Yahoo Finance Lee Enterprises Inc (LEE) (Q2 2024) Earnings Call Transcript Highlights: Navigating Digital ...
Total Operating Revenue: $147 million in Q2.
Print Revenue: Decreased by 24% on a same property basis.
Digital Revenue Growth: Increased by 11% year-over-year.
Digital Subscription Revenue: Grew 48%, driving total digital revenue growth.
Amplified Digital Revenue: Increased by 5.2% in Q2.
Adjusted EBITDA: Grew 5% in the quarter, totaling $15 million.
Digital Direct Margin: Remained strong at 70%, resulting in $49 million of digital direct margin.
Cost Savings: Expected to yield between $45 million and $65 million in 2024, mostly from actions taken in FY23.
Debt Reduction: Principal amount of debt decreased by $2 million year-to-date, totaling $454 million.
Asset Sales: Closed $3 million year-to-date, with an additional $25 million identified for potential monetization.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Lee Enterprises Inc (NASDAQ:LEE) reported strong second quarter operating results with improved overall revenue trends and managed costs.
The company is successfully transitioning from a print-centric to a digital-centric model, with digital revenue now representing 40% of total revenue.
Digital subscriber growth was robust, with a 25% increase year-over-year, and digital subscription rates also increased by 17%.
LEE's digital advertising and marketing services are growing, with expectations to drive $300 million of digital advertising revenue by 2028.
Cost management initiatives have been effective, with cash costs down 16% in the quarter, contributing to a 5% growth in adjusted EBITDA.
Negative Points
Print revenue declined by 24% on a same property basis, continuing the trend of decreasing print media demand.
The decline in print revenue was partly due to the elimination of certain print products that did not meet profitability standards.
While digital revenue growth is strong, the total operating revenue was only modestly improved, indicating ongoing challenges in offsetting print declines.
The transformation to digital, while necessary, requires significant ongoing investment in talent and technology, which could impact short-term profitability.
Despite reductions in debt, LEE still has a substantial debt load with a principal amount of $454 million.
Q & A Highlights
Q: Can you provide more details about the cost management strategies that are offsetting the decline in print revenue? A: Timothy Millage, CFO of Lee Enterprises, explained that cash costs were down 16% year-over-year, largely due to managing the print product portfolio and eliminating less profitable print products. This strategy not only impacts revenue but significantly reduces costs. Additionally, the company has transformed some print products in smaller markets to digital editions, saving costs while impacting print subscription revenue minimally.
Q: How does surpassing the 50% digital revenue mark influence your approach to cash costs and margins going into fiscal 2025? A: Timothy Millage noted that as digital revenue, which currently makes up 48% of total operating revenue, surpasses 50%, the company expects less volatility in operating performance due to the declining print business. The digital revenue is not only significant but also highly profitable, which should stabilize and improve overall margins and reduce the impact of the print business volatility on financial results.
Q: What are the key drivers behind the 11% year-over-year growth in digital revenue? A: Kevin Mowbray, CEO, highlighted that the growth in digital subscription revenue, which increased by 48%, is a primary driver. Additionally, the Amplified Digital revenue grew by 5.2%, with improvements noted in digital advertising revenue on owned and operated digital products towards the end of the quarter.
Q: Can you discuss the impact of the new Chief Transformation and Commercial Officer on Lee's digital transformation? A: Timothy Millage mentioned that Les Ottolenghi, the newly appointed Chief Transformation and Commercial Officer, brings extensive experience in media, technology, and innovation. His role will focus on accelerating digital transformation through artificial intelligence, IT modernization, cybersecurity, and data monetization, which are crucial for Lee's future growth.
Q: What are the long-term financial goals for Lee Enterprises, especially concerning digital revenue and subscriber growth? A: Kevin Mowbray outlined that Lee aims to generate $450 million in digital revenue by 2028, driven by an expected growth to 1.2 million digital subscribers and $150 million in digital subscription revenue. Additionally, digital advertising and marketing services are projected to contribute $300 million by 2028.
Q: How is Lee Enterprises managing its debt and what are the future plans regarding debt reduction? A: Timothy Millage reported that the principal amount of debt decreased by $2 million year-to-date, totaling $454 million, a reduction of $122 million since March 2020. The company continues to monetize non-core assets to facilitate accelerated debt repayment, with plans to close approximately $10 million in sales by the end of the fiscal year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
