Welcome to the Lee Enterprises 2023 First Quarter Webcast and Conference Call. The 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 under the event section. Now, I’ll turn the call over to your host, Josh Rinehults, Vice President, Finance.

Good morning. 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. Earlier today, we issued a news release with preliminary results for our first 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.

Thank you, Josh, and good morning, everyone. I’m really encouraged at the pace by which we’re transforming Lee into a vibrant digitally centric company. We’re pleased with our strong digital subscription growth and digital subscribers now total 564,000, an increase of 25% compared to the prior year. We’re also driving higher rates as revenue from digital subscriptions increased 56% compared to the prior year. Digital advertising revenue increased 12% with Amplified Digital revenue of 45%. Our first quarter results demonstrate strong digital growth with consistent execution of our Three Pillar Digital Growth Strategy. This execution is the foundation of our long-term investment thesis. Sustainable long-term digital revenue growth from our Three Pillar initiatives will transform the mix of our revenue base, driving margin expansion and stronger free cash flow generation, which will fuel debt reduction, enhancing our balance sheet. 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. Our Three Pillar Digital Growth Strategy is guiding our transformation to a vibrant digitally centric company. We’re focused on expanding our digital audiences, growing our digital subscriber base and revenue and diversifying expanding our offerings for local advertisers. The strategy and execution are expected to result in $435 million of recurring sustainable digital revenue by 2026. Digital subscriber growth at Lee has outpaced our industry peers for the last 13 quarters. Lee is the fastest growing digital subscription platform in media with more than 564,000 digital subscribers, up 25% from the first quarter. Anti-digital agency revenue continues to significantly outpace the industry as well with an impressive 74% growth over the last 12 months. Total digital revenue has grown to nearly $250 million in the last 12 months. Our digital transformation…

Thank you, Kevin, and good morning, everyone. In addition to driving industry-leading digital revenue growth, we are focused on maximizing the profitability of our legacy business and achieving our long-term leverage target. Operating expenses totaled $176 million, and cash costs were down 5%. Decreases in cash costs were attributed to continued business transformation efforts, partially offset by strategic investments in digital talent and technology tied to our digital growth strategy, increased digital cost of goods sold and general rising prices. For the quarter, we reported adjusted EBITDA of $18 million. As Kevin mentioned earlier, we faced a number of headwinds to begin fiscal 2023, largely driven by uncertain market conditions. One way we are addressing this, as we are focused on managing the profitability of our print business as cyclical headwinds have accelerated the changes in demand for these products and services. We continue to identify opportunities to further optimize our cost structure in distribution and manufacturing as well as corporate services. To that end, we executed an additional $60 million of annualized cost reductions early in the second quarter, $40 million of which will be realized in fiscal year 2023. Executing the various actions began early in the second quarter, and we expect to achieve more than $40 million reduction to our cash costs in the remainder of the year. Over the last 2 years, we have identified and implemented over $130 million of annualized cost actions. While we remain focused on operational excellence and reducing the cost structure of our legacy print business and growing profits, our main priority is to drive long-term sustainable digital revenue growth. Therefore, we continue to invest in talent and technology in areas of our business tied to our digital future, and our commitment to high-quality local news remains steadfast. The targeted investments…

Thanks, Tim. Under the guidance and oversight of the Board of Directors, our leadership team’s continued execution of our growth strategy sets the stage for significant long-term value creation. 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 our shareholders. To wrap it 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’re better positioned than ever to create long-term value for our readers, our users, our advertisers and shareholders. This concludes our remarks. The team will remain on the line for 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] Our question comes from the line of Michael Kupinski from NOBLE Capital Markets. You line is open.

Thank you. Good morning. And thanks for taking my questions. A quick couple of questions here. Can you kind of give us a sense of how print advertising is pacing in the current quarter, what you’re hearing from advertisers? Any specifics in terms of what is driving currently the decline, because, obviously, we’re pacing now against, or comping against easing comps from last year? So can you kind of give us a sense of what we’re seeing that in print right now?

Yeah. Thanks, Mike. Thanks for the question. I think what we’re seeing is some of the cyclical headwinds that we saw in the first quarter. We’re seeing some of that in the second quarter as well, which is what prompted us to take the quick action that we did. At the same time, we feel really good about the digital guidance that we have out there. We do think our digital subscription guidance is really strong, and the performance there is pacing with our expectations. And we’ve got some opportunity on the digital ad side as well for some trend improvement.

Great. And on the cost actions you’ve taken on the print side, I was wondering if you can kind of give us some sense of the types of cost reductions you’re doing there. And if you can just kind of give us a sense of – I know that you guys have been really rightsizing that business pretty aggressively. What are we actually doing at this point in terms of those cost reductions? And can you kind of give us a sense of whether or not you were expecting restructuring charges going? And if you can just kind of give us the magnitude of those.

Yeah. That’s a good question. So, again, we continue to evaluate all departments of the organization as part of our digital transformation. We still have a lot of costs that are tied to our print business. It’s still two-thirds of our revenue, and we have a lot of costs that are directly related to that revenue. And so as the revenue trends, cyclical headwinds we’re facing have affected those revenue trends, we’ve got some levers to pull because of the costs that support there. So a lot of it was on the comp side. We’re also looking at a lot of our vendor costs as well to manage those, so production, distribution and some of our other vendor costs. So we still have some significant amount of cost tied to our print business, given it is a sizable percent of our revenue. In terms of your question on the restructuring charges, we are looking at restructuring charges in the mid- to high-single digits, in millions, for the fiscal year. So a little bit less than what we were seeing last year.

On the print side, at this point, you’re not decreasing the print days or anything like that at this point? Are you – can you kind of give us a sense of what you’re doing on that?

Yeah. So we’re looking at a lot of options on levers that we can pull on the print side. Yeah, all options.

I got you. And then in terms -- can you give us a sense, I know, this print is a smaller portion of your total expenses on that side. Can you kind of give us a sense of what newsprint costs are doing? I know they have been moderating a little bit.

Yeah. After a pretty wild ride over the last 18 months of rapidly rising prices, we are seeing them moderate and level off at the current base.

And then on the digital side, can you kind of give us a sense of how digital revenue growth is pacing in the current quarter?

So it’s very consistent with what we saw in the first quarter. Our total digital revenue was up 17%, and we’re pacing around there as well in the second quarter.

Got you. And then on digital subscription, were there any specific changes in marketing in the quarter, changes in paywalls that might kind of account for some of the growth that we’re seeing there?

No, nothing specific. It’s just all part of the strategy. And the foundation of that is local content that our users enjoy, one, and that’s kind of the foundation of our digital subscription platform. At the same time, we’re mining data that’s informing our marketing decisions. And that’s just part of the grind that we’re going through and part of the tactics that we are deploying to drive digital subscription growth. And as you saw in the quarter, great growth from a unit perspective, 25% growth year-over-year, which is 13 consecutive quarters of industry-leading growth. And at the same time, we’re growing average rates. So having revenue grow 56% year-over-year with units up 25%, we’re starting to see that increase in average rate. So we’re really happy with what we’re seeing on the digital subs side.

That’s terrific. And I would assume the margins are starting to show some improvement there as well on the digital side. Yeah. What was the reason why TownNews was rebranded? I was just wondering if you can kind of give me a sense of what led you to change the rebrand.

We’ve been really pleased with the performance of TownNews, and it’s been primarily focused in the media sector in terms of its BLOX CMS services. And I really believe we’ve got a great opportunity to go above and beyond providing those services outside of the media landscape, hence the name from TownNews to BLOX Digital.

Got you. Okay. All right. Thanks. That’s all I have. Thank you.

That is all we have for questions. I will turn it back to Kevin for closing remarks.

Great. Well, thank you. As I mentioned earlier, we remain keenly focused on transforming our business model from the long-term benefits for our shareholders, our employers, our employees, our readers and advertisers. We appreciate your time and your interest in Lee. Thank you again for joining the call.

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