Q2 2023 Lee Enterprises Inc Earnings Call

And technology in areas of our business tied to our digital future and our commitment to high quality local news remains steadfast.

The targeted investments will drive our digital future and will impact our cash costs in fiscal year 'twenty three.

We expect the investments we are making in new talent and technology and the increased digital cost of goods sold to increase our total costs by approximately $25 million this year.

Costs will have a short term impact on our margin profile, but are expected to drive digital transformation.

Moving to slide 17, we continue to strengthen our balance sheet.

Principal amount of debt at the end of the second quarter was $460 million down $3 million from last quarter.

As a reminder, our credit agreement with Berkshire Hathaway, our sole lender has favorable terms that are incredibly important for us as we execute our strategy.

It allows us the ability to make the necessary investments that fuel our recurring sustainable revenue growth.

The agreement was executed in 2020 and has a fixed interest rate and a 25 year maturity.

These favorable terms have been incredibly helpful. In the rising rate environment, we have seen over the last few years.

In the second quarter, we did not make any pension contributions that we do not expect to make any for the remainder of fiscal year 2023.

Finally, we continue to identify opportunities to monetize non core assets, which facilitate accelerated debt repayment.

We closed $5 $6 million of asset sales this fiscal year through the second quarter and have identified an additional $30 million of noncore assets to monetize.

Are in various phases of the sale process.

As a reminder, with solid execution of our three pillar digital growth strategy as well as our commitment to improving our balance sheet. Our goal is to achieve our long term leverage target of under two five times.

On slide 19, we're summarizing our fiscal 2023 outlook.

Despite the dynamic operating environment, we are reaffirming our guidance due to the swift actions taken by the team.

Total digital revenue is expected to be in the range of 270 million to $285 million.

Hitting the midpoint represents modest back half improvement driven by continued strong digital subscription revenue growth and strong growth at amplify them.

Digital subscribers are expected to total 632000 at the end of the year and we are highly confident as the back half unit growth can moderate a bit and still achieve our guidance.

Adjusted EBITDA is projected between 94 and $100 million.

Despite the macro environment, we have reset our projections and taken Swift action on the cost side, taking $76 million out of the organization and that gives us the pathway to back half adjusted EBITDA growth and achieving within the range of our full year outlook.

And with that I will turn it back over to Kevin to wrap up thanks.

Thanks, Tim under the guidance and oversight of our board of directors. Our leadership team is continued execution of our growth strategy sets the stage for significant long term value creation.

Our three pillar digital growth strategy is the foundation of our investment thesis and the execution on that strategy is at the core of creating value for shareholders to wrap up I'd like to thank entire lead team for their efforts in driving our transformation.

For the right team and the right strategy and I believe we're well positioned better than ever to create long term value for our leaders our users advertisers and shareholders. This concludes our remarks the team will remain on the line for any questions. Operator. Please open the line for questions.

Thank you.

We would like to ask a question. Please press star one on your telephone. Please my moment, while we compile the Q&A roster.

Thank you and as well before you ask a question. Please wait for your name to be announced.

I have a question from Michal Krupinski Noble capital markets. Your line is open.

Thank you a couple of questions first of all congratulations on your solid quarter.

You indicated that you went through a round of cost cuts last year, and then again initiated further cost reductions that I was wondering in this latest quarter was the.

Are there any cost reductions that were related to the last.

The last announcement.

So effective in this quarter and if so how much of that $76 million that you were talking about an annualized costs were effective in this quarter.

Yeah, as you mentioned Mike.

Second quarter results did have a partial quarter impact not quite half a quarter.

We had about.

$9 million to $10 million impact in the quarter and we do expect the reductions that we took in the second quarter, which annualized were about $76 million the full year impact is $48 million.

And.

So.

Was there.

Is there any way to.

Kind of give us a thought or color on how much of that $76 million would have been in this quarter I know it was mid quarter, but.

Around $9 million to $10 million impact magnitude, okay, I'm, sorry, I missed that.

And then can you talk a little bit about the digital margins in the quarter and how they are trending if you can just kind of give us some thoughts about that.

Yes, I think Thats a really good question I think from on the subscription side with the scaling of digital subscribers and scaling of that revenue every incremental dollar that we see there is really almost pure profit. So we are seeing good scaling of the margins on the digital subscription.

Alright on the amplified digital advertising side I think the same thing is also true we're seeing some really good growth in topline revenue and amplified and the costs are not scaling is.

In correlation with that so we're seeing some margin improvement on the advertising side as well so I think that.

The bottom line as we move through our digital transformation, we are seeing a good.

Margin expansion of that digital business, which is great.

Gotcha and your digital subscription revenue was a little stronger than I was looking for.

You indicated that.

Trends are pretty positive there that you could even see some moderation in the second half I assume.

What's your target.

It seems like its like Youre trending above your guidance at this point, but might be just a little cautious.

And maybe you can add a little color. There and then also were there any rate increases in there that were effective in the quarter that might have accounted for a little bit better revenue trends.

Yeah.

Our 632000 digital only subscriber guidance.

It does imply some back half moderation and one of the things that we've always talked about as you were trying to drive units and rate trying to drive overall revenue and so this isn't going to be a perfectly linear unit growth because the polling right levers as well as the unit level.

So.

As we continue to grow revenue some quarters, we will see higher than expected.

That growth in some quarters, we expect higher than expected <unk> growth and what we saw in the second quarter was 20 plus percent growth in units and low double digit teen growth on rates, that's driving that.

39% growth in revenue and we expect that to continue in the back half.

Gotcha.

Good results. Thank you.

Alright, I have some questions on the web.

First question is are you considering and considering adjusting the frequency of your daily print products. This year.

Yeah. So so over the last three to four years, we have been able to retain a lot more of our print subscribers and more of our print subscription revenue relative to others in the industry and that said we are seeing unit declines accelerating in 2023, resulting in revenue trends closer to.

And what the rest of the industry has seen for a couple of years.

You may have seen we did announce one of our markets and move to produce a robust high quality print products three days, a week and we're reevaluating our print products with the goal of continuing to provide our local communities with robust high quality local news in the best possible print product in our <unk>.

Local market at the same time as managing the cash flow these revenue streams as they mature.

That is it from.

Questions over the web.

And with that I'd like to thank everybody for interest in Lee and thank you for joining the call today.

Yes.

That concludes today's conference call. Thank you all for joining you may now disconnect everyone have a great day.

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