10-Q: Lee Enterprises Reports Q3 Loss Amid Digital Shift

Lee Enterprises reported a net loss for the quarter and nine months ended June 29, 2025, as digital revenue growth partially offset declines in traditional print advertising and subscriptions, while a cybersecurity incident impacted results.

Summary

• Total operating revenue for the three months ended June 29, 2025, was $141.3 million, a 6.2% decrease from $150.6 million in the prior year quarter.
• Net loss for the three months ended June 29, 2025, was $1.7 million, an improvement from a $3.7 million net loss in the same period last year.
• Basic and diluted loss per common share for the quarter improved to $0.31 from $0.73 year-over-year.
• Digital-only subscription revenue grew by 13.4% for the quarter and 13.9% for the nine months, reaching 670,000 digital-only subscribers.
• Total digital revenue, including digital advertising, digital subscription, and digital services, increased 2.8% to $77.9 million for the quarter, representing 55.1% of total operating revenue.
• For the nine months ended June 29, 2025, total operating revenue was $423.2 million, down 6.5% from $452.8 million in the prior year period.
• Net loss for the nine months ended June 29, 2025, was $29.9 million, significantly worse than the $14.1 million net loss in the prior year period.
• Basic and diluted loss per common share for the nine months worsened to $5.16 from $2.68 year-over-year.
• A cybersecurity incident on February 3, 2025, resulted in $1.2 million in expenses for the quarter and $3.1 million for the nine months, impacting various revenue lines and delaying projects, with an estimated revenue impact exceeding $10 million.
• The company incurred $7.1 million in restructuring costs and other expenses for the quarter, an 88.2% increase, primarily due to cyber incident recovery, outsourced production facility closures, business transformation, and severance.
• Cash and cash equivalents increased to $14.1 million as of June 29, 2025, from $9.6 million as of September 29, 2024.
• The company received waivers of interest and rent payments from BH Finance LLC in February, April, and May 2025, which increased the outstanding debt balance by $11.3 million.

Sentiment

Score: 4

Explanation: The company faces significant headwinds with overall revenue decline and substantial net losses for the nine-month period, exacerbated by a costly cybersecurity incident. While digital growth and Q3 net loss improvement offer some positive signals, the high debt burden and ongoing operational challenges indicate a difficult path forward.

Positives

• Digital-only subscription revenue grew by 13.4% for the quarter and 13.9% for the nine months, indicating strong digital audience conversion.
• Total digital revenue increased by 2.8% for the quarter, now comprising 55.1% of total operating revenue, demonstrating progress in the digital transformation strategy.
• Net loss for the three months ended June 29, 2025, significantly improved by 54.6% compared to the prior year quarter.
• Compensation expenses decreased by 20.0% for the quarter and 6.5% for the nine months due to reductions in full-time employees and business transformation efforts.
• Newsprint and ink costs decreased by 20.2% for the quarter and 23.7% for the nine months due to declines in newsprint volumes.
• Cash and cash equivalents increased by $4.5 million from the beginning of the period to $14.1 million at quarter-end.
• Operating results improved since May 2025, with mandatory and principal payments now funded through cash from operations, marking a significant milestone in cyber recovery.

Negatives

• Total operating revenue decreased by 6.2% for the quarter and 6.5% for the nine months, driven by declines in print advertising and subscription revenue.
• Print advertising revenue declined by 7.7% for the quarter and 13.3% for the nine months due to secular declines and impacts from the Cyber Incident.
• Print subscription revenue decreased by 20.0% for the quarter and 17.4% for the nine months, consistent with historical and industry trends.
• The company reported a net loss of $29.9 million for the nine months ended June 29, 2025, a significant worsening from the $14.1 million loss in the prior year period.
• Operating income turned into an operating loss of $3.2 million for the nine months ended June 29, 2025, compared to an operating income of $8.2 million in the prior year period.
• Restructuring costs and other expenses increased by 88.2% for the quarter and 54.2% for the nine months, largely due to the cybersecurity incident and business transformation efforts.
• The cybersecurity incident had an estimated revenue impact of more than $10 million and caused significant delays in many projects.
• The company's liquidity was pressured by reduced net cash flows from operating activities due to the current operating environment, business transformation spending, and the Cyber Incident.

Risks

• The company may be required to indemnify previous owners of BH Media or Buffalo News for unknown legal and other matters.
• Ability to manage declining print revenue and circulation subscribers.
• Impact and duration of adverse conditions in certain aspects of the economy affecting the business.
• Changes in advertising and subscription demand.
• Changes in technology that impact the ability to deliver digital advertising.
• Potential changes in newsprint, other commodities, and energy costs.
• Interest rate fluctuations.
• Labor costs.
• Significant cybersecurity breaches or failure of information technology systems.
• Ability to achieve planned expense reductions and realize expected benefits of acquisitions.
• Ability to maintain employee and customer relationships.
• Ability to manage increased capital costs.
• Ability to maintain listing status on NASDAQ.
• Competition in the media industry.
• Uncertain outcome and potential losses from ongoing cybersecurity incident litigation.
• Potential impact of changes in minimum wage rates.

Future Outlook

The company anticipates that funds necessary for capital expenditures, expected to total up to $7.0 million in fiscal year 2025, and other requirements, will be available from internally generated funds. It expects the improvement in operating results, which allowed funding of mandatory and principal payments from cash from operations since May 2025, to continue into future quarters. The company is currently evaluating the impact of the One Big Beautiful Bill Act (OBBBA) signed on July 4, 2025, which makes permanent key elements of the Tax Cuts and Jobs Act, and expects results to be reflected in its Annual Report on Form 10-K for the year ended September 28, 2025.

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 20,000 local advertisers.
• Our digital subscription platforms are the fastest growing digital subscription platforms in local media.
• Amplified Digital Agency offers a full suite of digital marketing solutions to local advertisers.
• BLOX Digital is one of the largest web-hosting and content management SaaS providers in North America, representing a powerful opportunity to drive additional digital revenue.
• The current operating environment, business transformation spending, and impacts from the Cyber Incident have reduced net cash flows and put pressure on the Company's liquidity.
• In response to the current challenges, the Company has implemented specific plans to maintain sufficient liquidity for the foreseeable future, including reducing operating and capital spending and reducing outstanding accounts receivable.
• Reductions in operating expenses and capital spending largely impact the Company's print businesses and future products that are not generating revenue today.
• The improvement in operating results since May 2025 marked a significant milestone in the cyber recovery, as all mandatory and principal payments were funded through cash from operations.

Industry Context

The company operates in the evolving media industry, characterized by a secular decline in traditional print advertising and subscriptions, offset by a shift towards digital platforms. Its strategy to become a 'digital-first subscription business' aligns with broader industry trends of digital transformation and diversification into digital marketing services (Amplified Digital Agency) and SaaS content platforms (BLOX Digital). The challenges faced, such as declining print revenue and the need for expense reductions, are common across the traditional publishing sector. The focus on local markets and trusted news aims to differentiate it in a competitive landscape.

Corporate Governance

Legal Proceedings

• A preliminary settlement of $9.5 million has been agreed upon with plaintiffs in a Video Privacy Protection Act (VPPA) class action lawsuit, alleging tracking of subscribers' video viewing activity and sharing with Meta without consent. The entire settlement amount will be paid by the company's insurance carriers.
• Multiple putative class action lawsuits were filed around June 2025 in the United States District Court for the Southern District of Iowa following the cybersecurity incident, alleging failure to adequately protect personal information and seeking unspecified damages. The company is vigorously defending these claims and believes potential losses would be covered by cyber liability insurance, subject to deductibles and policy limits.

Related Party Transactions

• The company has a 25-year term loan with BH Finance LLC, with an aggregate principal balance of $455.9 million. BH Finance LLC waived interest payments and BH Media Group, Inc. waived lease payments in February, April, and May 2025 to provide short-term liquidity, increasing the outstanding debt balance by $11.3 million. An amendment to the Credit Agreement in May 2025 requires 100% prepayment of net cash proceeds from asset sales to BH Finance LLC.

Stakeholder Impact

• Shareholders: Experienced significant net losses for the nine-month period and diluted loss per share worsened. The Rights Agreement extension may limit potential acquisition premiums. Liquidity pressure and debt burden remain concerns.
• Customers/Subscribers: Personal information may have been accessed or acquired during the cybersecurity incident, leading to the offer of identity theft protection services. Digital subscription growth indicates continued engagement.
• Employees: Compensation expenses decreased due to reductions in full-time employees, indicating ongoing business transformation and potential job impacts. Investments in digital talent are being made.
• Creditors (BH Finance LLC): Provided waivers on interest and lease payments, indicating a supportive but watchful stance, with new terms requiring accelerated debt prepayment from asset sales.
• Suppliers (Newsprint/Ink): Decreased costs reflect lower demand for print volumes, impacting these suppliers.

Next Steps

• Continue business transformation efforts to grow digital audiences and expand the digital subscription base.
• Diversify and expand offerings for advertisers through digital products and services.
• Implement specific plans to maintain sufficient liquidity, including reducing operating and capital spending and reducing outstanding accounts receivable.
• Ongoing legal and forensic investigation into the cybersecurity incident, including evaluation of the extent and potential risk related to unauthorized access to sensitive data.
• Claims processing for cyber insurance reimbursements is ongoing.
• Evaluation of the impact of the One Big Beautiful Bill Act (OBBBA) to be reflected in the Annual Report on Form 10-K for the year ended September 28, 2025.

Key Dates

Recommendation

While Lee Enterprises reported a significant net loss for the nine-month period and faces ongoing challenges from declining print revenue and the cybersecurity incident, the company shows signs of stabilization and progress in its digital transformation. Digital subscription revenue continues to grow, and the net loss for the most recent quarter improved significantly. Management has implemented plans to address liquidity and operating costs, with cash from operations now funding mandatory payments. The high debt and the impact of the cyber incident remain concerns, but for existing investors, holding the stock allows for observation of the digital strategy's continued execution and recovery efforts. New investors may find the current risk-reward profile less attractive given the substantial losses and industry headwinds.

Keywords

Digital Media, Local News, Newspaper, Advertising, Subscriptions, Cybersecurity, Media Industry, SaaS, Digital Marketing, Print Media