Lee Enterprises reports solid revenue, adjusted EBITDA performance despite COVID-19

Lee Enterprises reports solid revenue, adjusted EBITDA performance despite COVID-19

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Lee Enterprises, Incorporated, a leading provider of high quality, trusted, local news, information and a major platform for advertising in 77 markets, today reported second quarter fiscal 2020 financial results for the period ended March 29, 2020.

“We are pleased to announce our solid second quarter financial results,” said Kevin Mowbray, President and Chief Executive Officer. “Revenue and Adjusted EBITDA performance were strong, despite the immediate disruption in the last two weeks of the quarter due to the COVID-19 pandemic. Strong performance in our audience revenue and continued top line growth at TownNews, which have historically been stable revenue streams, drove results in the second quarter. Importantly, we closed on the transaction with Berkshire Hathaway, a strategic acquisition and financing that nearly doubled the size of our operations and eliminated our looming debt maturities, at highly attractive terms,” said Mowbray.

“The impact on our business from COVID-19 was significant and immediate. Our main priorities in the response to the pandemic were to ensure the safety and well-being of our employees, our advertisers and our consumers, while also continuing to deliver vital news and information to customers in our local markets.” Mowbray said. “Our newsrooms play a crucial role in providing intensely local coverage of critical issues, and we are incredibly proud of our employees across the company during this challenging time,” said Mowbray.

“We took swift and decisive action in response to the headwinds,” added Mowbray. “We immediately implemented both temporary and permanent cost actions, solidified our relationship with our local advertisers through a marketing grant program, enhanced our liquidity through the refinancing, and continued the acquisition integration. The combination of short-term and long-term actions taken now strengthens our local market position, and now more than ever, we believe that our compelling local content, strong audiences and audience engagement, and best-in-class operators, will allow us to emerge from this crisis stronger than ever.” Mowbray added.

Tim Millage, Vice President, Chief Financial Officer and Treasurer, said, “As we focus on driving top-line growth across our markets, we remain vigilant on costs. As we evaluate the post-pandemic operating environment and integration of BHMG and Buffalo, we expect to realize more than $100 million of cost synergies by the end of fiscal year 2021.”

“The comprehensive refinancing closed in March solves our looming maturities, and provides several important benefits,” said Millage. “We lowered our cost of capital at a fixed rate and have no fixed mandatory principal payments. Further, the lack of financial performance covenants and a 25-year maturity provide a runway to drive shareholder value over the long term. We are thrilled to have completed our financing at highly attractive terms, and to strengthen our relationship with Berkshire Hathaway,” Millage added.

Second quarter operating results

• Operating revenue totaled $121.4 million, a decrease of 1.1%, as a result of continuing decline of print trends and the negative impact from the COVID-19 pandemic, partially offset by revenue from BHMG and Buffalo, which totaled $14.6 million of revenue in the quarter. Total operating revenue on a pro forma basis decreased 10.0% in the quarter.

• Subscription revenue increased 3.0% including the impact of acquisitions. Pro forma subscription revenue totaled $86.0 million, a decline of 2.8% compared to the prior year. Pro forma subscription revenue represented 41.4% of our total operating revenue.

• TownNews revenue increased 11.1% on a standalone basis and totaled more than $24 million over the last twelve months.

• Advertising revenue declined 3.2% including the impact of acquisitions. Pro forma advertising revenue totaled $102.0 million, a decline of 15.5%, largely consistent with the first quarter pro forma trends.

• Pro forma digital advertising and marketing services revenue totaled $32.8 million, or 32.2% of total advertising revenue. Legacy Lee digital advertising represents 43.0% of total advertising revenue.

• Pro forma total digital revenue was $46.0 million, representing 22.2% of operating revenue.

• Digital only subscribers totaled nearly 200,000, with a 91.7% increase over the prior year at Legacy Lee, and page views were up 8.6%, excluding acquisitions and including MNI and TNI(4).

• Operating expenses decreased 2.6% due to continued business transformation efforts, partially offset by expenses associated with BHMG and Buffalo. Pro forma Cash Costs(3) declined 9.8%.

• Adjusted EBITDA totaled $17.4 million, despite the immediate negative revenue impact from COVID-19. Pro forma Adjusted EBITDA totaled $24.0 million.

Year-to-date operating results

• Operating revenue totaled $243.7 million in the 26 weeks ended March 29, 2020, a decrease of 5.9%, as a result of continuing declines of print trends and negative impacts from the COVID-19 pandemic, partially offset by revenue from BHMG and Buffalo. Total operating revenue on a pro forma basis was $442.0 million.

• Operating expenses decreased 3.6% due to continued business transformation efforts, partially offset by expenses associated with BHMG and Buffalo. Pro forma Cash Costs declined 10.2%.

• Adjusted EBITDA totaled $45.5 million. Pro forma Adjusted EBITDA totaled $70.4 million.

Third quarter outlook

 For the 13-weeks ended June 28, 2020, the Company expects the following operating results:

• Total revenue of $177.0 million to $180.0 million.

• Adjusted EBITDA of $21.5 million to $23.5 million.

Debt and liquidity

On March 16, 2020, the Company closed on the comprehensive refinancing of all of its outstanding debt.(4) The $576 million in financing has a fixed annual interest rate of 9.0%, mandatory payments based on the Company’s excess cash flow (as defined in the credit agreement), no financial performance covenants and a 25-year maturity.

As of and for the 13-weeks ended March 29, 2020:

• Cash on the balance sheet totaled $30.8 million.

• The principal amount of debt was $576.0 million.

• The Company received $17.7 million in proceeds from asset sales.

◦ Approximately $30 million in real estate remains available for sale.

◦ Approximately $10 million in private equity investments are for sale.

• Capital expenditures, net of reimbursable leasehold improvements, totaled $2.0 million.

• No pension contributions were made in the quarter.

In response to the pandemic, the Company has focused on preserving liquidity and has taken the following actions:

• Reduced expenses in the third quarter by more than $10.0 million through furloughs and compensation reductions, reductions in force, and cancelling all non-essential spending.

• Reduced capital expenditures for fiscal year 2020 by more than 25%.

• Eliminated pension contributions for the remainder of the fiscal year by taking advantage of funding deferral provided in the CARES Act.

• Deferred payment of FICA payroll taxes, as allowed by the CARES Act.

As of today, the Company has more than $50 million in liquidity through cash on the balance sheet, providing sufficient liquidity in the near term.

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 350 weekly and specialty publications serving 77 markets in 26 states. Year to date, Lee's newspapers have average daily circulation of 1.2 million, and our legacy websites, including acquisitions, reach more than 43 million digital unique visitors. Lee's markets include St. Louis, MO; Buffalo, NY; Omaha, NE; Richmond, VA; Lincoln, NE; Madison, WI; Davenport, IA; 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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