Lee Enterprises ((LEE)) has held its Q1 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Lee Enterprises conveyed a positive sentiment, underscored by robust growth in digital revenues, impressive digital gross margins, and promising advancements in AI technologies. The discussion also highlighted strategic initiatives for cost reduction and asset monetization, though it was tempered by concerns regarding slower growth in adjusted EBITDA.
Strong Digital Revenue Growth
Digital subscription revenue has been a standout performer, experiencing a 46% annual growth over the past three years, with the digital agency revenue growing at 33% annually during the same period. In the first quarter alone, digital subscription revenue surged by 40% compared to the previous year, showcasing the company’s successful transition towards digital platforms.
High Digital Gross Margin
Lee Enterprises has achieved remarkable growth in digital revenue, averaging over 17% annually since FY21, which has translated into a 13% annual growth in digital gross margin. The current digital margin stands at a notable 70%, highlighting the profitability and efficiency of their digital operations.
AI-Driven Advancements
The company has made significant strides in AI-driven personalization for readers and AI business technology for advertisers. Early tests have shown promising results, with 85% adoption rates among engaged users, indicating strong potential for future growth and engagement through these innovative technologies.
Cost Reduction Initiatives
Lee Enterprises has identified $40 million in annual cost reductions, which they plan to execute by the end of the second quarter. This strategic initiative is aimed at enhancing operational efficiency and supporting the company’s digital transformation goals.
Asset Monetization for Liquidity
In the first quarter, the company successfully closed over $5 million in asset sales and has identified an additional $25 million of non-core assets for monetization in 2025. These actions are part of Lee’s broader strategy to bolster liquidity and support future investments.
Challenges with EBITDA Growth
Despite strong digital revenue growth, the company faces challenges with slower growth in adjusted EBITDA, which is expected to rise only in the low single digits. This indicates potential areas for improvement as the company continues its digital expansion.
Forward-Looking Guidance
During the call, Lee Enterprises provided a forward-looking guidance emphasizing its digital growth trajectory. The company reported total digital revenue of $302 million on a trailing twelve-month basis, with a 5% year-over-year increase in the first quarter. Looking ahead to 2025, Lee anticipates total digital revenue growth of 7% to 10%, supported by AI initiatives and targeted cost reductions. By 2028, the company aims to exceed $450 million in total digital revenue, driven by continued growth in digital subscriptions, Amplify Digital Agency revenue, and new AI revenue streams.
In conclusion, Lee Enterprises’ earnings call paints a promising picture of the company’s digital transformation journey, marked by strong revenue growth, high margins, and innovative AI advancements. While the slower growth in adjusted EBITDA presents a challenge, the company’s strategic plans for cost reduction and asset monetization offer a pathway to sustained financial health and growth.
