Q4 2022 Lee Enterprises Inc Earnings Call
Speaker 2: available at we.net as well as at major financial websites.
Speaker 3: Please also refer to our earnings presentation found at investors.we.net that includes supplemental information.
Speaker 4: As a reminder, this morning's discussion will include forward-looking statements based on our current expectations.
Speaker 5: These statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially.
Speaker 6: Such factors are described in this morning's news release and also in our SEC filings.
Speaker 7: During the call, we refer to certain non-GAAP financial measures, including adjusted EBITDA and cash costs, which are defined in our news release.
Speaker 8: Reconciliations to the relevant GAAP measures are included in tables accompanying the release.
Speaker 9: And now to open the discussion is our President and Chief Executive Officer, Kevin Mowbray. Kevin will open the conversation on slide three of the earnings presentation for those following along.
Speaker 10: Good morning everyone. I'm pleased you could join us. The lead team delivered another strong quarter with continued execution on our three-pillar digital growth strategy. And I'm really encouraged at the pace by which we're transforming Lee into a vibrant digitally-centric company.
Speaker 11: Our fourth quarter results exceeded all of our digital revenue guidance. It achieved our full year adjusted EBITDA guidance as well. Our ability to exceed expectations and produce industry leading results demonstrates the success of our strategy. The resiliency of our business model to support leads investment thesis.
Speaker 12: digital-only subscriptions, driving fourth quarter digital subscription revenue up 46% year-over-year. Digital-only subscription revenue grew 42% for the full year. We exceeded our digital subscriber guidance with 532,000 digital subscribers at the end of the quarter.
Speaker 13: and revenue outpaced guidance as well.
Speaker 14: On the advertising side, we've seen all of our digital revenue guidance matrix and we achieved industry-leading digital revenue results.
Speaker 15: AMPSI Digital Revenue Group 82% in the fourth quarter and 83% for the full year with revenue totaling $76 million for the fiscal year facing well ahead of other DMS solutions in the industry and our guidance. AMPSI Digital Revenue Group 82% in the fourth quarter and 83% for the full year with revenue
Speaker 16: I couldn't be more proud of the Leigh team for achieving results that lead the industry, exceed our guidance, and further transform Leigh into a vibrant digitally-centered company.
Speaker 17: We are the fastest growing digital subscription platform with industry leading digital subscription growth metrics for the last 12 consecutive quarters. With more than 530,000 digital subscribers today, our strong growth is attributed to the attractiveness of digital
Speaker 18: of our digital product offerings and we just scratched the surface of our vast addressable market.
Speaker 19: In addition to growing digital audiences and engagement, we offer a full suite of omnichannel advertising and marketing solutions.
Speaker 20: to local and regional advertisers through AmpliSight.
Speaker 21: We created Amplify from scratch several years ago and we're seeing tremendous industry leading results.
Speaker 22: Revenue at Amplified increased 82% in the fourth quarter and totaled $76 million for the fiscal year, with growth rates more than six times the nearest industry peer.
Speaker 23: Amplified is key to our growth strategy given a significant size of the addressable market.
Speaker 24: As a result of driving industry leading digital growth, total digital revenue for the fiscal year was $240 million, up 27% compared to the prior year and accelerating from the 19% up on annual growth rate over the last two years.
Speaker 25: We are rapidly transforming the mix of our revenue and in fourth quarter total digital revenue represented 33% of our total operating revenue.
Speaker 26: 2022 was a successful year at LEED. I couldn't be more proud of this team for their strategic thinking and operational excellence that has allowed our company to be agile during times of uncertainty. Their steadfast commitment toward delivering on our three-pillar digital growth strategy has been a great success. There is so much value in the hope for!!!!!
Speaker 27: and the rapid execution of our plans to drive value for our shareholders.
Speaker 28: Before I go deeper into our strategy later on in the presentation, I will turn the call over to Tim to discuss fourth-order and fiscal year results in more detail.
Speaker 29: Thank you, Kevin, and good morning, everyone.
Speaker 30: To reiterate Kevin's sentiment, we are pleased with our fourth quarter and full year results and the digital transformation at Lee as we exceeded expectations for digital revenue and digital subscriptions and despite many headwinds we achieved our adjusted even the guidance as well.
Speaker 31: In the fourth quarter, total operating revenue was $194 million, flat compared to the prior year as the growth and outperformance of our digital revenue streams offset the declines in our print revenue streams.
Speaker 32: Total digital revenue increased 31% in the fourth quarter to $65 million driven by the rapid growth amplified and in digital only subscription revenue.
33% of our revenue in the fourth quarter was digital revenue up from 25% a year ago.
Digital only subscription revenue increased 46% and totaled $11 million in the fourth quarter driven by increases in digital subscribers and rates.
Digital advertising and marketing services revenue totaled $49 million in the quarter, a 33% increase over the prior year, and represented 55% of our total advertising revenue in the quarter.
The increase was due to rapid growth and amplifiers.
Total print revenue was $129 million in the fourth quarter, an 11% decline compared to the same quarter a year ago due to continued secular declines in the demand for print.
Operating expenses totaled $199 million and cash costs were down 3%.
Decreases in cash costs were attributed to continued business transformation efforts partially offset by strategic investments in digital talent and technology tied to our growth strategy, increased digital costs of goods sold, and general overall rising prices.
For the quarter, we reported a net loss of $5.8 million, largely driven by non-cash impairments.
Adjusted EBITDA totaled $30 million in the quarter, an increase of 17% compared to the prior year.
For the full year, total operating revenue was $781 million or down less than 2% compared to the prior year.
Total digital revenue for the year increased 27 percent to $240 million.
In the fiscal year, 31% of our revenue was digital revenue, up from 24%.
Net income totaled $1 million in the fiscal year and adjusted EBITDA totaled $96 million achieving our full year guidance.
I will now hand it back over to Kevin to discuss our digital transformation and our three-pillar digital growth strategy in more detail.
Thank you, Tim. Lea is a digital subscription platform. Our strategy aims to grow digital audiences and engagement by providing compelling local content using best-in-class storytelling across our rich multimedia platforms while also offering a full suite of omnichannel advertising and online marketing.
and marketing solutions to local advertisers. Our three pillar digital growth strategy is guiding our transformation to a vibrant digitally centered company. The strategy is focused on three pillars.
Pillar 1, expand digital audiences by transforming the presentation of local news and information.
Pillar 2 is about growing our digital subscription base and revenue. Pillar 3 is about diversifying and expanding our offerings for local advertisers.
Our fiscal year 2022 results demonstrate significant progress in Lee's digital transformation, and there's even more room for growth. We're more than halfway towards our goal of $435 million of recurring sustainable digital revenue by 2026.
Slide 9 offers an in-depth look at Pillar 1, focused on expanding digital audiences with local journalism as the foundation. This encompasses everything from coverage of breaking news and local business to in-depth investigative reporting.
that leads to meaningful change in the communities we serve. Our goal is to expand our audience by providing compelling local content using best-in-class storytelling that reflects and uplifts the communities we serve.
We've made significant progress in Pillar 1 by improving the user experience in our digital products and hiring top digital native talent.
We redesigned our digital products using multimedia presentations with emphasis on video and audio.
We recently hired a public service journalism team focused on investigative and watchdog reporting with data analysis and storytelling that comes from the numbers.
This type of work can change the conversation in a community and lead to substantial transformation about how we understand or approach the world right outside our door.
These talent and technology investments are important in order to enhance our content, enhance our digital products, and grow our digital audiences.
Pillar 2 is about accelerating our digital subscription growth. We've made tremendous progress in this area as we have 532,000 digital subscribers, more than halfway towards our goal of 900,000 digital subscribers by 2026.
We have a user-thrustable market with nearly 5 million known users. We're deploying tactics and leveraging cutting edge data and technology to convert our known users to digital subscribers.
Turning to slide 11, our third pillar focuses on diversifying and expanding our offerings for advertisers through both amplified and our own and operated digital products.
With advanced data-driven ad tech, 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. In fiscal year 2022, the
Amplified achieved full year revenue of $76 million, up 83% over the prior year.
While Amplified is the growth engine for top-line revenue, our massive owned and operated digital audience fuel high margin digital advertising revenue.
Our owned and operated properties attract massive audiences. We are offering more video inventory and branded content opportunities to boost digital advertising revenue.
Execution of our pillar three tactics is expected to drive 310 million of annual digital advertising revenue in 2026.
Tim will now take us through our strong track record of sustainable cost management.
We faced a number of headwinds in 2022, including dealing with rising prices that are impacting our cost structure. One example of this is newsprint as prices increase nine times during the fiscal year in total a 30% increase and have a $5 million impact on our cost structure.
One way we are addressing the inflationary environment is to remain focused on managing the profitability of our print business as we see changes in demand for our print products.
As we discussed in previous meetings, calls.
Early in the third quarter of 2022, we completed a deep dive into all aspects of our print organization, optimizing our cost structure and distribution, manufacturing, national content, marketing, finance, IT, and other corporate services.
This process was used to evaluate our external spending as well as our human capital and the things done to better align our cost structure with our long-term strategy.
As a result of this review, we executed on expense actions that reduced our cost structure on an annualized basis by $45 million.
Execution of these actions began early in the third quarter and we achieved more than $20 million reduction to our cash costs in the last two quarters of 2022. And we expect the flow through impact from these reductions to reduce cash costs by $25 million in FY23.
As shown on slide 12, we expect continued legacy cost reductions as part of our business transformation in fiscal year 2023.
While we remain focused on driving efficiencies and reducing costs to improve profitability of our legacy print business, our main priority is to drive long-term, sustainable digital revenue growth. With that in mind, we aim to invest in areas that are aligned with our three-pillar digital growth strategy.
which include local content, development of our digital products, and digital talent to drive results.
In the fiscal year, we expect $25 million of incremental investments in our strategy.
The investments will have a short-term impact on margin, but are expected to drive these digital transformation.
In fiscal year 22, we began providing both short-term and long-term metrics to get better transparency and clarity on our digital transformation progress. And we continue that practice on slide 13, where we summarize our fiscal year 23 outlook.
Total digital revenue is expected to be between $280 and $285 million in the fiscal year.
At the low end, 17% growth, we expect to be realized through continued revenue growth at Amplified and through digital subscriber revenue growth.
We are guiding to 632 digital only subscribers at the end of the fiscal year or a 100,000 increase in subscribers or nearly 20% growth.
On the cost side, we expect to reduce cash costs by between 2 and 3 percent in fiscal year 23.
due to continued business transformation efforts partially offset by incremental digital investments.
With the strong digital revenue guidance combined with continued reductions to our cost structure, we are guiding to a full year adjusted EBITDA of between $94 and $100 million.
Moving to slide 14, the principal amount of debt at the end of the fourth quarter was $463 million, down $113 million since our refinancing.
As a reminder, our credit agreement with Berkshire has favorable terms that are incredibly important for us as we execute our strategy.
Importantly, the agreement has a fixed interest rate and a 25-year runway.
These factors along with no financial performance covenants and no fixed amortization payments give us the necessary flexibility to make our investments and transform leading.
Our pensions are in the aggregate overfunded, so we do not expect any pension contributions in fiscal year 2023.
Finally, we continue to identify opportunities to monetize our real estate, which facilitates accelerated debt repayment.
We have generated $40 million of proceeds from asset sales over the last three years and more opportunities exist to monetize real estate.
As a reminder, our goal is to achieve our long-term leverage target of under 2.5 times by the end of 2026.
And with that, I will turn it back to Kevin to wrap up. Thanks, Tim. Under the guidance and oversight of our board of directors and our leadership team, continued execution on our growth strategy sets the stage for significant long-term value creation.
We're very pleased with our fourth quarter and full year results and the tremendous progress we're making towards the target in our three-pillar digital growth strategy.
Our three-color digital growth strategy is the foundation of our investment thesis and the execution of that strategy is at the core of creating value for shareholders. Our strategy aims to grow recurring sustainable digital revenue and drive free cash flow which will fuel debt reduction.
A stronger balance sheet and improved operating cash flow combined with multiple expansion fueled by increasing digital revenue creates a strong path to significant long-term value creation for our shareholders.
To wrap up, I'd like to thank the entire LEAD team for their efforts in driving our transformation. We have the right board, the right team, and the right strategy, and I believe we're in better position than ever to create long-term value for our readers, our users, our advertisers, and our shareholders. For more information, visit LEAD.com
This concludes our remarks. The team will remain on the line for any questions. Operator, please open the line for questions.
Thank you. At this time, we will be conducting the question and answer session. As a reminder, if you are accessing this call by webcast, you may submit type questions on your screen. Those questions will be answered during the live call as time permits. One moment while we poll for questions.
The first question comes from Michael Kapinski of Noble Capital Markets. Please provide us open.
Thank you. Well, first of all, I want to congratulate you and your team. You know, great job, exceeded my expectations. So congratulations. A couple questions. Your digital only subscriptions were strong, obviously.
They exceeded my expectations, but I know that you have promotions all the time, but were there any significant changes that may have been more successful in terms of driving digital subscriptions in the quarter, which, you know, obviously accelerated from your previous quarters? And I was just wondering if you had any changes in the paywall or anything like that that may have accounted for.
the acceleration and the growth in the quarter. So we didn't have any changes in our payroll but one thing that we're doing more than ever before is using this data data and analytics with our insight time to convert you know more users once they hit our paywall. We're seeing big success using that analytic.
and the local approach to provide digital e-subscribers.
Gotcha. And just staying on that theme, in terms of your fiscal 23 guidance, which is in line with my expectations, by the way, you did not provide the guidance for digital only subscription revenue, but yet provided, you know, very strong digital only subscriber guidance, I was wondering.
If that was due to the prospect of discounts or if you plan to drive rate in 2023 or will you know you're driving rate, would that be more of a fiscal 2024 strategy?
Hey Mike, this is Tim. I think we have been successful at driving unit growth as well as rate growth throughout FY22 on digital subscribers. In fact, from September to September , we saw a 22% increase in digital subscription rates.
And so we've had a lot of success in growing our subscription rates and expect that to carry forward throughout 2023. So we do expect continued significant growth in digital subscription revenue. And that's going to help fuel the targets that we've outlined for total digital revenue that we've guided to.
Gotcha. You mentioned that advertising on the print side was down 11% a quarter and I was just wondering if you could just talk a little bit about the tone of advertising as we've seen now some rate increases from the Fed and that might be starting to see some slowing of the economy.
Are you anticipating further moderation in the rate of revenue decline in print or what are you seeing in terms of what we're looking at in the fiscal first quarter?
Well, let me break that down into a couple of buckets for you. What we're seeing on what we call national advertising or key accounts that be your targets, Walmarts of the world, is sort of choppiness given what's going on with their business models.
Where we are seeing success though is with the local advertiser where we've had these really strong relationships for many, many years and we have the right print and digital solutions to really help them grow their business.
And then, I was wondering if you can add more color on the strong results you delivered on Amplified. I mean, Amplified grew very strongly in the quarter. Were there specific categories of business that fueled that growth, particular regions? I mean, any other additional color that you can add on what's fueling that exceptional growth there?
Sure. Well, video is a big driver for Amplified throughout all of fiscal year 22 and it will continue in fiscal year 23. But what I would also characterize the growth to is we sell Amplified Digital Services in and outside of Lee and we have had a lot of success.
selling our services outside of our markets as well.
Gotcha. And then just a final question. You know, some companies have indicated there has been some moderation in cost trends, you know, from, you know, the earlier inflationary impact and things seem to be moderating a little bit. Are you starting to see any moderation in cost, particularly whether it be from newsprint or labor?
or any other costs that you're seeing in terms of what you have seen earlier this year and what you're starting to see now.
Yeah, I think that's what you said is exactly right. We're starting to see moderation. The big factor that we pointed to in our comments related to newsprint, that's been more stable and actually we may start to see that come down a little bit. So certainly what you mentioned is what we're seeing as well.
type of moderation trends are not really factored into that 25 million in savings for fiscal 2023, correct?
Well, let me clarify. So the $25 million that I mentioned was actions that we took last year that will have an incremental impact on this year as we realize the full year impact. So that's really what we were talking about with the $25 million.
Okay, gotcha. Okay, that's all I have. Thank you. Congratulations.
Thanks Mike.
We have no more questions from the web either.
Thank you ladies and gentlemen. At this time we have reached the end of our question-and-answer session. This concludes the call.