Davenport-based Lee Enterprises, Inc., a leading provider of high quality, trusted, local news, information and a major platform for advertising in 50 markets, reported Thursday third quarter and year to date financial results for the period ended June 30, 2019.
"Total revenue decreased 4% in the third quarter, matching the second quarter trend, as we continue the company's digital transformation" said Kevin Mowbray, president and chief executive officer. "Total digital revenue, including digital advertising and digital services, was $30.5 million for the quarter, up 5.3% on a same property basis compared with a year ago."
"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 February 2019. Revenue at TownNews over the last 12 months totaled $22.1 million, an increase of 24.5% over the prior year," said Mowbray.
"We earned $3.5 million of revenue in the quarter from the management agreement with BH Media Group, and since its inception in July 2018 we have earned $11.3 million in revenue, exceeding expectations," said Mowbray.
Mowbray also noted the following financial highlights for the quarter:
• Total revenue decreased 4% 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% on a same property basis.
• Subscription revenue decreased 3.2% in the quarter. Digital-only subscribers increased 72%.
• Lee 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 Tim Millage. "Operating expenses were down 4.7% in the June quarter with cash costs down 5.2%, On a same property basis, cash costs were down 7.6%. We expect cash costs on a same property basis to be down 4.75 - 5.5% in fiscal year 2019," said Millage.
"Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) totaled $30.7 million in the quarter, or down 1.3%, and totaled $125.5 million over the last 12 months," Millage added. "With strong adjusted EBITDA and $17.9 million of debt reduction in the quarter, our leverage ratio, net of cash, is 3.5x," Millage said.
THIRD QUARTER OPERATING RESULTS
• Operating revenue for the 13 weeks ended June 30, 2019 totaled $127.3 million, a decrease of 4% compared with a year ago on a reported basis and decreased 6.1% on a same property basis.
• Advertising and marketing services revenue decreased 10.6% to $65.8 million on a reported basis and decreased 12.4% on a same property basis. The decrease in advertising and marketing services revenue is due to softness in print advertising demand resulting in reduced advertising volume primarily from large retail, big box stores and classifieds. Partially offsetting print declines, digital advertising and marketing services revenue increased 2.8% to $25.4 million and represented 38.7% of total advertising revenue.
• 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 and digital subscribers, totaled 0.7 million in the current quarter. Sunday circulation totaled 1 million. Digital-only subscribers increased 72% 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 $3.5 million of management agreement revenue.
• Total digital revenue, including digital advertising and digital services, was $30.5 million for the quarter, up 6.9% compared with a year ago on a reported basis and up 5.3% on a same property basis. Mobile, tablet, desktop and app site page views, including TNI and MNI were 289.1 million in the current quarter, an increase of 7.5% over the prior year.
• Operating expenses for the 13 weeks ended June 30, 2019 decreased 4.7%. Cash costs decreased 5.2% compared to the prior year quarter on a reported basis and were down 7.6% on a same property basis. Compensation decreased 6.6%. Newsprint and ink expense decreased 18.8% due to lower prices and lower volumes from print unit declines. Other operating expenses decreased 2.0% primarily driven by lower legacy print costs and offset in part by higher costs associated with growing digital revenue and increases in other cash costs from outsourcing.
• Restructuring costs and other, which are primarily severance costs, totaled $2.8 million and $1.9 million in the 2019 quarter and 2018 quarter, respectively.
• Including equity in earnings of associated companies, depreciation and amortization, assets loss (gain) on sales, impairments and other, operating income totaled $20.0 million in the current year quarter, compared with $20.2 million a year ago.
• In the 13 weeks ended June 30, 2019, interest expense decreased 8.2%, or $1.1 million, due to lower debt balances. The Company recognized non-operating income of $3.1 million in the current year quarter compared to $0.4 million in the same quarter of the prior year due to a change in fair value of stock warrants. The Company recognized $4.2 million of debt refinancing and administrative costs in the current quarter and $1.7 million in the same quarter of the prior year. Amortization for the quarter increased as a result of debt repurchases totaling $10.6 million in the 2019 Quarter. The vast majority of the debt financing and administrative costs represent amortization of refinancing costs paid in 2014.
• Income attributable to Lee Enterprises, Incorporated for the quarter totaled $5.8 million, compared with income of $4.5 million a year ago. Adjusted EBITDA for the quarter was $30.7 million, or 1.3% below prior year.
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 20 states. Year to date, Lee's newspapers have average circulation of 0.7 million daily and 1.0 million Sunday, and are 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, visit www.lee.net.