Welcome to the Lee Enterprises 2022 First Quarter Webcast and Conference Call. The call is being recorded, and will be available for replay beginning later this morning at investors.lee.net. At the close of the planned remarks, there will be an opportunity for questions.

Participants accessing those call via webcast may 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.lee.net. Now, I'll turn the call over to your host, Josh Rinehults, Vice President of Finance..

Good morning. And thank you for joining us. Speaking on this morning's call are 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 Audience Strategy.

Earlier today, we issued a news release with preliminary results for our first fiscal quarter of 2022. It is available at lee.net as well as at major financial websites. We will be walking through an earnings presentation on today's call that can also be found at lee.net.

As a reminder, this morning's discussion will include forward-looking statements that are based on our current expectations. These statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially. Such factors are described in this morning's news release and also in our SEC filings.

During the call, we refer to certain non-GAAP financial measures including adjusted EBITDA and cash costs, which are defined in our news release. Reconciliations to the relevant GAAP measures are included in tables accompanying the release. And now I'll open the discussion to our President and Chief Executive Officer, Kevin Mowbray.

Kevin will open the conversation on Slide 3 of the earnings presentation for those following along..

Thank you, Josh. Good morning, everyone. I'm pleased you to join us. Before we dive into the agenda you see on this slide. I want to note that this call is focused on our first quarter results, growth strategy and outlook. We won't be commenting on all the global capital during our prepared remarks or in our Q&A.

For more information on this, we encourage you to review our 2022 definitive proxy statement and related announcements, which are on file with the SEC. And in it and also available on our 2022 Annual Meeting section of our Investor Relations website. We appreciate your cooperation.

Our agenda begins with an overview of Lee's compelling investment thesis, including the progress we've already made in our digital transformation, and a review of our three pillar digital growth strategy. Then I'll hand the call over to Tim to review our first quarter results and fiscal 2022 guidance in detail.

At our core, Lee Enterprises is a leading provider of digital products and services, and high quality trusted local news and information to communities across the country. Seven out of 10 adults in our markets depend on the local, relevant and engaging local news that only we provide.

Our platforms reach more than 47 million unique visitors each month across 77 attractive, mid-sized markets. With a strong presence as a trusted source of information the communities we serve, combined with a cutting edge digital capabilities is the foundation of our digital transformation.

The success of our transformation is reflected in the continued rapid growth of our digital subscriptions, and digital only audience revenue. We are the fastest growing digital subscription platform and local media.

We achieved an exciting milestone in the first quarter reaching 450,000 digital only subscribers representing 57% year-over-year growth and exceeding the halfway mark of our target of securing 900,000 digital only subscribers in 2026. And our Amplified Digital Agency is delivering dramatic growth.

Digital advertising and marketing services revenue totaled $43 million in the quarter fueled by a dramatic growth from our Amplified Digital Agency. Adjusted for one time political revenue, digital advertising and marketing services revenue increased 30% year-over-year. Total digital revenue increased 17% year-over-year to $55 million.

Total digital revenue comprise of digital advertising and marketing services revenue, including amplified. Digital only subscription revenue and digital services revenue is one of several metrics we're providing to give better transparency and clarity on our digital transformation progress.

We're continuing to prove out the strength of our business model, and our revenue profile with success in growing subscriptions, which generate a steady base of recurring revenues. Lee Group subscription based revenue to $107 million in the quarter, representing 53% of our total operating revenue.

Under the guidance and oversight of our Board of Directors, our leadership team, continued execution of our growth strategy sets the stage for significant long-term value creation. We're very pleased with our results and the progress we're making towards the target in our Three Pillar Digital Growth Strategy.

Slide 5 is an overview of the Three Pillar Digital Growth Strategy that's guiding our transformation to a vibrant, digital-centric company. We're focused on expanding our digital audiences, growing our digital subscription base and revenue and diversifying, expanding our offerings for local advertisers.

We expect that continued execution of our strategy will drive more than $435 million and recurring sustainable digital revenue by 2026. We launched our Three Pillar Strategy in early 2021.

As you can see, on Slide 6, we made tremendous progress throughout the fiscal year 2021 including industry leading growth in digital subscribers, and digital agency revenue. For fiscal 2021, total digital revenue grew to $189 million.

As you saw in our results this morning, and as Tim will speak to in more detail, Lee is accelerating this momentum in fiscal 2022. Execution on our Three Pillar Digital Growth Strategy is at the core of the value we're creating for shareholders as shown on Slide 7.

Sustainable long-term revenue growth from our three pillar initiatives will drive margin expansion and stronger free cash flow, which will fuel our continued debt reduction and balance sheet enhancements.

Enhanced operating cash flow and profits have strengthened balance sheet and multiple expansion feel by increasing recurring high margin digital revenue creates a strong path to significant long-term value creation for our shareholders.

With that overview I'll dive a bit deeper into the initiatives supporting each of the three pillars of our digital growth strategy. Our strategy leverages Lee's key strengths.

Our local market expertise, our industry leading digital revenue growth, and our commitment to the highest quality means to build a larger recurring revenue base and generate long-term top-line growth.

This growth expected to achieve $435 million of digital revenue in 2026 is driven by increased digital subscriptions from initiatives in Pillar 1 and 2 and increase digital advertising revenue from Pillar 3. Slide 10, offers an in depth look at Pillar 1 focused on expanding digital audiences.

With investments and user experience, multi-media presentation format, and rich high value content. We're driving higher engagement, outsize traffic, and monetization. As noted in our press release, video revenue was up 98% in the quarter.

This is off a modest base that is indicative of the attractive opportunities we have leveraging our trusted brands, strong market positions and in house capabilities. To continue to make value-added investments to drive additional growth.

This is important as it aims to increase digital audiences thereby increasing the addressable market for digital subscribers. is the expansion of our base of digital only subscriptions and revenue by converting more of our vast addressable market to subscribers.

We're leveraging cutting edge date and technology and expanded offerings for paid niche content on topics where we have expertise and unique selling positions. These tactics are driving increase in total subscribers and position us to achieve our goal of reaching 900,000 digital only subscribers by the end of 2026.

And as I mentioned earlier, Lee is already more than at the halfway mark of this target. At the end of the first quarter of 2022, Lee had 250,000 digital-only subscribers and 57% increase year-over-year, reaching 900,000 digital-only subscribers increasing our average digital subscription rates our important goals in Lee digital transformation.

And increasing the base of our subscription based digital revenue. We expect to reach an inflection point next year, when our digital-only audience will overtake print subscriptions and make up the majority of our subscriptions overall.

As shown on Slide 12, growing digital subscribers requires both expanding our addressable market and strengthening our visitor to subscriber conversion rates.

In addition to offering more attractive niche subscriptions that appeal to targeted audience, we're also deploying advanced email and social media strategies using our extensive first-party data and technology developed by TownNews, our SaaS content platform. These efforts are focused on a huge attractive addressable market.

Today we have 47 million unique visitors each month. 12 million loyal readers with more than two visits per month, and 2.4 million highly engaged readers with four more visits each month. Our goal is to turn these readers into base of 900,000 digital subscribers, generating strong recurring revenues. And as I mentioned, I'm more than halfway there.

We're converting readers into digital subscribers faster than our peers. As you can see on Slide 13, Lee's digital subscription growth far outpaces Gannett and the New York Times for 12 quarters running.

This demonstrates a strong track record of high level execution and coupled with talent and technology investments, we believe we will continue to be an industry leader.

Our continued momentum makes us confident in our ability to reach 900,000 digital subscribers in 2026 because it only requires converting a modest portion of our total addressable market.

Importantly, while we predict a burst and steady climb in digital subscribers, we expect to deliver even faster revenue growth over the period through a modest increase in our approach.

As we execute our Pillar 2 plans, including targeted offers, premium pricing for niche products, using data and analytics and maximizing pricing actions, we believe we have a clear path to grow our digital only recurring sustainable subscription revenue to $100 million in 2026, representing a 29% combined average growth rate.

To sum on Slide 15, we have already established a record of accelerating digital subscription growth and with planned incremental investments in talent and technology, we're on track to reach our goal of 900,000 paid digital only subscribers in 2026.

Continued execution of that strategy is expected to generate recurring sustainable digital subscription revenues exceeding $100 million. Turning to Slide 16, our third pillar focus on diversifying expanding our offerings for advertisers. And we're doing that in two ways.

First, to amplify our full service omni channel digital marketing agency that provides local advertisers with sophisticated custom solutions including consulting, media buying and analytics.

Second, by maximizing our owned and operated revenue opportunities on these digital platforms, our owned and operated properties attract massive audiences through offering more video inventory, and branded content to boost our digital ad revenue.

Both of these initiatives and supported by Lee's Vision platform, Vision is a proprietary sales enablement tool powered by Amplified Digital, with our strategic partnership with Mudd Advertising, a medium full service automotive advertising agency with Lee's Innovative Vision Platform to enable its partners to fully support cross channel marketing efforts.

Industry wide omni channel advertising for local advertisers is expected to continue to continue with double-digit growth in the next two years. The Vision platform allows us to capture the significant growth in this category and The Vision Platform has absolutely transformed local advertising for the enterprises.

As you can see on Slide 17, our Amplified Digital Agency revenues are growing rapidly. With advanced data driven ad tech, specialized category expertise, scalable customer content video, and powerful first party data access, Amplified is a strong partner for local and regional businesses looking to drive growth.

But continue to expand Amplified capabilities, including building out new e-commerce solutions to offer our ad partners. In our first quarter, Amplified revenue grew 69% year-over-year. We continue to see a significant growth runway as we execute our strategy.

We're projecting $65 million in Amplified revenue in fiscal year 2022 to reach our target of $100 million in Amplified revenues by 2024.

Amplified's dramatic growth trajectory is fueling our five year digital advertising outlook, we expect to reach $310 million of annual digital advertising revenue in 2026, in which about $200 million will come from Amplified.

Summing up our advertising strategy on Slide 19, Amplified is a major growth engine for our digital advertising transformation. Our Vision platform uniquely positioned us to capitalize on the double-digit growth and omni channel digital advertising. We expect to generate recurring sustainable digital revenue exceeding $310 million in 2026.

And now I will turn it over to Tim to discuss our first quarter financial performance..

Thank you, Kevin. I'm now moving to Slide 20. We're very pleased with our results and the progress we continue to make on our three pillar digital growth strategy. At a high level, we finished the quarter with solid revenues, especially strong in our digital growth categories, and continue to control costs in our legacy print business.

We also continue to make targeted investments in our platform to fuel our digital transformation. This performance has us on track to achieve our full-year targets for digital revenue and adjusted EBITDA. Moving into our first quarter financial highlights and outlook, total operating revenue was $202 million in the first quarter.

Total digital revenue increased 17% in the first quarter to $55 million, excluding political advertising, which generated high revenue during the 2020 campaign season, total digital revenue increased 25% in the quarter, total digital revenue was driven by the rapid growth at Amplified and growth in digital only subscription revenue.

Digital only subscription revenue increased 26% and totaled $8 million. We now have over 450,000 paid digital only subscribers up 57% in the quarter, which represents half of our long-term target of 900,000 digital only subscribers.

Digital Advertising and Marketing Services revenue increased 19% in the quarter to $43 million, excluding the digital political revenue, digital advertising and marketing services revenue increased 30%.

Digital Marketing Services revenue at Amplified fueled the growth with revenue of 69% totaling $15 million in the quarter and $47 million over the last 12 months.

Total print revenue was $147 million in the first quarter and 11% decline compared to the same quarter a year ago due to continued secular declines and supply chain constraints affecting the demand for national advertising. Operating expenses totaled $179 million and cash costs were up 2.5%.

Increases in cash costs were attributed to strategic investments in digital talent and technology tied to our digital growth strategy and increased digital cost of goods sold. As we cycled one-time benefits received in the prior-year, principally medical.

We continued our business transformation efforts by reducing legacy print costs partially offsetting the increases. Net income totaled $13.2 million and adjusted EBITA totaled $26.1 million.

As for our fiscal '22 outlook, we expect to deliver continued digital growth from the execution of our strategy, we expect to achieve 495,000 digital only subscribers, 33 million in digital only subscription revenue, $175 million in digital advertising and marketing services revenue, $230 million in total digital revenue and adjusted EBITDA in the range of $95 to $98 million.

Moving to Slide 22, we have a long history of responsibly managing our cost structure. And we have continued to capture efficiencies across our business since the acquisition of BH Media.

In addition to the significant synergies achieved since closing, we remain focused on leveraging our larger platform to share resources, centralize certain operations and reduce our overall cost structure. We have a current base of more than $300 million of direct costs associated with our legacy revenue streams.

Through sustainable cost management, we expect to achieve $20 million to $30 million reduction in legacy costs in fiscal '22 compared to the prior-year.

While we remain focused on maximizing our efficiencies, and reducing the cost structure of our legacy print business, and growing profits, our main priority is to drive long-term sustainable digital revenue growth. As a result, we are making targeted investments that will drive our digital future and will impact cash costs.

We expect the investments we are making in new talent and technology and the increased digital cost of goods sold to increase cash costs by approximately $36 million. Slide 23 describes those targeted investments in more detail.

Transforming Lee's model from a legacy print centric business to a vibrant digitally centric business requires significant investments in talent and technology.

For example on the talent side, we're focused on bringing on team members with AI expertise as we lean into more data driven products at Amplified, executive producers to curate more of a custom video content that grew 98% year-over-year, and user experience experts as we continue to transform the presentation of local news.

In systems and infrastructure, our planned investments include data lake technology to more efficiently store our growing pool of first-party data, as well as data visualization tools to enable our newsrooms and our operators to analyze that data and drive enhanced reader engagement.

We anticipate around $15 million of incremental investments in fiscal year 2022. Moving to Slide 24, we continue to strengthen our balance sheet. The principal amount of debt at the end of the first quarter was $463 million down $20 million sequentially. And this is down $113 million or 20% since our March 2020 refinancing.

As a reminder, our credit agreement with Berkshire Hathaway, our sole vendor has favorable terms that are incredibly important for us as we execute our strategy, as it allows us to make the necessary investments in talent and technology that fuel our recurring sustainable revenue growth.

We made no pension contributions in the first quarter, and we did not expect any pension contributions in fiscal year 2022. Finally, we continue to identify opportunities to monetize our real estate, which facilitates accelerated debt repayment.

We generated $25 million of proceeds in 2021 and are targeting an additional $20 million to $30 million in asset sales in fiscal 2022, with $14 million already closed in the first quarter. As a reminder, our goal is to achieve our long-term leverage target of under two and a half times by the end of '26.

Next, I'll take a moment to outline Lee's five-year outlook and the rationale for our new financial metrics. As Kevin mentioned at the top of the call, we are providing metrics to get better transparency and clarity on our digital transformation progress.

Total digital revenue is defined as digital advertising and marketing services revenue, including amplified digital-only subscription revenue, and digital services revenue. Previously, other digital subscription revenue was included and all periods in this presentation has been restated for this reclassification.

This table summarizes our fiscal '22 outlook and beyond. As you can see, we expect to make significant continued progress on our digital transformation over the next several years. And with that, I'll turn it back over to Kevin to wrap up..

Thanks, Tim. To wrap up, I'd like to thank the entire Lee team for their efforts in driving our transformation with the right board, right team and the right strategy. And I believe we're better positioned than ever to create long-term value for our readers, users, advertisers, and shareholders.

This concludes our remarks, the team will remain on the line for questions you may have. Operator, please open the line for questions..

Thank you. At this time we will be conducting a question-and-answer session. . And we'll now take our first question. Caller your line is open..

Thank you. It's always nice when a company beats expectations. So that's great. Congratulations. A couple of questions.

Can you remind me again, what the digital political advertising number was in the year prior quarter?.

Yes, thanks, Mike. I appreciate the comments. Yes, we had around $3 million of political revenue in the prior year that Lee was associated with various campaigns across our markets..

Great.

And can you tell me when do you cycle against the changes in the paywall with your digital sites? What - when we cycle against that?.

Yes, most of those changes were cycle in the middle of FY22. We didn't - fairly late in the fiscal year in '21..

Got you. And then on terms of amplify, obviously very strong growth there.

Can you discuss the tone of the current market? And maybe also discuss that on the print advertising side if you can? I'm just kind of curious to see, how, if there were any impacts with the Omicron variant, issues with how the pace of the recovery looks, in terms of both on the digital side and whether or not we're starting to see more moderation on the print side.

Can you just kind of give us a color of the current advertising environment?.

Sure, I'll start. This is Kevin. I'll give you an answer in a couple of bites. I would say the recovery, as it relates to regional local advertisers is really strong. And I think that's clear, based on the really strong growth we saw in Q1 of 69% of them is by digital.

Recoveries a little bit slower type primarily tied to a supply chain issues with key accounts, if they're not getting products on the shelves that's the contract target. Kohl's, and others. So we think there is different impact there..

And does that also affect the auto category? I'm just curious, because I understand that cars are selling pretty well. And that they haven't been advertising as strongly.

I was just curious, how important of a category that is that now still for you? And if you could just talk a little bit about that category in particular?.

Sure, we have, as we mentioned in our remarks, we got a really great relationship with Mudd Advertising, which allows us to participate in the share of revenue based on our Vision platform. We feel good about that. But you're right car sales have been selling briskly, particularly used cars. And as a result, we do see revenues done in that category.

I would point out though, that category is the largest category to classified, it's really old that are much larger in terms of revenue segment..

Yes, and then and just to clarify, you mentioned about the $14 million in closed real estate sales in the quarter, just to clarify the $20 million to $30 million for fiscal 2022, that did not include the - that was inclusive of the $14 million, correct?.

That's correct. That's correct. That fiscal year '22 guidance of $20 million to $30 million in close sales, which $14 million were closed in the first quarter..

Got you. And I think that's all I have for now. Thank you so much. I'll let others ask questions. Thank you..

Thank you..

Great, thanks Mike. We will turn over to webcast questions. Okay, so our first question from the webcast is, you had another great quarter with digital sub growth of 48,000.

But our full-year guidance only requires averaging 15,000 per quarter to achieve is that because the target is conservative or because you're expecting a slowdown?.

What I would say is our target, our goal of hitting 900,000 digital only subscribers is our target, long-term target and getting there's not going to be a perfectly linear line from where we are here to 900,000 and the reason for that is we're trying to grow both our units as well as growing our rates.

And we think we have the opportunity to look at the market specific factors and some quarters we will outperform on the rate at some quarters, we will outperform on the volumes..

Next question, there appears to be a lot of embedded value in Lee, what are your thoughts on selling or spinning off Amplified or TownNews?.

Yes, I think Amplified and TownNews are both really important factors in our digital growth strategy.

Amplified as we spend a lot of time talking about this morning is one of the major growth engines of our digital advertising and reaching the targets that we have there right now $47 million of LTM revenue with a relatively small base, but we do expect it to expand and grow in the future.

And TownNews remains a key priority for Lee as it helps us develop the tactics and strategies and technology to execute on our three pillar digital growth strategy. So I would say the better value is to leverage the digital businesses to execute on our three pillar digital growth strategy..

Okay, next question is warrants issued in 2014 are due to expire at the end of March of this year? Have any been redeemed in Excel, how many?.

That's a good question. And as a reminder, we do have warrants that were issued in 2014 associated with the debt refinancing that allows for issuing up to 600,000 shares of Lee's stock. The exercise price of the warrants is $41.90, none have been exercised as of now. But as you rightly pointed out, it expires March 31 of 2022..

We have no more questions from our web participants. So I'll turn the call back to Kevin for closing remarks..

Thank your interest in Lee and thank you for joining the call today..

Thank you, ladies and gentlemen. At this time, we have reached the end of our question-and-answer session. And that concludes our call. We thank you all for your participation..