Lee Enterprises, Incorporated (NASDAQ: LEE) is a major subscription and advertising platform, as well as a leading provider of high-quality, trusted, local news and information in 73 markets across 26 states. The company's core commitment is to deliver valuable, intensely local news and information to the communities it serves, which include St. Louis, Buffalo, Omaha, Richmond, Lincoln, Madison, Davenport, and Tucson.

Financials

In the fiscal year 2023, Lee Enterprises reported annual revenue of $691.1 million and a net loss of $5.3 million. The company's annual operating cash flow was negative $2.5 million, and its annual free cash flow was negative $7.6 million. These financial results reflect the ongoing challenges faced by the traditional media industry, as well as Lee Enterprises' strategic shift towards a digital-centric business model.

During the second quarter of fiscal year 2024, Lee Enterprises reported total operating revenue of $147 million, a modest improvement over the previous quarter. The company's digital revenue growth continued at a strong pace, with total digital revenue up 11% year-over-year. This was driven by a 48% increase in digital subscription revenue, as well as a 5.2% increase in Amplified Digital, the company's digital marketing services agency.

Business Overview

The company's focus on its Three Pillar Digital Growth Strategy, which aims to expand digital audiences, grow the digital subscriber base and revenue, and diversify and expand offerings for local advertisers, has been a key driver of its digital transformation. As a result, digital revenue now represents 40% of the company's total operating revenue, and Lee Enterprises expects to surpass the 50% digital revenue inflection point in the next quarter.

Lee Enterprises' digital subscriber base has also seen impressive growth, reaching 745,000 as of the end of the second quarter, a 25% increase compared to the prior year. The company has also been able to increase average rates for its digital subscriptions by 17% over the same period, highlighting the strong demand and value proposition of its trusted local content.

On the advertising front, Amplified Digital, the company's digital marketing services agency, has been a standout performer, achieving 8% revenue growth over the last 12 months despite a soft advertising environment. Amplified Digital's revenue has grown an outstanding 35% annually over the last 3 years, far outpacing industry peers.

Balance Sheet

Lee Enterprises' balance sheet also reflects its ongoing transformation. The company has reduced its debt by $122 million since March 2020, with the principal amount of debt now standing at $454 million. The company's credit agreement with Berkshire Hathaway, its sole lender, provides favorable terms that support the necessary investments in talent and technology to fuel the company's digital growth strategy.

Outlook

Looking ahead, Lee Enterprises has maintained its fiscal year 2024 outlook for total digital revenue, which is expected to be between $310 million and $330 million. This represents a midpoint growth rate of 70% over the prior fiscal year. The company also expects to achieve $150 million in recurring digital subscription revenue by fiscal year 2028, fueled by 1.2 million digital subscribers.

The company's focus on cost management has also been a key priority, with cash costs down 16% in the second quarter of fiscal year 2024. Lee Enterprises' business transformation efforts are expected to yield between $45 million and $65 million in cost savings in fiscal year 2024, the majority of which were the result of actions taken in the prior fiscal year.

Recent Developments

To further bolster its digital transformation, Lee Enterprises recently announced the hiring of Les Ottolenghi as the company's Chief Transformation and Commercial Officer. Ottolenghi is a seasoned Fortune 500 executive with expertise in harnessing the transformative power of technology, and he will be responsible for developing and directing accelerators to the company's digital transformation in areas such as artificial intelligence, IT modernization, cybersecurity, and data monetization.

Geographic Footprint and Product Portfolio

Lee Enterprises' geographic footprint spans 73 markets across 26 states, with a focus on mid-sized local communities. The company's product portfolio includes daily newspapers, rapidly growing digital products, and nearly 350 weekly and specialty publications. This diverse geographic and product mix has helped the company navigate the challenges faced by the traditional media industry.

Revenue Breakdown

In terms of revenue breakdowns, Lee Enterprises' operating revenue is primarily derived from three sources: advertising and marketing services, subscription, and other revenue. In the second quarter of fiscal year 2024, advertising and marketing services revenue totaled $68.8 million, down 13% year-over-year on a same-property basis, reflecting the continued secular decline in print advertising. Subscription revenue totaled $68.3 million, down 12% year-over-year on a same-property basis, as the company's print subscription revenue declined, partially offset by growth in digital-only subscription revenue.

The company's other revenue, which includes commercial printing and digital services from its BLOX Digital subsidiary, totaled $13.4 million in the second quarter, down 8% year-over-year on a same-property basis. The decline in other revenue was primarily driven by a reduction in commercial printing volumes from the company's partners.

Conclusion

Despite the challenges faced by the traditional media industry, Lee Enterprises' strategic focus on its digital transformation has positioned the company for long-term success. The company's strong digital subscriber growth, the expansion of its Amplified Digital marketing solutions, and its thoughtful investments in talent and technology are all evidence of its commitment to becoming a sustainable, digital-centric company.

As Lee Enterprises continues to navigate the evolving media landscape, the company's experienced management team, led by President and Chief Executive Officer Kevin Mowbray, and its newly expanded board of directors, which now includes digital media pioneers Madeline McIntosh and Jon Miller, are well-equipped to guide the company through its transformation and drive long-term value for its shareholders.