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 first quarter fiscal
2020 financial results(1) for the period ended December 29,
2019.
First quarter highlights:(2)
- Total digital revenue was
$37.2 million, representing 30.4% of operating
revenue. Digital advertising revenue increased 5.1%, after
adjusting for non-recurring political revenue in the prior year
quarter, and represented 39.5% of total advertising
revenue.
- Revenue at TownNews increased 17.8% from the prior year
quarter.
- Due to timing of strategic pricing actions and print unit
declines, subscription revenue was off trend, reflecting the
challenging conditions in print. However, digital-only subscribers,
which totaled 57,000 in the prior year quarter, increased 84.8% and
now total 105,000.
- Total revenues were $122.3 million in the
first quarter, compared to $136.2 million in the prior
year quarter. On a same property basis revenues were
$119.1 million in the first quarter, compared to
$136.2 million in the prior year quarter.
- Revenue from the management agreement with BH Media Group
totaled $4.0 million, a 53.0% increase from the
prior year quarter, largely reflecting continued implementation of
operational growth initiatives.
- Cash costs(3) on a same property basis were down 9.3% in
the quarter, the result of significant cost actions taken during
the quarter.
- Net income totaled $5.7 million and Adjusted EBITDA(3)
totaled $28.1 million.
"We made continued progress on our digital transformation in the
first quarter, despite difficult comparisons to strong digital
advertising results in the same quarter last fiscal year and
continued weakness in print subscriptions,” said Kevin Mowbray,
President and Chief Executive Officer. “We are pleased with the
ongoing growth of digital-only subscribers, the performance of our
management agreement with BH Media Group, and substantial revenue
growth at TownNews. While our total subscription results have been
better than industry peers over a sustained period, and remained
relatively flat at a negative 1 percent CAGR over the past four
years, we had a challenging quarter due to lower print units and
timing of strategic pricing actions. We remain committed to driving
audience growth and engagement by delivering valuable, local,
original news and information to consumers in our markets."
Mowbray continued, "Most importantly, we are excited about the
transformational transaction we announced with Berkshire Hathaway
last week, which will significantly broaden our scale and unlock
$20-25 million of anticipated annual revenue and cost synergies as
we benefit from the full integration of publications that we
already know well, having managed all but one since 2018."
Tim Millage, Vice President, Chief Financial Officer and
Treasurer, said, “As we focus on driving top-line growth across our
publications, we remain vigilant on costs. Operating expenses were
down 4.5% in the first quarter and cash costs were down
6.5% on a reported basis and down 9.3% on a same
property basis, reflecting our ongoing focus on operational
efficiency. As we announced last week, the transaction with
Berkshire Hathaway will enable us to generate significant synergies
across our platform, while refinancing all of our existing debt on
attractive terms with a single long-term lender, reducing our
leverage ratio and generating $5 million in annual interest rating
savings on more than $400 million of refinanced debt.”
FIRST QUARTER OPERATING RESULTS(2)
Operating revenue for the 13 weeks ended December 29,
2019 totaled $122.3 million, compared to
$136.2 million in the prior year quarter. On a same property
basis, revenue decreased 12.5% in the quarter.
Advertising and marketing services revenue decreased 11.1%, when
adjusted for non-recurring political revenue in the prior year. In
addition to a strong prior year quarter, the decrease in
advertising and marketing services revenue is due to continued
softness in print advertising demand resulting in reduced
advertising volume primarily from large retail, big box stores and
classifieds. Digital advertising and marketing services revenue
increased 1.8% to $25.9 million and represented
39.5% of total advertising revenue. Year-over-year comparisons
were affected by strong digital advertising sales in the year-ago
period related to state political campaigns.
Subscription revenue decreased 9.9% due to
lower paid circulation units; consistent with industry trends,
partially offset by growth in digital only subscribers and digital
only rates. Average daily newspaper circulation, including TNI and
MNI(4) and digital subscribers, totaled 0.7 million in the
current quarter. Sunday circulation totaled 1.0 million.
Digital only subscribers increased 84.8% from the prior year
quarter and totaled 105,000 at the end of the quarter.
Other revenue, which primarily consists of digital services
revenue, management agreement revenue, commercial printing
revenue and revenue from delivery of third party products,
increased 6.8% in the current year quarter. The increase was
partially due to 17.8% growth at TownNews and
$4.0 million of management agreement revenue in the
current quarter compared to $2.6 million in the prior year
quarter.
Total digital revenue, including digital advertising, digital
subscriptions and digital services, was $37.2 million for
the quarter and represented 30.4% of our total operating
revenue.
Operating expenses for the 13 weeks ended December 29,
2019 decreased 4.5%. Cash costs3 decreased 9.3% on a same
property basis.
Compensation decreased 8.1%. Newsprint and ink expense decreased
25.3% due to lower prices and lower volumes from print 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 totaled $1.6 million and
$0.1 million in the 2020 Quarter and 2019 Quarter,
respectively.
Including equity in earnings of associated companies,
depreciation and amortization, assets loss (gain) on sales,
impairments and other, operating income totaled $18.3 million
in the current year quarter, compared with $27.7 million a
year ago.
Interest expense decreased 9.3%, or $1.1 million, in the
current quarter due to lower debt balances. The Company recognized
non-operating income of $1.0 million in the current year
quarter compared to $0.1 million in the same quarter of
the prior year due to a change in fair value of stock warrants. The
Company recognized $1.2 million of debt refinancing and
administrative costs in the current quarter and $0.9 million
in the same quarter of the prior year. The vast majority of the
debt financing and administrative costs represent amortization of
refinancing costs paid in 2014.
Income attributable to Lee Enterprises, Incorporated for
the quarter totaled $5.3 million, compared with income of
$10.4 million a year ago. Adjusted EBITDA(3) for the quarter
was $28.1 million.
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|
|
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|
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13 Weeks Ended |
|
|
|
December 29 |
|
|
December 30, |
|
|
|
2019 |
|
|
2018 |
|
(Thousands of Dollars, Except Per Share Data) |
|
Amount |
|
|
Per Share |
|
|
Amount |
|
|
Per Share |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to Lee
Enterprises, Incorporated, as reported |
|
|
5,320 |
|
|
0.09 |
|
|
10,361 |
|
|
0.18 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants fair value adjustment |
|
|
(1,017 |
) |
|
(0.02 |
) |
|
(80 |
) |
|
— |
|
Income
attributable to Lee Enterprises, Incorporated, as adjusted |
|
|
4,303 |
|
|
0.07 |
|
|
10,281 |
|
|
0.18 |
|
DEBT AND FREE CASH FLOW
As of December 29, 2019, the principal amount of debt was
$433.4 million. Debt was reduced $10.2 million in the
quarter. The principal amount of our debt, net of cash, is
3.8 times our adjusted EBITDA for the past 12 months ended
December 29, 2019. At December 29, 2019, including
$4.5 million in cash and availability under our revolving
facility(4), liquidity totaled $22.1 million. Excluding future
excess cash flow payments, there are no required debt principal
payments over the next twelve months.
As announced on January 29, 2020, Lee has entered into a
definitive agreement under which Berkshire Hathaway will provide
approximately $576 million in long-term financing to Lee to fund
the acquisition of 31 Berkshire Hathaway newspaper assets,
refinance all of Lee's existing debt, and provide enough cash on
Lee's balance sheet to allow for the termination of Lee's revolving
credit facility. Subsequent to the deal closing, which is expected
in mid-March, Berkshire Hathaway will be Lee's sole lender.
The financing from Berkshire Hathaway will have an interest rate
of 9% annually with a 25-year maturity and no performance
covenants. The refinancing requires no fees and will result in
approximately $5 million of annual interest rate savings relative
to Lee's existing debt that is being refinanced.The transaction is
valued at 3.3x adjusted EBITDA before anticipated synergies,
reducing leverage at closing.
Having held an investor call on January 29, 2020 in connection
with the Berkshire Hathaway transaction, Lee will not hold a
separate investor conference call today, but invites investor with
questions to reach out to Vice President, Chief Financial Officer
and Treasurer Tim Millage. A replay of the January 29, 2020
investor call is accessible at www.lee.net.
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
almost 200 weekly and specialty publications serving 49
markets in 19 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:
- On January 29, 2020, the Company entered into an Asset and
Stock Purchase Agreement (“Purchase Agreement”) with Berkshire
Hathaway Inc. (“Berkshire”) and BH Media Group, Inc. (“BH Media"
and “BHMG”). Under the Purchase Agreement, the Company has agreed
to purchase certain assets and assume certain liabilities of BH
Media’s newspapers and publications business (“BH Media Newspaper
Business”), excluding real estate and production equipment, and
purchase all of the issued and outstanding capital stock of The
Buffalo News, Inc. (“Buffalo News”, collectively, the
“Transactions”). Factors that could cause actual results to differ
materially from these forward-looking statements include, but are
not limited to, the possibility that the Transactions will not be
pursued; failure to obtain necessary regulatory approvals or to
satisfy any of the other conditions to the proposed Transactions;
adverse effects on the market price of the Company’s common stock
or the Company’s operating results because of a failure to complete
the proposed Transactions; failure to realize the expected benefits
of the proposed Transactions; failure to promptly and effectively
integrate the newspaper operations of Berkshire Hathaway; negative
effects relating to the announcement of the proposed Transactions
or any further announcements relating to the proposed Transactions;
significant transaction costs, unknown or inestimable liabilities
and lack of indemnification from Berkshire other than environmental
liabilities on real estate at BHMG; potential litigation associated
with the proposed Transactions; general economic and business
conditions that affect the combined company following the
consummation of the proposed Transactions; and the retention of
certain key employees.
- 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 2014 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 |
|
|
|
December 29, |
|
|
December 30, |
|
|
Percent |
|
(Thousands of Dollars, Except Per Share Data) |
|
2019 |
|
|
2018 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing
services |
|
|
65,727 |
|
|
|
75,962 |
|
|
|
(13.5 |
) |
Subscription |
|
|
41,694 |
|
|
|
46,268 |
|
|
|
(9.9 |
) |
Other |
|
|
14,922 |
|
|
|
13,971 |
|
|
|
6.8 |
|
Total
operating revenue |
|
|
122,343 |
|
|
|
136,201 |
|
|
|
(10.2 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
43,243 |
|
|
|
47,038 |
|
|
|
(8.1 |
) |
Newsprint and ink |
|
|
4,736 |
|
|
|
6,339 |
|
|
|
(25.3 |
) |
Other operating expenses |
|
|
48,462 |
|
|
|
49,743 |
|
|
|
(2.6 |
) |
Cash costs |
|
|
96,441 |
|
|
|
103,120 |
|
|
|
(6.5 |
) |
Total
operating revenue less cash costs |
|
|
25,902 |
|
|
|
33,081 |
|
|
|
(21.7 |
) |
Depreciation and
amortization |
|
|
6,719 |
|
|
|
7,529 |
|
|
|
(10.8 |
) |
Assets loss (gain) on sales,
impairments and other, net |
|
|
814 |
|
|
|
(100 |
) |
|
|
NM |
|
Restructuring costs and other |
|
|
1,632 |
|
|
|
62 |
|
|
|
NM |
|
Operating expenses |
|
|
105,606 |
|
|
|
110,611 |
|
|
|
(4.5 |
) |
Equity
in earnings of associated companies |
|
|
1,569 |
|
|
|
2,129 |
|
|
|
(26.3 |
) |
Operating income |
|
|
18,306 |
|
|
|
27,719 |
|
|
|
(34.0 |
) |
Non-operating income
(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(11,115 |
) |
|
|
(12,256 |
) |
|
|
(9.3 |
) |
Debt financing and
administrative costs |
|
|
(1,196 |
) |
|
|
(896 |
) |
|
|
33.5 |
|
Other,
net |
|
|
1,593 |
|
|
|
665 |
|
|
|
NM |
|
Non-operating expenses, net |
|
|
(10,718 |
) |
|
|
(12,487 |
) |
|
|
(14.2 |
) |
Income before income
taxes |
|
|
7,588 |
|
|
|
15,232 |
|
|
|
(50.2 |
) |
Income
tax expense |
|
|
1,871 |
|
|
|
4,513 |
|
|
|
(58.5 |
) |
Net income |
|
|
5,717 |
|
|
|
10,719 |
|
|
|
(46.7 |
) |
Net
income attributable to non-controlling interests |
|
|
(397 |
) |
|
|
(358 |
) |
|
|
10.9 |
|
Income
attributable to Lee Enterprises, Incorporated |
|
|
5,320 |
|
|
|
10,361 |
|
|
|
(48.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.09 |
|
|
|
0.19 |
|
|
|
(49.2 |
) |
Diluted |
|
|
0.09 |
|
|
|
0.18 |
|
|
|
(48.8 |
) |
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 WeeksEnded |
|
|
52 WeeksEnded |
|
(Thousands of Dollars) |
|
December 29, |
|
|
December 30, |
|
|
December 29, |
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
5,717 |
|
|
|
10,719 |
|
|
|
10,907 |
|
Adjusted to exclude |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
1,871 |
|
|
|
4,513 |
|
|
|
5,289 |
|
Non-operating expenses, net |
|
|
10,718 |
|
|
|
12,487 |
|
|
|
49,120 |
|
Equity in earnings of TNI and MNI |
|
|
(1,569 |
) |
|
|
(2,129 |
) |
|
|
(6,561 |
) |
Loss (gain) on sale of assets and other, net |
|
|
814 |
|
|
|
(100 |
) |
|
|
3,378 |
|
Depreciation and amortization |
|
|
6,719 |
|
|
|
7,529 |
|
|
|
28,522 |
|
Restructuring costs and other |
|
|
1,632 |
|
|
|
62 |
|
|
|
13,205 |
|
Stock compensation |
|
|
302 |
|
|
|
463 |
|
|
|
1,477 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
Ownership share of TNI and MNI EBITDA (50%) |
|
|
1,918 |
|
|
|
2,601 |
|
|
|
8,128 |
|
Adjusted EBITDA |
|
|
28,122 |
|
|
|
36,145 |
|
|
|
113,465 |
|
SELECTED BALANCE SHEET INFORMATION
|
|
December 29, |
|
|
September 29, |
|
(Thousands of Dollars) |
|
2019 |
|
|
2019 |
|
Cash |
|
4,468 |
|
|
8,645 |
|
Debt (Principal Amount): |
|
|
|
|
|
|
Notes |
|
356,141 |
|
|
363,420 |
|
2nd Lien Term Loan |
|
77,253 |
|
|
80,207 |
|
|
|
433,394 |
|
|
443,627 |
|
SELECTED STATISTICAL INFORMATION
|
|
13 Weeks Ended |
|
|
|
December 29, |
|
|
December 30, |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Capital expenditures
(Thousands of Dollars) |
|
2,458 |
|
|
1,002 |
|
Average common shares - basic
(Thousands of Shares) |
|
56,270 |
|
|
55,204 |
|
Average
common shares - diluted (Thousands of Shares) |
|
57,053 |
|
|
56,701 |
|
Shares outstanding at end of
period (Thousands of Shares) |
|
58,136 |
|
|
57,691 |
|
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) |
|
To facilitate a comparison of our results to prior periods,
certain revenue and expense trends are presented on a same property
basis and exclude the impact of acquisitions of revenues and
expenses in the computation of the trends. |
|
|
|
(3) |
|
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,
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.
|
|
|
- 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.
|
|
|
- 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.
|
(4) |
|
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. |
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