Q3 2020 Lee Enterprises Inc Earnings Call

Subscription revenue in digital services.

Revenue streams are predominantly contract base, which provides for recurring revenue streams and more stable revenue trends.

In the quarter more than 6% of our total operating revenue was contract base from subscriptions to our print and digital additions and digital services, such as web hosting CMS and video streaming services through town news.

Subscription revenue was down 5% in the quarter on a pro forma basis modestly down from the second quarter trend.

Approximately 11% of subscription revenue, it's been a single copy sales, which were down 26.9% in the quarter due to the significant negative effects from code of 19, and a difficult comparable to the prior year quarter last year. We earned 600000 onetime revenue in the June quarter from that.

Seamless bleeds, winning the standing up excluding single copy revenue subscription revenue was down just 1.6% to the prior year on a pro forma basis, an improvement from the Q1 in Q2 trends.

Growing our digital audience remains a top priority for us at the end of the quarter. We now have 222000 digital only subscribers, a 35.1% annualized increase or the March 2020 quarter, we expect to grow our digital audiences continuously.

The demand for advertising has changed dramatically during the era of coded 19 virtual ceasing of advertising demand beginning in April created a significant negative impact on our advertising revenue.

Despite the disruption remain optimistic as we've seen slow and steady trend improvement each month and the trends in June or 15 percentage points better than in April and with seamless low trend improvement continued into July.

We made Smith and decisive action on the cost side to mitigate the impact of the decline of advertiser demand on our adjusted EBITDA.

Adjusted EBITDA totaled 26.3 million in the quarter or 2.8 million higher than the high end of our outlook provided in June.

Strong execution on the cost side throughout the quarter helped generate 36.7 million of excess cash flow. This amount was used to repay debt in the fourth quarter. In addition to thoughtfully managing our business during the downturn and executing on our acquisition integration, we turned our focus to developing our Omar.

Post pandemic strategy, we're committed to remaining in any provider local news and information in our local markets, but believe that we need to transform the way you can design. Our local news. This includes improving our digital presentations, providing best in class experience for consumers, putting new content channels and leveraging our video.

Content to drive engagement and monetization.

We're also focused on transforming our print centric audience model to digital centric audience model does allow us to rapidly grow our digital audiences and digital audience revenue.

Our post pandemic operating strategy to diversify and transform the services and products. We offer advertisers, we had strong relationships local advertisers and impressive array of print and digital audiences and top notch digital talent that will help us turn the tide on our revenue trends.

Before I turn the call over to Tim discussed financial details I wanted to reiterate that despite the significant negative impacts to our business included 19, we remain very optimistic about the future of Lee enterprises with the REIT strategies focused on local news information and advertising combined with a robust suite of digital products.

And the best operators in the business. We also secured financing that all that eliminate our financing risk for 25 years, while uncertainty remains we're excited about the future of our company or marching forward and confidence and now I'll turn it over Tim discussed additional financial highlights.

Thank you, Kevin and good morning, everyone.

Total operating revenue on a GAAP basis was 182.5 million in the quarter exceeding our range of 177 million to a 180 million provided last quarter.

On a pro forma basis total revenue was down 25% compared to the prior year due to the significant negative effects from program 19.

As Kevin mentioned, we took swift and decisive action on the cost side to mitigate the impact of program 19 on our operating results.

Cash costs on a pro forma basis were down 22.1% in the quarter due to a combination of temporary and permanent cost reductions.

In the third quarter, we executed a temporary compensation reduction is equal to two weeks for all employees.

Executives received a 20% compensation reduction in addition to a reduction taken earlier in the year.

These temporary cost actions reduced our costs by $10 million in the quarter.

We managed our operating expenses and liquidity during the quarter through thoughtful cost management limitations on capital spending and using certain benefits from the cares Act.

This helped us exceed our adjusted EBITDA outlook provided last quarter.

Adjusted EBITDA totaled 26.3 million in the third quarter or $2.8 million higher than the high end of our outlook.

We ended the period with 56.7 million of cash on the balance sheet, creating excess cash flow as defined in our credit agreement of $36.7 million.

This excess cash flow, we used to repay debt in our fourth fiscal quarter at par, reducing our total outstanding debt to 539.3 million.

As a reminder, the credit agreement have a low fixed annual interest rate a 25 year maturity no fixed mandatory principal payments and does not have financial performance covenants that means we do not have events of default tied to leverage or other maintenance ratios derived from financial.

Performance of the company.

Also the debt as a single lender, who knows us well and is committed to our success.

As we mentioned on our last call, we expect to achieve more than $100 million in cost synergies to business transformation initiatives and acquisition integration.

As part of our transformation, we desire to become a leaner organization that is more capable of responding to that dynamic dynamic operating environment, we live in today.

We expect to achieve synergies in the following areas.

Reorganization of our operating structure market based structure to vertical operating lines, creating significant efficiencies across all of our departments.

This transformation reduces layers across our company empowers employees and drives efficiencies.

Evaluation and the execution of our data we print transformation initiatives in certain markets is another item.

This project will reduce the number of days, we print and deliver our print additions in certain markets by one two or three days depending on the market.

I will also focus on acquisition integration of back office functions, including HR Finance and 90.

Consolidation of our technology systems and business transformation initiatives and newspaper design in advertising design.

We have executed nearly 50% of the cost reductions over the end of June and are on track to achieve our target by the end of F. wide 21.

Last we expect to file our 10-Q with the FCC Tomorrow and as always if we include additional information on our results and expectations.

This concludes our remarks the team will remain on the line for any questions. You may have operator, I'll turn it over to you to begin our culinary.

Thank you.

At this time, we will be conducting a question and answer session. As a reminder, if you are accessing this call by webcast you may submit typed questions on your screen.

Those questions will be answered during the call as time permits.

Vince on the phone will not have the opportunity to ask questions.

One moment, please well we pull for questions.

Our first question from the lab, what's the difference between EBITDA and excess cash flow.

Ken debt reduction continue at this pace going forward.

Yes, I can answer that so adjusted EBITDA as a non-GAAP financial performance measure that we use to monitor the operating results of our of our company.

We have defined this term in our SEC filings and we've reconciled.

To net income excess cash flow is as a fine term in our Berkshire credit agreement.

Thats defined as cash on the balance sheet in excess of 20 million.

Excess cash flow into required payment at par in our credit agreement.

While we benefited to certain onetime items this quarter.

We do expect to continue to generate strong.

EBITDA adjusted EBITDA going forward.

Oh.

Our next question did lead buyback any stock in the past quarter over the past year.

We did not buyback any stock in the past quarter past year that is.

Not something we are able to do under our current credit agreement.

Our next question did lead make any asset sales in the quarter.

We are still focused on our real estate monetization program. It did slow down a little bit in the quarter for obvious reasons due to.

Government shutdowns and things like that in our local markets, where we're still very active in the process, we have $34 million of real estate for sale and we did just after the quarter in monetize part of our private equity investment.

That we believe is worth $10 million and we've monetized 3.9 million a bad youll see that in the fourth quarter.

Okay.

Thank you we have no more questions from our wed participants I'll now turn the call back to Kevin for closing remarks.

Well. Thank you for joining the call today, we appreciate your interest in the Lee and has a great week.

Okay.

This concludes today's call. Thank you for your participation you may now disconnect.

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