022417-LEE-002

Lee Enterprises President and Chief Executive Officer Kevin Mowbray.

Kevin E. Schmidt

Lee Enterprises, Inc., a major provider of local news, information and advertising in 50 markets, today reported earnings of $35.3 million for its first fiscal quarter ended December 24, 2017, or 63 cents per diluted common share.

For the same quarter a year ago, earnings totaled $12.4 million, or 22 cents per diluted common share.

Excluding the impact of the new tax legislation and the adjustment related to the change in fair value of the stock warrants, adjusted earnings per diluted common share totaled 19 cents in the current year quarter compared to 16 cents in the prior year quarter.

"Digital advertising revenue increased 2.8% and represented 27.9% of total advertising revenue for the quarter," Lee CEO Kevin Mowbray said. "All digital revenue, which includes digital advertising, revenue from TownNews.com and other digital services revenue, totaled $27.3 million, an increase of 3.2%.

“While advertising results in the past quarter started off softer than anticipated, we saw directional improvement in several key revenue categories with results strengthening as we moved through the quarter. This was especially true in December, and we anticipate improved revenue performance for the remainder of the fiscal year,” Mowbray added. “Total revenue in the quarter was down 6.6% and down 8.9% on same-property basis. Subscription revenue declined 1.3% in the quarter.”

Mowbray also noted the following financial highlights for the quarter:

• Digital retail advertising, which represented 62% of total digital advertising in the December quarter, grew 5.7% in the quarter, driven by advertising from local retailers and programmatic.

• Revenue at TownNews.com, excluding intercompany revenue, increased 12.7% in the quarter and totaled $3.4 million. On a standalone basis, revenue at TownNews.com totaled $16.7 million for the last twelve months.

• Monthly visits to Lee mobile, tablet, desktop and app sites averaged 72.5 million, an increase of 6.1% over the prior year quarter.

• Total advertising and marketing services revenue decreased 9.0% in the quarter.

"Cash costs in the quarter, excluding workforce adjustments and other, were down 6.6% compared to the prior year," said Treasurer and Chief Financial Officer Ron Mayo. "On a same property basis, cash costs excluding workforce adjustments and other were down 8.9%. We expect the carryover impact from our business transformation in FY2017 and the first quarter of 2018 to positively impact cash costs the remainder of 2018.

"We expect cash costs excluding workforce adjustments and other to be down 6.0-6.5% in fiscal year 2018, on a same property basis. Our revenue and cost performance for the quarter resulted in maintaining our industry-leading margins, and we expect this to continue throughout fiscal year 2018.

"The company continues to aggressively reduce debt," Mayo said. "Debt reduction in the December quarter was $16.4 million and totaled $67.5 million over the last twelve months, resulting in lower interest expense of $1.3 million, or 8.7%, in the quarter and $6.2 million, or 9.9%, in the past twelve months.

"Adjusted EBITDA over the last twelve months totaled $141.7 million. For the quarter, Adjusted EBITDA totaled $40.4 million compared to $43.3 million in the same quarter of the prior year. As of December 24, 2017, the principal amount of debt was $532.0 million," Mayo said.

Leverage net of cash was 3.66 times Adjusted EBITDA compared to 3.90 times Adjusted EBITDA one year ago, he added.

First Quarter Operating Results

Operating revenue for the 13 weeks ended December 24, 2017 totaled $143.8 million, a decrease of 6.6% compared with a year ago. On a same property basis, total operating revenue for the 13 weeks ended December 24, 2017 decreased 8.9%.

Advertising and marketing services revenue combined decreased 9.0% to $84.7 million. Digital advertising and marketing services revenue increased 2.8% to $23.6 million and increased 1.9% on a same property basis. Digital retail advertising, which represents 62% of total digital advertising, grew 5.7% in the quarter. Digital advertising in the quarter represented 27.9% of total advertising revenue.

Total digital revenue, including digital advertising and digital services, was $27.3 million for the quarter, up 3.2% compared with a year ago and up 2.3% on a same property basis. Mobile, tablet, desktop and app sites, including TNI and MNI, attracted monthly average visits of 72.5 million for the 13 weeks ended December 24, 2017, an increase of 6.1% over the prior year.

Subscription revenue decreased 1.3% in the current year quarter and decreased 3.2% on a same property basis due to lower paid circulation units. Average daily newspaper circulation, including TNI and MNI and digital subscribers, totaled 0.8 million in the 13 weeks ended December 24, 2017. Sunday circulation totaled 1.2 million. Price increases and additional revenue from premium content partially offset revenue lost from lower print circulation volumes.

Other revenue, which consists of digital services, commercial printing, revenue from delivery of third party products and the sale of books, decreased 10.0% in the current year quarter. The decrease was due to volume declines in commercial printing, third party delivery and the sale of books and was partially offset by an increase in revenue at TownNews.com. Excluding intercompany revenue, revenue at TownNews.com, the majority of which is included in Other revenue, increased to $3.4 million, or 12.7% in the quarter. On a standalone basis, revenue at TownNews.com totaled $16.7 million for the last twelve months.

Operating expenses for the 13 weeks ended December 24, 2017 decreased 7.7%. Cash costs, excluding workforce adjustments and other, decreased 6.6% compared to the prior year quarter and decreased 8.9% on a same property basis. Compensation decreased 9.8% on a same property basis, primarily as a result of a reduction in staffing levels and lower self-insured medical costs. Newsprint and ink expense decreased 15.5% on a same property basis due to lower volumes from unit declines and using lower basis weight newsprint to increase the number of copies printed per ton of newsprint. Other operating expenses decreased 7.1% on a same property basis, primarily driven by lower delivery and other print-related costs and offset in part by higher costs associated with growing digital revenue.

Workforce adjustment and other costs totaled $0.5 million and $0.1 million in the 2017 quarter and 2016 quarter, respectively.

Including equity in earnings of associated companies, depreciation and amortization, gain on sales of assets, and workforce adjustments and other, operating income totaled $30.5 million in the current year quarter, compared with $31.4 million a year ago.

In the 13 weeks ended December 24, 2017, interest expense decreased 8.7%, or $1.3 million, due to lower debt balances. The company recognized non-operating expense of $0.4 million in the current year quarter compared to non-operating income of $3.1 million in the same quarter of the prior year due to a change in fair value of stock warrants. Lee recognized $1.1 million of debt refinancing and administrative costs in the current quarter and $1.0 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 $35.0 million, compared with income of $12.2 million a year ago. Adjusted EBITDA for the quarter was $40.4 million.

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.

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