Welcome to the Lee Enterprises 2022 Second Quarter Webcast and Conference Call. Now I will turn the call over to your host, Josh Rinehults, Vice President, Finance.

Good morning. Thank you for joining us. To begin this morning's call are Kevin Mowbray, President, Chief Executive Officer; and Timothy Millage, Vice President, Chief Financial Officer and Treasurer. Earlier today, we issued a news release with preliminary results for our second fiscal quarter of 2022. It is available at www.lee.net as well as at major financial websites. Please also refer to our earnings presentation found at www.investors.lee.net that include 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. We're incredibly proud of our second quarter results, as our digital investments are paying off and driving recurring sustainable digital revenue growth. We reported 59% growth in digital subscribers, 108% growth in aside digital revenue and 33% growth in total digital revenue, putting us ahead of our plans to achieve our fiscal '22 digital revenue targets. It gives us great confidence we have the right strategy, the right team, and we're executing with speed. We believe that Lee has a solid future and a potential to drive significant value for all of our stakeholders. Our three Pillar Digital Growth Strategies, which are the foundation of our investment thesis, and the execution of this strategy is at the core of creating value for our shareholders. Sustainable long-term revenue growth from our three Pillar initiative will transform the mix of our revenue base, drive margin expansion, and stronger free cash flow, which will fuel our continued debt reduction and balance sheet enhancements. Enhanced operating cash flow and profits, a strengthened balance sheet, and multiple expansion fueled by increasing recurring high-margin digital revenue creates a strong path to significant long-term value creation for our shareholders. Our strategy leverages Lee's key strengths. Our local market expertise, our industry-leading digital revenue growth, and our commitment to the highest quality local news to build a larger recurring revenue base and generate top line digital revenue growth. This growth is expected to achieve $435 million of digital revenue in 2026, driven by increased digital subscriptions and increased digital advertising revenue. Our three Pillar Digital Growth Strategy is guiding our transformation to a fiber and digitally centric company. We're focused on expanding digital audiences, growing our digital subscription base and revenue, and diversifying and expanding our offerings for local and regional advertisers. Pillar 1 focuses on expanding digital audiences with investments in user experience, multimedia presentation formats, and rich high-value content. We're driving higher engagement, outsized traffic, and monetization, leveraging our trusted brands, strong market positions, and in-house capabilities. We continue to make value-added investments to drive additional growth. Pillar 2 is the expansion of our base of digital-only revenue by converting more of our vast digital market to subscribers, and it's paying off because we are the fastest-growing digital subscription platform in local media. Digital-only subscriber growth continued at a rapid pace in the second quarter, up 59% over the prior year. We now have 492,000 digital-only subscribers, nearly achieving our fiscal year-end goal six months ahead of schedule. At the same time, we're driving an increase in average rates for digital-only subscriptions, which were up 22% in the second quarter compared to the first quarter. We're leveraging cutting-edge data and technology and expanding offerings for paid niche content on topics where we have expertise and unique selling positions. Extra! Extra! and Pinch Hits are two good examples. These tactics are driving an increase in total subscribers and position us to achieve our goal of reaching 900,000 digital-only subscribers by the end of 2026. Reaching 900,000 digital-only subscribers and increasing our average digital subscription rates are important goals in Lee's digital transformation as they increase the base of our subscription-based digital revenue. Our third pillar focuses on diversifying and expanding our offerings for advertisers, and we're doing that in two ways. First, through Amplified Digital, our full-service omnichannel digital marketing agency that provides local and regional advertisers with sophisticated custom solutions, including consulting, media buying, and analytics. Second, by maximizing the revenue opportunity on Lee's digital platforms, our owned and operated properties attract massive audiences. We're offering more video inventory and branded content opportunities to drive more digital ad revenue. Both of these initiatives are supported by Lee's Vision platform. Vision is a proprietary sales enablement and execution software tool powered by Amplified Digital. Industry-wide omnichannel advertising for local advertisers is expected to continue its double-digit growth in the next two years. The Vision platform allows us to capture the significant growth in this category, and it has transformed local advertising for Lee. Our three Pillar Digital Growth Strategies aimed at advancing Lee as a vibrant digitally centric company. The strategy and execution are expected to achieve $435 million of recurring sustainable digital revenue by 2026, and with our second quarter results, we're nearly halfway there. We launched our three Pillar Strategy in early 2021. As you can see on Slide 5, we made tremendous progress throughout fiscal year 2021, including industry-leading growth in digital subscribers and digital agency revenue. For fiscal year 2021, total digital revenue grew to $189 million. As you saw in the results this morning, and as Tim will speak to you in more detail, Lee is accelerating this momentum in fiscal 2022. We're very pleased with our second quarter results as they demonstrate that the investments in our three Pillar Digital Growth Strategy are paying off with tremendous digital revenue growth. Total digital revenue increased 33% in the second quarter to $58 million. Total revenue comprised of digital advertising and marketing services revenue, including Amplified digital-only subscription revenue and digital services revenue, is one of the several metrics we provide to give you better transparency and clarity on our digital transformation progress. Growth in total digital revenue was driven by the rapid growth of Amplified Digital and growth in digital-only subscription revenue. Digital subscription revenue increased 45% and totaled $10 million in the second quarter. We now have over 492,000 paid digital-only subscribers, up 59% in the quarter, representing more than half of our long-term target of 900,000 digital-only subscribers by 2026. As I mentioned earlier, Lee remains the fastest-growing digital subscription platform in local media, a title we've held for the last nine quarters. Digital-only subscription revenue over the last 12 months totaled $32.9 million, nearly at our year-end target six months early. Digital advertising and marketing services revenue increased 36% in the quarter to $43 million. Amplified Digital, our full-service digital marketing solutions agency fueled that growth with revenue of $19 million in the quarter, up 108%. Amplified Digital revenue totaled $57 million over the last 12 months, on pace to achieve our fiscal year-end target of $65 million. Digital advertising and marketing services revenue represents nearly half of our total marketing and advertising revenue at 49.5%. Our second quarter results have us on track to achieve all of our fiscal year 2022 digital revenue targets. These early returns on our digital investments give us great confidence. We have the right strategy, the right team, and we're executing with speed. And now I'll turn it over to Tim to discuss our second quarter financial performance in more detail.

Thank you, Kevin. Total operating revenue was $190 million in the second quarter. As Kevin mentioned, digital revenue growth continued at an incredible pace, with total digital revenue up 33%, driven by a 45% growth in digital subscription revenue and 108% growth in Amplified Digital revenue. Total print revenue was $132 million in the second quarter, an 11% decline compared to the same quarter a year ago due to continued secular declines and supply chain constraints. Operating expenses totaled $195 million and cash costs were up 3%. Increases in cash costs were attributed to strategic investments in digital talent and technology tied to our digital growth strategy, increased digital cost of goods sold, and a general overall increase in prices due to the inflationary environment. Also, we cycled one-time cost benefits received in the prior year, specifically from Princeton Medical. We continued our business transformation efforts by reducing legacy print costs, which we will go into in more detail on the next page. Lastly, we had a net loss of $6.7 million in the quarter with adjusted EBITDA of $16.9 million. As Kevin mentioned earlier, our second quarter growth in digital revenue has us on pace to achieve our full-year 2022 outlook for each of the digital revenues and digital-only subscriber metrics we have outlined. With additional cost actions taken early in the third quarter, we expect to also achieve our fiscal year 2022 adjusted EBITDA target. We have a long history of responsibly managing our cost structure, and we aim to manage our costs directly with the associated revenue streams. On the print side, we continue to reduce our cost structure to drive margin attributed to our legacy revenue streams. To that end, we recently completed a 14-week deep dive into all aspects of the print organization, optimizing our cost structure and distribution, manufacturing, national content, marketing, finance, IT, and other corporate services. This process evaluated our external spending as well as human capital and was done to better align our cost structure with our long-term strategy. As a result of the actions identified, we expect a $45 million reduction in cash costs on an annualized basis. Executing the various actions began early in the third quarter, and we expect to achieve more than $20 million reduction to our cash costs in the last two quarters of fiscal year 2022. While we will remain focused on maximizing our efficiencies and reducing the cost structure of our print business and drilling profits, our main priority is to drive long-term sustainable digital revenue growth. To that end, 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 that drive our digital future will impact cash costs in fiscal year 2022. We expect the investments we are making in new talent technology and the increased digital cost of goods sold to increase total cash costs by approximately $36 million year-over-year. With the investments we're making in our digital transformation, the early returns we are seeing on these investments, combined with the cost actions taken to optimize our print cost structure, we expect to achieve our full year adjusted EBITDA guidance of $95 million to $98 million. We continue to strengthen our balance sheet and the principal amount of debt at the end of the quarter was $463 million, down $20 million year-to-date and $113 million since our refinancing in March of 2022. As a reminder, our credit agreement with Berkshire Hathaway, our sole lender, has favorable terms that are incredibly important for us as we execute our strategy and it allows us the ability to make the necessary investments in talent and technology that fuel our recurring sustainable revenue growth. We made no pension contributions in the second quarter, and we do not expect any material contributions in fiscal year 2022, as our pension plans are fully funded in the aggregate. Finally, we continue to identify opportunities to monetize our real estate, which facilitates accelerated debt repayment. We generated $25 million of proceeds from asset sales over the last two years and are targeting an additional $20 million to $30 million of asset sales in fiscal year 2022 with $14 million closed in the first half of the year. As a reminder, our goal is to achieve our long-term leverage target of under 2.5x by the end of 2026. As we are sharing in the first quarter call, we're providing metrics to give better transparency and clarity on our digital transformation, which can be found on Slide 10. This table summarizes our fiscal year 2022 outlook and beyond. As you can see, we expect to make significant continued progress on our digital transformation over the next several years. We have already established a strong track record for accelerating digital subscription growth. And with the planned incremental investments, we are on track to reach our goal of 900,000 digital-only subscribers by 2026. Continued execution of that strategy is expected to generate recurring sustainable digital subscription revenue exceeding $100 million. Amplified Digital's dramatic growth trajectory is fueling our five-year digital advertising outlook. Our Vision platform uniquely positions us to capitalize on double-digit growth in omnichannel digital advertising. With advanced data-driven ad technology, specialized category expertise, scalable custom video content, and powerful first-party data access, Amplified is a strong partner for local and regional businesses looking to drive growth. We're continuing to expand Amplified's capabilities, including building our new e-commerce solutions to offer our ad partners. In our second quarter of 2022, Amplified's revenue grew 108% year-over-year. We continue to see a significant growth runway as we execute our strategy. We're projecting $65 million in Amplified's revenue this fiscal year and $100 million in 2024. We expect to reach $310 million of annual digital advertising revenue by 2026, with about $200 million from Amplified. All of that results in total digital revenue of approximately $435 million by 2026.

Thanks, Tim. Under the guidance and oversight of our Board of Directors and our leadership team's continued execution on our growth strategy, it sets the stage for significant long-term value creation. We're very pleased with our second quarter results and the progress we're making on our three Pillar Digital Growth Strategy targets. We have a strong presence as the trusted source for news and information in the communities we serve, combined with cutting-edge digital capabilities is the foundation of our digital transformation. The success of our transformation is reflected in the continued rapid growth of digital subscriptions and digital-only audience revenue, as well as digital advertising and marketing services. To wrap up, I'd like to thank the entire Lee team for their effort 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, users, advertisers, and shareholders. This concludes our remarks, and Tim will remain on the line for any questions you may have. Operator, please open the line for questions.

This is Michael Kupinski. I just have a couple of quick questions. Congratulations, first of all, on your digital growth. It seems like now digital is at 31% of total revenues, up from 27% in the first quarter. I have a couple of questions on digital. Your digital group businesses did beat my expectations, and I was wondering if you can provide some color on the successes you had in the quarter, particularly on your digital-only subscription revenue. Were there changes in paywalls going on there? And also, it seems like you're decreasing discount promotions, which is driving rate. I was just wondering if you could comment on that.

Yes, I'll jump in and Tim, you're welcome to jump in after me. We've obviously moved to a dynamic meter and adjusted meter over time. At the same time, we have really used data and technology to make sure we're doing the right targeting to drive digital-only subscribers. As noted in our remarks, our digital-only subscription rates were up in the mid-20%. So, it's really all of those things that are attributed to that growth.

Got you. And Amplified is obviously growing really well. Can you give us some color on the types of businesses that you're having success with? Why are these customers coming to you? Are they new to digital marketing or are you winning customers from other digital agencies?

We're winning customers from other digital agencies, and we've really upped our game on calling on and making the investments that we noted in our presentation to hire digital talent coming into the company that can drive a much higher customer count over prior year.

Got you. And then on the print advertising, it was a little weaker than I expected. What are you hearing from customers at this point? I know that you mentioned the prospect of supply chain issues and just typical secular challenges in that area, but I was wondering if are you hearing any concerns about inflation or recession that's affecting the print side a little bit more so than what I was looking for?

Well, I would say it's a combination of three things. Certainly, inflation has a bit of an impact on it. We hear more typically, though, it's supply chain issues and hiring talent to market these various businesses.

And then you mentioned about the cost cutting and savings of $45 million on an annualized basis with $20 million in the second half of this year. How should we think about those savings? Because, as you said, you're planning on investing as well. So, can you kind of give us some thoughts on the aggregate cost savings that you expect in the upcoming quarters?

Yes. So as we mentioned, we have done cost actions of approximately $45 million on an annualized basis. We expect the fiscal year 2022 impact to be around $20 million. That gives you some reference as to the impact for this fiscal year. Certainly, we're committed to making the digital investments, the $15 million of digital investments, as well as the increase of cost of goods sold from the growth rates on Amplified. That gives you something to walk in terms of where we expect our cost structure to be.

Great. And Tim, looking at the expenses, the biggest variance in my estimate was in the other category. Can you talk about some of the cost pressures that you have in that line item?

Yes. I'd say that the biggest piece there is going to be the outperformance on the Amplified revenue, which does have some cost of goods sold tied to it. That's also the category where we're going to see the biggest impacts from the inflationary environment. Impacts on our distribution costs, for example, are going to be running through there, but Amplified is the main driver.

All right. Congratulations.

Now we'll move to questions from the web.

Our first question from the web is what is driving the decreases to unique visitors?

Yes, I'll jump in. It's really onetime visitors that have declined quarter-over-quarter. That doesn't really give us much pause because, as we've noted, we've tightened our meter and really driven people down the funnel for purchase. And as I mentioned in my remarks, we're seeing a quarter-over-quarter increase in our average digital subscription rates. So, we still have a vast addressable market, and we feel we're on the right track to continue to lead the industry in driving digital-only subscribers going forward.

Our second question is, can you provide more information on what is included in restructuring costs?

Yes. So, there's a number of things that run through our restructuring costs from severance to costs associated with exiting our facilities, cost of legal defense of a couple of lawsuits that we had, as well as advisor costs to assist our board in evaluating the unsolicited offer. So there's a number of things that are running through that line.

Next question is how much debt reduction do you expect to achieve this fiscal year?

With our committed digital investments and an increase in expected income tax payments in fiscal year 2022, we anticipate a small reduction in free cash flow in fiscal year 2022. As a result, a temporary slowdown in debt reduction. With the growth of our digital revenue streams, combined with the actions that we've taken to reduce our cost structure, we do expect to achieve our full-year adjusted EBITDA guidance in keeping us on track with our deleveraging plan to achieve our target leverage ratio of 2.5x by 2026.

We have no more questions from the web.

Well, thank you for your continued commitment and interest in Lee, and I appreciate you joining our call today.

And thank you, ladies and gentlemen. At this time, we have reached the end of our question-and-answer session. This concludes our call.