Lee Enterprises reports first quarter; digital-only subscribers surpass 100,000 milestone
First quarter highlights:(2)
- Total digital revenue was
$37.2 million, representing 30.4% of operating revenue. Digital advertising revenue increased 5.1%, after adjusting for non-recurring political revenue in the prior year quarter, and represented 39.5% of total advertising revenue.
- Revenue at TownNews increased 17.8% from the prior year quarter.
- Due to timing of strategic pricing actions and print unit declines, subscription revenue was off trend, reflecting the challenging conditions in print. However, digital-only subscribers, which totaled 57,000 in the prior year quarter, increased 84.8% and now total 105,000.
- Total revenues were
$122.3 million in the first quarter, compared to $136.2 million in the prior year quarter. On a same property basis revenues were $119.1 million in the first quarter, compared to $136.2 million in the prior year quarter.
- Revenue from the management agreement with
BH Media Grouptotaled $4.0 million, a 53.0% increase from the prior year quarter, largely reflecting continued implementation of operational growth initiatives.
- Cash costs(3) on a same property basis were down 9.3% in the quarter, the result of significant cost actions taken during the quarter.
- Net income totaled
$5.7 million and Adjusted EBITDA(3) totaled $28.1 million.
"We made continued progress on our digital transformation in the first quarter, despite difficult comparisons to strong digital advertising results in the same quarter last fiscal year and continued weakness in print subscriptions,” said
Mowbray continued, "Most importantly, we are excited about the transformational transaction we announced with
FIRST QUARTER OPERATING RESULTS(2)
Operating revenue for the 13 weeks ended
Advertising and marketing services revenue decreased 11.1%, when adjusted for non-recurring political revenue in the prior year. In addition to a strong prior year quarter, the decrease in advertising and marketing services revenue is due to continued softness in print advertising demand resulting in reduced advertising volume primarily from large retail, big box stores and classifieds. Digital advertising and marketing services revenue increased 1.8% to
Subscription revenue decreased 9.9% due to lower paid circulation units; consistent with industry trends, partially offset by growth in digital only subscribers and digital only rates. Average daily newspaper circulation, including TNI and MNI(4) and digital subscribers, totaled 0.7 million in the current quarter. Sunday circulation totaled 1.0 million. Digital only subscribers increased 84.8% from the prior year quarter and totaled 105,000 at the end of the quarter.
Other revenue, which primarily consists of digital services revenue, management agreement revenue, commercial printing revenue and revenue from delivery of third party products, increased 6.8% in the current year quarter. The increase was partially due to 17.8% growth at TownNews and
Total digital revenue, including digital advertising, digital subscriptions and digital services, was $37.2 million for the quarter and represented 30.4% of our total operating revenue.
Operating expenses for the 13 weeks ended
Compensation decreased 8.1%. Newsprint and ink expense decreased 25.3% due to lower prices and lower volumes from print unit declines. Other operating expenses decreased 2.6% primarily driven by lower legacy print costs and offset in part by higher costs associated with growing digital revenue and increases in other cash costs from outsourcing.
Restructuring costs and other totaled
Including equity in earnings of associated companies, depreciation and amortization, assets loss (gain) on sales, impairments and other, operating income totaled
Interest expense decreased 9.3%, or
Income attributable to
|13 Weeks Ended|
|December 29||December 30,|
|(Thousands of Dollars, Except Per Share Data)||Amount||Per Share||Amount||Per Share|
|Income attributable to Lee Enterprises, Incorporated, as reported||5,320||0.09||10,361||0.18|
|Warrants fair value adjustment||(1,017||)||(0.02||)||(80||)||—|
|Income attributable to Lee Enterprises, Incorporated, as adjusted||4,303||0.07||10,281||0.18|
DEBT AND FREE CASH FLOW
As announced on
The financing from
Having held an investor call on
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:
January 29, 2020, the Company entered into an Asset and Stock Purchase Agreement (“Purchase Agreement”) with Berkshire Hathaway Inc.(“Berkshire”) and BH Media Group, Inc.(“BH Media" and “BHMG”). Under the Purchase Agreement, the Company has agreed to purchase certain assets and assume certain liabilities of BH Media’s newspapers and publications business (“BH Media Newspaper Business”), excluding real estate and production equipment, and purchase all of the issued and outstanding capital stock of The Buffalo News, Inc.(“Buffalo News”, collectively, the “Transactions”). Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the possibility that the Transactions will not be pursued; failure to obtain necessary regulatory approvals or to satisfy any of the other conditions to the proposed Transactions; adverse effects on the market price of the Company’s common stock or the Company’s operating results because of a failure to complete the proposed Transactions; failure to realize the expected benefits of the proposed Transactions; failure to promptly and effectively integrate the newspaper operations of Berkshire Hathaway; negative effects relating to the announcement of the proposed Transactions or any further announcements relating to the proposed Transactions; significant transaction costs, unknown or inestimable liabilities and lack of indemnification from Berkshire other than environmental liabilities on real estate at BHMG; potential litigation associated with the proposed Transactions; general economic and business conditions that affect the combined company following the consummation of the proposed Transactions; and the retention of certain key employees.
- 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 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;
- 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
- 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
|13 Weeks Ended|
|December 29,||December 30,||Percent|
|(Thousands of Dollars, Except Per Share Data)||2019||2018||Change|
|Advertising and marketing services||65,727||75,962||(13.5||)|
|Total operating revenue||122,343||136,201||(10.2||)|
|Newsprint and ink||4,736||6,339||(25.3||)|
|Other operating expenses||48,462||49,743||(2.6||)|
|Total operating revenue less cash costs||25,902||33,081||(21.7||)|
|Depreciation and amortization||6,719||7,529||(10.8||)|
|Assets loss (gain) on sales, impairments and other, net||814||(100||)||NM|
|Restructuring costs and other||1,632||62||NM|
|Equity in earnings of associated companies||1,569||2,129||(26.3||)|
|Non-operating income (expense):|
|Debt financing and administrative costs||(1,196||)||(896||)||33.5|
|Non-operating expenses, net||(10,718||)||(12,487||)||(14.2||)|
|Income before income taxes||7,588||15,232||(50.2||)|
|Income tax expense||1,871||4,513||(58.5||)|
|Net income attributable to non-controlling interests||(397||)||(358||)||10.9|
|Income attributable to Lee Enterprises, Incorporated||5,320||10,361||(48.7||)|
|Earnings per common share:|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The table below reconciles the non-GAAP financial performance measure of adjusted EBITDA to net income, its most directly comparable GAAP measure:
|(Thousands of Dollars)||December 29,||December 30,||December 29,|
|Adjusted to exclude|
|Income tax expense||1,871||4,513||5,289|
|Non-operating expenses, net||10,718||12,487||49,120|
|Equity in earnings of TNI and MNI||(1,569||)||(2,129||)||(6,561||)|
|Loss (gain) on sale of assets and other, net||814||(100||)||3,378|
|Depreciation and amortization||6,719||7,529||28,522|
|Restructuring costs and other||1,632||62||13,205|
|Ownership share of TNI and MNI EBITDA (50%)||1,918||2,601||8,128|
SELECTED BALANCE SHEET INFORMATION
|December 29,||September 29,|
|(Thousands of Dollars)||2019||2019|
|Debt (Principal Amount):|
|2nd Lien Term Loan||77,253||80,207|
SELECTED STATISTICAL INFORMATION
|13 Weeks Ended|
|December 29,||December 30,|
|Capital expenditures (Thousands of Dollars)||2,458||1,002|
|Average common shares - basic (Thousands of Shares)||56,270||55,204|
|Average common shares - diluted (Thousands of Shares)||57,053||56,701|
|Shares outstanding at end of period (Thousands of Shares)||58,136||57,691|
|(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)||To facilitate a comparison of our results to prior periods, certain revenue and expense trends are presented on a same property basis and exclude the impact of acquisitions of revenues and expenses in the computation of the trends.|
|(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:|
||The 1st Lien Term Loan is the $250 million first lien term loan and $40 million revolving facility (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.|
Source: Lee Enterprises Inc.