Lee Enterprises reports third quarter results
Exceeded high end of revenue and Adjusted EBITDA outlook
On track to achieve
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
|13 Weeks Ended||39 Weeks Ended||39 Weeks Ended||52 Weeks Ended|
|(in Thousands)||Actual||Actual||Pro Forma||Pro Forma|
|Total operating revenue||182,528||426,238||630,027||860,576|
|Income (loss) attributable to
“We remain committed to providing high quality, trusted local news to our huge audiences and supporting our local advertisers during these uncertain times,” said
“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
“We continue to support advertisers in our local markets with the matching grant program, an initiative that generated
Third Quarter Operating Results
- Operating revenue totaled
$182.5 million, an increase of 43.4%, as a result of acquired revenue of $91.2 millionfrom 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 millionover 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 millionhigher than the upper bound of our previous outlook.
Year-To-Date Operating Results
- Operating revenue totaled
$426.2 millionin 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 millionin 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
As of and for the 13-weeks ended
- Cash on the balance sheet totaled
- Excess Cash Flow for the third quarter totaled
$36.7 millionand was used to repay debt in the fourth quarter.
- The principal amount of debt was
- Capital expenditures totaled
- 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 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(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
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. 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.
CONSOLIDATED STATEMENTS OF OPERATIONS
|13 Weeks Ended||39 Weeks Ended|
|(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||)|
|Total operating revenue||182,528||127,284||43.4||426,238||386,189||10.4|
|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|
|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|
|Equity in earnings of associated companies||842||1,451||(42.0||)||3,773||5,298||(28.8||)|
|Non-operating income (expense):|
|Debt financing and administrative costs||0||(4,196||)||NM||(11,865||)||(6,053||)||96.0|
|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
|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||39 Weeks Ended|
|(Thousands of Dollars)|
|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|
|Ownership share of TNI and MNI EBITDA (50%)||955||1,806||4,464||6,486|
|(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
|(5||)||TNI refers to
Source: Lee Enterprises Inc.