Lee Enterprises, Incorporated (NYSE: LEE), a leading provider of
high quality, trusted, local news, information and a major platform
for advertising in 50 markets, today reported second quarter and
year to date financial results for the period ended March 31,
2019.
"The total revenue trend in the second quarter is the best
quarterly trend in nearly four years," said Kevin Mowbray,
President and Chief Executive Officer. "This performance was driven
by significant revenue growth at TownNews, incremental management
agreement revenue and strong digital performance across our legacy
businesses.
On a stand-alone basis, revenue at TownNews increased 24.3% due
to increased market share, including an increase in broadcast
customers as well as gains in video revenue from 2018 technology
acquisitions. Revenue at TownNews over the last twelve months
totaled $20.9 million, an increase of 20.9% over the prior year,"
Mowbray added.
"We earned $3.9 million of revenue in the quarter from the
management agreement with BH Media Group, and since its inception
in July 2018 we have earned $7.8 million in revenue. Due to strong
financial performance, we expect to earn more than $10 million in
the first year of the agreement, exceeding initial expectations,"
said Mowbray.
Mowbray also noted the following financial highlights for the
quarter:
- Total revenue(1) decreased 4.0% for the quarter, the best
quarterly trend performance in nearly four years.
- Digital advertising revenue increased 5.3% for the quarter and
represented 38.2% of total advertising revenue.
- Digital retail advertising, which represented 61.8% of total
digital advertising in the March quarter, grew 4.9%, driven by an
increase in advertising from local retailers.
- Monthly visits to Lee mobile, tablet, desktop and app sites
averaged 76.9 million, and page views per visit, one metric we use
to monitor engagement, increased 14.3%.
- Subscription revenue decreased 1.9% in the quarter, a 220 bps
improvement from the first quarter trend. Digital only subscribers
increased 55.5%.
- We recognized a net loss of $2.3 million, including $2.8
million of non-cash expense related to the change in fair value of
our warrants.
"Operating expenses were down 0.9% in the March quarter with
cash costs(2) down 2.6%," said Vice President and Chief Financial
Officer, Tim Millage. "However, we expect cash costs on a
same property basis to be down 4.0 - 5.0% in fiscal year 2019,"
said Millage.
"Adjusted EBITDA(2) was $23.6 million in the quarter, and
totaled $125.9 million over the last 12 months," Millage said.
SECOND QUARTER OPERATING RESULTS
Operating revenue for the 13 weeks ended March 31, 2019
totaled $122.7 million, a decrease of 4.0% compared with a year
ago.
Advertising and marketing services revenue decreased 12.0% to
$62.9 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 5.3%
to $24.1 million and represented 38.2% of total advertising
revenue.
Subscription revenue decreased 1.9% in the current year quarter.
Strategic pricing programs and premium content helped offset lower
paid circulation units. Average daily newspaper circulation,
including TNI and MNI(3) and digital subscribers, totaled 0.7
million in the current quarter. Sunday circulation totaled 1.0
million. Price increases partially offset lower print circulation
volumes. Digital only subscribers increased 55.5% in the
quarter.
Other revenue, which consists of digital services revenue,
management agreement revenues, commercial printing revenues and
revenue from delivery of third party products, increased 42.9% in
the current year quarter. The increase was partially due to 30.3%
revenue growth at TownNews and $3.9 million of management agreement
revenue.
Total digital revenue, including digital advertising and digital
services, was $28.8 million for the quarter, up 8.0% compared with
a year ago. Mobile, tablet, desktop and app site page views,
including TNI and MNI, were 298.2 million in the current quarter,
an increase of 13.5% over the prior year.
Operating expenses for the 13 weeks ended March 31, 2019
decreased 0.9%. Cash costs decreased 2.6% compared to the prior
year quarter. Compensation decreased 3.2%, primarily as a result of
a reduction in staffing levels partially offset by unfavorable
claims experience from our self insured medical plan. Newsprint and
ink expense increased 3.3% due to higher prices partially offset by
lower volumes from unit declines. Other operating expenses
decreased 2.6% primarily driven by lower legacy print 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 $2.8 million and $1.8
million in the 2019 quarter and 2018 quarter, respectively, and
includes $0.5 million of a partial withdrawal liability recognized
in the 2019 quarter related to one of our multiemployer pension
plans.
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 $12.6 million in the current year quarter, compared
with $16.6 million a year ago.
In the 13 weeks ended March 31, 2019, interest expense
decreased 8.5%, or $1.1 million, due to lower debt balances. The
Company recognized non-operating expense of $2.8 million in the
current year quarter compared to a non-operating income $0.6
million in the same quarter of the prior year due to a change in
fair value of stock warrants. The Company recognized $1.0 million
of debt refinancing and administrative costs in the current quarter
and $1.2 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.
Loss attributable to Lee Enterprises, Incorporated for the
quarter totaled $2.7 million, compared with income of $2.2 million
a year ago. Adjusted EBITDA for the quarter was $23.6 million.
ADJUSTED EARNINGS AND EPS FOR THE QUARTER(2)
The following table summarizes the impact from warrant fair
value adjustments 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 |
|
March 31 2019 |
|
March 25 2018 |
(Thousands of Dollars, Except Per Share Data) |
Amount |
|
Per Share |
|
Amount |
|
Per Share |
|
|
|
|
Income (loss) attributable to Lee
Enterprises, Incorporated, as reported |
(2,678) |
|
(0.05) |
|
2,239 |
|
0.04 |
Adjustments: |
|
|
|
|
|
|
|
Warrants fair value adjustment |
2,753 |
|
0.05 |
|
(555) |
|
(0.01) |
Income
attributable to Lee Enterprises, Incorporated, as adjusted |
75 |
|
— |
|
1,684 |
|
0.03 |
|
|
|
|
|
|
|
|
YEAR TO DATE OPERATING RESULTS(4)
Operating revenue for 26 weeks ended March 31, 2019 totaled
$258.9 million, a decrease of 4.7% compared with the 26 weeks ended
March 25, 2018.
Advertising and marketing services revenue decreased 11.1% to
$138.9 million. Partially offsetting print declines, digital
advertising and marketing services revenue increased 6.7% to $49.6
million. Digital advertising represented 35.7% of total
advertising.
Subscription revenue decreased 3.1% in the 26 weeks ended March
31, 2019 compared to the 26 weeks ended March 25, 2018.
Other revenue, which consists of digital services, management
agreement revenues, commercial printing and revenue from delivery
of third party products, increased 35.6% in the current year. The
increase was partially due to 28.0% revenue growth at TownNews and
$6.5 million in management agreement revenue.
Total digital revenue, including digital advertising and digital
services, was $59.0 million in 2019, up 9.4% compared to a year
ago. On a standalone basis, revenue at TownNews totaled $10.8
million for the 26 weeks ended March 31, 2019, a 22.1% increase
over the prior year.
Operating expenses for 2019 decreased 2.9%. Cash costs decreased
3.5% compared to the prior year. Compensation decreased 6.1%,
primarily as a result of a decrease in the average number of
full-time equivalent employees of 11.4%. Newsprint and ink expense
increased 6.0%, due to higher prices partially offset by volume
declines. Other operating expenses decreased 1.9%.
Including equity in earnings of associated companies,
depreciation and amortization, assets loss (gain) on sales,
impairments and other, as well as restructuring costs and other in
both years, operating income was $40.3 million in 2019, compared
with $46.4 million a year ago.
In the 26 weeks ended March 31, 2019, interest expense
decreased 9.4%, or $2.5 million, due to lower debt balances, and we
recognized non-operating expense of $2.7 million in the 26 weeks
ended March 31, 2019 compared to $0.1 million of non-operating
income for the change in fair value of stock warrants in the prior
year to date period. In the current fiscal year, $1.9 million
of debt financing and administrative costs were expensed compared
to $2.3 million in the same period a year ago. Debt financing and
administrative costs are mainly amortization of costs paid as part
of our refinancing in 2014.
Income attributable to Lee Enterprises, Incorporated for the
year totaled $7.7 million, compared to income of $37.2 million a
year ago.
Adjusted EBITDA for the 26 weeks ended March 31, 2019 was
$59.7 million, compared to $65.7 million for the 26 weeks ended
March 25, 2018.
ADJUSTED EARNINGS AND EPS FOR THE YEAR TO DATE
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.
|
|
|
|
|
|
|
26 Weeks Ended |
|
March 31 2019 |
|
March 25 2018 |
(Thousands of Dollars, Except Per Share Data) |
Amount |
|
Per Share |
|
Amount |
|
Per Share |
|
|
|
|
Income attributable to Lee
Enterprises, Incorporated, as reported |
7,683 |
|
0.14 |
|
37,242 |
|
0.67 |
Adjustments: |
|
|
|
|
|
|
|
Warrants fair value adjustment |
2,672 |
|
0.05 |
|
(124) |
|
— |
Income tax effect of 2017 Tax Act |
— |
|
— |
|
(24,872) |
|
(0.45) |
Income
attributable to Lee Enterprises, Incorporated, as adjusted |
10,355 |
|
0.18 |
|
12,246 |
|
0.22 |
|
|
|
|
|
|
|
|
DEBT AND FREE CASH FLOW
As of March 31, 2019, the principal amount of debt was
$476.5 million. The principal amount of our debt, net of cash, is
3.65 times our adjusted EBITDA for the past 12 months ended
March 31, 2019.
At March 31, 2019, including $16.7 million in cash and
availability under our revolving facility(3), liquidity totaled
$38.1 million. Excluding future 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)
888-205-6786 and entering a conference passcode of 417342 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 50 markets in 20 states. Year to
date, Lee's newspapers have average circulation of 0.7 million
daily and 1.0 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;
- Significant cyber security breaches or failure of our
information technology systems;
- 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 |
26 Weeks Ended |
(Thousands of Dollars, Except Per Share Data) |
Mar 31 2019 |
March 25 2018 |
Percent Change |
Mar 31 2019 |
March 25 2018 |
Percent Change |
|
|
|
|
|
|
|
Advertising and
marketing services |
62,934 |
71,553 |
(12.0) |
138,897 |
156,213 |
(11.1) |
Subscription |
45,076 |
45,972 |
(1.9) |
91,345 |
94,241 |
(3.1) |
Other |
14,694 |
10,280 |
42.9 |
28,663 |
21,136 |
35.6 |
Total
operating revenue |
122,704 |
127,805 |
(4.0) |
258,905 |
271,590 |
(4.7) |
Operating
expenses: |
|
|
|
|
|
|
Compensation |
47,785 |
49,363 |
(3.2) |
94,824 |
100,980 |
(6.1) |
Newsprint and ink |
5,825 |
5,640 |
3.3 |
12,164 |
11,478 |
6.0 |
Other operating expenses |
48,016 |
49,315 |
(2.6) |
97,758 |
99,671 |
(1.9) |
Cash costs |
101,626 |
104,318 |
(2.6) |
204,746 |
212,129 |
(3.5) |
Total operating revenue less cash costs |
21,078 |
23,487 |
(10.3) |
54,159 |
59,461 |
(8.9) |
Depreciation and amortization |
7,386 |
8,016 |
(7.9) |
14,916 |
16,068 |
(7.2) |
Assets loss (gain) on sales, impairments and other |
83 |
(1,300) |
NM |
(17) |
(1,297) |
NM |
Restructuring costs and other |
2,759 |
1,816 |
51.9 |
2,820 |
2,284 |
23.5 |
Operating expenses |
111,854 |
112,850 |
(0.9) |
222,465 |
229,184 |
(2.9) |
Equity in earnings
of associated companies |
1,717 |
1,608 |
6.8 |
3,846 |
3,991 |
(3.6) |
Operating income |
12,567 |
16,563 |
(24.1) |
40,286 |
46,397 |
(13.2) |
Non-operating
income (expense): |
|
|
|
|
|
|
Interest expense |
(12,140) |
(13,274) |
(8.5) |
(24,397) |
(26,924) |
(9.4) |
Debt financing and administrative costs |
(962) |
(1,217) |
(21.0) |
(1,858) |
(2,313) |
(19.7) |
Other, net |
(1,636) |
1,388 |
NM |
(969) |
1,937 |
NM |
Non-operating expenses, net |
(14,738) |
(13,103) |
12.5 |
(27,224) |
(27,300) |
(0.3) |
Income (loss)
before income taxes |
(2,171) |
3,460 |
NM |
13,062 |
19,097 |
(31.6) |
Income tax expense
(benefit) |
156 |
927 |
(83.2) |
4,670 |
(18,763) |
NM |
Net income
(loss) |
(2,327) |
2,533 |
NM |
8,392 |
37,860 |
(77.8) |
Net
income attributable to non-controlling interests |
(351) |
(294) |
19.4 |
(709) |
(618) |
14.7 |
Income
(loss) attributable to Lee Enterprises, Incorporated |
(2,678) |
2,239 |
NM |
7,683 |
37,242 |
(79.4) |
|
|
|
|
|
|
|
Earnings (loss)
per common share: |
|
|
|
|
Basic |
(0.05) |
0.04 |
NM |
0.14 |
0.68 |
(79.4) |
Diluted |
(0.05) |
0.04 |
NM |
0.14 |
0.67 |
(79.1) |
|
|
|
|
|
|
|
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 |
26 Weeks Ended |
53 Weeks Ended |
(Thousands of Dollars) |
March 31 2019 |
March 25 2018 |
March 31 2019 |
March 25 2018 |
March 31 2019 |
|
|
|
|
|
|
Net Income (loss) |
(2,327) |
2,533 |
8,392 |
37,860 |
17,579 |
Adjusted to exclude |
|
|
|
|
|
Income tax expense (benefit) |
156 |
927 |
4,670 |
(18,763) |
7,205 |
Non-operating expenses, net |
14,738 |
13,103 |
27,224 |
27,300 |
54,797 |
Equity in earnings of TNI and MNI |
(1,717) |
(1,608) |
(3,846) |
(3,991) |
(9,104 |
Loss (gain) on sale of assets and other, net |
83 |
(1,300) |
(17) |
(1,297) |
7,709 |
Depreciation and amortization |
7,386 |
8,016 |
14,916 |
16,068 |
30,614 |
Restructuring costs and other |
2,759 |
1,816 |
2,820 |
2,284 |
6,086 |
Stock compensation |
426 |
497 |
888 |
1,016 |
1,731 |
Add: |
|
|
|
|
|
Ownership share of TNI and MNI EBITDA (50%) |
2,080 |
2,086 |
4,681 |
5,245 |
9,320 |
Adjusted EBITDA |
23,584 |
26,070 |
59,728 |
65,722 |
125,937 |
|
|
|
|
|
|
SELECTED BALANCE SHEET INFORMATION
|
|
|
|
(Thousands of Dollars) |
|
March 31 2019 |
September 30 2018 |
Cash |
|
16,665 |
5,380 |
Debt (Principal Amount): |
|
|
|
1st Lien Term Loan |
|
— |
6,303 |
Notes |
|
385,000 |
385,000 |
2nd Lien Term Loan |
|
91,455 |
93,556 |
|
|
476,455 |
484,859 |
|
|
|
|
SELECTED STATISTICAL INFORMATION
|
|
|
|
|
13 Weeks Ended |
|
26 Weeks Ended |
|
Mar 31 2019 |
Mar 25 2018 |
|
Mar 31 2019 |
Mar 25 2018 |
|
|
|
|
|
|
Capital expenditures
(Thousands of Dollars) |
1,457 |
1,350 |
|
2,459 |
2,452 |
Average common shares - basic
(Thousands of Shares) |
55,608 |
54,692 |
|
55,404 |
54,508 |
Average common shares -
diluted (Thousands of Shares) |
55,608 |
55,861 |
|
56,691 |
55,817 |
Shares
outstanding at end of period (Thousands of Shares) |
|
|
|
57,730 |
57,046 |
|
|
|
|
|
|
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. A table reconciling adjusted
EBITDA to net income, the most directly comparable measure under
GAAP, is set forth above under the caption "Reconciliation of
Non-GAAP Financial Measures". |
|
• |
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 warrant
valuation 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 warrant valuation and the impact of the
2017 Tax Act. Reconciliations of adjusted income (loss) and
adjusted earnings (loss) per diluted common share to income (loss)
attributable to Lee Enterprises, Incorporated and earnings (loss)
per diluted common share, respectively, the most directly
comparable measures under GAAP, are set forth above under the
caption “Adjusted Earnings and EPS for the Year to Date”. |
|
• |
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. Occasionally, 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.
The subtotals of operating expenses representing cash costs are set
forth above under the caption “Consolidated Statements of
Operations”. |
|
• |
Total Operating
Revenue Less Cash Costs, or “margin”, represents a non-GAAP
financial performance measure of revenue less total cash costs,
also a non-GAAP financial measure. This measure is useful to
investors in understanding the profitability of the Company after
direct cash costs related to the production and delivery of
products are paid. Margin is also useful in developing opinions and
expectations about the Company’s ability to manage and control its
operating cost structure in relation to its peers. The
reconciliation of total revenue less cash costs to operating income
is set forth above under the caption “Consolidated Statements of
Operations”. |
|
|
|
|
|
|
|
|
(3) |
|
The 1st Lien Term
Loan is the $250 million first lien term loan and $40 million
revolving facility (Revolving Facility) under a First Lien Credit
Agreement dated as of March 31, 2014. 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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