News Release Details

DAVENPORT, Iowa--(BUSINESS WIRE)--Feb. 4, 2016-- Lee Enterprises, Incorporated (NYSE: LEE), a major provider of local news, information and advertising in 50 markets, today reported preliminary⁽¹⁾ results for its 2016 first fiscal quarter ended December 27, 2015.

"We are off to a strong start in 2016. Digital advertising, subscriptions, digital services, commercial printing and other revenue accounted for more than half of our total revenue in the quarter. All of these categories are growing, and we see opportunity for future expansion," Mary Junck, chairman and chief executive officer said.

"We continue to carefully manage cash costs⁽²⁾ and expect 2016 to be another year of strong cash flow for Lee, allowing our aggressive debt reduction," She added. "In the first quarter of 2016, we reduced debt by nearly $22 million and have paid down more than $80 million in the last twelve months."

Other first quarter financial highlights include:

• Digital ad revenue was up 7.2%, representing 20.6% of total advertising revenue in the quarter.
• Mobile advertising revenue, which is included in digital advertising, increased 12.4%.
• Digital services revenue, primarily TownNews.com, increased 5.7% to $3.3 million.
• Subscription revenue increased 0.1%.
• Overall revenue decreased 5.0% in first quarter and total advertising and marketing services revenue decreased 8.8%. Both categories improved steadily throughout the quarter.
• Total cash costs excluding workforce adjustment costs decreased 5.2%.
• First quarter operating cash flow⁽²⁾ totaled $43.6 million, a 5.2% decline from the prior year quarter.
• Our share of EBITDA⁽²⁾ from MNI⁽³⁾ and TNI⁽³⁾ increased 1.4%.
• Adjusted EBITDA⁽²⁾ totaled $48.6 million, a 3.6% decline from the prior year quarter.

"We have made excellent progress with several key initiatives," Junck said. "In the first quarter, we re-launched several of our websites with a new design aimed at improving reader engagement and driving digital revenue. We'll transition all of our websites to the new design throughout this year.

"Re-designed print products have been introduced in many of our markets, and they have been very well received by our readers. This on-going re-design and transformation of how we produce and present news, which we call the 'daVinci Project,' not only improves the look and ease of use of our newspapers, but also, through resource consolidation, creates significant cost savings," she added.

"Currently, 40.3% of our print subscribers have activated the digital subscriptions available to them through our full access subscription model, which continues to grow, providing our print readers with on-demand breaking news. It also helps grow our digital audiences."

Earnings of 21 cents per diluted common share were reported for the quarter compared to earnings of 18 cents a year ago. Excluding unusual matters, adjusted earnings per diluted common share⁽²⁾ totaled 22 cents, the same as a year ago.

"We continue to produce strong EBITDA and reduce debt," said Chief Financial Officer and Treasurer Ron Mayo. "For the last twelve months, EBITDA totaled $155.7 million, Adjusted EBITDA totaled $161.5 million and unlevered free cash flow⁽²⁾ totaled $149.0 million. As of December 27, 2015, the principal amount of debt was $704.0 million. The company will continue to use substantially all of its free cash flow⁽²⁾ to reduce debt and strengthen the company's capital structure.

"During the past twelve months, we reduced debt by $80.5 million, including $21.9 million in the first quarter of 2016," he added. "Our highest cost of capital, the 2nd Lien Term Loan⁽³⁾, was reduced by $5.6 million, and we were able to repurchase $5 million of our Notes⁽³⁾ at a substantial discount."

On January 15, 2016, Lee received payment of $30,645,628 from its insurer for its share of a subrogation recovery arising from the settlement of claims for damages suffered as a result of a 2009 loss at one of the Lee Legacy production facilities.

"Of the total proceeds we received, $20 million was used to reduce outstanding debt under our 1st Lien Term Loan⁽³⁾," Mayo said. "To the extent permissible and available at a discount, we intend to use some portion of the remaining proceeds to repurchase outstanding Notes or further pay down the 1st Lien Term Loan."

Mayo continued, "Total debt as of today is $678 million after including $20 million of insurance proceeds already used to reduce the 1st Lien Term Loan in January 2016, along with required principal amortization."

Mayo also noted:

• Interest expense to be settled in cash was reduced $1.6 million in the first quarter as a result of debt reductions, which provides additional free cash flow that will be used for future debt reductions.
• Lee has initiated a comprehensive real estate monetization review program. The undepreciated book value of the land and buildings under review is in excess of $200 million.

"In fiscal year 2016, we expect cash costs excluding workforce adjustments to decline by 3.5% to 4.0%, reaffirming our guidance issued in December," Mayo added.

FIRST QUARTER OPERATING RESULTS

Operating revenue for the 13 weeks ended December 27, 2015 totaled $168.4 million, a decrease of 5.0% compared with a year ago.

Advertising and marketing services revenue combined decreased 8.8% to $105.6 million, with retail advertising down 8.4%, classified down 13.4% and national down 5.7%. Digital advertising and marketing services revenue on a stand-alone basis increased 7.2% to $21.8 million.

Subscription revenue increased 0.1%.

Average daily newspaper circulation, including TNI and MNI and digital subscribers, totaled 1.0 million in the 13 weeks ended December 27, 2015. Sunday circulation totaled 1.4 million.

Including digital advertising, subscription, digital services, commercial printing and other revenue, 50.2% of revenue comes from growing categories.

Cash costs decreased 4.9% for the 13 weeks ended December 27, 2015. Compensation decreased 5.3%, primarily as a result of reduced staffing levels. Newsprint and ink expense decreased 24.4%, primarily the result of lower newsprint prices and a reduction in newsprint volume of 11.3%. Other operating expenses decreased 2.3%.

Operating cash flow decreased 5.2% from a year ago to $43.6 million. Excluding workforce adjustments, operating cash flow decreased 4.3%. Operating cash flow margin⁽²⁾ was flat to the prior year quarter at 25.9%. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income totaled $36.4 million in the current year quarter, compared with $37.5 million a year ago. Adjusted EBITDA for the quarter was $48.6 million, a 3.6% decline from the prior year.

Non-operating expenses decreased 15.4% for the 13 weeks ended December 27, 2015. Interest expense decreased 8.8%, or $1.6 million, due to lower debt balances. Non-operating income of $0.1 million was recognized in the current year quarter compared to non-operating expense of $1.3 million in the prior year quarter due to the change in fair value of stock warrants issued in connection with the refinancing in 2014. Partially offsetting those expense reductions, $1.3 million of debt refinancing and administrative costs was expensed in the current year quarter compared to $1.1 million in the prior year quarter. Income attributable to Lee Enterprises, Incorporated for the quarter totaled $11.2 million, compared with income of $9.8 million a year ago.

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.

DEBT AND FREE CASH FLOW

Debt was reduced $21.9 million in the quarter and $80.5 million over the last twelve months. As of December 27, 2015 the principal amount of debt was $704.0 million.

Unlevered free cash flow decreased 0.5% in the current year quarter to $45.8 million compared to $46.0 million in the same quarter a year ago. At December 27, 2015, liquidity, including cash and availability under our Revolving Facility⁽³⁾, totaled $44.7 million compared to $26.1 million of required debt principal payments over the next twelve months.

As previously noted, of the total proceeds of $30,645,628 received by the company, in January 2016 $20 million was used to reduce outstanding debt under its 1st Lien Term Loan and, to the extent permissible and available at a discount, we intend to use some portion of the remaining proceeds to repurchase outstanding Notes or prepay the 1st Lien Term Loan.

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) 888-516-2445 and entering a conference passcode of 699329 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 46 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 circulation of 1.0 million daily and 1.4 million Sunday, reaching 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.

NOTES

View source version on businesswire.com: http://www.businesswire.com/news/home/20160204005334/en/

Source: Lee Enterprises, Incorporated

Lee Enterprises, Incorporated
Charles Arms, 563-383-2100
Director of Communications
IR@lee.net