Business Overview and History

Lee Enterprises, Incorporated is a diversified media company that has been a trusted provider of local news and information in communities across the United States for over a century. Founded in 1890, the company has evolved from a traditional newspaper publisher to a leading digital media and marketing solutions platform, positioning itself for long-term sustainable growth.

Lee Enterprises’ roots can be traced back to 1890 when the company was established in Davenport, Iowa. Over the past 134 years, the company has grown through strategic acquisitions and partnerships, expanding its reach to 73 markets across 26 states. Initially operating as a traditional print newspaper publisher, Lee Enterprises has undergone a transformative digital shift in recent years, leveraging its local presence and trusted brand to build a robust digital subscription and advertising platform.

In its early years, Lee Enterprises focused on publishing local newspapers in small to mid-sized communities across the Midwest and Western United States. The company grew steadily through the 20th century, acquiring various local newspapers and expanding its geographic footprint. Over the past two decades, Lee Enterprises has navigated significant industry challenges as print media underwent a major digital transformation. The company has worked to evolve its business model, investing in digital platforms and subscription offerings to adapt to changing consumer preferences.

As part of its digital transformation strategy, Lee Enterprises has acquired and integrated digital media companies like TownNews, further enhancing its digital capabilities. The company has maintained a strong presence in its local markets, serving communities with print and digital news, information, and advertising solutions. Lee Enterprises has also demonstrated a track record of effective cost management and has worked to optimize its operations and capital structure to position the business for long-term sustainability.

In 2020, the company took a significant step in its digital transformation journey by securing a 25-year, fixed-rate term loan from Berkshire Hathaway. This strategic partnership has provided Lee Enterprises with the financial stability and flexibility to invest in talent, technology, and innovative digital initiatives, enabling the company to accelerate its transition to a digital-first business model.

Today, Lee Enterprises operates a diversified portfolio of digital and print products, including daily and weekly newspapers, niche publications, and a rapidly growing digital subscription platform. The company’s digital revenue, which includes digital advertising, digital subscriptions, and digital services, has grown to represent nearly half of its total revenue, marking a significant milestone in its transformation.

Financial Overview

For the fiscal year ended September 24, 2023, Lee Enterprises reported total operating revenue of $691.14 million, down from $720.05 million in the prior fiscal year. This decline was primarily driven by a 17.3% decrease in advertising and marketing services revenue, as the company continued to navigate the industry-wide shift from print to digital. The company reported a net loss of $5.27 million for the fiscal year 2023.

In the most recent quarter (Q3 2024), Lee Enterprises reported revenue of $150.58 million, representing a 12.1% year-over-year decline. The net loss for the quarter was $3.69 million. This decline was primarily driven by a 35.2% decrease in print advertising revenue, partially offset by a 31.7% growth in digital subscription revenue.

However, the company’s digital transformation has yielded positive results, with digital revenue increasing to $290 million over the last 12 months, representing a 17% annual growth rate over the past three years. This growth has been fueled by a 23% increase in digital subscribers, which now total 748,000, and a 12% expansion of the company’s digital agency, Amplified Digital.

Financials

Lee Enterprises’ financial position remains stable, with a net debt of $441.19 million as of September 24, 2023. The company’s long-term debt agreement with Berkshire Hathaway, which carries a fixed interest rate of 9% and a 25-year maturity, has provided the company with a strategic advantage in a rising interest rate environment.

Despite the challenges faced in the print segment, Lee Enterprises has demonstrated its ability to effectively manage costs, with cash costs declining by 14.1% in the fiscal year 2023. The company’s business transformation efforts are expected to yield between $75 million and $85 million in cost savings in fiscal year 2024, further strengthening its profitability.

For the fiscal year 2023, Lee Enterprises reported operating cash flow of -$2.52 million and free cash flow of -$7.63 million. In the most recent quarter (Q3 2024), operating cash flow was -$1.90 million, and free cash flow was -$5.48 million.

Liquidity

Lee Enterprises’ liquidity position remains solid, supported by its strategic debt agreement with Berkshire Hathaway and ongoing cost management initiatives. The company’s fixed-rate, long-term debt structure provides stability and predictability in its capital costs, allowing for better financial planning and resource allocation towards digital growth initiatives.

As of June 23, 2024, Lee Enterprises had $13.43 million in cash and cash equivalents and a $452.70 million term loan with Berkshire Hathaway at a 9.0% fixed interest rate, maturing in 2045. The company’s debt/equity ratio was 116.12, while its current ratio stood at 0.92 and quick ratio at 0.87.

Product Segments

Lee Enterprises operates in three primary product segments: Advertising and Marketing Services, Subscription, and Other.

Advertising and Marketing Services Segment: This segment includes both print and digital advertising revenue. In the third quarter of fiscal year 2024, print advertising revenue was $18.94 million, down 35.2% compared to the same period in the prior year. Digital advertising and marketing services revenue totaled $49.90 million in the third quarter, which was flat compared to the prior year period. Digital advertising and marketing services now represent 72.5% of the total advertising and marketing services revenue, up from 63.1% in the same quarter last year. For the 9-month period ended June 23, 2024, advertising and marketing services revenue was $203.87 million, down 17.3% year-over-year.

Subscription Segment: This segment includes both print and digital subscription fees. In the third quarter of fiscal 2024, print subscription revenue was $47.60 million, down 23.0% from the prior year period. Digital-only subscription revenue grew 31.7% to $20.70 million in the quarter, as the company’s digital subscriber base increased 23.0% year-over-year to 748,000 subscribers. For the 9-month period, subscription revenue totaled $208.87 million, down 11.4% compared to the same period in fiscal 2023.

Other Segment: This segment includes commercial printing services and digital services provided through the company’s BLOX Digital platform. In the third quarter of fiscal 2024, other revenue was $13.43 million, down 8.2% from the prior year period. This was driven by a 13.7% decrease in commercial printing revenue to $4.40 million, partially offset by a 6.0% increase in digital services revenue to $5.15 million. For the 9-month period, other revenue was $40.07 million, down 10.7% year-over-year.

Navigating the Digital Transformation

Lee Enterprises’ digital transformation strategy is centered around three key pillars: growing digital audiences, expanding the digital subscription base, and diversifying and expanding offerings for advertisers.

The company has made significant progress in growing its digital audience, leveraging its local news and information content to drive engagement and build a loyal readership. Lee Enterprises’ digital subscription platform has emerged as the fastest-growing in the local media industry, with a 23% year-over-year increase in digital subscribers. This growth has been supported by the company’s commitment to delivering high-quality, hyperlocal content that resonates with its communities.

In addition to its digital subscription success, Lee Enterprises has also seen impressive growth in its digital advertising and marketing services business. The company’s Amplified Digital Agency, which provides a full suite of digital marketing solutions to local advertisers, has delivered double-digit growth, with annualized revenue exceeding $100 million.

Risks and Challenges

While Lee Enterprises has made significant strides in its digital transformation, the company continues to face several challenges inherent to the media industry. The persistent decline in print advertising revenue, a trend observed across the industry, remains a headwind that the company must navigate. Additionally, the company’s ability to successfully transition its existing print subscribers to the digital platform is crucial to its long-term success.

Mitigating these risks will require continued investments in talent, technology, and innovative digital initiatives. The company’s reliance on a single lender, Berkshire Hathaway, also presents a potential concentration risk, though the favorable terms of the debt agreement have provided Lee Enterprises with a strategic advantage.

Outlook and Guidance

Lee Enterprises’ progress in its digital transformation has been impressive, with the company achieving a significant milestone in the third quarter of fiscal year 2024 by surpassing its digital revenue inflection point. As the company continues to reduce its reliance on the volatile print business, it is poised to achieve digital sustainability within the next two years, with gross margin from digital products expected to exceed the company’s remaining SG&A costs.

Based on the company’s recent guidance:

Conclusion

The company’s strong digital subscriber growth, the expansion of its Amplified Digital Agency, and its commitment to cost management suggest that Lee Enterprises is well-positioned to navigate the evolving media landscape and deliver long-term value for its shareholders. By leveraging its local presence, trusted brand, and innovative digital initiatives, the company is transforming itself into a sustainable, digitally-driven media and marketing solutions provider.

Lee Enterprises operates primarily in the United States, with a focus on 73 mid-sized local communities across 26 states. The company does not have significant international operations. As the local media industry continues to undergo disruption, with secular declines in print advertising and circulation revenues, Lee Enterprises has successfully grown its digital revenue at a 17% CAGR over the last 3 years. Digital revenue now comprises 50.3% of total revenue, marking a significant milestone in the company’s digital-first, subscription-based business model transition.

While challenges remain, particularly in managing the decline of print revenues, Lee Enterprises’ focus on digital growth, cost management, and local market strength positions the company to continue its transformation and adapt to the evolving media landscape.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.