Lee Enterprises, Incorporated
Q2 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Welcome to the Lee Enterprises, Inc. Second Quarter 2021 Conference Call. The call is being recorded and will be available for replay beginning later this morning at lee.net. At the close of the planned remarks, there will be an opportunity for questions. A link to the live webcast can be found at investors.lee.net. Now I'll turn the call over to your host, Josh Rinehults, Vice President, FP&A. Please go ahead, sir.

[Josh Rinehults:]

Good morning and thank you for joining us. Speaking on this morning's call is Kevin Mowbray, President and Chief Executive Officer; and Tim Millage, Vice President, Chief Financial Officer and Treasurer. Also with us on today's call and available for questions is Nathan Bekke, Vice President, Consumer Sales and Marketing.

[Kevin Mowbray:]

Thank you, Josh. Good morning and thank you all for joining the call. I'm extremely proud of the velocity at which our team is moving, the engagement we're seeing in our local markets, and our three-pillar digital growth strategy that we discussed with all of you in early April. Our second quarter results reflect that performance, as we saw continued sequential top line revenue trend improvement, strong cost management, and adjusted EBITDA growth for the first time in several years. Total operating revenue improved 280 basis points for the first quarter as we remained keenly focused on executing on our three-pillar digital growth strategy. In the second quarter, nearly 50% of our revenue was annualized recurring revenue, which totaled $95 million in the quarter. Total digital revenue was $59.5 million in the quarter up nearly 30% and represented 31% of our total operating revenue. Digital subscriptions continue to grow at a rapid rate up 58% compared to the prior year and we grew digital only subscription revenues, 68% as well. We now have 309,000 paid digital subscriptions, which is helping us drive audience revenue performance. These metrics demonstrate where the fastest growing digital subscription platform in local media. Each month in the second quarter, we saw sequential growth in total paid subscribers. This means that the growth of our digital only subscribers is outpacing the declines of our full access subscribers returning to total paid audience growth is a significant milestone for Lee. As we continue to drive our digital transformation efforts. Audience revenue in total was up 1.8% compared to the prior year as a result of the strong yield management of our full access subscriptions and the 58% digital only subscriber growth in the quarter.

[Tim Millage:]

Thank you, Kevin. And good morning, everyone. We continue to diligently manage our cost structure at the same time as making the necessary investments to fund our digital growth. In June of last year, we laid out a target to achieve $100 million in cost synergies by the end of fiscal year 2021. We established plans and executed quickly. And at the end of the second quarter, we've achieved $110 million in cost synergies exceeding our target. Total cash spots were down 9.1% in the second quarter compared to the same quarter, last year, compensation was down 8% due to business transformation and acquisition integration initiatives. Newsprint and ink expenses down 26% due to a reduction in our print units, as well as pricing. Other cash costs includes print related costs like print production expenses and delivery expenses. And it also includes expenses related to the digital and technology investments we have made. Other cash costs were down 8.4% in the quarter, due to a reduction in print related costs, partially offset by the incremental digital investments. As a result of the strong revenue performance, Kevin walked through and cost management that I discussed, adjusted EBITDA total $24.1 million in the second quarter, up year-over-year for the first time in several years, for the year-to-date period adjusted EBITDA totaled of $64.1 million. With strong cash flow in the quarter, we have strengthened our balance sheet. Debt was reduced $24.6 million in the second quarter, and the principle amount of debt at the end of March totaled $498.9 million. Over the last nine months that has been reduced by $77.1 million. Also while not seen in our balance sheet yet, as we revalue our pension liability at fiscal year end, in accordance with GAAP, our tension and postretirement benefit obligations at the end of March, are in a net overfunded position. This is a significant improvement in our balance sheets since September 2020, where the net underfunded position was $95 million. As a reminder, our credit agreement has a low fixed annual interest rate, a 25 year maturity, no fixed mandatory principal payments and does not have financial performance covenants. Meaning we do not have events of default tied to leverage or other maintenance ratios derived from financial performance of the company. Most importantly, the debt is with a single vendor who knows us well and is committed to our success. The credit agreement also has no prepayment penalties, which affords us the ability to evaluate credit market conditions for an opportunistic refinancing in the future to further improve our debt structure.

[Operator:]

Thank you.

[Josh Rinehults:]

Okay. Our first question is. Is Lee participating in Facebook or Google's programs to support news?

[Kevin Mowbray:]

Yes, we are last fiscal year we received grants from both Facebook and Google to support our newsroom's digital transformation, and they total about $300,000.

[Josh Rinehults:]

Our second question is that, are print advertising revenues increasing or decreasing, and are the trends uniform across your properties?

[Tim Millage:]

What I say is our total advertising revenue trends are improving significantly since the worst of the pandemic in the third quarter of last year. You know, as a reminder, third quarter trends were down 39%, third quarter last year, and we've significantly improved those trends, you know, going through every quarter since then. In the second quarter of this fiscal year, advertising revenue trends were down 16.3%. So showing some significant improvement and getting back to kind of the pre-pandemic levels, which we expect to see in the latter half of fiscal year, 2021.

[Josh Rinehults:]

Our next question is, what trends are you seeing in print circulation numbers? And if they're dropping is the digital subscription revenue enough to offset it?

[Kevin Mowbray:]

Yes, as I mentioned in my remarks today, our total paid units are actually up year-over-year and our circulation audience revenue is up 1.8% compared to the prior year quarter.

[Josh Rinehults:]

That concludes the question-and-answer session, I'll turn it over to Kevin for some closing remarks.

[Kevin Mowbray:]

Well, thank you for joining us on the call today. As I mentioned earlier, we remain focused on executing at a high level and we're keenly focused on transforming our business models for the long-term benefit of our employees, our readers, or advertisers and our investors. We appreciate your time you've invested in Lee. And thank you again for joining the call today.

[Operator:]

Thank you. Ladies and gentlemen, at this time we have reached the end of our question-and-answer session. This concludes our call.