter the company's leverage net of cash is now 4x its last 12 months adjusted EBITDA. For the last 12 months, adjusted EBITDA totaled $159.8 million and unlevered free cash flow totaled $144.3 million. As of March 27, 2016, the principal amount of debt was $656.5 million. Interest expense was reduced $3.8 million for the first six months of the fiscal 2016, as a result of debt reduction. This provides additional free cash flow to be used for future debt reductions. Cash cost, excluding workforce adjustments, decreased 5.4% and 5.3% for the 13 and 26 weeks ended March 27, 2016. Compensation decreased 3.9%, primarily as a result of reduced staffing levels. Newsprint ink decreased 21%, primarily the result of lower newsprint prices and a reduction in newsprint volumes of 11.9%. Other operating expenses decreased 4.9%. Cash cost savings were offset in part by an unusually large number of high dollar claims from our self-insurance period medical plan. I'm also reaffirming our cost guidance issued in December for the fiscal year. Excluding workforce adjustments, we anticipate cash cost to decline by 3.5% to 4% for the fiscal year and we expect to be at the upper-end of the range. Lastly, we expect to file our 10-Q with the SEC tomorrow, and as always it will include additional information on our results and expectations. You may have noticed that we did not include separate Lee Legacy in future financial data in our press release. Going forward, we will file a separate 8-K with this supplemental financial information. This concludes our remarks. The team will remain on the line for any questions you may have. Following questions asked by telephone, we will answer any submitted during the webcast. Operator, please open the line for questions.

[Operator Instructions] Please state your name and company prior to asking your questions.

This is Andrew Gadlin from Odeon Capital. Ron, I was wondering if you could discuss why the change in disclosure practice?

Well, it boils down to a conversation that we had with the SEC, and after that conversation the best place to do it was in an supplemental 8-K as opposed to including it in our all fillings.

I was wondering if you could talk down, what amount of debt has been paid down in this quarter so far?

In this quarter so far, we've made the required payments.

How much is that?

Well, it's $6,250,000 that we have to pay on the term loan, and we'll continue to --

That's all that you had done so far this quarter?

Yes. I mean, we have an excess cash flow payment due on both the second lien and the first lien as well.

And then I was wondering if Kevin or Mary, if you guys could discuss the Edison Project a little more?

Sure. Let me lead up, and then Kevin of course knows much of the detail. We also have Paul Farrell in the room, who's been working deeply on the project. But just as the project, as we mentioned in our remark, is that we are totally overhauling the way we go to markets selling local advertising in our markets. And there is a number of key components, but we are focusing on getting the right sales people in the right jobs, segmenting our advertisers and putting together these really powerful packages. So there is a number of pluses as well to the program. And Kevin, will comment on those.

We're really using data and research to look at the way we pursue these accounts or segmenting the advertisers in top 25, 26 through 50 and then 51 through 100. And then we have changed the way we go to market and the way we package our print and digital products, aimed at each one of those segments. And then we're training the sales reps on that and simplifying the process, so advertisers can clearly decide, what package works best for them.

And the overarching goal of the project of course is to drive local advertising revenue even more strongly than we have. And we've seen, as we noted earlier, some pretty encouraging results from the test markets.

It's really about refining your sales literature to the advertisers and trading sales people to be more focused in how they approach potential customers. Is that a good way to put it?

Yes, I think that is a good way to put it. The only other thing I would add to that is that we are to some degree simplifying the packages that our sales people will be selling. And the big plus of that is when they are more focused, they become more practiced to the sales such as you can train to these specific packages, and overall we think it will be a lot more effective.

And then what avenues are within advertising and marketing services? And which sub-segments do you think this will be particularly effective for us? Is it retail, classified, national? I guess, not national, but is it retail or classified?

We're really focusing on retail. However, we have a similar program aimed at car dealers.

And you talked in the last year about a number of initiatives on the broader segment. How have that been panning out? And if they haven't really been panning out very well, then kind of what have you learned from that process and how does that change for you do going forward?

Well, as you know, we've put a top executive at Lee on it and she is doing a really terrific job. We're selling with research and data that wasn't the case before, and that's going very, very well. We have identified a number of markets who are underperforming the group and their trend has improved, and we have a couple of markets that aren't going as well as we'd like the drive, the overall number, for what you've seen. So I would say going forward, we feel pretty good that once we get our bulk data and some of the research in play and in practice in our enterprise, which is underway as we speak, that we'll see that number improve.

And can you talk about different markets, there has been a bit of a split in performance between some of the geographic areas in the last three quarters. Are you still seeing those trends, I think it's the Rocky Mountain segment you call it, where there has been some weakness?

Yes, we have. And we talked about this on our couple of the other calls. We have several markets that we classify as energy market and as you would guess, those who have had a tough go, Casper, Wyoming, Bismarck, Rapid City and to a lesser degree, Billings, Montana, in those markets, because they are related to the energy business. Others don't have as robust economies as some of the rest of our markets and we can see the drag on their results. I mean, I guess, the good news, although, maybe not for sure is that we are now beginning to cycle through some of the downdraft that's occurred in local markets a year ago.

But it was really Q2 last year, so --

Right.

Was it Q2?

Right [multiple speakers].

So Q3 already will start [multiple speakers].

Calendar Q2.

Right, correct.

So we've got one more quarter till we left that. And then in the fiscal Q3 it will be locked, is that right?

Yes, the energy kind of stays where it is right now, and there's no further downdrafts from that. We're not going to further comment on that.

Right.

I don't want to be too specific, because I know in no way you can answer it too specifically. But generally, if you think about the kind of the change in revenue decline at Legacy Lee over the last couple of quarters, what roughly, what percentage of that is due to those energy markets?

It's a relatively small percentage of it overall. I mean, if you look at the markets that Mary named, I mean, those are not our largest markets that we operate. Billings is, but Billings is least impacted by all of those markets. So as a percentage, it's not a big number.

So it hits the overall classified trend.

Overall classify trend. And specifically, unemployment in those markets is where it really hurts more than the other real estate and automotive. Although, they are down more than the average, but employment is the one that is significantly down more than the average.

And next, we'll hear from?

It's Steven from M Partners. So how's it going?

Good.

So just a question on the debt reduction, and I guess, maybe how it relates to the real estate monetization, other view you're having. So I mean are we going to see an outcome to that review in there? Can you quantify the potential magnitude of, I guess, assets that could be sold, and then, I guess, obviously put towards debt reductions? And are we going to get any update on that?

Well, I mean, basically where we are in the real estate monetization program -- and understand that this is a long-term project, because real estate can be sold in some instances very quickly, but most of them take an extended period of marketing and ultimately closing. So we found that it's generally between the time we decide that to sell it when we actually get the cash, it's 12 to 36 months before you ultimately see this monetization. And on the $200 million that we talked about previously, I think there was a little bit of misunderstanding in the marketplace about what that $200 million was. It is the book value of the real estate. We're not going to be able to sell all that real estate. We need a lot of that real estate continue to operate. It was really intended to not give you a valuation of potential debt pay down, but more of an order of magnitude of this is the amount of real estate that we're examining and some of that we will be able to monetize and sell. I mean, we've sold just under $4 million so far in our fiscal year, but those properties that we sold were properties have been on the market for a substantial period of time, closer to that three-year mark. I mean, we're well underway in our view and have identified a number of properties that we will be actively marketing, and the question is, is how long is it going to take for us to get the right price for what we want on those.

I think that's not have been completely offset by rent that you're going to be paying for the location.

No. So basically, and it's not always a one for one, so we will have to lease, but primarily why you're able to access these is because you're not using a large portion of the real estate that you currently own. So you can lease a much, much smaller footprint than you currently own. And the idea is that when you sell these that you're able to lease space for essentially the same cost that you're currently paying to occupy. And occupy, meaning insurance, property taxes and utilities that go along with that. It's not always a one-for-one, but we have not experienced one word to significant increased yet.

And then one of the trend that we've been noticing, that I want your view on it is the unlevered free cash flow you're seeing the modest decline, somewhat, I guess, in line with topline decline. But the free cash flow after interest expenses increasing, I guess because the decline in interest expense is more than offsets decline in topline. So I mean is that a trend you guys expect to continue seeing and kind of your view as to what the topline decline looks like, and then how it translates to free cash flow, and then the reduction in interest expense that reflect that? I mean, do you expect this free cash flow figure to continue to modestly increase even as topline continues to see some declines?

Well, without giving any guidance on what we see on the topline side of it, because we don't give any guidance about where we think our adjusted EBITDA or earnings are going to be going forward. But to your point, on the free cash flow line, yes, we'll see continued significant reductions in interest, which -- our goal is that, yes, we have increasing free cash flow as a result of few things, stabilization of our adjusted EBITDA, but also incremental amounts related to savings on the interest expense as we continue to aggressively pay down our debt. And obviously, [multiple speakers] at a high cost of capital, and to the extent, we're at least another nine months -- the people on the second lien they can accept or reject their excess cash flow payment, but starting in March of '17 they can no longer reject this, so I think you'll see greater reductions in interest as we get rid of our highest cost of debt capital at 12% on that second lien when they can no longer reject the excess cash.

And sorry, what's the date, again, in which they can no longer reject?

It's after March '17, so basically a year from now.

Is there an option that you see for debt refinancing, because I mean the level of profile is improving, the free cash is accelerating, so the rate of debt repayment is accelerating. Is there not an option maybe, I guess, a year out from now where that excess cash flow restriction come through? I mean do you see the option of debt refinancing on the table?

If you look at the way we restructured, I mean the bonds are in a no-call through '18, so that makes it somewhat difficult to complete our refinancing. You're sure you could do it, some kind of partial refinancing. Second lien that currently have a [ph] 112 called premium on them, which makes that very expensive and we need the interest rate market to cooperate. So the way we really look at it is assuming we can maintain relatively flat cash flow, we will payoff the first lien term loan sometime in 2018. And then at that time, we'll also have cycled over the bonds no call and they'll be callable in March of '19. And the more salient point is, is after March 15 of '19 the call premium drops down to 2.38. So that's a not big milestone. And if you wait until the end of 1 April '19, then the call premiums associated with the second lien totally go away. So that's where we kind of see the opportunistic where we've eliminated substantially all the call premiums out of there. We paid off our first lien. And we're really refinancing the bonds and what remains on the second lien at that point in time.

And the last question here. I know you've been asked to forward the cash cost guidance. You maintained it, but I guess for how long do you expect -- we can't cut cost forever. So I mean, when do you think you kind of hit a wall or where cost -- you've rationalized as much as you can. I mean do you still see next year or year after that the ability to continue cutting cost at this kind of range?

Well, let me lead off with that and then Kevin and Ron can jump in. And we have been asked that question before. And I think the 5,000-foot level answer to the question is that over time we have shown ourselves to be very resourceful in figuring out ways to reduce cost and more importantly ways to transform the business. And as time goes by, it's gotten a little bit harder. But as, I think the key point here is, as the business changes the cost structure changes. So we've been able to do a number of things to take out cost on a business transformation level. And a very good example of that is our daVinci Project, which is our design center, where we now laying out all of our newspapers and doing a lot of our production work. So I would say, we're not giving future cost guidance here for years to come, but I would say that this company has shown itself to be very resourceful in figuring out new ways to do business.

I mean, I agree. This is part of the -- we cut substantial amounts of cost quarter-after-quarter. And then to your point, this will all [indiscernible] and I think it's just part of the business transformation that everyday we are looking at ROE change in our business and how can we do what we do in a less expensive manner. So I think there is a lot of things, I mean, there is a lot of flow through from the initiatives that we currently have going through. So I think what you will see for the remainder of the calendar year would be a lot of the flow through from what we've already done. And we have some further transformation projects that we haven't talked about yet on the list that I think will ultimately deliver more cost saving.

I'm seeing no other phone questions at this time. I would like to turn the call over to Mr. Arms to answer any of your web questions.

We do have some questions from the webcast. The first question is study show that millennials are going back to print rather than digital. Are you seeing this and do you anticipate your print ads to increase as this trend continues?

Well, so I think, many of you know, we do research month in and month out in our largest markets to gauge leadership, both digital, print et cetera. And so we have a pretty good deed on what's going on at any point in time. Amongst the millennials, we actually do very well. 72% of the millennials in our largest markets access our content, 20% on print and 20% digital and 15% basically use both. And so we do very well with millennials. We have not yet seen a trend in our data that shows that the millennials are increasingly using print, but what we are seeing is they're very strong consumers of our news and advertising. I am in reluctant to comment on whether we think that's going to increase the trend in print advertising, I hope that's true, but we have not yet seen that.

Our advertisers are going to make that decision, not us. It's certainly we have large millennial of audiences and so we can deliver that should the advertisers choose us to reach them.

Right. And I believe that is our last question and before we wrap up, I just wanted to make a quick final comment and I hope you've gathered from our conversation here, we're are on a positive transformational path and we are confident about our bright future. We know that what we do matters for our readers, for our communities, and for our advertisers and even though the media landscape is changing, we feel an indispensible enduring role in each of the communities that we serve. As we've noted to our audiences, our markets are huge across all age groups and platforms and we're using these audiences to grow digital revenue. Our primary focus is Ron has indicated is maintaining our high level of performance and leading our industry and margins and other key financial measure. Our steady free cash flow has and will continue to fuel aggressive deleveraging keeping us ahead of schedule in returning debt, which we believe translates into increased shareholder value. We appreciate very much your time and interest in Lee. And thank you for joining us today. End of Q&A

And ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.