Lee Enterprises President and Chief Executive Officer Kevin Mowbray.

Davenport publisher Lee Enterprises Inc. reported growth in digital revenue and advertising in the third quarter as total revenue and advertising revenue declined. 

In its earnings report Thursday, Lee announced net income of $6.17 million, or 10 cents per diluted common share, for the quarter ended June 30. That compares with $4.75 million, or 8 cents per diluted common share, for the same quarter last year.  

In its year-to-date results, Lee reported net income was $14.56 million, or 24 cents per diluted share, which compared to $42.61 million, or 75 cents per diluted share for the same period last year. 

"Total revenue decreased 4% in the third quarter, matching the second quarter trend, as we continue the company's digital transformation," Lee President and CEO Kevin Mowbray said a news release. "Total digital revenue, including digital advertising and digital services, was $30.5 million for the quarter, up 5.3% on a same property basis compared with a year ago."

Lee is the parent company of the Quad-City Times, Moline Dispatch-Rock Island Argus and Muscatine Journal.

In a conference call with analysts, Mowbray said Moline-based TownNews, which provides digital publishing and content management solutions, showed "spectacular growth" with revenue up 27.3% in the quarter and up 24.5% in the past 12 months to $22.1 million.

The company attributed the growth to increased market share and impact of new technology acquisitions. Revenue was also attributed Lee's management agreement with BH Media Group, which owns and operates 30 daily newspapers and websites and a number of weekly publications.

Mowbray said Lee earned $3.5 million of revenue in the quarter from the management agreement, and has earned $11.3 million in revenue from it since its inception in July 2018.

Other financial highlights for the quarter Mowbray noted include:

• Digital advertising revenue increased 2.8% for the quarter and represented 38.7% of total advertising revenue.

• Digital retail advertising, which represented 63.2% of total digital advertising in the June quarter, grew 3.3%, driven by an increase in advertising from local retailers.

• Monthly visits to Lee mobile, tablet, desktop and app sites averaged 74.1 million, and page views per visit increased 6.9%.

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• Subscription revenue decreased 3.2% in the quarter. Digital only subscribers increased 72.0%.

Mowbray told analysts the worsening trend in subscription revenue is attributed to the timing of Lee's rollout of a News+membership model. "We believe trends will improve in our September quarter." 

Advertising and marketing services revenue decreased 10.6% to $65.8 million due to softness in print advertising demand particularly from large retail big box stores and classifieds. It was partially offset by digital advertising and marketing services revenue, which increased 2.8% to $25.4 million. Digital represented 38.7 percent of total advertising revenue. 

Tim Millage, vice president and chief financial officer, told analysts Lee continues to transform its business models, drive efficiencies and reduce its legacy cost structure. 

He said operating expenses were down 4.7% with cash costs down 5.2%. Compensation decreased 6.6% due to an 8% reduction in full-time equivalent positions.

"Much of the headcount reductions are due to ongoing business transformation initiatives, including centralizing many back office functions and outsourcing many of our production operations," Millage said.

He added that nearly 70% of Lee's daily papers are printed offsite, mostly by other Lee properties.

In addition, the company offered early retirement programs in the second quarter. 

The company also remains focused on reducing its debt and reported a $17.9 million reduction in the quarter. As of June 30, the principal amount of debt was $458.6 million.

The outstanding debt obligations mature in March of 2022.

Millage said Lee is "committed to reducing our leverage and one way we are doing this is to monetize non-core assets."

It has identified about $26 million of excess real estate that is either under contract or listed for sale, with additional properties being evaluated. 


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