lee20210606

Adjusted EBITDA is a non-GAAP financial performance measure that enhances financial statement users overall understanding of the operating performance of the Company. The measure isolates unusual, infrequent or non-cash transactions from the operating performance of the business. This allows users to easily compare operating performance among various fiscal periods and how management measures the performance of the business. This measure also provides users with a benchmark that can be used when forecasting future operating performance of the Company that excludes unusual, nonrecurring or one time transactions. Adjusted EBITDA is a component of the calculation used by stockholders and analysts to determine the value of our business when using the market approach, which applies a market multiple to financial metrics. It is also a measure used to calculate the leverage ratio of the Company, which is a key financial ratio monitored and used by the Company and its investors. Adjusted EBITDA is defined as net income (loss), plus non-operating expenses, income tax expense, depreciation and amortization, assets loss (gain) on sales, impairments and other, restructuring costs and other, stock compensation and our 50% share of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI.

	•	Total operating revenue increased 7.6% in the quarter compared to the same quarter a year ago.
	•	Subscription revenue totaled $88.8 million, almost flat compared to the prior year. Digital-only subscriptions at the end of the quarter totaled 337,000, or up 50.5% compared to the same period last year.
	•	Audiences remain strong in both print and digital due to our focus on relevant news in our local markets. Monthly average page views totaled 400 million and monthly average unique visitors totaled 49 million.
	•	Total advertising and marketing services revenue was $91.1 million, a 17.2% increase compared to the same quarter last year.
	•	Revenue at TownNews, our SaaS content platform, increased 8.7% in the third quarter and revenue over the last twelve months totaled $26.7 million.
	•	Total digital revenue, including digital advertising, digital subscription and digital services revenue, was $65.6 million and represented 33.4% of total operating revenue. Total digital revenue increased 48.3% in the quarter.
	•	Operating expenses totaled $184.4 million and Cash Costson a pro forma basis were up 9.2% in the quarter as a result of the one-time costs measures taken in last year as a result of the pandemic. Since the acquisition in March 2020, we achieved $110 million of cash cost synergies, reaching our target established for September 2021.
	•	Net income totaled $3.2 million and Adjusted EBITDA totaled $26.7 million.

	•	Total operating revenue was $600.7 million year to date compared to $426.2 million through the first nine months last year, reflecting the acquisition of BH Media and Buffalo News. On a pro forma basis, total operating revenue was down 4.7% to last year.
	•	Subscription revenue totaled $269.9 million, a 1.3% increase compared to the prior year on a pro forma basis.
	•	Total advertising revenue was $279.3 million, a 9.3% decrease compared to the same period last year on a pro forma basis.
	•	Revenue at TownNews increased 8.7% year to date.
	•	Total digital revenue, including digital advertising, digital subscription and digital services revenue, was $187.0 million and represented 31.1% of total operating revenue. Total digital revenue increased 33.0% in the first nine months of 2021 on a pro forma basis.
	•	Operating expenses totaled $562.6 million and Cash Costs on a pro forma basis were down 4.2%.
	•	Due to changes in one of our employee contracts, we recognized a $23.8 million noncash curtailment gain associated with elimination of retiree medical benefits. Additionally, we recognized a $12.3 million liability associated with the withdrawal from a multiemployer pension plan. Payments toward the liability are made over 20 years.
	•	Net Income totaled $19.5 million and Adjusted EBITDA totaled $90.8 million.

	•	The principal amount of debt totaled $485.2 million, a $90.8 million reduction since the March 2020 refinancing.
	•	Cash on the balance sheet totaled $21.1 million. Debt, net of cash on the balance sheet, totaled $464.1 million.
	•	Excess Cash Flow for the third quarter totaled $1.1 million and was used to repay debt in the fourth quarter.
	•	Capital expenditures totaled $2.4 million in the 13 weeks ended June 27, 2021 and totaled $5.4 million for the 39 weeks then ended. For 2021, we expect capital expenditures to total less than $8 million.
	•	For 2021, we expect cash paid for income taxes to total between $4 and $6 million.
	•	We made no pension contributions in the third quarter and have contributed $965,000 through the first nine months of FY2021. Due to new legislation reducing required pension contributions, we do not expect any additional pension contributions in FY2021.

	•	Revenues may continue to diminish or declines in revenue could accelerate as a result of the COVID-19 pandemic;
	•	Revenues may continue to be diminished longer than anticipated as a result of the COVID-19 pandemic;
	•	The COVID-19 pandemic may result in material long-term changes to the publishing industry which may result in permanent revenue reductions for the Company and other risks and uncertainties;
	•	We may experience increased costs, inefficiencies and other disruptions as a result of the COVID-19 pandemic;
	•	We may be required to indemnify the previous owners of the BH Media or the Buffalo for unknown legal and other matters that may arise;
	•	Our ability to manage declining print revenue and circulation subscribers;
	•	The warrants issued in our 2014 refinancing will not be exercised;
	•	The impact and duration of adverse conditions in certain aspects of the economy affecting our business;
	•	Changes in advertising and subscription demand;
	•	Changes in technology that impact our ability to deliver digital advertising;
	•	Potential changes in newsprint, other commodities and energy costs;
	•	Interest rates;
	•	Labor costs;
	•	Significant cyber security breaches or failure of our information technology systems;
	•	Our ability to achieve planned expense reductions and realize the expected benefit of our acquisitions;
	•	Our ability to maintain employee and customer relationships;
	•	Our ability to manage increased capital costs;
	•	Our ability to maintain our listing status on NASDAQ;
	•	Competition; and
	•	Other risks detailed from time to time in our publicly filed documents.

	13 Weeks Ended									39 Weeks Ended
	June 27,			June 28,			Percent			June 27,			June 28,			Percent
(Thousands of Dollars, Except Per Share Data)	2021			2020			Change			2021			2020			Change

Advertising and marketing services		91,122			77,754			17.2			279,326			204,426			36.6
Subscription		88,792			89,115			(0.4	)		269,905			178,234			51.4
Other		16,576			15,659			5.9			51,505			43,578			18.2
Total operating revenue		196,490			182,528			7.6			600,736			426,238			40.9
Operating expenses:
Compensation		82,731			72,396			14.3			250,048			164,330			52.2
Newsprint and ink		7,051			7,572			(6.9	)		22,222			16,629			33.6
Other operating expenses		82,117			77,440			6.0			243,749			178,744			36.4
Cash costs		171,899			157,408			9.2			516,019			359,703			43.5
Total operating revenue less cash costs		24,591			25,120			(2.1	)		84,717			66,535			27.3
Depreciation and amortization		10,836			11,201			(3.3	)		33,794			25,196			34.1
Assets loss (gain) on sales, impairments and other, net		242			147			64.6			6,938			(5,153	)		NM
Restructuring costs and other		1,419			2,865			(50.5	)		5,880			6,422			(8.4	)
Operating expenses		184,396			171,621			7.4			562,631			386,168			45.7
Equity in earnings of associated companies		1,689			842			NM			4,902			3,773			29.9
Operating income		13,783			11,749			17.3			43,007			43,843			(1.9	)
Non-operating income (expense):
Interest expense		(11,010	)		(13,135	)		(16.2	)		(34,129	)		(35,377	)		(3.5	)
Debt financing and administrative costs		—			—			-			—			(11,865	)		NM
Curtailment Gain		—			—			-			23,830			—			NM
Pension withdrawal cost		—			—			-			(12,310	)		—			NM
Other, net		2,330			1027			(28.3	)		6,240			3,309			88.6
Non-operating expenses, net		(8,680	)		(12,108	)		(28.3	)		(16,369	)		(43,933	)		(62.7	)
Income before income taxes		5,103			(359	)		NM			26,638			(90	)		NM
Income tax expense (benefit)		1,366			368			NM			7,106			(92	)		NM
Net income (loss)		3,737			(727	)		NM			19,532			2			NM
Net income (loss) attributable to non-controlling interests		(510	)		(548	)		(6.9	)		(1,537	)		(1,322	)		16.3
Income (loss) attributable to Lee Enterprises, Incorporated		3,227			(1,275	)		NM			17,995			(1,320	)		NM

Earnings per common share:
Basic		0.56			(0.23	)		NM			3.15			(0.23	)		NM
Diluted		0.55			(0.23	)		NM			3.10			(0.23	)		NM

	13 Weeks Ended						39 Weeks Ended
(Thousands of Dollars)	June 27,			June 28,			June 27,			June 28,
	2021			2020			2021			2020

Net income (loss)		3,737			(727	)		19,532			2
Adjusted to exclude
Income tax expense (benefit)		1,366			368			7,106			(92	)
Non-operating expenses, net		8,680			12,108			16,369			43,933
Equity in earnings of TNI and MNI		(1,689	)		(842	)		(4,902	)		(3,773	)
Loss (gain) on sale of assets and other, net		242			147			6,938			(5,153	)
Depreciation and amortization		10,836			11,201			33,794			25,196
Restructuring costs and other		1,419			2,865			5,880			6,422
Stock compensation		205			228			639			799
Add:
Ownership share of TNI and MNI EBITDA (50%)		1,923			955			5,421			4,464
Adjusted EBITDA		26,719			26,303			90,777			71,798

(1)	The following are non-GAAP (Generally Accepted Accounting Principles) financial measures for which reconciliations to relevant GAAP measures are included in tables accompanying this release:

	•	Adjusted EBITDA is a non-GAAP financial performance measure that enhances financial statement users overall understanding of the operating performance of the Company. The measure isolates unusual, infrequent or non-cash transactions from the operating performance of the business. This allows users to easily compare operating performance among various fiscal periods and how management measures the performance of the business. This measure also provides users with a benchmark that can be used when forecasting future operating performance of the Company that excludes unusual, nonrecurring or one time transactions. Adjusted EBITDA is a component of the calculation used by stockholders and analysts to determine the value of our business when using the market approach, which applies a market multiple to financial metrics. It is also a measure used to calculate the leverage ratio of the Company, which is a key financial ratio monitored and used by the Company and its investors. Adjusted EBITDA is defined as net income (loss), plus non-operating expenses, income tax expense, depreciation and amortization, assets loss (gain) on sales, impairments and other, restructuring costs and other, stock compensation and our 50% share of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI.

	•	Cash Costs represent a non-GAAP financial performance measure of operating expenses which are measured on an accrual basis and settled in cash. This measure is useful to investors in understanding the components of the Company’s cash-settled operating costs. Periodically, the Company provides forward-looking guidance of Cash Costs, which can be used by financial statement users to assess the Company's ability to manage and control its operating cost structure. Cash Costs are defined as compensation, newsprint and ink and other operating expenses. Depreciation and amortization, assets loss (gain) on sales, impairments and other, other non-cash operating expenses and other expenses are excluded. Cash Costs also exclude restructuring costs and other, which are typically paid in cash.

(2)	This earnings release is a preliminary report of results for the periods included. The reader should refer to the Company's most recent reports on Form 10-Q and on Form 10-K for definitive information.

(3)	On March 16, 2020 (the "Closing Date"), the Company closed the acquisition of the newspaper assets of BH Media Group, Inc. ("BH Media") and the stock of The Buffalo News, Inc. ("Buffalo News").

(4)	The Company's debt is the $576 million term loan under a credit agreement with BH Finance LLC dated January 29, 2020 (the "Credit Agreement"). Excess Cash Flow is defined under the Credit Agreement as any cash greater than $20,000,000 on the balance sheet in accordance with GAAP at the end of each fiscal quarter, beginning with the quarter ending June 28, 2020.

(5)	Due to the BH Media acquisition, our basis of presentation includes (i) our actual GAAP results, which reflect a full quarter of Legacy Lee, BH Media and Buffalo News and year-to-date period of Legacy Lee and 28 weeks of results of BH Media and Buffalo News, (ii) pro forma results, which reflect the consolidated operations, adjusted as if Lee had owned BH Media and Buffalo News for the entire period presented, and (iii) Adjusted EBITDA, which is our non-GAAP measure of operating results, calculated based on actual results (with 28 weeks included in the 52 weeks ended September 27, 2020) and on a pro forma basis (assuming BH Media and Buffalo News were owned for the entire period). Legacy Lee refers to the operating assests and results of operations of the Company prior to the Closing Date, and is synonymous with same store results.

(6)	TNI refers to TNI Partners publishing operations in Tucson, AZ. MNI refers to Madison Newspapers, Inc. publishing operations in Madison, WI.