8-K: Lee Enterprises Reports Preliminary Q2 Fiscal 2025 Results Amidst Cyber Incident

Lee Enterprises announces preliminary second quarter fiscal 2025 results, highlighting digital revenue growth offset by the impact of a cyber security incident.

Summary

• Lee Enterprises reported preliminary results for the second quarter of fiscal year 2025, which ended on March 30, 2025.
• Total operating revenue was $137 million.
• Total digital revenue reached $73 million, representing 53% of total operating revenue, a 3% increase year-over-year, or 4% on a same-store basis.
• Digital-only subscription revenue increased by 17% year-over-year, or 20% on a same-store basis, totaling $24 million with 728,000 digital-only subscribers.
• Digital advertising and marketing services revenue accounted for 73% of total advertising revenue, amounting to $44 million.
• Amplified Digital Agency revenue totaled $25 million, up 9% year-over-year on a same-store basis.
• The company experienced a cyber security incident in February, incurring $2 million in restoration costs and impacting advertising and subscription revenue.
• Operating expenses totaled $143 million, including the $2 million in cyber restoration expenses.
• Cash costs totaled $131 million, a 2% decrease compared to the prior year.
• Net loss totaled $12 million, and Adjusted EBITDA totaled $8 million.
• The company executed $40 million in annualized cost reductions in the second quarter.
• Lee expects improving year-over-year trends in Total Digital Revenue and year-over-year growth in Adjusted EBITDA in the third and fourth fiscal quarters of FY25.
• The company has $453 million of debt outstanding under its Credit Agreement with BH Finance, featuring favorable terms including a 25-year maturity and a fixed annual interest rate of 9.0%.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company is making progress in its digital transformation, the cyber security incident and overall revenue decline temper the positive aspects.

Positives

• Digital revenue continues to grow, representing 53% of total revenue.
• Digital-only subscription revenue increased by 20% year-over-year on a same-store basis.
• Amplified Digital Agency revenue increased by 9% year-over-year on a same-store basis.
• The company executed $40 million in annualized cost reductions in the second quarter.
• Lee expects improving year-over-year trends in Total Digital Revenue and year-over-year growth in Adjusted EBITDA in the third and fourth fiscal quarters of FY25.
• The company's debt structure includes favorable terms with a 25-year maturity and a fixed annual interest rate of 9.0%.

Negatives

• The company experienced a cyber security incident in February, incurring $2 million in restoration costs and impacting advertising and subscription revenue.
• Total operating revenue decreased by 6% year-over-year, or 5% on a same-store basis.
• Net loss totaled $12 million.
• Print revenue continues to decline.

Risks

• The company's future performance is subject to risks related to declining print revenue and circulation subscribers.
• Adverse economic conditions could impact the business.
• Changes in technology could impact the ability to deliver digital advertising.
• Cyber security breaches and failures of information technology systems pose a significant risk.
• The company's ability to achieve planned expense reductions and realize the expected benefit of acquisitions is uncertain.
• Competition in the industry could impact performance.

Future Outlook

Lee Enterprises expects improving year-over-year trends in Total Digital Revenue and year-over-year growth in Adjusted EBITDA in the third and fourth fiscal quarters of FY25. The updated outlook for FY25 represents the impacts from the current environment and the cyber incident but does not change long-term expectations.

Management Comments

• Kevin Mowbray, Lee's President and Chief Executive Officer, stated that the second quarter results demonstrate the continued progression of the company's digital transformation.
• Mowbray noted the impact of the cyber security incident on the quarterly operating results but expressed pride in how the team navigated the challenges.
• Mowbray mentioned the launch of an AI solution designed to provide local businesses with the tools they need to thrive.
• Mowbray added that the company took significant action on the cost side to address near-term challenges.

Industry Context

Lee Enterprises is navigating the shift from print to digital media, a common trend in the news industry. The company's focus on digital subscriptions and digital marketing services aligns with industry efforts to diversify revenue streams and adapt to changing consumer preferences. The cyber security incident highlights the increasing importance of digital security for media companies.

Comparison to Industry Standards

• Lee's digital subscription revenue growth of 20% year-over-year is strong compared to some other newspaper companies, but it's important to consider the base from which they are growing.
• Companies like Gannett and McClatchy are also focused on digital transformation, but their specific growth rates and strategies may differ.
• The 9% growth in Amplified Digital Agency revenue is described as industry-leading, but it would be helpful to see specific comparisons to other digital marketing agencies serving local markets.
• The cost reductions of $40 million are significant, but it's important to assess whether these cuts are impacting the quality of news content or the company's ability to invest in future growth.

Stakeholder Impact

• Shareholders may be concerned about the net loss and revenue decline, but encouraged by the digital growth and cost reduction efforts.
• Employees may be affected by the cost reduction initiatives.
• Customers may experience disruptions due to the cyber security incident.
• Suppliers may be impacted by the company's cost management strategies.
• Creditors will monitor the company's debt levels and ability to generate cash flow.

Next Steps

• The company will hold an earnings conference call and audio webcast.
• Lee expects improving year-over-year trends in Total Digital Revenue and year-over-year growth in Adjusted EBITDA in the third and fourth fiscal quarters of FY25.

Key Dates

Keywords

digital revenue, subscriptions, advertising, cyber security, cost reductions, EBITDA, debt, Lee Enterprises, financial results