Lee Enterprises Inc (LEE) 2020 Q4 法說會逐字稿

Good day, everyone, and thank you for standing by.

Welcome to the Lee Enterprises 2020 Fourth Quarter Webcast and Conference Call.

The call is being recorded and will be available for replay beginning later this morning at lee.net.

(Operator Instructions) A link to the live webcast can be found at www.lee.net.

Now I will turn the call over to your host, Tim Millage, Vice President, Chief Financial Officer and Treasurer.

Please go ahead.

Good morning.

Thank you for joining us.

In addition to myself, Kevin Mowbray, our President and Chief Executive Officer, will be speaking on this morning's call.

Also with us on today's call and available for questions is Nathan Bekke, Vice President, Consumer Sales and Marketing.

Earlier today, we issued a news release with preliminary results for our fourth quarter of 2020.

It is available at lee.net as well as at major financial websites.

One housekeeping item to start.

We closed on the acquisition of BH Media Group and The Buffalo News on March 16, 2020.

Our year-to-date period results include approximately 28 weeks of operations from the acquisitions relative to the 52-week year-to-date period.

Certain results and trends are presented on a pro forma basis, which assumes ownership of these acquisitions for the full year of 2020 and 2019 and include operating results from the acquisition for all periods presented.

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 make reference to certain non-GAAP financial measures, which are defined in our news release.

Reconciliations to the relevant GAAP measures are included in tables accompanying the release.

And now to open the discussion is our President and Chief Executive Officer, Kevin Mowbray.

Thank you, Tim.

Good morning to everyone, and thank you for joining the call.

We made significant progress towards our digital transformation in the midst of the pandemic.

We're pleased with the fourth quarter and fiscal year 2020 operating results.

We've shown modest and continuous revenue trend improvement since April.

In our fourth quarter, advertising revenue trends were down 26.7%, a 13% point improvement when compared to third quarter trends.

The trend improvement is a result of various sales initiatives like the Lee stimulus program that supported our local advertisers.

Amplified, our full-service digital marketing agency, also helped improve our advertising revenue trends.

Amplified provides a full suite of digital marketing services, including web development, social media management, targeting and videos.

Amplified revenue increased 29.7% in the fourth quarter.

Advertising revenue trends continued to look strong in the first quarter, driven in part by political advertising in certain of our markets as well as strong local retail performance, growth in video and strong digital performance.

Nearly 50% of our total operating revenue in the fourth quarter was earned from subscriptions to our printed digital products and from digital services provided by TownNews.

Audience revenue was down 5.8% on a pro forma basis as we've seen better churn rates and as we grew digital-only subscriber base to 244,000 at the end of 2020.

This is a 71.4% increase compared to prior year and an increase off a substantial base.

TownNews revenue on a stand-alone basis increased 7% in the fourth quarter, continuing its run of more than 40 quarters of consecutive quarter-over-quarter revenue growth.

Over the last 10 years, the compound annual growth rate was 10.8%.

Margins at TownNews are expanding and are now in the mid-40s.

TownNews continues to gain market share in the publishing and broadcast segments, and we're also expecting to explore other segments to enter that we know will grow and accelerate revenue at TownNews.

While 2020 did not turn out as we expected at the beginning of the fiscal year, we really accomplished a lot.

I'm incredibly proud of our newsrooms, our operators and the rest of the Lee team in our transformation efforts.

In March, we completed a transformational transaction with Berkshire Hathaway that included an acquisition that nearly doubled our audience and revenue.

The transaction also included a comprehensive refinancing at low interest rate and a 25-year maturity.

The acquisition and the pandemic provided the opportunity to accelerate our digital transformation.

And I'd like to take a minute to lay out our strategy as we head into 2021.

We'll continue to be the leading provider of local news, information and advertising to the markets we serve.

We aim to continuously innovate, respond to the ever-changing needs and desires of readers and advertisers.

Our first priority is to transform the way we present local news and information and provide perspective, both in digital and print.

We seek to maintain our position as the leading provider of local news and information and a major digital and subscription platform by providing best-in-class digital experiences to improve consumer engagement and to grow audiences.

We aim to achieve this by delivering relevant, useful and engaging content to consumers using a multimedia approach with a heavy emphasis on video and audio.

We believe that our proprietary local content displayed in best-in-class multimedia platforms, combined with new and engaging content and video channels, will grow our audiences on our audience monetization capabilities.

We will transform our print-centric audience model to a robust digital subscription model.

Our digital audiences are comprised of full-access subscribers, digital-only subscribers and nonsubscribers who access our sites subject to our paywalls.

We have made substantial progress on this to date as demonstrated by our massive and growing digital audiences.

The third pillar of our strategy is to diversify and transform the products and services we offer advertisers, especially for top local accounts and SMBs.

Local controllable retail accounts, those in which our local sales teams have direct contact with advertising decision-makers, are the core of our business.

This revenue category represents 47% of advertising and marketing services revenue and is comprised of top local accounts and SMBs.

We believe we can dramatically improve the financial performance from this revenue category as we have an unmatched audience reach in our local markets through our print and digital offerings as well as combined with our full suite of digital marketing services.

We certainly operate in an industry that's in transition, but I could not be more pleased with the execution by our team in 2020 and the progress we've made.

And with the renewed focus with our third 3-pillar strategy, I'm optimistic we'll emerge from the pandemic a stronger, leaner organization focused on achieving our digital transformation.

Total operating revenue on a GAAP basis was $191.8 million in the quarter, and on a pro forma basis, total revenue was down 16.9% compared to the prior year.

In June, we set out a cost reduction goal of $100 million post the acquisition.

Through September, we have implemented $84 million of cost reductions on track to achieve the $100 million target in '21.

In the fourth quarter, total cash costs on a pro forma basis were down 14.7%.

Compensation was down 15.5% due to business transformation efforts implemented throughout the quarter that reduced full-time equivalents.

Newsprint and ink expense decreased 35.3% in the quarter due to volume and price declines.

Other cash costs were down 11% in the fourth quarter due to declines in print-related costs like delivery and postage, partially offset by increases in digital spend.

Our business transformation efforts were focused on the following areas: reorganization of our operating structure from a market-based operating structure to a vertical structure, creating significant efficiencies across all of our departments; evaluation and execution of our daily print transformation initiative in certain of our markets; acquisition integration of back-office functions, including HR, finance and IT; centralization of technology systems and business transformation initiatives in the newspaper design and advertising design.

By the end of 2020, we implemented $84 million in reductions.

And as I mentioned, we are on track to achieve our targets.

Adjusted EBITDA totaled $25.5 million in the fourth quarter.

As a reminder, our credit agreement has a low fixed annual interest rate, a 25-year maturity, no fixed mandatory principal payment 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.

The debt is with a single lender who knows us well and is committed to our success.

The principal amount of debt at the end of 2020 totaled $538.3 million or down $37.7 million since the refinancing in March.

Excess cash flow at the end of the quarter totaled $13.7 million and was used to repay debt in the first quarter of 2021.

In the fourth quarter, we sold $11.6 million of noncore assets, including the monetization of our private equity investments.

As of today, we still have nearly $30 million of noncore assets that remain available for sale.

Last, we expect to file our 10-K with the SEC tomorrow.

And as always, it will include additional information on our results and expectations.

This concludes our remarks.

The team will remain on the line for any questions you have.

(Operator Instructions)

A question over the web asks for specifics regarding our restructuring costs and other nonoperating income.

Our restructuring costs of $7.3 million is made up of 2 primary items: one, severance related to our business transformation efforts as well as a $4.4 million withdrawal from a multi-employer pension plan.

The significant driver in other nonoperating income is the result of monetizing our private equity investment that resulted in a $7 million gain.

We have no more questions on the web.

I'll turn it back to Kevin for any closing remarks.

Well, I appreciate your interest in Lee, and I appreciate you joining the call.

Thank you for joining.

Thank you.

Ladies and gentlemen, at this time, we have reached the end of our question-and-answer session.

This concludes our call.