Lee Enterprises, Inc. 2026 Q3 Earnings Call

Thank you. Good morning, everyone. We appreciate you joining us today. With me on this morning's call are Nathan Bekke, President and Chief Executive Officer. Josh Rinehults, Vice President, Chief Financial Officer and Treasurer. Joe Battistoni, Chief Revenue Officer, and David Hoffmann, Chairman of our Board of Directors. Earlier today, we issued a news release announcing preliminary results of our third fiscal quarter of 2026. The release and accompanying presentation are available at investors.lee.net. As a reminder, this morning's discussion will include forward-looking statements based on current expectations. These statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ. Such factors are described in this morning's news release and in our SEC filings. We will also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the tables accompanying the release.

With that, I will turn the call over to our Chairman, David Hoffmann.

Thank you, Jared. Good morning. I am excited to join you all again today and speak on behalf of the company. Last quarter, I spoke about Lee's next chapter, a company that is more focused, more accountable, and more deeply connected to the communities we serve. This quarter, I am pleased to say we have continued to make meaningful progress against that vision. We delivered a very strong quarter, generating $5 million in net income and another quarter of adjusted EBITDA growth. I am highly encouraged by the momentum we are building. Our results reflect disciplined execution across the organization, and they reinforce our belief that Lee is on the right path. Since our last call, we have continued to connect with our communities through our town hall events. Nathan, myself, and various leaders have spent time with readers, advertisers, community leaders, and our own employees, reaffirming that local journalism still matters very deeply.

Those conversations have provided valuable insight into how we can better serve our communities while strengthening our relationships with local stakeholders, identifying opportunities to grow readership and advertiser partnerships, and ensuring our newsrooms remain focused on the issue that matter most locally. Those aren't one-time visits, but rather an ongoing commitment to listening, learning, and building stronger community connections that will support both our journalism and long-term success. Another theme I emphasized in our last call that Lee's transformation is more than just improving our operations. It's about building capabilities that differentiate us in the marketplace. Recently, we've announced an important milestone that reflects exactly that. Since our last earnings call, Lee has entered into a long-term management agreement with Hoffman Media Group.

Hoffman Media Group is the premier medium network for affluent, influential, trendsetting, and forward-thinking audiences and has built an impressive portfolio of trusted local media brands serving some of the nation's most sought-after markets. Like Lee, the organization believes deeply in the importance of local journalism and strong community engagement. What makes this partnership meaningful is it represents an endorsement of the platform the Lee team has built. Lee has transformed itself by strengthening digital capabilities, optimizing operations, and building an experienced management team capable of operating complex local media organizations. This agreement recognizes that those capabilities have value beyond Lee's owned portfolio. Rather than simply growing through ownership, we're now creating opportunities to grow through our expertise. It's another way to leverage the investments we've already made, expand our reach, and create value for shareholders while remaining disciplined in how we deploy capital.

Just as importantly, this partnership reflects our shared commitment to preserving and strengthening local journalism. Both organizations believe healthy local news organizations are essential to healthy communities, and we're excited to work together to continue serving our communities for years to come. Before Nathan provides some additional detail on the agreement, I'd like to close my comments by reiterating how pleased I am with this quarter's results and the direction of the company. We continue to execute our strategy with discipline, preserve financial flexibility, as you'll see from Nathan's presentation, and position Lee for long-term growth. I want to thank our employees across the organization for their hard work and dedication. Their commitment to our communities is what makes our progress possible.

I just want to tell you that I am over the top impressed with our management team, and I'm over the top impressed with the results we had in this quarter. As you may know, we did national searches to find the best people to run the newspaper, and we found that those people existed internally, and we promoted them. It was really a great decision, as you'll see by these results. With that, I'll turn you over to our Chief Executive Officer, Nathan.

Thank you, David, and a special thank you for your commitment to local journalism and the communities we serve. We couldn't be more excited to work with Hoffman Media Group. As David mentioned, we believe this management agreement is a catalyst for Lee's next phase of growth, validating the strength of our operating model and creating new opportunities to monetize the operating platform we've built. From a financial perspective, we consider this to be an attractive capital-light growth opportunity. The agreement creates a recurring management fee revenue stream that allows us to generate incremental earnings without deploying capital or assuming ownership-related balance sheet risk. The structure also creates additional upside over time. As Hoffman Media Group expands its portfolio, Lee can benefit through performance-based measures tied to future growth, allowing us to participate in that expansion. Strategically, the agreement validates the strength and scalability of Lee's operating model.

Our investments in digital products, audience development, advertising solutions, and centralized operations have created capabilities that are valuable not only to Lee, but also to other media organizations. We believe this demonstrates that Lee can grow in ways beyond traditional methods and provides a framework for additional opportunities over time. While we're excited about the strategic opportunities the management agreement creates, our core mission is unchanged. Lee remains one of the nation's leading providers of trusted local news, information, and marketing services, and we're pleased with the strength of our underlying business this quarter. Our operating results reflect disciplined execution across the company, and our transformation continues to gain momentum. Over the last 12 months, we've generated $517 million in revenue, with 57% coming from digital sources, a milestone that demonstrates how fundamentally our business has evolved.

We finished the quarter with 584,000 digital-only subscribers, while our digital agency business and digital revenue streams continue to provide a stronger, more predictable revenue base that supports long-term profitability. Today, we are increasingly powered by recurring digital revenue, scalable operating capabilities, and a disciplined approach to capital allocation. The combination of those efforts continues to translate into stronger profitability, generating $61 million of adjusted EBITDA over the last 12 months, reflecting both improved efficiency and structural improvement in the business. We had another strong quarter in adjusted EBITDA growth, representing the fifth consecutive quarter of adjusted EBITDA growth on a comparable basis. Third quarter adjusted EBITDA grew 23% year-over-year, totaling $18 million, our strongest adjusted EBITDA since the first quarter of FY 2024. In the third quarter, we recognized another $560,000 in business interruption insurance proceeds related to last year's cyber event.

Excluding the insurance proceeds, third quarter adjusted EBITDA grew 19% year-over-year, reflecting underlying operational strength. The solid third quarter growth builds off our standout first half. FY 2026 year to date through June, we have delivered a 51% increase in adjusted EBITDA, an improvement of $15 million year-over-year. Excluding business interruption insurance proceeds, our year-to-date adjusted EBITDA grew 30%, or $9 million year-over-year. These results reflect more than disciplined cost management. They demonstrate the benefits of a business that continues to shift toward higher quality, recurring digital revenue while operating more efficiently, as demonstrated by the last five quarters of adjusted EBITDA growth on a comparable basis. As I mentioned just a minute ago, third quarter adjusted EBITDA grew 23% year-over-year alongside a 400 basis point improvement in adjusted EBITDA margin. This improvement was driven by decisive cost actions.

Cash costs declined 15%, or $19 million, with meaningful reductions across SG&A and print-related expenses. At the same time, our revenue mix continues to improve. Digital revenue represented 57% of total company revenue during the quarter, an increase of 170 basis points year-over-year, and an even larger percentage of our advertising business at 76%. That ongoing shift toward higher quality recurring digital revenue streams are strengthening the foundation of our business. On the subscription side, we generated $22 million in quarterly subscription revenue from our 584,000 digital-only subscribers. We remain focused on expanding this high-value subscriber base by improving conversion, engagement, and retention. Reinforcing this category is a key driver of long-term recurring revenue growth. Within advertising, we continue to see encouraging trends, especially as we remain disciplined about the quality of the revenue we pursue. Our focus remains on profitable growth, not simply revenue growth.

Joe will provide more detail on some of the revenue-generating strategies momentarily. Lastly, I'd like to highlight our return to net income, which was $5.2 million in the third quarter. This represents our first quarter ending in a net income position since 2024 and our largest quarter of net income since fiscal 2022. Interest expense decreased $4.6 million year-over-year, nearly cut in half as a direct result of the interest rate reduction tied to February's strategic investment. Excluding the interest expense savings of $4.6 million, we still would have shown positive net income driven by adjusted EBITDA in the quarter. Not pictured on the slide, but I'd be remiss if I didn't also mention the strong impact this quarter had on our balance sheet. We finished the June quarter with a very healthy $59 million cash on the balance sheet, compared with just $14 million a year ago.