Earnings call transcript: Lee Enterprises misses Q2 2025 earnings forecasts

Lee Enterprises reported its financial results for Q2 2025, revealing a wider-than-expected loss. The company posted an earnings per share (EPS) of -$2.07, missing the forecast of -$1.48. Revenue also fell short of expectations, coming in at $137 million against a forecast of $142.55 million. Following the announcement, Lee Enterprises’ stock dropped by 8.62% in pre-market trading. According to InvestingPro data, the company’s revenue has declined by 9.28% over the last twelve months, reflecting ongoing challenges in its business transformation.

Key Takeaways

• Lee Enterprises reported a larger-than-expected loss with an EPS of -$2.07.
• Revenue for the quarter was $137 million, below the $142.55 million forecast.
• Stock price fell by 8.62% following the earnings announcement.
• Digital revenue showed growth, with digital subscriptions up 20% year-over-year.
• The company has launched new AI products to drive future growth.

Company Performance

Lee Enterprises continues to focus on its digital transformation strategy, despite a challenging quarter. The company reported a net loss of $12 million for Q2 2025. Digital revenue showed promising growth, with a 4% increase year-over-year on a same-store basis. The digital subscription revenue grew by 20%, and the Amplified Digital Agency revenue increased by 9%. InvestingPro analysis reveals the company carries a substantial debt burden of $480.72 million against a market capitalization of just $46.62 million, highlighting the importance of successful digital transformation. Get detailed insights and 8 additional ProTips about Lee Enterprises’ financial health with an InvestingPro subscription.

Financial Highlights

• Total operating revenue: $137 million
• Net loss: $12 million for the quarter
• Digital revenue growth: 4% year-over-year
• Digital subscription revenue growth: 20% year-over-year
• Amplified Digital Agency revenue growth: 9%

Earnings vs. Forecast

Lee Enterprises missed its earnings forecast, with an EPS of -$2.07 compared to the expected -$1.48. The revenue also fell short at $137 million versus the forecasted $142.55 million. This represents a significant miss, impacting investor sentiment negatively.

Market Reaction

The market reacted swiftly to the earnings miss, with Lee Enterprises’ stock price declining by 8.62% in pre-market trading. The stock’s last close was at $8.11, and it has been trading closer to its 52-week low of $7.35, reflecting investor concerns. InvestingPro’s Fair Value analysis suggests the stock is currently undervalued, despite falling 54.69% over the past six months. Discover comprehensive valuation metrics and access the detailed Pro Research Report, available for over 1,400 US stocks, to make more informed investment decisions.

Outlook & Guidance

Looking ahead, Lee Enterprises anticipates being free cash flow positive in the second half of fiscal year 2025. The company expects improved digital revenue growth and year-over-year adjusted EBITDA growth. It continues to focus on digital transformation and aims to boost digital revenue through its new AI product offerings.

Executive Commentary

CEO Kevin Mowbray emphasized the company’s commitment to leading in AI-driven transformation, stating, "We’re paving the way for lead to lead the industry in this era of AI driven transformation." CFO Tim Milledge highlighted the shift from print to digital revenue, saying, "Replacing our print revenue with growing and profitable digital revenue will help us achieve long term sustainability."

Risks and Challenges

• Cybersecurity threats: The company recently recovered from a significant cyber incident.
• Revenue transition: Moving from print to digital revenue poses challenges.
• Market competition: Intense competition in the digital space could impact growth.
• Economic conditions: Broader economic pressures may affect advertising revenue.

Q&A

During the earnings call, analysts focused on concerns about the net loss and free cash flow. The management reiterated its expectation to be free cash flow positive in the latter half of the fiscal year, highlighting cost structure changes and a positive digital revenue outlook.

Full transcript - Lee Enterprises (LEE) Q2 2025:

Conference Operator, Lee Enterprises: Welcome to the Lee Enterprises twenty twenty five Second Quarter Webcast and Conference Call. The call is being recorded and will be available for replay at investors.lee.net. At the close of the plant remarks, there will be an opportunity for questions. Participants accessing this call by webcast may submit written questions through the website, and they will be answered during the call as time permits. Otherwise, you will receive a response later.

A link to the live webcast can be found at investors..lee.net. Now I will turn the call over to your host, Jared Marks, vice president, finance.

Jared Marks, Vice President, Finance, Lee Enterprises: Good morning. Thank you for joining us. In addition to myself, speaking on this morning’s call are Kevin Mowbray, President and Chief Executive Officer, and Tim Milledge, Vice President, Chief Financial Officer, and Treasurer. Earlier today, we issued a news release with preliminary results for our second fiscal quarter of twenty twenty five. It is available at lee.net, as well as major financial websites.

Please also refer to our earnings presentation found at investors.lee.net, which includes supplemental information. As a reminder, this morning’s discussion will include forward looking statements based on our current expectations. These statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially. Such factors are described in this morning’s news release and in our SEC filings. During the call, we refer to certain non GAAP financial measures.

Reconciliations to the relevant GAAP measures are included in the tables accompanying the release. And now, to open the discussion is our President and Chief Executive Officer, Kevin Mobrin.

Kevin Mowbray, President and Chief Executive Officer, Lee Enterprises: Thanks, Jared, and good morning, everyone. I’d like to start by expressing my appreciation for the entire lead team. The past quarter has been a testament to the resilience, focus, innovation of our team. Our company experienced a significant cyber event by malicious actor in February. The attack impacted all operations, causing significant disruption.

Our dedicated employees worked around the clock to get our operations up and running again. I’m also grateful to our advertisers and subscribers for their patience during this difficult time. While the cybersecurity incident hamstruck our overall financial performance in the quarter, I’m proud of how the team navigated the challenges and remain focused on executing our strategy, as we are now fully recovered from the cyber incident. We remain committed to our digital transformation, and we’re confident in our ability to drive sustainable growth and deliver long term value to our shareholders. As a reminder, our three pillar digital growth strategy is expected to result in $450,000,000 of digital revenue by 2028.

The strength of our core digital business is built on a solid foundation of our $3.00 3,000,000 of digital revenue annually, and our new innovative suite of AI products is expected to accelerate our pace in achieving our long term target. I’ll share more on our AI advancements in a bit. Lee continues to consistently outpace our industry peers in several important measures of digital growth, both digital subscriptions and digital agency revenue growth. Digital subscription revenue grew 40% annually over the last three years, doubling the nearest industry competitor. On the advertising side, Amplified Digital agency revenue growth has significantly outpaced our nearest competitor, growing 18% annually over the past three years.

Total digital revenue was $3.00 3,000,000 on trailing twelve month basis, including 103,000,000 within AMP by Digital Agency, well on our way to achieving our long term target. Our second quarter digital revenue grew 4% year over year on a same store basis. Digital subscription revenue continued to lead the way, growing 20% year over year on a same store basis. Our core digital business is diverse, robust, and growing, and the innovative AI products that we launched in our second quarter puts us in a position to accelerate our digital revenue growth in the near term. In March, we launched our suite of AI products designed to provide local businesses with the tools they need to thrive in a competitive environment.

This innovative offering comes from Amplified Digital Agency and leverages cutting edge artificial intelligence technology. The first product offering in this innovative product suite is called AI enablement, an AI empowered advertising and automation solution that generates high quality content for businesses. The AI enablement product is aimed to prepare local businesses for the AI transformation of the advertising model. We’ve also announced additional add on tools that are available, including AI Social and SmartSites.ai. We’re extremely thrilled to be able to offer these innovative products to our advertisers, and we’d be happy to share more on our ad product suites on future calls.

Next, I’ll pass the call over to Tim.

Tim Milledge, Vice President, Chief Financial Officer, and Treasurer, Lee Enterprises: Thank you, Kevin. Digital revenue has grown more than 17% annually since fiscal year twenty twenty one, and that has translated to comparable annual growth in digital gross margin. Replacing our print revenue with growing and profitable digital revenue will help us achieve long term sustainability, and we’re nearing that point. Speaking to the quarter’s operating results, total operating revenue in the second quarter was $137,000,000 which represented an improvement in trend from our first quarter. The trend improvement was muted by the cyber incident, which had a significant impact on our quarterly operating results.

Advertising revenue trends were impacted as our product portfolio was limited in February and early March. Subscription revenue was affected as single copy products were not available for a short period of time, and our normal process for activating new digital subscribers was hampered, significantly impacting Unix in the quarter. Despite the incident, total digital revenue continued to show growth over the prior year, up 4%, led by digital subscription revenue growth of 20%, and revenue growth at Amplify Digital of 9%. It’s still early days for us in our journey as we’re building AI library. However, we expect them to help drive profitable and recurring digital revenue growth in the second half of the fiscal year.

Moving over to the cost side, Lee has a successful track record of effective cost management and thoughtfully investing in strategies that fuel long term growth. Following up on our last call, we executed approximately $40,000,000 in annualized cost reductions in the second quarter aimed at driving margin in our revenue streams and lowering costs with an emphasis on print. Operating expenses in the second quarter were impacted by the cyber incident, which included $2,000,000 of restoration costs. Many of these costs are subject to reimbursement by your insurance carrier, and claims process remains ongoing. In to tightening our operating spending, we have also lowered anticipated capital and restructuring spending.

Top line trends improvement, combined with these changes, are expected to drive significant improvement in free cash flow in the back half of the year. Over to the balance sheet. Our credit agreement with Berkshire Hathaway includes favorable terms, which include a twenty year runway, a fixed interest rate, and no financial performance covenant. These better than market trends allow us to stay laser focused on executing our strategy. The cyber incident also had an impact on our balance sheet, as it hampered our ability to bill and collect from our customers, and it limited our ability to pay vendors.

While technical recovery is complete, there are some lingering impacts on our balance sheet as we aim to improve working capital by reducing both accounts receivable and outstanding accounts payable throughout the remainder of the fiscal year. In response to the cyber incident, in an effort to provide short term liquidity, VirTra waived payments of the company’s interest and basic rent payments for March, April, and May. The waived payments were added to the principal amount due under the credit agreement. This is an example of how our credit agreement benefited us in the wake of the cyber incident. Despite the temporary addition to our principal debt balance, we have made considerable progress paying down debt in recent years and remain committed to reducing debt going forward.

We continue to identify opportunities to minimize our not to monetize our non core assets, which improves liquidity and facilitates debt repayment. Year to date, through the second quarter, we closed over $6,000,000 of asset sales, and we have an additional $25,000,000 to monetize. Dollars 8,000,000 of that is slated to close this fiscal year. The monetization of these non core assets will provide a source of liquidity in 2025 and beyond. Despite first half results lagging expectations, we expect to build upon the digital revenue growth achieved in the first half of the fiscal year.

Our core digital business, led by digital subscriptions, is expected to continue to grow rapidly, as the value of our high quality local news is second to none. We also anticipate our new AI revenue stream gaining momentum as we finish the fiscal year. With that, our updated outlook reflects improved total digital revenue growth trends in the second half of the fiscal year. While the first half adjusted EBITDA was not where we’d like it to be, our updated outlook reflects year over year growth in the second half. And with that, I will turn it back to Kevin for closing comments.

Kevin Mowbray, President and Chief Executive Officer, Lee Enterprises: I’d like to reiterate my gratitude to the entire lead team for navigating the challenges in the quarter and the progress made on our digital transformation. We’re paving the way for lead, to lead the industry in this era of AI driven transformation. This concludes our remarks. The team will remain on the line for any questions you may have. Operator, please open the line for questions.

Conference Operator, Lee Enterprises: Thank you. At this time, we will be conducting a question and answer session. As a reminder, if you are accessing this call by webcast, you may submit typed questions on your screen. Those questions will be answered during the call as time permits. One moment please while we poll for questions.

Jared Marks, Vice President, Finance, Lee Enterprises: I’ll now read our first question from the web. Net loss totaled $12,000,000 in the quarter and free cash flow was minimal. Does that include the interest deferral? When does we expect to be free cash flow positive?

Tim Milledge, Vice President, Chief Financial Officer, and Treasurer, Lee Enterprises: It’s a good question. With respect to the net loss in the quarter, that certainly includes the expense associated with our debt, even though the payments were waived. With respect to free cash flow, the company has made significant changes in our cost structure, both from an operating expense standpoint, as well as capital and restructuring. As a result of those changes and the total digital revenue outlook that we provided, we do expect free cash flow positive or to be positive in the second half of fiscal year twenty twenty five. That concludes the question and answer session.

Turn it back to Kevin for any other closing remarks.

Kevin Mowbray, President and Chief Executive Officer, Lee Enterprises: Well, I’d like to thank everybody for joining the call this morning. Our focus remains on transforming our business with the long term benefit of our shareholders, our employees, our readers, and our advertisers. We appreciate your time and your assembly. Thank you again.

Tim Milledge, Vice President, Chief Financial Officer, and Treasurer, Lee Enterprises: Goodbye.

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