8-K: Lee Enterprises Reports Q1 Adjusted EBITDA Growth and Strong Digital Subscriber Gains

Lee Enterprises announced a 6% year-over-year increase in Adjusted EBITDA and a 60% year-over-year increase in digital-only subscription revenue for the first quarter of fiscal year 2024.

Summary

• Lee Enterprises reported its preliminary first quarter fiscal 2024 results, showing a 6% increase in Adjusted EBITDA year-over-year, reaching $19 million.
• Digital-only subscribers grew by 30% year-over-year, totaling 735,000, and digital-only subscription revenue increased by 60% year-over-year.
• Total digital revenue reached $71 million, representing 46% of total operating revenue, and is expected to surpass print revenue in the latter half of the year.
• Total operating revenue was $156 million, while total cash costs decreased by 18% year-over-year to $139 million.
• The company's debt decreased by $2 million in the quarter, totaling $454 million, with $15 million in cash on hand.
• Lee Enterprises expects total digital revenue to be between $310 million and $330 million for fiscal year 2024, with digital-only subscribers reaching 771,000.
• Adjusted EBITDA for the full year is projected to be between $83 million and $90 million.
• The company anticipates being sustainable without reliance on print media within five years.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with strong digital growth and cost management, but the decline in print revenue and overall revenue is a concern. The company's digital transformation is progressing well, but there are still risks to consider.

Positives

• The company experienced significant growth in digital subscriptions and revenue.
• Lee is successfully reducing its cash costs.
• The company is making progress in its digital transformation, with digital revenue expected to surpass print revenue soon.
• The company has a favorable debt structure with a 25-year maturity and no financial performance covenants.
• The company's pension plans are fully funded, eliminating the need for material contributions in 2024.
• The company is seeing strong growth in digital advertising and marketing services revenue.

Negatives

• Total operating revenue decreased by 15.9% year-over-year to $155.7 million.
• Print advertising revenue declined by 41.6% year-over-year.
• Print subscription revenue decreased by 23% year-over-year.
• Net income attributable to Lee Enterprises decreased by 37.4% year-over-year to $688,000.
• Digital advertising revenue decreased by 2.7% year-over-year.

Risks

• The company faces risks related to the long-term impact of the COVID-19 pandemic on the publishing industry.
• There are risks associated with managing declining print revenue and circulation.
• The company is exposed to changes in advertising and subscription demand.
• Changes in technology could impact the company's ability to deliver digital advertising.
• The company is subject to potential changes in newsprint, other commodities, and energy costs.
• Interest rates and labor costs could impact the company's financial performance.
• Cybersecurity breaches and failures of information technology systems pose a risk.
• The company's ability to achieve planned expense reductions and realize the benefits of acquisitions is not guaranteed.
• The company faces competition in the media industry.
• The company's ability to maintain its NASDAQ listing is a risk.

Future Outlook

Lee Enterprises expects digital revenue to exceed print revenue in the back half of the year and aims to be sustainable without reliance on print within five years. The company anticipates total digital revenue between $310 million and $330 million, digital-only subscribers reaching 771,000, and Adjusted EBITDA between $83 million and $90 million for fiscal year 2024.

Management Comments

• Kevin Mowbray, Lee's President and Chief Executive Officer, stated that their Three Pillar Digital Growth Strategy is driving audience growth, improving consumer engagement, and increasing digital subscribers.
• Mowbray also noted that the impressive digital subscription revenue growth combined with gains at Amplified Digital has led to digital revenue reaching 46% of total operating revenue.
• Mowbray expressed confidence in Lee's digital transformation and expects strong digital revenue combined with cost management to achieve the full-year Adjusted EBITDA guidance.

Industry Context

The announcement reflects a broader trend in the media industry where companies are shifting from print to digital platforms. Lee's focus on digital subscriptions and advertising aligns with this trend, as traditional print media continues to decline. The company's success in growing digital revenue and subscribers positions it well in the evolving media landscape.

Comparison to Industry Standards

• Lee's 60% year-over-year growth in digital-only subscription revenue is significantly higher than many traditional media companies, which are struggling to transition to digital.
• The company's digital revenue now representing 46% of total revenue is a positive sign, as many legacy media companies still rely heavily on print.
• Gannett, another major newspaper publisher, has also been focusing on digital transformation, but Lee's growth in digital subscriptions appears to be outpacing Gannett's.
• While companies like the New York Times have seen success in digital subscriptions, Lee's focus on local news and its three-pillar strategy differentiate it from national players.
• The company's debt structure with a 25-year maturity and no financial performance covenants is more favorable than many of its peers, providing financial stability.

Stakeholder Impact

• Shareholders will benefit from the company's digital growth and potential for increased value.
• Employees may see changes in roles and responsibilities as the company shifts towards digital.
• Customers will have access to more digital content and services.
• Suppliers may see changes in demand for print-related products.
• Creditors will be reassured by the company's favorable debt structure and improving financial performance.

Next Steps

• The company will continue to execute its Three Pillar Digital Growth Strategy.
• Lee will focus on maximizing the monetization of its digital products.
• The company will work to retain and grow spending from local advertising partners.
• Lee will increase ARPU with local advertisers through Amplified.
• The company will acquire and retain strategic top agency accounts.
• Lee will maximize subscription and revenue opportunities in its addressable market.
• The company will invest and create local content that drives engagement.

Key Dates

Keywords

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