Good day, everyone, and welcome to the Lee Enterprises 2019 Second Quarter Webcast and Conference Call. The call is being recorded and will be available for replay beginning later this morning at lee.net. [Operator Instructions]. A link to the live webcast can be found at www.lee.net. And now I will turn the call over to your host, Jamie Seratt, Corporate Controller. Please go ahead.

Good morning. Thank you for joining us. Speaking on this morning's call will be 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 a news release with preliminary results for our second fiscal quarter of 2019. It is available at lee.net as well as at major financial websites. As a reminder, this morning's discussion will include forward-looking statements that are 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 make reference to certain non-GAAP financial measures, which are defined in our news release. Reconciliations to 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.

Thank you, Jamie, and good morning, and thank you all for joining the call. Overall, we're pleased with the second quarter operating results. Our total revenue trend was the best quarterly performance in nearly four years due to substantial revenue growth at TownNews, incremental revenue on our management agreement with BH Media Group, and solid digital performance from our legacy businesses. Total digital revenue, which includes digital advertising and digital services revenue, was up 8% in the second quarter and totaled more than $117 million over the last 12 months. This was fueled by continued strong digital advertising growth, especially from local retail accounts and substantial growth in TownNews. We saw massive growth in digital services revenue due to TownNews, which is the leading provider of integrated digital publishing and content management solutions with more than seven new FTEs dedicated to digital product development. Revenue at TownNews on a stand-alone basis, which includes revenue earned from several new markets, increased 24.3% in the second quarter. Over the last 12 months, revenue totaled $20.9 million with adjusted EBITDA margins of 40%. In 2018, we made strategic technology investments giving TownNews broadcast-quality video and streaming technology. And in 2019, we acquired additional broadcast customers, who we invested in a sought-after WordPress solution. These strategic investments drove a 24.4% increase in digital services revenue in the second quarter, and the first 6 months of fiscal year 2019 attributed $1 million to our top line revenue. We believe the investments in technology, combined with TownNews' content management system, which is widely regarded as the best in class, will drive substantial future revenue growth. This growth will come in 3 areas: first, dominating market share among print and digital local market operations; second, continued diversification of our customer base in broadcast radio and other market;…

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. We've managed our cost structure through regionalization, centralization, and outsourcing and held our margin constant for more than a decade. In the second quarter, cash costs were down 2.6% with compensation cost down 3.2%. FTEs were down 8.7% primarily due to staffing decreases associated with our ongoing business transformation and outsourcing. FTE reductions were partially offset by compensation increases as well as unfavorable claims experience associated with our self-insured medical plan. If medical costs were flat for the second quarter of '18, our compensation costs would have been down 5.2% in the second quarter. Newsprint and ink expense increased 3.3% in the quarter as we realized the impact of the newsprint price increases throughout 2018. Lower print volume limited the impact of price increases. So far in fiscal year 2019, newsprint prices have declined 7% from their peak, which will have a favorable impact on operating results for the remainder of 2019. Other operating expenses decreased 2.6% in the quarter, primarily driven by lower delivery costs. Year-to-date, cash costs are down 3.5%. For fiscal year 2019, we expect cash costs to decline between 4% and 5% on a comparable basis to fiscal year 2018. We attribute the reduction to the following: lower compensation and benefits cost predominantly due to voluntary buyouts offered late in the second quarter; continued business transformation through outsourcing and centralization; reductions in newsprint pricing; and reductions in print legacy costs. Adjusted EBITDA totaled $23.6 million in the quarter and $125.9 million over the last 12 months. As we have discussed over the past several months, we are having productive refinancing conversations with our advisers and our lenders. Although market…

[Operator Instructions]

It's Andrew Gadlin from Odeon Capital Group. Looking at the TownNews, you reported about $21 million, $20.9 million of revenue over the last 12 months. Could you give us a sense of how big the addressable market is for TownNews?

Yes. So you're right, we had $20.9 million of revenue over the last 12 months at TownNews, and a substantial revenue growth. As Kevin talked a little bit about we see growth area of TownNews in a few different areas. One, increasing ARPU from existing customers, and we think there's a substantial amount of revenue to grow there. The majority of the TownNews customers are on one side of their core CMS products. The other CMS product is a higher-value product that does have significant ROI to those customers. We do think there's additional room to grow in the broadcast space as well. So we do think there's substantial growth for TownNews.

Yes. I would agree.

Maybe asking the question a different way, do have a sense for what your market share is? I'm just trying to understand. I mean the business is growing very nicely in a difficult advertising backdrop. I'm trying to understand really how big this can get.

Yes. Well, we think it has a lot of upside. To help you maybe assess it a little bit further is we have pretty significant market share in print, and as Tim just mentioned, an opportunity to sell them, our more sophisticated total management system. However, our movement into broadcast and radio has a lot of room for growth. And we've had a lot of beginning success based on the investments that I mentioned earlier that we've made in video broadcast and streaming technology as well as WordPress plug-in that television stations want, and we’re hot in pursuit in pursuing those industries. And we've had good track record as we've move that direction.

Okay. And then in terms of the -- you've talked in the past about debt refinancing. I missed it if it was in your prepared remarks. But I was wondering if you could talk about your latest thinking on that.

Yes. So thanks for the question, Andrew. We have talked a lot about our continued conversations with our advisers and our lenders on a potential refinancing. We have a lot of productive feedback as part of the conversations that we've had. I'm sure -- I trust that you can respect that we can't provide any more information on details of that process, but I'll walk through our objectives again because this certainly is how we're thinking about the refinancing, given that we do have 3 years' runway currently. But -- so we're approaching this from an opportunistic perspective. And our objectives in the refinancing are to: one, lower our cost of capital; extend our runway well beyond the 3 years that we have today; third, to allow for a larger restricted payment basket immediately than we have today, today we have a $15million basket that grows as leverage improves; fourth, we want to allow us to use our cash flow to repay debt at par. Right now, we're in a situation where our -- the first-lien term loan is paid off and our notes are under call protection. Our second-lien term loan has an excess cash flow sweep. So we don't have any debt that's payable at par. And last, we want to clean up our capital structure. So right now, we have the split collateral baskets between Lee Legacy and Pulitzer. We want to work to clean that up and then have one collateral basket. So hopefully, that gives you some framework as to how we're thinking about it.

Yes. And is it the type of thing where we'll just wake up 1 day and there'll be a press release? Or do you have a particular time frame where you think all this comes to a head?

Yes. Well, I think certainly we're evaluating it based on the objectives that we laid out. And if there's something that meets our objectives and we can execute on, we'll certainly announce that when the time comes.

[Operator Instructions]. And it appears there are no further questions from the callers. I will now turn the call back over to our host, Jamie Seratt to discuss questions from the webcast.

Thank you. Our first question from the webcast: When will Lee pay investors a quarterly dividend?

I'll go first, and I'll turn it over to Tim for additional feedback. As we've said many times, we're going to be using all of our additional cash flow to pay down debt, and as we have done recently, make smart, strategic acquisitions for TownNews and other print tuck-ins that we've done. And so, dividend would fall below those priorities.

I think the only thing I would add just as our capital allocation decisions for dividends and stock buybacks, I mean right now, we've talked about our leverage target of 2.5x. Right now, we're in excess of that. And this quarter, our leverage remained relatively consistent from where it was last quarter. And so, our focus is going to be to continue to deleverage until we can get closer to that 2.5x target leverage point. That being said, we do have the authorization out there from our Board to buy back up to $10 million of stock over 2 years and would deploy that if broader market conditions continue to weigh on our stock. If we have no more questions from the webcast, back to Kevin.

Well, thank you. Thank you for your continued interest in Lee. We remain steadfast in our optimism about our future as our digital transformation continues. We aim to grow our business through subscriptions, local retail accounts, and digital services, top line execution, combined with a keen focus on our cost structure while continuing to 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.

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