Lee Enterprises, Incorporated (NYSE:LEE), a major provider of
local news, information and advertising in 50 markets, today
reported preliminary(1) earnings of $19.5 million for its second
fiscal quarter ended March 27, 2016, or 36 cents per diluted
common share. Earnings totaled $2.0 million, or 3 cents per diluted
common share, the same quarter a year ago. Excluding unusual
matters, an adjusted loss per diluted common share(2) totaled 1
cent, the same as a year ago.
"In the second quarter, we continued on our transformational
path, marked by digital revenue growth, cost reductions through
improved efficiencies and substantial debt reduction," Kevin
Mowbray, president and chief executive officer said. "Local news,
information and advertising is in demand, and our massive audiences
and the broad demographics of our products drive results for our
advertisers."
"Digital advertising revenue grew 5.9% and represented 22.9% of
total ad revenue in the quarter," he added. "Digital services
revenue, which primarily is driven by TownNews.com, increased 11.5%
to $3.4 million, with total digital advertising and digital
services revenue of $23.7 million, an increase of 6.7% in the March
Quarter.
"Cash costs(2) management has been excellent, and we continue to
use substantially all of our free cash flow to pay down debt," he
added. "In the second quarter of 2016, we reduced debt by more than
$47 million, reducing the company's leverage, net of cash, to 4.0
times the last 12 months adjusted EBITDA(2)."
Other second quarter financial highlights include:
- Mobile advertising revenue, which is
included in digital advertising, increased 18.2% and national
digital advertising increased 30.0%.
- Overall revenue decreased 6.2% in
second quarter.
- Total cash costs, excluding workforce
adjustment costs, decreased 5.4%.
- Our share of EBITDA from MNI(3) and
TNI(3) increased 22.6%.
- Adjusted EBITDA totaled $31.1
million.
- Cash provided by operating activities
totaled $20.5 million in the second quarter, compared to $17.2
million a year ago.
"Shifts in print advertising demand continue to be a challenge,"
Mowbray said. "However, in the third and fourth quarters, we're
cycling through the prior year's lower preprint volumes and the
slowdown in our energy markets. We believe year-over-year declines
will be smaller. Also, while subscription revenue was down in the
March quarter, we're optimistic the trend will improve for the
remainder of the fiscal year with retention, start pressure and
pricing."
"We're committed to reducing our debt which we believe
translates directly into equity value for our shareholders," said
Chief Financial Officer and Treasurer Ron Mayo. "In the second
quarter, debt was reduced by $47.5 million, including $3.1 million
of the 2nd Lien Term Loan, $10.0 million of the Notes, and $34.4
million of the 1st Lien Term Loan. In the past twelve months, Lee
has reduced total debt by $107.8 million.
"For the last twelve months, adjusted EBITDA totaled $159.0
million and unlevered free cash flow(2) totaled $144.3 million,"
Mayo added. "As of March 27, 2016, the principal amount of debt was
$656.5 million."
Mayo also noted:
- Interest expense was reduced $2.1
million in the second quarter and $3.8 million year to date as a
result of debt reductions, which provides additional free cash flow
that will be used for future debt reductions.
- Lee continues a comprehensive real
estate monetization review program.
- Cash costs excluding workforce
adjustments for the full year are expected to decline by 3.5% to
4.0%, reaffirming guidance issued in December.
SECOND QUARTER OPERATING
RESULTS
Operating revenue for the 13 weeks ended March 27, 2016
totaled $146.8 million, a decrease of 6.2% compared with a year
ago.
Advertising and marketing services revenue combined decreased
9.5% to $88.7 million, with retail advertising down 8.8%,
classified down 14.0% and national up 0.5%. Digital advertising and
marketing services revenue on a stand-alone basis increased 5.9% to
$20.3 million.
Total digital revenue, including digital advertising and digital
services, was $23.7 million for the quarter, up 6.7% compared with
a year ago. Our mobile, tablet, desktop and app sites, including
TNI and MNI, attracted 26.5 million unique visitors in the month of
March 2016, with 233.8 million page views.
Subscription revenue decreased 3.0%, as price increases did not
offset paid subscriber losses. Average subscription rates increased
for the period.
Average daily newspaper circulation, including TNI and MNI and
digital subscribers, totaled 1.0 million in the 13 weeks ended
March 27, 2016. Sunday circulation totaled 1.3 million.
Operating expenses for the 13 weeks ended March 27, 2016
decreased 5.7%. Cash costs decreased 5.4%. Compensation decreased
3.9%, primarily as a result of reduced staffing levels offset in
part by higher medical claims from our self-insured medical plan.
Newsprint and ink expense decreased 21.0%, primarily the result of
lower newsprint prices and a reduction in newsprint volume of
11.9%. Other operating expenses decreased 4.9%, primarily driven by
lower delivery and other print-related costs offset in part with
higher costs associated with growing digital revenue.
Including equity in earnings of associated companies,
depreciation and amortization, as well as unusual matters in both
years, operating income totaled $18.7 million in the current year
quarter, compared with $20.2 million a year ago.
In the 13 weeks ended March 27, 2016, non-operating income
(expense) includes a $30.6 million gain from an insurance
settlement received in January 2016 from our 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(3) production
facilities. Additionally, interest expense decreased 11.5% in the
current quarter, or $2.1 million, due to lower debt balances. We
also recognized a $0.7 million gain on extinguishment of debt in
the current quarter. Partially offsetting those expense reductions,
non-operating expense of $0.1 million was recognized in the current
year quarter compared to non-operating income of $2.1 million in
the prior year quarter due to the change in fair value of stock
warrants issued in connection with the refinancing in 2014, and
$2.0 million of debt refinancing and administrative costs was
expensed in the current year quarter compared to $1.5 million in
the prior year quarter.
Income attributable to Lee Enterprises, Incorporated for the
quarter totaled $19.2 million, compared with income of $1.8 million
a year ago. Adjusted EBITDA for the quarter was $31.1 million, a
7.5% decline from the prior year.
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 March
272016 March 292015 (Thousands of Dollars, Except Per Share
Data) Amount Per Share Amount Per Share
Income attributable to Lee Enterprises, Incorporated,
as reported 19,228 0.36 1,800 0.03 Adjustments:
Warrants fair value adjustment 62 (2,081 ) Gain on insurance
settlement (30,646 ) —
(30,584 ) (2,081 ) Income tax effect of adjustments, net
10,726 —
(19,858 ) (0.37 ) (2,081 ) (0.04
) Loss attributable to Lee Enterprises, Incorporated, as adjusted
(630 ) (0.01 ) (281 ) (0.01 )
YEAR-TO-DATE OPERATING
RESULTS(4)
Operating revenue for 26 weeks ended March 27, 2016 totaled
$315.2 million, a decrease of 5.6% compared with the 26 weeks ended
March 29, 2015.
Advertising and marketing services revenue combined decreased
9.1% to $194.4 million, retail advertising decreased 8.7%,
classified decreased 13.3% and national decreased 3.0%. Digital
advertising and marketing services revenue on a stand-alone basis
increased 6.6% to $42.1 million. Mobile advertising revenue
increased 15.2%. National digital advertising increased 25.7%.
Digital advertising represents 21.6% of total advertising.
Total digital revenue was $48.8 million year to date, up 6.8%
compared with a year ago.
Subscription revenue decreased 1.4%.
Operating expenses for the 26 weeks ended March 27, 2016
decreased 5.5%. Cash costs decreased 5.1% compared to the same
period a year ago. Compensation decreased 4.6%, due to a decrease
in the average number of full-time equivalent employees of 7.9%,
partially offset by higher medical costs. Newsprint and ink expense
decreased 22.8%, due to the combination of lower newsprint prices
and a reduction in newsprint volume of 11.6%. Other operating
expenses decreased 3.5%.
Including equity in earnings of associated companies,
depreciation and amortization, as well as unusual matters in both
years, operating income was $55.2 million in 2016, compared with
$57.7 million a year ago.
The change in non-operating income (expense) in the 26 weeks
ended March 27, 2016 compared to the 26 weeks ended March 29,
2015 is primarily due to the $30.6 million gain on an insurance
settlement. Additionally, interest expense decreased 10.1%, or $3.8
million, due to lower debt balances, and we recognized a $1.3
million gain on the extinguishment of debt. Partially offsetting
those expense reductions, $3.4 million of debt financing and
administrative costs were expensed in the current year-to-date
period compared to $2.6 million in the prior year-to-date period.
Also, there was no impact for the change in fair value of stock
warrants year-to-date; however, in the prior year-to-date period we
recognized a $0.8 million gain.
Income attributable to Lee Enterprises, Incorporated for the
year totaled $30.5 million, compared to income of $11.6 million a
year ago.
Adjusted EBITDA for the 26 weeks ended March 27, 2016 was
$79.7 million or 5.2% decrease from the prior year.
ADJUSTED EARNINGS AND EPS FOR THE YEAR TO
DATE
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.
26 Weeks Ended March
272016 March 292015 (Thousands of Dollars, Except Per Share
Data) Amount Per Share Amount Per Share
Income attributable to Lee Enterprises, Incorporated,
as reported 30,465 0.57 11,553 0.21 Adjustments:
Warrants fair value adjustment (11 ) (779 ) Gain on insurance
settlement (30,646 ) —
(30,657 ) (779 ) Income tax effect of adjustments, net
10,726 —
(19,931 ) (0.37 ) (779 ) (0.01 )
Income attributable to Lee Enterprises, Incorporated, as adjusted
10,534 0.20 10,774
0.20
DEBT AND FREE CASH FLOW
Debt was reduced $47.5 million in the quarter, $69.4 million
year to date and $107.8 million over the last twelve months. As of
March 27, 2016 the principal amount of debt was $656.5
million. We expect to continue to use substantially all our free
cash flow to reduce debt.
Unlevered free cash flow in the current year quarter was $30.6
million compared to $31.2 million in the same quarter a year ago.
For the 26 weeks ended March 27, 2016 and March 29, 2015, unlevered
free cash flow totaled $76.6 million and $77.1 million,
respectively. At March 27, 2016, liquidity, including cash and
availability under our Revolving Facility(3), totaled $49.4 million
compared to $31.4 million of required debt principal payments over
the next twelve months.
As previously noted, of the total insurance settlement proceeds
of $30.6 million received by the Company in January 2016, $20
million was used to reduce outstanding debt under its 1st Lien Term
Loan and a portion of the remaining proceeds to repurchase $10
million principal amount of our Notes at a substantial
discount.
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) 888-466-4509 and
entering a conference passcode of 835403 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 1.3 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 26 Weeks Ended (Thousands of
Dollars, Except Per Share Data) March 272016 March
292015
PercentChange
March 272016 March 292015
PercentChange
Advertising and marketing
services: Retail 55,966 61,334 (8.8 ) 126,022 138,078 (8.7 )
Classified 24,527 28,511 (14.0 ) 50,417 58,130 (13.3 ) National
5,401 5,375 0.5 12,147 12,526 (3.0 ) Niche publications and other
2,837 2,797 1.4 5,782
5,113 13.1 Total advertising and marketing
services revenue 88,731 98,017 (9.5 )
194,368 213,847 (9.1 ) Subscription 46,658
48,111 (3.0 ) 97,089 98,510 (1.4 ) Digital services 3,414 3,061
11.5 6,730 6,197 8.6 Commercial printing 3,043 2,774 9.7 6,269
5,591 12.1 Other 4,989 4,594 8.6
10,784 9,621 12.1 Total operating
revenue 146,835 156,557 (6.2 )
315,240 333,766 (5.6 ) Operating expenses:
Compensation 58,850 61,236 (3.9 ) 117,514 123,173 (4.6 ) Newsprint
and ink 6,053 7,661 (21.0 ) 12,738 16,507 (22.8 ) Other operating
expenses 54,107 56,866 (4.9 ) 112,977 117,103 (3.5 ) Workforce
adjustments 588 641 (8.3 ) 1,192
852 39.9 Cash costs 119,598
126,404 (5.4 ) 244,421 257,635
(5.1 ) 27,237 30,153 (9.7 ) 70,819 76,131 (7.0 )
Depreciation 4,325 4,686 (7.7 ) 8,652 9,301 (7.0 ) Amortization
6,616 6,880 (3.8 ) 13,232 13,760 (3.8 ) Loss (gain) on sales of
assets, net (438 ) 5
NM
(1,409 ) (252 ) NM Equity in earnings of associated companies
2,009 1,653 21.5 4,808
4,410 9.0 Operating income 18,743
20,235 (7.4 ) 55,152
57,732 (4.5 ) Non-operating income (expense):
Financial income 110 102 7.8 185 180 2.8 Interest expense (16,281 )
(18,403 ) (11.5 ) (33,423 ) (37,193 ) (10.1 ) Debt financing and
administrative costs (2,034 ) (1,493 ) 36.2 (3,367 ) (2,595 ) 29.7
Gain on insurance settlement 30,646 — NM 30,646 — NM Other, net
688 2,318 (70.3 ) 1,333
1,140 16.9 13,129
(17,476 ) NM (4,626 ) (38,468 )
(88.0 ) Income before income taxes 31,872 2,759 NM 50,526
19,264 NM Income tax expense 12,389 717
NM 19,535 7,215 NM Net
income 19,483 2,042 NM 30,991 12,049 NM Net income attributable to
non-controlling interests (255 ) (242 ) 5.4
(526 ) (496 ) 6.0 Income
attributable to Lee Enterprises, Incorporated 19,228
1,800 NM 30,465 11,553
NM Earnings per common share: Basic 0.36 0.03
NM 0.57 0.22 NM Diluted 0.36 0.03
NM 0.57 0.21 NM
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
(Thousands of Dollars) March 272016 March 292015
March 272016 March 292015
Net Income 19,483 2,042 30,991 12,049 Adjusted to exclude Income
tax expense 12,389 717 19,535 7,215 Nonoperating expenses, net
(13,129 ) 17,476 4,626 38,468 Equity in earnings of TNI and MNI
(2,009 ) (1,653 ) (4,808 ) (4,410 ) Loss (gain) on sale of assets,
net (438 ) 5 (1,409 ) (252 ) Depreciation and amortization 10,941
11,566 21,884 23,061 Workforce adjustments 588 641 1,192 852 Stock
compensation 594 640 1,164 1,083 Add: Ownership share of TNI and
MNI EBITDA (50%) 2,711 2,212
6,519 5,969 Adjusted EBITDA 31,130
33,646 79,694 84,035
The table below reconciles the non-GAAP liquidity measure of
unlevered free cash flow and free cash flow to net cash provided by
operating activities, its most directly comparable GAAP measure:
13 Weeks Ended
26 Weeks Ended (Thousands of Dollars) March 272016
March 292015 March 272016 March 292015
Net cash provided by operating activities
20,482 17,175 41,551 39,465 Adjusted to exclude Changes in
operating assets and liabilities (5,710 ) (3,536 ) 3,077 5,031
Changes in deferred income tax assets and liabilities (11,636 )
(122 ) (18,208 ) (6,411 ) Add (deduct) Income tax expense 12,389
717 19,535 7,215 Capital expenditures (1,801 ) (2,128 ) (3,271 )
(5,675 ) Interest expense to be settled in cash 16,281 18,403
33,423 37,193 Distributions greater than TNI earnings 886 669 749
218 Cash income tax refunds (payments) (282 ) 68
(271 ) 64 Unlevered free cash flow
30,609 31,246 76,585
77,100 Add (deduct) Financial income 110 102 185 180
Interest expense to be settled in cash (16,281 ) (18,403 ) (33,423
) (37,193 ) Debt financing and administration costs paid —
(65 ) (44 ) (82 ) Free cash flow
14,438 12,880 43,303
40,005
SELECTED BALANCE SHEET
INFORMATION
(Thousands of Dollars) March 272016 September
272015 Cash 16,468 11,134 Debt (Principal
Amount): 1st Lien Term Loan 135,237 180,872 Notes
385,000 400,000 2nd Lien Term Loan 136,261 145,000
656,498 725,872
SELECTED STATISTICAL
INFORMATION
13 Weeks Ended
26 Weeks Ended March 272016 March
292015 Percent Change March 272016 March
292015 Percent Change
Capital expenditures, net of insurance proceeds (Thousands
of Dollars) 1,801 2,128 (15.4 ) 3,271 5,675 (42.4 ) Newsprint
volume (Tonnes) 10,978 12,462 (11.9 ) 23,239 26,279 (11.6 ) Average
full-time equivalent employees 3,947 4,312 (8.5 ) 4,036 4,384 (7.9
) Average common shares - basic (Thousands of Shares) 53,176 52,494
1.3 53,158 52,482 1.3 Average common shares - diluted (Thousands of
Shares) 53,751 53,875 (0.2 ) 53,777 53,916 (0.3 ) Shares
outstanding at end of period (Thousands of Shares)
55,710 54,528
2.2
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,
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 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 unusual
and infrequent transactions. It is 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 is a non-GAAP financial performance measure of operating
expenses that are settled in cash and is useful to investors in
understanding the components of the Company’s cash 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 is 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, which are paid in cash.
•
Unlevered Free Cash Flow and Free Cash Flow are non-GAAP liquidity
measures that provide a useful view into the Company’s cash flow
generation capabilities. Financial statement users can use these
measures to understand the cash flow generated by the Company and
that is available to service outstanding debt or return to
stockholders. These measures can also used by stockholders,
analysts and lenders to determine the valuation of the Company.
Unlevered Free Cash Flow is defined as net cash provided by
operating activities adjusted to exclude changes in operating
assets and liabilities and changes in deferred income tax assets
and liabilities plus income tax expense, interest expense,
distributions greater than TNI earnings and cash income tax
refunds, minus capital expenditures and cash income tax payments.
Free Cash Flow is calculated by adding financial income and
deducting interest expense settled in cash and debt financing and
administrative costs paid from unlevered free cash flow. (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. Lee Legacy constitutes the business of the Company,
including MNI, but excluding Pulitzer Inc. and TNI. (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/20160505005390/en/
Lee Enterprises, IncorporatedCharles Arms, 563-383-2100Director
of CommunicationsIR@lee.net
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