Lee Enterprises, Incorporated (NYSE:LEE), a major provider of local
news, information and advertising in 50 markets, today reported
earnings(1) of $35.3 million for its first fiscal quarter ended
December 24, 2017, or 63 cents per diluted common share. For
the same quarter a year ago, earnings totaled $12.4 million, or 22
cents per diluted common share. Excluding the impact of the new tax
legislation and the adjustment related to the change in fair value
of the stock warrants, adjusted earnings per diluted common
share(2) totaled 19 cents in the current year quarter compared to
16 cents in the prior year quarter.
"Digital advertising revenue increased 2.8% and represented
27.9% of total advertising revenue for the quarter," Mowbray said.
"All digital revenue, which includes digital advertising, revenue
from TownNews.com and other digital services revenue, totaled $27.3
million, an increase of 3.2%.
“While advertising results in the past quarter started off
softer than anticipated, we saw directional improvement in several
key revenue categories with results strengthening as we moved
through the quarter. This was especially true in December, and we
anticipate improved revenue performance for the remainder of the
fiscal year,” Mowbray added. “Total revenue in the quarter was down
6.6% and down 8.9% on same-property basis. Subscription revenue
declined 1.3% in the quarter.”
Mowbray also noted the following financial highlights for the
quarter:
- Digital retail advertising, which represented 62% of total
digital advertising in the December quarter, grew 5.7% in the
quarter, driven by advertising from local retailers and
programmatic.
- Revenue at TownNews.com, excluding intercompany revenue,
increased 12.7% in the quarter and totaled $3.4 million. On a
standalone basis, revenue at TownNews.com totaled $16.7 million for
the last twelve months.
- Monthly visits to Lee mobile, tablet, desktop and app sites
averaged 72.5 million, an increase of 6.1% over the prior year
quarter.
- Total advertising and marketing services revenue decreased 9.0%
in the quarter.
"Cash costs(2) in the quarter, excluding workforce
adjustments and other, were down 6.6% compared to the prior year,"
said Treasurer and Chief Financial Officer Ron Mayo. "On a same
property basis, cash costs excluding workforce adjustments and
other were down 8.9%. We expect the carryover impact from our
business transformation in FY2017 and the first quarter of 2018 to
positively impact cash costs the remainder of 2018.
"We expect cash costs excluding workforce adjustments and other
to be down 6.0-6.5% in fiscal year 2018, on a same property basis.
Our revenue and cost performance for the quarter resulted in
maintaining our industry-leading margins, and we expect this to
continue throughout fiscal year 2018.
"The company continues to aggressively reduce debt," Mayo added.
"Debt reduction in the December quarter was $16.4 million and
totaled $67.5 million over the last twelve months, resulting in
lower interest expense of $1.3 million, or 8.7%, in the quarter and
$6.2 million, or 9.9%, in the past twelve months.
"Adjusted EBITDA(2) over the last twelve months totaled
$141.7 million. For the quarter, Adjusted EBITDA totaled $40.4
million compared to $43.3 million in the same quarter of the prior
year. As of December 24, 2017, the principal amount of
debt was $532.0 million," Mayo said.
Leverage net of cash was 3.66 times Adjusted EBITDA compared to
3.90 times Adjusted EBITDA one year ago, he added.
FIRST QUARTER OPERATING RESULTS
Operating revenue for the 13 weeks ended December 24, 2017
totaled $143.8 million, a decrease of 6.6% compared with a year
ago. On a same property basis, total operating revenue for the 13
weeks ended December 24, 2017 decreased 8.9%.
Advertising and marketing services revenue combined decreased
9.0% to $84.7 million. Digital advertising and marketing services
revenue increased 2.8% to $23.6 million and increased 1.9% on a
same property basis. Digital retail advertising, which represents
62% of total digital advertising, grew 5.7% in the quarter. Digital
advertising in the quarter represented 27.9% of total advertising
revenue.
Total digital revenue, including digital advertising and digital
services, was $27.3 million for the quarter, up 3.2% compared with
a year ago and up 2.3% on a same property basis. Mobile, tablet,
desktop and app sites, including TNI and MNI(3), attracted monthly
average visits of 72.5 million for the 13 weeks ended
December 24, 2017, an increase of 6.1% over the prior
year.
Subscription revenue decreased 1.3% in the current year quarter
and decreased 3.2% on a same property basis due to lower paid
circulation units. Average daily newspaper circulation, including
TNI and MNI and digital subscribers, totaled 0.8 million in the 13
weeks ended December 24, 2017. Sunday circulation totaled 1.2
million. Price increases and additional revenue from premium
content partially offset revenue lost from lower print circulation
volumes.
Other revenue, which consists of digital services, commercial
printing, revenue from delivery of third party products and the
sale of books, decreased 10.0% in the current year quarter. The
decrease was due to volume declines in commercial printing, third
party delivery and the sale of books and was partially offset by an
increase in revenue at TownNews.com. Excluding intercompany
revenue, revenue at TownNews.com, the majority of which is included
in Other revenue, increased to $3.4 million, or 12.7% in the
quarter. On a standalone basis, revenue at TownNews.com totaled
$16.7 million for the last twelve months.
Operating expenses for the 13 weeks ended December 24, 2017
decreased 7.7%. Cash costs, excluding workforce adjustments and
other, decreased 6.6% compared to the prior year quarter and
decreased 8.9% on a same property basis. Compensation decreased
9.8% on a same property basis, primarily as a result of a reduction
in staffing levels and lower self-insured medical costs. Newsprint
and ink expense decreased 15.5% on a same property basis due to
lower volumes from unit declines and using lower basis weight
newsprint to increase the number of copies printed per ton of
newsprint. Other operating expenses decreased 7.1% on a same
property basis, primarily driven by lower delivery and other
print-related costs and offset in part by higher costs associated
with growing digital revenue.
Workforce adjustment and other costs totaled $0.5 million and
$0.1 million in the 2017 quarter and 2016 quarter,
respectively.
Including equity in earnings of associated companies,
depreciation and amortization, gain on sales of assets, and
workforce adjustments and other, operating income totaled $30.5
million in the current year quarter, compared with $31.4 million a
year ago.
In the 13 weeks ended December 24, 2017, interest expense
decreased 8.7%, or $1.3 million, due to lower debt balances. The
company recognized non-operating expense of $0.4 million in the
current year quarter compared to non-operating income of $3.1
million in the same quarter of the prior year due to a change in
fair value of stock warrants. Lee recognized $1.1 million of debt
refinancing and administrative costs in the current quarter and
$1.0 million in the same quarter of the prior year. The vast
majority of the debt refinancing and administrative costs represent
amortization of refinancing costs paid in 2014.
Income attributable to Lee Enterprises, Incorporated for the
quarter totaled $35.0 million, compared with income of $12.2
million a year ago. Adjusted EBITDA for the quarter was $40.4
million.
ADJUSTED EARNINGS AND EPS FOR THE QUARTER
On December 22, 2017, comprehensive tax legislation commonly
referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”) was
signed into law. Among other provisions, the 2017 Tax Act reduces
the federal statutory corporate income tax rate from 35% to 21%.
The reduction of the corporate tax rate will cause us to adjust our
deferred tax assets and liabilities to the lower federal base rate
of 21%. The transitional impact from revaluing our deferred tax
assets and liabilities resulted in a provisional net decrease in
income tax expense of $24,872,000 in the 13 weeks ended December
24, 2017.
The following table summarizes the estimated impact from the
2017 Tax Act as well as the warrant fair value adjustments 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 24 2017 |
|
December 25 2016 |
(Thousands of Dollars, Except Per Share Data) |
Amount |
|
Per Share |
|
Amount |
|
Per Share |
|
|
|
|
Income attributable to
Lee Enterprises, Incorporated, as reported |
35,003 |
|
0.63 |
|
12,173 |
|
0.22 |
Adjustments (tax
affected): |
|
|
|
|
|
|
|
Warrants
fair value adjustment |
431 |
|
|
|
(3,095) |
|
|
Income
tax adjustment related to the 2017 Tax Act |
(24,872) |
|
|
|
— |
|
|
|
(24,441) |
|
(0.44) |
|
(3,095) |
|
(0.06) |
Income attributable to Lee Enterprises, Incorporated, as
adjusted |
10,562 |
|
0.19 |
|
9,078 |
|
0.16 |
DEBT AND FREE CASH FLOW
Debt was reduced $16.4 million in the quarter and $67.5 million
during the last twelve months. As of December 24, 2017, the
principal amount of debt was $532.0 million. The principal amount
of our debt, net of cash, is 3.66 times our adjusted EBITDA for the
past 12 months ended December 24, 2017.
We continue to evaluate all opportunities to reduce interest
expense and to improve our balance sheet, including refinancing all
or a portion of our debt.
At December 24, 2017, including $13.8 million in cash and
availability under our revolving facility(3), liquidity totaled
$47.7 million compared to $30.6 million of required debt principal
payments over the next twelve months. Our revolving facility
expires December 28, 2018.
CONFERENCE CALL INFORMATION
As previously announced, we will hold an earnings conference
call and audio webcast today at 9 a.m. Central 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) 888-329-8895 and entering a conference passcode
of 139671 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, with daily
newspapers, rapidly growing digital products and nearly 300 weekly
and specialty publications serving 50 markets in 22 states. Year to
date, Lee's newspapers have average circulation of 0.8 million
daily and 1.2 million Sunday, and estimated to reach almost three
million readers in print alone. Lee's markets include St. Louis,
MO; Lincoln, NE; Madison, WI; Davenport, IA; Billings, MT;
Bloomington, IL; and Tucson, AZ. Lee Common Stock is traded on the
New York Stock Exchange under the symbol LEE. For more information
about Lee, please visit www.lee.net.
FORWARD-LOOKING STATEMENTS — The Private Securities Litigation
Reform Act of 1995 provides a “safe harbor” for forward-looking
statements. This release contains information that may be deemed
forward-looking that is based largely on our current expectations,
and is subject to certain risks, trends and uncertainties that
could cause actual results to differ materially from those
anticipated. Among such risks, trends and other uncertainties,
which in some instances are beyond our control, are:
- Our ability to generate cash flows and maintain liquidity
sufficient to service our debt;
- Our ability to comply with the financial covenants in our
credit facilities;
- Our ability to refinance our debt as it comes due;
- Our ability to manage declining print revenue;
- That the warrants issued in our refinancing will not be
exercised;
- The impact and duration of adverse conditions in certain
aspects of the economy affecting our business;
- Changes in advertising and subscription demand;
- Changes in technology that impact our ability to deliver
digital advertising;
- Potential changes in newsprint, other commodities and energy
costs;
- Interest rates;
- Labor costs;
- Legislative and regulatory rulings, including new tax
legislation;
- Our ability to achieve planned expense reductions;
- Our ability to maintain employee and customer
relationships;
- Our ability to manage increased capital costs;
- Our ability to maintain our listing status on the NYSE;
- Competition; and
- Other risks detailed from time to time in our publicly filed
documents.
Any statements that are not statements of
historical fact (including statements containing the words “may”,
“will”, “would”, “could”, “believes”, “expects”, “anticipates”,
“intends”, “plans”, “projects”, “considers” and similar
expressions) generally should be considered forward-looking
statements. Readers are cautioned not to place undue reliance on
such forward-looking statements, which are made as of the date of
this release. We do not undertake to publicly update or revise our
forward-looking statements, except as required by law.
Contact:Charles ArmsDirector of CommunicationsIR@lee.net(563)
383-2100
CONSOLIDATED STATEMENTS OF
OPERATIONS(UNAUDITED)
|
13 Weeks Ended |
(Thousands of Dollars, Except Per Share Data) |
December 24 2017 |
December 25 2016 |
Percent Change |
|
|
|
|
Advertising and
marketing services |
84,661 |
93,035 |
(9.0) |
Subscription |
48,269 |
48,888 |
(1.3) |
Other |
10,856 |
12,066 |
(10.0) |
Total
operating revenue |
143,786 |
153,989 |
(6.6) |
Operating
expenses: |
|
|
|
Compensation |
50,911 |
55,056 |
(7.5) |
Newsprint
and ink |
5,838 |
6,893 |
(15.3) |
Other
operating expenses |
50,357 |
52,777 |
(4.6) |
Cash costs excluding workforce adjustments and other |
107,106 |
114,726 |
(6.6) |
Workforce
adjustments and other |
468 |
65 |
NM |
Cash costs |
107,574 |
114,791 |
(6.3) |
|
36,212 |
39,198 |
(7.6) |
Depreciation |
3,757 |
4,071 |
(7.7) |
Amortization |
4,296 |
6,309 |
(31.9) |
Loss on sales of assets
and other, net |
2 |
68 |
(97.1) |
Equity in earnings of
associated companies |
2,383 |
2,689 |
(11.4) |
Operating income |
30,540 |
31,439 |
(2.9) |
Non-operating income
(expense): |
|
|
|
Interest
expense |
(13,650) |
(14,952) |
(8.7) |
Debt
financing and administrative costs |
(1,096) |
(951) |
15.2 |
Other,
net |
(157) |
3,170 |
NM |
|
(14,903) |
(12,733) |
17.0 |
Income before income
taxes |
15,637 |
18,706 |
(16.4) |
Income tax expense
(benefit) |
(19,690) |
6,266 |
NM |
Net income |
35,327 |
12,440 |
NM |
Net
income attributable to non-controlling interests |
(324) |
(267) |
21.3 |
Income
attributable to Lee Enterprises, Incorporated |
35,003 |
12,173 |
NM |
|
|
|
|
|
|
Earnings per common
share: |
|
|
|
|
|
Basic |
0.64 |
0.23 |
NM |
Diluted |
0.63 |
0.22 |
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 |
|
52 Weeks Ended |
|
(Thousands of Dollars) |
December 242017 |
|
December 252016 |
|
December 242017 |
|
|
|
|
|
Net Income |
35,327 |
|
12,440 |
|
51,492 |
|
Adjusted to
exclude |
|
|
|
Income
tax expense |
(19,690 |
) |
6,266 |
|
(14,345 |
) |
Non-operating expenses (income), net |
14,903 |
|
12,733 |
|
54,501 |
|
Equity in
earnings of TNI and MNI |
(2,383 |
) |
(2,689 |
) |
(7,303 |
) |
Gain on
sale of assets and other, net |
2 |
|
68 |
|
(3,733 |
) |
Impairment of intangible and other assets |
— |
|
— |
|
2,517 |
|
Depreciation and amortization |
8,053 |
|
10,380 |
|
38,955 |
|
Workforce
adjustments and other |
468 |
|
65 |
|
7,926 |
|
Stock
compensation |
519 |
|
524 |
|
2,083 |
|
Add: |
|
|
|
Ownership
share of TNI and MNI EBITDA (50%) |
3,159 |
|
3,476 |
|
9,610 |
|
Adjusted EBITDA |
40,358 |
|
43,263 |
|
141,703 |
|
|
|
|
|
|
|
|
SELECTED BALANCE SHEET INFORMATION
(Thousands of Dollars) |
|
December 24 2017 |
|
September 24 2017 |
|
Cash |
|
13,846 |
|
10,621 |
|
Debt (Principal
Amount): |
|
|
|
1st Lien
Term Loan |
|
33,895 |
|
45,145 |
|
Notes |
|
385,000 |
|
385,000 |
|
2nd Lien
Term Loan |
|
113,058 |
|
118,240 |
|
|
|
531,953 |
|
548,385 |
|
|
|
|
|
|
|
SELECTED STATISTICAL INFORMATION
|
|
|
|
|
|
13 Weeks Ended |
|
|
December 242017 |
|
December 252016 |
|
|
|
|
Capital expenditures
(Thousands of Dollars) |
1,103 |
|
1,090 |
|
Average common shares -
basic (Thousands of Shares) |
54,329 |
|
53,528 |
|
Average common shares -
diluted (Thousands of Shares) |
55,812 |
|
55,401 |
|
Shares
outstanding at end of period (Thousands of Shares) |
57,069 |
|
56,574 |
|
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 and other 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 the impact of changes in
the warrant valuation as well as unusual and infrequent
transactions. It is defined as income (loss) attributable to Lee
Enterprises, Incorporated and earnings (loss) per common share
adjusted to exclude the impact of the warrant valuation and the
impact of the 2017 Tax Act. |
|
|
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. Depreciation, amortization,
impairment charges, other non-cash operating expenses and other
unusual and infrequent transactions are excluded. Cash Costs are
also presented excluding workforce adjustments and other. |
|
|
We also
present revenue and certain operating expense trends on a Same
Property basis which excludes the operating results of a weekly
publication purchased in 2017 and the purchase of the
Dispatch-Argus on June 30, 2017. Same Property results are useful
to investors in understanding the revenue and operating expense
trends excluding the impact of changes due to operations no longer
owned by the Company. |
|
|
|
|
|
|
|
|
(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. |
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