Lee Enterprises reports second quarter results
Solid revenue and adjusted EBITDA performance despite COVID-19
Berkshire Hathaway refinanced all Lee debt with 25-year term, attractive rate and no covenants
Closed strategic acquisition of
Expect to achieve
The discussion below reflects operating results of Lee including (i) our actual GAAP results, which reflect a full quarter and year to date period of Legacy Lee(2) results and two weeks of results of BHMG(2) and
|(in Thousands)||Actual||Pro Forma||Actual||Pro Forma||Pro Forma|
|Total operating revenue||121,367||207,329||243,710||442,025||909,532|
|Income (loss) attributable to
“We are pleased to announce our solid second quarter financial results,” said
“The impact on our business from COVID-19 was significant and immediate. Our main priorities in the response to the pandemic were to ensure the safety and well-being of our employees, our advertisers and our consumers, while also continuing to deliver vital news and information to customers in our local markets.” Mowbray said. “Our newsrooms play a crucial role in providing intensely local coverage of critical issues, and we are incredibly proud of our employees across the company during this challenging time,” said Mowbray.
“We took swift and decisive action in response to the headwinds,” added Mowbray. “We immediately implemented both temporary and permanent cost actions, solidified our relationship with our local advertisers through a marketing grant program, enhanced our liquidity through the refinancing, and continued the acquisition integration. The combination of short-term and long-term actions taken now strengthens our local market position, and now more than ever, we believe that our compelling local content, strong audiences and audience engagement, and best-in-class operators, will allow us to emerge from this crisis stronger than ever.” Mowbray added.
“The comprehensive refinancing closed in March solves our looming maturities, and provides several important benefits,” said Millage. “We lowered our cost of capital at a fixed rate and have no fixed mandatory principal payments. Further, the lack of financial performance covenants and a 25-year maturity provide a runway to drive shareholder value over the long term. We are thrilled to have completed our financing at highly attractive terms, and to strengthen our relationship with Berkshire Hathaway,” Millage added.
Second Quarter Operating Results
- Operating revenue totaled
$121.4 million, a decrease of 1.1%, as a result of continuing decline of print trends and the negative impact from the COVID-19 pandemic, partially offset by revenue from BHMG and Buffalo, which totaled $14.6 millionof revenue in the quarter. Total operating revenue on a pro forma basis decreased 10.0% in the quarter.
- Subscription revenue increased 3.0% including the impact of acquisitions. Pro forma subscription revenue totaled
$86.0 million, a decline of 2.8% compared to the prior year. Pro forma subscription revenue represented 41.4% of our total operating revenue.
- TownNews revenue increased 11.1% on a standalone basis and totaled more than
$24 millionover the last twelve months.
- Advertising revenue declined 3.2% including the impact of acquisitions. Pro forma advertising revenue totaled
$102.0 million, a decline of 15.5%, largely consistent with the first quarter pro forma trends.
- Pro forma digital advertising and marketing services revenue totaled
$32.8 million, or 32.2% of total advertising revenue. Legacy Lee digital advertising represents 43.0% of total advertising revenue.
- Pro forma total digital revenue was
$46.0 million, representing 22.2% of operating revenue.
- Digital only subscribers totaled nearly 200,000, with a 91.7% increase over the prior year at Legacy Lee, and page views were up 8.6%, excluding acquisitions and including MNI and TNI(4).
- Operating expenses decreased 2.6% due to continued business transformation efforts, partially offset by expenses associated with BHMG and
Buffalo. Pro forma Cash Costs(3) declined 9.8%.
- Adjusted EBITDA totaled
$17.4 million, despite the immediate negative revenue impact from COVID-19. Pro forma Adjusted EBITDA totaled $24.0 million.
Year-To-Date Operating Results
- Operating revenue totaled
$243.7 millionin the 26 weeks ended March 29, 2020, a decrease of 5.9%, as a result of continuing declines of print trends and negative impacts from the COVID-19 pandemic, partially offset by revenue from BHMG and Buffalo. Total operating revenue on a pro forma basis was $442.0 million.
- Operating expenses decreased 3.6% due to continued business transformation efforts, partially offset by expenses associated with BHMG and
Buffalo. Pro forma Cash Costs declined 10.2%.
- Adjusted EBITDA totaled
$45.5 million. Pro forma Adjusted EBITDA totaled $70.4 million.
Third Quarter Outlook
For the 13-weeks ended
- Total revenue of
$177.0 millionto $180.0 million.
- Adjusted EBITDA of
$21.5 millionto $23.5 million.
Debt and Liquidity
As of and for the 13-weeks ended
- Cash on the balance sheet totaled
- The principal amount of debt was
- The Company received
$17.7 millionin proceeds from asset sales.
$30 millionin real estate remains available for sale.
$10 millionin private equity investments are for sale.
- Capital expenditures, net of reimbursable leasehold improvements, totaled
- No pension contributions were made in the quarter.
In response to the pandemic, the Company has focused on preserving liquidity and has taken the following actions:
- Reduced expenses in the third quarter by more than
$10.0 millionthrough 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.
- Deferred payment of FICA payroll taxes, as allowed by the CARES Act.
As of today, the Company has more than
Conference Call Information
As previously announced, we will hold an earnings conference call and audio webcast today at
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 Newsfor 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. 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||26 Weeks Ended|
|(Thousands of Dollars, Except Per Share Data)||2020||2019||Change||2020||2019||Change|
|Advertising and marketing services||60,945||62,934||(3.2||)||126,672||138,897||(8.8||)|
|Total operating revenue||121,367||122,704||(1.1||)||243,710||258,905||(5.9||)|
|Newsprint and ink||4,321||5,825||(25.8||)||9,057||12,164||(25.5||)|
|Other operating expenses||52,842||48,016||10.1||101,304||97,758||3.6|
|Total operating revenue less cash costs||15,513||21,078||(26.4||)||41,415||54,159||(23.5||)|
|Depreciation and amortization||7,276||7,386||(1.5||)||13,995||14,916||(6.2||)|
|Assets loss (gain) on sales, impairments and other, net||(6,113||)||83||NM||(5,299||)||(17||)||NM|
|Restructuring costs and other||1,925||2,759||(30.2||)||3,557||2,820||26.1|
|Equity in earnings of associated companies||1,362||1,717||(20.7||)||2,931||3,846||(23.8||)|
|Non-operating income (expense):|
|Debt financing and administrative costs||(10,670||)||(962||)||NM||(11,865||)||(1,858||)||NM|
|Non-operating expenses, net||(21,108||)||(14,738||)||43.2||(31,825||)||(27,224||)||16.9|
|Income before income taxes||(7,321||)||(2,171||)||NM||268||13,062||(97.9||)|
|Income tax expense||(2,331||)||156||NM||(460||)||4,670||NM|
|Net income attributable to non-controlling interests||(377||)||(351||)||7.4||(774||)||(709||)||9.2|
|Income attributable to
|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:
|13 Weeks Ended||26 Weeks Ended|
|(Thousands of Dollars)|
|Adjusted to exclude|
|Income tax expense||(2,331||)||156||(460||)||4,670|
|Non-operating expenses, net||21,108||14,738||31,825||27,224|
|Equity in earnings of TNI and MNI||(1,362||)||(1,717||)||(2,931||)||(3,846||)|
|Loss (gain) on sale of assets and other, net||(6,113||)||83||(5,299||)||(17||)|
|Depreciation and amortization||7,276||7,386||13,995||14,916|
|Restructuring costs and other||1,925||2,759||3,557||2,820|
|Ownership share of TNI and MNI EBITDA (50%)||1,591||2,080||3,509||4,681|
|(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.|
|(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
Source: Lee Enterprises Inc.