Lee Enterprises, Incorporated (NYSE: LEE), a major provider of
local news, information and advertising in 49 markets, today
reported preliminary(1) earnings of $4.4 million for its third
fiscal quarter ended June 26, 2016, or 8 cents per diluted
common share. Earnings totaled $2.1 million, or 3 cents per diluted
common share, the same quarter a year ago. Excluding unusual
matters, adjusted earnings per diluted common share(2) totaled 8
cents, compared to 5 cents a year ago.
"As we anticipated, overall revenue trends improved from the
second quarter, fueled primarily by a rebound in subscription
revenue and a strong performance in digital retail advertising,"
said President and Chief Executive Officer Kevin Mowbray.
"In the third quarter, subscription revenue was nearly flat,
decreasing just 0.5%," Mowbray added. "Digital retail advertising,
which is more than 61% of total digital advertising, grew 8.3%. In
total, digital advertising represented 24.1% of all ad revenue for
the quarter.
"Adjusted EBITDA(2) continues to be strong," Mowbray added.
"This has allowed us to reduce debt by more than $16.2 million in
the third quarter, $85.6 million year to date and $104.7 million
over the last twelve months."
Other third quarter financial highlights include:
- Overall revenue decreased 4.9%.
- Total cash costs(2), excluding
workforce adjustment costs, decreased 4.3%.
- Digital services revenue, which
primarily is driven by TownNews.com, increased 15.3% to $3.5
million, with total digital advertising and digital services
revenue of $25.8 million, an increase of 6.2%.
- Mobile advertising revenue, which is
included in digital advertising, increased 22.2% and national
digital advertising increased 15.8%. Total digital advertising
increased 4.9%.
- Lee's share of EBITDA from MNI(3) and
TNI(3) increased 6.5%.
- Adjusted EBITDA totaled $36.9 million.
For the last twelve months, adjusted EBITDA totaled $156.6
million.
- As of June 26, 2016, the principal
amount of debt was $640.3 million.
"Our aggressive debt pay down has resulted in significant
reductions in interest expense," said Chief Financial Officer and
Treasurer Ron Mayo. "Interest decreased $2.3 million in the third
quarter and $6.1 million year to date through debt repayment.
Moving forward, we expect to direct all of this savings toward
additional debt reductions as we continue to use all our available
free cash flow to reduce debt."
"Through improved efficiencies in production and other areas, we
now anticipate cash costs for the full year, excluding workforce
adjustments, to decline by 3.75% to 4.0%," Mayo added. "Guidance
from the previous quarter was 3.5% to 4.0%."
Mayo also said that Lee continues its comprehensive real estate
monetization program.
THIRD QUARTER OPERATING RESULTS
Operating revenue for the 13 weeks ended June 26, 2016
totaled $150.9 million, a decrease of 4.9% compared with a year
ago.
Advertising and marketing services revenue combined decreased
8.6% to $92.3 million, with retail advertising down 6.9%,
classified down 14.0% and national down 1.8%. Digital advertising
and marketing services revenue on a stand-alone basis increased
4.9% to $22.2 million. Digital advertising represents 24.1% of
total advertising revenue.
Total digital revenue, including digital advertising and digital
services, was $25.8 million for the quarter, up 6.2% compared with
a year ago. Our mobile, tablet, desktop and app sites, including
TNI and MNI, attracted 24.5 million unique visitors in the month of
June 2016, with 211.6 million page views.
Subscription revenue results improved over the March quarter
decreasing only 0.5%, driven by our subscription rate and premium
day pricing strategies.
Average daily newspaper circulation, including TNI and MNI and
digital subscribers, totaled 0.9 million in the 13 weeks ended
June 26, 2016. Sunday circulation totaled 1.3 million.
Research in our larger markets indicates we continue to reach over
76% of all adults in the market through the combination of digital
audience growth and strong print newspaper readership.
Operating expenses for the 13 weeks ended June 26, 2016
decreased 5.5%. Cash costs decreased 4.7%. Compensation decreased
2.1%, 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 11.0%, primarily the result of
a reduction in newsprint volume and prices. Other operating
expenses decreased 5.6%, 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 $24.7 million in the current year
quarter, compared with $24.8 million a year ago.
In the 13 weeks ended June 26, 2016, interest expense
decreased 12.9% in the current quarter, or $2.3 million, due to
lower debt balances. In addition, we recognized non-operating
expense of $0.4 million in the current year quarter compared to
$1.1 million in the prior year quarter due to the change in fair
value of stock warrants issued in connection with our 2014
refinancing. We recognized $1.2 million of debt refinancing and
administrative costs in the current year quarter compared to $1.4
million in the prior year quarter. The vast majority of the debt
refinancing and administrative costs represent amortization of our
refinancing costs paid in 2014.
Income attributable to Lee Enterprises, Incorporated for the
quarter totaled $4.1 million, compared with income of $1.9 million
a year ago. Adjusted EBITDA for the quarter was $36.9 million, a
6.0% decline from the prior year, and an improvement over the March
quarter trend.
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 June 26
June 28 2016 2015
(Thousands of Dollars, Except Per Share Data) Amount
Per Share Amount Per
Share Income attributable to Lee Enterprises, Incorporated,
as reported 4,092 0.08 1,882 0.03
Adjustments: Warrants fair value adjustment 415
1,091
415 0.01 1,091
0.02 Income attributable to Lee Enterprises,
Incorporated, as adjusted 4,507 0.08
2,973 0.05
YEAR TO DATE OPERATING
RESULTS(4)
Operating revenue for 39 weeks ended June 26, 2016 totaled
$466.2 million, a decrease of 5.3% compared with the 39 weeks ended
June 28, 2015.
Advertising and marketing services revenue combined decreased
8.9% to $286.7 million, retail advertising decreased 8.2%,
classified decreased 13.5% and national decreased 2.7%. Digital
advertising and marketing services revenue on a stand-alone basis
increased 6.0% to $64.3 million. Mobile advertising revenue
increased 17.6%. National digital advertising increased 22.5%.
Digital advertising represents 22.4% of total advertising.
Total digital revenue was $74.6 million year to date, up 6.6%
compared with a year ago.
Subscription revenue decreased 1.1%.
Operating expenses for the 39 weeks ended June 26, 2016
decreased 5.5%. Cash costs decreased 5.0% compared to the same
period a year ago. Compensation decreased 3.8%, due to a decrease
in the average number of full-time equivalent employees of 8.2%,
partially offset by higher self-insured medical costs. Newsprint
and ink expense decreased 19.2%, due to a reduction in newsprint
volume and prices. Other operating expenses decreased 4.2%.
Including equity in earnings of associated companies,
depreciation and amortization, as well as unusual matters in both
years, operating income was $79.8 million in 2016, compared with
$82.6 million a year ago.
The change in non-operating income (expense) in the 39 weeks
ended June 26, 2016 compared to the 39 weeks ended June 28,
2015 is primarily due to the $30.6 million gain on an insurance
settlement. Additionally, interest expense decreased 11.0%, or $6.1
million, due to lower debt balances, and we recognized a $1.3
million gain on the extinguishment of debt. Partially offsetting
those expense reductions, we recognized non-operating expense of
$0.4 million in the 39 weeks ended June 26, 2016 compared to
$0.3 million in the prior year period due to the change in fair
value of stock warrants, and $4.6 million of debt financing and
administrative costs were expensed in the current year to date
period compared to $4.0 million in the prior year to date period.
Debt financing and administrative costs are mainly amortization of
costs paid as part of our refinancing in 2014.
Income attributable to Lee Enterprises, Incorporated for the
year totaled $34.6 million, compared to income of $13.4 million a
year ago.
Adjusted EBITDA for the 39 weeks ended June 26, 2016 was
$116.6 million, a 5.4% 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.
39 Weeks Ended June 26 June 28
2016 2015 (Thousands of Dollars,
Except Per Share Data) Amount Per Share
Amount Per Share Income
attributable to Lee Enterprises, Incorporated, as reported 34,557
0.64 13,435 0.25 Adjustments: Warrants
fair value adjustment 404 312 Gain on insurance settlement
(30,646 ) —
(30,242 ) 312 Income tax effect of adjustments, net
10,726 —
(19,516 ) (0.36 )
312 0.01 Income attributable to Lee
Enterprises, Incorporated, as adjusted 15,041
0.28 13,747 0.25
DEBT AND FREE CASH FLOW
Debt was reduced $16.2 million in the quarter, $85.6 million
year to date and $104.7 million over the last twelve months. As of
June 26, 2016 the principal amount of debt was $640.3 million.
The principal amount of our debt, net of cash, is 3.95 times our
adjusted EBITDA for the past 12 months ended June 26, 2016 compared
to a ratio of 4.6 times at June 28, 2015.
We expect to continue to use substantially all our free cash
flow to reduce debt.
At June 26, 2016, including $21.9 million in cash and
availability under our Revolving Facility(3), liquidity totaled
$54.9 million compared to $31.0 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 our 1st Lien Term
Loan and a portion of the remaining proceeds was used 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) 888-403-8872 and
entering a conference passcode of 423289 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 45 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 average
circulation of 1.0 million daily and 1.3 million Sunday for the 39
weeks ended June 26, 2016, estimated to reach 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 39 Weeks Ended
June 26 June 28 Percent
June 26 June 28 Percent
(Thousands of Dollars, Except Per Share
Data)
2016 2015 Change
2016 2015 Change
Advertising and marketing services: Retail 59,181 63,601 (6.9 )
185,184 201,678 (8.2 ) Classified 25,562 29,719 (14.0 ) 75,998
87,849 (13.5 ) National 4,527 4,608 (1.8 ) 16,675 17,134 (2.7 )
Niche publications and other 3,024
3,006 0.6 8,805
8,119 8.4 Total
advertising and marketing services revenue 92,294
100,934 (8.6 )
286,662 314,780
(8.9 ) Subscription 47,160 47,394 (0.5 ) 144,249 145,904 (1.1 )
Digital services 3,541 3,070 15.3 10,271 9,267 10.8 Commercial
printing 3,116 3,239 (3.8 ) 9,385 8,830 6.3 Other
4,835 4,041 19.6
15,619 13,663
14.3 Total operating revenue 150,946
158,678 (4.9 )
466,186 492,444
(5.3 ) Operating expenses: Compensation 57,218 58,442 (2.1 )
174,733 181,615 (3.8 ) Newsprint and ink 6,604 7,421 (11.0 ) 19,343
23,928 (19.2 ) Other operating expenses 53,356 56,538 (5.6 )
166,332 173,641 (4.2 ) Workforce adjustments 424
1,056 (59.8 )
1,616 1,908 (15.3
) Cash costs 117,602 123,457
(4.7 ) 362,024
381,092 (5.0 ) 33,344 35,221 (5.3 )
104,162 111,352 (6.5 ) Depreciation 4,323 4,559 (5.2 ) 12,975
13,860 (6.4 ) Amortization 6,545 6,836 (4.3 ) 19,777 20,597 (4.0 )
Loss (gain) on sales of assets, net (354 ) 686 NM (1,763 ) 434 NM
Equity in earnings of associated companies 1,825
1,705 7.0
6,633 6,114 8.5
Operating income 24,655
24,845 (0.8 ) 79,806
82,575 (3.4 ) Non-operating
income (expense): Financial income 141 79 78.5 326 258 26.4
Interest expense (15,783 ) (18,121 ) (12.9 ) (49,206 ) (55,314 )
(11.0 ) Debt financing and administrative costs (1,196 ) (1,445 )
(17.2 ) (4,563 ) (4,040 ) 12.9 Gain on insurance settlement — — NM
30,646 — NM Other, net (413 ) (1,082 )
(61.8 ) 920 58
NM (17,251 )
(20,569 ) (16.1 ) (21,877
) (59,038 ) (62.9 ) Income before
income taxes 7,404 4,276 73.2 57,929 23,537 NM Income tax expense
3,037 2,141
41.8 22,571 9,353
NM Net income 4,367 2,135 NM 35,358 14,184 NM
Net income attributable to non-controlling interests
(275 ) (253 ) 8.7
(801 ) (749 ) 6.9 Income
attributable to Lee Enterprises, Incorporated 4,092
1,882 NM
34,557 13,435 NM
Earnings per common share: Basic 0.08 0.04 NM 0.65
0.26 NM Diluted 0.08 0.03
NM 0.64
0.25 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
39 Weeks Ended June 26 June 28
June 26 June 28 (Thousands of Dollars)
2016 2015 2016
2015 Net Income 4,367 2,135 35,358 14,184 Adjusted to
exclude Income tax expense 3,037 2,141 22,571 9,353 Non-operating
expenses, net 17,251 20,569 21,877 59,038 Equity in earnings of TNI
and MNI (1,825 ) (1,705 ) (6,633 ) (6,114 ) Loss (gain) on sale of
assets, net (354 ) 686 (1,763 ) 434 Depreciation and amortization
10,868 11,395 32,752 34,457 Workforce adjustments 424 1,056 1,616
1,908 Stock compensation 550 562 1,714 1,645 Add: Ownership share
of TNI and MNI EBITDA (50%) 2,625
2,464 9,145 8,432
Adjusted EBITDA 36,943
39,303 116,637 123,337
SELECTED BALANCE SHEET
INFORMATION
June
26 September 27 (Thousands of Dollars)
2016 2015 Cash 21,872
11,134 Debt (Principal Amount): 1st Lien Term Loan 119,546 180,872
Notes 385,000 400,000 2nd Lien Term Loan 135,736
145,000 640,282 725,872
SELECTED STATISTICAL
INFORMATION
13 Weeks Ended 39 Weeks Ended
June 26 June 28 Percent
June 26 June 28 Percent
2016 2015 Change
2016 2015 Change Capital
expenditures, net of insurance proceeds (Thousands of Dollars)
2,521 2,011 25.4 5,792 7,686 (24.6 ) Newsprint volume (Tonnes)
11,386 12,471 (8.7 ) 34,626 38,749 (10.6 ) Average full-time
equivalent employees 3,869 4,237 (8.7 ) 3,980 4,335 (8.2 ) Average
common shares - basic (Thousands of Shares) 53,211 52,597 1.2
53,176 52,521 1.2 Average common shares - diluted (Thousands of
Shares) 54,325 54,056 0.5 53,959 53,957 — Shares outstanding at end
of period (Thousands of Shares)
55,778
54,749 1.9
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. (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.
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version on businesswire.com: http://www.businesswire.com/news/home/20160804005309/en/
Lee Enterprises, IncorporatedCharles Arms, 563-383-2100Director
of CommunicationsIR@lee.net
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