Welcome to the Lee Enterprises 2022 Fourth Quarter Webcast and Conference Call. This call is being recorded and will be available for replay at investors.lee.net. [Operator Instructions] A link to the live webcast can be found at investors.lee.net. Now, I'll turn the call over to your host Josh Rinehults, Vice President, Finance.

Good morning and thank you for joining us. Speaking on this morning's call are Kevin Mowbray, President and Chief Executive Officer; and Tim Millage, Vice President, Chief Financial Officer, and Treasurer. Also with us today and available for questions is Nathan Bekke, Vice President, Audience Strategy. Earlier today, we issued a news release with preliminary results for our fourth fiscal quarter of 2022. It is available at lee.net as well as at major financial websites. Please also refer to our earnings presentation found at investors.lee.net that includes supplemental information. As a reminder, this morning's discussion will include forward-looking statements 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 refer to certain non-GAAP financial measures including adjusted EBITDA and cash costs 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 President and Chief Executive Officer, Kevin Mowbray. Kevin will open the conversation on Slide 3 of the earnings presentation for those following along.

Good morning, everyone. I’m pleased you could join us. The Lee team delivered another strong quarter with continued execution on our Three Pillar Digital Growth strategy. And I’m really encouraged at the pace by which we're transforming Lee into a vibrant digitally centric company. Our fourth quarter results exceeded all of our Digital revenue guidance, and we achieved our full year adjusted EBITDA guidance as well. Our ability to exceed expectations and produce industry-leading results demonstrates the success of our strategy resiliency of our business model to support these investment thesis and increases our conviction in achieving our long-term goals. In the fourth quarter, we grew Digital Only subscribers 32%, the 12th consecutive quarter of industry-leading growth. We are also encouraged that we grew average rates for our Digital Only Subscriptions driving fourth quarter digital subscription revenue, up 46% year-over-year. Digital Only Subscription revenue grew 42% for the full year. We exceeded our Digital subscriber guidance with 532,000 digital subscribers at the end of the quarter and revenue outpaced guidance as well. On the advertising side, we exceeded all of our digital revenue guidance metrics, and we achieved industry-leading digital revenue results. Amplified Digital revenue grew 82% in the fourth quarter and 83% for the full year with revenue totaling $76 million for the fiscal year, pacing well ahead of other DMS solutions in the industry and our guidance. I couldn't be more proud of the Lee team for achieving results that lead the industry, exceed our guidance and further transform Lee into a vibrant digitally centric company. Lee is the fastest-growing digital subscription platform with industry-leading digital subscription growth metrics for the last 12 consecutive quarters. With more than 530,000 digital subscribers today, our strong growth is attributed to the attractiveness of our digital product offerings, and we just…

Thank you, Kevin, and good morning, everyone. To reiterate Kevin's sentiment, we are pleased with our fourth quarter and full year results and the digital transformation at Lee as we exceeded expectations for digital revenue and digital subscriptions. And despite many headwinds, we achieved our adjusted EBITDA guidance as well. In the fourth quarter, total operating revenue was $194 million, flat compared to the prior year as the growth and outperformance of our digital revenue streams offset the decline in our print revenue stream. Total digital revenue increased 31% in the fourth quarter to $65 million, driven by the rapid growth at Amplified and in Digital Only subscription revenue. 33% of our revenue in the fourth quarter was Digital revenue, up from 25% a year ago. Digital Only Subscription revenue increased 46% and totaled $11 million in the fourth quarter, driven by increases in digital subscribers and rates. Digital Advertising and Marketing Services revenue totaled $49 million in the quarter, a 33% increase over the prior year and represented 55% of our total advertising revenue in the quarter. The increase was due to rapid growth at Amplified. Total print revenue was $129 million in the fourth quarter, an 11% decline compared to the same quarter a year ago due to continued secular declines in the demand for print. Operating expenses totaled $199 million and cash costs were down 3%. Decreases in cash costs were attributed to continued business transformation efforts, partially offset by strategic investments in digital talent and technology tied to our growth strategy, increased digital cost of goods sold and general overall rising prices. For the quarter, we reported a net loss of $5.8 million, largely driven by noncash impairments. Adjusted EBITDA totaled $30 million in the quarter, an increase of 17% compared to the prior year. For the full year, total operating revenue was $781 million or down less than 2% compared to the prior year. Total digital revenue for the year increased $27 million to 27% to $240 million. In the fiscal year, 31% of our revenue was digital revenue, up from 24%. Net income totaled $1 million in the fiscal year, and adjusted EBITDA totaled $96 million, achieving our full year guidance. I will now hand it back over to Kevin to discuss our digital transformation and our Three Pillar Digital Growth strategy in more detail.

Thank you, Tim. Lee is a digital subscription platform. Our strategy aims to grow digital audiences and engagement by providing compelling local content using best-in-class storytelling across our rich multimedia platforms, while also offering full suite of omnichannel advertising and marketing solutions to local advertisers. Our Three Pillar Digital Growth Strategy is guiding our transformation to a vibrant digitally centric company. The strategy is focused on three pillars: Pillar one expand digital audiences by transforming the presentation of local news and information; Pillar two is about growing our digital subscription base and revenue; and Pillar three is about diversifying and expanding our offerings for local advertisers. Our fiscal year 2022 results demonstrate significant progress in Lee's digital transformation, and there's even more room for growth. We are more than halfway towards our goal of $435 million of recurring sustainable digital revenue by 2026. Slide 9 offers an in-depth look at Pillar one, focused on expanding digital audiences with local journalism as the foundation. This encompasses everything from coverage of breaking news and local business to end up investigative reporting that leads to meaningful change in the communities we serve. Our goal is to expand our audience by providing compelling local content using best-in-class storytelling that reflects an uplift the communities we serve. We've made significant progress in Pillar one by improving the user experience on our digital products and hiring top digital native talent. We've redesigned our digital products using multimedia presentations with an emphasis on video and audio. We recently hired a public service journalism team focused on investigative and watch dog reporting with data analysis and storytelling that comes from the numbers. This type of work can change the conversation in the community and leads to substantial transformation about how we understand or approach the world right outside…

We faced a number of headwinds in 2022, including dealing with rising prices that are impacting our cost structure. One example of this is newsprint as prices increase 9x during the fiscal year, in total a 30% increase and had a $5 million impact on our cost structure. One way we are addressing the inflationary environment has remained focused on managing the profitability of our print business as we see changes in demand for our print products. As we discussed in previous earnings call, early in the third quarter of '22, we completed a deep dive into all aspects of our print organization optimizing our cost structure and distribution, manufacturing, national content, marketing, finance, IT and other corporate services. This process was used to evaluate our external spending as well as our human capital and was done to better align our cost structure with our long-term strategy. As a result of this review, we executed on expense action that we expect to reduce our cost structure on an annualized basis by $45 million. Execution of these actions began early in the third quarter, and we achieved more than $20 million reduction to our cash cost in the last two quarters of 2022. And we expect the flow-through impact from these reductions to reduce cash costs by $25 million in FY '23. As shown on Slide 12, we expect continued legacy cost reductions as part of our business transformation in fiscal year 2023. While we remain focused on driving efficiencies and reducing cost to improve profitability of our legacy print business, our main priority is to drive long-term sustainable digital revenue growth. With that in mind, we aim to invest in areas that are aligned with our Three Pillar Digital Growth Strategy which include local content, development of our digital products…

Thanks, Tim. Under the guidance and oversight of our Board of Directors and our leadership team continued execution on our growth strategy, sets the stage for significant long-term value creation. We are very pleased with our fourth quarter and full year results and the tremendous progress we are making towards the target in our Three Pillar Digital Growth Strategy. Our Three Pillar Digital Growth Strategy is the foundation of our investment thesis and the execution of that strategy is at the core of creating value for shareholders. Our strategy aims to grow recurring sustainable digital revenue and drive free cash flow, which will fuel debt reduction. A stronger balance sheet and improved operating cash flow combined with multiple expansion fueled by increasing digital revenue creates a strong path to significant long-term value creation for our shareholders. To wrap up, I'd like to thank the entire Lee team for their efforts in driving our transformation. We have the right Board, the right team and the right strategy, and I believe we are better-positioned than ever to create long-term value for our readers, our users, our advertisers and our shareholders. This concludes our remarks. The team will remain on the line for any questions. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Michael Kupinski with NOBLE Capital Markets. Your line is open.

Thank you. Well, first of all, I want to congratulate you and your team. Great job. Exceeded my expectations, so congratulations. Couple of questions. Your Digital Only subscriptions were strong, obviously, it exceeded my expectations. But I know that you have promotions all the time, but were there any significant changes that may have been more successful in terms of driving digital subscriptions in the quarter, which obviously accelerated from your previous quarters. And I was just wondering if you had any changes in the pay wall or anything like that, that may have accounted for the acceleration of the growth in the quarter.

We didn't have any changes in our payroll. But one thing that we are doing more than ever before is using sophisticated data and analytics with our insight time to convert more users once they hit our pay wall, and we are seeing big success using that analytical approach to drive Digital Only subscribers.

Got you. And just staying on that theme, in terms of your fiscal '23 guidance, which is in line with my expectations, by the way, you did not provide the guidance for Digital Only Subscription revenue, but yet provided very strong Digital Only subscriber guidance. I was wondering if that was due to the prospect of discounts? Or do you plan to drive rate in 2023? Or will you driving rate, would that be more of a fiscal 2024 strategy?

Hey, Mike, this is Tim. I think we’ve been successful at driving unit growth as well as rate growth throughout FY '22 in digital subscribers. In fact, from September to September, we saw a 22% increase in digital subscription rates. And so we've had a lot of success in growing our subscription rates and expect that to carry forward throughout 2023. So we do expect continued significant growth in digital subscription revenue, and that's going to help fuel the targets that we've outlined for total digital revenue that we guided to.

Got you. You mentioned that advertising on the print side was down 11% in the quarter. And I was just wondering if you can just talk a little bit about the tone of advertising as we've seen now some rate increases from the Fed, and that might be kind of starting to see some slowing of the economy. Are you anticipating further moderation in the rate of revenue decline in print or what are you seeing in terms of what we are looking at in the fiscal first quarter?

Well, let me break that down into a couple of buckets for you. What we are seeing on what we call national advertising or key accounts and that be your Target's, Walmart's of the world is sort of choppiness given what's going on with their business models. Where we are seeing to success though is with the local advertiser, where we've had these really strong relationships for many, many years. We have the right print-digital solutions to really help them grow their business.

Got you. And then I was wondering if you can add more color on the strong results you delivered on Amplified. I mean, Amplified grew very strongly in the quarter. Were there specific categories of business that fueled that growth particular regions? I mean, any other additional color that you can add on what's fueling that exceptional growth there?

Sure. Well, video is a big driver for Amplified throughout all of fiscal year '22, and it will continue in fiscal year '23. But what I would also characterize the growth too is we sell Amplified Digital services in and outside of Lee, and we have had a lot of success selling our services outside of our markets as well.

Got you. And then just a final question. Some companies have indicated there has been some moderation in cost trends from the earlier inflationary impact and things seem to be moderating a little bit. Are you starting to see any moderation in cost, particularly whether it be from newsprint or labor or any other costs that you're seeing in terms of what you see -- what you’ve seen earlier this year and what you're starting to see now?

Yes. I think that's what you said is exactly right. We are starting to see moderation. The big factor that we pointed to in our comments related to newsprint, that's been more stable. And actually, we may start to see that come down a little bit. So certainly, that's what you mentioned is what we are seeing as well in some of that start to moderate.

And in terms of your guidance in terms of -- because you went through some expense cuts earlier this year, and you're indicating that in fiscal 2023, our $25 million in additional cost savings, would that be then any of those type of moderation trends are not really factored into that $25 million in savings for fiscal 2023, correct?

Well, let me clarify. So the $25 million that I mentioned was actions that we took last year that will have an incremental impact on this year as we realize the full year impact. And so that's really what we were talking about the $25 million.

Okay, got you. Okay. That’s all I have. Thank you. Congratulations.

Thanks, Mike. We have no more questions from the web either.

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