Lee Enterprises, Incorporated · NASDAQ:LEE
Lee Enterprises — Investor Presentation (April 2019)
40 slides from Lee Enterprises's investor presentation, April 2019
Slide 1: Investor Presentation April 2019
Investor Presentation April 2019
Slide 2: Safe Harbor
SAFE HARBOR Forward looking statements The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This presentation contains information that may be deemed forward-looking that is based largely on our current expectations, and is subject to certain
Slide 3: Safe Harbor (Continued)
SAFE HARBOR (CONTINUED) Industry Data This presentation includes estimates of industry data and forecasts that have been obtained from industry publications and surveys or internal company sources. Estimates regarding any industry data presented in this publication, in particular as they related to
Slide 4: Headlines
HEADLINES Top of the industry in digital transformation 8.2% CAGR of total digital revenue since 2011 Digital audience growth in Q1 Page views +17.3% Unique visitors +8.7% Digital only subscribers increased 55.9% Leading source of news, information and advertising in attractive midsize
Slide 5: Lee Enterprises Project Team
LEE ENTERPRISES PROJECT TEAM Kevin Mowbray President and Chief Executive Officer Tim Millage Vice President, Chief Financial Officer and Treasurer 5
Slide 6: Table of Contents
TABLE OF CONTENTS Overview of Lee Enterprises Strategic Initiatives Financial Overview Appendix 6
Slide 7: Key Credit Highlights
KEY CREDIT HIGHLIGHTS Company and Culture Digital Transformation Leading provider of local news, information and 8.2% Total Digital Revenue CAGR since 2011 advertising in 50 predominantly midsize, Captures more than twice the industry average attractive markets in digital market share Strate
Slide 8: Lee Enterprises
LEE ENTERPRISES Large audiences in mid-sized communities Leading provider of local news, information and advertising in 50 markets in 20 states Huge audiences – print and digital Attractive midsize markets with a strong sense of community Daily community newspapers More than 0.7 million aver
Slide 9: Leading Source of Local News
LEADING SOURCE OF LOCAL NEWS WE PROVIDE HIGHLY-VALUED LOCAL NEWS, INFORMATION AND ADVERTISING IN THE COMMUNITIES WE SERVE Arizona Daily Sun • Arizona Daily Star • Santa Maria Times • The Sentinel • Napa Valley Register • The Times-News Elko Daily Free Press • The Pantagraph • The Southern Illinoisan
Slide 10: Lee's Publications Reach a Huge and Diverse Audience
LEE’S PUBLICATIONS REACH A HUGE AND DIVERSE AUDIENCE Lee audience spans all age groups in our markets 79% OF ALL ADULTS IN OUR MARKETS AUDIENCE BY AGE GROUP INTERACT WITH US OVER A 7-DAY PERIOD 81% 80% 81% 13% 77% Total Digital 13% 12% 12% Users: 50% - 16% 17% up from 35% 11% 20% 18% in 2017 18% 29%
Slide 11: Table of Contents
TABLE OF CONTENTS Overview of Lee Enterprises Strategic Initiatives Financial Overview Appendix 11
Slide 12: Lee Remains Focused on Driving Growth Through Effective Execution
LEE REMAINS FOCUSED ON DRIVING GROWTH THROUGH EFFECTIVE EXECUTION LOCAL MARKET FOCUS TOWNNEWS AND LOCAL RETAIL AUDIENCE DIGITAL SERVICES Deliver best-in-class digital Grow digital only audience Capitalize on market share advertising programs and engagement opportunities in print and New prod
Slide 13: The Vast Majority of Our Revenue Is Local
THE VAST MAJORITY OF OUR REVENUE IS LOCAL AND WE HAVE STRATEGIC INITIATIVES TO DRIVE PERFORMANCE TOTAL REVENUE BY TYPE DIGITAL ADVERTISING TRANSITION ($mm) and % of total advertising revenues 80% of total $536.4mm revenue is local Total Advertising 31.8% 33.4% 27.7% 23.1% 19.8% 44% 17.2% 92 96 98 36
Slide 14: Controllable Retail: Edison
CONTROLLABLE RETAIL: EDISON “Genius is one percent inspiration, ninety-nine percent perspiration” —Thomas Edison Account Stratification Turnkey print and digital packages optimized across platforms & price Top points to drive: Inside Local 1. REACH 2. FREQUENCY 3. RECENCY Territory As of December 20
Slide 15: Controllable Retail: Amplified Agency
CONTROLLABLE RETAIL: AMPLIFIED AGENCY To Help Small and Medium Sized Businesses Thrive Digital Agency • Sophisticated data-driven digital marketing agency Data Fulfillment • Launched in 2017 and serves Analytics larger markets • Website development Amplified • Social media management Product Event T
Slide 16: Audience Revenue Growth Has Remained Strong
Audience Revenue Growth Has Remained Strong Accelerating digital only subscriptions LTM DEC 2018 2015-18 CAGR +0.1% HIGHLIGHTS 194.5 194.0 191.9 195.1 193.1 Subscription revenue up 0.9% Page views +17.3% 29 million monthly average unique visitors Digital only subscribers up 55.9% in Q1 FY19
Slide 17: News+ Membership Model
News+ Membership Model n ews* Introducing News* Membership, a program for our subscribers, dedicated to offering perks and benefits . = Missoulian : that are only available to you as a member. News* Members will continue to get the stories and information membership that makes a difference to them,
Slide 18: TownNews Integrated Digital Publishing and Content Management
TOWNNEWS IS A LEADING PROVIDER OF INTEGRATED DIGITAL PUBLISHING AND CONTENT MANAGEMENT SOLUTIONS State-of-the-art platform for creating, distributing, and monetizing multimedia content Nearly 2,0001 newspaper, broadcast, magazine, and web-native publications rely on TownNews for their web, print
Slide 19: Management Agreement with Berkshire Hathaway
MANAGEMENT AGREEMENT WITH BERKSHIRE HATHAWAY OVERVIEW TERMS Lee assumed management of BH’s newspaper Initial term of 5 years with option to renew and digital operations in 30 markets beginning Annual fixed fee of $5mm plus percentage of July 2, 2018 profits over benchmarks Provides Lee with
Slide 20: Management Agreement with Berkshire Hathaway
MANAGEMENT AGREEMENT WITH BERKSHIRE HATHAWAY YEAR 1 ACTIONS TAKEN FUTURE OPPORTUNITIES Implemented Lee’s culture and operating style Implement the Edison Project Developed 5-year plan detailing revenue and Outsource ad production cost synergies that will be implemented Create and drive eff
Slide 21: Table of Contents
TABLE OF CONTENTS Overview of Lee Enterprises Strategic Initiatives Financial Overview Appendix 21
Slide 22: Discussion of Recent Performance
DISCUSSION OF RECENT PERFORMANCE Q1 2019 operating revenue decreased 5.3% Review of Q1 2019 cash costs1 decreased 4.4% compared to the prior year Recent LTM December 2018 Adjusted EBITDA1 decreased 5.5% to $128.4 million Performance Leverage net of cash of 3.60 times Adjusted EBITDA compared
Slide 23: Consolidated Financial Summary
CONSOLIDATED FINANCIAL SUMMARY REVENUE ($mm) ADJUSTED EBITDA2 ($mm) 661 649 614 567 544 167 160 536 151 141 132 128 2014 2015 2016 2017 2018 LTM 2014 2015 2016 2017 2018 LTM Dec Dec 2018 2018 % change % margin2 (1.9%) (5.3%) (7.7%) (4.0%) (3.7%) 22.8% 22.6% 22.2% 22.9% 22.1% 21.9% CAPEX ($mm) UNLEVE
Slide 24: Total Digital Performance Trend
TOTAL DIGITAL PERFORMANCE TREND Q1 FY2019 Total Digital Revenue ($mm) TRENDS • Digital Advertising $112.8mm $115.7mm and Marketing $106.0mm Services up 8.0% $100.5mm 16.3 17.3 $94.3mm 14.1 $90.2mm 14.2 • TownNews up 12.5 15.0 25.5% $72.1mm $77.0mm $65.3mm 6.1 10.8 • TownNews digital 5.1 services 7-y
Slide 25: Significant Annual Cost Cuts
SIGNIFICANT ANNUAL COST CUTS Total cash costs1 excluding workforce adjustments ($mm) BUSINESS Outsourcing adds outside TRANSFORMATION services, resulting in lower compensation but higher Regionalization initiatives: 502 other cash costs HR 478 438 Finance 424 419 Printing 229 Centralized
Slide 26: Consistently High Margins
CONSISTENTLY HIGH MARGINS Industry-leading margins1 among peer media companies 23.2% 23.7% 23.0% 22.9% 22.4% 22.6% 22.2% 22.1% 21.9% 11.7% Industry Average2 2011 2012 2013 2014 2015 2016 2017 2018 LTM Dec 2018 1 Margin is a non-GAAP financial measure. See Appendix for reconciliation to the nearest G
Slide 27: Strong Adjusted EBITDA
STRONG ADJUSTED EBITDA1 All figures in $mm Interest Capital expenditures Pension contributions and taxes 150 142 132 128 76 62 65 63 2016 2017 2018 LTM DEC 2018 1 Adjusted EBITDA is a non-GAAP financial measure. See Appendix for reconciliation to the nearest GAAP measure. 27
Slide 28: Peer Comparison - Results
PEER COMPARISON - RESULTS Adjusted EBITDA has grown from $89M in 2014 to $182M in 2018 Total debt / LTM Adjusted EBITDA (pre-SBC)2 3.6x 0.9x 6.3x 2.4x 0.1x Margin2 21.9% 11.0% 14.6% 11.9% 9.1% EBITDA Growth (year-over-year)2 (7.7%) (10.6%) (30.9%) 9.5% (5.9%) Revenue Growth (year-over-year)2 (4.4%)
Slide 29: Financial Policy
FINANCIAL POLICY Leverage Gross leverage target of 2.5x Adjusted EBITDA1 Maintain strong liquidity through revolver and balance sheet cash Liquidity Consistent, positive free cash flow generation Plan to use substantially all of free cash flow to reduce debt Use of Pension funding and inco
Slide 30: Lee Capitalization
LEE CAPITALIZATON As of 12/30/18 x Adjusted ($mm) Coupon Maturity Amount EBITDA Cash & cash equivalents $16 $40mm First Out R/C Facility L+550 Dec-19 1st Lien Senior Secured Notes 9.50% Mar-22 385 Total 1st Lien Debt $385 3.0x 2nd Lien Term Loan 12.00% Dec-22 93 Total 2nd Lien Debt $93 0.7x Total De
Slide 31: Aggressive Debt Reduction
AGGRESSIVE DEBT REDUCTION Debt1 reduction since 2014 refinancing ($mm) 845 805 726 617 548 485 478 Mar 2014 Sep 2014 Sep 2015 Sep 2016 Sep 2017 Sep 2018 LTM Dec 2018 1 Amounts represents the principal amount of debt 31
Slide 32: Debt Maturities
DEBT MATURITIES ($mm) Call Premiums Notes: March 15, 2018 104.75 $385.0 March 15, 2019 102.38 March 15, 2020 100.00 2nd Lien: March 31, 2018 103.00 March 31, 2019 100.00 $91.5 $1.4 2019 2020 2021 Notes Due Mar 2L TL Due Dec 2022 2022 32
Slide 33: Key Credit Statistics
KEY CREDIT STATISTICS TOTAL DEBT ($mm) DEBT / ADJUSTED EBITDA1 Total Debt Net Debt 805 726 617 548 485 478 4.8x4.7x 4.5x4.5x 4.1x4.0x 3.9x3.8x 3.7x3.6x 3.6x3.5x 2014 2015 2016 2017 2018 LTM 2014 2015 2016 2017 2018 LTM DEC DEC 2018 2018 ADJUSTED EBITDA1 / CASH INTEREST UNLEVERED FREE CASH FLOW1 / DE
Slide 34: Summary
SUMMARY CONFIDENT ABOUT LEE’S FUTURE Top of the industry in digital transformation Right transformational strategy Leading source of news, information and advertising in attractive midsized markets Huge local audiences with strength across all age groups; growing digital audiences and revenu
Slide 35: Table of Contents
TABLE OF CONTENTS Overview of Lee Enterprises Strategic Initiatives Financial Overview Appendix 35
Slide 36: Relevant Background
RELEVANT BACKGROUND Lee has a fiscal year ending the last Sunday in September. Reported revenue, expenses and results exclude 50% owned ventures in Tucson, AZ (“TNI”) and Madison, WI (“MNI”), which are accounted for using the equity method. All information has been restated to exclude divestit
Slide 37: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES No non-GAAP financial measure should be considered as a substitute for any related GAAP financial measure. However, we believe the use of non-GAAP financial measures provides meaningful supplemental information with which to evaluate our financial performance, or assist i
Slide 38: LTM December 2018 Financial Results
LTM DECEMBER 2018 FINANCIAL RESULTS ($MM) % Var % Var % Var % Var LTM Dec % Var 2018Q2 YoY1 2018Q3 YoY1 2018Q4 YoY1 2019Q1 YoY1 2018 YoY1 Advertising and Marketing Services 71,553 (7.7) 73,538 (9.5) 73,695 (7.4) 75,962 (10.3) 294,749 (8.7) Subscription 45,972 2.1 48,165 1.6 52,703 4.1 46,268 (4.1) 1
Slide 39: Non-GAAP Reconciliation ($MM)
NON-GAAP RECONCILIATION ($MM) 2011 2012 2013 2014 2015 2016 2017 2018 LTM Dec 2018 % of % of % of % of $ of % of % of % of % of Amount Revenue Amount Revenue Amount Revenue Amount Revenue Amount Revenue Amount Revenue Amount Revenue Amount Revenue Amount Revenue Total operating revenue 726.0 706.9 6
Slide 40: Pension and Post Retirement Funding Status
PENSION AND POST RETIREMENT FUNDING STATUS (’000s) Sep 2018 Sep 2017 Pension Plans Pension Medical Pension Medical Assets1 151,255 24,647 149,762 24,626 Benefit Obligation1 176,531 11,756 191,645 13,606 Amount over (under funded) (25,276) 12,891 (41,883) 11,020 Discount rates used to value 4.2% 4.0%