Welcome to the Lee Enterprises' 2019 First Quarter 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, Jamie Samath, Corporate Controller.

Good morning. Thank you for joining us. Speaking on this morning's call will be Mary Junck, Executive Chairman; Kevin Mowbray; President and Chief Executive Officer; and Tim Millage, Vice President and Chief Financial Officer. Also with us on today's call and available for questions are Nathan Bekke, Vice President, Consumer Sales and Marketing; Paul Farrell, Vice President, Sales; and James Green, Vice President, Digital. Earlier today, we issued news release with preliminary results for our first fiscal quarter of 2019. It is available at lee.net as well as at major financial websites. Before we proceed, I wanted to point out an error in our preliminary earnings release. The prior year, compensation expense is overstated by $708,000. Our discussion today will include the correct trends. We apologize for the error and we'll issue a corrected release later today. As a reminder, this morning's discussion will include forward-looking statements that are based on our current expectation. 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 make certain references to 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 the discussion is our Executive Chairman, Mary Junck.

Thank you, Jamie, and good morning, and thank you all for joining our call. We are off to a good start in our fiscal year 2019 and are pleased with our performance in the quarter, especially as it relates to our digital transformation. Total digital revenue, which includes digital advertising and digital services revenue, was up 10.7% in the first quarter in total more than $150 million over the last 12 months. This double-digit growth was fueled by strong digital advertising performance, especially from our local retail accounts and substantial growth at TownNews. Digital advertising and marketing services increased 8% in the first quarter, driven by good growth from local retail accounts. As we've mentioned before, local retail accounts are the core of our business. In the first quarter print and digital revenue from our local retail accounts, which represents more than 50% of our advertising and marketing services revenue was down 2.6% better than our overall revenue trend. Kevin will provide more detail on our improving performance with these local accounts in a moment. Digital services revenue, principally TownNews increased 27.7% in the first quarter. Strategic investments in video and streaming technology drove this growth. TownNews is also gaining market share from local media operations and broadcast customers. We also earn $2.6 million of revenue in the quarter from our BH Media Group management agreement. This represents one quarter of both the fixed fee as well as an estimate of variable fees that we will earn over the contract year at BH Media Group. Total revenue for the quarter was down 5.3% and cash costs were down 4.4%, resulting in margins in excess of 24%. Adjusted EBITDA totaled $36.1 million in the quarter and totaled $128.4 million over the last 12 months. While there are industry challenges, especially as it pertains to print national accounts and classified, we are optimistic in our strategy because we operate in attractive midsized markets with huge audiences and we've continued to outperform the industry in key performance metrics including digital revenue growth, subscription revenue performance and margin. Now I'll turn it over to Kevin to provide additional details on our performance in the first quarter.

Thank you. As Mary noted, we accelerated our digital transformation in the first quarter of 2019. Total digital revenue posted double-digit growth in the quarter, driven by strong performance from local retail accounts and substantial revenue growth from TownNews. Local control and retail accounts are the core of our business. This revenue category represents more than 50% of advertising revenue and is comprised of SMBs and our top local accounts. Our local sales teams have direct contact and strong relationships with these key decision makers. We have a number of tactics aimed at growing local digital revenue. One in particular is our Amplified Digital agency, a centralized approach to selling agency-level campaigns. It includes a full-service SEM campaign, targeted programmatic and digital display and email. Amplified Digital was very successfully launched at the St. Louis Post-Dispatch in 2018, and we've already rolled out Amplified Digital to our larger market. We believe the Amplified Digital agency has competitive advantages to local advertisers for many reasons, including we partnered with the best names in digital and our preferred partner with Google. We have a dedicated team of digital experts and provide insightful local strategy to our customers. We know our markets and we know our customer's needs, and we also provide our customers with sophisticated analytics that enable us to refine campaigns to drive optimal results for our advertisers. Over the last three years, the revenue trend from local retail accounts has been better than our overall results, and the first quarter print and digital advertising revenue from local retail accounts was down 2.6% with digital up 8.8%. We saw massive growth in digital services revenue due to TownNews. We made strategic digital technology investments, and we're seeing incredible results from those investments already. In 2018, we acquired Field59, which gives TownNews,…

Thank you, Kevin. We have a long track record of responsibly managing our cost structure through business transformation, while maintaining high quality, engaging local news, information and advertising, who have managed our cost structure through regionalization, centralization and outsourcing, and have held our margin constant for more than a decade. In the first quarter, cash costs were down 4.4%. Compensation costs decreased 8.9% fueled by a 13.9% reduction in FTEs. The majority of the staffing decreases are associated with our ongoing business transformation and outsourcing. Newsprint and ink expense increased 8.6% in the quarter, due to significant prices increases. Lower print volume limited the impact of the price increases. Other operating expenses decreased 1.2% in the quarter, primarily driven by lower delivery costs. The favorable revenue trends and a responsible cost management adjusted EBITDA totaled $36.1 million in the quarter and $128.4 million over the last 12 months. In the first quarter, we repaid in full the remaining balance of our First Lien Term Loan, almost five months ahead of its maturity. Additionally, in December, we completed an amendment to our first lien credit facility and extended our revolving facility for 12 months. As we have discussed over the past few months, we are very actively discussing refinancing with our advisors and lenders. We are ready to enter the market as soon as we and our advisors believe the market is receptive to an opportunistic refinancing. As you know, the market was not receptive to an opportunistic refinancing in the latter part of calendar year 2018. No high yield deals were done from late November through early January and bank loans were also down considerably to prior your levels. Although market conditions will dictate final terms, our goals in refinancing are to reduce the cost of capital, have less restrictive…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] It appears there are no questions from callers.

Our first question from the web, what is the total cost of the Kenosha and Lake Geneva acquisitions and how is it purchase like this funded?

Hi, this is Tim, and I can answer that. The acquisition of the Kenosha News and Lake Geneva Regional News was not a material acquisitions that we and as a result we're not providing any of the purchase price or historical financial information. That said, Kenosha is a great market and its proximity to our market that we're seeing provides for significant opportunities for synergies. The purchase of the acquisition was funded with cash on the balance sheet and what I would say is that our multiple was significantly less than our current leverage.

Our next question, our guests would like to know the difference between standalone TownNews revenue and the other TownNews metrics we provide for revenue.

This is Tim. I can answer that. So TownNews services, all of the Lee Enterprises properties, and as a result recognized revenue from the Lee. When we report our consolidated numbers, we obviously eliminate any intercompany revenue between Lee and TownNews. One of those metrics on a standalone basis would include Lee and excluding Lee would be the TownNews revenue as we report in our consolidated financial statements.

Our next question, which of our covenants are currently preventing us from buying back stock?

So we have in our covenants limitations on restricted payments. We do have a limited ability that's the $15 million carve out for limited restricted payments. Outside of that, stock buybacks, dividends, voluntary payments on our Second-Lien Term Loan are restricted payments and are subject to a restricted payment basket that we can use. In addition, before we use that basket, we have to be less than a 3.25 leverage on a First-Lien basis.

And this is Mary. As Tim noted in his prepared remarks, one of our aims as we move into refinancing is to try to achieve less restrictive covenants than we have today for such things as stock buyback. So that's high on our list of goals.

We have no more questions from our web participants. I'll now turn the call back to Mary for closing remarks.

Thank you for your continued interest in Lee. As you heard on the call, we're off to a good start in fiscal 2019 and we're pleased with our Q1 operating results. We're optimistic about our future as our digital transformation continues. We aim to grow our business through local retail accounts, digital services and subscriptions. Topline execution combined with a keen focus on our cost structure will produce strong adjusted EBITDA will continue to reduce our total debt, which we believe will increase shareholder value. We appreciate your time and your interest in Lee and thank you for joining us today.

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