Q2 2021 Lee Enterprises Inc Earnings Call

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Please standby.

Welcome to the Lee Enterprises, Inc, second quarter, 'twenty, 'twenty, one and conference call.

The call is being recorded and will be available for replay beginning later this morning at Lee that yet.

At the close of play and remarks, there'll be an opportunity for questions participants accessing this call by webcast may submit written questions through the website and they will be answered during the call as time permits otherwise you will receive a response later.

And linked to the live webcast can be found at investors day Lee Dot net.

Now I'll turn the call over to your host Josh Reynolds, Vice President Finance F. P and a please go ahead sir.

Good morning, and thank you for joining US speaking on this morning's call is Kevin Mowbray, President and Chief Executive Officer, and Tim Millage, Vice President and Chief Financial Officer and Treasurer.

Also with us on today's call and available for questions and Becky Vice President consumer sales and marketing.

Earlier today, we issued a news release with preliminary results for our second fiscal quarter of 2021 it.

It is available at Lee Dot net as well as major financial websites.

One housekeeping item to start we closed on the acquisition of BH Media group and the Buffalo News on March 16 2020.

Certain results and trends are presented on a pro forma basis, which assumes ownership for these acquisitions for the entirety of the periods presented.

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 and such.

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 and our news release reconciliation for the relevant GAAP measures are included and tables accompanying the release and now to open the discussion with our President and Chief Executive Officer, Kevin Mowbray.

Thank you Josh good morning, and thank you all for joining the call I'm extremely proud of the velocity at which our team is moving the engagement, we're seeing and our local markets and our three pillar digital growth strategy that we discussed with all of you in early April for our second quarter results reflect net performance.

And we saw continued sequential topline revenue trend improvement and strong cost management and adjusted EBIT growth for the first time and several years.

Other operating revenue improved 202 hundred 80 basis points for the first quarter has remained keenly focused on executing on our three pillar digital growth strategy.

And the second quarter, nearly 50% of our revenue was annualized recurring revenue, which totaled $95 million in the quarter total digital revenue was $59 five and moving in the quarter up nearly 30% and represented 31% of our total operating revenue.

Digital only subscriptions continue to grow at a rapid rate up 58% compared to the prior year and we grew digital only subscription revenue was 68% as well. We now have 309000 paid digital only subscriptions, which is helping us.

Audience revenue performance. These metrics demonstrate we're the fastest growing digital subscription platform in local media.

Each month and the second quarter, we saw sequential growth and total paid subscribers. This means that the growth of our digital only subscribers is outpacing the declines of our full access subscribers for <unk>.

Turning to total paid audience growth is a significant milestone for Lee as we continued to drive our digital transformation efforts audience revenue.

Revenue in total was up one 8% compared to the prior year as a result of the strong yield management of our full access subscriptions and a 58% digital only subscriber growth in the quarter.

Town News, which is our software as a service content management platform is the digital backbone of our operations and that of over 2000, and other media partners and revenue at town news continues to perform well up eight 8% on a standalone basis with revenue of 26.

$1 million over the last 12 months.

Growth in revenue and town news continued with our audience revenue streams is driving the increase and annualized recurring revenue.

And advertising local retail accounts top local accounts and SMB and our markets are our focus we believe this segment of our revenue will improve and grow our strategy to drive advertising revenue from the local retail segment leverages, the 70% reach and our markets and contributed to our.

Continued strong revenue trend improvement.

Consistent with our overall revenue trends advertising revenue trends and significantly improved and the second quarter.

And we've achieved continuous advertising revenue trend improvements since the worst of the pandemic last year and posted a strong quarter over quarter comparisons in the March quarter advertising.

Revenue trends improved 600 basis points compared to the first quarter trends, excluding the political and political bump we experienced in the first quarter.

Additionally, we've made significant investments to diversify the products and services we offer local advertisers. We saw strong performance from our digital marketing services agency amplified with revenue growth of 26, 3% and the quarter and we saw significant growth and video revenue, which totaled $1 eight.

And the second quarter. These revenue streams combined with strategies to develop E Commerce and first party data revenue are laying the foundation for significant digital advertising revenue growth and the latter half of fiscal year 2021.

Lee is on a clear path to leverage the strength of our market position improved capital structure, and well established digital foundation to drive long term growth.

We've set a whole course for our digital future we will.

Momentum as we execute our strategy and rebound from the pandemic as a stronger company haven't proven how critical our mission of high value local news and you and as for our readers and the value and resilience of our platform for our advertising partners. We're very excited about our progress.

And we've made on our digital transformation, we're very optimistic about our future. We believe we have the right team and the right strategy aimed at growing revenue year over year, and we believe we are better positioned than ever to drive long term shareholder value creation and now I will turn it over to give you more financial.

Phil.

Thank you, Kevin and good morning, everyone.

Continue to diligently manage our cost structure at the same time as making necessary investments to fund our digital growth.

In June of last year, we laid out a target to achieve $100 million and cost synergies by the end of fiscal year 2021.

Established plans and executed quickly and at the end of the second quarter, and we've achieved $110 million and opportunities exceeding our target.

Total cash costs were down nine 1% and the second quarter compared to the same quarter last year.

Application was down 8% due to business transformation and acquisition integration initiatives.

Newsprint and ink expense was down 26% due to a reduction and our print units as well as pricing.

Other cash cost includes print related profit and production expenses and delivery expenses and it also cleans and <unk>.

And fees related to the digital and technology investments we have made.

Other cash costs were down eight 4% and the quarter due to a reduction and print related costs, partially offset by the incremental digital investments.

As a result of the strong revenue performance, Kevin walked through and cost management that I discussed adjusted EBITDA totaled $24 1 million and the second quarter up year over year for the first time and several years for.

For the year to date period, adjusted EBITDA totaled $64 1 million.

With strong cash flow and the quarter, we have strengthened our balance sheet.

Debt was reduced 24 6 million and the second quarter and the principal amount of debt at the end of March totaled totaled $498 $9 million.

Over the last nine months debt had been reduced by $77 1 million.

Also while not seen and our balance sheet, yet as we revalue, our pension liability that fiscal year and in accordance with GAAP, our pension and post retirement benefit obligations at the end of March or other.

And a net overfunded position. This is a significant improvement and our balance sheets and September 2020 for the net under funded position with $95 million.

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

Performance of the company.

And most importantly, the debt is with a single lender, who knows us well and is committed to our success.

The credit agreement also has no prepayment penalties, which affords us the ability to evaluate credit market conditions for and opportunistic refinancing and the future to further improve our debt structure.

Our strong foundation and a well defined long term strategy puts Lee enterprises, and a clear path to value creation for.

For our readers users advertisers and our investors as.

As we execute and approach our target leverage ratio of two five times, we expect to create significant value for our shareholders through conversion of debt to equity.

Also our three pillar of digital growth strategy positions us to unlock the full value and Luis platform and achieved multiple expansion that is in line with our digital first peer companies, creating more value for the shareholders and.

In summary, we are really encouraged with our second quarter results. The progress we have made and our three pillar our digital growth strategy and are optimistic about the future of Lee.

One last thing performed open the line for questions. We expect to file our 10-Q with the SEC Tomorrow and as always it will 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, please open the line for questions.

Thank you at this time, we'll be conducting a question and answer session.

A reminder, if youre accessing this call by webcast you may submit typed questions on your screen those questions will be answered during the call as time permits participants on the phone line, we will not have an opportunity to ask questions.

One moment, please while we poll for questions.

Okay. Our first question and is.

As Lee participating and Facebook or Google's programs to support news.

Yes, we our last fiscal year and receive grants for both Facebook games and will support our newsrooms digital transformation and they total about $300000.

Our second question.

And then our print advertising revenues, increasing or decreasing and are the trends uniform across your properties.

And what I say is our total advertising revenue trends are improving significantly and the work.

The pandemic.

And the third quarter of last year as a reminder, third quarter trends were down 39% third quarter last year, and we've significantly improved those trends and are going through every quarter. Since then and in the second quarter of this fiscal year advertising revenue trends were down 16.

3% for showing some significant improvement and getting back to kind of the pre pandemic levels, which we expect to see and the latter half of the fiscal year 2020 one.

Okay.

Our next question.

And what trends are you seeing and print circulation numbers and if they are dropping as the digital subscription revenue and not to offset it and yes as I mentioned in my remarks today.

Our total paid units are actually up year over year, and our circulation audience revenue was up one 8% compared to the prior year quarter.

That concludes the question and answer session and I'll turn it over to Kevin for some closing remarks.

Thank you for joining us on the call today as I mentioned earlier and remain focused on executing at a high level and we're keenly focused on transforming our business models for the long term benefit of our employees our readers of our advertisers and our investors. We appreciate your time mirrors Lee and thank you again for joining the call today.

Okay.

Thank you, ladies and gentlemen, and at this time, we are recently and have a question and answer session. This concludes our call.

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