10-Q: Lee Enterprises Reports Q1 2025 Results: Digital Growth Offsets Print Decline, Cyber Incident Disclosed

Lee Enterprises' Q1 2025 results show a net loss despite digital revenue growth, with the company also disclosing a recent cyber incident.

Summary

• Lee Enterprises reported a net loss of $16.2 million for the first quarter of fiscal year 2025, compared to a net income of $1.2 million in the same period last year.
• Total operating revenue decreased by 7.1% to $144.6 million.
• Digital revenue increased by 3.5% and now represents 50.8% of total operating revenue.
• Digital-only subscribers grew 5% to 774,000.
• The company experienced a technology outage due to a cyber incident on February 3, 2025, which is under investigation.
• The company sold certain non-core operations during the quarter, allocating $4.2 million of goodwill to these operations.
• The company has a single 25-year term loan with BH Finance LLC, with an aggregate principal balance of $445.9 million at a 9% annual fixed rate and maturing on March 16, 2045.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the net loss and revenue decline, although there are some positive aspects such as digital growth. The cyber incident adds further uncertainty.

Positives

• Digital revenue increased by 3.5% year-over-year, reaching $73.4 million and representing 50.8% of total operating revenue.
• Digital-only subscribers grew by 5% to 774,000.
• Digital subscription revenue increased by 10.8% compared to the same quarter last year.
• Newsprint and ink costs decreased by 25.3% due to declines in newsprint volumes.
• The company realized a net gain of $0.9 million from the disposition of non-core assets, including real estate.

Negatives

• The company reported a net loss of $16.2 million, a significant decline from the net income of $1.2 million in the prior year's quarter.
• Total operating revenue decreased by 7.1% to $144.6 million.
• Print advertising revenue declined by 18.7% due to secular declines and a reduced product portfolio.
• Subscription revenue decreased by 8.9%, driven by a decline in full access volume.
• The company experienced a technology outage due to a cyber incident, causing an operational disruption.

Risks

• The company faces risks related to declining print revenue and circulation subscribers.
• Adverse economic conditions could impact the company's business.
• Changes in advertising and subscription demand could affect revenue.
• Cyber security breaches or failures of information technology systems pose a risk.
• The company's ability to manage increased capital costs is a concern.
• The company is actively investigating a cyber incident that caused a technology outage.

Future Outlook

The company aims to grow its business through subscriptions, advertising and marketing solutions, and digital services, expecting this strategy to transform Lee into a growing and sustainable local media organization.

Management Comments

• Our core strategy aims to grow audiences and engagement through creating, collecting, and distributing trusted local news and information, continuous improvements to subscriber experience, and offering a full suite of omni-channel advertising and marketing to more than 25,000 local advertisers.
• Execution of this strategy is expected to transform Lee into a growing and sustainable local media organization.

Industry Context

The report reflects the ongoing industry trend of declining print revenue and a shift towards digital media, with Lee Enterprises focusing on growing its digital subscription base and diversifying its advertising offerings to adapt to changing consumer and advertiser behavior.

Comparison to Industry Standards

• Gannett, another major newspaper chain, has also been struggling with declining print revenue and is focusing on digital subscriptions and marketing services.
• The New York Times has successfully transitioned to a digital subscription model, demonstrating the potential for growth in this area.
• Other local media companies are also exploring digital marketing agencies and SaaS platforms to diversify their revenue streams.

Legal Proceedings

• The Company was named as a defendant by a group of Plaintiffs acting on behalf of a proposed class of digital subscribers in a lawsuit in 2022 alleging violation of the Video Privacy Protection Act (VPPA).
• The Company has agreed to a preliminary settlement with the Plaintiffs for $9.5 million, subject to required court approval, with the entire settlement amount being paid by the Company's insurance carriers.

Stakeholder Impact

• Shareholders will be concerned about the net loss and revenue decline.
• Employees may be affected by restructuring efforts and investments in digital talent.
• Customers may experience disruptions due to the cyber incident.
• Advertisers may see changes in advertising options as the company shifts its focus to digital.

Next Steps

• The company is actively investigating the cyber incident and implementing recovery measures.
• The company will continue to focus on growing its digital subscription base and diversifying its advertising offerings.
• The company expects funds necessary for capital expenditures, which are expected to total approximately $10.0 million in 2025, and other requirements, will be available from internally generated funds.

Key Dates