Lee Enterprises, Incorporated (NYSE: LEE), a major provider of
local news, information and advertising in 50 markets, today
reported preliminary(1) results for its 2016 first fiscal quarter
ended December 27, 2015.
"We are off to a strong start in 2016. Digital advertising,
subscriptions, digital services, commercial printing and other
revenue accounted for more than half of our total revenue in the
quarter. All of these categories are growing, and we see
opportunity for future expansion," Mary Junck, chairman and chief
executive officer said.
"We continue to carefully manage cash costs(2) and expect 2016
to be another year of strong cash flow for Lee, allowing our
aggressive debt reduction," She added. "In the first quarter of
2016, we reduced debt by nearly $22 million and have paid down more
than $80 million in the last twelve months."
Other first quarter financial highlights include:
- Digital ad revenue was up 7.2%,
representing 20.6% of total advertising revenue in the
quarter.
- Mobile advertising revenue, which is
included in digital advertising, increased 12.4%.
- Digital services revenue, primarily
TownNews.com, increased 5.7% to $3.3 million.
- Subscription revenue increased
0.1%.
- Overall revenue decreased 5.0% in first
quarter and total advertising and marketing services revenue
decreased 8.8%. Both categories improved steadily throughout the
quarter.
- Total cash costs excluding workforce
adjustment costs decreased 5.2%.
- First quarter operating cash flow(2)
totaled $43.6 million, a 5.2% decline from the prior year
quarter.
- Our share of EBITDA(2) from MNI(3) and
TNI(3) increased 1.4%.
- Adjusted EBITDA(2) totaled $48.6
million, a 3.6% decline from the prior year quarter.
"We have made excellent progress with several key initiatives,"
Junck said. "In the first quarter, we re-launched several of our
websites with a new design aimed at improving reader engagement and
driving digital revenue. We'll transition all of our websites to
the new design throughout this year.
"Re-designed print products have been introduced in many of our
markets, and they have been very well received by our readers. This
on-going re-design and transformation of how we produce and present
news, which we call the 'daVinci Project,' not only improves the
look and ease of use of our newspapers, but also, through resource
consolidation, creates significant cost savings," she added.
"Currently, 40.3% of our print subscribers have activated the
digital subscriptions available to them through our full access
subscription model, which continues to grow, providing our print
readers with on-demand breaking news. It also helps grow our
digital audiences."
Earnings of 21 cents per diluted common share were reported for
the quarter compared to earnings of 18 cents a year ago. Excluding
unusual matters, adjusted earnings per diluted common share(2)
totaled 22 cents, the same as a year ago.
"We continue to produce strong EBITDA and reduce debt," said
Chief Financial Officer and Treasurer Ron Mayo. "For the last
twelve months, EBITDA totaled $155.7 million, Adjusted EBITDA
totaled $161.5 million and unlevered free cash flow(2) totaled
$149.0 million. As of December 27, 2015, the principal amount of
debt was $704.0 million. The company will continue to use
substantially all of its free cash flow(2) to reduce debt and
strengthen the company's capital structure.
"During the past twelve months, we reduced debt by $80.5
million, including $21.9 million in the first quarter of 2016," he
added. "Our highest cost of capital, the 2nd Lien Term Loan(3), was
reduced by $5.6 million, and we were able to repurchase $5 million
of our Notes(3) at a substantial discount."
On January 15, 2016, Lee received payment of $30,645,628 from
its insurer for its share of a subrogation recovery arising from
the settlement of claims for damages suffered as a result of a 2009
loss at one of the Lee Legacy production facilities.
"Of the total proceeds we received, $20 million was used to
reduce outstanding debt under our 1st Lien Term Loan(3)," Mayo
said. "To the extent permissible and available at a discount, we
intend to use some portion of the remaining proceeds to repurchase
outstanding Notes or further pay down the 1st Lien Term Loan."
Mayo continued, "Total debt as of today is $678 million after
including $20 million of insurance proceeds already used to reduce
the 1st Lien Term Loan in January 2016, along with required
principal amortization."
Mayo also noted:
- Interest expense to be settled in cash
was reduced $1.6 million in the first quarter as a result of debt
reductions, which provides additional free cash flow that will be
used for future debt reductions.
- Lee has initiated a comprehensive real
estate monetization review program. The undepreciated book value of
the land and buildings under review is in excess of $200
million.
"In fiscal year 2016, we expect cash costs excluding workforce
adjustments to decline by 3.5% to 4.0%, reaffirming our guidance
issued in December," Mayo added.
FIRST QUARTER OPERATING RESULTS
Operating revenue for the 13 weeks ended December 27, 2015
totaled $168.4 million, a decrease of 5.0% compared with a year
ago.
Advertising and marketing services revenue combined decreased
8.8% to $105.6 million, with retail advertising down 8.4%,
classified down 13.4% and national down 5.7%. Digital advertising
and marketing services revenue on a stand-alone basis increased
7.2% to $21.8 million.
Subscription revenue increased 0.1%.
Average daily newspaper circulation, including TNI and MNI and
digital subscribers, totaled 1.0 million in the 13 weeks ended
December 27, 2015. Sunday circulation totaled 1.4 million.
Including digital advertising, subscription, digital services,
commercial printing and other revenue, 50.2% of revenue comes from
growing categories.
Cash costs decreased 4.9% for the 13 weeks ended
December 27, 2015. Compensation decreased 5.3%, primarily as a
result of reduced staffing levels. Newsprint and ink expense
decreased 24.4%, primarily the result of lower newsprint prices and
a reduction in newsprint volume of 11.3%. Other operating expenses
decreased 2.3%.
Operating cash flow decreased 5.2% from a year ago to $43.6
million. Excluding workforce adjustments, operating cash flow
decreased 4.3%. Operating cash flow margin(2) was flat to the prior
year quarter at 25.9%. Including equity in earnings of associated
companies, depreciation and amortization, as well as unusual
matters in both years, operating income totaled $36.4 million in
the current year quarter, compared with $37.5 million a year ago.
Adjusted EBITDA for the quarter was $48.6 million, a 3.6% decline
from the prior year.
Non-operating expenses decreased 15.4% for the 13 weeks ended
December 27, 2015. Interest expense decreased 8.8%, or $1.6
million, due to lower debt balances. Non-operating income of $0.1
million was recognized in the current year quarter compared to
non-operating expense of $1.3 million in the prior year quarter due
to the change in fair value of stock warrants issued in connection
with the refinancing in 2014. Partially offsetting those expense
reductions, $1.3 million of debt refinancing and administrative
costs was expensed in the current year quarter compared to $1.1
million in the prior year quarter. Income attributable to Lee
Enterprises, Incorporated for the quarter totaled $11.2 million,
compared with income of $9.8 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 27 December 28
2015 2014 (Thousands of Dollars, Except Per Share Data)
Amount Per Share Amount Per Share
Income attributable to Lee Enterprises, Incorporated, as
reported 11,237 0.21 9,753 0.18 Adjustments: Debt
financing costs 1,333 1,102 Warrants fair value adjustment (73 )
1,302 Other, including workforce adjustments 54
(54 ) 1,314 2,350 Income tax
effect of adjustments, net (494 ) (367
) 820 0.02
1,983 0.04 Income attributable to Lee Enterprises,
Incorporated, as adjusted 12,057 0.22
11,736 0.22
DEBT AND FREE CASH FLOW
Debt was reduced $21.9 million in the quarter and $80.5 million
over the last twelve months. As of December 27, 2015 the
principal amount of debt was $704.0 million.
Unlevered free cash flow decreased 0.5% in the current year
quarter to $45.8 million compared to $46.0 million in the same
quarter a year ago. At December 27, 2015, liquidity, including
cash and availability under our Revolving Facility(3), totaled
$44.7 million compared to $26.1 million of required debt principal
payments over the next twelve months.
As previously noted, of the total proceeds of $30,645,628
received by the company, in January 2016 $20 million was used to
reduce outstanding debt under its 1st Lien Term Loan and, to the
extent permissible and available at a discount, we intend to use
some portion of the remaining proceeds to repurchase outstanding
Notes or prepay the 1st Lien Term Loan.
CONFERENCE CALL INFORMATION
As previously announced, we will hold an earnings conference
call and audio webcast later today at 9 a.m. Central Daylight 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) 888-516-2445 and
entering a conference passcode of 699329 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, 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 1.0
million daily and 1.4 million Sunday, reaching over 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;
- 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;
- 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 27 December 28 Percent
(Thousands of Dollars, Except Per Share
Data)
2015 2014 Change Advertising and
marketing services: Retail 70,587 77,083 (8.4 ) Classified 25,358
29,279 (13.4 ) National 6,746 7,151 (5.7 ) Niche publications and
other 2,946 2,317 27.1 Total
advertising and marketing services revenue 105,637
115,830 (8.8 ) Subscription 50,430 50,399 0.1 Commercial
printing 3,226 2,816 14.6 Digital services 3,316 3,136 5.7 Other
5,796 5,029 15.3 Total operating
revenue 168,405 177,210 (5.0 ) Operating
expenses: Compensation 58,665 61,937 (5.3 ) Newsprint and ink 6,685
8,846 (24.4 ) Other operating expenses 58,869 60,237 (2.3 )
Workforce adjustments 604 211 NM Cash
costs 124,823 131,231 (4.9 ) Operating cash
flow 43,582 45,979 (5.2 ) Depreciation 4,327 4,616 (6.3 )
Amortization 6,616 6,880 (3.8 ) Gain on sales of assets, net (971 )
(257 ) NM Equity in earnings of associated companies 2,799
2,757 1.5 Operating income 36,409
37,497 (2.9 ) Non-operating income
(expense): Financial income 76 78 (2.6 ) Interest expense (17,142 )
(18,790 ) (8.8 ) Debt financing and administrative costs (1,333 )
(1,102 ) 21.0 Other, net 645 (1,178 )
NM (17,754 ) (20,992 ) (15.4 )
Income before income taxes 18,655 16,505 13.0 Income tax expense
7,147 6,498 10.0 Net
income 11,508 10,007 15.0 Net income attributable to
non-controlling interests (271 ) (254 ) 6.7
Income attributable to Lee Enterprises, Incorporated
11,237 9,753 15.2
Earnings per common share: Basic 0.21 0.19 10.5 Diluted 0.21
0.18 16.7
SELECTED CONSOLIDATED FINANCIAL
INFORMATION
(UNAUDITED)
13 Weeks Ended 52
Weeks Ended December 27 December 28 December 27
(Thousands of Dollars)
2015 2014 2015 Advertising and
marketing services 105,637 115,830 401,906 Subscription 50,430
50,399 194,505 Other 12,338 10,981
43,327 Total operating revenue 168,405
177,210 639,738 Compensation 58,665
61,937 235,756 Newsprint and ink 6,685 8,846 28,102 Other operating
expenses 58,869 60,237 227,796 Depreciation and amortization 10,943
11,496 45,009 Gain on sales of assets, net (971 ) (257 ) (608 )
Workforce adjustments 604 211
3,698 Total operating expenses 134,795 142,470 539,753
Equity in earnings of TNI and MNI 2,799 2,757
8,296 Operating income 36,409 37,497 108,281
Adjusted to exclude: Depreciation and amortization 10,943 11,496
45,009 Gain on sales of assets, net (971 ) (257 ) (608 ) Equity in
earnings of TNI and MNI (2,799 ) (2,757 )
(8,296 ) Operating cash flow 43,582 45,979 144,386 Add: Ownership
share of TNI and MNI EBITDA (50%) 3,809 3,757
11,298 EBITDA 47,391 49,736 155,684 Adjusted
to exclude: Workforce adjustments 604 211 3,698 Stock compensation
570 443 2,098 Adjusted
EBITDA 48,565 50,390 161,480 Adjusted to exclude: Ownership share
of TNI and MNI EBITDA (50%) (3,809 ) (3,757 ) (11,298 ) Add
(deduct): Distributions from TNI and MNI 3,229 2,944 11,260 Capital
expenditures, net of insurance proceeds (1,470 ) (3,547 ) (7,630 )
Pension contributions (744 ) — (4,321 ) Cash income tax refunds
(payments) 11 (4 ) (470 ) Unlevered
free cash flow 45,782 46,026 149,021 Add (deduct): Financial income
76 78 335 Interest expense to be settled in cash (17,142 ) (18,790
) (70,761 ) Debt financing and administrative costs paid (44
) (17 ) (760 ) Free cash flow 28,672
27,297 77,835
SELECTED LEE LEGACY(2)
ONLY FINANCIAL INFORMATION
(UNAUDITED)
13 Weeks Ended 52
Weeks Ended December 27 December 28 December 27
(Thousands of Dollars)
2015 2014 2015 Advertising and
marketing services 72,438 80,194 279,661 Subscription 34,538 33,546
132,344 Other 10,407 9,069
36,666 Total operating revenue 117,383
122,809 448,671 Compensation 44,848 46,246
178,637 Newsprint and ink 5,147 6,523 20,931 Other operating
expenses 34,066 34,003 130,592 Depreciation and amortization 7,635
7,951 31,041 Loss (gain) on sales of assets, net 37 (79 ) 7
Workforce adjustments 543 72
1,455 Total operating expenses 92,276 94,716 362,663 Equity
in earnings of MNI 1,183 1,112
3,487 Operating income 26,290 29,205 89,495 Adjusted to
exclude: Depreciation and amortization 7,635 7,951 31,041 Loss
(gain) on sales of assets, net 37 (79 ) 7 Equity in earnings of MNI
(1,183 ) (1,112 ) (3,487 ) Operating cash flow
32,779 35,965 117,056 Add: Ownership share of MNI EBITDA (50%)
2,089 2,008 6,070 EBITDA
34,867 37,973 123,126 Adjusted to exclude: Workforce adjustments
543 72 1,455 Stock compensation 570 443
2,098 Adjusted EBITDA 35,980 38,488 126,679 Adjusted
to exclude: Ownership share of MNI EBITDA (50%) (2,088 ) (2,008 )
(6,070 ) Add (deduct): Distributions from MNI 1,750 1,750 5,500
Capital expenditures, net of insurance proceeds (1,203 ) (2,080 )
(5,870 ) Cash income tax refunds (payments) 11 (4 ) (381 )
Intercompany charges not settled in cash — (2,318 ) (4,635 ) Other
(697 ) — (2,697 ) Unlevered free cash
flow 33,753 33,828 112,526
SELECTED PULITZER(2) ONLY
FINANCIAL INFORMATION
(UNAUDITED)
13 Weeks Ended 52
Weeks Ended December 27 December 28 December 27
(Thousands of Dollars)
2015 2014 2015 Advertising and
marketing services 33,199 35,636 122,245 Subscription 15,892 16,853
62,161 Other 1,931 1,912 6,661
Total operating revenue 51,022 54,401
191,067 Compensation 13,817 15,691 57,119
Newsprint and ink 1,538 2,323 7,171 Other operating expenses 24,803
26,234 97,204 Depreciation and amortization 3,308 3,545 13,968 Gain
on sales of assets, net (1,008 ) (178 ) (615 ) Workforce
adjustments 61 139 2,243
Total operating expenses 42,519 47,754 177,090 Equity in earnings
of TNI 1,616 1,645 4,809
Operating income 10,119 8,292 18,786 Adjusted to exclude:
Depreciation and amortization 3,308 3,545 13,968 Gain on sales of
assets, net (1,008 ) (178 ) (615 ) Equity in earnings of TNI
(1,616 ) (1,645 ) (4,809 ) Operating cash flow 10,803
10,014 27,330 Add: Ownership share of TNI EBITDA (50%) 1,721
1,749 5,228 EBITDA 12,524 11,763
32,558 Adjusted to exclude: Workforce adjustments 61
139 2,243 Adjusted EBITDA 12,585 11,902
34,801 Adjusted to exclude: Ownership share of TNI EBITDA (50%)
(1,721 ) (1,749 ) (5,228 ) Add (deduct): Distributions from TNI
1,479 1,194 5,760 Capital expenditures, net of insurance proceeds
(267 ) (1,467 ) (1,760 ) Pension contributions (744 ) — (4,321 )
Cash income tax refunds (payments) — — (89 ) Intercompany charges
not settled in cash — 2,318 4,635 Other 697 —
2,697 Unlevered free cash flow 12,029
12,198 36,495
SELECTED BALANCE SHEET
INFORMATION
December 27 September 27
(Thousands of Dollars)
2015 2015 Cash 11,813 11,134
Debt (Principal Amount): 1st Lien Term Loan 169,622 180,872 Notes
395,000 400,000 2nd Lien Term Loan 139,374 145,000
703,996 725,872
SELECTED STATISTICAL
INFORMATION
13 Weeks Ended December 27
December 28 Percent 2015 2014
Change Capital expenditures, net of insurance
proceeds (Thousands of Dollars) 1,470 3,547 (58.6 ) Newsprint
volume (Tonnes) 12,261 13,816 (11.3 ) Average full-time equivalent
employees 4,125 4,457 (7.4 ) Average common shares - basic
(Thousands of Shares) 53,140 52,471 1.3 Average common shares -
diluted (Thousands of Shares) 53,858 53,954 (0.2 ) Shares
outstanding at end of period (Thousands of Shares) 55,499
54,492 1.8
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, loss (gain) on sale
of assets, impairment charges, workforce adjustment costs, 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 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. Cash costs are also presented excluding workforce
adjustments.
-
EBITDA is defined as operating income (loss), plus depreciation,
amortization, loss (gain) on sale of assets, impairment charges and
our 50% share of EBITDA from TNI and MNI, minus equity in earnings
of TNI and MNI and curtailment gains.
-
Operating Cash Flow is defined as operating income (loss) plus
depreciation, amortization, loss (gain) on sale of assets and
impairment charges, minus equity in earnings of TNI and MNI and
curtailment gains. We also present Operating Cash Flow excluding
workforce adjustment costs. Operating Cash Flow Margin is defined
as operating cash flow divided by operating revenue.
-
Unlevered Free Cash Flow is defined as operating income (loss),
plus depreciation, amortization, loss (gain) on sale of assets,
impairment charges, workforce adjustment costs, stock compensation,
distributions from TNI and MNI and cash income tax (payments)
refunds, minus equity in earnings of TNI and MNI, 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) The
1st Lien Term Loan is the $250 million first lien term loan and $40
million 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160204005334/en/
Lee Enterprises, IncorporatedCharles Arms, 563-383-2100Director
of CommunicationsIR@lee.net
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