Lee Enterprises, Incorporated

to the Lee Enterprise 2022 third 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 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 this live webcast can be found at investors.lee.net. Now I'll turn the call over to your host, Mr. George Reinhold, Vice President, Finance. Go ahead, sir. Thank you.

Good morning, and thank you for joining us. Speaking on this morning's call are Kevin Mowbray, President and Chief Executive Officer, and Tim Milledge, Vice President, Chief Financial Officer and Treasurer. Also with us on today's call and available for questions is Nathan Becke, Vice President, Audience Strategy. Earlier today, we issued a news release with preliminary results for our third fiscal quarter of 2022. It is available at Lee.net as well as at major financial websites. Please also refer to our earnings presentation found at investors.lee.net that includes supplemental information. As a reminder, this morning's discussion will include forward-looking statements 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 file. 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 gap measures are included in tables accompanying the release. And now to open the discussion is our President and Chief Executive Officer, Kevin Mowbray. Kevin will open the conversation on slide three of the earnings presentation for those following along.

Thank you, Josh. Good morning, everyone, and I'm pleased you could join us. I'm really encouraged at the pace by which we're transforming Lee into a vibrant, digitally-centric company. Our third quarter results clearly demonstrate we have the right strategy, the right team, and we're moving with velocity towards LEED's digital transformation. With our third quarter results, we've exceeded many of our digital revenue metrics a full quarter early, and we're on track to achieve our full year adjusted EBITDA guidance of 95 to 98 million. In the third quarter, we reported 49% growth in digital subscribers, 5% growth in digital subscription revenue, and 74% growth in amplified digital revenue. For all three metrics, we exceeded our year-end guidance, putting us a full quarter ahead of schedule. This impressive performance is a testament to our operational efficiencies and our team's ability to execute on our strategic initiatives. Our three-pillar digital growth strategy is the foundation of our investment thesis, And the execution of the strategy is at the core of creating value for our shareholders. Sustainable long-term digital revenue growth from our three polar initiatives will transform the mix of our revenue base, driving margin expansion, stronger free cash flow generation, which will fuel debt reduction and enhance our balance sheet. The stronger balance sheet and improved operating cash flow combined with multiple expansions fueled by increasing digital revenue creates a strong path to significant long-term value creation for our shareholders. Our strategy leverages these key strengths, our local market expertise, our industry-leading digital revenue growth, and our commitment to the highest quality news to build a larger recurring revenue base and generate long-term top-line growth. This growth is expected to achieve 435 million of digital revenue in 2026 is being driven by increased digital subscriptions and increased digital advertising revenue. Our three-pillar digital growth strategy is guiding our transformation to a vibrant digitally-centric company. We're focused on expanding our digital audiences, growing our digital subscription base and revenue, and diversify and expanding our offerings for local and regional advertisers. Pillar one focuses on expanding digital audiences with investments in user experience, multimedia presentation formats, and rich high-value content for driving higher engagement, outsized traffic, and monetization, leveraging our trusted brand, strong market position, and in-house capabilities. We continue to make investments that add significant value and drive additional growth. Pillar two is about the expansion of our base of digital-only subscriptions and revenue by converting more of our vast addressable market to subscribers. And it's paying off because we're the fastest-growing digital subscription platform in local media and have been for 10 straight quarters. Digital-only subscriber growth continued at a rapid pace in the third quarter, up 49% over the prior year. We now have 501,000 digital-only subscribers, exceeding our fiscal year-end guidance a quarter ahead of schedule. At the same time, we're driving an increase in average rates for digital-only subscribers, which were up 7% in the third quarter compared to the second quarter. We're leveraging cutting-edge data and technology and expanded offerings for paid niche content on topics where we have expertise and unique selling positions. These tactics are driving an increase in total subscribers and position us to achieve our goal of reaching 900,000 digital-only subscribers by the end of 2026. Reaching 900,000 digital-only subscribers and increasing our average digital subscription rates are important goals and leads digital transformation as they increase the base of our subscription-based digital revenue. Our third pillar focuses on diversifying and expanding offerings for advertisers, and we're doing that in two ways. First, through AppSci Digital, our full-service omni-channel digital marketing agency that provides local and regional advertisers with sophisticated custom solutions, including consulting, media buying, and analytics. Second, by maximizing the revenue opportunities on Lee's digital platforms. Our owned and operated properties attract massive audiences. We're offering more video inventory and branded content opportunities to drive digital ad revenue. Both of these initiatives are supported by Lee's Vision platform. Vision is a proprietary sales enablement and execution software tool powered by amplified digital. Industry-wide, omnichannel advertising for local advertisers is expected to continue its double-digit growth in the next two years. The Vision platform allows us to capture that significant growth in this category, and the Vision platform has transformed local advertising for leads. Our strategy and execution are expected to result in $435 million of recurring sustainable digital revenue by 2026, and with our third quarter results, we're more than halfway there. We've launched our three-quarter digital strategy in early 2021. We've made tremendous progress since the launch, including industry-leading growth in digital subscribers and digital agency revenue. Digital subscriber growth at Lee has outpaced our industry peers for the last 10 quarters and counting, And as I mentioned earlier, we have the fastest-growing digital subscription platform in media with more than 500,000 digital subscribers, up 49% in the third quarter. And by digital agency revenue, it's significantly outpacing the industry as well, pacing 69 percentage points ahead of our next closest industry peer. As a result of our industry-leading digital growth, total digital revenue over the last 12 months grew to $224 million, up 24% compared to the prior year. We are rapidly changing the mix of our revenue, and in the third quarter, total digital revenue now represents 32% of our total operating revenue. 2022 is shaping up to be a successful year at Lee. We certainly have been presented with many challenges year to date, and like the team has done year in and year out, We've had to overcome many headwinds, including supply chain shortages that impacted local and national advertisers for much of the fiscal year, accelerated declines in demand for print advertising, shopping and national advertising demand, and significant inflation affecting all aspects of our cost structure. But I couldn't be more proud of this team for their smart thinking, their steadfast commitment toward our three-pillar digital growth strategy, and the rapid execution of our plans to add value for our shareholders. The efforts of this team have driven substantial growth in digital revenue, putting us ahead of our plan on digital revenue targets, and importantly, keeping us on track to achieve our full-year guidance of adjusted EBITDA. Our third quarter results clearly demonstrate the success of our three-pillar digital growth strategy to transform Lee into a vibrant, digitally-centric company. And now I'll turn it over to Tim with more details on the results from third quarter and the outlook for FY22.