Lee Enterprises, Incorporated (NYSE:LEE), a major provider of
local news, information and advertising in 50 markets, today
reported preliminary(1) earnings of 18 cents per diluted common
share for its first fiscal quarter ended December 28, 2014,
compared with earnings of 22 cents a year ago. Excluding unusual
matters, adjusted earnings per diluted common share(2) totaled 22
cents, compared with earnings of 24 cents a year ago.
Mary Junck, chairman and chief executive officer, said: "We're
off to a strong start in FY2015 with total digital revenue
continuing to grow at an impressive pace — up 25.6% in the quarter.
Our audiences remain massive as mobile, tablet, desktop and app
page views increased 7.7% to 226 million and unique visitors in the
month of December 2014 increased 7.8% to 28 million. Our latest
independent research shows that over the course of one week our
newspapers and digital products reach almost 80% of all adults and
almost three-quarters of adults ages 18-29 in our larger
markets."
"Also of significant note, we continued our now more than six
year run of strong and stable cash flow with unlevered free cash(2)
flow totaling $154.9 million for the last twelve months ended
December 28, 2014. And we aim to keep the string going."
She added: "Lee's full-access subscription model helped produce
quarter-over-quarter subscription revenue growth, exceeding
previously announced guidance. And through our business
transformation efforts we exceeded our cash cost reduction goal for
the quarter."
She also noted the following financial highlights for the
quarter:
- Total digital revenue increased 25.6%
from the same quarter a year ago, our fifth consecutive quarter of
double digit growth;
- Digital advertising and marketing
services revenue increased 7.1% and mobile advertising revenue,
which is included in digital advertising, increased 32.4%;
- Subscription revenue, excluding the
subscription-related expense reclassification discussed more fully
below, increased 0.3% and we expect full year 2015 subscription
revenue, excluding the subscription-related expense
reclassification, to increase 2.5%-3.0%;
- Total cash costs(2), excluding the
subscription-related expense reclassification, decreased 2.1%. Our
ongoing cost control will continue and we anticipate full year cash
costs, excluding the subscription-related expense reclassification,
to decrease 0.5%-1.0% in 2015; and
- Debt was reduced $20.3 million in the
quarter and another $12.3 million since then.
FIRST QUARTER OPERATING RESULTS
Operating revenue for the 13 weeks ended December 28, 2014
totaled $176.2 million, a decrease of 0.7% compared with a year
ago. Excluding the impact of a subscription-related expense
reclassification as a result of moving to fee-for-service delivery
contracts at several of our newspapers, operating revenue decreased
3.4%. This reclassification increases both print subscription
revenue and operating expenses, with no impact on operating cash
flow(2) or operating income. Certain delivery expenses were
previously reported as a reduction of revenue. A table later in
this release details the impact of the reclassification on revenue
and cash costs.
Combined print and digital advertising and marketing services
revenue decreased 5.6% to $115.5 million, with retail advertising
down 6.6%, classified down 3.4% and national down 4.9%. Retail
preprint advertising decreased 8.1%. Combined print and digital
classified employment revenue increased 3.0%, while automotive
decreased 9.9%, real estate decreased 7.8% and other classified
decreased 0.9%. Digital advertising and marketing services revenue
on a stand-alone basis increased 7.1% to $19.9 million and now
totals 17.3% of total advertising and marketing services revenue.
Mobile advertising revenue increased 32.4%. Print advertising and
marketing services revenue on a stand-alone basis decreased
7.9%.
Subscription revenue increased 10.9%. Excluding the impact of
the subscription-related expense reclassification, subscription
revenue increased 0.3%. Our average daily newspaper circulation,
including TNI, MNI and digital subscribers, totaled 1.1 million in
the 2015 Quarter. Sunday circulation totaled 1.5 million. Amounts
are not comparable to the prior year period due to changes in
measurements by the Alliance for Audited Media.
Total digital revenue, including advertising, marketing
services, subscriptions and digital businesses, totaled $27.2
million in the quarter, up 25.6%.
Cash costs increased 1.6% for the 13 weeks ended
December 28, 2014. Compensation decreased 0.3%, with the
average number of full-time equivalent employees down 3.5%.
Newsprint and ink expense decreased 16.2%, primarily the result of
a reduction in newsprint volume of 13.3%. Other operating expenses
increased 7.3%. Excluding the impact of the subscription-related
expense reclassification, cash costs decreased 2.1%. We expect our
cash costs, excluding the subscription-related expense
reclassification, to decrease 0.5%-1.0% in 2015.
Operating cash flow decreased 6.8% from a year ago to $46.0
million. Operating cash flow margin(2) decreased to 26.1%, compared
to 27.8% a year ago. Including equity in earnings of associated
companies, depreciation and amortization, as well as unusual
matters in both years, operating income totaled $37.5 million in
the current year quarter, compared with operating income of $40.2
million a year ago. Operating income margin was 21.3% in the
current year quarter, compared with 22.7% a year ago. The
subscription expense reclassification reduced operating cash flow
margin and operating income margin by 0.8% and 0.6%,
respectively.
Non-operating expenses increased 1.3% for the 13 weeks ended
December 28, 2014. Amortization of debt financing costs were
$1.1 million in the current year quarter compared to $0.1 million
in the prior year quarter. We also recognized $1.3 million of
non-operating expense in the current year quarter due to the change
in fair value of stock warrants issued in connection with our
refinancing in 2014. Interest expense decreased 9.8% in the current
year quarter due to lower debt balances and non-cash interest
expense of $1.2 million in the prior year quarter. Income
attributable to Lee Enterprises, Incorporated for the quarter
totaled $9.8 million, compared with income of $11.9 million a year
ago.
ADJUSTED EARNINGS AND EPS FOR THE
QUARTER
The following table summarizes the impact from unusual matters
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 28 December 29 2014
2013
(Thousands of Dollars, Except Per Share
Data)
Amount Per Share Amount
Per Share Income attributable to Lee
Enterprises, Incorporated, as reported 9,753 0.18 11,892 0.22
Adjustments: Debt financing costs 1,102 104 Amortization of debt
present value adjustment —
1,198
Warrants fair value adjustment 1,302 — Other, net (54 )
163 2,350 1,465
Income tax effect of adjustments, net (367 )
(512 ) 1,983
0.04 953 0.02 Income
attributable to Lee Enterprises, Incorporated, as adjusted
11,736 0.22 12,845 0.24
SUBSCRIPTION EXPENSE
RECLASSIFICATION
Certain results, excluding the impact of the
subscription-related expense reclassification, are as follows:
13 Weeks Ended
December 28 December 29 Percent
(Thousands of Dollars)
2014 2013 Change
Subscription revenue, as reported 50,399 45,452 10.9 Adjustment for
subscription-related expense reclassification (4,807 )
—
NM
Subscription revenue, as adjusted 45,592
45,452 0.3 Total operating revenue, as
reported 176,154 177,385 (0.7 ) Adjustment for subscription-related
expense reclassification (4,807 ) — NM
Total operating revenue, as adjusted 171,347
177,385 (3.4 ) Other cash costs, as
reported 59,181 55,157 7.3 Adjustment for subscription-related
expense reclassification (4,807 ) — NM
Other cash costs, as adjusted 54,374
55,157 (1.4 ) Total cash costs, as reported
130,175 128,068 1.6 Adjustment for subscription-related expense
reclassification (4,807 ) — NM
Total cash costs, as adjusted 125,368 128,068
(2.1 )
Approximately $4,444,000, or 92.4% of the reclassification
impacts revenue and cash costs of our Lee Legacy operations, and
approximately $363,000, or 7.6% impacts Pulitzer.
FULL ACCESS SUBSCRIPTION
INITIATIVE
As previously reported, we launched our full access subscription
initiative in April 2014. As of today, 30 markets have been
launched and we are on track to launch all of our markets before
June 2015. More than 200,000 subscribers have activated their
access to our digital content to date. As previously reported, due
to the timing of the rollout and subscriber renewal dates, the bulk
of the positive revenue from this initiative should be realized in
2015 and we expect 2015 subscriber revenue, excluding the
subscription-related expense reclassification, to increase
2.5-3.0%.
DEBT AND FREE CASH FLOW(2)
Debt was reduced $20.3 million in the quarter and by an
additional $12.3 million since then. Including $32.0 million
borrowed to pay 2014 refinancing costs that has since been repaid,
debt has been reduced $80.5 million in the last twelve months ended
December 2014.
Unlevered free cash flow totaled $45.8 million in the current
year quarter compared to $50.1 million in the same quarter a year
ago and $154.9 million over the last twelve months. Liquidity at
December 28, 2014 totaled $48.5 million compared to $28.2 million
of 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 later today at 9:00 a.m. Central Standard
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) 888-510-1767 and
entering a conference passcode of 108037 at least five minutes
before the scheduled start. Please note that this is a different
number than what was previously communicated. 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, in its markets,
with 46 daily newspapers and a joint interest in four others,
rapidly growing digital products and nearly 300 specialty
publications in 22 states. Lee's newspapers have circulation of 1.1
million daily and 1.5 million Sunday, reaching over three million
readers in print alone. Lee's websites and mobile and tablet
products attracted 27.6 million unique visitors in December 2014.
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;
- 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 demand;
- 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.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
13 Weeks Ended December 28
December 29 Percent
(Thousands of Dollars, Except Per Share
Data)
2014 2013 Change Advertising and
marketing services: Retail 76,814 82,279 (6.6 ) Classified:
Employment 7,425 7,209 3.0 Automotive 7,335 8,140 (9.9 ) Real
estate 4,074 4,419 (7.8 ) All other 10,361 10,453
(0.9 ) Total classified 29,195 30,221 (3.4 ) National 7,151 7,517
(4.9 ) Niche publications and other 2,317 2,374 (2.4
) Total advertising and marketing services revenue 115,477
122,391 (5.6 ) Subscription 50,399 45,452 10.9 Commercial
printing 2,816 3,032 (7.1 ) Digital services and other 7,462
6,510 14.6 Total operating revenue 176,154
177,385 (0.7 ) Operating expenses: Compensation 61,937
62,142 (0.3 ) Newsprint and ink 8,846 10,562 (16.2 ) Other
operating expenses 59,181 55,157 7.3 Workforce adjustments 211
207 1.9 Cash costs 130,175 128,068
1.6 Operating cash flow 45,979 49,317 (6.8 )
Depreciation 4,616 5,131 (10.0 ) Amortization 6,880 6,893 (0.2 )
Loss (gain) on sales of assets, net (257 ) 10 NM Equity in earnings
of associated companies 2,757 2,919 (5.5 ) Operating
income 37,497 40,202 (6.7 )
CONSOLIDATED STATEMENTS OF OPERATIONS,
continued
13 Weeks Ended December 28
December 29 Percent
(Thousands of Dollars and Shares, Except
Per Share Data)
2014 2013 Change
Non-operating income (expense): Financial income 78 120 (35.0 )
Interest expense (18,790 ) (20,827 ) (9.8 ) Debt financing costs
(1,102 ) (104 ) NM Other, net (1,178 ) 94
NM (20,992 ) (20,717 )
1.3 Income before income taxes 16,505 19,485 (15.3 ) Income
tax expense 6,498 7,383 (12.0 )
Net income 10,007 12,102 (17.3 ) Net income attributable to
non-controlling interests (254 ) (210 ) 21.0
Income attributable to Lee Enterprises, Incorporated
9,753 11,892 (18.0 ) Earnings
per common share: Basic 0.19 0.23 (17.4 ) Diluted 0.18
0.22 (18.2 ) Average common
shares: Basic 52,471 52,081 Diluted 53,954
53,259
SELECTED CONSOLIDATED FINANCIAL
INFORMATION
(UNAUDITED)
13 Weeks Ended
52 Weeks Ended December 28 December 29 December 28
(Thousands of Dollars)
2014 2013 2014
Advertising and marketing services 115,477 122,391 435,087
Subscription 50,399 45,452 181,773 Other 10,278 9,542
38,606 Total operating revenue 176,154
177,385 655,466 Compensation 61,937
62,142 242,849 Newsprint and ink 8,846 10,562 36,278 Other
operating expenses 59,181 55,157 223,353 Depreciation and
amortization 11,496 12,024 47,983 Loss (gain) on sales of assets,
net (257 ) 10 (1,605 ) Impairment of goodwill and other assets — —
2,980 Workforce adjustments 211 207
1,271 Total operating expenses 141,414 140,102 553,109
Equity in earnings of TNI and MNI
2,757 2,919 8,135 Operating
income 37,497 40,202 110,492 Adjusted to exclude: Depreciation and
amortization 11,496 12,024 47,983 Loss (gain) on sales of assets,
net (257 ) 10 (1,605 ) Impairment of intangible and other assets —
— 2,980 Equity in earnings of TNI and MNI (2,757 ) (2,919 )
(8,135 ) Operating cash flow 45,979 49,317 151,715 Add:
Ownership share of TNI and MNI EBITDA(2) (50%) 3,756 3,921 11,071
Adjusted to exclude: Stock compensation 443 264
1,660 Adjusted EBITDA(2) 50,178 53,502 164,446
Adjusted to exclude: Ownership share of TNI and MNI EBITDA (50%)
(3,756 ) (3,921 ) (11,071 ) Add (deduct): Distributions from TNI
and MNI 2,944 2,815 10,125 Capital expenditures, net of insurance
proceeds (3,547 ) (2,295 ) (13,076 ) Pension contributions — —
(1,522 ) Cash income tax refunds (payments) (4 ) (14 )
6,032 Unlevered free cash flow 45,815 50,087 154,934
Add (deduct): Financial income 78 120 343 Interest expense to be
settled in cash (18,790 ) (19,628 ) (76,492 ) Debt financing costs
paid (17 ) (2 ) (31,602 ) Free cash flow 27,086
30,577 47,183
SELECTED LEE LEGACY(2)
ONLY FINANCIAL INFORMATION
(UNAUDITED)
13 Weeks Ended
52 Weeks Ended December 28 December 29 December 28
(Thousands of Dollars)
2014 2013 2014 Advertising and
marketing services 80,055 83,209 303,664 Subscription 33,546 28,749
118,789 Other 8,780 8,217 33,771
Total operating revenue 122,381 120,175
456,224 Compensation 46,246 45,826 181,061
Newsprint and ink 6,523 7,338 26,269 Other operating expenses
33,577 29,120 123,430 Depreciation and amortization 7,951 8,082
33,031 Loss (gain) on sales of assets, net (79 ) (15 ) (1,426 )
Impairment of goodwill and other assets — — 378 Workforce
adjustments 72 49 576
Total operating expenses 94,290 90,400 363,319 Equity in earnings
of MNI 1,112 1,130 3,366
Operating income 29,203 30,905 96,271 Adjusted to exclude:
Depreciation and amortization 7,951 8,082 33,031 Loss (gain) on
sales of assets, net (79 ) (15 ) (1,426 ) Impairment of intangible
and other assets — — 378 Equity in earnings of MNI (1,112 )
(1,130 ) (3,366 ) Operating cash flow 35,963 37,842
124,888 Add: Ownership share of MNI EBITDA (50%) 2,007 2,027 5,885
Adjusted to exclude: Stock compensation 443
264 1,660 Adjusted EBITDA 38,413 40,133
132,433 Adjusted to exclude: Ownership share of MNI EBITDA (50%)
(2,007 ) (2,027 ) (5,885 ) Add (deduct): Distributions from MNI
1,750 1,500 5,000 Capital expenditures, net of insurance proceeds
(2,080 ) (2,163 ) (8,775 ) Pension contributions — — (87 ) Cash
income tax refunds (payments) (4 ) (14 ) (256 ) Intercompany
charges not settled in cash (2,318 ) (2,099 ) (9,897 ) Other
— — (2,000 ) Unlevered free cash flow
33,754 35,330 110,533 Add (deduct): Financial income 78 120 343
Interest expense to be settled in cash (18,330 ) (18,355 ) (73,466
) Debt financing costs paid (17 ) (2 ) (31,594
) Free cash flow 15,485 17,093
5,816
SELECTED PULITZER(2) ONLY
FINANCIAL INFORMATION
(UNAUDITED)
13 Weeks Ended
52 Weeks Ended December 28 December 29 December 28
(Thousands of Dollars)
2014 2013 2014 Advertising and
marketing services 35,422 39,182 131,423 Subscription 16,853 16,703
62,984 Other 1,498 1,325 4,835
Total operating revenue 53,773 57,210
199,242 Compensation 15,691 16,316 61,788
Newsprint and ink 2,323 3,224 10,009 Other operating expenses
25,604 26,037 99,923 Depreciation and amortization 3,545 3,942
14,952 Loss (gain) on sales of assets, net (178 ) 25 (179 )
Impairment of goodwill and other assets — — 2,602 Workforce
adjustments 139 158 695
Total operating expenses 47,124 49,702 189,790 Equity in earnings
of TNI 1,645 1,789 4,769
Operating income 8,294 9,297 14,221 Adjusted to exclude:
Depreciation and amortization 3,545 3,942 14,952 Loss (gain) on
sales of assets, net (178 ) 25 (179 ) Impairment of intangible and
other assets — — 2,602 Equity in earnings of TNI (1,645 )
(1,789 ) (4,769
)
Operating cash flow 10,016 11,475 26,827 Add: Ownership share of
TNI EBITDA (50%) 1,749 1,894
5,186 Adjusted EBITDA 11,765 13,369 32,013 Adjusted to
exclude: Ownership share of TNI EBITDA (50%) (1,749 ) (1,894 )
(5,186 ) Add (deduct): Distributions from TNI 1,194 1,315 5,125
Capital expenditures, net of insurance proceeds (1,467 ) (132 )
(4,301 ) Pension contributions — — (1,435 ) Cash income tax refunds
(payments) — — 6,288 Intercompany charges not settled in cash 2,318
2,099 9,897 Other — — 2,000
Unlevered free cash flow 12,061 14,757 44,401 Add (deduct):
Interest expense to be settled in cash (460 ) (1,273 ) (3,026 )
Debt financing costs paid — — (8
) Free cash flow 11,601 13,484
41,367
REVENUE BY REGION
13 Weeks Ended
December 28 December 29 Percent
(Thousands of Dollars)
2014 2013 Change Midwest 109,266
111,945 (2.4 ) Mountain West 35,740 34,684 3.0 West 11,964 11,662
2.6 East/Other 19,184 19,094 0.5
Total 176,154 177,385
(0.7 )
SELECTED BALANCE SHEET
INFORMATION
February 5
December 28 September 28
(Thousands of Dollars)
2015 2014 2014 Cash
15,943
16,704
Debt (Principal Amount):
Revolving Facility —
—
5,000
1st Lien Term Loan 207,250 215,500 226,750 Notes 400,000 400,000
400,000 2nd Lien Term Loan 150,000 150,000 150,000 Pulitzer Notes
15,000 19,000 23,000 772,250
784,500 804,750
SELECTED STATISTICAL
INFORMATION
13 Weeks
Ended December 28 December 29 Percent 2014
2013 Change
Capital expenditures, net of insurance
proceeds (Thousands of Dollars)
3,547 2,295 54.6
Newsprint volume (Tonnes)
13,816 15,931 (13.3 ) Average full-time equivalent employees 4,457
4,617 (3.5 )
Shares outstanding at end of period
(Thousands of Shares)
54,492 53,449 2.0
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 defined as operating income (loss), plus
depreciation, amortization, impairment charges, stock compensation
and 50% of EBITDA from associated companies, minus equity in
earnings of associated companies and curtailment gains.
•
Adjusted Income (Loss) and Adjusted Earnings (Loss) Per Common
Share are defined as income (loss) attributable to Lee Enterprises,
Incorporated and earnings (loss) per common share adjusted to
exclude both unusual matters and those of a substantially
non-recurring nature.
•
Cash Costs are defined as compensation, newsprint and ink, other
operating expenses and certain unusual matters, such as workforce
adjustment costs. Depreciation, amortization, impairment charges,
other non-cash operating expenses and other unusual matters are
excluded.
•
Operating Cash Flow is defined as operating income (loss) plus
depreciation, amortization and impairment charges, minus equity in
earnings of associated companies and curtailment gains. Operating
Cash Flow margin is defined as operating cash flow divided by
operating revenue. The terms operating cash flow and EBITDA are
used interchangeably.
•
Unlevered Free Cash Flow is defined as operating income (loss),
plus depreciation, amortization, impairment charges, stock
compensation, distributions from associated companies and cash
income tax refunds, minus equity in earnings of associated
companies, curtailment gains, cash income taxes, pension
contributions and capital expenditures. Changes in working capital,
asset sales, minority interest and discontinued operations are
excluded. Free Cash Flow also includes financial income, interest
expense and debt financing and reorganization costs. We also
present selected information for Lee Legacy and Pulitzer Inc.
("Pulitzer"). Lee Legacy constitutes the business of the Company
excluding Pulitzer, a wholly-owned subsidiary of the Company.
No non-GAAP financial measure should be considered as a
substitute for any related GAAP financial measure. However, the
Company believes the use of non-GAAP financial measures provides
meaningful supplemental information with which to evaluate its
financial performance, or assist in forecasting and analyzing
future periods. The Company also believes such non-GAAP financial
measures are alternative indicators of performance used by
investors, lenders, rating agencies and financial analysts to
estimate the value of a publishing business and its ability to meet
debt service requirements.
(3)
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.
Lee Enterprises, IncorporatedCharles Arms, 563-383-2100Director
of CommunicationsIR@lee.net
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