Q1 2025 Lee Enterprises Inc Earnings Call

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Speaker Change: Welcome to the Lee Enterprises, 2025, first quarter webcast and conference call the cars be required and will be available for replay at investors Dr. Lee Dot net.

Speaker Change: At the close of the pen remarks, there'll be an opportunity for questions participants in accessing this call by weight class B submit written questions through the website and then will be answered during the call at time permits otherwise.

Speaker Change: Otherwise you will receive a response later.

Speaker Change: A link to the live webcast can be found at Investor <unk> Dot not now.

Gerrit Marx: Now I'll turn the call over to your host Gerrit Marx Vice President Finance.

Speaker Change: Good morning, Thank you for joining us in addition to myself speaking on this morning's call are Kevin Mowbray, President and Chief Executive Officer, Tim Millage, Vice President and Chief Financial Officer, and Treasurer, and less Alimi, chief transformation and commercial officer.

Speaker Change: Earlier today, we issued a news release with preliminary results for our first fiscal quarter of 2020, but is available at <unk> dot net as well as major financial websites.

Speaker Change: Please also refer to our earnings presentation found at investors that we met which includes supplemental information.

Speaker Change: As a reminder, this morning's discussion will include forward looking statements.

Speaker Change: Our current expectations.

Speaker Change: These statements are subject to certain risks trends and uncertainties that could cause actual results to differ materially.

Speaker Change: Such factors are described in this morning's news release and in our SEC.

Speaker Change: SEC filings.

Speaker Change: During the call we refer to 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: Thanks, Gerry and good morning, everyone. Our team made great progress driving our digital transformation board, while continuing to serve our communities with trusted high quality local journalism.

Kevin Mowbray: Last call, we shared how we did that leveraging artificial intelligence to enhance our digital transformation strategy and excited to again have lesser Lee our chief transformation, a commercial officer on the call today.

Kevin Mowbray: We'll share more about how he is transforming how we engage with our customers scale our advertising opportunities.

Kevin Mowbray: The use of AI.

Kevin Mowbray: Lee has consistently outpacing our industry peers and several important measures of digital growth, both digital subscriptions and digital agency revenue digital subscription revenue grew 46% annually over the last three years nearly doubling the nearest illustrated here.

Kevin Mowbray: On the advertising side and by digital agency revenue has significantly outpaced our nearest year growing 33% annually for the past three years total digital revenue was $302 million on a trailing 12 month basis, including $102 million within the amplified digital agency.

Kevin Mowbray: Our first quarter digital revenue grew 5% year over year with each stream of digital revenue showing growth.

Kevin Mowbray: Digital subscription revenues continued to lead our strong growth growing 40% year over year, our digital revenue is diverse and growing on our first quarter results puts us in a bit.

Kevin Mowbray: Advantage the AI partnerships, we have.

Les: Nature, we've made and I'd like to pass the call over to Les.

Les: Thanks, Kevin.

Les: Building on the momentum from our last earnings call, we've made significant advances.

Les: AI driven personalization for our readers.

Les: Business technology for our advertisers.

Les: For our readers and subscribers we've developed.

Les: Next generation AI personalization system.

Les: Powered by AI search and AI answer edge technology.

Les: Our partnerships with complexity and AWS.

Les: This system enhances how users interact with our content.

Les: Ensuring these trusted journalism more relevant.

Speaker Change: Gauging and accessible than ever before.

Les: As part of this we're testing a hyper personalized consumer user experience.

Les: Powered by AI and.

Speaker Change: Lease extensive news now.

Les: Currently we are testing across our major markets.

Les: Expanded testing throughout the quarter.

Les: There's more to come in the next couple of quarters and early test results are promising with adoption rates already 85% among engaged.

Les: Users demonstrating strong demand for AI enhanced user experience.

Les: On the advertising side, we've launched spark sites.

Les: And AI powered website platform, a transformed business pages into dynamic search and answer hubs.

Les: This technology provides businesses with a competitive advantage.

Les: User engagement and time spent on their site by a factor of five to one.

Les: Paired to traditional specialized cockpit websites.

Les: In addition, we're excited to announce that AI enablement program or AI boost and new AI powered advertising automation solution to generate high quality content for our businesses.

Les: The AI boost program will begin creating automated text based advertising and marketing costs.

Les: Insuring businesses maximize visibility across the emerging AI search channels and traditional global web search.

Les: As we progressed into 2025 this product will expand and will include automated podcast and video content creators, providing advertisers with a full suite AI driven content solutions to enhance their brand presence.

Les: Complementing this launch we will introduce small and medium business AI.

Les: And resource sector.

Les: Which will include new AI powered marketing tools and advertising automation solutions to help businesses scale their digital presence more effectively.

Les: There is more details to come and that will be shared in the next quarter.

Les: At Lee Enterprises, we remain committed to leveraging AI to create value for our readers.

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Les: Shareholders driving both engagement revenue.

And growth.

Les: More to come for the next quarter.

Les: Our AI driven expansion.

Ken: Next I'll pass the call over to Ken.

Ken: Thank you.

Ken: Digital revenue has grown more than 17% annually.

Ken: Why 21 and that has translated into 13% annual growth in digital gross margin.

Ken: Our digital margins is also an impressive 70%, meaning our digital businesses are highly profitable.

Ken: Replacing upfront revenue with growing and profitable digital revenue will help us achieve long term sustainability and we see that on the horizon in the next year or two.

Ken: Speaking to the quarter's results total operating revenue in the first quarter was $145 million.

Ken: Total digital revenue continued to show growth over the prior year.

Ken: Up 5% led by a 14% revenue growth in both the digital subscription revenue and amplified digital revenue.

Ken: As mentioned it is still early days with our AI partnerships. However, we expect to accelerate digital revenue growth in the last three quarters of FY 'twenty five achieving our outlook of 7% to 10% growth year over year.

Ken: Moving over to the cost side, we have a successful track record of effective cost management.

Ken: We remain focused on operational excellence and driving margin in our legacy print business. However, our main priority to drive long term sustainable digital revenue growth.

Ken: Investments in AI will drive new revenue and maintain our dominant position in the local market.

Ken: And we've proven year after year, we expect our investments to be more than offset by cost saving efforts on the legacy side of our business.

Ken: Continuing that track record, we have identified $40 million in annual cost reduction that will be executed by the end of the second quarter.

Ken: On the debt over to the balance sheet, our credit agreement with Berkshire Hathaway includes favourable terms, including a 20 year runway a fixed interest rate.

Ken: Financial performance covenants.

Ken: These better than market terms allow us to stay laser focused on executing our strategy.

Ken: We also continue to identify opportunities to monetize our noncore assets, which improves liquidity and facilitate accelerated debt repayment.

Ken: In the first quarter, we closed over $5 million of asset sales and another $1 million deal has already been closed in December.

Ken: We have identified an additional 25 million of non core assets to monetize in the mall.

Ken: Monetization of these assets will provide a significant source of liquidity and 2025.

Ken: As a reminder, three pillar growth strategy is poised to achieve total digital revenue of more than $450 million by 2028.

Ken: As Kevin mentioned earlier, our first quarter results showed $302 million of annualized and digital revenue.

Ken: Administrative we are well on our way to achieving our total digital revenue target.

Ken: Achieving our long term outlook will come from continued growth in the digital subscription revenue.

Ken: Amplified digital agency revenue growth and new AI revenue opportunity.

Ken: Okay.

Ken: Looking at the full year I would like to remind everyone of our 2025 outlook for total digital revenue and adjusted EBITDA.

Ken: We expect total digital revenue growth in the range of 7% to 10% and.

Ken: And we expect adjusted EBITDA to grow in the low single digits.

Kevin Mowbray: And with that I will turn the call back to Kevin for closing comments.

Kevin Mowbray: I'd like to reiterate my gratitude to the entire lead team for the progress we've made on our digital transformation. We're paving the way for me to lead the industry in this era of AI and digital transformation.

Kevin Mowbray: This concludes our remarks for the key markets on the line for any questions. You may have operator. Please open the line question.

Speaker Change: Thank you at this time, we will be conducting a question and answer session. As a reminder, if you are.

Speaker Change: Accessing this call by webcast you may submit questions on your screen.

Speaker Change: Those questions will be answered during the call as time permits.

Speaker Change: One moment, please while we poll for questions.

Speaker Change: And our first caller comes from the line of Daniel Herrmann from Sidoti and company. Your line is now open.

Daniel Herrmann: Hey, Thank you Hey, good morning, guys. Thank you for taking my questions.

Daniel Herrmann: Just a couple ones and I'll start with one for Les obviously, a lot going on with the AI and I understand that you may not be able to share everything right now, but can you just talk about.

Daniel Herrmann: Kind of a plan to monetize your AI library, and any potential launches we could be looking for in your second fiscal quarter and then just any value proposition that you may be providing to your advertising customers in conversations that youre, having with them.

Speaker Change: And then my second question would be more for for Tim and Kevin and Thats. Just if you could provide a little bit more information on the cost initiatives that you've identified for 2025.

Speaker Change: As well as your confidence in hitting the range of our digital revenue growth that you provided along with EBITDA I understand that the most recent quarter was a little bit challenging.

Speaker Change: But any information on that and then as well.

Speaker Change: I didn't see it in the release and if I missed it I'm, sorry, but just how.

Speaker Change: How many digital subscribers did you or did you end the quarter with thanks guys.

Speaker Change: Okay.

Speaker Change: Certainly.

Speaker Change: So.

Speaker Change: With regards to our library of content.

Speaker Change: We're evaluating what is the highest return obviously that we get for our corpus of information to use and everything that is a core asset of the business. So we're taking all the right steps to NOI.

Speaker Change: Yes.

Speaker Change: Could possibly get.

Speaker Change: What more correct partners it will continue that opportunity into the future.

Speaker Change: We think theres a lot of yields in our content and obviously, we want to get the most out of it but right now the closest proximity to revenue opportunity.

Speaker Change: <unk>.

That's where our advertisers gain the benefit of the relationships, we've already established with perplexity pro rata and being able to list their content in those search and answered answers. So that they can establish their next best position in the digital marketplace.

Speaker Change: And as global search now transitions to VIX surged answer engine powered by AI.

Speaker Change: We're the first company getting there to provide that capability. So we feel very strong about this program.

I think just in general as we see lots of other changes moving into what is called the white space applications.

Speaker Change: Applications AI not just the large language models, we're really well positioned better than anybody in the industry to take advantage of that more crude that already with the test of our personalized services.

Speaker Change: I can jump into your data your question regarding our confidence in our outlook for FY 2025.

Speaker Change: You mentioned the cost side, I think thats one aspect of that.

Speaker Change: That gives us confidence that the overall, there's three things that I would point to.

Speaker Change: That gives us confidence in achieving our full year guidance number one.

Speaker Change: To gain scale from our core digital businesses, that's amplified debts are digital only subscription revenue.

Speaker Change: You both of those revenue streams grew 14% year over year in the first quarter, our fastest growing revenue category, they make up 36% of our revenue in the quarter continuing to gain scale.

Speaker Change: On the unit side, you asked about units digital subscription units were up 8% and totaled 774000.

Speaker Change: The second item that.

Speaker Change: It gives us confidence in achieving our full year guidance as what <unk> just talked about is accelerating our growth due to the AI initiatives, specifically, the <unk> program and other programs.

Speaker Change: As the opportunity to accelerate digital revenue growth in orders to more than.

Speaker Change: Or as well.

Speaker Change: That can help accelerate revenue trends and then the last point is on the cost side.

Speaker Change: We've identified $40 million of costs annualized cost that we are evaluating and expect to execute over the by the end of the second quarter.

Speaker Change: A number of things, including optimizing our print business and driving efficiencies through additional technology like <unk> and others. So gives you a little flavor as to how we're thinking about FY 'twenty five.

Speaker Change: The company has achieved.

Speaker Change: Okay, guys that was really helpful. Thank you and best of luck in the coming quarter.

Speaker Change: Okay.

Speaker Change: Great. Thank.

Speaker Change: Thank you Daniel.

Speaker Change: We have no questions on the web I will turn it back to Kevin for closing remarks, well. Thank you all for joining US. This morning, we remain keenly focused on transforming our business for the long term benefit of our shareholders our employees, our readers and our efforts.

Speaker Change: Appreciate your time this morning.

Speaker Change: Thanks again for joining the call.

Speaker Change: Thank you at this time, we have reached the end of our question and answer session. This concludes our call.

Speaker Change: Okay.

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