Q4 2024 Lee Enterprises Inc Earnings Call
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Speaker Change: Welcome to the Lee Enterprises 2020 for fourth quarter webcast and conference call. This call is being recorded and will be available for replay at investors Dod lead dot net at the close of the planned remarks, there will be an opportunity for questions participants accessing this call by webcast.
Jared Marks: Submit written questions through the website and they will be answered during the call as time permits otherwise you will receive a response later a link to the live webcast can be found at investors Dod lead Dot net now I will turn the call over to your host Jared marks Vice President Finance.
Jared Marks: Good morning.
Jared Marks: Joining us in addition to myself speaking on this morning's call Kevin O'brien.
Jared Marks: And Chief Executive Officer, Tim Millage, Vice President, Chief Financial Officer, and Treasurer, and let Ottolenghi chief transformation and commercial officer.
Jared Marks: Nathan <unk> senior Vice President operations and audience strategy is also available to answer questions.
Jared Marks: Earlier today, we issued a news release with preliminary results for our fourth fiscal quarter of 2024.
Jared Marks: It is available at <unk> dot net.
Jared Marks: Well as major financial websites.
Jared Marks: Please also refer to our earnings presentations found at investors that Lee Dot net.
Jared Marks: Supplemental information.
Jared Marks: As a reminder, this morning's discussion will include forward looking statements based on our current expectations.
Jared Marks: These statements are subject to certain risks trends and.
And uncertainties that could cause actual results to differ materially.
Jared Marks: Such factors are described in this morning's news release and in our SEC filings.
Jared Marks: During the call.
Jared Marks: Certain non-GAAP financial measures.
Reconciliations to the relevant GAAP measures are included in the tables accompanying the release.
Speaker Change: Now to open the discussion is our president and Chief Executive Officer, Kevin Mowbray.
Kevin Mowbray: Thank you Gerry good morning, everyone and thank you for joining our call. This morning in 2024, we continue to lay a strong foundation for this future.
Kevin Mowbray: Digital first company in our last call, we shared an important milestone achieving the revenue inflection point, where our digital revenues surpassed our.
Kevin Mowbray: We made further progress on our digital revenue mix in the fourth quarter, reaching 51% total revenue representing a seven point improvement over the prior year quarter, our digital subscription business had an extremely strong year growing revenue, 41% on a same store basis.
Kevin Mowbray: Results proved once again, we were the <unk>.
Fastest growing digital subscription revenue platform in local media our.
Our digital marketing services business.
Kevin Mowbray: <unk> Digital agency grew 11% in the fiscal year and 21% in the quarter on a same store basis, and that's approaching $100 million annually.
Lee continues to lead the industry, our fourth quarter results outpaced the industry several key digital categories.
Kevin Mowbray: I'll also discuss later in the presentation, how we're demonstrating digital leadership with our new strategic partnerships.
Kevin Mowbray: Digital subscription revenue by 46% annually over the last three years nearly doubling the nearest industry here in 2024, we successfully achieved our digital subscription unit target of 771 and.
Kevin Mowbray: The latest strong foundation on our path to $1 2 million digital only subscribers by 2028.
Kevin Mowbray: On the advertising side MTG digital agencies revenue growth has significantly outpaced our nearest competitor growing an impressive 33% annually over the past three years.
Tim Millage: Industry, leading growth rates in these revenue streams are driving our digital transformation and it led to total digital revenue approaching $300 million for the fiscal year, which represents a 17% growth rate annually over the last three years and I'll pass it over to Tim.
Thanks, Kevin.
Tim Millage: He has a successful track record of effective cost management and in 2024, our business transformation efforts yielded $82 million in cost savings.
Tim Millage: While we remain focused on operational excellence.
Tim Millage: And margins in our legacy print business.
Tim Millage: Growing profit our main priority is to drive and drive long term sustainable revenue growth.
Tim Millage: Therefore, we continue to invest in talent and advanced technologies like artificial intelligence to drive revenue and maintain our dominant local market position.
Tim Millage: Next I'll move to the balance sheet.
Speaker Change: As we have discussed in prior calls we have a strong relationship with Berkshire.
Speaker Change: And that relationship included favorable credit agreement with a 20 year runway.
Speaker Change: Fixed interest rate.
Speaker Change: Financial performance covenants.
Speaker Change: These better than market terms allow us to stay laser focused on executing our strategy.
Speaker Change: We also continue to identify opportunities to monetize our noncore assets, which facilitates debt repayment.
Speaker Change: We closed over $13 billion of asset sales this year and have identified an additional $25 million of noncore assets to monetize.
Speaker Change: The monetization of these noncore assets will propel that production.
Speaker Change: As was mentioned earlier digital revenue now represents 51% of our total operating revenue.
Speaker Change: Digital revenue has grown more than 17% annually since 2021 and that has translated to 13% annual growth in digital gross margin.
Speaker Change: Our digital margins is also an impressive 72%, meaning our digital business is highly profitable.
Speaker Change: Replacing our print revenue with growing and profitable digital revenue will help us achieve long term sustainability and we are nearing that point.
Speaker Change: We expect by 2020, the gross margin from our digital products will exceed the company's SG&A costs.
Speaker Change: The growth in our digital business is expected to continue as we are still scratching the surface of the addressable market for digital subscription.
Speaker Change: Marketing services.
As a reminder, our growth strategy is poised to achieve total digital revenue up more than $450 million in 2028.
We expect digital revenue growth will be fueled by amplified digital agency growth.
Speaker Change: Subscription growth and new AI revenue opportunity.
Speaker Change: AI presents new and exciting monetization that we believe will help us achieve our long term outlook for 2028.
Speaker Change: More to come on that in a bit.
Looking more specifically to 2025 I would like to point, everyone to our outlook for total digital revenue and adjusted EBITDA.
Speaker Change: We expect total digital revenue to grow in the range of 7% to 10% next year.
Speaker Change: And we expect adjusted EBITDA to grow in the low single digits.
Speaker Change: With that I will turn it to Kevin to provide an update on our recently announced partnerships.
Kevin Mowbray: Hear me innovation strategic partnerships and relentless focus on growth, we're paving the way for Lee to lead the industry in this era.
Kevin Mowbray: AI driven transformation.
Kevin Mowbray: We all know there's a tectonic shift in technology underway traditional search as senior precipitous drop in the last nine months as consumers shift to add powered search engines Gartner predicts Google's general search to drop by 25% over the next 12 months. This isn't just a trend the paradigms.
Kevin Mowbray: Driven by the explosive growth impact agenda applications.
Kevin Mowbray: But folks like Perplexity open AIG Quad Genlyte in Microsoft Co pilot are redefining the search experience by providing context, rich personalized and highly accurate results in new discoveries.
This shift is not only about technology, but also about our user behavior as consumers are updating for AI powered tools with consuming news and information.
Kevin Mowbray: Lease role in this ecosystem is critical we are at.
Kevin Mowbray: At the forefront of granting local trusted hyper personalized content and advertising.
Kevin Mowbray: Time to act is now legal battles various lawsuits, while sometimes necessary rocket time consuming very costly and you're likely to get tied up to the court for years to come.
Kevin Mowbray: Focused on strategies that position us as leaders and collaborators in this transformation.
Kevin Mowbray: <unk> is uniquely positioned to become the last mile intermediary.
Kevin Mowbray: And content and advertising economy, we are at the connective tissue between advertisers subscribers and local markets are trusted hyper local content and relationships are assets no algorithm replicate.
Kevin Mowbray: Our new AI partnerships will enable us to enhance AD creative dynamically and deliver accurate targeted campaigns tailored to our local audience.
Kevin Mowbray: We will monetize enhanced AI driven content paywall subscriptions building loyalty rooted in our trusted brands.
Kevin Mowbray: We're asking now and working on a winning playbook with our new AI partners and the message is clear partnerships between content providers large language models are driving the next wave of innovation and revenue.
Kevin Mowbray: This is reflected in the massive and private investments illustrated on the chart.
Kevin Mowbray: Our combination of trusted news and information AI tools and strategic partnerships will create a framework for sustainable scalable economics in the evolving digital economy, we expect to generate early economics. This fiscal year, we're modeling revenue these partnerships.
Kevin Mowbray: Well the next 24 months and beyond.
Kevin Mowbray: I'd like to thank the team, especially less of a linear chief transformation commercial officer for the tireless work in getting US here today lessons out of Nashville job in getting these partnerships teamed up and advancing our position as a central bankers digital shifts that as leaders in shaping its future.
Speaker Change: And now I'd like to turn it over turn the call over to Wes to walk through in more detail. The details around these recent announcements on our AI partnerships.
Speaker Change: Good morning.
Wes: Pleasure to share the exciting news about Lee enterprises leadership progress and developments and artificial intelligence.
Wes: Lee Enterprises is fast becoming a pioneer in the <unk>.
Wes: Artificial intelligence ecosystem.
Leveraging partnerships that allow us to draw.
Wes: User engagement.
Wes: New advertising opportunities and deliberate economic growth through the power ethical use of advanced artificial intelligence.
Wes: AI rapidly shifts consumers away traditional search social media.
Speaker Change: He has recognized this market.
Speaker Change: And during the past four months was forged partnerships with believing AI platforms.
Speaker Change: Culminating in agreements with Park city.
Speaker Change: Pro rata AI and Amazon Web services.
Speaker Change: At this very early stage.
Speaker Change: These partnerships provide.
Speaker Change: Access to powerful hyper personalization.
Speaker Change: <unk> and advanced advertising technologies.
Speaker Change: But more importantly.
Speaker Change: These partnerships expand <unk> core.
Speaker Change: Business by connecting our news.
Speaker Change: Content and advertising to the new bar, reaching AI distribution channels.
Speaker Change: And at the local level these industry leading.
Speaker Change: First to market partnerships provide me with the necessary AI search.
Speaker Change: Answer systems.
Speaker Change: <unk> market share from legacy web media companies and enrich leaves local market positions.
Speaker Change: Consequently on December four leak took its first step towards extending <unk> content into AI distribution networks with the announcement of a partnership perplexity.
Speaker Change: <unk> is the fastest growing AI search with over 440 million searches per month.
Speaker Change: Staffing growth from 300 million to $9 billion valuation.
Speaker Change: Based on the value of its distribution reach.
Speaker Change: So Lee and Perplexing agreement.
That robust.
Speaker Change: Ported content payment models.
Speaker Change: On December nine.
Speaker Change: Now an agreement with pro rata.
Speaker Change: And it specializes in content attribution and payment systems as well as the most advanced local AI search and answer engines.
Speaker Change: Lee and pro rata highly aligned in our perspective.
Speaker Change: Consumers need for community focused local news.
Speaker Change: <unk>.
Speaker Change: Consequently, the pro rata agreement enables lead to use AI in our local markets and take advantage of the dismantling of traditional search through hyper personalized content to advertise that will enable <unk> to capture even greater market share.
Speaker Change: Finally with.
Speaker Change: With a very excited to announce but we formalized next week.
Speaker Change: We have an agreement with Amazon Web services support the technical demands for all of our AI partnerships, including access to state of the art AI tools for Jennifer to AI based advertising.
Speaker Change: At the heart of all three agreements is the recognition that we stand as the bridge to the last mile to the consumers attention.
Speaker Change: Lee is the interface between the consumer and the world of AI.
Speaker Change: My contact.
Speaker Change: Our competitive advantage is our expertise.
Speaker Change: Patient and physician at local markets.
<unk> the ability to leverage AI through partnerships that deliver new value drivers for our shareholders.
Speaker Change: In the coming quarter, we expect additional AI partnership announcements, including co development product and new distribution channels.
We look forward to next quarter and the opportunity to share more exciting news about these future.
Kevin Mowbray: I'll turn it back over to Kevin.
Kevin Mowbray: Thank you Les your innovation strategic partnerships and relentless focus on growth we are paving the way for leads lead the industry in this.
Speaker Change: Digital transformation. This concludes our remarks tmall named online three questions. You may have operator, please open the line for questions.
Speaker Change: 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.
Speaker Change: One moment, please while we poll for questions.
And our first question comes from Daniel Herman with Sidoti <unk> Company you May proceed.
Daniel Herman: Thank you Hey, guys. Good morning, Thanks for taking my questions.
Speaker Change: Just kind of broadly here and I realize you're still in the early innings of these partnerships with AI, but how should we look at future investment as in are you going to be able to save significant investment by by partnering up with leading AI technology companies and then kind of along the same lines.
Speaker Change: Again, realizing it's very early in these announcements have just come out but.
Speaker Change: Should we expect any impact on these announcements in terms of your fiscal 2028 digital goes or for the time being should we really assume the same but <unk> been saying recently.
Speaker Change: And then just finally I know you reached your digital subscriber count goal for the year.
Speaker Change: But I didn't see the exact number as of the fourth quarter and if I missed it I'm sorry, but if you could just let us know that that would be helpful. Thanks a lot.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Thanks for the question Danielle I'll start with your first one regarding <unk>.
Speaker Change: Strategic partnerships in our digital investments what I'd say is these partnerships don't necessarily change our forward looking level of investment, but gave us a lot of access to AI technology.
Speaker Change: We would not have had access to.
Speaker Change: Also on your second question regarding our long term targets.
These partnerships increased our confidence in our achieving our long term growth targets.
Provide us access to AI for commercial use and as well as to use from an operational perspective.
Speaker Change: Can you also provide us early economics into the AI AD model, which is anticipated to grow significantly as traditional search decline.
All that said it is early.
Speaker Change: On the advertising model shift, but these partnerships do give us optimism.
Speaker Change: And our overall results ill turn it over to Wes if you have anything else to add before I answer your question.
Wes: Yes, I would.
Wes: That.
Wes: Partnerships minimize our upfront costs by leveraging pay per use models.
Wes: Revenue sharing agreements.
Wes: This approach really lets us scale technology.
Wes: While keeping our spending tied to revenue growth and within budget constraints.
Wes: And then your last question on the digital subscription we're at 771000.
Speaker Change: I appreciate the questions Daniel.
Speaker Change: Okay. Thanks, so much guys I appreciate it and congrats on these recent announcements that's fantastic.
Speaker Change: We will now take our first question from the web.
Question is.
Speaker Change: As Brent revenue profitable on an operating basis.
Speaker Change: Yes.
Speaker Change: Good question I would point you to slide seven in our fourth quarter earnings supplement that talks about the growth of our digital margin and you can see the difference between our digital margin overall margin is the result of the profitable print business.
Clearly it's on.
Speaker Change: Aligning trend due to secular trends in.
Speaker Change: We continue to manage that.
Speaker Change: As best we can.
Speaker Change: With that we have no more questions alternative to Kevin for any closing remarks. Thank you for joining the call and thank you for your interest in Lee really appreciate your time.
Thank you at this time, we have reached the end of our question and answer session. This concludes our call.
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