Lee Enterprises, Incorporated (NYSE: LEE), a leading provider of
high quality, trusted, local news, information and a major platform
for advertising in 49 markets, today reported earnings(1) of $10.7
million for its first fiscal quarter ended December 30, 2018,
or 18 cents per diluted common share. For the same quarter a year
ago, earnings totaled $34.6 million, or 61 cents per diluted common
share. Adjusted for the impact of the 2017 Tax Act as well as the
warrants, adjusted earnings per diluted common share totaled 18
cents in the current year quarter compared to 18 cents in the prior
year quarter.(2)
"We are off to a great start in fiscal year 2019 with strong
performance in many key areas," said Kevin Mowbray, President and
Chief Executive Officer. "Total digital revenue increased 10.7% in
the first quarter due to an 8.0% growth in digital advertising
revenue and a 27.7% growth in digital services revenue," Mowbray
added. "Revenue in our local controllable segment also performed
well. Revenue from local retail accounts was down 2.6% in the first
quarter, the best quarterly trend in several years."
"On a stand-alone basis, revenue at TownNews increased 19.9% due
to increased market share, including an increase in broadcast
customers as well as gains in video revenue from 2018 technology
acquisitions," said Mowbray. "We remain steadfast in our growth
strategy around local controllable accounts, consumers and digital
services as we drive our digital transformation."
Mowbray also noted the following financial highlights for the
quarter:
- Digital advertising revenue increased 8.0% for the quarter and
represented 33.6% of total advertising revenue.
- Digital retail advertising, which represented 63.3% of total
digital advertising in the December quarter, grew 10.1%, driven by
an increase in advertising from local retailers.
- Monthly visits to Lee mobile, tablet, desktop and app sites
averaged 75.4 million, and page views per visit, one metric we use
to monitor engagement, increased 12.9%.
- Subscription revenue decreased 4.1% in the quarter. Digital
only subscribers increased 55.9%.
- Total revenue decreased 5.3% for the quarter.
"After the end of the first quarter we closed on the acquisition
of the Kenosha News and Lake Geneva Regional News. Their proximity
to existing Lee properties creates opportunity for synergies while
greatly strengthening our audiences in southeast Wisconsin," said
Mowbray.
"Operating expenses were down 5.5% in the December quarter with
cash costs(2) down 5.0%, led by an 8.9% reduction in compensation
costs," said Vice President and Chief Financial Officer, Tim
Millage.
"Adjusted EBITDA(2) was $36.1 million in the quarter, and
totaled $128.4 million over the last 12 months," Millage said.
"In the first quarter, we repaid the remaining balance of the
1st Lien Term Loan, almost five months ahead of its maturity, and
we amended and extended our Revolving Facility,"(3) Millage added.
"Debt reduction in the December quarter was $7.0 million, and has
totaled more than $367 million since our refinancing in
2014."(3)
FIRST QUARTER OPERATING RESULTS
Operating revenue for the 13 weeks ended December 30, 2018
totaled $136.2 million, a decrease of 5.3% compared with a year
ago.
Advertising and marketing services revenue decreased 10.3% to
$76.0 million. The decrease in advertising and marketing services
revenue is due to softness in print advertising demand resulting in
reduced advertising volume primarily from large retail, big box
stores and classifieds. Partially offsetting print declines,
digital advertising and marketing services revenue increased 8.0%
to $25.5 million and represented 33.6% of total advertising
revenue. Digital retail advertising revenue represented 63.3% of
digital advertising revenue in the quarter.
Subscription revenue decreased 4.1% in the current year quarter.
Average daily newspaper circulation, including TNI and MNI and
digital subscribers, totaled 0.7 million in the current quarter.
Sunday circulation totaled 1.1 million. Price increases and
additional revenue from premium content partially offset lower
print circulation volumes.
Other revenue, which consists of digital services, management
agreement revenues, commercial printing and revenue from delivery
of third party products, increased 28.7% in the current year
quarter. The increase was partially due to 25.5% revenue growth at
TownNews and revenue from our management contract with BH Media
Group, Inc.
Total digital revenue, including digital advertising and digital
services, was $30.2 million for the quarter, up 10.7% compared with
a year ago. Mobile, tablet, desktop and app sites, including TNI
and MNI(3), attracted monthly average visits of 75.4 million for
the current quarter, an increase of 3.9% over the prior year.
Operating expenses for the 13 weeks ended December 30, 2018
decreased 5.5%. Cash costs decreased 5.0% compared to the prior
year quarter. Compensation decreased 10.1%, primarily as a result
of a reduction in staffing levels. Newsprint and ink expense
increased 8.6% due to higher prices partially offset by lower
volumes from unit declines. Other operating expenses decreased
1.2%, primarily driven by lower delivery and other print-related
costs and offset in part by higher costs associated with growing
digital revenue and increases in other cash costs from
outsourcing.
Restructuring costs and other(4) totaled $0.1 million and $0.5
million in the 2019 quarter and 2018 quarter, respectively.
Including equity in earnings of associated companies,
depreciation and amortization, assets loss (gain) on sales,
impairments and other, and restructuring costs and other, operating
income totaled $27.7 million in the current year quarter, compared
with $29.1 million a year ago.
In the 13 weeks ended December 30, 2018, interest expense
decreased 10.2%, or $1.4 million, due to lower debt balances. The
Company recognized non-operating income of $0.1 million in the
current year quarter compared to a non-operating expense of $0.4
million in the same quarter of the prior year due to a change in
fair value of stock warrants. The Company recognized $0.9 million
of debt refinancing and administrative costs in the current quarter
and $1.1 million in the same quarter of the prior year. The vast
majority of the debt refinancing and administrative costs represent
amortization of refinancing costs paid in 2014.
Income attributable to Lee Enterprises, Incorporated for the
quarter totaled $10.4 million, compared with income of $34.3
million a year ago. Adjusted EBITDA for the quarter was $36.1
million.
ADJUSTED EARNINGS AND EPS FOR THE QUARTER(2)
The following table summarizes the impact from warrant fair
value adjustments and the impact from the 2017 Tax Act on income
attributable to Lee Enterprises, Incorporated and earnings per
diluted common share. Per share amounts may not add due to
rounding.
|
13 Weeks Ended |
|
|
December 30 2018 |
December 24 2017 |
|
(Thousands of Dollars, Except Per Share Data) |
Amount |
|
Per Share |
Amount |
|
Per Share |
|
|
|
|
|
|
Income attributable to
Lee Enterprises, Incorporated, as reported |
10,361 |
|
0.18 |
34,295 |
|
0.61 |
|
Adjustments (tax
affected): |
|
|
|
|
Warrants
fair value adjustment |
(80 |
) |
— |
431 |
|
0.01 |
|
Income tax effect of 2017 Tax Act |
— |
|
— |
(24,872 |
) |
(0.45 |
) |
Income
attributable to Lee Enterprises, Incorporated, as adjusted |
10,281 |
|
0.18 |
9,854 |
|
0.18 |
|
|
|
|
|
|
|
|
|
DEBT AND FREE CASH FLOW
Debt was reduced $7.0 million in the quarter including repaying,
in full, the balance of the 1st Lien Term Loan. As of
December 30, 2018, the principal amount of debt was $477.8
million. The principal amount of our debt, net of cash, is 3.6
times our adjusted EBITDA for the past 12 months ended
December 30, 2018. Interest expense decreased $1.4 million, or
10.2%, in the quarter.
At December 30, 2018, including $15.9 million in cash and
availability under our Revolving Facility, liquidity totaled $37.3
million. Excluding excess cash flow payments, there are no required
debt principal payments over the next twelve months.
CONFERENCE CALL INFORMATION
As previously announced, we will hold an earnings conference
call and audio webcast today at 9 a.m. Central Time. The live
webcast will be accessible at www.lee.net and will be available for
replay two hours later. Several analysts have been invited to ask
questions on the call. Questions from other participants may be
submitted by participating in the webcast. The call also may be
monitored on a listen-only conference line by dialing (toll free)
888-378-4398 and entering a conference passcode of 302424 at least
five minutes before the scheduled start. Participants on the
listen-only line will not have the opportunity to ask
questions.
ABOUT LEE
Lee Enterprises is a leading provider of local news and
information, and a major platform for advertising, with daily
newspapers, rapidly growing digital products and nearly 300 weekly
and specialty publications serving 49 markets in 20 states. Year to
date, Lee's newspapers have average circulation of 0.7 million
daily and 1.1 million Sunday, and are estimated to reach almost
three million readers in print alone. Lee's markets include St.
Louis, MO; Lincoln, NE; Madison, WI; Davenport, IA; Billings, MT;
Bloomington, IL; and Tucson, AZ. Lee Common Stock is traded on the
New York Stock Exchange under the symbol LEE. For more information
about Lee, please visit www.lee.net.
FORWARD-LOOKING STATEMENTS — The Private Securities Litigation
Reform Act of 1995 provides a “safe harbor” for forward-looking
statements. This release contains information that may be deemed
forward-looking that is based largely on our current expectations,
and is subject to certain risks, trends and uncertainties that
could cause actual results to differ materially from those
anticipated. Among such risks, trends and other uncertainties,
which in some instances are beyond our control, are:
- Our ability to generate cash flows and maintain liquidity
sufficient to service our debt;
- Our ability to comply with the financial covenants in our
credit facilities;
- Our ability to refinance our debt as it comes due;
- Our ability to manage declining print revenue;
- That the warrants issued in our refinancing will not be
exercised;
- The impact and duration of adverse conditions in certain
aspects of the economy affecting our business;
- Changes in advertising and subscription demand;
- Changes in technology that impact our ability to deliver
digital advertising;
- Potential changes in newsprint, other commodities and energy
costs;
- Interest rates;
- Labor costs;
- Legislative and regulatory rulings;
- Our ability to achieve planned expense reductions;
- Our ability to maintain employee and customer
relationships;
- Our ability to manage increased capital costs;
- Our ability to maintain our listing status on the NYSE;
- Competition; and
- Other risks detailed from time to time in our publicly filed
documents.
Any statements that are not statements of
historical fact (including statements containing the words “may”,
“will”, “would”, “could”, “believes”, “expects”, “anticipates”,
“intends”, “plans”, “projects”, “considers” and similar
expressions) generally should be considered forward-looking
statements. Readers are cautioned not to place undue reliance on
such forward-looking statements, which are made as of the date of
this release. We do not undertake to publicly update or revise our
forward-looking statements, except as required by law.
Contact:IR@lee.net(563) 383-2100
CONSOLIDATED STATEMENTS OF
OPERATIONS(UNAUDITED)
|
13 Weeks Ended |
|
(Thousands of Dollars, Except Per Share Data) |
December 30
2018 |
|
December
24 2017 |
|
Percent Change |
|
|
|
|
|
Advertising
and marketing services |
75,962 |
|
84,661 |
|
(10.3 |
) |
Subscription |
46,268 |
|
48,269 |
|
(4.1 |
) |
Other |
13,971 |
|
10,856 |
|
28.7 |
|
Total operating revenue |
136,201 |
|
143,786 |
|
(5.3 |
) |
Operating
expenses: |
|
|
|
Compensation |
47,038 |
|
52,327 |
|
(10.1 |
) |
Newsprint and ink |
6,339 |
|
5,838 |
|
8.6 |
|
Other operating expenses |
49,743 |
|
50,357 |
|
(1.2 |
) |
Cash costs |
103,120 |
|
108,522 |
|
(5.0 |
) |
Total operating revenue less cash costs |
33,081 |
|
35,264 |
|
(6.2 |
) |
Depreciation and amortization |
7,529 |
|
8,053 |
|
(6.5 |
) |
Assets loss
(gain) on sales, impairments and other |
(100 |
) |
2 |
|
NM |
|
Restructuring costs and other |
62 |
|
468 |
|
(86.8 |
) |
Operating expenses |
110,611 |
|
117,045 |
|
(5.5 |
) |
Equity in
earnings of associated companies |
2,129 |
|
2,383 |
|
(10.7 |
) |
Operating income |
27,719 |
|
29,124 |
|
(4.8 |
) |
Non-operating income (expense): |
|
|
|
Interest expense |
(12,256 |
) |
(13,650 |
) |
(10.2 |
) |
Debt financing and administrative costs |
(896 |
) |
(1,096 |
) |
(18.2 |
) |
Other, net |
665 |
|
551 |
|
20.7 |
|
Non-operating expenses, net |
(12,487 |
) |
(14,195 |
) |
(12.0 |
) |
Income
before income taxes |
15,232 |
|
14,929 |
|
2.0 |
|
Income tax
expense (benefit) |
4,513 |
|
(19,690 |
) |
NM |
|
Net income |
10,719 |
|
34,619 |
|
(69.0 |
) |
Net income attributable to non-controlling
interests |
(358 |
) |
(324 |
) |
10.5 |
|
Income attributable to Lee Enterprises,
Incorporated |
10,361 |
|
34,295 |
|
(69.8 |
) |
|
|
|
|
Earnings
per common share: |
|
Basic |
0.19 |
|
0.63 |
|
(69.8 |
) |
Diluted |
0.18 |
|
0.61 |
|
(70.5 |
) |
|
|
|
|
|
|
|
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES(UNAUDITED)
The table below reconciles the non-GAAP financial performance
measure of adjusted EBITDA to net income, its most directly
comparable GAAP measure:
|
13 Weeks Ended |
|
53 Weeks Ended |
|
(Thousands of
Dollars) |
December
30 2018 |
|
December
24 2017 |
|
December
30 2018 |
|
|
|
|
|
Net Income |
10,719 |
|
34,619 |
|
19,609 |
|
Adjusted to
exclude |
|
|
|
Income
tax expense (benefit) |
4,513 |
|
(19,690 |
) |
7,975 |
|
Non-operating expenses (income), net |
12,487 |
|
14,195 |
|
55,995 |
|
Equity in
earnings of TNI and MNI |
(2,129 |
) |
(2,383 |
) |
(8,995 |
) |
Assets
loss (gain) on sales, impairments and other |
(100 |
) |
2 |
|
6,327 |
|
Depreciation and amortization |
7,529 |
|
8,053 |
|
31,242 |
|
Restructuring costs and other |
62 |
|
468 |
|
5,144 |
|
Stock
compensation |
463 |
|
519 |
|
1,801 |
|
Add: |
|
|
|
Ownership
share of TNI and MNI EBITDA (50%) |
2,601 |
|
3,159 |
|
9,325 |
|
Adjusted EBITDA |
36,145 |
|
38,942 |
|
128,423 |
|
|
|
|
|
|
|
|
SELECTED BALANCE SHEET INFORMATION
(Thousands of
Dollars) |
December 30 2018 |
September 30 2018 |
Cash |
15,909 |
5,380 |
Debt (Principal
Amount): |
|
|
1st Lien
Term Loan |
— |
6,303 |
Notes |
385,000 |
385,000 |
2nd Lien Term Loan |
92,832 |
93,556 |
|
477,832 |
484,859 |
|
|
|
SELECTED STATISTICAL INFORMATION
|
13 Weeks Ended |
|
December 30 2018 |
December 24 2017 |
|
|
|
Capital expenditures
(Thousands of Dollars) |
1,002 |
1,103 |
Average common shares -
basic (Thousands of Shares) |
55,204 |
54,329 |
Average common shares -
diluted (Thousands of Shares) |
56,701 |
55,812 |
Shares
outstanding at end of period (Thousands of Shares) |
57,691 |
57,069 |
|
|
|
NOTES
(1) |
This earnings release is a preliminary report of
results for the periods included. The reader should refer to
the Company's most recent reports on Form 10-Q and on Form 10-K for
definitive information. |
|
|
|
(2) |
The following are non-GAAP (Generally Accepted
Accounting Principles) financial measures for which reconciliations
to relevant GAAP measures are included in tables accompanying this
release: |
|
|
|
|
• |
Adjusted EBITDA is a non-GAAP financial performance
measure that enhances financial statement users overall
understanding of the operating performance of the Company. The
measure isolates unusual, infrequent or non-cash transactions from
the operating performance of the business. This allows users to
easily compare operating performance among various fiscal periods
and how management measures the performance of the business. This
measure also provides users with a benchmark that can be used when
forecasting future operating performance of the Company that
excludes unusual, nonrecurring or one time transactions. Adjusted
EBITDA is also a component of the calculation used by stockholders
and analysts to determine the value of our business when using the
market approach, which applies a market multiple to financial
metrics. It is also a measure used to calculate the leverage ratio
of the Company, which is a key financial ratio monitored and used
by the Company and its investors. Adjusted EBITDA is defined as net
income (loss), plus nonoperating expenses, income tax expense
(benefit), depreciation and amortization, assets loss (gain) on
sales, impairments and other, restructuring costs and other, stock
compensation and our 50% share of EBITDA from TNI and MNI, minus
equity in earnings of TNI and MNI and curtailment gains. |
|
|
|
|
• |
Adjusted Income (Loss) and Adjusted Earnings (Loss) Per
Common Share are non-GAAP financial performance measures that we
believe offer a useful metric to evaluate overall performance of
the Company by providing financial statement users the operating
performance of the Company on a per share basis excluding the
impact of changes in the valuation of Warrants as well as unusual
and infrequent transactions. It is defined as income (loss)
attributable to Lee Enterprises, Incorporated and earnings (loss)
per common share adjusted to exclude the impact of the valuation of
Warrants and the impact of the 2017 Tax Act. |
|
|
|
|
• |
Cash Costs represent a non-GAAP financial performance
measure of operating expenses which are measured on an accrual
basis and settled in cash. This measure is useful to investors in
understanding the components of the Company’s cash-settled
operating costs. Generally, the Company provides forward-looking
guidance of Cash Costs, which can be used by financial statement
users to assess the Company's ability to manage and control its
operating cost structure. Cash Costs are defined as compensation,
newsprint and ink and other operating expenses. Depreciation and
amortization, assets loss (gain) on sales, impairments and other,
other non-cash operating expenses and other expenses are excluded.
Cash Costs also exclude restructuring costs and other, which are
typically paid in cash. |
|
|
|
(3) |
The 1st Lien Term Loan is the $250 million first lien
term loan and $27 million revolving facility (Revolving Facility)
under a First Lien Credit Agreement dated as of March 31, 2014, as
amended. The Notes are the $400 million senior secured notes
pursuant to an indenture dated March 31, 2014. The 2nd Lien Term
Loan is the $150 million second lien term loan under the Second
Lien Loan Agreement dated as of March 31, 2014. TNI refers to TNI
Partners publishing operations in Tucson, AZ. MNI refers to Madison
Newspapers, Inc. publishing operations in Madison, WI. |
|
|
|
(4) |
Certain amounts as previously reported have been
reclassified to conform with the current period presentation. The
prior periods have been adjusted for comparative purposes, and the
reclassifications have no impact on earnings. |
|
|
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