Lee Enterprises, Incorporated, a major provider of local news, information and advertising in 50 markets, today reported preliminary(1) results for its 2016 first fiscal quarter ended December 27, 2015.
"We are off to a strong start in 2016. Digital advertising, subscriptions, digital services, commercial printing and other revenue accounted for more than half of our total revenue in the quarter. All of these categories are growing, and we see opportunity for future expansion," Mary Junck, chairman and chief executive officer said.
"We continue to carefully manage cash costs(2) and expect 2016 to be another year of strong cash flow for Lee, allowing our aggressive debt reduction," She added. "In the first quarter of 2016, we reduced debt by nearly $22 million and have paid down more than $80 million in the last twelve months."
Other first quarter financial highlights include:
• Digital ad revenue was up 7.2%, representing 20.6% of total advertising revenue in the quarter.
• Mobile advertising revenue, which is included in digital advertising, increased 12.4%.
• Digital services revenue, primarily TownNews.com, increased 5.7% to $3.3 million.
• Subscription revenue increased 0.1%.
• Overall revenue decreased 5.0% in first quarter and total advertising and marketing services revenue decreased 8.8%. Both categories improved steadily throughout the quarter.
• Total cash costs excluding workforce adjustment costs decreased 5.2%.
• First quarter operating cash flow(2) totaled $43.6 million, a 5.2% decline from the prior year quarter.
• Our share of EBITDA from MNI and TNI increased 1.4%. • Adjusted EBITDA(2) totaled $48.6 million, a 3.6% decline from the prior year quarter.
"We have made excellent progress with several key initiatives," Junck said. "In the first quarter, we relaunched several of our websites with a new design aimed at improving reader engagement and driving digital revenue. We'll transition all of our websites to the new design throughout this year.
"Re-designed print products have been introduced in many of our markets, and they have been very well received by our readers. This on-going re-design and transformation of how we produce and present news, which we call the 'daVinci Project,' not only improves the look and ease of use of our newspapers, but also, through resource consolidation, creates significant cost savings," she added.
"Currently, 40.3% of our print subscribers have activated the digital subscriptions available to them through our full access subscription model, which continues to grow, providing our print readers with on-demand breaking news. It also helps grow our digital audiences."
Earnings of 21 cents per diluted common share were reported for the quarter compared to earnings of 18 cents a year ago. Excluding unusual matters, adjusted earnings per diluted common share totaled 22 cents, the same as a year ago.
"We continue to produce strong EBITDA and reduce debt," said Chief Financial Officer and Treasurer Ron Mayo. "For the last twelve months, EBITDA totaled $155.7 million, Adjusted EBITDA totaled $161.5 million and unlevered free cash flow totaled $149.0 million. As of December 27, 2015, the principal amount of debt was $704.0 million. The company will continue to use substantially all of its free cash flow to reduce debt and strengthen the company's capital structure.
"During the past twelve months, we reduced debt by $80.5 million, including $21.9 million in the first quarter of 2016," he added. "Our highest cost of capital, the 2nd Lien Term Loan(3), was reduced by $5.6 million, and we were able to repurchase $5 million of our Notes at a substantial discount."
On January 15, 2016, Lee received payment of $30,645,628 from its insurer for its share of a subrogation recovery arising from the settlement of claims for damages suffered as a result of a 2009 loss at one of the Lee Legacy production facilities.
"Of the total proceeds we received, $20 million was used to reduce outstanding debt under our 1st Lien Term Loan(3)," Mayo said. "To the extent permissible and available at a discount, we intend to use some portion of the remaining proceeds to repurchase outstanding Notes or further pay down the 1st Lien Term Loan."
Mayo continued, "Total debt as of today is $678 million after including $20 million of insurance proceeds already used to reduce the 1st Lien Term Loan in January 2016, along with required principal amortization." Mayo also noted:
• Interest expense to be settled in cash was reduced $1.6 million in the first quarter as a result of debt reductions, which provides additional free cash flow that will be used for future debt reductions.
• Lee has initiated a comprehensive real estate monetization review program. The undepreciated book value of the land and buildings under review is in excess of $200 million. "In fiscal year 2016, we expect cash costs excluding workforce adjustments to decline by 3.5% to 4.0%, reaffirming our guidance issued in December, " Mayo added.
"In fiscal year 2016, we expect cash costs excluding workforce adjustments to decline by 3.5% to 4.0%, reaffirming our guidance issued in December, " Mayo added.
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