Lee Enterprises Third Quarter 2026 Earnings Call - Returns to Net Income and Unlocks Capital-Light Growth Through Hoffman Media Partnership

Operator: Welcome to Lee Enterprises 2026 third 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 planned remarks, there will be an opportunity for questions. Participants accessing this call by webcast may submit written questions through the platform, and they will be answered during the call as time permits. Any remaining questions will be followed up on after the call. A link to the live webcast can be found at investors.lee.net. I will now turn the call over to your host, Jared Marks, Vice President, Finance.

Jared Marks, Vice President, Finance, Lee Enterprises: 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.

David Hoffmann, Chairman of the Board, Lee Enterprises: 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.

Nathan Bekke, President and Chief Executive Officer, Lee Enterprises: 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.

This strong baseline of cash provides us with the flexibility to make disciplined, yet targeted investments in high ROI areas that will drive improved content and subscriber engagement, acquisition, and monetization. With that, I’ll hand it over to Joe to add some additional context to our advertising and subscription revenue performance.

Joe Battistoni, Chief Revenue Officer, Lee Enterprises: Thanks, Nathan. I’ll start in the advertising business. Our advertising strategy remains focused on profitable, sustainable growth. While the advertising environment continues to evolve, we’re encouraged by improving sequential revenue trends in the quarter. We delivered sequential revenue growth of 10% in digital advertising and another 1% sequential improvement in print advertising, reflecting early signs of stabilization within our advertising division. While stabilization is promising, we remain disciplined in how we grow. Rather than pursuing lower quality transactional revenue, we’re prioritizing recurring high margin opportunities that create greater value for both our clients and Lee. This approach is strengthening the quality of our revenue base while positioning the business for more sustainable growth. Amplified Digital Agency continues to be an important differentiator, providing advertisers with full funnel digital marketing solutions that strengthen customer acquisition and retention.

Our focus this year is on delivering a more integrated offering, enabling advertisers to leverage multiple products and services through a single strategic partner. The breadth of our marketing solutions remains a key competitive advantage, allowing us to meet a wider range of client needs while building deeper, longer term customer relationships. We’re also encouraged by early momentum from our partnership with Hudl. Earlier this year, we introduced our strategic partnership with Hudl, a leader in sports technology, video, and performance analytics, as one of the most significant partnerships in local sports media. As we expand our local sports coverage and introduce new video and advertising opportunities, we’re creating additional ways to engage with audiences while delivering premium local advertising inventory. It’s another example of how we’re investing in differentiated digital products that strengthen both consumer engagement and long-term revenue growth.

Likewise, initiatives including Community Center, America’s 250th, VidMax, and All Access demonstrate how we’re expanding local content while creating higher value advertising opportunities for our customers. These platforms leverage our trusted brands, owned audiences, and deep local market presence to create premium, brand safe environments that deliver stronger engagement and measurable results for our advertisers. Just as importantly, they enable more integrated multi-platform campaigns that strengthen client relationships and improve retention by meeting a broader range of marketing needs. Together, these innovations reinforce our strategy of growing higher margin, recurring digital revenue built on unique local content, first-party audience data, and differentiated advertising solutions. On the subscription side, our strategy focuses on three priorities: expanding our audience, increasing subscriber engagement, and improving long-term retention.

We’re building a stronger subscriber funnel by emphasizing owned audience channels using data-driven insights and personalization to improve conversion, and continually enhancing the consumer experience across our products. These efforts are helping us increase customer lifetime value while enabling us to operate more efficiently through AI, automation, and streamlined workflows. Today, we reach millions of consumers across our markets, and our opportunity is to deepen those relationships by converting more readers into loyal, long-term subscribers. We see a significant runway for growth and our strategy remains firmly centered on the consumer, delivering trusted journalism and the best possible experience across the platforms and formats our audience value the most. Our competitive advantage remains our intensely local content, which continues to differentiate Lee in every market we serve.

As we close out fiscal year 2026, we’re executing several exciting initiatives designed to expand our content offerings, enhance the subscriber experience, and strengthen engagement. We believe these investments will accelerate subscription growth while further increasing long-term value of our digital business.

Josh Rinehults, Vice President, Chief Financial Officer and Treasurer, Lee Enterprises: With that, I’ll pass it back to Nathan.

Nathan Bekke, President and Chief Executive Officer, Lee Enterprises: Thanks, Joe. We are continuing to expand our digital business through disciplined execution across both subscriptions and advertising. Digital subscription revenue has grown at a 20% compound annual rate over the last three years. While our Amplified Digital Agency business has demonstrated remarkable resilience, growing 3% annually. Together, these businesses generated $284 million in digital revenue over the last 12 months, representing sustained growth and providing an increasingly stable recurring foundation for our long-term financial performance. Our focus on local markets, trusted brands, owned audiences, and recurring digital revenue has positioned us for long-term success. Just as importantly, our strategy isn’t simply about growing revenue, it’s about improving the quality, durability, and profitability of that revenue. As we continue to execute against our digital transformation strategy, we believe this disciplined approach will support sustainable growth over the long term.

As I noted previously, we’ve come a long way since the early stages of our digital transformation, jumping up to 57% digital revenue mix as of the latest quarter. This slide highlights the meaningful progress we’ve made in transforming Lee into a more sustainable digital-first business. We’ve evolved from a company that was largely dependent on print revenue to one where digital is now the majority of our business, a clear and measurable reflection of the execution of our long-term strategy. Digital is no longer an emerging growth initiative. It is the foundation of our business and the primary driver of our long-term growth and profitability. As our revenue mix continues to evolve, we’re building a business that is increasingly digital first with less reliance on a legacy print revenue and a stronger, more resilient financial profile.

Looking ahead, our focus remains on strengthening our digital products, deepening audience engagement, and expanding scalable capabilities across subscriptions, advertising, and marketing services. At the same time, we’re optimizing pricing and product mix and increasing customer lifetime value to improve the quality and profitability of our digital revenue. As we execute against these priorities, we expect digital to drive sustainable revenue growth, margin expansion, and long-term shareholder value. With that, I’ll pass it to Josh to provide some additional financial performance details.

Josh Rinehults, Vice President, Chief Financial Officer and Treasurer, Lee Enterprises: Thanks, Nathan. As Nathan highlighted, we’ve made significant progress in our digital transformation, and that progress is translating into a stronger financial foundation. Our focus is not only on growing digital revenue, but on improving the long-term economics of the business. As our digital business continues to scale, we’re moving toward an important milestone, reaching a point where digital gross margin fully covers our SG&A costs. We’ve made meaningful progress since beginning this transformation, and based on progress thus far, we believe that milestone is both achievable and a clear indicator of the long-term sustainability of our digital-first business model. Year to date through our June quarter, core digital revenue has grown at a 9% compound annual rate since fiscal 2021, with digital gross margin expanding at an even faster pace.

Digital continues to replace lower margin print revenue, we’re fundamentally improving the economics of our business and building a stronger foundation for long-term profitable growth. Based on our current trajectory, we expect digital revenue and digital gross margin to fully support the business within the next three years. Our confidence in achieving that milestone continues to grow as we realize the benefits of our digital transformation and maintain disciplined execution across both revenue growth and cost management. This represents an important inflection point in our evolution toward a more sustainable digital-first business. That progress is supported by remaining disciplined and managing our cost structure while continuing to invest strategically in the initiatives that will drive long-term growth. Our continued focus on reducing legacy costs and simplifying operations is strengthening the financial foundation of the business while preserving the quality and the impact of our local journalism.

Through greater operational discipline and efficiency, we’ve improved our long-term cost structure without compromising our mission. Simultaneously, we’re selectively reinvesting in high return digital products and technology that strengthen our competitive position. These actions position Lee to generate stronger, more sustainable profitability. Year to date through June, cash costs declined $55 million, or 14% compared to the prior year, reflecting our continued focus on cost management. The largest contributor was a $32 million reduction in SG&A, driven primarily by lower corporate overhead and ongoing operational efficiencies. We also reduced legacy print costs by $20 million year-over-year as we continued to optimize our print operations and align our cost structure with the ongoing shift toward a more digital-centric revenue mix. Before I turn the call back over to Nathan, I’d like to highlight the meaningful progress we’ve made in strengthening our balance sheet.

Since refinancing our debt in March 2020, we’ve reduced outstanding debt by $121 million. With our recent strategic investment, which lowered our interest rate from 9% to 5%, we expect to realize approximately $18 million in annual interest savings, or as much as $90 million over the next five years. These actions significantly enhance our financial flexibility and further support our long-term strategy. We are also actively monetizing non-core assets to further accelerate deleveraging, with assets estimated at $20 million in value currently identified and one sale closed since quarter end. With a stronger balance sheet and significantly lower interest expense, we’re in a much stronger financial position than we were at this point last year. This enhanced financial flexibility allows us to continue investing in our digital transformation, further reduce debt, and create long-term value for our shareholders. I’ll now turn the call back to Nathan for final remarks.

Nathan Bekke, President and Chief Executive Officer, Lee Enterprises: Thanks, Josh. Given the strength of our year-to-date results, we are improving our full-year adjusted EBITDA outlook to growth in the range of 22%-28%. Our disciplined approach and consistent focus on profitability have been key contributors to our strong year-to-date performance. As we move forward, we remain committed to maintaining that operational discipline while continuing to invest strategically. We’ve moved beyond stabilization and into the next phase of our transformation with meaningful momentum across the business. As a result, Lee is stronger, more resilient, and better positioned than ever to accelerate sustainable growth and create long-term value for our shareholders. Thank you again for joining us this morning. We’ll now open the call for questions.

Operator: 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 pull for questions.

Jared Marks, Vice President, Finance, Lee Enterprises: We will now take our first question from the web. How much debt was paid down in the third quarter and has been paid down year-to-date?

Josh Rinehults, Vice President, Chief Financial Officer and Treasurer, Lee Enterprises: Thanks, Jared. It’s a good question. In the third quarter, we paid down a total of $1 million, which is actually what we’ve paid, rounds to the same number year-to-date. Subsequent to the end of the third quarter, we’ve made an additional $2 million debt payment to bring the total to $3 million to date.

Jared Marks, Vice President, Finance, Lee Enterprises: A follow-up question from the web: What is the long-term plan to pay down debt?

Josh Rinehults, Vice President, Chief Financial Officer and Treasurer, Lee Enterprises: It’s a great question. As we continue to monetize our non-core assets, the proceeds that we receive will continue to be used toward debt paydown. In addition, as we return to being cash flow positive. Our debt agreement has a cap of $64 million. As our cash balance goes above that $64 million mark, those excess cash flows will actually go toward debt paydown as well. Over time, as we continue to strengthen our results, the cash flow that’s generated will ultimately lead to greater debt paydown. All right, we have no more questions from our web participants. I will now turn the call back to Nathan for closing remarks.

Nathan Bekke, President and Chief Executive Officer, Lee Enterprises: Great. Thank you. As an organization, we are stronger than we’ve ever been. Our third quarter results reflect the progress we’ve made in transforming the business, improving operating efficiency, strengthening our financial position, and executing with discipline across every part of the organization. With a clear strategy, meaningful momentum, and the addition of our management agreement with Hoffman Media Group, we’re well-positioned for the next phase of Lee’s evolution as a leading digital-first local media company. I’d like to thank our employees for their unwavering commitment and our shareholders for their continued confidence and support. Thank you, and have a great day.

Operator: Thank you. Ladies and gentlemen, that does conclude our call for today. Thank you all for joining, and you may now disconnect. Have a great day