Lee Enterprises, Incorporated Stock

Thank you. Welcome to the Lee Enterprises 2026 third quarter webcast and conference call. The call is being recorded and will be available for replay at investors.lee.net. 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.

Thank you and good morning everyone. We appreciate you joining us today. With me on this morning's call are Nathan Becky, President and Chief Executive Officer, Josh Reinholz, Vice President, Chief Financial Officer and Treasurer, Joe Battistoni, Chief Revenue Officer, and David Hoffman, Chairman of our Board of Directors. Board of Directors. Earlier today, we issued a news release announcing preliminary results of our third fiscal quarter of 2026. 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'll turn the call over to our Chairman, David Hoffman. Thank you, Jared.

Good morning. I'm 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'm 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'm highly encouraged by the momentum we're 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've 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 much. 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 with at least transformation is more than just improving our operations. It's about building capabilities that differentiate us in the marketplace. And 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 a fluent, influential trend setting 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. The 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 continue to improve our strategy. 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.

And 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. 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, we 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 LEED's operating model. 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. 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. quarter adjusted EBITDA grew 23% year over year, totaling $18 million, our strongest adjusted EBITDA since the first quarter of fiscal year 2024. In the 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. Solid third quarter growth builds off our standout first half. Fiscal 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 the board. 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%. ongoing shift toward higher quality recurring digital revenue streams are strengthening the foundation of our business. On the 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 produce. 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 dollars, 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.

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 lead. 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. 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 Huddle. Earlier this year, we introduced our strategic partnership with Huddle, 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 context. 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. 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 in formats our audience value the most. competitive advantage remains our intensely local content, which continues to differentiate Lee in every market we serve. As we close out fiscal year 26, 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. With that, I'll pass it back to Nathan.

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. 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. And with that, I'll pass it to Josh to provide some additional financial performance details. 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 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 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.

As 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 in 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 lead 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. 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 due leveraging, 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. 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% to 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 the 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.

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 poll for questions.

We'll 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?.

Yes, thanks, Jared. It's a good question. So in the third quarter, we paid down a total of a million dollars, which is actually what we've paid around the same number year to date. Subsequent to the end of the third quarter, we've made an additional two million dollar debt payment to bring the total to three million to date.

A follow up question from the web. What is the long term plan to pay down debt?.

Great question. Yes. So as we continue to monetize our non-poor assets, the proceeds that we receive will continue to be used toward debt pay down. In addition, as we return to being cash flow positive, those excess funds, we have our debt agreement has a cap of $64 million. So as our cash balance goes above that $64 million mark, those excess cash flows will actually go toward debt pay down as well. So over time as we continue to strengthen our results, the cash flow that's generated will ultimately lead to greater debt paid out. All right, we have no more questions from our web participants. I will now turn the call back to Nathan for closing remarks.

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, group, were well positioned for the next phase of Leaves 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.

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.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Welcome to the Lee Enterprises 2026 Second 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 broadcast 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.

Thank you, and 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 Hoffman, Chairman of our Board of Directors. Earlier today, we issued a news release announcing preliminary results for our second 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'll turn the call over to our Chairman, David Hoffman.

Thank you, Jared, and good morning, and thank you for joining us. As I open this call, I'd like to say that it's a privilege to step into this role at a company with more than a century of service to its communities, its shareholders, and the enduring importance of local journalism. Lee's legacy is strong, but as important is the decisive transformation that is now underway at our company. I'd like to spend a few moments to frame the vision for Lee's next chapter. We are a different company than we were even a year ago, more focused, more accountable, and more closely connected to the communities we serve. We are thinking more expansively about our role in local media and our path to long-term growth. That has required meaningful change, deliberate and at times difficult, but meaningful to position Lee for a stronger and more sustainable future. Delivering on that vision requires strong leadership and clear alignment at the top.

I'm very happy to share, following a comprehensive nationwide search, the Board and myself concluded that the right leadership for Lee's future was already in place. Nathan and Josh have demonstrated strong execution, deep industry knowledge, and a clear vision of where the company is headed. Just as importantly, they've built alignment across the organization and already translating that into action across the business. Coming back to the vision for Lee's next chapter, let me start with one of our most important priorities, reconnecting with our communities.

Over the past several months, I've been on the road with our leadership team conducting town hall meetings across our markets. These weren't symbolic visits. They were working sessions. We listened carefully to readers, advertisers, and community stakeholders and leaders. What we heard were gaps in local news coverage, areas where communities felt underserved. We've already begun to address those gaps by reinvesting in local journalism, including adding reporters in key markets to fill those holes. That work, we believe, is foundational to who we are, and it's where our turnaround begins.

At the same time, we've taken a disciplined approach to our cost structure. We are committed to being strong stewards of capital, and that starts at the top of the organization. Just recently, the Board has shifted its compensation structure to be 100% equity-based, aligning more directly with long-term shareholder value. A similar structure was put in place for our top 120 executives. We've also reduced corporate overhead and simplified our operating model, ensuring that many resources are directed to the front lines of the business, more resources, prioritizing our content and our customers. We're also producing more local content that is important to our readers.

We recently launched Community Center, which is a free collection of publicly available content covering everything from municipal news releases to local real estate listings. Another area where we see real opportunity for differentiation is local sports. Through our partnership with Hudl, we are expanding and enhancing our coverage of high school and local sports. This is deeply relevant, highly engaging content for our communities. It's just yet another example of how we're investing where it matters most to our audience. And finally, I'll occasionally contribute a column sharing my perspective on opportunities to build stronger communities.

Looking further ahead, we are actively developing a disciplined acquisition strategy. We believe there are opportunities to expand Lee's footprint in ways that make both strategic and financial sense. Our focus will be on markets and assets that strengthen our commitment to local journalism while enhancing our overall scale and efficiency. We will be thoughtful and selective but insistent in our efforts to grow the business. Underlying all this is a clear financial priority, conserving cash and strengthening our balance sheet. We are managing liquidity carefully, improving operational efficiency daily and ensuring we have the financial flexibility to execute our strategy. That provides stability today and optionality for the future. I'm very confident in the direction we're headed, grounded in local journalism, disciplined in operations, and ambitious about our future. With that, I'll pass it over to Nathan, our Chief Executive Officer.

Good morning, everyone, and thank you for joining the call today. I'd like to start today by thanking David for his investment in Lee and more importantly, for his commitment to local journalism and the communities we serve. As David mentioned, we're entering this next phase of the business from a position of strength and optimism. Our strategy is clear, execution is gaining momentum, and our results are beginning to reflect the progress we've made. We are a leading provider of high-quality local news, information, and advertising with 114 daily and weekly publications. Our strength is rooted in trusted local journalism delivered through a digital-first model that continues to deepen audience engagement and provide value to advertisers.

Over the past 12 months, digital-only subscription revenue grew 7%, further strengthening our mix of sustainable and recurring revenue. At the same time, we've maintained disciplined cost management across the organization, particularly in legacy costs and corporate overhead. The combination of those efforts has driven adjusted EBITDA to $57 million over the last 12 months, reflecting both improved efficiency and structural improvement in the business.

Second quarter adjusted EBITDA grew 95% year-over-year. That level of growth reflects extremely strong execution and the accelerating progress of our digital transformation. We also recognized $4 million in business interruption insurance proceeds related to last year's cyber event. The magnitude of these reimbursements underscores the significant impact the cyber event had on prior year results and its continued effect on our operations, while also reflecting the diligent efforts of our team to secure these recoveries. While those proceeds contributed to the quarter, it's important to note that even excluding them, second quarter adjusted EBITDA grew 45% year-over-year, reflecting underlying operational strength. The strong second quarter growth builds off our solid first quarter and now year-to-date through March, we've delivered a 78% increase in adjusted EBITDA, an improvement of $12 million year-over-year, driven by diligent cost management while continuing to advance our digital strategy.

Absent business interruption insurance proceeds, our adjusted EBITDA growth was 40% or $6 million year-over-year in the first half. These results highlight our ability to expand profitability while navigating industry change, particularly demonstrated over the last four quarters of adjusted EBITDA growth on a comparable basis. Our standout performance in the second quarter was highlighted by adjusted EBITDA nearly doubling year-over-year to $15 million, with margin expanding 670 basis points. This improvement was driven primarily by decisive cost actions. Cash costs declined 15% or $19 million, with meaningful reductions across SG&A and print-related expenses. From a revenue perspective, digital revenue now represents 56% of total company revenue, up 270 basis points year-over-year and now accounts for 74% of total advertising revenue, underscoring the growing importance of our digital offerings.

On the digital subscription side, we ended the quarter with 591,000 digital-only subscribers and $22 million in revenue. Year-over-year comparisons were impacted by a couple of factors tied to last year's cyber event. Units continue to be challenged compared to the prior year, particularly due to lost starts during the impact period from last year's cyber event in addition to other processing limitations. All things considered, lapping the cyber event had a negative impact on our second quarter's revenue. As we move beyond those impacts, we view this quarter as a clean baseline moving forward. We remain focused on building and growing high-quality recurring subscription revenue.

In digital advertising revenue, we saw sequential improvement for the second consecutive quarter. The second quarter saw a 2 percentage point improvement in same-store revenue trends compared to the prior quarter. While revenue declined modestly year-over-year, trends are stabilizing. Importantly, we continue to prioritize profitability over volume, which included the intentional exit of certain lower-margin advertisers and products that impacted top line revenue but had minimal impact to adjusted EBITDA. Our team is focused on profitable growth, which Joe will expand on momentarily.

Before turning it over to Joe, I'll briefly touch on the balance sheet and our improved capital structure. Following the close of the strategic investment mid-second quarter, our cash balance surged to $53 million as of March. This strong baseline of cash provides us the opportunity to make targeted investments in high ROI areas that will drive improved content and subscriber engagement, acquisition and monetization. Additionally, interest expense decreased $2.4 million year-over-year as a direct result of the interest rate reduction from 9% to 5%, with further benefits expected in the coming quarters. With that, I'll hand it over to Joe to add some additional context to our subscription and advertising revenue performance.

Thanks, Nathan, and glad to join the call this morning. From a revenue strategy standpoint, I'll start on the subscription side. Our digital growth strategy is centered on building the audience funnel with a focus on higher intent, more engaged users. This reflects a move away from relying on algorithm-driven traffic toward focusing on our own platforms with repeatable channels that generate stronger, more consistent engagement. We are driving higher conversion and retention by applying data-driven insights and targeted product enhancements that grow customer lifetime value. At the same time, we're scaling efficiently using AI and streamlined workflows to reduce acquisition costs while accelerating growth in our digital subscription base. Today, we reach millions of users across our markets. Our opportunity is to deepen those relationships, converting and retaining more of that audience as long-term subscribers.

As Nathan mentioned earlier, this quarter was hindered a bit by some of the fallout of the cyber incident last year. We know there is growth potential over the long term, and our primary focus is the consumer. Serving our local communities with high-quality local news with the best experience in the ways that matter most to them. Our advantage is being intensely local. There's a lot in store for Lee Enterprises on the subscription side of the house. We're executing several exciting initiatives in the second half of fiscal year 2026, all focused on expanding content offerings, driving new users, and improving the consumer experience.

On the advertising side, the landscape continues to evolve, and our approach is grounded in profitability and long-term value. We are seeing early signs of stabilization with sequential improvement in revenue trends. At the same time, we're not chasing commoditized ad dollars. We are being disciplined, prioritizing higher margin, more sustainable revenue and reviewing and exiting lower-quality opportunities. Through Amplified Digital Agency, we deliver full funnel AI-enabled marketing services that help advertisers increase customer lifetime value and grow their business.

This year, we're sharply focused on delivering a more complete integrated solution for advertisers, especially across multiple products. Our full product suite remains a key differentiator, enabling us to meet a broader range of advertiser needs in one place. In last quarter's call, Nathan introduced our strategic partnership with Hudl, a leader in sports technology, video analysis, and data. David also mentioned it earlier in today's call. I'd like to echo their excitement regarding this partnership, which represents one of the largest collaborations in local sports media and aligns with our mission to serve our communities with high school sports coverage at the core. Our partnership with Hudl will enable us to serve our communities better by adding video and free access to remarkable local sports content. Hudl also strengthens our ability to connect advertisers with highly engaged local audience at scale. By aligning with a platform that sits at the center of community sports, we give our clients direct access to passionate fans, families, and athletes, creating a more relevant, impactful advertising opportunities.

Also touching briefly on initiatives like America's 250th birthday coming up this July, Community Center and Vidmax, these are fantastic examples that further support how we're expanding higher-value, differentiated advertising opportunities. We're leveraging our owned audience and our local market strength to deliver premium brand-safe environments that drive stronger engagement for our advertisers. They also enable a more integrated multi-platform campaigns, increasing client retention and deepening relationships through multichannel solutions. Collectively, these offerings support our shift toward higher-margin recurring digital revenue built on unique content and first-party data. Ultimately, these efforts support our broader goal, to build a more predictable, higher-margin digital advertising business. With that, I'll pass it back to Nathan.

Thanks, Joe. Stepping back, it's worth highlighting the strength and stability of our digital growth, especially considering the challenging landscape within the industry. Over the past several years, we've delivered consistent expansion in digital revenue, supported by both subscription and agency growth. Over the last 3 years, our digital subscription revenue has grown 25% annually, while our digital agency business has shown tremendous resiliency in a tough operating climate, growing 5% annually. Together, this has yielded a strong foundation of $290 million in total digital revenue over the last 12 months, representing 4% annualized growth over the past 3 years. While the broader industry remains under pressure, our focus on local markets, owned audiences, and recurring revenue streams has positioned us to perform competitively. Our focus is not just on top line growth, but about improving the quality and margin profile of our revenue.

As we continue to execute, we believe this differentiated approach will drive sustainable performance over the long term. This slide further illustrates the long-standing progress we've made in building a more sustainable and higher quality digital revenue base. Over the past 6 years, we've gone from a print dependent to digital dominant. Digital revenue has grown from a minority of the business, 21% back in 2020 to 56% as of our second quarter, a clear and measurable shift. Digital is no longer a growth initiative, but the core engine of our business, and it will continue to drive both revenue expansion and margin improvement.

Over time, this transition positions us to operate as a predominantly digital business with significantly reduced reliance on print. Our focus remains on strengthening our digital products, enhancing audience engagement, and building scalable capabilities that position the company for sustained performance in the digital media landscape. We are focused on scaling these core drivers while continuing to optimize pricing, product mix, and customer lifetime value. As we execute, digital will continue to expand as the primary engine of our growth and profitability. And with that, I'll hand it over to Josh to provide some additional financial performance details.

Thanks, Nathan. As Nathan said, we have made significant progress in our digital transformation. We are not only transforming our business, we are also strengthening our financial foundation. From a long-term execution standpoint, our digital business continues to scale toward a key milestone, where digital gross margins fully cover our SG&A costs. We've made meaningful progress since the start of our digital transformation, and our current trajectory gives us a clear achievable path forward. Year-to-date through March, core digital revenue has grown at a 9% annual rate from fiscal '21 to fiscal '26, with digital gross margins expanding at a similar pace. This continued shift from print to higher-margin digital revenue is strengthening the underlying economics of our business.

At our current pace, we expect digital revenue and margins to fully support our entire business within 3 years. Our confidence in reaching that milestone continues to build as we realize the benefits of our transformational initiatives and maintain disciplined execution across both revenue growth and cost management. Turning to costs. We continue to pair strong cost discipline with targeted investments that support long-term growth. Our focus on reducing legacy costs and simplifying operations is strengthening our financial profile while preserving the quality of our journalism.

By enhancing operational rigor this year without compromising quality, we have improved our long-term positioning and are poised to drive sustainable shareholder value over the long term. In the first half of fiscal 2026, cash costs declined $37 million or 14% compared to the prior year. The majority of that reduction came from SG&A costs, which decreased approximately $23 million, largely driven by lower corporate overhead. Legacy print costs declined by $13 million year-over-year, primarily reflecting efficiencies aligned with our evolving revenue mix and ongoing print optimization efforts.

Through the first half of fiscal '26, we have remained disciplined from a cost perspective. We continue to manage our print business for efficiency, scale our digital operations, and reduce SG&A costs. Lastly, before I pass it back to Nathan, I'd like to highlight the significant progress we've made on the balance sheet. Since refinancing in March 2020, we have reduced debt by $121 million. Following our recent strategic investment and resulting lower interest rate, we expect to generate approximately $18 million in annual interest savings or up to $90 million over 5 years. We are also actively monetizing noncore assets to further accelerate deleveraging, with assets estimated at $20 million in value currently identified. With a stronger balance sheet and reduced interest costs, we are in a significantly improved financial position compared to just a quarter ago. This enables us to invest in the business, reduce debt, and drive long-term shareholder value. I'll now turn the call back to Nathan for final remarks.

Thanks, Josh. We are reaffirming our full year outlook of adjusted EBITDA growth in the mid-single digits. And based on our first half performance, we are confident that we will deliver. Our disciplined approach to cost and focus on profitability were key drivers of our strong first half results, and we will maintain our operational rigor going forward. Our strategy is clear: accelerate digital growth, strengthen the balance sheet, and continue delivering sustainable value for shareholders. We've moved beyond stabilization and are now executing with real momentum. As a result, Lee is better positioned than ever to accelerate into its next phase of sustained growth. Thank you again for joining us this morning. We'll now open the call for questions.

[Operator Instructions]

We will now take our first question from the web. Were there any debt principal payments made in the second quarter?

Great. Thank you for the question. Yes, in the second quarter, we did not make any debt payments. However, we did have two real estate sales of non-core assets, and we made a $1 million debt payment just into the third quarter, but that would not be reflected in our second quarter debt. All right.

We have no more questions from our web participants. I will now turn the call back to Nathan for closing remarks.

Great. Thank you. Midway through fiscal 2026, I'm pleased with our results. As an organization, we are fundamentally stronger than ever before, and our first half results meaningfully demonstrated our ability to execute across the board with improved operating efficiency. With a clear strategy, strong foundation, and significant momentum, we are well positioned for our next stage of evolution as a digital media company. I want to thank our employees for their dedication and our shareholders for their continued support. Thank you again for joining today's call.

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.

Welcome to the Lee Enterprises 2026 First Quarter Webcast and Conference Call. The call is being recorded and will be available for replay at investors.lee.net. [Operator Instructions] A link to the live webcast can be found at investors.lee.net.

I would now like to turn the call over to your host, Jared Marks, Vice President, Finance. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining us today. With me on this morning's call are Nathan Bekke, President and Interim Chief Executive Officer; and Josh Rinehults, Vice President, Interim Chief Financial Officer and Treasurer.

Earlier today, we issued a news release announcing preliminary results for our first fiscal quarter of 2026. The release and the 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.

During the call, we refer to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the tables accompanying the release.

With that, I'll turn the call over to Nathan Bekke.

Thank you, Jared. Good morning, everyone, and thank you for joining us. Lee Enterprises delivered a strong start to fiscal 2026, highlighted by significant first quarter adjusted EBITDA growth and a transformational improvement to our capital structure. Adjusted EBITDA grew 61% year-over-year to $12 million, driven by consistent execution across the core business and disciplined cost management.

Last week, we completed a $50 million equity investment that materially strengthens our balance sheet and significantly improves our liquidity. In this morning's call, we'll provide a closer look at the financial stability that the transaction provides and the transition following the closing of the deal.

Before we dive into that, let me begin by reinforcing the fundamentals of our Three Pillar Digital Growth Strategy, which has enabled Lee to rapidly transform over the last 5 years into a digital-first company. Our transformation into a strong and stable digital media company is not theoretical. It's measurable, repeatable and scalable.

Digital is no longer an emerging segment inside the legacy business, but the primary economic engine of the company. The trajectory of Lee is increasingly governed by digital growth rates, digital markets and digital unit economics. This shift represents disciplined execution, expanding our audience through rich local content, accelerating digital subscription growth and building a digital advertising business that delivers results. With nearly $300 million in digital revenue over the last 12 months, we are well positioned to reach our $450 million digital revenue target by 2030.

Our investment thesis is centered on a strengthened balance sheet and continued debt reduction. The $50 million common stock private placement shores up our balance sheet in both the near and long term and will lead to future deleveraging. Furthermore, with the close of this deal, our already favorable credit agreement will see a significant boost. We'll touch on the details of this transaction and the amended credit agreement in just a moment.

But for now, I'd just point out the transformational impact these will have on our future. By strengthening the balance sheet and improving the company's capital structure, we are putting the company in a much better position to execute our strategy and deliver long-term value to our shareholders.

I'm excited to share the details of the strategic deal that closed this past week. We raised $50 million in gross proceeds through a private placement of common stock at $3.25 per share. The private placement was anchored and backstopped by David Hoffmann, with additional existing investors also participating. This transaction followed a comprehensive review of the company's performance and capital structure, consideration of alternatives and approval by both the Board and shareholders, who recognize that by strengthening the balance sheet and reducing the interest rate under our credit agreement, the company would be in a better position to execute and create long-term shareholder value. As part of the closing of the transaction, we welcome Mr. Hoffmann as Chairman of the Board of Directors.

Concurrently, with this private placement, our credit agreement has been amended to reduce the interest rate on our outstanding debt to 5% from 9% for the next 5 years. On $455 million in debt, the interest rate reduction is expected to generate approximately $18 million in annual interest savings or up to $90 million over the 5-year period. That significant cash flow improvement over the 5-year horizon will allow us the flexibility to invest in our core business and drive digital growth. The proceeds from the deal will be used primarily for working capital and to fund current and future digital transformation projects. This transaction accelerates our ability to strengthen our digital platforms, enhance the consumers' experience and deliver measurable performance for our local advertising clients. In the near term, it improves operating efficiency while positioning us with a more flexible, scalable digital infrastructure designed to support sustainable long-term growth.

Fiscal 2026 presents a tremendous opportunity for growth, driven by the strength of our digital businesses and operational discipline, particularly as we've already delivered strong first quarter results. At a macro level, we are a leading provider of high-quality local news, information and advertising in 72 markets across the U.S. Our local journalism is what sets us apart. As a digital-first subscription platform, we provide breaking news and local content that commands a strong audience and attracts advertisers within the local communities we serve.

Over the last 12 months, sustained growth of 14% in our digital-only subscription revenue has further diversified our revenue mix and boosted our reliance on growing revenue streams. At the same time, we've maintained disciplined cost management across the organization, particularly in legacy costs and corporate overhead. These efforts are driving steady momentum in adjusted EBITDA, which was $50 million over the last 12 months.

Now I'll hand the call over to Josh to run through our first quarter results.

Thanks, Nathan. Our strong first quarter was marked by meaningful year-over-year improvement in adjusted EBITDA, driven by continued progress in our digital transformation and disciplined cost management. Q1 adjusted EBITDA increased by a significant 61% or $5 million over the prior year, reflecting improved operating efficiency and tighter expense control. These results demonstrate the company's ability to expand profitability even as we navigate dynamic changes in the digital media landscape.

On the digital subscription front, we finished the quarter with $23 million in revenue from our 609,000 digital-only subscribers. 5% growth in digital-only subscription revenue was fueled by increased efforts to maximize engagement within our subscriber base as well as to optimize price within our highly engaged subscriber cohorts. Targeted investments in personalization, content delivery and life cycle marketing are increasing subscriber lifetime value and improving overall monetization.

Q1 finished with over $70 million in total digital revenue, which represented over 54% of our total revenue. This progress builds on the continued evolution of our revenue, with digital revenue mix improving 330 basis points year-over-year, digital-only subscription revenue growing 5%, and digital sources representing 71% of total advertising revenue, underscoring the transformational effect of our digital growth strategy. The strength of our first quarter performance clearly demonstrates the strong foundation for Lee's future as a digital-first company.

Lastly and most significantly, Q1 saw substantial growth in adjusted EBITDA, up $5 million or 61% over the prior year. Our first quarter growth in adjusted EBITDA was driven by strong cost control particularly tied to our legacy revenue streams, with total cash costs declining $17 million over the prior year. The operational efficiency demonstrated this quarter was primarily driven by reduced head count and legacy print costs. This quarter represents our third consecutive quarter of adjusted EBITDA growth on a comparable basis. The year-over-year improvement in adjusted EBITDA margin was also quite substantial, with the first quarter of 2026 representing 9.4% compared to 5.3% in the prior year.

Another brief note on the quarter. Our results included $2 million in business interruption insurance proceeds tied to the cyber incident last year. Excluding these proceeds, Q1 adjusted EBITDA showed a very strong 35% growth. We expect to receive further insurance proceeds as the fiscal year progresses.

Overall, our first quarter results highlight the strength of our digital strategy and our continued path towards transforming local media. Compared to our broader peer group, we have consistently outperformed across several key indicators of digital growth, including digital subscription revenue and digital agency revenue.

Over the past 3 years, digital subscription revenue has grown significantly, more than double that of our nearest competitor, reflecting the consistent strength of our local journalism, effective subscription strategies for managing both volume and rate and continual improvement in digital platforms. Over the past year, we have continued to modernize our technology and expand our product ecosystem using data-driven marketing and audience insights to deepen engagement and enhance monetization.

Post transaction, we expect to further bolster our digital products and technology. Ultimately, our goal is improving the users' experience by delivering journalism that is credible and timely as well as intuitive, accessible and engaging across devices. Our road map will ensure our platforms evolve alongside audience expectations while supporting sustainable business outcomes.

On the advertising side, revenue from our Amplified Digital Agency has also outpaced peers, growing at a 5% annual rate over the last 3 years. This performance underscores our ability to generate sustainable digital advertising growth through scalable solutions, innovative services and highly skilled digitally focused teams.

Looking ahead, our trajectory toward approximately 90% digital revenue by fiscal 2030 positions us to operate a sustainable business model that is no longer dependent on print products. As Nathan mentioned earlier, our focus remains on strengthening our digital products, enhancing audience engagement and building scalable capabilities that position the company for sustained performance in a digital media landscape.

Just 6 years ago, our revenue was primarily print, making up nearly 80% of our operating revenue. As of the first quarter of fiscal 2026, 54% of our revenue is now digital. This transformational shift demonstrates that we're less reliant on legacy print than ever before. As we move forward, we will continue to build on this digital revenue growth momentum while also managing our declining legacy revenue streams, all driving us towards the day when we are sustainable solely from our digital platforms.

Our core digital business has grown 12% annually from fiscal 2021 to fiscal 2025, and that has translated to comparable annual growth in digital gross margins. Replacing our print revenue with growing and profitable digital revenue sets us up to achieve long-term sustainability. By fiscal 2030, we will be sustainable from just our digital revenue and margin, which is something we're more confident in now than ever as post transaction, we begin to realize the impact of the transformational business projects we have underway and that are forthcoming.

From a cost perspective, Lee has a consistent track record of disciplined cost management while making strategic investments to support long-term growth. We remain steadfast in our commitment to long-term financial sustainability and the continued delivery of high-quality local journalism.

In fiscal 2026, reducing legacy costs and complexity throughout our business remains a top priority for us. By enhancing operational rigor this year without compromising quality, we've strengthened our long-term position and are poised to drive sustainable shareholder value over the long term.

Lastly, before I pass it back to Nathan, I'd just like to reiterate how impactful the amended credit agreement is to our long-term financial outlook. Since refinancing in March 2020, we have paid down $121 million of principal. With a strengthened balance sheet and a reduced interest rate, our path to debt reduction is stronger than ever.

On $455 million in debt, the interest rate reduction to 5% is expected to generate approximately $18 million in annual interest savings or up to approximately $90 million over the 5 years. This savings is a boost that will generate long-term debt reduction and shareholder value creation.

Another recent improvement to our balance sheet is the strategic termination of the company's fully funded defined benefit pension plan. Since the plan's assets were sufficient to cover all obligations, the company is free from any future cost uncertainty.

Lastly, we have identified $26 million in noncore assets that we are actively working to monetize. These asset sales will contribute to our future debt reduction.

I'll now pass the call over to Nathan for final remarks.

Thanks, Josh. Looking ahead to the full year, we're reaffirming our outlook for fiscal 2026 of adjusted EBITDA growth in the mid-single digits. The strength of our first quarter positions us well to achieve our 2026 outlook. The transaction and interest reduction give us increased confidence in not only fiscal 2026, but also the next 5 years.

In other news, we recently announced a new strategic partnership with Hudl, a leader in sports technology, video analysis and data. Hudl works with thousands of high schools and local sports teams across the nation, providing video, data and tools to support athletes, coaches and communities. This partnership represents one of the largest collaboration in local sports media and aligns with our mission to serve our communities with high school sports coverage at the core. It also reinforces our commitment to journalism and storytelling that bring communities together.

This partnership with Hudl will allow us to serve our communities even better by adding video content with free access and continue to tell the amazing local sports stories that reflect the pride, passion and connection people feel for their schools and teams. With Lee's deep roots in local communities, we create meaningful value for both our readers and advertisers, positioning our digital platforms as the place to go for local sports consumption and advertising. While in the early stages, we're extremely excited to partner with the Hudl team, and we'll share more as the relationship develops.

With that, we'll open the call for questions.

[Operator Instructions]

We have no questions from our web participants. I'll now turn the call back to Nathan for closing remarks.

Great. Thank you. I'll reiterate that we are a leader in local content and are well underway on a significant digital transformation. We have become a digital-first organization, growing our digital revenue mix to 54% as of this past quarter, more than doubling over the past 5 years. With the $50 million private placement transaction supporting both deleveraging and continued digital investment and up to $90 million in interest savings over the next 5 years, we've meaningfully strengthened our balance sheet and increased our financial flexibility.

With a clear strategy, strong foundation and a compelling future, we are set up now more than ever for our next stage of evolution as a digital media company. I want to thank our employees for their dedication, and our shareholders for their continued support.

We have reached the end of our question-and-answer session. This concludes our call. You may now disconnect.

Welcome to the Lee Enterprises 2025 Fourth Quarter Webcast and Conference Call. This call is being recorded and will be available for replay at investor.lee.net. [Operator Instructions] The 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.

Good morning. Thank you for joining us. In addition to myself, speaking on this morning's call are Kevin Mowbray, President and Chief Executive Officer; Nathan Bekke, Chief Operating Officer; and Tim Millage, Vice President, Chief Financial Officer and Treasurer. Earlier today, we issued a news release with preliminary results for our fourth fiscal quarter of 2025. It is available at lee.net as well as major financial websites. Please also refer to our earnings presentation found at investors.lee.net, which includes supplemental information.

As a reminder, this morning's discussion will include forward-looking statements based on our current expectations. These statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially. Such factors are described in this morning's news release and in our SEC filings. During the call, we refer to certain non-GAAP financial measures. Reconciliations to the relevant GAAP measures are included in the tables accompanying the release. And now to open the discussion is our President and Chief Executive Officer, Kevin Mowbray.

Thanks, Jared, and good morning, everyone. This morning, I'll provide an update on our fiscal 2025 performance. We'll also hear from Nathan and Tim later in the call to discuss operations and an outlook on fiscal 2026. Our 2025 performance clearly demonstrates the strong foundation of Lee's future as a digital-first company. Fiscal 2025 finished with $562 million in total revenue, 53%, which was Digital, showing more reliance on our Digital business and our legacy Print business.

On the Digital subscription front, we finished the fiscal year with $94 million in revenue from our 633,000 digitally only subscribers. I'm incredibly proud of this industry-leading revenue growth of 16% year-over-year on a same-store basis. Considering the February severance hampered our ability to generate Digital Only subscriptions, we are really encouraged to see where we finish the year on the revenue side. We see an opportunity in 2026 to grow units in combination with continued rate optimization. Our digital marketing services business, known as Amplified Digital Agency surpassed the $100 million mark in FY '25 with industry-leading 5% growth on a same-store basis.

I'm very encouraged by Amplified's ability to consistently deliver steady top line growth even as the broader digital advertising market remains competitive. Progress in these revenue category gives us confidence in our ability to drive sustainable growth and deliver long-term value to our shareholders. As a reminder, our 3-pillar digital growth strategy is expected to result in $450 million in digital revenue by 2030. Our team continues to execute exceptionally well on our digital transformation strategy. In 2025, we delivered an excellent 16% growth in digital-only subscription revenue, further diversifying our revenue mix, expanding our digital margins in leading the industry. At the same time, we maintained disciplined cost management across the organization, particularly in print production and corporate overhead, which allowed us to reinvest in high-growth digital initiatives.

These efforts are driving steady momentum in adjusted EBITDA, which grew for the second consecutive quarter when adjusted for the extra week in the prior year. This level of performance is truly a testament to Nathan and his operations team and positions Lee to achieve sustained success in the years ahead. In 2025, we continue to lay the foundation for Lee's future as a digital-first company. We're driving our digital transformation, and we're confident on our ability to drive sustainable growth and deliver long-term value to our shareholders. The strength of our core digital business has built a solid foundation of over $298 million of digital revenue annually, putting us firmly on track to achieve $450 million of digital revenue by fiscal 2030.

Lee has consistently outpaced our industry peers in several key measures of digital growth both digital subscriptions and digital agency revenue growth. Digital subscription revenue growth grew 32% annually over the last 3 years, more than doubling the nearest industry peer. The substantial growth is a testament to the value of our hyper local content as well as our top-notch digital platforms and tools. Over the course of 2025, we continue to modernize our digital platforms and expand our product ecosystem, leveraging data and marketing to maximize engagement. On the advertising side, Amplified Digital Agency revenue growth has significantly outpaced our nearest peer, growing 5% annually over the past 3 years.

Again, we've demonstrated the ability to grow digital advertising revenue through innovative and scalable operations and services with our tremendously talented digitally-driven teams. Overall, Lee continues to advance our strategy by driving digital transformation across every part of the business, expanding reach through ongoing digital innovation and investing in initiatives that support industry-leading growth. Our focus remains on strengthening our digital products, enhancing audience engagement and building scalable capabilities that position the company for sustained performance and increasingly digital media landscape. Total digital revenue was $298 million in fiscal '25, well on our way to achieving our long-term target of $450 million, and we're confident in our ability to get there. Next, I'll pass it over to Nathan.

Thank you, Kevin. As Kevin mentioned earlier, we closed the year with solid digital momentum, delivering 2% digital revenue growth on a same-store basis, a clear indication that our digital transformation strategy is taking hold across the enterprise. Within advertising, we strengthened SMB retention throughout the year and nearly doubled the number of clients now valued at more than $1 million annually demonstrating the rising impact of our innovative solutions and the deepening value we provide to local and regional businesses. This improved customer performance, combined with accelerating adoption of our AI-powered tools including AI enablement, AI Boost, Smart Answer and SmartSites directly fuel 5% same-store revenue growth in the Amplified Digital Agency contributing $103 million to our $184 million in digital advertising revenue and reinforcing the durability of our commercial base and our first-to-market leading position.

On the consumer side, digital-only subscription revenue increased 16% on a same-store basis, driven by the strength of our local journalism and targeted retention strategies. These gains reflect the quality and relevance of our local content, the stickiness of our consumer products and our continued ability to grow high-margin recurring digital revenue. Altogether, we delivered $298 million in total digital revenue, representing 53% of total company revenue, a key performance measure that underscores the shift towards sustainable, higher-margin digital enterprise. Importantly, digital growth and product innovation are enabled by rigorous operational execution. Throughout the fiscal year, we continued optimizing our cost structure, including consolidating print operations and reducing legacy complexity. These actions created the financial capacity to invest in cloud modernization, AI-driven product development and the digital capabilities that fuel this year's digital growth.

This slide highlights the fundamental shift underway in our business and the clear progress of our digital transformation. In 2020, before we launched the 3-pillar digital growth strategy, only 21% of our revenue came from digital. Today, digital represents 53% of total revenue, meaning we have already surpassed the critical revenue inflection point where digital leads the enterprise. This transition is the result of industry-leading digital revenue growth across advertising, subscription and new digital products, supported by disciplined execution and consistent investment in our digital capabilities. We are also effectively optimizing print operations to maximize profitability and free up resources for digital growth.

Looking ahead, our strategy positions us to achieve our long-term target of 90% digital revenue by fiscal year 2030 enabling a sustainable business model that is no longer reliant on print products as they mature. This trajectory demonstrates we are moving with purpose towards a stronger, more resilient, predominantly digital companies. With that, I'll turn it over to Tim.

Thanks, Nathan. Our core digital business has driven digital revenue growth of more than 12% annually from fiscal 2021 to fiscal 2025, and that has translated to a comparable annual growth in digital gross margins. As Nathan touched on replacing our print revenue with growing and profitable digital revenue sets us up to achieve long-term sustainability and we're nearing the sustainability point. While the February cyber incident interrupted efforts on several key projects in 2025, we believe that 2026 will see a nice lift in digital revenue and margin due to realizing the impact of these transformational business projects.

Moving over to the cost side, Lee has a successful track record of effective cost management and thoughtfully investing in strategies that fuel long-term growth. As a reminder, we executed approximately $40 million in annualized cost reductions in the second quarter aimed at lowering costs across the board with an emphasis on noncore print operations while also preserving the integrity of our core operations. We also made an additional $10 million in additional reductions entering fiscal 2026. For the year, cash costs decreased 5% compared to last year and finished at $524 million. We remain steadfast in our commitment to long-term financial sustainability. By enhancing operational rigor this year without compromising quality, we strengthened our long-term position and are poised to drive sustainable shareholder value over the long term.

Next, I'll move to the balance sheet. Our credit agreement with Berkshire Hathaway includes favorable terms, including the 25-year runway, fixed interest rate and no financial performance covenants. These better-than-market terms allow us to stay laser-focused on executing our strategy. Also, we've recently executed a strategic termination of the company's fully funded defined benefit pension plan. This enhances balance sheet flexibility and eliminate long-term volatility while preserving the participant benefits. Since the plan assets have grown sufficiently to cover all obligations, the company is free from any future cost uncertainty. We continue to identify opportunities to monetize our noncore assets, which improves liquidity and facilitate accelerated debt repayment.

In fiscal 2025, we closed $9 million of asset sales, and we've identified an additional $25 million of noncore assets to monetize in the future. The monetization of these noncore assets provide a significant source of liquidity in 2026. And looking ahead to 2026, we expect adjusted EBITDA growth in mid-single digits. And with that, I'll turn it back to Kevin.

Thanks, Tim. I'd like to revisit our long-term outlook for digital subscription. The key driver of our digital revenue growth is our digital-only subscription revenue, not only for 2026, but for the next 5 years. This slide provides insight into the positive long-term trajectory of our digital subscriptions and associated revenue. The acceleration in digital subscription revenue growth over the past few years is driven by investments we've made in top talent and in the areas of content, branding and consumer marketing. These investments are producing strong results through engaging local content, effective brand campaigns and KPI-driven marketing campaigns, we expect the results to continue to push our revenue forward.

With these investments and actions, we expect to achieve $175 million of recurring digital subscription revenue by fiscal 2030 fueled by 1.2 million digital subscribers. Our focus on diversifying and expanding offerings for advertisers will lead to the acceleration of digital advertising revenue over the next 5 years. We have strong relationships with more than 20,000 local and regional advertisers across the U.S., and we partner with them to achieve their marketing goals. We sell advertising and marketing services to our customer base through both our owned and operated products and our full suite of omnichannel marketing solutions through Amplified Digital Agency.

With advanced data-driven ad tech specialized category expertise, scalable custom video content and powerful first-party data access, Amplified is a strong partner for local and regional businesses looking to drive growth. We continue to see a significant growth runway as we execute our strategy. Our 2030 goal for digital advertising revenue is over $250 million. While Amplified is the growth engine for top line advertising revenue, our massive own and operated digital audience fuels high-margin digital advertising revenue. These owned and operated digital products infused with valuable hyper-local content remain a key advertising channel for our local communities.

Our owned and operated properties attract massive audiences and we're offering more video inventory and branded content opportunities to boost digital advertising revenue. This category is important as there remains growth potential by expanding our audience and this category represents our highest margin digital advertising revenue. Lee has a strong legacy and a bright future. We're a leader in local content with core local news and strong advertising assets in place. We provide breaking news and stories that matter most to the local communities we serve. Over the past 5 years, we have grown our digital revenue mix to 53% as of 2025 more than doubling since the launch of our 3-pillar digital growth strategy.

Looking ahead, we're working on an important development, namely a $50 million common stock rights offering to further support our digital transformation and deleveraging over the next 5 years. Our full lender of Berkshire Hathaway is extremely supportive of our long-term future. Successful completion of the rights offering will trigger an amendment to our credit agreement, reducing the interest rate on our outstanding debt from 9% to 5% for 5 years. This will result in $18 million in annual interest savings. The combination of the $50 million infusion into the business with another $90 million in interest savings over 5 years gives our balance sheet and capital structure a tremendous boost. We're excited to provide an update on our next quarter's call on the recapitalization investment efforts that are underway.

The upcoming rights offer sets us up even more favorably over the next stage of our evolution as a digital-first company. Our local content and presence in our local communities are as strong as they've ever been, and we look forward to the next 5 years being our strongest yet. And lastly, we recently announced the upcoming departure of Tim in the early part of 2026. I'd like to extend my sincere and deep gratitude to Tim for his leadership, integrity and dedication serving as Lee's CFO for the better part of the last decade. His financial acumen and stewardship has been instrumental in advancing the company. While we'll miss him as a valued team member, we fully support his decision and wish him every success in the next chapter. Tim will see the transaction and transition through and be with Lee until March. We'll share more on the next call regarding his successor. But in the meantime, I'd like to thank Tim and his team and wish him the very best in the future. This concludes our remarks, and we're open for questions.

[Operator Instructions]

We will now take our first question from the web. What was the total debt reduction in the fourth fiscal quarter and the full fiscal year.

Yes. So just as some context, since our credit agreement was launched in 2020, we have reduced debt, $121 million since that time. In 2025, we have seen -- as you recall, we did have, in response to the cyber incident, waivers related to interest in rent that did increase our debt balance. If we exclude the increase related to those items, our debt was reduced roughly $3.5 million in the fiscal year as a result of the operations and asset sales.

So with that, we have no more questions, and I'll turn it back to Kevin for closing remarks.

I'd like to thank everyone for joining today's call. Our focus remains on transforming our business for the long-term benefit of our shareholders, our employees, our readers and our advertisers. We appreciate your time and your interest in Lee. Thank you again.

Thank you. At this time, we have reached the end of our question-and-answer session, and this concludes today's conference call. Thank you for participating, and you may now all disconnect. Everyone, have a great day.