Welcome to the Lee Enterprises 2025 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 [indiscernible], we will be giving you an opportunity for questions. Participants accessing this call by webcast may submit written questions through the website, and they will be answered during the call as time permits. Otherwise, you will receive a response later. A link to the live webcast can be found at investors.lee.net. Now I will 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, and Tim Millage, Vice President, Chief Financial Officer, and Treasurer. Earlier today, we issued a news release with preliminary results for our second 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. I'd like to start by expressing my appreciation for the entire Lee team. The past quarter has been a testament to the resilience, focus, and innovation of our team. Our company experienced a significant cyber event by malicious actor in February. The attack impacted all operations causing significant disruption. Our dedicated employees worked around the clock to get our operations up and running again. I'm also grateful to our advertisers and subscribers for their patience during this difficult time. While the cybersecurity incident hamstrung our overall financial performance in the quarter, I'm proud of how the team navigated the challenges and remained focused on executing our strategy as we are now fully recovered from the cyber incident. We remain committed to our digital transformation and we're confident in our ability to drive sustainable growth and deliver long-term value to our shareholders. As a reminder, our three-pillar digital growth strategy is expected to result in $450 million of digital revenue by 2028. The strength of our core digital business is built on a solid foundation over $303 million of digital revenue annually, and our new innovative suite of AI products is expected to accelerate our pace in achieving our long-term target. I'll share more on our AI advancements in a bit. Lee continues to consistently outpace our industry peers in several important measures of digital growth, both digital subscriptions and digital agency through revenue growth. Digital subscription revenue grew 40% annually over the last three years, nearly doubling the nearest industry competitor. On the advertising side, Amplified Digital Agency revenue growth has significantly outpaced our nearest competitor, growing 18% annually over the past three years. Total digital revenue was $303 million on the trailing 12-month basis, including $103 million within Amplified Digital Agency, well on…

Thank you, Kevin. Digital revenue has grown more than 17% annually since fiscal year 2021, and that has translated to comparable annual growth in digital gross margins. Replacing our print revenue with growing and profitable digital revenue will help us achieve long-term sustainability, and we're nearing that point. Speaking to the quarter's operating results, total operating revenue in the second quarter was $137 million, which represented an improvement in trends from our first quarter. The trend improvement was muted by the cyber incident, which had a significant impact on our quarterly operating results. Advertising revenue trends were impacted as our product portfolio was limited in February and early March. Subscription revenue was affected as single-copy products were not available for a short period of time, and our normal process for activating new digital subscribers was hampered, significantly impacting units in the quarter. Despite the incident, total digital revenue continued to show growth over the prior year, up 4%, led by digital subscription revenue growth of 20% and revenue growth at Amplified Digital of 9%. It's still early days for us in our journey as we building our AI library. However, we expect them to help drive profitable and recurring digital revenue growth in the second half of the fiscal year. Moving over to the cost side, we had a successful track record of effective cost management and thoughtfully investing in strategies that fuel long-term growth. Following up on our last call, we executed approximately $40 million in annualized cost reductions in the second quarter, aimed at driving margin in our revenue stream and lowering costs with an emphasis on print. Operating expenses in the second quarter were impacted by the cyber incident, which included $2 million of restoration costs. Many of these costs are subject to reimbursement by the insurance…

I'd like to reiterate my gratitude to the entire Lee team for navigating the challenges in the corridor and the progress made on our digital transformation. We're paving the way for Lee to lead the industry in this era of AI-driven transformation. This concludes our remarks. The team will remain on the line for any questions you may have. Operator, please open the line for questions.

[Operator Instructions].

I'll now read our first question from the web. Net loss totaled $12 million in the quarter and free cash flow was minimal. Does that include the interest deferral? When does Lee expect to be free cash flow positive?

It's a good question. With respect to the net loss in the quarter, that certainly includes the expenses associated with our debt, even though the payments were waived. With respect to free cash flow, the company has made significant changes in our cost structure, both from an operating expense standpoint as well as capital and restructuring. As a result of those changes and the total digital revenue outlook that we provided, we do expect free cash flow to be positive in the second half of fiscal year 2025. That concludes the question-and-answer session. Turning back to Kevin for any other closing remarks.

I'd like to thank everybody for joining the call this morning. 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.