DAVENPORT, Iowa (December 6, 2017) — Lee Enterprises, Incorporated (NYSE: LEE), a major provider of local news, information and advertising in 50 markets, today reported earnings(1) of $3.5 million for its fourth fiscal quarter ended September 24, 2017, or 6 cents per diluted common share. For the same quarter a year ago, earnings totaled $0.7 million, or 1 cent per diluted common share. For the fiscal year, earnings totaled

$28.6 million, or 50 cents per diluted common share, compared to $36.0 million, or 64 cents per diluted common share, in the prior year.

"Adjusted EBITDA(2) for the fourth quarter totaled $36.7 million and was down 1.1% from the prior year. This is an improving trend and the best quarterly Adjusted EBITDA performance, as compared to the prior year quarter, in two years," Chief Executive Officer Kevin Mowbray said. "We also maintained our industry-leading margins in both the fourth quarter and fiscal 2017. For the fiscal year, Adjusted EBITDA was $144.6 million, a decline of 6.0% from the prior year."

The analysis of fourth quarter and year-end revenue and cash costs are presented on a same property basis(2) unless otherwise noted.

"Digital advertising revenue increased 6.1% and represented 29.3% of total advertising revenue for the quarter," Mowbray said. "For the fiscal year, digital advertising revenue increased 8.0% and accounted for 27.8% of total advertising revenue, making it our best annual performance in the category since 2014.

"Our pricing and premium content strategies drove a subscription revenue increase of 0.6% in the fourth quarter," Mowbray added. "The past two quarters of positive subscription revenue resulted in the fiscal year subscription revenue being down only 0.6%.

"A soft print advertising environment contributed to overall revenue declines," Mowbray said. "Fourth quarter total revenue was down 6.8%, a performance very close to last quarter and better than the trend from earlier in the year. Total revenue was down 7.1% in fiscal year 2017."

Mowbray also noted the following same-property financial highlights for the quarter and fiscal year:

  • 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.

"Cash costs(2) in the quarter, excluding workforce adjustments and other, were down 8.8% compared to the prior year," said Treasurer and Chief Financial Officer Ron Mayo. "For fiscal 2017, cash costs decreased 7.7%, exceeding guidance from earlier this year of 6.5%. We expect the carryover impact from these cost reductions to positively impact 2018.

"The company continues to aggressively reduce debt," Mayo added. "Debt reduction in the September quarter was $20.1 million and totaled $68.8 million for the fiscal year, resulting in reduced interest expense of

$6.7 million, or 10.4%, in the past twelve months."

As of September 24, 2017, the principal amount of debt was $548.4 million, Mayo said. Leverage net of cash was 3.72 times Adjusted EBITDA compared to 3.91 times Adjusted EBITDA one year ago, he added.

FOURTH QUARTER OPERATING RESULTS

Operating revenue for the 13 weeks ended September 24, 2017 totaled $140.2 million, a decrease of 5.4% compared with a year ago. On a same property basis, total operating revenue for the 13 weeks ended September 24, 2017 decreased 6.8%. Unless otherwise noted, revenue and operating expense trends below are presented on a same property basis.

Advertising and marketing services revenue combined decreased 10.2% to $77.1 million, with retail advertising down 9.9%, classified down 12.1% and national down 1.2%. Digital advertising and marketing services revenue on a stand-alone basis increased 6.1% to $23.1 million, and digital retail advertising, which represents 61% of total digital advertising, grew 7.9% in the quarter. Digital advertising represents 29.3% of total advertising revenue.

Total digital revenue, including digital advertising and digital services, was $26.7 million for the quarter, up 3.8% compared with a year ago. Mobile, tablet, desktop and app sites, including TNI and MNI(3), attracted monthly average page views of 244.2 million for the 13 weeks ended September 24, 2017, an increase of 11.6% over the prior year.

Subscription revenue increased 0.6% in the current year quarter due to price increases and additional revenue from premium content.

Average daily newspaper circulation, including TNI and MNI and digital subscribers, totaled 0.8 million in the 13 weeks ended September 24, 2017. Sunday circulation totaled 1.1 million.

Operating expenses for the 13 weeks ended September 24, 2017 decreased 9.7%. Cash costs, excluding workforce adjustments and other, decreased 8.8%. Compensation decreased 9.6%, primarily as a result of a reduction in staffing levels and lower self-insured medical costs. Newsprint and ink expense decreased 16.2%, due to lower volumes from unit declines and using lower basis weight newsprint increasing copies printed per ton of newsprint. Other operating expenses decreased 6.9%, primarily driven by lower delivery and other print-related costs offset in part by higher costs associated with growing digital revenue.

Workforce adjustment and other costs totaled $1.2 million in the 2017 quarter compared to $0.2 million in the 2016 quarter.

Including equity in earnings of associated companies, depreciation and amortization, gain on sales of assets, curtailment gains, as well as workforce adjustments and other in both years, operating income totaled $21.7 million in the current year quarter, compared with $24.2 million a year ago.

In the 13 weeks ended September 24, 2017, interest expense decreased 9.1%, or $1.4 million, due to lower debt balances. The company recognized non-operating income of $0.2 million in the current year quarter compared to non-operating expense of $7.1 million in the same quarter of the prior year due to a change in fair value of stock warrants. Lee recognized $1.4 million of debt refinancing and administrative costs in the current quarter and $1.4 million in the same quarter of the prior year. The vast majority of the debt refinancing and administrative costs represent amortization of refinancing costs paid in 2014.

Income attributable to Lee Enterprises, Incorporated for the quarter totaled $3.2 million, compared with income of $0.4 million a year ago. Adjusted EBITDA for the quarter was $36.7 million.

ADJUSTED EARNINGS AND EPS FOR THE QUARTER

The following table summarizes the impact from warrant fair value adjustments on income attributable to Lee Enterprises, Incorporated and earnings per diluted common share. Per share amounts may not add due to rounding.

September 24

2017


13 Weeks Ended

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

FISCAL YEAR OPERATING RESULTS(4)

Operating revenue for 52 weeks ended September 24, 2017 totaled $566.9 million, a decrease of 7.7% compared with the 52 weeks ended September 25, 2016. On a same property basis, total operating revenue for the 52 weeks ended September 24, 2017 decreased 7.1%. Unless otherwise noted, revenue and operating expense trends below are presented on a same property basis.

Advertising and marketing services revenue combined decreased 10.6% to $328.7 million, retail advertising decreased 10.0%, classified decreased 12.2% and national decreased 8.6%. Digital advertising and marketing services revenue on a stand-alone basis increased 8.0% to $91.9 million. Digital advertising represented 27.8% of total advertising.

Total digital revenue was $106.0 million in 2017, up 6.7% compared to 2016. Subscription revenue decreased 0.6% in 2017 compared to 2016.

Operating expenses for 2017 decreased 6.8%. Cash costs, excluding workforce adjustments and other, decreased 7.7% compared to 2016. Compensation decreased 8.4% primarily as a result of a decrease in the average number of full-time equivalent employees of 8.5% and lower self-insured medical costs. Newsprint and ink expense decreased 4.7%, due to a reduction in newsprint volume partially offset by higher prices.

Other operating expenses decreased 7.4%.

Including equity in earnings of associated companies, depreciation and amortization, gain on sales of assets, curtailment gains, as well as workforce adjustments and other in both years, operating income was $92.5 millions in 2017, compared with $104.0 millions a year ago.

The change in non-operating income (expense) in 2017 compared to 2016 is primarily due to the $30.6 million gain on an insurance settlement in the prior year period. Interest expense decreased 10.4%, or $6.7 million, due to lower debt balances, and we recognized a $1.3 million gain on the extinguishment of debt in the prior year. We also recognized non-operating income of $10.2 million in 2017 compared to non-operating expense of $7.5 million for the change in fair value of stock warrants in the prior year. The fair value of the warrants fluctuates with the market value of our common stock. In the current fiscal year, $4.8 million of debt financing and administrative costs were expensed compared to $5.9 million in the same period a year ago, the majority of which were non-cash expenses. Debt financing and administrative costs are mainly amortization of costs paid as part of our refinancing in 2014.

Income attributable to Lee Enterprises, Incorporated for the year totaled $27.5 million, compared to income of

$35.0 million a year ago.

Adjusted EBITDA for the 52 weeks ended September 24, 2017 was $144.6 million, including the impact of acquisition and disposition transactions.

ADJUSTED EARNINGS AND EPS FOR THE YEAR TO DATE

The following table summarizes the impact from warrant fair value adjustments and the gain on insurance settlement on income attributable to Lee Enterprises, Incorporated and earnings per diluted common share. Per share amounts may not add due to rounding.

 

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

DEBT AND FREE CASH FLOW

Debt was reduced $20.1 million in the quarter and $68.8 million during the fiscal year. As of September 24, 2017 the principal amount of debt was $548.4 million. The principal amount of our debt, net of cash, is 3.72 times our adjusted EBITDA for the past 12 months ended September 24, 2017.

We expect to continue to reduce debt in fiscal 2018.

At September 24, 2017, including $10.6 million in cash and availability under our revolving facility(3), liquidity totaled $44.4 million compared to $30.2 million of required debt principal payments over the next twelve months.

CONFERENCE CALL INFORMATION

As previously announced, we will hold an earnings conference call and audio webcast today at 9 a.m. Central Time. The live webcast will be accessible at www.lee.net and will be available for replay two hours later.

Several analysts have been invited to ask questions on the call. Questions from other participants may be submitted by participating in the webcast. The call also may be monitored on a listen-only conference line by dialing (toll free) 866-564-7431 and entering a conference passcode of 340951 at least five minutes before the scheduled start. Participants on the listen-only line will not have the opportunity to ask questions.

ABOUT LEE

Lee Enterprises is a leading provider of local news and information, and a major platform for advertising, with daily newspapers, rapidly growing digital products and nearly 300 weekly and specialty publications serving 50 markets in 22 states. Year to date, Lee's newspapers have average circulation of 0.8 million daily and 1.2 million Sunday, and estimated to reach almost three million readers in print alone. 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;
  • 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.

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:

Charles Arms

Director of Communications IR@lee.net

(563) 383-2100

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 
  

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

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)

 

Equity in earnings of

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)

 

13 Weeks Ended

52 Weeks Ended

 

(Thousands of Dollars)

Sept 24       Sept 25

2017            2016

Sept 24       Sept 25

2017            2016

 

Net Income

 

3,501              661

 

28,605         36,019

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

 

The table below reconciles the non-GAAP financial performance measure of adjusted EBITDA to net income, its most directly comparable GAAP measure:

 Adjusted to exclude                                                                                                                                  

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

 

SELECTED BALANCE SHEET INFORMATION

 

 

 

(Thousands of Dollars)

 

September 24   September 25

2017                 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

 

SELECTED STATISTICAL INFORMATION

 

 

 

13 Weeks Ended

52 Weeks Ended

Sept 24

Sept 25 Percent

Sept 24       Sept 25 Percent

(same property, except shares)                                    2017

2016 Change

2017           2016 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

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 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.