Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lee Enterprises Inc (LEE, Financial) achieved a significant milestone in its digital transformation, with digital revenue surpassing print revenue in the third quarter.
- Digital subscription revenue grew 34% year over year, with digital subscribers increasing by 23%.
- The company's digital agency, Amplified Digital, saw a 12% growth in the third quarter, contributing to a 37% annual growth rate over the last three years.
- Total digital revenues reached nearly $290 million over the last 12 months, marking a 17% annual growth rate.
- Lee Enterprises Inc (LEE) has effectively managed costs, leading to an 8% reduction in cash costs compared to the prior year.
Negative Points
- Total print revenue declined by 22% year over year, reflecting ongoing challenges in the print business.
- The company had to update its adjusted EBITDA outlook to $73 million to $78 million due to the lagging print business.
- Despite the digital growth, the company still faces volatility in the print business, impacting overall financial performance.
- The principal amount of debt remains high at $453 million, although it has decreased by $3 million year to date.
- There is uncertainty surrounding the closure of identified non-core asset sales, with some expected to close in 2025.
Q & A Highlights
Q: Congratulations on the digital inflection. Can you remind us about the cost savings expected this year?
A: (Timothy Millage, CFO) We have $75 million to $85 million in business transformation savings forecasted for FY24. We monitor print expenses closely to align costs with revenue streams. With the decline in print, we've improved cost guidance by $20 million on the low end, reflecting tightened costs primarily within the print business. This aligns with our digital transformation, reducing reliance on volatile print revenue.
Q: Regarding the $25 million in non-core asset sales, will the balance close in '25 if not in '24?
A: (Timothy Millage, CFO) There's always uncertainty with commercial real estate, but we are optimistic about closing the remaining assets in 2025. Lower interest rates and construction costs will help. We will continue to evaluate our real estate portfolio to potentially increase that amount.
Q: Can you elaborate on the digital revenue growth and its impact on overall financials?
A: (Kevin Mowbray, CEO) Digital revenue streams grew year over year, surpassing print revenue. Digital subscriptions grew 23%, and digital subscription revenue increased 34% year over year. Our digital agency, Amplified Digital, grew 12% in the third quarter. Total digital revenues reached $290 million over the last 12 months, growing at 17% annually.
Q: What are the key drivers behind the digital subscription growth?
A: (Kevin Mowbray, CEO) Our hyper-local content is a key driver, providing robust monetization opportunities through subscriptions, advertising, and potential content licensing agreements. We now have over 748,000 digital subscribers, up 23% from the prior year. Digital subscription revenue has grown 43% annually over the last three years.
Q: How are you managing the decline in print revenue?
A: (Timothy Millage, CFO) Total print revenue declined 22% year over year but showed a modest sequential improvement. We manage costs carefully, leading to an 8% reduction in cash costs compared to the prior year. Our focus remains on operational excellence and reducing the cost structure of our legacy print business.
Q: What is the outlook for digital revenue and subscriber growth for the rest of the year?
A: (Timothy Millage, CFO) We remain on track to deliver our total digital revenue and digital subscriber targets for the year. We expect to end the year with 771,000 digital subscribers. Improving digital advertising markets and potential incremental spend due to competitive political races in our markets position us well.
Q: Can you provide more details on the favorable terms of your credit agreement with Berkshire Hathaway?
A: (Timothy Millage, CFO) Our credit agreement with Berkshire Hathaway has a fixed interest rate and a 25-year maturity, providing flexibility to invest in talent and technology for digital growth. This agreement has been beneficial in the rising rate environment over the last few years.
Q: What are the long-term goals for digital revenue sustainability?
A: (Kevin Mowbray, CEO) By 2026, we expect the gross margin from our digital products to exceed the company's remaining SG&A costs. Within two years, we anticipate digital revenue will cover all cash costs, excluding print. Our digital businesses are highly profitable, with a digital margin of 72%.
Q: How do you plan to continue driving digital transformation?
A: (Kevin Mowbray, CEO) Our three-pillar digital growth strategy guides our transformation. We invest in talent and technology tied to our digital future and remain committed to high-quality hyper-local news. We will continue to update on our progress towards digital sustainability in the coming quarters.
Q: What are the expected cost savings from business transformation efforts in fiscal year '24?
A: (Timothy Millage, CFO) We expect business transformation efforts to yield between $75 million and $85 million in cost savings for fiscal year '24. This includes effective cost management and operational excellence, particularly in reducing the cost structure of our legacy print business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
