Timothy Millage

Thanks, Kevin. Lee has a successful track record of effective cost management. And in 2024, our business transformation efforts yielded $82 million in cost savings. While we remain focused on operational excellence, driving margin in our legacy print business and growing profit, our main priority is to drive long-term sustainable revenue growth. Therefore, we continue to invest in talent and advanced technology like artificial intelligence, to drive revenue and maintain our dominant local market position.
Next, I’ll move to the balance sheet. As we have discussed in prior calls, we had a strong relationship with Berkshire. And that relationship includes a favorable credit agreement with a 20-year runway, a fixed interest rate and no financial performance covenants. These better-than-market terms allow us to stay laser-focused on executing our strategy.
We also continue to identify opportunities to monetize our noncore assets, which facilitates debt repayment. We closed over $13 million of asset sales this year, and have identified an additional $25 million of noncore assets to monetize. The monetization of these noncore assets will propel debt reduction.
As was mentioned earlier, digital revenue now represents 51% of our total operating revenue. Digital revenue has grown more than 17% annually since 2021 and that has translated to 13% annual growth in digital gross margin. Our digital margin is also an impressive 72%, meaning our digital business is highly profitable.
Replacing our print revenue with growing and profitable digital revenue will help us achieve long-term sustainability, and we are nearing that point. We expect by 2026, the gross margin from our digital products will exceed the company’s SG&A costs.
The growth in our digital business is expected to continue as we are still scratching the surface of the addressable market for digital subscriptions and digital marketing services. As a reminder, Lee’s three-pillar growth strategy is poised to achieve total digital revenue of more than $450 million in 2028.
We expect this digital revenue growth will be fueled by Amplified Digital Agency growth, digital subscription growth, and new AI revenue opportunities. AI presents new and exciting monetization that we believe will help us achieve our long-term outlook for 2028. More to come on that in a bit.
Looking more specifically to 2025, I would like to point everyone to our outlook for total digital revenue and adjusted EBITDA. We expect total digital revenue to grow in the range of 7% to 10% next year. And we expect adjusted EBITDA to grow in the low-single digits.
And with that, I will turn it to Kevin to provide an update on recently announced AI partnerships.

Kevin Mowbray

Through innovation, strategic partnerships, and relentless focus upon growth, we’re paving the way for Lee to lead the industry in this era as AI-driven transformation. We all know there’s a tectonic shift in technology underway. Traditional search has seen a precipitous drop in the last nine months as consumers shift to AI-powered search engines. Gartner predicts Google’s general search to drop by 25% over the next 12 months. This isn’t just a trend, it’s a paradigm shift driven by the explosive growth and impact of generative AI applications.
Platforms like Perplexity, OpenAI, Quad, Gemini, and Microsoft’s Copilot are redefining the search experience by providing content-rich personalized and highly accurate results in new summaries. This shift is not only about technology, but also about our user behavior as consumers are opting for AI-powered tools with consuming news and information. Lee’s role in this ecosystem is critical.
We’re at the forefront of creating local, trusted and hyper-personalized content and advertising. The time to act is now. Legal battles, various lawsuits while sometimes necessary, are often time-consuming, very costly and you’re likely to get tied up in the court for years to come.
We’re focused on strategies that position us as leaders and collaborators in this transformation. Lee is uniquely positioned to become the last mile intermediary in AI-driven content and advertising economy. We are the connective tissue between advertisers, subscribers, and local markets. Our trusted hyperlocal content and relationships are assets no algorithm can replicate.
Our new AI partnerships will enable us to enhance ad creative dynamically and deliver hyper-targeted campaigns tailored to our local audience. We’ll monetize enhanced AI-driven content through paywall subscriptions, building loyalty rooted in our trusted brands and relevance.
We’re acting now and working on a winning playbook with our new AI partners and the message is clear. Partnerships between content providers and large language models are driving the next wave of innovation and revenue. This is reflected in the massive and private investments is illustrated on the chart.
Our combination of trusted news and information, AI tools, and strategic partnership will create a framework for sustainable, scalable economics in the evolving digital economy. We expect to generate early economics this fiscal year. We’re modeling revenue for these partnerships as they evolve over the next 24 months and beyond.
I’d like to thank the team and especially Les Ottolenghi, our Chief Transformation and Commercial Officer, for the tireless work on getting us here today. Les has done a masterful job of getting these partnerships teamed up and advancing our position, not just as survivors of the digital shifts, but as leaders in shaping its future.
And now I’d like to turn the call over to Les to walk through in more detail the details around these recent announcements on our AI partnerships.

Les Ottolenghi

Good morning. It is a pleasure to share the exciting news about Lee Enterprises’ leadership, progress, and developments in artificial intelligence. Lee Enterprises is fast becoming a pioneer in the artificial intelligence ecosystem by leveraging partnerships that allow Lee to drive user engagement, create new advertising opportunities and deliver economic growth through the power and ethical use of advanced artificial intelligence.
As AI rapidly shift consumers away from traditional search and social media, Lee has recognized this market pivot and during the past four months has forged partnerships with the leading AI platforms, culminating in agreements with Perplexity, ProRata AI, and Amazon Web Services.
At this very early stage, these partnerships provide Lee access to powerful hyper-personalization and advanced advertising technologies. But more importantly, these partnerships expand Lee’s core business by connecting our news, content, and advertising to the new, far-reaching AI distribution channels. And at the local level, these industry-leading first-to-market partnerships provide Lee with the necessary AI search and answer systems to capture market share from legacy web media companies and enrich Lee’s local market positions.
Consequently, on December 4, Lee took its first step towards extending Lee’s content into AI distribution networks with the announcement of a partnership with Perplexity. Perplexity is the fastest-growing AI search engine with over 420 million searches per month and with an astounding growth from $300 million to $9 billion in valuation based on the value of its distribution reach. The Lee and Perplexity agreement is founded upon robust ad-supported content payment models.
On December 9, Lee announced an agreement with ProRata and it specializes in content attribution and payment systems as well as the most advanced local AI search and answer engines.
Lee and ProRata are highly aligned in our perspective on the consumers’ need for community-focused local news and information. Consequently, the ProRata agreement enables Lee to use AI in our local markets and take advantage of the dismantling of traditional search through hyper-personalized content and advertising that will enable Lee to capture even greater market share.
Finally, with a very exciting announcement we formalized next week, we have an agreement with Amazon Web Services to support the technical demands for all of our AI partnerships, including access to state-of-the-art AI tools for generative AI-based advertising.
At the heart of all three agreements is the recognition that Lee stands as the bridge in the last mile to the consumers’ attention. Lee is the interface between the consumer and the world of AI content. Our competitive advantage is our expertise, reputation, and position in local markets. It gives Lee the ability to leverage AI through partnerships that deliver new value drivers for our shareholders.
In the coming quarter, we expect additional AI partnership announcements, including co-development of product and new distribution channels. We look forward to next quarter and the opportunity to share more exciting news about Lee’s future.
With that, I’ll turn it back over to Kevin.

Kevin Mowbray

Thank you, Les. Through innovation, strategic partnerships, and relentless focus on growth, we’re paving the way for Lee to lead the industry in this era of AI digital transformation. This concludes our remarks. The team will remain online for any questions you may have.
Operator, please open the line for questions.

Operator

(Operator Instructions) Daniel Harriman, Sidoti & Company.

Daniel Harriman

Thanks for taking my questions. Just kind of broadly here, and I realize you’re still in the early innings of these partnerships with AI. But how should we look at future investment as in are you going to be able to save significant investment by partnering up with leading AI technology companies?
And then kind of along the same lines, again, realizing it’s very early and these announcements have just come out. But should we expect any impact on these announcements in terms of your fiscal 2028 digital goals or for the time being, should we really assume the same that you’ve been saying recently?
And then just finally, I know you reached your digital subscriber count goal for the year, but I didn’t see the exact number as of the fourth quarter. And if I missed it, I’m sorry, but if you could just let us know that, that would be helpful.

Timothy Millage

Great. Thanks for the question, Daniel. I’ll start with your first one regarding the strategic partnerships and our digital investments. What I’d say is these partnerships don’t necessarily change our forward-looking level of investment but give us a lot of access to AI technology that we would not have had access to.
Also on your second question regarding our long-term targets. These partnerships increase our confidence in achieving our long-term growth targets. They provide us access to AI for commercial use and as well as to use from an operational perspective. They also provide us early economics into the AI ad model, which is anticipated to grow significantly as traditional search decline.
All that said, it is early in this advertising model shift. But these partnerships do give us optimism in our overall results. I’ll turn it over to Les to see if he has anything else to add before I answer your last question.

Les Ottolenghi

Yeah. I would add that these partnerships minimize our upfront costs by leveraging pay-per-use models and revenue-sharing agreements. This approach really lets us scale technology while keeping our spending tied to revenue growth and within budget constraints.

Timothy Millage

And then your last question on the digital subscription were 771,000. Appreciate the questions, Daniel.

Daniel Harriman

Okay. Thanks so much, guys. I appreciate it. And congrats on these recent announcements. It’s fantastic.

Jared Marks

We will now take our first question from the web. The question is: is print revenue profitable on an operating basis?

Timothy Millage

Yeah, it’s a good question. I would point you to slide 7 in our fourth-quarter earnings supplement that talks about the growth of our digital margin. And you can see the difference between our digital margin and overall margin is the result of the profitable print business. Clearly, it’s on a declining trend due to secular trends and that we continue to manage that as best we can.
With that, we have no more questions. I’ll turn it to Kevin for any closing remarks.

Kevin Mowbray

Thank you for joining the call and thank you for your interest in Lee. I really appreciate your time.

Operator

Thank you. At this time, we have reached the end of our question-and-answer session. This concludes our call.