News Release Details

DAVENPORT, Iowa--(BUSINESS WIRE)--Dec. 11, 2014-- Lee Enterprises, Incorporated (NYSE:LEE), a major provider of local news, information and advertising in 50 markets, today reported preliminary⁽¹⁾ earnings of 6 cents per diluted common share for its fourth fiscal quarter ended September 28, 2014, compared with a loss of $1.71 a year ago. Excluding unusual matters, adjusted earnings per diluted common share⁽²⁾ totaled 2 cents, compared with earnings of 25 cents a year ago. For the full year, earnings per diluted common share totaled $0.13 compared to a loss of $1.51 in the prior year, and adjusted earnings per diluted common share decreased to $0.41 from $0.47.

Mary Junck, chairman and chief executive officer, said: “Lee continues to drive digital revenue and audiences at an accelerating pace. Our rapid digital growth, along with our many print and new digital initiatives, positions us especially well, we believe, for a strong 2015. Our successful introduction of full access subscriptions also continues to heighten our optimism, as our unmatched local news gives us a powerful advantage in every market.”

She added: “For the fiscal year, through our business transformation initiatives, we reduced cash costs⁽²⁾ 2.4% as reported, and 3.7% excluding the subscription-related expense reclassification, exceeding our previous guidance of a decrease of 3.0-3.5%. Since 2007 we have reduced cash costs by more than 37%, totaling $297 million. Additionally, we achieved our sixth consecutive year of strong and stable adjusted EBITDA⁽²⁾ and unlevered free cash flow⁽²⁾ and returned to profitability for the first year since 2010.”

She also noted the following financial highlights for the quarter:

• Total digital revenue increased 24.6% from the same quarter a year ago, with the trend improving each quarter of this year;
• Digital advertising revenue increased 14.8% and represented 18.5% of total advertising revenue;
• Mobile advertising revenue increased 38.3%;
• We have rolled out our full access subscription model in the majority of our markets;
• Overall revenue trends improved again this quarter, with total revenue down 0.2% from the same quarter a year ago;
• Digital audiences continued to grow at a double digit clip with 231.3 million mobile, tablet, desktop and app page views and 30.0 million unique visitors in the month of September 2014; and
• Debt was reduced $10.3 million in the quarter and another $12.3 million since the end of our fiscal year.

FOURTH QUARTER OPERATING RESULTS

Operating revenue for the 13 weeks ended September 28, 2014 totaled $162.1 million, a decrease of 0.2% compared with a year ago. Excluding the impact of a subscription-related expense reclassification as a result of moving to fee-for-service delivery contracts at several of our newspapers, operating revenue decreased 3.0%. This reclassification will increase both print subscription revenue and operating expenses, with no impact on operating cash flow⁽²⁾ or operating income. Certain delivery expenses were previously reported as a reduction of revenue. A table later in this release details the impact of the reclassification on revenue and cash costs.

Combined print and digital advertising and marketing services revenue decreased 3.4% to $106.6 million, with retail advertising down 4.6%, classified down 3.6% and national up 5.6%. Retail preprint advertising decreased 4.9%. Combined print and digital classified employment revenue increased 2.2%, while automotive decreased 13.3%, real estate decreased 6.8% and other classified increased 0.5%. Digital advertising and marketing services revenue on a stand-alone basis increased 14.8% to $19.7 million and now totals 18.5% of total advertising and marketing services revenue. Mobile advertising revenue increased 38.3%. Print advertising and marketing services revenue on a stand-alone basis decreased 6.7%.

Subscription revenue increased 6.1%. Excluding the impact of the subscription-related expense reclassification, subscription revenue decreased 4.2%.

Total digital revenue, including advertising, marketing services, subscriptions and digital businesses, totaled $24.7 million in the quarter, up 24.6%.

Cash costs increased 2.7% for the 13 weeks ended September 28, 2014. Compensation decreased 1.3%, with the average number of full-time equivalent employees down 3.3%. Newsprint and ink expense decreased 12.3%, primarily the result of a reduction in newsprint volume of 10.7%. Other operating expenses increased 10.6%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 0.8%. We expect our cash costs, excluding the subscription-related expense reclassification, to decrease 1.0-2.0% in the December 2014 quarter.

Operating cash flow decreased 10.0% from a year ago to $33.7 million. Operating cash flow margin⁽²⁾ decreased to 20.8%, compared to 23.1% a year ago. We recorded $2.6 million of non-cash impairment losses in the current year quarter compared to $171.1 million in the prior year quarter. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income totaled $20.7 million in the current year quarter, compared with an operating loss of $142.4 million a year ago. Operating income margin was 12.8% in the current year quarter.

Non-operating expenses decreased 27.4% for the 13 weeks ended September 28, 2014. Interest expense decreased 11.2% due to lower debt balances and non-cash interest expense of $1.2 million in the prior year quarter. We recognized $5,543,000 of non-operating income in the current year quarter due to the change in fair value of stock warrants issued in connection with our refinancing in 2014. Income attributable to Lee Enterprises, Incorporated for the quarter totaled $3.2 million, compared with a loss of $88.7 million a year ago.

ADJUSTED EARNINGS AND EPS FOR THE QUARTER

The following table summarizes the impact from unusual matters on income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per diluted common share. Per share amounts may not add due to rounding.

FULL ACCESS SUBSCRIPTION INITIATIVE

As previously reported, we launched our full access subscription initiative in April. As of today, 30 markets have been launched and we are on track to launch all of our markets before June 2015. Early results are promising, with large numbers of print subscribers activating their digital subscriptions in the markets launched. And, thanks in part to a major customer service initiative, subscriber losses have been lower than expected. We expect subscription revenue in the December 2014 quarter, excluding the impact of the subscription-related expense reclassification, to be comparable to the prior year level. Also as previously reported, due to the timing of the rollout and subscriber renewal dates, we expect the bulk of the positive revenue from this initiative to be realized in 2015.

YEAR-TO-DATE OPERATING RESULTS⁽³⁾

In 2014, we continued to drive strong digital revenue growth, transform our business, and rapidly reduce debt. Highlights for the year include the following:

• Digital advertising revenue reached $75.2 million for the year, an increase of 12.0%, contributing to total digital revenue growth of 17.1% and improved overall advertising trends compared to the prior year;
• We reduced reported cash costs 2.4%, and 3.7% excluding the subscription-related expense reclassification, exceeding guidance of a decrease of 3.0-3.5%. Since 2007 we have reduced cash costs of our continuing operations by more than 37%, totaling $297 million;
• We achieved our sixth consecutive year of strong and stable adjusted EBITDA and unlevered free cash flow;
• The Company returned to profitability, as reported, for the first year since 2010;
• We completed a comprehensive refinancing of our long-term debt, significantly extending maturities, improving operating flexibility and providing a substantial runway for the future;
• Debt principal reduction totaled $42.8 million in 2014 and $32 million borrowed to fund refinancing costs was also repaid; and
• The Company’s stock price increased 24% during the year, resulting in an increase in equity value to stockholders of $38 million.

Operating revenue for the 52 weeks ended September 28, 2014, totaled $656.7 million, a decrease of 2.7% compared with the 52 weeks ended September 29, 2013. Excluding the impact of the subscription-related expense reclassification, operating revenue decreased 3.7%.

Combined print and digital advertising and marketing services revenue decreased 4.0% to $442.0 million, retail advertising decreased 3.4%, classified decreased 7.0% and national increased 3.6%. Retail preprint advertising decreased 1.7%. Combined print and digital classified employment revenue decreased 1.3%, while automotive decreased 14.2%, real estate decreased 6.2% and other classified decreased 6.1%. Digital advertising and marketing services revenue on a stand-alone basis increased 12.0% to $75.2 million. Mobile advertising revenue increased 27.6%. Print advertising and marketing services revenue on a stand-alone basis decreased 6.8%.

Subscription revenue decreased 0.1%. Excluding the impact of the subscription-related expense reclassification, subscription revenue decreased 3.9%.

Total digital revenue totaled $90.2 million year to date, up 17.1% compared with a year ago.

Cash costs for the 52 weeks ended September 28, 2014 decreased 2.4% compared to the same period a year ago. Compensation decreased 4.6%, with the average number of full-time equivalent employees down 4.8%. Newsprint and ink expense decreased 12.6%, primarily the result of a reduction in newsprint volume of 11.5%. Other operating expenses increased 3.0%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 3.7%.

Operating cash flow decreased 3.5% from a year ago to $155.1 million. Operating cash flow margin decreased to 23.6% from 23.8% a year ago. We recorded $3.0 million of noncash impairment losses in the current year compared to $171.1 million in the prior year. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income increased to $113.2 million in the 52 weeks ended September 28, 2014, compared with an operating loss of $57.3 million a year ago.

Non-operating expenses increased 21.2%, as we charged $22.9 million of debt financing costs to expense and recorded a $2.3 million loss related to a litigation settlement in 2014. These costs were partially offset by a 10.9% decrease in interest expense in the current year, due to lower debt balances and the refinancing of the Pulitzer Notes in May 2013, and $6,122,000 of non-operating income from the change in fair value of stock warrants. We recorded a $6.9 million gain on sale of an investment in the prior year period. Income attributable to Lee Enterprises, Incorporated for the year totaled $6.8 million, compared to a loss of $78.3 million a year ago.

ADJUSTED EARNINGS AND EPS FOR THE YEAR TO DATE

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.

SUBSCRIPTION EXPENSE RECLASSIFICATION

Certain results, excluding the impact of the subscription-related expense reclassification, are as follows:

DEBT AND FREE CASH FLOW⁽²⁾

Debt was reduced $10.3 million in the quarter and by a net amount of $42.8 million for the fiscal year. As of September 28, 2014 the principal amount of debt was $804.8 million. As previously announced, on March 31, 2014, we completed a comprehensive refinancing of our long-term debt and borrowed an additional $32.0 million of debt in order to pay related debt refinancing costs, which was also repaid during the year.

Unlevered free cash flow totaled $32.2 million in the current year quarter compared to $47.5 million in the same quarter a year ago. Timing of receipt of income tax refunds was the biggest reason for the decrease. Unlevered free cash flow totaled $159.2 million for the fiscal year compared to $166.8 million in the prior year.

CONFERENCE CALL INFORMATION

As previously announced, we will hold an earnings conference call and audio webcast later today at 9 a.m. Central Standard Time. The live webcast will be accessible at lee.net and will be available for replay two hours later. The call also may be monitored on a listen-only conference line by dialing (toll free) 888-397-5339 and entering a conference passcode of 354430 at least five minutes before the scheduled start.

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 1.1 million daily and 1.4 million Sunday, reaching nearly four million readers in print alone. Lee's websites and mobile and tablet products attracted 30.0 million unique visitors in September 2014. 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 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

Source: Lee Enterprises

Lee Enterprises
Dan Hayes, 563-383-2100
dan.hayes@lee.net