Lee Enterprises, Incorporated (NYSE: LEE), a leading provider of
high quality, trusted, local news, information and a major platform
for advertising in 77 markets, today reported third quarter fiscal
2020 financial results(1) for the period ended June 28, 2020.
The discussion below reflects operating results
of Lee including (i) our actual GAAP results, which reflect a full
quarter of Lee Legacy(2), BHMG(2) and Buffalo(2) and year to date
period of Legacy Lee results and 15 weeks of results of BHMG and
Buffalo, (ii) pro forma results, which reflect the consolidated
operations, adjusted as if Lee had owned BHMG and Buffalo for the
entire period presented, and (iii) Adjusted EBITDA(3), which is our
non-GAAP measure of operating results, calculated based on actual
results (with 15 weeks included in the 39 weeks ended June 28,
2020) and on a pro forma basis (assuming BHMG and Buffalo were
owned for the entire period).
|
|
13 Weeks Ended |
|
|
39 Weeks Ended |
|
|
39 Weeks Ended |
|
52 Weeks Ended |
|
|
June
28, |
|
|
June
28, |
|
|
June
28, |
|
June
28, |
|
|
2020 |
|
|
2020 |
|
|
2020 |
|
2020 |
(in Thousands) |
|
Actual |
|
|
Actual |
|
|
Pro Forma |
|
Pro Forma |
|
|
|
|
|
|
|
|
|
Total operating revenue |
|
182,528 |
|
|
426,238 |
|
|
630,027 |
|
860,576 |
Income (loss) attributable to Lee Enterprises,
Incorporated |
|
(1,275 |
) |
|
(1,320 |
) |
|
19,334 |
|
22,592 |
Adjusted EBITDA |
|
26,303 |
|
|
71,798 |
|
|
96,960 |
|
135,049 |
|
|
|
|
|
|
|
|
|
|
|
“We remain committed to providing high quality,
trusted local news to our huge audiences and supporting our local
advertisers during these uncertain times,” said Kevin Mowbray,
President and Chief Executive Officer. “It is vital in our local
markets to have a strong, local voice covering critical issues, and
our newsrooms are steadfast in that endeavor. I am incredibly proud
of the way our organization has responded in the current
circumstances,” Mowbray added.
“We are pleased with our third quarter operating
results, despite the significant disruption from the COVID-19
pandemic. We exceeded the high end of our revenue outlook and
also exceeded the high end of our Adjusted EBITDA outlook. Revenue
from subscriptions and TownNews were strong and stable in the third
quarter. These revenue streams are predominately contract-based and
represented more than half of our total operating revenue in the
quarter,” said Mowbray.
“As we evaluate our post pandemic operating
strategy, we are focused on strategic innovations that meet the
needs of our readers and advertisers. To that end, our digital only
subscriber base now totals 222,000, a 35.1% annualized increase
over the March 2020 subscriber base and a 72.9% increase over June
of last year, on a pro forma basis. We expect to continuously grow
our digital only subscriber base,” Mowbray added.
“We continue to support advertisers in our local
markets with the matching grant program, an initiative that
generated $4.6 million of advertising revenue in the quarter,”
Mowbray added. “While advertising revenue continues to be off
historical trends, we did see continuous and substantial
improvement each month throughout the quarter, and are seeing that
continue into July,” Mowbray added.
Tim Millage, Vice President, Chief Financial
Officer and Treasurer, said, “We generated $36.7 million of Excess
Cash Flow(4) in the third quarter which was used to repay debt in
the fourth quarter. Additionally, we made significant progress on
our business transformation initiatives and remain highly confident
in our ability to achieve $100 million in cost synergies by the end
of fiscal year 2021.
Third Quarter Operating
Results
- Operating revenue totaled $182.5
million, an increase of 43.4%, as a result of acquired revenue of
$91.2 million from BHMG and Buffalo, offset by the negative impact
from the COVID-19 pandemic. Total operating revenue on a pro forma
basis decreased 25.0% in the quarter.
- Subscription revenue totaled $88.5
million, an increase of 89.9%, including the impact of
acquisitions. Subscription revenue represented 48.5% of our total
operating revenue.
- TownNews revenue increased 7.7% on
a standalone basis and totaled $24.6 million over the last twelve
months.
- Advertising revenue increased 18.3%
including the impact of acquisitions and totaled $77.8 million. Pro
forma advertising revenue declined 39.4% as a result of the
negative impacts from the COVID-19 pandemic.
- Digital advertising and marketing
services revenue totaled $25.8 million, or 33.1% of total
advertising revenue. Legacy Lee digital advertising represents
45.9% of total advertising revenue.
- Total digital revenue was $42.4
million, representing 23.2% of operating revenue.
- Digital only subscribers totaled
nearly 222,000, with a 72.9% increase over the prior year at Legacy
Lee, and page views were up 8.4%, excluding acquisitions and
including MNI and TNI(5).
- Operating expenses increased 57.9%
due to the impacts of the acquisitions, offset by continued
business transformation efforts. Pro forma Cash Costs(3) declined
21.8%, due to the combination of temporary and permanent cost
actions taken in the quarter in response to the COVID-19
pandemic.
- Adjusted EBITDA totaled $26.3
million, $2.8 million higher than the upper bound of our previous
outlook.
Year-To-Date Operating Results
- Operating revenue totaled $426.2
million in the 39 weeks ended June 28, 2020, an increase of 10.4%,
as a result of acquired revenue of $105.8 million, partially offset
by continuing declines of print trends and negative impacts from
the COVID-19 pandemic. Total operating revenue on a pro forma basis
was $621.5 million.
- Operating expenses increased 16.6%,
as a result of $98.3 million in acquired operating expenses, offset
by continued business transformation efforts. Pro forma Cash Costs
declined 13.9%.
- Adjusted EBITDA totaled $71.8
million. Pro forma Adjusted EBITDA totaled $97.0 million.
Debt and Liquidity
On March 16, 2020, the Company closed on the comprehensive
refinancing of all of its outstanding debt(4). The $576 million in
financing has a fixed annual interest rate of 9.0%, mandatory
payments based on the Company’s Excess Cash Flow (as defined in the
credit agreement), no financial performance covenants and a 25-year
maturity.
As of and for the 13-weeks ended June 28, 2020:
- Cash on the balance sheet totaled $56.7 million.
- Excess Cash Flow for the third quarter totaled $36.7 million
and was used to repay debt in the fourth quarter.
- The principal amount of debt was $576.0 million.
- Capital expenditures totaled $1.5 million.
- No pension contributions were made in the quarter.
In response to the pandemic, the Company has
focused on preserving liquidity and took the following actions:
- Reduced expenses in the third
quarter by more than $10.0 million through furloughs and
compensation reductions, reductions in force, and cancelling all
non-essential spending.
- Reduced capital expenditures for
fiscal year 2020 by more than 25%.
- Eliminated pension contributions
for the remainder of the fiscal year by taking advantage of funding
deferral provided in the CARES Act(6).
- Deferred payment of FICA payroll
taxes, as allowed by the CARES Act.
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) 800-309-1256 and entering a conference passcode
of 370891 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
350 weekly and specialty publications serving 77 markets in 26
states. Year to date, Lee's newspapers have average daily
circulation of 1.2 million, and our legacy websites,
including acquisitions, reach more than 43 million digital unique
visitors. Lee's markets include St. Louis, MO; Buffalo, NY; Omaha,
NE; Richmond, VA; Lincoln, NE; Madison, WI; Davenport, IA; 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:
- Revenues may continue to diminish
or declines in revenue could accelerate as a result of the COVID-19
pandemic;
- Revenues may continue to be
diminished longer than anticipated as a result of the COVID-19
pandemic;
- The COVID-19 pandemic may result in
material long-term changes to the publishing industry which may
result in permanent revenue reductions for the Company and other
risks and uncertainties;
- We may experience increased costs,
inefficiencies and other disruptions as a result of the COVID-19
pandemic;
- We may be required to indemnify the
previous owners of the BH Media Newspaper Business or the Buffalo
News for unknown legal and other matters that may arise;
- Our ability to generate cash flows
and maintain liquidity sufficient to service our debt;
- Our ability to manage declining
print revenue and circulation subscribers;
- That the warrants issued in our
2014 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;
- Significant cyber security breaches
or failure of our information technology systems;
- Our ability to achieve planned
expense reductions and realize the expected benefit of our
acquisitions;
- 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. Statements regarding our plans, strategies, prospects
and expectations regarding our business and industry, including
statements regarding the impacts that the COVID-19 pandemic and our
responses thereto may have on our future operations, are
forward-looking statements. They reflect our expectations, are not
guarantees of performance and speak only as of the date the
statement is made. 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:IR@lee.net(563) 383-2100
CONSOLIDATED STATEMENTS OF
OPERATIONS(UNAUDITED)
|
|
13 Weeks Ended |
|
|
39 Weeks Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
Percent |
|
|
June 28, |
|
|
June 30, |
|
|
Percent |
|
(Thousands of Dollars, Except Per Share Data) |
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing
services |
|
77,754 |
|
|
65,754 |
|
|
18.3 |
|
|
204,426 |
|
|
204,651 |
|
|
(0.1 |
) |
Subscription |
|
88,517 |
|
|
46,620 |
|
|
89.9 |
|
|
176,655 |
|
|
137,965 |
|
|
28.0 |
|
Other |
|
16,257 |
|
|
14,910 |
|
|
8.9 |
|
|
45,157 |
|
|
43,573 |
|
|
3.6 |
|
Total
operating revenue |
|
182,528 |
|
|
127,284 |
|
|
43.4 |
|
|
426,238 |
|
|
386,189 |
|
|
10.4 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
72,396 |
|
|
45,373 |
|
|
59.6 |
|
|
164,330 |
|
|
140,197 |
|
|
17.2 |
|
Newsprint and ink |
|
7,572 |
|
|
5,230 |
|
|
44.8 |
|
|
16,629 |
|
|
17,394 |
|
|
(4.4 |
) |
Other operating expenses |
|
77,440 |
|
|
48,157 |
|
|
60.8 |
|
|
178,744 |
|
|
145,915 |
|
|
22.5 |
|
Cash costs |
|
157,408 |
|
|
98,760 |
|
|
59.4 |
|
|
359,703 |
|
|
303,506 |
|
|
18.5 |
|
Total
operating revenue less cash costs |
|
25,120 |
|
|
28,524 |
|
|
(11.9 |
) |
|
66,535 |
|
|
82,683 |
|
|
(19.5 |
) |
Depreciation and amortization |
|
11,201 |
|
|
7,347 |
|
|
52.5 |
|
|
25,196 |
|
|
22,263 |
|
|
13.2 |
|
Assets loss (gain) on sales, impairments and other, net |
|
147 |
|
|
(195 |
) |
|
NM |
|
|
(5,153 |
) |
|
(212 |
) |
|
NM |
|
Restructuring costs and other |
|
2,865 |
|
|
2,792 |
|
|
2.6 |
|
|
6,422 |
|
|
5,612 |
|
|
14.4 |
|
Operating expenses |
|
171,621 |
|
|
108,704 |
|
|
57.9 |
|
|
386,168 |
|
|
331,169 |
|
|
16.6 |
|
Equity
in earnings of associated companies |
|
842 |
|
|
1,451 |
|
|
(42.0 |
) |
|
3,773 |
|
|
5,298 |
|
|
(28.8 |
) |
Operating income |
|
11,749 |
|
|
20,031 |
|
|
(41.3 |
) |
|
43,843 |
|
|
60,318 |
|
|
(27.3 |
) |
Non-operating income
(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
(13,135 |
) |
|
(11,860 |
) |
|
10.8 |
|
|
(35,377 |
) |
|
(36,256 |
) |
|
(2.4 |
) |
Debt financing and
administrative costs |
|
0 |
|
|
(4,196 |
) |
|
NM |
|
|
(11,865 |
) |
|
(6,053 |
) |
|
96.0 |
|
Other,
net |
|
1,027 |
|
|
3,702 |
|
|
(72.3 |
) |
|
3,309 |
|
|
2,730 |
|
|
21.2 |
|
Non-operating expenses, net |
|
(12,108 |
) |
|
(12,354 |
) |
|
(2.0 |
) |
|
(43,933 |
) |
|
(39,579 |
) |
|
11.0 |
|
Income (loss) before income
taxes |
|
(359 |
) |
|
7,677 |
|
|
NM |
|
|
(90 |
) |
|
20,739 |
|
|
NM |
|
Income
tax expense |
|
368 |
|
|
1,505 |
|
|
(75.5 |
) |
|
(92 |
) |
|
6,175 |
|
|
NM |
|
Net income (loss) |
|
(727 |
) |
|
6,172 |
|
|
NM |
|
|
2 |
|
|
14,564 |
|
|
(100.0 |
) |
Net
income attributable to non-controlling interests |
|
(548 |
) |
|
(406 |
) |
|
35.0 |
|
|
(1,322 |
) |
|
(1,115 |
) |
|
18.6 |
|
Income (loss) attributable to
Lee Enterprises, Incorporated |
|
(1,275 |
) |
|
5,766 |
|
|
NM |
|
|
(1,320 |
) |
|
13,449 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
(0.02 |
) |
|
0.10 |
|
|
NM |
|
|
(0.02 |
) |
|
0.24 |
|
|
NM |
|
Diluted |
|
(0.02 |
) |
|
0.10 |
|
|
NM |
|
|
(0.02 |
) |
|
0.24 |
|
|
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 |
|
(Thousands of
Dollars) |
June 28, |
|
June 30, |
|
June 28, |
|
June 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
Net income (loss) |
(727 |
) |
6,172 |
|
2 |
|
14,564 |
|
Adjusted to exclude |
|
|
|
|
Income tax expense |
368 |
|
1,505 |
|
(92 |
) |
6,175 |
|
Non-operating expenses, net |
12,108 |
|
12,354 |
|
43,933 |
|
39,579 |
|
Equity in earnings of TNI and MNI |
(842 |
) |
(1,451 |
) |
(3,773 |
) |
(5,298 |
) |
Loss (gain) on sale of assets and other, net |
147 |
|
(195 |
) |
(5,153 |
) |
(212 |
) |
Depreciation and amortization |
11,201 |
|
7,347 |
|
25,196 |
|
22,263 |
|
Restructuring costs and other |
2,865 |
|
2,792 |
|
6,422 |
|
5,612 |
|
Stock compensation |
228 |
|
321 |
|
799 |
|
1,209 |
|
Add: |
|
|
|
|
Ownership share of TNI and MNI EBITDA (50%) |
955 |
|
1,806 |
|
4,464 |
|
6,486 |
|
Adjusted EBITDA |
26,303 |
|
30,651 |
|
71,798 |
|
90,378 |
|
|
|
|
|
|
|
|
|
|
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 |
) |
On March 16, 2020 (the Closing Date), the Company closed the
acquisition of the newspaper assets of BH Media Group (“BHMG”) and
the stock of The Buffalo News, Inc. (“Buffalo”). Legacy Lee refers
to the operating assets and results of operations of the Company
prior to the Closing Date, and is synonymous with same store
results. |
|
|
|
|
|
|
|
|
(3 |
) |
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 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 non-operating expenses, income tax expense,
depreciation and amortization, assets loss (gain) on sales,
impairments and other, restructuring costs and other, stock
compensation and our 50% share of EBITDA from TNI and MNI, minus
equity in earnings of TNI and MNI. |
|
|
|
|
• |
Cash Costs represent a non-GAAP financial performance measure
of operating expenses which are measured on an accrual basis and
settled in cash. This measure is useful to investors in
understanding the components of the Company’s cash-settled
operating costs. Periodically, 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 are defined as compensation,
newsprint and ink and other operating expenses. Depreciation and
amortization, assets loss (gain) on sales, impairments and other,
other non-cash operating expenses and other expenses are excluded.
Cash Costs also exclude restructuring costs and other, which are
typically paid in cash. |
|
|
|
(4 |
) |
The Company's debt is the $576 million term loan under a credit
agreement with BH Finance LLC dated January 29, 2020 (the "Credit
Agreement"). Excess Cash Flow is defined under the Credit Agreement
as any cash greater than $20,000,000 on the balance sheet in
accordance with GAAP at the end of each fiscal quarter, beginning
with the quarter ending June 28, 2020. |
|
|
|
(5 |
) |
TNI refers to TNI Partners publishing operations in Tucson, AZ. MNI
refers to Madison Newspapers, Inc. publishing operations in
Madison, WI. |
|
|
(6 |
) |
On March 27, 2020, Congress approved the Coronavirus Aid, Relief,
and Economic Security Act (the “CARES Act”) to address the economic
impact associated with the COVID-19 virus. |
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