Q2 2025 Lee Enterprises Inc Earnings Call
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Unknown Executive: Welcome to the Lee Enterprises 2025 second quarter webcast and conference call. The call is being recorded and will be available for replay at investors.lee.net.
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Speaker Change: Welcome to the Lee Enterprises, 2025, second quarter webcast and conference call.
Speaker Change: The call is being recorded and will be available for replay at investors that Lee Dot net at.
Unknown Executive: At the close of the plant 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 live webcast can be found at investors.lee.net.
Speaker Change: At the close of the plant 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.
Speaker Change: Otherwise you will receive a response later.
Speaker Change: A link to the live webcast can be found at investors that Lee Dot net.
Jared Marks: Now, I will turn the call over to your host, Jared Marks, Vice President, Finance. Good morning. Thank you for joining us.
Speaker Change: Now I will turn the call over to your host Gerrit Marx Vice President Finance.
Speaker Change: Good morning, Thank you for joining US in addition to myself speaking on this morning's call are Kevin Mowbray, President and Chief Executive Officer and Tim.
Jared Marks: In addition to myself, speaking on this morning's call are Kevin Mowbray, President and Chief Executive Officer, and Tim Millage, Vice President, Chief Financial Officer and Treasurer. Earlier today, we shared a news release with preliminary results for our second fiscal quarter of 2025. It is available at lee.net as well as major financial websites. Please also refer to our earnings presentation found at investors.lee.net, which includes supplemental information.
Speaker Change: Tim Millage, Vice President and Chief Financial Officer and Treasurer.
Speaker Change: Earlier today, we issued a news release with preliminary results for our second fiscal quarter of 2025.
Speaker Change: It is available at Lee net as well as major financial websites.
Speaker Change: Please also refer to our earnings presentation.
Speaker Change: Investors that we met which includes supplemental information.
Jared Marks: 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 in our SEC filings.
Speaker Change: As a reminder, this morning's discussion will include forward looking statements based on our current expectations.
Speaker Change: Statements that are subject to certain risks trends and uncertainties that could cause actual results to differ materially.
Speaker Change: Such factors are described in this morning's news release and in our.
Speaker Change: SEC filings.
Jared Marks: During the call, we refer to certain non-GAAP financial measures. Reconciliations to the relevant GATT measures are included in the tables accompanying the release.
Speaker Change: During the call we refer to certain non-GAAP financial measures.
Speaker Change: Reconciliations to the relevant GAAP measures are included.
Speaker Change: The tables accompanying the release.
Kevin Mowbray: And now, to open the discussion is our President and Chief Executive Officer, Kevin Mowbray. Thanks, Jared, and good morning, everyone. I'd like to start by expressing my appreciation for the entire LEAD team. The Passporter has been a testament to the resilience, focus, and innovation of our team. Our company experienced a significant cyber event by a malicious actor in February. The attack impacted all operations, causing significant disruption. Our dedicated employees worked around the clock to get our operations up and running again. I'm also grateful to our advertisers and subscribers for their patience during this difficult time.
Speaker Change: And now I'm going to discuss it with our president and Chief Executive Officer, Kevin Mowbray.
Speaker Change: Thanks, Jared and good morning, everyone.
Speaker Change: Like to start by expressing my appreciation for the entire team. This past quarter has been a testament to the resilience.
Speaker Change: Innovation of our team.
Speaker Change: Our company experienced the significant cyber advanced malicious actor in February.
Speaker Change: The attack impacted all operations, causing significant disruption.
Speaker Change: Our dedicated employees worked around the clock to get our operations up and running again.
Speaker Change: I'm also grateful to our advertisers and subscribers for their patients during this difficult time.
Kevin Mowbray: While the cybersecurity incident hamstrung our overall financial performance in the quarter, I am proud of how the team navigated the challenges and remained focused on executing our strategy as we are now fully recovered from the cyber incident. We remain committed to our digital transformation, and we're confident in our ability to drive sustainable growth and deliver long-term value to our shareholders. As a reminder, our three-fold digital growth strategy is expected to result in $450 million of digital revenue by 2028. The strength of our core digital business is built on a solid foundation of our $303 million of digital revenue annually, and our new innovative suite of AI products is expected to accelerate our pace in achieving our long-term target.
Speaker Change: While the cybersecurity incident hands dropped our overall financial performance in the quarter and product proud the team navigated the challenges and remain focused on executing our strategy. As we are now fully recovered from the cyber incident.
Speaker Change: We remain committed to our digital transformation and we're confident in our ability to drive sustainable growth and deliver long term value to our shareholders. As a reminder, our three pillars digital growth strategy is expected to result in the order of $15 million in digital revenue.
Speaker Change: It wasn't 28.
Speaker Change: The strength of our core digital business is built on the solid foundation of our regulatory millions of digital revenue annually and our new innovative suite of AI products is expected to accelerate our pace and achieving our long term target.
Kevin Mowbray: I'll share more on our AI advancements in a bit. Lee continues to consistently outpace our industry peers in several important measures of digital growth, both digital subscriptions and digital agency-related growth. Digital subscription revenue grew 40% annually over the last three years, nearly doubling the nearest industry competitor. On the advertising side, Amplified Digital Agency revenue growth has significantly outpaced our nearest competitor, growing 18% annually over the past three years. Total digital revenue was $33 million on the trailing 12 month basis, including $103 million within Amp by Digital Agency, well on our way to achieving our long term target.
Speaker Change: Sure bar on our AI advancements in a bit.
Speaker Change: Lee continues to consistently outpace our industry peers several important measures of digital grow both digital subscriptions and digital agents through revenue growth.
Speaker Change: Digital subscription revenue grew 40% annually over the last three years nearly doubling the industry competitor.
Speaker Change: On the advertising side anti digital agency revenue growth significantly outpaced our nearest competitor growing 18% annually over the past three years.
Total digital revenue was 303 million on the trailing 12 month basis, including $103 million with an amplified digital agency well on our way to achieving our long term target.
Speaker Change: Okay.
Kevin Mowbray: Our second quarter digital revenue grew 4% year-over-year on the same store basis. Digital subscription revenue continued to lead the way, growing 20% year-over-year on the same store basis. Our core digital business is diverse, robust, and growing, and the innovative ad products that we launched in our second quarter puts us in a position to accelerate our digital revenue growth in the near future. In March, we launched our suite of AI products designed to provide local businesses with the tools they need to thrive in a competitive environment. This innovative offering comes from Amplify Digital Agency and leverages cutting-edge artificial intelligence technology.
Our second quarter digital revenue grew 4% year over year on a same store basis digital subscription revenue continued to lead the way growing 20% year over year on a same store basis.
Speaker Change: Our card digital business is diverse robust and growing.
Speaker Change: The innovative AD products that we launched our second quarter purchase of this session to accelerate our digital revenue growth in the near term.
Speaker Change: Okay.
Speaker Change: In March we launched our suite of AD products designed to provide local businesses with the tools they need to thrive in a competitive environment.
Speaker Change: This innovative operating accounts from FY digital agency Leverages cutting edge artificial intelligence technology.
Kevin Mowbray: The first product offering in this innovative product suite is called AI Enablement, an AI-empowered advertising and automation solution that generates high-quality content for business . The AI Enablement product is aimed to prepare local businesses for the AI transformation of the advertising model. We've also announced additional add-on tools that are available, including AI Social and SmartSites.AI.
Speaker Change: The first product offering innovative product suite is call. It AI enablement and AI empowered advertising automation solution that generates high quality content for our businesses.
Speaker Change: The enablement product as <unk> prepare local businesses.
Speaker Change: Transformation of the advertising model.
Speaker Change: Also announced additional add on tools that are available, including anti social and smart.
Speaker Change: Smart sites.
Kevin Mowbray: We're extremely thrilled to be able to offer these innovative products to our advertisers, and we'd be happy to share more on our AI product suites on future calls.
Speaker Change: We're extremely thrilled to be able to offer these innovative products to our advertisers.
Speaker Change: Happy to share more on our Tad product suites on future calls.
Timothy Millage: Next, I'll pass the call over to Tim. Thank you, Kevin. Digital revenue has grown more than 17% annually since fiscal year 2021. And that is translated to comparable annual growth and digital gross margin. Replacing our print revenue with growing and profitable digital revenue will help us achieve long term sustainability, and we're nearing that point.
Speaker Change: I'll pass the call over to Tim.
Tim Millage: Thank you Kevin.
Tim Millage: Digital revenue has grown more than 17% annually.
Tim Millage: Full year 2021, and that has translated to comparable annual growth in digital gross margin.
Tim Millage: Replacing our current revenue with growing and profitable digital revenue will help us achieve long term sustainability and we're nearing that point.
Timothy Millage: Speaking to the quarter's operating results, total operating revenue in the second quarter was $137 million, which represented an improvement in trend from our first quarter. The trend improvement was needed by the cyber incident, which had a significant impact on our quarterly operating results. Advertising revenue trends were impacted as our product portfolio was limited in February and early March. Our subscription revenue was affected as single copy products were not available for a short period of time, and our normal process for activating new digital subscribers was hampered, significantly impacting viewing experience. Despite the incident, total digital revenue continued to show growth over the prior year of 4% led by digital subscription revenue growth of 20% and revenue growth at Amplified Digital of 9%.
Tim Millage: Speaking to the quarter's operating results total operating revenue in the second quarter was 137 million.
Tim Millage: Which represented an improvement in trend from our first quarter.
Tim Millage: The trend improvement was muted by the cyber incident, which had a significant impact on our quarterly operating results.
Tim Millage: Advertising revenue trends were impacted as our product portfolio was limited in February and early March.
Tim Millage: Subscription revenue was affected single copy products were not available for a short period of time and our normal process for activating new digital subscribers with hampered significantly impacting units in the quarter.
Tim Millage: Despite the incident total digital revenue continued to show growth over the prior year up 4% led by digital subscription revenue growth of 20% and.
Tim Millage: And revenue growth with amplified digital up 9%.
Timothy Millage: It's still early days for us in our journey as we're building our AI library. However, we expect them to help drive profitable and recurring digital revenue growth in the second half of the fiscal year.
Tim Millage: It's still early days for us in our journey and we're building our.
Tim Millage: Library.
Tim Millage: However, we expect them to help drive profitable and recurring digital revenue growth in the second half of the fiscal year.
Timothy Millage: Moving over to the cost side, we had a successful track record of effective cost management and thoughtfully investing in strategies that fuel long term growth. Following up on our last call, we executed approximately $40 million in annualized cost reduction in the second quarter, aimed at driving margin in our revenue stream and lowering costs with an emphasis on print. Operating expenses in the second quarter were impacted by the cyber incident, which included $2 million of restoration costs. Many of these costs are subject to reimbursement by your insurance carrier, and the claims process remains ongoing. In addition to tightening our operating spending, we have also lowered anticipated capital and restructuring spending.
Tim Millage: Moving over to the cost side, we had a successful track record of effective cost management and thoughtfully investing in strategies that fuel long term growth.
Tim Millage: Following up on our last call, we executed approximately $40 million annualized cost reduction in the second quarter, EBIT driving margin and our revenue stream and lowering cost with the emphasis on print.
Tim Millage: Operating expenses in the second quarter were impacted by the cyber incident, which included $2 million of restoration costs.
Tim Millage: Many of these costs are subject to reimbursement by your insurance carrier and the and the claims process remains ongoing.
Tim Millage: And Additionally, in addition to tightening our operating spending we have also lowered anticipated capital and restructuring spending.
Timothy Millage: Top-line trend improvement combined with these changes are expected to drive significant improvement in free cash flow in the back half of the year.
Tim Millage: Top line trend improvement combined with these changes are expected to drive significant improvement in free cash flow in the back half of the year.
Timothy Millage: Over to the ballot sheet. Our credit agreement with Berkshire Hathaway includes favorable terms, which include a 20-year runway, a fixed interest rate, and no financial performance covenants. These better than market trends allow us to stay laser focused on executing our strategy.
Tim Millage: Over to the balance sheet, our credit agreement with Berkshire Hathaway includes favorable terms, which include a 20 year runway the fixed interest rate <unk> financial performance.
Tim Millage: These better than market trends allow us to stay laser focused on executing our strategy.
Timothy Millage: The cyber incident also had an impact on our balance sheet as it hampered our ability to build and collect from our customers and it limited our ability to pay vendors. While technical recovery is complete, there are some lingering impacts on our balance sheet as we aim to improve working capital by reducing both accounts receivable and outstanding accounts payable throughout the remainder of the fiscal year. In response to the cyber incident, in an effort to provide short-term liquidity, Berkshire waived payments of the company's interest and basic rent payments for March, April, and May. The waived payments were added to the principal amount due under the credit agreement.
Tim Millage: The cyber implement also had an impact on our balance sheet as of hampered our ability to build we collect from our customers and has limited our ability to pay vendors.
Tim Millage: While technical recovery is complete there are some lingering impacts on our balance sheet as we aim to improve working capital.
Tim Millage: Keeping both accounts receivable and outstanding accounts payable throughout the remainder of the fiscal year.
Tim Millage: In response to the cyber incident in an effort to provide short term liquidity, Berkshire waiver payment of the company's interest in basic rent payments for March April and May.
Tim Millage: The waived payments were added to the principal amount due under the credit agreement.
Timothy Millage: This is an example of how our credit agreement benefited us in the wake of the cyber incident. Despite the temporary addition to our principal debt balance, we have made considerable progress paying down debt in recent years and remain committed to reducing debt going forward. We continue to identify opportunities to minimize or not to monetize our non-core assets, which improves liquidity and facilitates debt repayment. Year-to-date through the second quarter, we closed over $6 million of asset sales, and we have an additional $25 million to monetize. $8 million of that is slated to close this fiscal year.
Tim Millage: As an example of how our credit agreement benefited us in the way of the cyber.
Tim Millage: Despite the temporary addition to our principal debt balance.
Tim Millage: We have made considerable progress paying down debt in recent years and remain committed to reducing debt going forward.
Tim Millage: We continue to identify opportunities to minimize or not to monetize our noncore assets, which improves liquidity and facilitate debt repayment.
Tim Millage: Year to date through the second quarter, we closed over $6 million of asset sales and we have an additional $25 million or monetize.
Tim Millage: $8 million of that is slated to close this fiscal year.
Timothy Millage: The monetization of these non-core assets will provide a source of liquidity in 2025 and beyond. Despite first half results lagging expectations, we expect to build upon the digital revenue growth achieved in the first half of the fiscal year. Our core digital business led by digital subscription is expected to continue to grow rapidly as the value of our high quality local news is second to none. We also anticipate our new AI revenue stream gaining momentum as we finish the fiscal year. With that, our updated outlook reflects improved total digital revenue growth trends in the second half of the fiscal year.
Tim Millage: The monetization of these noncore assets will provide a source of liquidity and 2025 and beyond.
Tim Millage: Despite first half result, lagging expectations, we expect to build upon the digital revenue growth achieved in the first half of the fiscal year.
Tim Millage: Our core digital business led by digital subscription is expected to continue to grow rapidly as the value of our high quality local news is second to none.
Tim Millage: We are also we anticipate our new AI revenue stream gaining momentum as we finished the fiscal year.
Tim Millage: With that our updated outlook reflects improved total digital revenue growth trend in the second half of the fiscal year.
Timothy Millage: While the first half of Justice EBITDA was not where we'd like it to be, our updated outlook reflects year-over-year growth in the second half.
Tim Millage: While the first half adjusted EBITDA was not where we'd like it to be our updated outlook reflects year over year growth in the second half.
Kevin Mowbray: And with that, I will turn it back to Kevin for closing comments. I'd like to reiterate my gratitude to the entire LEAD team for navigating the challenges in the corridor and the progress made on our digital transformation for paving the way for LEAD to lead the industry in this era of AI-driven transformation.
Kevin Mowbray: And with that I will turn it back to Kevin for closing comments.
Speaker Change: I'd like to reiterate my gratitude to the entire <unk> team for navigating the challenges in the quarter and the progress made on our digital transformation, we're paving the way for the media industry is.
Unknown Executive: This concludes our remarks. The team will remain on the line for any questions you may have.
Speaker Change: The transformation. This concludes our remarks the team will remain on the line for any questions. You may have operator, please open the line for questions.
Unknown Executive: Operator, please open the line for questions. Thank you. At this time, we will be conducting a question and answer session. As a reminder, if you are accessing this call by webcast, you may submit typed questions on your screen. Those questions will be answered during the call as time permits. One moment, please, while we poll for questions.
Speaker Change: Thank you.
Speaker Change: At this time, we will be conducting a question and answer session.
Speaker Change: As a reminder.
Speaker Change: You are accessing this call by webcast you may submit typed questions on your screen.
Speaker Change: Those questions will be answered during the call as time permits one moment. Please while we poll for questions.
Unknown Executive: I'll now read our first question from the web. Net loss totaled $12 million in the quarter and pre-cash flow was minimal.
Speaker Change: I will now read our first question from the web.
Speaker Change: Net loss totaled $12 million.
Speaker Change: In the quarter and free cash flow was minimal.
Timothy Millage: Does that include the interest deferral? When does we expect to be free cash flow positive? It's a good question. With respect to the net loss in the quarter, that certainly includes the expense associated with our debt, even though the payments were waived. With respect to free cash flow, the company has made significant changes in our cost structure, both from an operating expense standpoint, as well as capital and restructuring.
Speaker Change: Does that include the interest deferral.
Speaker Change: We expect to be free cash flow positive.
Speaker Change: Okay. Good.
Speaker Change: Good question with respect to the net loss in the quarter and that certainly would include the expenses associated with our debt, even though the payments were way.
Speaker Change: With respect to free cash flow.
Speaker Change: <unk> made significant.
Speaker Change: It changes in our cost structure both.
Speaker Change: From an operating expense standpoint, as well as capital and restructuring.
Timothy Millage: As a result of those changes and the total digital revenue outlook that we provided, we do expect free cash flow to be positive in the second half of fiscal year 2020.
Speaker Change: As a result of those changes and the total digital revenue outlook that we provided we do expect.
Speaker Change: Free cash flow positive to be positive in the second half of fiscal year 2025.
Unknown Executive: That concludes the question and answer section.
Speaker Change: Okay.
Kevin Mowbray: That concludes the question and answer session turn it back to Kevin for any other closing remarks.
Kevin Mowbray: Turn it back to Kevin for any other closing remarks.
Kevin Mowbray: I'd like to thank everybody for joining the call this morning. Our focus remains on transforming our business with a long term benefit of our shareholders, our employees, our readers, and our advertisers. We appreciate your time and your excellently.
Kevin Mowbray: I would like to thank everybody for joining the call. This Marty our focus remains on the transport link our business with a long term benefit of our shareholders.
Speaker Change: Our readers and our advertisers we appreciate your time, Egypt, Chile. Thank you again.
Unknown Executive: Thank you again.
Unknown Executive: Goodbye.
Speaker Change: Goodbye.
Speaker Change: Okay.
Speaker Change: [music].
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Speaker Change: Yes.
Unknown Executive: Thanks for watching!
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Thank you.