December 7, 2017 Last Updated 6:49 am

Lee Enterprises reports Q4 2017 results: revenue falls 11.3%, net income down 20.6%

Newspaper publisher remains in the black, earning $28.6 million, or 50 cents per diluted common share for the full 2017 fiscal year

DAVENPORT, Iowa — December 6, 2017 — Lee Enterprises, Incorporated , a major provider of local news, information and advertising in 50 markets, today reported earnings 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 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 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 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, 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.

FISCAL YEAR OPERATING RESULTS

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.

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