Lee Enterprises, Incorporated (NYSE:LEE), a major provider of local
news, information and advertising in 49 markets, today reported
earnings(1) of $12.4 million for its first fiscal quarter ended
December 25, 2016, or 22 cents per diluted common share.
Earnings totaled $11.5 million, or 21 cents per diluted common
share, the same quarter a year ago. The analysis of first quarter
results is presented on a same property basis unless otherwise
noted(2).
"We continue to aggressively grow digital revenue and transform
the business in a challenging print advertising environment," said
Kevin Mowbray, president and chief executive officer. "We remain
highly focused on cost reductions, which enabled us to deliver
strong Adjusted EBITDA(2) and to continue to aggressively repay our
debt with total reductions of $17.8 million in the first
quarter."
"Our digital performance in the quarter was strong," Mowbray
said. "Total digital revenue, including digital advertising and
digital services, totaled $26.4 million for the quarter, up 6.5%
compared to the same properties a year ago(2). On a same property
basis, the average digital unique visits during the quarter
increased 8.6%. Mobile advertising revenue, which is included in
digital advertising, increased 20.6% in the quarter, with
continuing growth in our mobile audiences.
"December quarter cash costs(2), excluding unusual matters on a
same-property basis, decreased 6.0% compared to the prior year
first quarter," he added. "We continue to transform our business
model, and the cost reductions we have previously implemented along
with additional ones implemented in the second quarter will help
drive cash flow performance for the last nine months of fiscal year
2017.
"As a result of recent changes to our operations, we are
increasing our cash cost reduction guidance. We now expect fiscal
2017 cash costs, excluding unusual matters, to be down 5% - 6% from
fiscal 2016."
Mowbray also noted the following same-property financial
highlights for the quarter:
- Digital advertising revenue increased 6.8% in the quarter.
Digital services revenue, including TownNews.com, increased 4.8% in
the quarter and totaled $3.5 million.
- Total advertising and marketing services revenue decreased
10.4% in the quarter; subscription revenue decreased 1.9% in the
quarter.
- Total operating revenue decreased 7.2% in the quarter.
- Operating expenses for the 13 weeks ended December 25,
2016 decreased 5.5%.
- Adjusted EBITDA totaled $43.3 million in the quarter.
Chief Financial Officer and Treasurer Ron Mayo noted that the
company's progress in reducing debt by $104.6 million over the past
twelve months has decreased interest expense $2.2 million, or 12.8%
in the first fiscal quarter and will result in significantly lower
interest expense for the remainder of fiscal year 2017 as compared
to fiscal 2016.
"We'll continue to use substantially all available free cash
flow to reduce debt in 2017, which we believe will create
additional shareholder value, as we continue to reduce interest
expense," he said. "As of December 25, 2016, the principal
amount of debt was $599.4 million, a $17.8 million reduction in the
quarter."
FIRST QUARTER OPERATING RESULTS
Operating revenue for the 13 weeks ended December 25, 2016
totaled $154.0 million, a decrease of 8.6% compared with a year
ago. On a same property basis, total operating revenue for the 13
weeks ended December 25, 2106 decreased 7.2%. Unless otherwise
noted, revenue and operating expense trends below are presented on
a same property basis.
Advertising and marketing services revenue combined decreased
10.4% to $93.0 million, with retail advertising down 9.4%,
classified down 13.7% and national down 7.4%. Digital advertising
and marketing services revenue on a stand-alone basis increased
6.8% to $22.9 million, and digital retail advertising, which
represents 61% of total digital advertising, grew 7.0% in the
quarter. Digital advertising represents 24.6% of total advertising
revenue.
Total digital revenue, including digital advertising and digital
services, was $26.4 million for the quarter, up 6.5% compared with
a year ago. Our mobile, tablet, desktop and app sites, including
TNI and MNI(3), attracted a monthly average of 25.6 million unique
visitors for the 13 weeks ended December 25, 2016, an increase
of 8.6% over the prior year quarter. Average monthly page views
totaled 210.0 million page views for the 13 weeks ended
December 25, 2016.
Subscription revenue decreased 1.9% in the current year
quarter.
Average daily newspaper circulation, including TNI and MNI and
digital subscribers, totaled 0.9 million in the 13 weeks ended
December 25, 2016. Sunday circulation totaled 1.2 million.
Research in our larger markets shows we continue to reach nearly
three-quarters 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 December 25, 2016
decreased 5.5%. Cash costs decreased 6.4%. Compensation decreased
5.1%, primarily as a result of reduced staffing levels. Newsprint
and ink expense increased 3.1%, primarily the result of several
price increases earlier in calendar year 2016 partially offset by
the reduction in newsprint volume. Other operating expenses
decreased 8.1%, primarily driven by lower delivery and other
print-related costs offset in part by 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 $31.4 million in the current year
quarter, compared with $36.4 million a year ago.
In the 13 weeks ended December 25, 2016, interest expense
decreased 12.8%, or $2.2 million, due to lower debt balances.
We recognized non-operating income of $3.1 million in the current
year quarter compared to $0.1 million in the same quarter of the
prior year due to the fluctuation in the price of our common stock,
that caused a change in fair value of stock warrants issued in
connection with our 2014 refinancing. We recognized $1.0 million of
debt refinancing and administrative costs in the current quarter
and $1.3 million in the same quarter of the prior year. 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 $12.2 million, compared with income of $11.2
million a year ago. Adjusted EBITDA for the quarter was $43.3
million.
ADJUSTED EARNINGS AND EPS FOR THE QUARTER
The following table summarizes the impact from 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 25 2016 |
|
|
December 27 2015 |
|
(Thousands of Dollars, Except Per Share Data) |
Amount |
|
|
Per Share |
|
|
Amount |
|
Per Share |
|
|
|
|
|
Income attributable to
Lee Enterprises, Incorporated, as reported |
12,173 |
|
|
0.22 |
|
|
11,237 |
|
|
0.21 |
|
Adjustments: |
|
|
|
|
|
|
|
Warrants fair value adjustment |
(3,095 |
) |
|
|
|
(73 |
) |
|
|
|
(3,095 |
) |
|
(0.06 |
) |
|
(73 |
) |
|
— |
|
Income attributable to Lee Enterprises, Incorporated, as
adjusted |
9,078 |
|
|
0.16 |
|
|
11,164 |
|
|
0.21 |
|
DEBT AND FREE CASH FLOW
Debt was reduced $17.8 million in the quarter and $104.6 million
during the last twelve months. As of December 25, 2016 the
principal amount of debt was $599.4 million. The principal amount
of our debt, net of cash, is 3.9 times and 4.3 times our adjusted
EBITDA for the past 12 months ended December 25, 2016 and
December 27, 2015, respectively.
We expect to continue to use substantially all our free cash
flow to reduce debt in fiscal 2017.
At December 25, 2016, including $20.1 million in cash and
availability under our revolving facility(3), liquidity totaled
$53.4 million compared to $25.0 million of required debt principal
payments over the next twelve months.
CONFERENCE CALL INFORMATION
As previously announced, we will hold an earnings conference
call and audio webcast 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) 877-616-0074 and entering a conference passcode
of 493820 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 49 markets in 21 states. Lee's
newspapers have average circulation of 0.9 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;
- 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 |
|
(Thousands of Dollars, Except Per Share Data) |
December 25 2016 |
|
|
December 27 2015 |
|
|
Percent Change |
|
SameProperty(2) |
|
|
|
|
|
|
Advertising and
marketing services: |
|
|
|
|
Retail |
61,905 |
|
69,787 |
|
(11.3 |
) |
(9.4 |
) |
Classified |
22,204 |
|
26,016 |
|
(14.7 |
) |
(13.7 |
) |
National |
6,300 |
|
6,888 |
|
(8.5 |
) |
(7.4 |
) |
Niche
publications and other |
2,626 |
|
2,946 |
|
(10.9 |
) |
(10.8 |
) |
Total advertising and marketing services revenue |
93,035 |
|
105,637 |
|
(11.9 |
) |
(10.4 |
) |
Subscription |
48,888 |
|
50,430 |
|
(3.1 |
) |
(1.9 |
) |
Digital services |
3,474 |
|
3,316 |
|
4.8 |
|
4.8 |
|
Commercial
printing |
2,774 |
|
3,226 |
|
(14.0 |
) |
(13.1 |
) |
Other |
5,818 |
|
5,796 |
|
0.4 |
|
0.5 |
|
Total
operating revenue |
153,989 |
|
168,405 |
|
(8.6 |
) |
(7.2 |
) |
Operating
expenses: |
|
|
|
|
Compensation |
55,056 |
|
58,665 |
|
(6.2 |
) |
(5.1 |
) |
Newsprint
and ink |
6,893 |
|
6,685 |
|
3.1 |
|
3.1 |
|
Other
operating expenses |
52,777 |
|
58,869 |
|
(10.3 |
) |
(8.1 |
) |
Workforce
adjustments |
65 |
|
604 |
|
(89.2 |
) |
(89.2 |
) |
Cash costs |
114,791 |
|
124,823 |
|
(8.0 |
) |
(6.4 |
) |
|
39,198 |
|
43,582 |
|
(10.1 |
) |
|
Depreciation |
4,071 |
|
4,327 |
|
(5.9 |
) |
|
Amortization |
6,309 |
|
6,616 |
|
(4.6 |
) |
|
Loss (gain) on sales of
assets, net |
68 |
|
(971 |
) |
NM |
|
|
Equity in earnings of
associated companies |
2,689 |
|
2,799 |
|
(3.9 |
) |
|
Operating income |
31,439 |
|
36,409 |
|
(13.7 |
) |
|
Non-operating income
(expense): |
|
|
|
|
Financial
income |
75 |
|
76 |
|
(1.3 |
) |
|
Interest
expense |
(14,952 |
) |
(17,142 |
) |
(12.8 |
) |
|
Debt
financing and administrative costs |
(951 |
) |
(1,333 |
) |
(28.7 |
) |
|
Other,
net |
3,095 |
|
645 |
|
NM |
|
|
|
(12,733 |
) |
(17,754 |
) |
(28.3 |
) |
|
Income before income
taxes |
18,706 |
|
18,655 |
|
0.3 |
|
|
Income tax expense |
6,266 |
|
7,147 |
|
(12.3 |
) |
|
Net income |
12,440 |
|
11,508 |
|
8.1 |
|
|
Net
income attributable to non-controlling interests |
(267 |
) |
(271 |
) |
(1.5 |
) |
|
Income
attributable to Lee Enterprises, Incorporated |
12,173 |
|
11,237 |
|
8.3 |
|
|
|
|
|
|
|
Earnings per common
share: |
|
|
|
|
Basic |
0.23 |
|
0.21 |
|
9.5 |
|
|
Diluted |
0.22 |
|
0.21 |
|
4.8 |
|
|
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 |
|
(Thousands of Dollars) |
December 25 2016 |
|
December 27 2015 |
|
|
|
|
Net Income |
12,440 |
|
11,508 |
|
Adjusted to
exclude |
|
|
Income
tax expense |
6,266 |
|
7,147 |
|
Non-operating expenses, net |
12,733 |
|
17,754 |
|
Equity in
earnings of TNI and MNI |
(2,689 |
) |
(2,799 |
) |
Loss
(gain) on sale of assets, net |
68 |
|
(971 |
) |
Depreciation and amortization |
10,380 |
|
10,943 |
|
Workforce
adjustments |
65 |
|
604 |
|
Stock
compensation |
524 |
|
570 |
|
Add: |
|
|
Ownership
share of TNI and MNI EBITDA (50%) |
3,476 |
|
3,809 |
|
Adjusted EBITDA |
43,263 |
|
48,565 |
|
SELECTED BALANCE SHEET INFORMATION
(Thousands of Dollars) |
|
December 25 2016 |
|
September 25 2016 |
|
Cash |
|
20,100 |
|
16,984 |
|
Debt (Principal
Amount): |
|
|
|
1st Lien
Term Loan |
|
83,984 |
|
101,304 |
|
Notes |
|
385,000 |
|
385,000 |
|
2nd Lien
Term Loan |
|
130,433 |
|
130,863 |
|
|
|
599,417 |
|
617,167 |
|
SELECTED STATISTICAL INFORMATION
|
13 Weeks Ended |
|
|
December 25 2016 |
|
December 27 2015 |
|
PercentChange |
|
|
|
|
|
Capital expenditures,
net of insurance proceeds (Thousands of Dollars) |
1,090 |
|
1,464 |
|
(25.5 |
) |
Newsprint volume
(Tonnes) |
10,812 |
|
12,261 |
|
(11.8 |
) |
Average full-time
equivalent employees |
3,820 |
|
4,108 |
|
(7.0 |
) |
Average common shares -
basic (Thousands of Shares) |
53,528 |
|
53,140 |
|
0.7 |
|
Average common shares -
diluted (Thousands of Shares) |
55,401 |
|
53,858 |
|
2.9 |
|
Shares
outstanding at end of period (Thousands of Shares) |
56,574 |
|
55,499 |
|
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 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, 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. |
|
|
|
|
- |
We also
present revenue and certain operating expense trends on a Same
Property basis which excludes the operating results of the Provo
Daily Herald, which was sold in August 2016. 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. |
Contact:
Charles Arms
Director of Communications
IR@lee.net
(563) 383-2100
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