8-K: Lee Enterprises Reports Mixed Fiscal Year Results, Digital Growth Offsets Print Decline

Lee Enterprises reported its fourth quarter and full-year fiscal 2024 results, highlighting significant digital revenue growth but falling short of adjusted EBITDA targets.

Summary

• Lee Enterprises reported preliminary fourth quarter and full-year fiscal 2024 results, with total operating revenue of $159 million for the quarter and $611 million for the year.
• Digital revenue reached $82 million in the quarter, representing 51% of total revenue, and $299 million for the year, or about half of total revenue.
• Digital-only subscription revenue increased by 30% in the quarter and 41% for the year, while Amplified Digital Agency revenue grew by 21% in the quarter and 11% for the year, approaching $100 million for the fiscal year.
• Print revenue declined by 14% in the quarter and 21% for the year, totaling $77 million and $312 million respectively.
• Adjusted EBITDA was $17 million for the quarter and $65 million for the year, falling short of the company's target.
• The company has $446 million of debt outstanding with a fixed annual interest rate of 9.0% and no fixed principal payments.
• Lee expects digital revenue to grow between 7% and 10% in fiscal year 2025 and adjusted EBITDA to grow in the low-single digits.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong digital growth and strategic AI partnerships, but tempered by the failure to meet EBITDA targets and continued print revenue decline.

Positives

• Digital revenue is now a majority of the total revenue in the fourth quarter, indicating a successful shift towards digital.
• Digital subscription revenue is growing rapidly, with a 30% increase in the fourth quarter and 41% for the full year.
• Amplified Digital Agency revenue is also showing strong growth, up 21% in the fourth quarter and approaching $100 million for the year.
• The company has a favorable debt structure with a long maturity and fixed interest rate.
• Lee is making strategic partnerships with AI and technology companies to drive future growth.
• The company is actively managing costs, with cash costs down 10% for the full year.
• Digital gross margin is growing at a 13% CAGR since 2021 and is expected to exceed total SG&A costs in FY26.

Negatives

• The company fell short of its adjusted EBITDA target for the year.
• Total operating revenue decreased by 2% in the fourth quarter and 8% for the full year.
• Print revenue continues to decline significantly, down 14% in the fourth quarter and 21% for the full year.
• Operating expenses increased by 4% in the fourth quarter.
• The company reported a net loss of $23.573 million for the full year.

Risks

• The company faces the challenge of managing declining print revenue and circulation.
• Changes in advertising and subscription demand could impact revenue.
• Technological changes could affect the company's ability to deliver digital advertising.
• The company is exposed to potential changes in newsprint, other commodities, and energy costs.
• Cybersecurity breaches or failures of IT systems pose a risk.
• The company's ability to achieve planned expense reductions and realize the expected benefits of acquisitions is not guaranteed.
• Competition in the media industry is a significant risk.
• The company may be required to indemnify previous owners of BH Media or The Buffalo News for unknown legal and other matters.

Future Outlook

Lee expects total digital revenue to grow between 7% and 10% year-over-year in fiscal year 2025 and adjusted EBITDA to grow in the low-single digits. The company also expects to reach $450 million in digital revenue and 1.2 million digital subscribers by 2028.

Management Comments

• The team achieved significant milestones in FY24, driving 41% revenue growth in digital subscriptions and approaching $100 million in Amplified Digital revenue for the fiscal year, said Kevin Mowbray, Lee's President and Chief Executive Officer.
• We successfully met our digital subscription unit target and laid a robust foundation for our digital transformation through talent investments in AI, technology expertise, and complex IT infrastructure.
• While these accomplishments reflect strong execution of our strategy, we are not satisfied with the overall operating metrics, as we fell short of our Adjusted EBITDA target, Mowbray added.
• As we look ahead to FY25, we remain confident in the strength of our core strategy and the opportunities it presents.
• We are uniquely positioned to lead the growth of local advertising driven by advancements in AI.
• Through strategic partnerships with leading AI and technology companies, like Perplexity and ProRata.ai, that were recently announced, we aim to scale rapidly and further solidify our dominant position in the local market, unlocking new growth opportunities and delivering enhanced value to our stakeholders.

Industry Context

The announcement reflects the broader trend in the media industry of declining print revenue and a shift towards digital platforms. Lee's focus on digital subscriptions and AI partnerships aligns with industry efforts to adapt to changing consumer behavior and technological advancements. The company's emphasis on local news and advertising positions it to capitalize on the growing demand for hyper-local content.

Comparison to Industry Standards

• Lee's 41% year-over-year growth in digital subscriptions is industry-leading, significantly outpacing many traditional media companies struggling to transition to digital.
• The company's focus on AI partnerships, such as with Perplexity and ProRata.ai, is a forward-thinking approach that aligns with the industry's move towards leveraging AI for content creation and advertising.
• While many media companies are facing challenges with declining print revenue, Lee's ability to grow digital revenue to 51% of total revenue in the quarter demonstrates a more successful transition than some of its peers.
• Gannett, another major newspaper publisher, has also been focusing on digital transformation, but its digital growth rates have not been as high as Lee's in the subscription area.
• The New York Times, a national player, has seen success in digital subscriptions, but Lee's focus on local markets provides a different competitive landscape.
• The company's debt structure with a 25-year maturity and fixed interest rate is more favorable than many other media companies that have struggled with debt burdens.

Stakeholder Impact

• Shareholders may be concerned about the failure to meet EBITDA targets but encouraged by the strong digital growth.
• Employees may be affected by ongoing cost management initiatives.
• Customers will see a continued shift towards digital content and services.
• Suppliers may be impacted by changes in print operations.
• Creditors will be reassured by the company's favorable debt structure.

Next Steps

• The company will continue to focus on growing digital revenue and subscriptions.
• Lee will pursue strategic partnerships with AI and technology companies.
• The company will continue to manage costs and optimize its operations.
• Lee will monetize non-core assets to reduce debt.

Key Dates

Keywords

digital revenue, digital subscriptions, print revenue, adjusted EBITDA, AI, advertising, local news, debt, cost management, digital transformation