Welcome to the Lee Enterprise 2023 Second 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. Now, I will turn the call over to your host, Josh Rinehults, Vice President, Finance. Please go ahead.

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 second fiscal quarter of 2023. 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, and thank you for joining us. The key themes we’ll cover on today’s call include Lee’s delivering industry-leading performance in a dynamic operating environment. We’ll also discuss how our Three Pillar Digital Growth Strategy is transforming Lee into a vibrant digitally centric company that positions us well to drive value for all stakeholders. And lastly, Tim will review our second quarter results, including reaffirming our FY ‘23 guidance. We are transforming Lee into a digitally centric company, and our subscription platform provides communities with valuable, intensive local news. Our Three Pillar Digital Growth Strategy is transforming Lee to a digitally centric company, which is transforming the mix of our revenue. And we’re well positioned to drive value for shareholders as we continue to execute through our transformation. We are pleased with our industry-leading performance as Lee continues to be the fastest-growing digital subscription platform in local media. Digital subscribers grew 21% in our fiscal second quarter and now total 596,000 digital subscribers. Through our thoughtful data-driven approach to converting the vast addressable market of readers to our digital products, we’ve consistently outpaced the industry in growth. Over the last 3 years, we’ve grown digital subscribers nearly 50% annually. And what gives us even more confidence is we’re growing ARPU right along with our industry-leading unit growth. On the advertising side, we’ve created Amplified Digital agency several years ago, and we built it from the ground up. Amplified deploys an omnichannel sales approach and provides a full suite of products and marketing services to local and regional advertisers. Amplified has earned $86 million in revenue over the last 12 months and has grown at a compound annual growth rate of 41% over the last 3 years, including meeting the industry and digital revenue growth. Growth in digital subscription…

Thank you, Kevin and good morning everyone. Total operating revenue was $171 million in the second quarter. Digital revenue growth continued at a strong pace with total digital revenue up 12%, driven by a 39% growth in digital subscription revenue. At the end of the quarter, we have 596,000 subscribers to our digital products, a 21% growth over the prior year. On the advertising side, digital advertising revenue increased 7% compared to the second quarter last year, driven by 20% growth in revenue at Amplified Digital. Amplified revenue totaled $22 million in the quarter. As seen in the broader industry, our print revenue performance continues to be challenged. On the advertising side, we’re seeing the impact of the broader slowdown in ad spending from both national accounts and local accounts. This impacted both the print side as well as contributed to a modest slowdown in growth of digital advertising. On the print subscription side, we’re seeing continued higher-than-historical unit erosion, which is keeping our full access revenue trends down closer to industry trends, and we do expect these trends to continue for the remainder of the fiscal year. Cash costs were down 10% as we responded quickly to the soft revenue environment. Adjusted EBITDA totaled $14 million in the second quarter, with year-over-year trends dramatically improved as we cut the first quarter trend in half. As a result of the continued secular decline in print revenue, combined with a soft advertising environment, we continue to identify opportunities to further optimize our cost structure. For the fiscal year, we expect to realize between $86 million and $96 million in cost benefits from business transformation initiatives executed midway through last year and new initiatives executed midway through the second quarter of this year. These actions include reductions to our base of costs…

Thanks, Tim. Under the guidance and oversight of our 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 on that strategy is at the core of creating value for shareholders. To wrap up, I’d like to thank the entire Lee team for their efforts of driving our transformation. We have the right Board, the right team and the right strategy, and I believe we’re well positioned better than ever to create long-term value for our readers, our users, advertisers and shareholders. This concludes our remarks. The team will remain on the line for any questions. Operator, please open the line for questions.

[Operator Instructions] I have a question from Michael Kupinski of Noble Capital Markets. Your line is open.

Thank you. A couple of questions. First of all, congratulations on your solid quarter. You indicated that you went through around the cost cuts last year and then, again, initiated further cost reductions. And I was wondering, in this latest quarter, was the – were there any cost reductions that were related to the last announcement effective in this quarter? And if so, how much of that $76 million that you were talking about in annualized costs were effective in this quarter?

Yes. As you mentioned, Mike, the second quarter results did have a partial quarter impact, not quite half a quarter. We had about $9 million to $10 million impact in the quarter. And we do expect the reductions that we took in the second quarter, which, when annualized, were about $76 million. The full year impact is $48 million.

And were – so was there – is there any way to kind of give us a thought or color on how much of that $76 million would have been in this quarter? I know it was mid-quarter, but...

Around $9 million to $10 million impact.

$9 million to $10 million, okay. I’m sorry, I missed that. And then can you talk a little bit about the digital margins in the quarter and how they are trending? Can you just kind of give us some thoughts about that?

Yes, I think it’s a really good question. I think from a – on a subscription side, with the scaling of digital subscribers and scaling of that revenue, every incremental dollar that we see there is really almost pure profit. So we are seeing good scaling of the margins on the digital subscription side. On the Amplified, on the digital advertising side, I think the same thing is also true. We’re seeing some really good growth in top line revenue on Amplified, and the costs are not scaling in correlation with that. So we’re seeing some margin improvement on the advertising side as well. So I think the bottom line is, as we move through our digital transformation, we are seeing a good margin expansion of that digital business, which is great.

Got it. And your total subscription revenue was a little stronger than I was looking for. You indicated that trends are pretty positive there, and you could even see some moderation in the second half. I assume that, to hit your target, it seems like you’re trending above your guidance at this point, but you might be just a little cautious. Maybe you can add a little color there? And then also, were there any rate increases in there that were effective in the quarter that might – accounted for a little bit better revenue trends?

Yes. So our 632,000 digital-only subscriber guidance does imply some back half moderation. And one of the things that we’ve always talked about is we’re trying to drive units and rate transact overall revenue. And so this isn’t going to be a perfectly linear unit growth because we’re pulling rate levers as well as unit levers. And so as we continue to grow revenue, some quarters, we will see higher-than-expected unit growth. And in some quarters, we expect higher-than-expected ARPU growth. And what we saw in the second quarter was 20% plus growth in units and low double-digit teens growth on rates that’s driving that 39% growth in revenue, and we expect that to continue in the back half.

Got it. Well, good results. Thank you.

Alright. We have some questions on the web.

Yes. Our first question is, have you considered and considering adjusting the frequency of your daily print products this year?

Yes. So over the last 3 to 4 years, we have been able to retain a lot more of our print subscribers and more of our print subscription revenue relative to others in the industry. And that said, we are seeing unit declines accelerating in 2023, resulting in revenue trends closer to what the rest of the industry has seen for a couple of years. You may have seen we did announce in one of our markets to move to produce a robust, high-quality print product 3 days a week. And we’re evaluating our print products with the goal of continuing to provide our local communities with robust, high-quality local news and the best possible print product in our local markets, at the same time as managing the cash flow and these revenue streams as they mature. That is it from questions over the web.

And with that, I’d like to thank everybody for your interest in Lee and thank you for joining the call today.

That concludes today’s conference call. Thank you all for joining. You may now disconnect. Everyone, have a great day.