Delaware (State of Incorporation) | 42-0823980 (I.R.S. Employer Identification No.) |
Item 2.02. | Results of Operation and Financial Condition. |
Item 7.01. | Regulation FD Disclosure. |
LEE ENTERPRISES, INCORPORATED | ||||
/s/ Ronald A. Mayo | ||||
Date: | December 6, 2017 | By: | ||
Ronald A. Mayo | ||||
Vice President, Chief Financial Officer, | ||||
and Treasurer |
• | Digital retail advertising, which represented 61% of total digital advertising in the September quarter, grew 7.9% in the quarter and 9.4% for the fiscal year, driven by advertising from local retailers. |
• | Total digital revenue, including digital advertising and digital services, totaled $26.7 million for the quarter, an increase of 3.8% over the prior year. Total digital revenue increased 6.7% for the 2017 fiscal year. Monthly page views of Lee mobile, tablet, desktop and app sites averaged 244.2 million, an increase of 11.6% over the prior year quarter. |
• | Total advertising and marketing services revenue decreased 10.2% in the quarter. |
13 Weeks Ended | |||||||||||
September 24 2017 | September 25 2016 | ||||||||||
(Thousands of Dollars, Except Per Share Data) | Amount | Per Share | Amount | Per Share | |||||||
Income attributable to Lee Enterprises, Incorporated, as reported | 3,185 | 0.06 | 404 | 0.01 | |||||||
Adjustments: | |||||||||||
Warrants fair value adjustment | 237 | 7,115 | |||||||||
237 | — | 7,115 | 0.13 | ||||||||
Income attributable to Lee Enterprises, Incorporated, as adjusted | 3,422 | 0.06 | 7,519 | 0.14 |
52 Weeks Ended | |||||||||||
September 24 2017 | September 25 2016 | ||||||||||
(Thousands of Dollars, Except Per Share Data) | Amount | Per Share | Amount | Per Share | |||||||
Income attributable to Lee Enterprises, Incorporated, as reported | 27,481 | 0.50 | 34,961 | 0.64 | |||||||
Adjustments: | |||||||||||
Warrants fair value adjustment | (10,181 | ) | 7,519 | ||||||||
Gain on insurance settlement | — | (30,646 | ) | ||||||||
(10,181 | ) | (23,127 | ) | ||||||||
Income tax effect of adjustments, net | — | 10,726 | |||||||||
(10,181 | ) | (0.18 | ) | (12,401 | ) | (0.23 | ) | ||||
Income attributable to Lee Enterprises, Incorporated, as adjusted | 17,300 | 0.31 | 22,560 | 0.42 |
• | 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; |
• | 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. |
13 Weeks Ended | 52 Weeks Ended | |||||||||||||||
(Thousands of Dollars, Except Per Share Data) | Sept 24 2017 | Sept 25 2016 | Percent Change | Same Property | Sept 24 2017 | Sept 25 2016 | Percent Change | Same Property | ||||||||
Advertising and marketing services: | ||||||||||||||||
Retail | 49,915 | 54,339 | (8.1 | ) | (9.9 | ) | 212,737 | 238,641 | (10.9 | ) | (10.0 | ) | ||||
Classified | 21,972 | 24,528 | (10.4 | ) | (12.1 | ) | 88,429 | 101,077 | (12.5 | ) | (12.2 | ) | ||||
National | 5,071 | 5,108 | (0.7 | ) | (1.2 | ) | 20,049 | 22,114 | (9.3 | ) | (8.6 | ) | ||||
Niche publications and other | 2,586 | 2,826 | (8.5 | ) | (14.4 | ) | 10,145 | 11,631 | (12.8 | ) | (13.9 | ) | ||||
Total advertising and marketing services revenue | 79,544 | 86,801 | (8.4 | ) | (10.2 | ) | 331,360 | 373,463 | (11.3 | ) | (10.6 | ) | ||||
Subscription | 50,616 | 49,753 | 1.7 | 0.6 | 191,922 | 194,002 | (1.1 | ) | (0.6 | ) | ||||||
Digital services | 3,618 | 3,969 | (8.8 | ) | (8.5 | ) | 14,008 | 14,240 | (1.6 | ) | (1.3 | ) | ||||
Commercial printing | 1,924 | 2,884 | (33.3 | ) | (34.8 | ) | 9,742 | 12,269 | (20.6 | ) | (20.0 | ) | ||||
Other | 4,510 | 4,771 | (5.5 | ) | (5.7 | ) | 19,911 | 20,390 | (2.3 | ) | (2.3 | ) | ||||
Total operating revenue | 140,212 | 148,178 | (5.4 | ) | (6.8 | ) | 566,943 | 614,364 | (7.7 | ) | (7.1 | ) | ||||
Operating expenses: | ||||||||||||||||
Compensation | 50,645 | 55,019 | (7.9 | ) | (9.6 | ) | 209,692 | 229,752 | (8.7 | ) | (8.4 | ) | ||||
Newsprint and ink | 5,688 | 6,767 | (15.9 | ) | (16.2 | ) | 24,904 | 26,110 | (4.6 | ) | (4.7 | ) | ||||
Other operating expenses | 49,647 | 52,394 | (5.2 | ) | (6.9 | ) | 199,754 | 218,726 | (8.7 | ) | (7.4 | ) | ||||
Workforce adjustments and other | 1,150 | 209 | NM | NM | 7,523 | 1,825 | NM | NM | ||||||||
Cash costs | 107,130 | 114,389 | (6.3 | ) | (7.9 | ) | 441,873 | 476,413 | (7.3 | ) | (6.5 | ) | ||||
33,082 | 33,789 | (2.1 | ) | (3.3 | ) | 125,070 | 137,951 | (9.3 | ) | (9.4 | ) | |||||
Depreciation | 3,936 | 4,316 | (8.8 | ) | 16,026 | 17,291 | (7.3 | ) | ||||||||
Amortization | 6,352 | 6,373 | (0.3 | ) | 25,256 | 26,150 | (3.4 | ) | ||||||||
Gain on sales of assets and other, net | 111 | (1,573 | ) | NM | (3,667 | ) | (3,139 | ) | 16.8 | |||||||
Impairment of intangible and other assets | 2,517 | 2,382 | 5.7 | 2,517 | 2,185 | 15.2 | ||||||||||
Equity in earnings of associated companies | 1,575 | 1,900 | (17.1 | ) | 7,609 | 8,533 | (10.8 | ) | ||||||||
Operating income | 21,741 | 24,191 | (10.1 | ) | 92,547 | 103,997 | (11.0 | ) | ||||||||
Non-operating income (expense): | ||||||||||||||||
Interest expense | (13,654 | ) | (15,027 | ) | (9.1 | ) | (57,573 | ) | (64,233 | ) | (10.4 | ) | ||||
Debt financing and administrative costs | (1,354 | ) | (1,384 | ) | (2.2 | ) | (4,818 | ) | (5,947 | ) | (19.0 | ) | ||||
Gain on insurance settlement | — | — | NM | — | 30,646 | NM | ||||||||||
Other, net | (874 | ) | (7,514 | ) | (88.4 | ) | 10,060 | (6,268 | ) | NM | ||||||
(15,882 | ) | (23,925 | ) | (33.6 | ) | (52,331 | ) | (45,802 | ) | 14.3 | ||||||
Income before income taxes | 5,859 | 266 | NM | 40,216 | 58,195 | (30.9 | ) | |||||||||
Income tax expense | 2,358 | (395 | ) | NM | 11,611 | 22,176 | (47.6 | ) | ||||||||
Net income | 3,501 | 661 | NM | 28,605 | 36,019 | (20.6 | ) | |||||||||
Net income attributable to non-controlling interests | (316 | ) | (257 | ) | 23.0 | (1,124 | ) | (1,058 | ) | 6.2 | ||||||
Income attributable to Lee Enterprises, Incorporated | 3,185 | 404 | NM | 27,481 | 34,961 | (21.4 | ) | |||||||||
Earnings per common share: | ||||||||||||||||
Basic | 0.06 | 0.01 | NM | 0.51 | 0.66 | (22.7 | ) | |||||||||
Diluted | 0.06 | 0.01 | NM | 0.50 | 0.64 | (21.9 | ) |
13 Weeks Ended | 52 Weeks Ended | |||||||
(Thousands of Dollars) | Sept 24 2017 | Sept 25 2016 | Sept 24 2017 | Sept 25 2016 | ||||
Net Income | 3,501 | 661 | 28,605 | 36,019 | ||||
Adjusted to exclude | ||||||||
Income tax expense | 2,358 | (395 | ) | 11,611 | 22,176 | |||
Non-operating expenses (income), net | 15,882 | 23,925 | 52,331 | 45,802 | ||||
Equity in earnings of TNI and MNI | (1,575 | ) | (1,900 | ) | (7,609 | ) | (8,533 | ) |
Gain on sale of assets and other, net | 111 | (1,573 | ) | (3,667 | ) | (3,139 | ) | |
Impairment of intangible and other assets | 2,517 | 2,382 | 2,517 | 2,185 | ||||
Depreciation and amortization | 10,288 | 10,689 | 41,282 | 43,441 | ||||
Workforce adjustments and other | 1,150 | 209 | 7,523 | 1,825 | ||||
Stock compensation | 524 | 592 | 2,088 | 2,306 | ||||
Add: | ||||||||
Ownership share of TNI and MNI EBITDA (50%) | 1,985 | 2,560 | 9,927 | 11,705 | ||||
Adjusted EBITDA | 36,741 | 37,150 | 144,608 | 153,787 |
(Thousands of Dollars) | September 24 2017 | September 25 2016 | |||
Cash | 10,621 | 16,984 | |||
Debt (Principal Amount): | |||||
1st Lien Term Loan | 45,145 | 101,304 | |||
Notes | 385,000 | 385,000 | |||
2nd Lien Term Loan | 118,240 | 130,863 | |||
548,385 | 617,167 |
13 Weeks Ended | 52 Weeks Ended | ||||||||||||
(same property, except shares) | Sept 24 2017 | Sept 25 2016 | Percent Change | Sept 24 2017 | Sept 25 2016 | Percent Change | |||||||
Capital expenditures (Thousands of Dollars) | 850 | 1,304 | (34.8 | ) | 4,078 | 7,072 | (42.3 | ) | |||||
Newsprint volume (Tonnes) | 9,749 | 10,841 | (10.1 | ) | 39,902 | 45,467 | (12.2 | ) | |||||
Average full-time equivalent employees | 3,437 | 3,820 | (10.0 | ) | 3,597 | 3,930 | (8.5 | ) | |||||
Average common shares - basic (Thousands of Shares) | 54,226 | 53,264 | 1.8 | 53,990 | 53,198 | 1.5 | |||||||
Average common shares - diluted (Thousands of Shares) | 55,575 | 55,059 | 0.9 | 55,392 | 54,224 | 2.2 | |||||||
Shares outstanding at end of period (Thousands of Shares) | 56,712 | 55,771 | 1.7 |
(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 and its investors. Adjusted EBITDA is defined as net income (loss), plus nonoperating expenses, income tax expense (benefit), depreciation, amortization, loss (gain) on sale of assets, impairment charges, workforce adjustment and other costs, stock compensation and our 50% share of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI and curtailment gains. | ||||||
| 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, unusual matters and those of a substantially non-recurring nature. | ||||||
| Cash Costs is a non-GAAP financial performance measure of operating expenses that are settled in cash and is useful to investors in understanding the components of the Company’s cash operating costs. Generally, 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 is defined as compensation, newsprint and ink, other operating expenses. Depreciation, amortization, impairment charges, other non-cash operating expenses and other unusual and infrequent transactions are excluded. Cash Costs are also presented excluding workforce adjustments and other. | ||||||
| We also present revenue and certain operating expense trends on a Same Property basis which excludes the operating results of the Daily Herald in Provo, Utah, which was sold in August 2016, a weekly publication purchased in 2017, and the purchase of the Dispatch-Argus on June 30, 2017. Same Property results are useful to investors in understanding the revenue and operating expense trends excluding the impact of changes due to operations no longer owned by the Company. | ||||||
(3) | The 1st Lien Term Loan is the $250 million first lien term loan and $40 million 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. |
13 Weeks Ended (unaudited) | |||||||||||||
September 24, 2017 | September 25, 2016 | ||||||||||||
(in thousands) | Consolidated | Lee Legacy | Pulitzer Inc. | Consolidated | Lee Legacy | Pulitzer Inc. | |||||||
Operating revenue: | |||||||||||||
Advertising and marketing services | 79,544 | 56,242 | 23,302 | 86,801 | 60,377 | 26,424 | |||||||
Subscription | 50,616 | 35,870 | 14,746 | 49,753 | 33,984 | 15,769 | |||||||
Other | 10,052 | 8,308 | 1,744 | 11,624 | 9,647 | 1,977 | |||||||
Total operating revenue | 140,212 | 100,420 | 39,792 | 148,178 | 104,008 | 44,170 | |||||||
Operating expenses: | |||||||||||||
Compensation | 50,645 | 38,705 | 11,940 | 55,019 | 42,318 | 12,701 | |||||||
Newsprint and ink | 5,688 | 3,859 | 1,829 | 6,767 | 4,881 | 1,886 | |||||||
Other cash costs | 49,647 | 30,097 | 19,550 | 52,394 | 28,109 | 24,285 | |||||||
Depreciation and amortization | 10,288 | 7,450 | 2,838 | 10,689 | 7,651 | 3,038 | |||||||
Loss (gain) on sale of assets, net | 111 | 62 | 49 | (1,573 | ) | (13 | ) | (1,560 | ) | ||||
Impairment of intangible and other assets | 2,517 | 819 | 1,698 | 2,382 | 1,820 | 562 | |||||||
Workforce adjustments and other | 1,150 | 1,006 | 144 | 209 | 209 | — | |||||||
Total operating expenses | 120,046 | 81,998 | 38,048 | 125,887 | 84,975 | 40,912 | |||||||
Equity in earnings of MNI and TNI | 1,575 | 708 | 867 | 1,900 | 795 | 1,105 | |||||||
Operating income | 21,741 | 19,130 | 2,611 | 24,191 | 19,828 | 4,363 | |||||||
Non-operating income (expense), net | (15,882 | ) | (17,415 | ) | 1,533 | (23,925 | ) | (24,835 | ) | 910 | |||
Income tax expense | 2,358 | 853 | 1,505 | (395 | ) | (2,494 | ) | 2,099 | |||||
Net income | 3,501 | 862 | 2,639 | 661 | (2,513 | ) | 3,174 |
Net Income | 3,501 | 862 | 2,639 | 661 | (2,513 | ) | 3,174 | ||||||
Adjusted to exclude | |||||||||||||
Non-operating expenses, net | 15,882 | 17,415 | (1,533 | ) | 23,925 | 24,835 | (910 | ) | |||||
Income tax expense | 2,358 | 853 | 1,505 | (395 | ) | (2,494 | ) | 2,099 | |||||
Equity in earnings of TNI and MNI | (1,575 | ) | (708 | ) | (867 | ) | (1,900 | ) | (795 | ) | (1,105 | ) | |
Depreciation and amortization | 10,288 | 7,450 | 2,838 | 10,689 | 7,651 | 3,038 | |||||||
Loss (gain) on sale of assets, net | 111 | 62 | 49 | (1,573 | ) | (13 | ) | (1,560 | ) | ||||
Impairment of intangible and other assets | 2,517 | 819 | 1,698 | 2,382 | 1,820 | 562 | |||||||
Workforce adjustments and other | 1,150 | 1,006 | 144 | 209 | 209 | — | |||||||
Stock compensation | 524 | 524 | — | 592 | 592 | — | |||||||
Add: | |||||||||||||
Ownership share of TNI and MNI EBITDA (50%) | 1,985 | 1,013 | 972 | 2,560 | 1,350 | 1,210 | |||||||
Adjusted EBITDA | 36,741 | 29,296 | 7,445 | 37,150 | 28,822 | 6,508 | |||||||
Supplemental cash flow information | |||||||||||||
Distributions from MNI and TNI | 1,762 | 750 | 1,012 | 2,906 | 1,405 | 1,501 | |||||||
Capital expenditures | (850 | ) | (802 | ) | (48 | ) | (1,301 | ) | (1,047 | ) | (254 | ) | |
Pension contributions | (106 | ) | (106 | ) | — | (2,290 | ) | (1,464 | ) | (826 | ) | ||
Cash income tax refunds (payments) | (134 | ) | (164 | ) | 30 | 6 | 6 | — | |||||
Interest income | 111 | (1,422 | ) | 1,533 | 74 | — | 74 | ||||||
Interest to be settled in cash | (13,654 | ) | (9,969 | ) | (3,685 | ) | (15,027 | ) | (11,028 | ) | (3,999 | ) | |
Debt financing and administrative costs | (2 | ) | (2 | ) | — | (378 | ) | (378 | ) | — |
52 Weeks Ended (unaudited) | |||||||||||||
September 24, 2017 | September 25, 2016 | ||||||||||||
(in thousands) | Consolidated | Lee Legacy | Pulitzer Inc. | Consolidated | Lee Legacy | Pulitzer Inc. | |||||||
Operating revenue: | |||||||||||||
Advertising and marketing services | 331,360 | 231,342 | 100,018 | 373,463 | 258,920 | 114,543 | |||||||
Subscription | 191,922 | 133,993 | 57,929 | 194,002 | 133,153 | 60,849 | |||||||
Other | 43,661 | 36,136 | 7,525 | 46,899 | 39,330 | 7,569 | |||||||
Total operating revenue | 566,943 | 401,471 | 165,472 | 614,364 | 431,403 | 182,961 | |||||||
Operating expenses: | |||||||||||||
Compensation | 209,692 | 160,598 | 49,094 | 229,752 | 175,166 | 54,586 | |||||||
Newsprint and ink | 24,904 | 17,274 | 7,630 | 26,110 | 18,822 | 7,288 | |||||||
Other cash costs | 199,754 | 118,792 | 80,962 | 218,726 | 123,600 | 95,126 | |||||||
Depreciation and amortization | 41,282 | 29,643 | 11,639 | 43,441 | 30,666 | 12,775 | |||||||
Loss (gain) on sale of assets, net | (3,667 | ) | (3,657 | ) | (10 | ) | (3,139 | ) | 643 | (3,782 | ) | ||
Impairment of intangible and other assets | 2,517 | 819 | 1,698 | 2,185 | 1,820 | 365 | |||||||
Workforce adjustments and other | 7,523 | 6,293 | 1,230 | 1,825 | 1,719 | 106 | |||||||
Total operating expenses | 482,005 | 329,762 | 152,243 | 518,900 | 352,436 | 166,464 | |||||||
Equity in earnings of MNI and TNI | 7,609 | 2,954 | 4,655 | 8,533 | 3,473 | 5,060 | |||||||
Operating income | 92,547 | 74,663 | 17,884 | 103,997 | 82,440 | 21,557 | |||||||
Non-operating income (expense), net | (52,331 | ) | (57,049 | ) | 4,718 | (45,802 | ) | (48,988 | ) | 3,186 | |||
Income tax expense | 11,611 | 3,402 | 8,209 | 22,176 | 13,189 | 8,987 | |||||||
Net income | 28,605 | 14,212 | 14,393 | 36,019 | 20,263 | 15,756 |
Net Income | 28,605 | 14,212 | 14,393 | 36,019 | 20,263 | 15,756 | |||||||
Adjusted to exclude | |||||||||||||
Non-operating expenses, net | 52,331 | 57,049 | (4,718 | ) | 45,802 | 48,988 | (3,186 | ) | |||||
Income tax expense | 11,611 | 3,402 | 8,209 | 22,176 | 13,189 | 8,987 | |||||||
Equity in earnings of TNI and MNI | (7,609 | ) | (3,821 | ) | (3,788 | ) | (8,533 | ) | (3,473 | ) | (5,060 | ) | |
Depreciation and amortization | 41,282 | 29,643 | 11,639 | 43,441 | 30,666 | 12,775 | |||||||
Loss (gain) on sale of assets, net | (3,667 | ) | (3,657 | ) | (10 | ) | (3,139 | ) | 643 | (3,782 | ) | ||
Impairment of intangible and other assets | 2,517 | 819 | 1,698 | 2,185 | 1,820 | 365 | |||||||
Workforce adjustments and other | 7,523 | 6,293 | 1,230 | 1,825 | 1,719 | 106 | |||||||
Stock compensation | 2,088 | 2,088 | — | 2,306 | 2,306 | — | |||||||
Add: | |||||||||||||
Ownership share of TNI and MNI EBITDA (50%) | 9,927 | 4,854 | 5,073 | 11,705 | 6,226 | 5,479 | |||||||
Adjusted EBITDA | 144,608 | 110,882 | 33,726 | 153,787 | 120,527 | 31,440 | |||||||
Supplemental cash flow information: | |||||||||||||
Distributions from MNI and TNI | 8,144 | 3,500 | 4,644 | 13,886 | 7,250 | 6,636 | |||||||
Capital expenditures | (4,078 | ) | (3,711 | ) | (367 | ) | (7,091 | ) | (6,281 | ) | (810 | ) | |
Pension contributions | (106 | ) | (106 | ) | — | (4,604 | ) | — | (4,604 | ) | |||
Cash income tax refunds (payments) | (1,214 | ) | (1,215 | ) | 1 | (269 | ) | (263 | ) | (6 | ) | ||
Interest income | 372 | (4,346 | ) | 4,718 | 400 | — | 400 | ||||||
Interest to be settled in cash | (57,573 | ) | (42,268 | ) | (15,305 | ) | (64,233 | ) | (47,787 | ) | (16,446 | ) | |
Debt financing and administrative costs | (373 | ) | (373 | ) | — | (422 | ) | (378 | ) | (44 | ) |