Davenport-based Lee Enterprises, Inc, a leading provider of high quality, trusted, local news, information and a major platform for advertising in 49 markets, today reported earnings of $10.7 million for its first fiscal quarter ended December 30, 2018, or 18 cents per diluted common share.
For the same quarter a year ago, earnings totaled $34.6 million, or 61 cents per diluted common share. Adjusted for the impact of the 2017 Tax Act as well as the warrants, adjusted earnings per diluted common share totaled 18 cents in the current year quarter compared to 18 cents in the prior year quarter.
"We are off to a great start in fiscal year 2019 with strong performance in many key areas," said Kevin Mowbray, President and Chief Executive Officer. "Total digital revenue increased 10.7% in the first quarter due to an 8.0% growth in digital advertising revenue and a 27.7% growth in digital services revenue," Mowbray added. "Revenue in our local controllable segment also performed well. Revenue from local retail accounts was down 2.6% in the first quarter, the best quarterly trend in several years."
"On a stand-alone basis, revenue at TownNews increased 19.9% due to increased market share, including an increase in broadcast customers as well as gains in video revenue from 2018 technology acquisitions," said Mowbray. "We remain steadfast in our growth strategy around local controllable accounts, consumers and digital services as we drive our digital transformation."
Mowbray also noted the following financial highlights for the quarter:
• Digital advertising revenue increased 8.0% for the quarter and represented 33.6% of total advertising revenue.
• Digital retail advertising, which represented 63.3% of total digital advertising in the December quarter, grew 10.1%, driven by an increase in advertising from local retailers.
• Monthly visits to Lee mobile, tablet, desktop and app sites averaged 75.4 million, and page views per visit, one metric we use to monitor engagement, increased 12.9%.
• Subscription revenue decreased 4.1% in the quarter. Digital only subscribers increased 55.9%.
• Total revenue decreased 5.3% for the quarter.
"After the end of the first quarter we closed on the acquisition of the Kenosha News and Lake Geneva Regional News. Their proximity to existing Lee properties creates opportunity for synergies while greatly strengthening our audiences in southeast Wisconsin," said Mowbray.
"Operating expenses were down 5.5% in the December quarter with cash costs down 5.0%, led by an 8.9% reduction in compensation costs" said Vice President and Chief Financial Officer, Tim Millage.
"Adjusted EBITDA was $36.1 million in the quarter, and totaled $128.4 million over the last 12 months," Millage said.
"In the first quarter, we repaid the remaining balance of the 1st Lien Term Loan, almost five months ahead of its maturity, and we amended and extended our Revolving Facility," Millage added. "Debt reduction in the December quarter was $7.0 million, and has totaled more than $367 million since our refinancing in 2014."
FIRST QUARTER OPERATING RESULTS
Operating revenue for the 13 weeks ended December 30, 2018 totaled $136.2 million, a decrease of 5.3% compared with a year ago.
Advertising and marketing services revenue decreased 10.3% to $76.0 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 8.0% to $25.5 million and represented 33.6% of total advertising revenue. Digital retail advertising revenue represented 63.3% of digital advertising revenue in the quarter.
Subscription revenue decreased 4.1% in the current year quarter. Average daily newspaper circulation, including TNI and MNI and digital subscribers, totaled 0.7 million in the current quarter. Sunday circulation totaled 1.1 million. Price increases and additional revenue from premium content partially offset lower print circulation volumes.
Other revenue, which consists of digital services, management agreement revenues, commercial printing and revenue from delivery of third party products, increased 28.7% in the current year quarter. The increase was partially due to 25.5% revenue growth at TownNews and revenue from our management contract with BH Media Group, Inc.
Total digital revenue, including digital advertising and digital services, was $30.2 million for the quarter, up 10.7% compared with a year ago. Mobile, tablet, desktop and app sites, including TNI and MNI(3), attracted monthly average visits of 75.4 million for the current quarter, an increase of 3.9% over the prior year.
Operating expenses for the 13 weeks ended December 30, 2018 decreased 5.5%. Cash costs decreased 5.0% compared to the prior year quarter. Compensation decreased 10.1%, primarily as a result of a reduction in staffing levels. Newsprint and ink expense increased 8.6% due to higher prices partially offset by lower volumes from unit declines. Other operating expenses decreased 1.2%, primarily driven by lower delivery and other print-related 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(4) totaled $0.1 million and $0.5 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, and restructuring costs and other, operating income totaled $27.7 million in the current year quarter, compared with $29.1 million a year ago.
In the 13 weeks ended December 30, 2018, interest expense decreased 10.2%, or $1.4 million, due to lower debt balances. The Company recognized non-operating income of $0.1 million in the current year quarter compared to a non-operating expense of $0.4 million in the same quarter of the prior year due to a change in fair value of stock warrants. The Company recognized $0.9 million of debt refinancing and administrative costs in the current quarter and $1.1 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 $10.4 million, compared with income of $34.3 million a year ago. Adjusted EBITDA for the quarter was $36.1 million.
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 49 markets in 20 states. Year to date, Lee's newspapers have average circulation of 0.7 million daily and 1.1 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, please visit www.lee.net.