Q3 2025 Lee Enterprises Inc Earnings Call

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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 the webcast can be found at investors that Lee Dot net now I will turn the call over to your host Garrett marks Vice President of finance.

Good morning, Thank you for joining us.

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 issued a news release with preliminary results for our third fiscal quarter of 2025 is.

<unk> dot net as well as major financial websites. Please also refer to our earnings presentation found at investors Dot net which 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 backed factors are described in this morning's news release and in our SEC filings.

During the call we refer to certain non-GAAP financial measures.

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

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

Thanks, Jen and good morning, everyone. During this call I'm pleased to share an update on our digital transformation as well as our third quarter operating results, which represented significant growth in adjusted EBITDA over Q2.

I have an important update on our management team Nathan Becky was named Chief operating officer with a strong background in strategic leadership and operational excellence.

And we'll continue to play a pivotal role in driving our digital growth and innovation.

The third quarter demonstrated solid growth amid continued recovery from last quarter's cyber event, notably local advertising revenue trends showed meaningful improvement with a year over year trends favorable seven points fueled by sustained strength across our core base.

Of 20000 local advertisers.

We launched our first to market AI powered suite in Q2, our AI enablement program offers a full suite of AI products since our last update in partnership with a new level.

That agency has launched an expanded suite of AI powered packages designs right lead capture customer engagement and business automation.

These packages are called Smart answer smart Tvs and smart suite HQ designed to provide scalable solutions for businesses at every stage from handling inbound calls to fully automating content communications and sales workflows. This rollout marks a pivotal step.

<unk>, our product catalog into our portfolio of industry, leading AI tools and solutions.

We expect the growth of our AD product suite to be a key catalyst for accelerating digital advertising growth as we advance towards our long term targets.

On the digital subscription front, we delivered same store revenue growth of 16% year over year, driven by an impressive 28% growth in our opinion we.

We ended June with 670000, digital only subscribers, which is down sequentially, reflecting the continued residual impact from the cyber event. However, as we've said before the media growth may not be linear quarter to quarter remained confident and firmly committed to reaching our long term unit turn.

And expect to continue driving topline revenue growth through both unit growth and rate optimization.

The progress in these revenue category gives us confidence in our ability to drive sustainable growth and deliver long term value to our shareholders.

As a result of our three pillar our digital growth strategy is expected.

As a result and $450 million of digital revenue by 2028.

After navigating the cyber event back in February our entire team is back to full steam ahead.

With an excellent foundation of 305 million annual digital revenue as of this quarter. We're confident our strategy will achieve digital revenue of $450 million by 2028.

As a testament to our three pillars digital growth strategy. He has consistently outpaced our industry peers and several key measures of digital growth, both digital subscription and digital agency revenue growth.

Digital subscription revenue grew 33% over the last three years nearly doubling the nearest industry peer.

On the advertising side anti digital agency revenue growth significantly outpaced our nearest competitor growing 10% annually for the last three years.

Total digital revenue was $305 million on a trailing 12 month basis, well on our way to achieving our long term target.

Our digital revenue continues to grow with an increase of 4% on a same store basis or the prior quarter digital subscription revenue continued to lead the way growing 16% year over year on a same store basis.

Anti digital agency had another solid quarter of double digit growth as well with an increase of 10% on a same store basis over the prior year, our third quarter revenue clearly demonstrates that our digital transformation is in full effect with our digital revenue, reaching 55% of our own.

We're all revenue this quarter.

The strength of our core digital business is foundational to the long term success of Lee, but I'll add that the innovative AD products that we recently launched puts us in a position to accelerate our digital revenue growth even further.

And now I'll pass it over to Tim.

Thank you Kevin.

Our core digital business has driven digital revenue growth of more than 17% annually from fiscal 2021 to fiscal 2024 and that has translated into comparable annual growth in digital gross margin.

Replacing our current revenue with growing and profitable digital revenue sets us up to achieve long term sustainability and we are nearing the sustainability point.

As Kevin alluded to as we shared in our last call. We launched our suite of AI products last quarter designed to provide local businesses with the tools they need to thrive in a competitive environment.

Innovative offerings comments from amplified digital agency and Leverages cutting edge artificial intelligence technology we.

We are excited about the AI product suites in terms of our long term digital revenue outlook.

While the February cyber incident interrupted efforts on this project, we believe that AI products, who will provide a nice lift to our FY 'twenty five digital revenue and more importantly help us over the long term to reach sustainability through digital revenue.

Speaking to this quarter's results total operating revenue in the third quarter was 141 million, which represented a year over year trend in line with our second quarter operating results.

Third quarter trends were impacted by the after effects of the cyber incident, particularly on the subscription side.

We mentioned on our last call that our normal process for activating new digital subscribers with Heber, which significantly impacted units in the quarter.

Despite the unit challenges digital subscription revenue grew 16% on a same store basis due to a multitude of successes on the pricing side.

For amplified digital agency, we saw a nice pickup in revenue trends, a percentage point better than prior quarter and a promising returned to double digit growth year over year.

This all led to $78 million of total digital revenue in the third quarter representing growth over the prior year or 4% on a same store basis.

Moving over to the cost side Lee has 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 reductions in the second quarter aimed at lowering costs across the board with an emphasis on non core print operations, while preserving the integrity of our core operations.

In the third quarter cash cost decreased 7% compared to the same quarter last year, an acceleration from the first half trends due to our cost containment efforts.

We anticipate fiscal year will finish with cash costs between 522, and $530 million to $32 million, representing a 3% to 5% decline over the prior year.

Keep in mind that as we enter FY 'twenty six about half of the $40 million in annualized cost reductions. We took this year will flow through and benefit next year's operating results.

We remain steadfast in our commitment to long term financial sustainability and the continued delivery of high quality local journalism.

By enhancing operational rigor this quarter without compromising quality, we've strengthened our long term position and are poised to drive sustainable shareholder value over the long term.

Next I'll move over to the balance 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 terms allow us to stay laser focused on executing our strategy.

In response to the cyber incident and to provide short term liquidity, Berkshire waived payment of the company's interest in basic rent payments in March April and May.

The waived payments were added to the principal amount due under our credit agreement.

This is a fitting example of how our credit agreement benefited us in the wake of the cyber incident.

Since may of 2025, however, all mandatory principal and interest payments required under our credit agreement has been made from our internal operating cash flows.

This is an important milestone in our cyber recovery.

Despite the temporary edition of our principal debt balance we've made considerable progress paying down debt in recent years and remain committed to reducing our debt going forward.

We continue to identify opportunities to monetize our noncore assets, which improved liquidity and facilitate accelerated debt repayment.

Year to date through the third quarter, we closed $9 million of asset sales.

We've identified an additional $20 million of non core assets to monetize <unk>.

Monetization of these noncore assets will provide a significant source of liquidity in 2025.

Our operating results in the third quarter put us on pace to achieve our outlook of digital revenue and adjusted EBITDA growth in the second half.

In the fourth quarter, we expect our core digital business led by digital subscriptions to continue to grow as the value of our high quality local news is unmatched we.

<unk>, new AI revenue streams, which we expect to help drive momentum as we finish the fiscal year strong.

And with that I will turn it back to Kevin for closing comments. Thanks.

Thanks, Tim I would like to reiterate my thanks to the entire <unk> team for their tremendous efforts during the quarter driving our progress on our digital transformation, we're paving the way for lead and lead the industry in this era of AI digital transformation. This concludes our remarks the team will remain on the line for question.

You may have.

Thank you at.

At this time, we will be conducting a question and answer session.

As a reminder, if you are accessing this call by webcast.

Typed questions on your screen.

Those questions will be answered during the call as time permits one moment. Please while we poll for questions.

I will now read our first question from the web.

Recent trends suggest readers are spending less time per visit on news website.

How is Lee addressing this shift and how readers consume news.

Certainly thanks for the question one of the competitive advantages that we have over kind of a national media as our asset portfolio, which typically does not act in the same manner as certainly a major metros.

In fact, we have seen some strong metrics specifically from a loyal reader base in terms of engagement.

Additionally, we are hyper focused on enhancing our digital user experience by providing state of the art digital products.

We're also focused on expanding the depth and breadth of local content and growing subscribers and driving subscription revenue. So that's how we're aiming to address changes in consumer behavior.

We have no more questions from our participants I'll turn it back to Kevin for closing remarks.

Well. Thank you all for joining us this morning, our focus remains on transforming our business for the long term benefit of our shareholders our employees our leaders and our advertisers. We appreciate your time years and Lee. Thank you again.

Yeah.

Thank you at this time, we have reached the end of our question and answer session. This concludes our call and you may now disconnect.