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Introduction & Market Context
Lee Enterprises (NASDAQ:LEE) presented its second quarter fiscal 2025 results on May 8, 2025, highlighting its ongoing digital transformation amid challenging financial performance. The company’s stock fell 4.61% following the release, closing at $7.73, as investors responded to wider-than-expected losses despite progress in the company’s digital initiatives.
The local media company, which operates news and information platforms across 77 markets, reported that digital revenue now accounts for 53% of total revenue, marking a significant milestone in its transition from a print-focused to a digital-first business model. However, this achievement was overshadowed by a quarterly net loss of $12 million, with earnings per share of -$2.07 missing analyst expectations of -$1.48.
Quarterly Performance Highlights
Lee Enterprises reported total operating revenue of $137 million for Q2 FY2025, representing a 6% year-over-year decline (or 5% on a same-store basis). This figure fell short of the forecasted $142.55 million. The company’s adjusted EBITDA came in at $8 million, while total cash costs were reduced by 2% year-over-year to $131 million.
As shown in the following breakdown of Q2 revenue composition:
Digital revenue grew 3% year-over-year to $73 million, now representing 53% of total revenue. Within the digital segment, digital-only subscription revenue showed the strongest performance with 17% growth (20% on a same-store basis) to $24 million. The company’s Amplified Digital Agency revenue increased by 8% (9% on a same-store basis) to $25 million, while digital advertising revenue declined by 3% (2% on a same-store basis) to $44 million.
Print revenue continued its expected decline, falling 14% year-over-year to $65 million and now accounting for 47% of total revenue.
Digital Transformation Progress
Lee Enterprises emphasized its industry-leading digital growth compared to peers, particularly in digital subscription and agency revenue. The company’s presentation highlighted that its digital subscription revenue has grown at a 40% three-year CAGR through Q1 FY25, outpacing Gannett (21%) and The New York Times (NYSE:NYT) (18%).
The following chart illustrates Lee’s digital growth performance relative to industry peers:
Similarly, Lee’s Amplified Digital Agency revenue has grown at an 18% three-year CAGR, compared to Gannett’s 1% and TownSquare’s -3%. Total (EPA:TTEF) digital revenue has increased from $211 million in FY22 to $303 million for the last twelve months, representing a 13% three-year CAGR.
The company’s digital transformation is guided by its Three Pillar Digital Growth Strategy, which focuses on expanding audience through compelling local content, accelerating digital subscription growth, and diversifying offerings for local advertisers.
Strategic Initiatives
Lee Enterprises projects that its digital revenue growth will lead to business sustainability from digital products alone. The company expects digital gross margin to exceed total SG&A costs in FY26, a key milestone in its transformation journey.
As illustrated in the following chart showing the path to sustainability:
The company has demonstrated a strong track record of cost management, reducing total cash costs from approximately $1 billion in 2017 to $553 million in 2024. Management highlighted ongoing initiatives to optimize manufacturing, distribution, and corporate services, while making incremental investments in marketing and digital capabilities.
On the financial front, Lee emphasized its favorable credit agreement with Berkshire Hathaway (NYSE:BRKa), which provides a 25-year runway with no breakage costs, prepayment penalties, or financial performance covenants. The company has reduced its debt by $123 million since refinancing in March 2020, bringing total debt to $453 million as of Q2 2025.
Financial Outlook and Challenges
Despite the progress in digital transformation, Lee Enterprises faces significant challenges. The earnings miss and wider-than-expected loss highlight the difficulty of managing the transition from print to digital while maintaining profitability. The company carries a substantial debt burden of $480.72 million against a market capitalization of just $46.62 million, according to available data.
For the second half of fiscal 2025, Lee provided a cautiously optimistic outlook, projecting low-single-digit year-over-year growth for both total digital revenue and adjusted EBITDA.
During the earnings call, CEO Kevin Mowbray emphasized the company’s commitment to AI-driven transformation, stating, "We’re paving the way for Lee to lead the industry in this era of AI-driven transformation." CFO Tim Milledge highlighted the shift from print to digital revenue, noting that "Replacing our print revenue with growing and profitable digital revenue will help us achieve long-term sustainability."
The company also identified approximately $25 million of non-core assets to monetize, which it plans to use for further debt reduction. Additionally, Lee noted that its pension plans are now frozen and fully funded in the aggregate, with no material pension contributions expected in 2025.
While Lee Enterprises continues to make progress on its digital transformation journey, investors remain concerned about the pace of this transition relative to the decline in print revenue. The company’s ability to accelerate digital growth while managing costs will be crucial to achieving its goal of a sustainable and vibrant digital-first business by 2028.
Full presentation:
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