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Kevin Mowbray

Kevin Mowbray

Davenport-based Lee Enterprises, Inc., a leading provider of high quality, trusted, local news, information and a major platform for advertising in 50 markets, today reported second quarter and year to date financial results for the period ended March 31, 2019.

"The total revenue trend in the second quarter is the best quarterly trend in nearly four years," said Kevin Mowbray, President and Chief Executive Officer. "This performance was driven by significant revenue growth at TownNews, incremental management agreement revenue and strong digital performance across our legacy businesses.

On a stand-alone basis, revenue at TownNews increased 24.3% due to increased market share, including an increase in broadcast customers as well as gains in video revenue from 2018 technology acquisitions. Revenue at TownNews over the last twelve months totaled $20.9 million, an increase of 20.9% over the prior year," Mowbray added.

"We earned $3.9 million of revenue in the quarter from the management agreement with BH Media Group, and since its inception in July 2018 we have earned $7.8 million in revenue. Due to strong financial performance, we expect to earn more than $10 million in the first year of the agreement, exceeding initial expectations," said Mowbray.

Mowbray also noted the following financial highlights for the quarter:

• Total revenue decreased 4.0% for the quarter, the best quarterly trend performance in nearly four years.

• Digital advertising revenue increased 5.3% for the quarter and represented 38.2% of total advertising revenue.

• Digital retail advertising, which represented 61.8% of total digital advertising in the March quarter, grew 4.9%, driven by an increase in advertising from local retailers.

• Monthly visits to Lee mobile, tablet, desktop and app sites averaged 76.9 million, and page views per visit, one metric we use to monitor engagement, increased 14.3%.

• Subscription revenue decreased 1.9% in the quarter, a 220 bps improvement from the first quarter trend. Digital only subscribers increased 55.5%.

• We recognized a net loss of $2.3 million, including $2.8 million of non-cash expense related to the change in fair value of our warrants.

"Operating expenses were down 0.9% in the March quarter with cash costs down 2.6%," said Vice President and Chief Financial Officer, Tim Millage. "However, we expect cash costs on a same property basis to be down 4.0 - 5.0% in fiscal year 2019," said Millage.

"Adjusted EBITDA was $23.6 million in the quarter, and totaled $125.9 million over the last 12 months," Millage said.

SECOND QUARTER OPERATING RESULTS

Operating revenue for the 13 weeks ended March 31, 2019 totaled $122.7 million, a decrease of 4.0% compared with a year ago.

Advertising and marketing services revenue decreased 12.0% to $62.9 million. 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 5.3% to $24.1 million and represented 38.2% of total advertising revenue.

Subscription revenue decreased 1.9% in the current year quarter. Strategic pricing programs and premium content helped offset lower paid circulation units. Average daily newspaper circulation, including TNI and MNI and digital subscribers, totaled 0.7 million in the current quarter. Sunday circulation totaled 1.0 million. Price increases partially offset lower print circulation volumes. Digital only subscribers increased 55.5% in the quarter.

Other revenue, which consists of digital services revenue, management agreement revenues, commercial printing revenues and revenue from delivery of third party products, increased 42.9% in the current year quarter. The increase was partially due to 30.3% revenue growth at TownNews and $3.9 million of management agreement revenue.

Total digital revenue, including digital advertising and digital services, was $28.8 million for the quarter, up 8.0% compared with a year ago. Mobile, tablet, desktop and app site page views, including TNI and MNI, were 298.2 million in the current quarter, an increase of 13.5% over the prior year.

Operating expenses for the 13 weeks ended March 31, 2019 decreased 0.9%. Cash costs decreased 2.6% compared to the prior year quarter. Compensation decreased 3.2%, primarily as a result of a reduction in staffing levels partially offset by unfavorable claims experience from our self insured medical plan. Newsprint and ink expense increased 3.3% due to higher prices partially offset by lower volumes from unit declines. Other operating expenses decreased 2.6% 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 totaled $2.8 million and $1.8 million in the 2019 quarter and 2018 quarter, respectively, and includes $0.5 million of a partial withdrawal liability recognized in the 2019 quarter related to one of our multiemployer pension plans.

Including equity in earnings of associated companies, depreciation and amortization, assets loss (gain) on sales, impairments and other, and restructuring costs and other, operating income totaled $12.6 million in the current year quarter, compared with $16.6 million a year ago.

In the 13 weeks ended March 31, 2019, interest expense decreased 8.5%, or $1.1 million, due to lower debt balances. The Company recognized non-operating expense of $2.8 million in the current year quarter compared to a non-operating income $0.6 million in the same quarter of the prior year due to a change in fair value of stock warrants. The Company recognized $1.0 million of debt refinancing and administrative costs in the current quarter and $1.2 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.

Loss attributable to Lee Enterprises, Incorporated for the quarter totaled $2.7 million, compared with income of $2.2 million a year ago. Adjusted EBITDA for the quarter was $23.6 million.

YEAR TO DATE OPERATING RESULTS

Operating revenue for 26 weeks ended March 31, 2019 totaled $258.9 million, a decrease of 4.7% compared with the 26 weeks ended March 25, 2018.

Advertising and marketing services revenue decreased 11.1% to $138.9 million. Partially offsetting print declines, digital advertising and marketing services revenue increased 6.7% to $49.6 million. Digital advertising represented 35.7% of total advertising.

Subscription revenue decreased 3.1% in the 26 weeks ended March 31, 2019 compared to the 26 weeks ended March 25, 2018.

Other revenue, which consists of digital services, management agreement revenues, commercial printing and revenue from delivery of third party products, increased 35.6% in the current year. The increase was partially due to 28.0% revenue growth at TownNews and $6.5 million in management agreement revenue.

Total digital revenue, including digital advertising and digital services, was $59.0 million in 2019, up 9.4% compared to a year ago. On a standalone basis, revenue at TownNews totaled $10.8 million for the 26 weeks ended March 31, 2019, a 22.1% increase over the prior year.

Operating expenses for 2019 decreased 2.9%. Cash costs decreased 3.5% compared to the prior year. Compensation decreased 6.1%, primarily as a result of a decrease in the average number of full-time equivalent employees of 11.4%. Newsprint and ink expense increased 6.0%, due to higher prices partially offset by volume declines. Other operating expenses decreased 1.9%.

Including equity in earnings of associated companies, depreciation and amortization, assets loss (gain) on sales, impairments and other, as well as restructuring costs and other in both years, operating income was $40.3 million in 2019, compared with $46.4 million a year ago.

In the 26 weeks ended March 31, 2019, interest expense decreased 9.4%, or $2.5 million, due to lower debt balances, and we recognized non-operating expense of $2.7 million in the 26 weeks ended March 31, 2019 compared to $0.1 million of non-operating income for the change in fair value of stock warrants in the prior year to date period. In the current fiscal year, $1.9 million of debt financing and administrative costs were expensed compared to $2.3 million in the same period a year ago. 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 $7.7 million, compared to income of $37.2 million a year ago.

Adjusted EBITDA for the 26 weeks ended March 31, 2019 was $59.7 million, compared to $65.7 million for the 26 weeks ended March 25, 2018.

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