Q1 2023 Lee Enterprises Inc Earnings Call
Speaker 1: You.
Speaker 2: Welcome to the Lee Enterprises 2023 First Quarter Webcast and Conference Call. The calls will be recorded and will be available for replay at investors.le.net.
Speaker 2: At the close of the plan remarks, there will 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.
Speaker 2: A link to the live webcast can be found at leetatinvestors.leet.net under the event section. Now I'll turn the call over to your host, Josh Reinholtz, vice president, finance.
Speaker 3: Good morning. Thank you for joining us. Speaking on this morning's call, our Kevin Mulbrae, President and Chief Executive Officer, and Tim Millage, Vice President, Chief Financial Officer and Treasurer.
Speaker 3: Earlier today we issued a news release with preliminary results for our first fiscal quarter of 2023. It is available at Leigh.net as well as at major financial websites.
Speaker 3: Please also refer to our earnings presentation found at investors.lead.net that includes supplemental information.
Speaker 3: As a reminder, this morning's discussion will include forward-looking statements based on our current expectations.
Speaker 3: These statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially.
Speaker 3: Such factors are described in this morning's news release and also in our SEC filings.
Speaker 3: During the call, we refer to certain non- GAAP financial measures, including Adjusted Ebit Up, and Cash Costs, which are defined in our news release. Reconciliation to the relevant GAAP measures are included in tables accompanying the release.
Speaker 3: And now to open the discussion as 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 3: Thank you Josh and good morning everyone. I'm really encouraged at the pace by which we're transforming lead into a vibrant digitally centric company. We're pleased with our strong digital subscription growth and digital subscribers now total 564,000
Speaker 3: It increases 25% compared to the prior year. We're also driving higher rates as revenue from digital subscriptions increased 56% compared to the prior year. Digital advertising revenue increased 12% with that side digital revenue of 45%.
Speaker 3: Our first quarter result demonstrates strong digital growth with consistent execution of our three-thousand digital growth strategy. This execution is the foundation of our long-term investment thesis.
Speaker 3: Sustainable long-term digital revenue growth from our three-pillar initiatives will transform the mix of our revenue base, driving margin expansion and stronger free cash flow generation, which will fuel debt reduction enhancing our balance sheet.
Speaker 3: 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.
Speaker 3: Our three-door digital growth strategies guiding our transformation to a vibrant digitally-centered company.
Speaker 3: We'll focus on expanding our digital audiences.
Speaker 3: growing our digital subscriber base in revenue, and diversifying and expanding our offerings for local advertisers.
Speaker 3: The strategy and execution are expected to result in 435 million of recurring sustainable digital revenue by 2026.
Speaker 3: growth at least outpaced our industry peers for the last 13 quarters. Lea is the fastest growing digital subscription platform in media with more than 564,000 digital subscribers off 25% in the first quarter.
Speaker 3: Amphidegill Agency revenue continues to significantly outpace the industry as well, with an impressive 74% growth over the last 12 months.
Speaker 3: Total digital revenues ground in nearly 250 million in the last 12 months.
Speaker 3: Our digital transformation is driving a rapid change in the mix of our revenue in the first quarter. Total digital revenue now represents 35% of our total operating revenue.
Speaker 3: Before we get into the first quarter operating results, we're excited to share about a new brand identity within our portfolio.
Speaker 3: Tell News will begin its next chapter as blocks digital as announced last month.
Speaker 3: The name-block's digital celebrates rich history and is a testament to the success of the flagship software as a service solution block CMS.
Speaker 3: With a refreshed mission and new modern look, block digital is even better position to deliver valuable integrated digital solutions.
Speaker 3: Supporting the expansion and modernization of Lockstingel is a priority for LE. It is a way to execute, as we execute, our enterprise-wide digital transformation and enhance value for our customers, subscribers, and LE shareholders.
Speaker 3: Moving to the first quarter operating goals, we delivered strong digital growth with consistent execution of our three-pillar digital growth strategy.
Speaker 3: Total operating revenue was 185 million in the first quarter.
Speaker 3: Digital revenue growth continued at a strong pace with total digital revenue of 17% during the by 56% growth in digital subscription revenue.
Speaker 3: At the end of the quarter, we have 564,000 subscribers to our digital-only products. This is a 20% growth rate.
Speaker 3: after many consecutive quarters of significant growth.
Speaker 3: On the advertising side, digital advertising revenue increased 12 percent compared to the first quarter last year, driven by 45 percent growth in revenue at Amplified Digital. Amplified revenue now totals 21 million in the quarter.
Speaker 3: We have been presented with challenges in the first quarter. Total print revenue was $129 million, an 18% decline year over year. As cyclical headlines accelerated the pace of decline.
Speaker 3: However, it couldn't be more proud of this thing for the smart thinking, step-as commitments for a three-pillar digital growth strategy and the rapid execution of our plans to drive industry-meeting digital revenue growth. And a commitment towards achieving our adjusted ebit of goals.
Speaker 3: These efforts have importantly kept us on track. We affirm our full year guidance for adjusted EVA.
Speaker 3: And now I'll turn over to Tim with more details on the first quarter results.
Speaker 4: Thank you, Kevin, and good morning, everyone.
Speaker 4: In addition to driving industry-leading digital revenue growth, we are focused on maximizing the profitability of our legacy business and achieving our long-term leverage target.
Speaker 4: Operating expenses total 176 million and cash costs were down 5%.
Speaker 4: Dejreeses and cash costs were attributed to continued business transformation efforts, partially offset by strategic investments in digital talent and technology tied toward its gross strategy.
Speaker 4: Increase itch of cost of good soul.
Speaker 4: and general rising prices.
Speaker 4: For the quarter, we report a majority of the debt of $18 million. As Kevin mentioned earlier, we faced a number of headwinds to begin fiscal 23 largely driven by uncertain market conditions.
Speaker 4: One way we are addressing this is we are focused on managing the profitability of our print business as cyclical headwinds have accelerated the changes in demand for these products and services.
Speaker 4: We continue to identify opportunities to further optimize our cost structure in distribution and manufacturing as well as corporate services.
Speaker 4: To that end, we executed an additional $60 million of annualized cost reductions early in the second quarter. 40 million of which will be realized in fiscal year 2023. 2022.
Speaker 4: Executing the various actions began early in the second quarter, and we expect to achieve more than $40 million reduction to our cash cost in the remainder of the year.
Speaker 4: Over the last two years, we have identified and implemented over 130 million of annualized cost actions.
Speaker 4: and implemented over 130 million of annualized cost actions.
Speaker 4: While we remain focused on operational excellence and reducing the cost structure of our legacy print business and growing profits, our main priority is to drive long-term, sustainable, digital revenue growth. Therefore, we continue to invest in talent and technology in areas of our business tied toward digital future and our commitment to high-quality local news remains steadfast.
Speaker 4: The targeted investments will drive our digital future and will impact our cash costs in fiscal year 23.
Speaker 4: We expect the investments we are making in new talent and technology and increase digital costs of good sold to increase our total cash cost by approximately $25 million in this year.
Speaker 4: These costs will have a short-term impact on our margin profile, but are expected to drive these digital transformation.
Speaker 4: We continue to strengthen our balance sheet. The principal amount of debt at the end of the first quarter is 463 million. As a reminder, our credit agreement with Berkshire Hathley, our sole lender, has favorable terms that are incredibly important for us as we execute our strategy.
Speaker 4: as it allows us the ability to make the necessary investments in talent and technology that fuel our recurring sustainable digital revenue growth.
Speaker 4: We made no pension contributions in the first quarter, and we did not expect any material pension contributions in fiscal 23.
Speaker 4: Finally, we continue to identify opportunities to monetize our non-core assets, which facilitates accelerated debt reduction.
Speaker 4: In the first quarter, we closed $4.1 million of asset sales, and then that proceeds from that sale were used to pay down debt in the second quarter.
Speaker 4: We have identified an additional $30 million of non-core assets to monetize, which are in various phases of the sale process.
Speaker 4: As a reminder, with solid execution of our three-color digital growth stratum, as well as our commitment to improving our balance sheet, our goal is to achieve our long-term leverage target of under two and a half times.
Speaker 4: On slide 10, we are summarizing our fiscal 23 outlook.
Speaker 4: To account for the current market conditions, we are widening the range of our total digital revenue guidance, lowering the end point of the range with expected growth between 13% and 19% year over year.
Speaker 4: At the same time, the implemented a significant cost reduction focused on costs that support our print business.
Speaker 4: With these cost actions and continued progress on our digital transformation, or reaffirming our adjusted EBITDA fiscal year target of $94,200,000,000.
Speaker 3: And with that, I will turn it back over to Kevin to wrap up. Thanks, Tim. Under the guidance from oversight of the Board of Directors, our leadership teams continued execution of our growth strategy sets the stage for significant long-term value creation.
Speaker 3: Our three-pillar digital growth strategies is the foundation of our investment thesis, and the execution of that strategy is at the core of creating value for our shareholders.
Speaker 3: To wrap it 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, the right strategy, and I believe we're better positioned than ever to create long-term value for our readers, our users, our advertisers, and shareholders. This concludes our remarks. We take your time on the line for questions. You may have operative please open the line for questions.
Speaker 1: questions.
Speaker 2: Our question comes to line up, Michael Kupinski from Noble Capital Markets. Iran is open.
Speaker 5: Thank you, good morning and thanks for taking my question. A couple of questions here. Can you give us a sense of how print advertising is pacing in the current quarter, what you're hearing from advertisers, any specifics in terms of what is driving currently the decline because obviously we're pacing now or copying against.
Speaker 5: eating calms from last year. So kind of give us a sense of what we're seeing in that in print right now.
Speaker 4: Yeah, thanks, thanks, my thanks for the question. You know, I think what we're seeing is some of the cyclical headwinds that we saw in the first quarter, you know, we're seeing some of that in the second quarter as well, which is what prompted us to you may take the quick action that we did at the same time. You know, we feel really good about the digital guides that we have out there. You know, we do think, you know, our digital subscribers.
Speaker 5: of cost reductions you're doing there. And if you can just kind of give us a sense of, I know that you guys have been really right-sizing that business pretty aggressively. What are we actually doing at this point in terms of those cost reductions? And can you kind of give us a sense of whether or not you're expecting restructuring charges going, you know, and if you can just kind of give us a magnitude of those.
Speaker 4: a lot of costs that are directly related to that revenue. So as the revenue trends, you know, cyclical headwinds were facing to have affected those revenue trends, you know, it got some levers to pull because the cost that support there. So a lot of it was on the cons side. We're also looking a lot of our vendor costs as well.
Speaker 4: to manage those, so production distribution and some of our other vendor costs. So we still have some significant amount of cost tied for our business, given it is a sizeable percent of our revenue. In terms of your question on restructuring charges, we are looking at restructuring charges.
Speaker 4: You know, in the mid to high single digits and millions for the fiscal year. It's a little bit less than what we were in the past year.
Speaker 5: On the print side at this point, you're not decreasing the print days or anything like that at this point. Are you or what can you kind of give us a sense of what you're doing on that?
Speaker 4: Yeah, so we're looking at a lot of options on lovers that we can pull on the on the print side. Yeah, all options.
Speaker 5: I gotcha. And then in terms, can you give us a sense? I know this print is a smaller portion of your total expenses on that side. Can you kind of give us a sense of what newsprint costs are doing? I know they have been moderating a little bit.
Speaker 4: Yeah, after a pretty wild ride over the last 18 months of rapidly rising prices we are seeing you can moderate and level off at the current pace.
Speaker 5: And then on the on the digital side, can you kind of give us a sense of how digital revenue growth is without pacing in the current quarter?
Speaker 4: So it's very consistent with what we saw on the first quarter. Our total digital revenue was up 17%. And we're pacing around there as well.
Speaker 5: And then on digital subscription, were there any specific changes in marketing in the quarter, you know, changes in paywalls that might, you know, kind of account for some of the growth that we're seeing now?
Speaker 4: No, I have nothing specific. It's just all part of our strategy. The foundation of that is local content that our users enjoy and that that's kind of the foundation of our digital subscription platform at the same time. We're mining data that's informing our marketing decisions.
Speaker 4: And that's just part of the grind that we're going through in part of the tactics that we are deploying to drive digital subscription growth. And as you saw in the quarter, you know, great growth from a unit perspective. You know, 25% growth year over year, which is 13 consecutive quarters of industry meeting growth. And at the same time, we're growing average rates.
Speaker 4: So having revenue grow 56% year over year with units of 25% we're starting to see that increase in average rate. So we're really happy with what we're seeing on the digital subside.
Speaker 5: That's terrific and I would assume the margins are starting to show some improvement there as well on the digital side. Yeah. What was the reason why Tom News was rebranded? I was just wondering if you can kind of give me a sense of what led you to change the rebranded. You know, we can...
Speaker 3: really plays for the performance of town news. And it's been primarily focused in the media sector in terms of its block-sea-and-mess services. And I really believe you've got a great opportunity to go above and beyond for many of those services outside of the media at Landscape, hence the name from town news to block-sdigital. And I really believe you've got a great opportunity to go above and beyond for many of those services outside of the media at Landscape, hence the name from town news to block-sdigital.
Speaker 5: Okay. Alright. Thanks. That's all I have. Thank you. Thank you. That is all that we have for you. Questions that will turn it back to.
Speaker 5: Okay, all right, thanks. That's all I have. Thank you. Thank you. That is all that we have for you. Questions. I will turn it back to Kevin for closing your remarks.
Speaker 3: Great, well thank you. As I mentioned earlier, we remain keenly focused on transform our business model from the long-term benefits for our shareholders, our employers, our boys, our readers, and advertisers. We appreciate your time and you're interested in re-thank you again for joining the call.
Speaker 2: Thank you, ladies and gentlemen. At this time, we have reached the end of our question and that session. This concludes our call. Everyone have a great day.
Speaker 6: So, to raise and lower your hand during Q&A, you can dial star 11.
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