Lee Enterprises reports third quarter results
"Total revenue(1) decreased 4.0% in the third quarter, matching the second quarter trend, as we continue the company's digital transformation" said
"On a stand-alone basis, revenue at TownNews increased 27.3% due to increased market share, including an increase in broadcast customers as well as gains in video revenue from 2018 technology acquisitions and the acquisition of GTxcel's CMS business in
"We earned
Mowbray also noted the following financial highlights for the quarter:
- Total revenue decreased 4.0% for the quarter. Excluding the impact of acquisitions total revenue on a same property basis decreased 6.1%.
- Digital advertising revenue increased 2.8% for the quarter and represented 38.7% of total advertising revenue.
- Digital retail advertising, which represented 63.2% of total digital advertising in the June quarter, grew 3.3%, driven by an increase in advertising from local retailers.
- Monthly visits to Lee mobile, tablet, desktop and app sites averaged 74.1 million, and page views per visit, one metric we use to monitor engagement, increased 6.9% on a reported basis and 7.0% on a same property basis.
- Subscription revenue decreased 3.2% in the quarter. Digital only subscribers increased 72.0%.
- We recognized net income of
$6.2 million , including$3.1 million of non-cash expense related to the change in fair value of our warrants.
"We continue to transform our business models and reduce our legacy cost structure," said Vice President and Chief Financial Officer,
"Adjusted EBITDA(2) totaled
THIRD QUARTER OPERATING RESULTS(4)
Operating revenue for the 13 weeks ended
Advertising and marketing services revenue decreased 10.6% to
Subscription revenue decreased 3.2% in the current year quarter on a reported basis and decreased 5.3% on a same property basis. Lower paid circulation units were offset by strategic pricing programs and premium content. Average daily newspaper circulation, including TNI and MNI(3) and digital subscribers, totaled 0.7 million in the current quarter. Sunday circulation totaled 1.0 million. Digital only subscribers increased 72.0% in 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 36.6% in the current year quarter. The increase was partially due to 35.7% revenue growth at TownNews and
Total digital revenue, including digital advertising and digital services, was
Operating expenses for the 13 weeks ended
Restructuring costs and other, which are primarily severance costs, totaled
Including equity in earnings of associated companies, depreciation and amortization, assets loss (gain) on sales, impairments and other, operating income totaled
In the 13 weeks ended
Income attributable to
ADJUSTED EARNINGS AND EPS FOR THE QUARTER(2)
The following table summarizes the impact from warrant fair value adjustments on income attributable to
| 13 Weeks Ended | ||||||||||||
| June 30, 2019 | June 24, 2018 | |||||||||||
| (Thousands of Dollars, Except Per Share Data) | Amount | Per Share | Amount | Per Share | ||||||||
| Income attributable to Lee Enterprises, Incorporated, as reported | 5,766 | 0.10 | 4,458 | 0.08 | ||||||||
| Adjustments: | ||||||||||||
| Warrants fair value adjustment | (3,062 | ) | (0.05 | ) | (405 | ) | (0.01 | ) | ||||
| Income attributable to Lee Enterprises, Incorporated, as adjusted | 2,704 | 0.05 | 4,053 | 0.07 | ||||||||
YEAR TO DATE OPERATING RESULTS(4)
Operating revenue for the 39 weeks ended
Advertising and marketing services revenue decreased 10.9% to
Subscription revenue decreased 3.1% in the 39 weeks ended
Other revenue, which consists of digital services, management agreement revenue, commercial printing revenue and revenue from delivery of third party products, increased 35.9% in the current year. The increase was partially due to 30.6% revenue growth at TownNews and
Total digital revenue, including digital advertising and digital services, was
Operating expenses for 2019 decreased 3.5%. Cash costs decreased 4.0% compared to the prior year on a reported basis and were down 5.2% on a same property basis. Compensation decreased 6.3%, primarily as a result of a decrease in the average number of full-time equivalent employees of 10.3%. Due to volume declines, newsprint and ink expense decreased 2.9%. Other operating expenses decreased 2.0%.
Restructuring costs and other, which are primarily severance costs, totaled
Including equity in earnings of associated companies, depreciation and amortization, assets loss (gain) on sales, impairments and other, in both years, operating income was
In the 39 weeks ended
Income attributable to
Adjusted EBITDA for the 39 weeks ended
ADJUSTED EARNINGS AND EPS FOR THE YEAR TO DATE
The following table summarizes the impact from warrant fair value adjustments and the impact from the 2017 Tax Act on income attributable to
| 39 Weeks Ended | ||||||||||||
| June 30, 2019 | June 24, 2018 | |||||||||||
| (Thousands of Dollars, Except Per Share Data) | Amount | Per Share | Amount | Per Share | ||||||||
| Income attributable to Lee Enterprises, Incorporated, as reported | 13,449 | 0.24 | 41,700 | 0.75 | ||||||||
| Adjustments: | ||||||||||||
| Warrants fair value adjustment | (389 | ) | (0.01 | ) | (529 | ) | — | |||||
| Income tax effect of 2017 Tax Act | — | (24,872 | ) | (0.45 | ) | |||||||
| Income attributable to Lee Enterprises, Incorporated, as adjusted | 13,060 | 0.22 | 16,299 | 0.29 | ||||||||
DEBT AND FREE CASH FLOW
As of
At
CONFERENCE CALL INFORMATION
As previously announced, we will hold an earnings conference call and audio webcast today at
ABOUT LEE
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;
- Our ability to manage declining print revenue;
- 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;
- 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
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.
Contact:
IR@lee.net
(563) 383-2100
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| 13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||
| (Thousands of Dollars, Except Per Share Data) | June 30, 2019 | June 24, 2018 | Percent Change | June 30, 2019 | June 24, 2018 | Percent Change | ||||||||||||
| Advertising and marketing services | 65,754 | 73,538 | (10.6 | ) | 204,651 | 229,751 | (10.9 | ) | ||||||||||
| Subscription | 46,620 | 48,165 | (3.2 | ) | 137,965 | 142,405 | (3.1 | ) | ||||||||||
| Other | 14,910 | 10,915 | 36.6 | 43,573 | 32,052 | 35.9 | ||||||||||||
| Total operating revenue | 127,284 | 132,618 | (4.0 | ) | 386,189 | 404,208 | (4.5 | ) | ||||||||||
| Operating expenses: | ||||||||||||||||||
| Compensation | 45,373 | 48,570 | (6.6 | ) | 140,197 | 149,551 | (6.3 | ) | ||||||||||
| Newsprint and ink | 5,230 | 6,442 | (18.8 | ) | 17,394 | 17,920 | (2.9 | ) | ||||||||||
| Other operating expenses | 48,157 | 49,159 | (2.0 | ) | 145,915 | 148,830 | (2.0 | ) | ||||||||||
| Cash costs | 98,760 | 104,171 | (5.2 | ) | 303,506 | 316,301 | (4.0 | ) | ||||||||||
| Total operating revenue less cash costs | 28,524 | 28,447 | 0.3 | 82,683 | 87,907 | (5.9 | ) | |||||||||||
| Depreciation and amortization | 7,347 | 7,904 | (7.0 | ) | 22,263 | 23,973 | (7.1 | ) | ||||||||||
| Assets loss (gain) on sales, impairments and other, net | (195 | ) | 101 | NM | (212 | ) | (1,197 | ) | (82.3 | ) | ||||||||
| Restructuring costs and other | 2,792 | 1,865 | 49.7 | 5,612 | 4,150 | 35.2 | ||||||||||||
| Operating expenses | 108,704 | 114,041 | (4.7 | ) | 331,169 | 343,227 | (3.5 | ) | ||||||||||
| Equity in earnings of associated companies | 1,451 | 1,578 | (8.0 | ) | 5,298 | 5,569 | (4.9 | ) | ||||||||||
| Operating income | 20,031 | 20,155 | (0.6 | ) | 60,318 | 66,550 | (9.4 | ) | ||||||||||
| Non-operating income (expense): | ||||||||||||||||||
| Interest expense | (11,860 | ) | (12,913 | ) | (8.2 | ) | (36,256 | ) | (39,837 | ) | (9.0 | ) | ||||||
| Debt financing and administrative costs | (4,196 | ) | (1,747 | ) | NM | (6,053 | ) | (4,061 | ) | 49.1 | ||||||||
| Other, net | 3,702 | 1,227 | NM | 2,730 | 3,168 | (13.8 | ) | |||||||||||
| Non-operating expenses, net | (12,354 | ) | (13,433 | ) | (8.0 | ) | (39,579 | ) | (40,730 | ) | (2.8 | ) | ||||||
| Income before income taxes | 7,677 | 6,722 | 14.2 | 20,739 | 25,820 | (19.7 | ) | |||||||||||
| Income tax expense (benefit) | 1,505 | 1,972 | (23.7 | ) | 6,175 | (16,791 | ) | NM | ||||||||||
| Net income | 6,172 | 4,750 | 29.9 | 14,564 | 42,611 | (65.8 | ) | |||||||||||
| Net income attributable to non-controlling interests | (406 | ) | (292 | ) | 39.0 | (1,115 | ) | (911 | ) | 22.4 | ||||||||
| Income attributable to Lee Enterprises, Incorporated | 5,766 | 4,458 | 29.3 | 13,449 | 41,700 | (67.7 | ) | |||||||||||
| Earnings per common share: | ||||||||||||||||||
| Basic | 0.10 | 0.08 | 27.3 | 0.24 | 0.76 | (68.3 | ) | |||||||||||
| Diluted | 0.10 | 0.08 | 27.5 | 0.24 | 0.75 | (68.1 | ) | |||||||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
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 | 53 Weeks Ended | ||||||||||||||||||
| (Thousands of Dollars) | June 30, 2019 | June 24, 2018 | June 30, 2019 | June 24, 2018 | June 30, 2019 | |||||||||||||||
| Net Income | 6,172 | 4,750 | 14,564 | 42,611 | 19,001 | |||||||||||||||
| Adjusted to exclude | ||||||||||||||||||||
| Income tax expense (benefit) | 1,505 | 1,972 | 6,175 | (16,791 | ) | 6,738 | ||||||||||||||
| Non-operating expenses, net | 12,354 | 13,433 | 39,579 | 40,730 | 53,722 | |||||||||||||||
| Equity in earnings of TNI and MNI | (1,451 | ) | (1,578 | ) | (5,298 | ) | (5,569 | ) | (8,978 | ) | ||||||||||
| Loss (gain) on sale of assets and other, net | (195 | ) | 101 | (212 | ) | (1,197 | ) | 7,414 | ||||||||||||
| Depreciation and amortization | 7,347 | 7,904 | 22,263 | 23,973 | 30,056 | |||||||||||||||
| Restructuring costs and other | 2,792 | 1,865 | 5,612 | 4,150 | 7,012 | |||||||||||||||
| Stock compensation | 321 | 425 | 1,209 | 1,441 | 1,626 | |||||||||||||||
| Add: | ||||||||||||||||||||
| Ownership share of TNI and MNI EBITDA (50%) | 1,806 | 2,189 | 6,486 | 7,433 | 8,936 | |||||||||||||||
| Adjusted EBITDA | 30,651 | 31,061 | 90,378 | 96,781 | 125,527 | |||||||||||||||
SELECTED BALANCE SHEET INFORMATION
| (Thousands of Dollars) | June 30, 2019 | September 30, 2018 | ||||
| Cash | 13,516 | 5,380 | ||||
| Debt (Principal Amount): | ||||||
| 1st Lien Term Loan | — | 6,303 | ||||
| Notes | 374,420 | 385,000 | ||||
| 2nd Lien Term Loan | 84,138 | 93,556 | ||||
| 458,558 | 484,859 |
SELECTED STATISTICAL INFORMATION
| 13 Weeks Ended | 39 Weeks Ended | |||||||||||
| June 30, 2019 | June 24, 2018 | June 30, 2019 | June 24, 2018 | |||||||||
| Capital expenditures (Thousands of Dollars) | 1,294 | 1,827 | 3,753 | 4,281 | ||||||||
| Average common shares - basic (Thousands of Shares) | 55,643 | 54,778 | 55,484 | 54,598 | ||||||||
| Average common shares - diluted (Thousands of Shares) | 56,870 | 56,080 | 56,522 | 55,903 | ||||||||
| Shares outstanding at end of period (Thousands of Shares) | 57,823 | 57,080 | ||||||||||
NOTES
| (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 | ) | 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 also 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, its lenders, and its investors. Adjusted EBITDA is defined as net income (loss), plus nonoperating expenses, income tax expense (benefit), 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 and curtailment gains. A table reconciling adjusted EBITDA to net income, the most directly comparable measure under GAAP, is set forth above under the caption "Reconciliation of Non-GAAP Financial Measures". |
||
| ● | Adjusted Income (Loss) and Adjusted Earnings (Loss) Per Common Share are non-GAAP financial performance measures that we believe offer a useful metric to evaluate overall performance of the Company by providing financial statement users the operating performance of the Company on a per share basis excluding the impact of changes in the warrant valuation as well as unusual and infrequent transactions. It is defined as income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per common share adjusted to exclude the impact of the warrant valuation and the impact of the 2017 Tax Act. Reconciliations of adjusted income (loss) and adjusted earnings (loss) per diluted common share to income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per diluted common share, respectively, the most directly comparable measures under GAAP, are set forth above under the caption “Adjusted Earnings and EPS for the Year to Date”. |
||
| ● | 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. Occasionally, 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. The subtotals of operating expenses representing cash costs are set forth above under the caption “Consolidated Statements of Operations”. |
||
| ● | Total Operating Revenue Less Cash Costs, or “margin”, represents a non-GAAP financial performance measure. This measure is useful to investors in understanding the profitability of the Company after direct cash costs related to the production and delivery of products are paid. Margin is also useful in developing opinions and expectations about the Company’s ability to manage and control its operating cost structure in relation to its peers. The reconciliation of total revenue less cash costs to operating income is set forth above under the caption “Consolidated Statements of Operations”. | ||
| (3 | ) | 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. | |
| (4 | ) | Certain amounts as previously reported have been reclassified to conform with the current period presentation. The prior periods have been adjusted for comparative purposes, and the reclassifications have no impact on earnings. | |
Source: Lee Enterprises Inc.