Lee Enterprises, Incorporated

Please stand by. Welcome to the Lee Enterprises 2021 fourth 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 planned remarks, there will be an opportunity for questions. Participants accessing this call by 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 webcast can be found at investors.lee.net. Now, I turn the call over to your host, Josh Reinholz, Vice President of Finance. Please go ahead.

Good morning. Thank you for joining us. Speaking on this morning's call is Kevin Mowbray, President and Chief Executive Officer, and Tim Millich, Vice President, Chief Financial Officer, and Treasurer. Also with us on today's call and available for questions is Nathan Becky, Vice President, Audience Strategy. Earlier today, we issued a news release with preliminary results for our fourth fiscal quarter of 2021. 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. One housekeeping item to start. We closed on the acquisition of BH Media Group and the Buffalo News on March 16, 2020. Certain results and trends are presented on a pro forma basis, which assumes ownership of these acquisitions for the entirety of the 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 filing. 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 Mulberry. Kevin will open the conversation on slide three of the earnings presentation for those following along. Thank you, Josh.

Good morning, everyone. I'm Kevin Mulberry, President and CEO of Lee Enterprises, and I'm pleased you could join us. Before we dive into our results, I wanted to make a brief statement on the recent developments you've likely seen regarding Alden Global Capital. This morning we issued a press release announcing the Lead Board of Directors has unanimously rejected the unsolicited proposal received from Alden on November 22, 2021 to acquire a lead for $24 per share in cash. After careful consideration with our financial and legal advisors, the board determined that Alden's proposal grossly undervalues Lee is not in the best interest of the company and its shareholders. If you haven't already, I would encourage you to review our press release. As I'm sure you'll understand, that's all we have to say on this matter, and we won't be taking any questions about Alden during our Q&A. We appreciate your cooperation. And with that, let's dive in. We'll start the discussion this morning with an overview of Lee's investment thesis and then discuss Lee, our strategy, and our fourth quarter in 2021 operating results. Our strong foundation and well-defined long-term strategy puts Lee on a clear path to value creation for our readers, users, advertisers, and our shareholders. Our execution of the three-pillar digital growth strategy is already delivering increased subscriptions and advertising revenue strengthening our base of annual recurring revenue and is the pathway to replacing legacy revenue, generating long-term growth of LEED's total operating revenue. Achieving revenue growth combined with strong cash flow allows us to achieve our long-term target leverage ratio of 2.5 times within five years. And our three-pillar digital growth strategy positions us to unlock the full value of LEED's platform and achieve multiple expansion that's in line with our digital first peer companies, creating more value for LEAD shareholders. At LEAD's core is our steadfast commitment to local news and providing the 77 predominantly mid-sized communities that we serve with valuable, intensely local, original news and information. Recent events over the last year and a half have proven that our mission is more important than ever. Our newsrooms have been providing the crucial and factual coverage that our readers and users need to understand the impacts of the pandemic and related guidance in their communities. And these publications closely covered the local political races and issues that mattered most in our markets during the 2020 election cycle. Our focus outside of major metropolitan markets provides us with key competitive advantages. Where we operate, Lee's publications and platforms are the dominant source of local news and information, and our well-established brands and trusted content have allowed us to plant deep roots in our communities. Our readers and users are engaged with our content, and small and mid-sized businesses, as well as a growing number of regional and national accounts, rely on Lee as a results-driven advertising partner. Compared to news media players in major metro markets, we face significantly less competition for reader and advertiser attention, and our business is more resilient to the impact of macroeconomic trends. As the media landscape continues to evolve and audience and advertising dollars have shifted from print to digital, we have been forward-thinking and nimble at rethinking, repositioning, and redeveloping our business with a digital-first mindset as evidenced by our digital subscription platforms and our video e-commerce and first-party data solutions. We have a strong digital presence in all of our markets, and we're proud to have the fastest-growing digital subscription platform in local media. Our digital-only subscriptions grew 65% in 2021 and eight consecutive quarter industry-leading metrics. Growing our base of recurring sustainable revenue is important to our digital transformation. In total, 53% of our 2021 total operating revenue. Recurring revenues were $424 million in fiscal year 2021 and include our sticky revenue streams of audience revenue, Amplify Digital Revenue, and Revenue with Town News, our SaaS content platform. This annual recurring revenue grew 370 basis points in 2021, and we see significant opportunity to accelerate growth as we expand our total subscriber base and drive greater market share of local advertising dollars through Amplified, our full-service digital marketing agency. We have a proven track record as an excellent operator. We delivered $117 million in adjusted EBITDA in our 2021 fiscal year. Despite the continuing impacts of the pandemic, We have an established track record of outperforming our local media peers on revenue. Those qualities are some of the reasons Warren Buffett and the Berkshire Hathaway team entrusted Lee to manage their portfolio of local media operations, which we took over in 2018. We expanded that relationship with the completion of our acquisition of each media group's portfolio. As part of that transaction, BH made a $576 million investment into our capital structure through the comprehensive debt refinancing in March of last year. This transformational transaction doubled our audience and significantly enhanced me's financial position. Tim will discuss the transaction and our capital structure a little bit later in our presentation. Slide five is an overview of our three business areas to drive our revenue and our growth. Our consumer business offers readers and users subscriptions to our leading portfolio of 350 printed digital platforms. These include marquee local news products like the Buffalo News and the St. Louis Post-Dispatch, as well as other highly engaging niche platforms. Our content is strong, and our model is very sticky. Once we convert a reader or user to a subscriber, either to our digital-only or full-access subscription, that revenue becomes recurring. Total subscription revenue in 2021 was $358 million, up slightly from fiscal year 2020 on a pro forma basis, and supported by a strong 65% growth in digital-only subscriptions. It's worth noting that our total paid subscribers grew in the last nine months. Digital subscribers grew to more than 400,000, and we are well on our way to achieving our long-term goals. Our second segment is advertising and marketing services. We, as an exceptional partner, are able to provide complex marketing solutions to a vast addressable market of local businesses in our communities. We've also been successful in capturing more advertising dollars from large, out-of-market regional and national accounts. Advertisers are attracted to our platform for two reasons. First, we have a large engaged audience across 77 markets. In the fourth quarter of fiscal year 2021, we captured a monthly average of 50 million unique website visitors. Second, we have deep in-house capabilities to activate sophisticated digital campaigns for advertisers through our full-service digital marketing agency, Amplified. including custom video, e-commerce, and first-party data campaigns. Amplified runs about 6,000 active campaigns per month, and this capability presents a tremendous opportunity to drive revenue within and outside of our local markets. The third revenue platform is Town News Digital Services. Town News is the leading web hosting service provider and the number one content service provider in local media in the country. Town News clients include more than 2,000 other media organizations, including broadcast, publishing, radio, and magazine. Over the past 10 years, Town News has grown at a 10% compound annual growth rate, contributing growing recurring revenue and maintaining an attractive 47% margin. Despite a smaller contribution to our total revenue, Town News is the digital backbone of our local markets and is responsible for video and OTT expansion, as well as the development of products and technology that will help us reach our advertising and audience targets. These three revenue centers drive our business. Our goal is to leverage our highly talented executives and cutting-edge technology to grow our base of annual recurring revenue in order to achieve sustainable year-over-year revenue growth. On slide six, we address our approach to accelerating our digital transformation. Our three-pillar digital growth strategy leverages these key strengths, our local market expertise, industry-leading digital revenue growth, and commitment to the highest quality news to build a larger recurring revenue base and generate long-term top-line growth This growth will be driven by increased digital subscriptions and digital advertising revenue. Our three pillars are, first, to transform the presentation of local news and information. We'll continue to provide best-in-class reader and user experiences with enhanced digital presentation that emphasize video and other multimedia formats and rich, high-value content to drive enhanced engagement, outsized traffic, and monetization. The second pillar, we aim to further accelerate our growth of digital-only subscribers by converting more of our vast addressable market to subscribers, leveraging our cutting-edge data and technology, and expanding offerings for paid and niche content on topics where we have expertise and unique selling positions. Finally, our third pillar is to diversify and expand offerings for advertisers. We've launched a portfolio of video advertising initiatives and e-commerce sales strategies through our in-house digital agency, Amplified, enabling advertisers to reach consumers in new ways, leveraging Lee's vast data-rich digital audience. And with our large, local, and highly trained sales force, over 900 sellers were well-positioned to drive new revenue. We expect to achieve three key goals within the next five years five years as we execute on our plan. First, enhance engagement, traffic, and monetization across our platform, and grow total paid subscribers such that our subscriber base, Print and Digital, grows in total over the five-year period, and digital-only subscriptions reach 900,000 within five years. Second, generate $100 million in annual revenue from Amplify Digital Agency in three years, And third, achieve a long-term leverage target of under 2.5 times in five years. As I mentioned, digitally subscriptions continue to grow at a rapid rate, up 65% compared to prior year and up 19% consecutively over third quarter results. We now have over 420,000 paid digital-only subscribers, which is helping to drive audience performance. We are well on our way to reaching 900,000 digital-only subscribers and generating more than $100 million in high-margin annual recurring revenue. Based on this strong performance, we remain the fastest-growing digital subscription platform in local media. Our anti-digital agency saw very strong growth in 2021 with revenues 43% over last year. Year-over-year growth was 71% in Q4 as we continue to gain momentum. Amplify continues to diversify and expand its suite of products for local advertisers. We're providing robust custom video offerings, leveraging our relationship with local advertisers to build or enhance their e-commerce capabilities, and leveraging our first-party data to better monetize our digital inventory. Video continues to be a major growth driver with revenue more than double that of last year as we better monetize our sponsorship and branded content. And now I'll turn it over to Tim to discuss our fourth quarter and full year financial performance.