Q1 2021 A. H. Belo Corp Earnings Call
[music].
I would now like to turn the conference over to Katie Murray. Please go ahead.
Good morning, everyone and welcome to our first quarter 2021, Investor call I am joined by Robert Decorative Chairman, President and Chief Executive Officer of a H Belo Corp.
Grant Moise publisher and President of the Dallas morning News, who are available for Q&A.
Yesterday afternoon, we issued a press release announcing first quarter 2021 results and we filed our first quarter 10-Q.
We have posted both of these on our website under the Investor Relations section.
Unless otherwise specified comparison views on today's call measure first quarter 2021 performance against first quarter 2020 performance.
Our discussion today will include forward looking statements forward looking statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those statements.
The company assumes no obligation to update the information in this communication, except as otherwise required by law.
Additional information about these factors is detailed in the company's press releases and publicly available filings with the SEC.
Today's discussion will include non-GAAP financial measures, we believe that non-GAAP financial measures provide useful supplemental information to assist investors in determining performance comparisons to our peers.
A reconciliation of GAAP to non-GAAP financial measures is included with our press release and posted on our website.
A H Belo reported a first quarter 2021, net loss of $2 8 million or 13 cents per share and an operating loss of $3 7 million in the first quarter of 2020 of the company reported a net loss of $1 6 million or eight cents per share and an operating loss of $4 8 million.
The 2020 net loss included a federal tax refund of $2 3 million permitted under the cares Act.
Adjusted operating loss, which adjust GAAP operating loss to exclude severance expense depreciation amortization and asset disposals and impairments was $2 4 million for the first quarter.
This is an improvement of 400000 or 14, 4% when compared to the adjusted operating loss of $2 8 million reported in the first quarter of last year.
For the first quarter of this year total GAAP revenue was $36 8 million a decrease of $3 5 million or eight 7% when compared to the $43 million reported in the first quarter of last year.
Of the year over year revenue decline of approximately $1 6 million is in print advertising revenue and $1 million in digital advertising revenue both have been impacted by the COVID-19 pandemic.
Digital circulation revenue was 2 million in the first quarter of this year, an increase of 600000 or $46 five per cent compared to last year. The news ended the first quarter of this year with 50852 paid digital only subscriptions an increase of 11493 or <unk> 29.
<unk>, 2% when compared to the first quarter of last year.
Print circulation revenue for the first quarter was $14 million, a decrease of 1 million or six 9% compared to the prior year, we had experienced relative stability of our print member base as home delivery revenue declined only four 3% single copy sales revenue declined 27, 1%.
Primarily due to the significantly reduced number of locations selling the newspaper as a result of the COVID-19 pandemic.
Other revenue reported in the first quarter of 2021 was $4 million compared to $4 6 million reported in the first quarter of last year.
The decline is due to a $600000 decrease in commercial printing and distribution revenue.
First quarter 2021, total GAAP operating expense was $40 5 million an improvement of $4 6 million, a 10, 2% compared to the first quarter of last year.
The improvement is primarily due to expense reductions of $1 1 million in employee compensation and benefits now.
$900000 of newsprint $900000 in outside services.
$700000 and depreciation of 400000 in distribution.
And $300000 in travel and entertainment.
The company reported tax expense of approximately 300000 this quarter relating to the Texas margin tax.
As of March 31 of this year. The company had 713 employees a decrease of 75 or nine 5% when compared to the prior year cash and cash equivalents were $38 1 million and the company had no debt.
As of April 23rd of the company had approximately $39 million in cash and cash equivalents.
As a reminder, we do not have any mandatory pension payments in the next 10 years and our pension plans are currently funded at 94%.
In the first quarter 10-Q filed yesterday afternoon, we disclosed the disclosed in the subsequent event footnote that the company has signed a memorandum of understanding with charter holdings. This Mou outlines the company's required of terms and conditions. If we were to extend the due date of the note payable of $22 4 million from June 30th of.
This year to June 32022.
We realized that the pandemic has had an impact on the timing of commercial development and thus capital constraints and commercial real estate markets may exist.
If an agreement is reached the note payable will bear interest of four 5% payable quarterly generating approximately $1 million of additional interest income over the next 12 months. The company will also maintained its secured first priority lien interest.
I will now provide some operating updates Belo <unk> company's first quarter showed strength in clients' increasing digital marketing services investment and print advertising began to return to prepayment. The Nic levels. We continue to focus on customer service and campaign performance with N. Belo <unk> company, which has resulted in our highest account retention rates in the past.
Past five years the.
The oil <unk> company of also focused on growing a portfolio of marketing services as our strongest clients emerge from 2020 and look to us to increase their own market share.
The year over year growth and digital membership volume has begun to return to pre COVID-19 levels, while revenue per user for both print and digital continued to increase year over year compared.
Compared to 2020, the average print membership rate has increased 8% from $8, a 95 to $9 70 per week and our average digital membership average rate has increased 21% from $2 76 per week to $3 35 per week.
While print subscriptions have declined we have seen an improvement of 17, 5% in print membership retention for new subscriptions when compared to last year.
We are very pleased with the financial results and the progress we are making in growing our digital base revenue both in advertising and in circulation I will now turn the call over to Robert H.
Thank you and good morning, everyone. We're looking forward to your questions about the operating side of the business and as Katie noted grant is here with us to address those.
Just a couple of points on the way there we are seeing a return of advertisers when we say to a pre pandemic levels.
That's not fully baked at this point, but they are encouraging signs and we would expect to see that trend continue through this year.
Debt together with the stability in home delivery and the increase in our digital membership gives us some confidence that we can maintain the membership of our circulation cash flows coming out of the traditional.
Traditional or legacy.
Bruce and buildup of our digital side, including through pricing pricing is moving very important as you know some of the equilibrium between.
The way, we did conduct business in a reliance on print as we migrate to a digital.
The majority if you will both of members and ultimately revenue is how we need to manage the company down to the smaller company.
Environment that we've talked about so often.
We're encouraged at the balance sheet reflects the stability that we've observed in the last six months.
The idea of growing digital revenue is ultimately how we go cash flow positive begin the <unk>.
Press release noted that we have announced a VSO a voluntary severance offer.
That's just one of many levers we are using to get our expense structure.
Properly sized to the company we've become in the company we will be.
In terms of cash.
The press that we are still the $39 million to $40 million. Despite what's occurred in the last 12 months and the <unk>.
Conversation around the charter extension, while it's not resolved.
Is probably a good scenario for us if that works out.
Of income, we would not otherwise be assured.
As we get back on track with the transition to a digital first company.
If you look at night 2020, rather as a GAAP here it's.
It's not that it didn't exist, but it certainly didn't enable anyone in the legacy business to advance towards that digital stage that is so important.
You also mentioned the pension we've seen that hold up very well during the market.
Utility of 2020.
We're very significantly hedged in that.
Portfolio now so sitting there at 94% funded.
As opportunities present themselves going forward, we should be able to manage that and deliver on the promise we made long ago to our pension nears that we're going to have a stable a pension plan that they can rely on fruit of the long term.
As you know we're going to hold our annual meeting virtually again that would be at a may 13 at 930, a M central time.
We are very optimistic that we'll be together in person in a year from next month.
The items that are on the agenda that are non typical as you know the name change of the company, which is a timely and important.
The undertaking for us I'm sure, we will get that done and make that transition quickly.
And then on the reverse stock split both ISS and glass Lewis of now issued a report supporting the proposal and in fact, all four of the proposals that are.
Over a four quarter shareholder vote at the meeting.
The underlying rationale for the reverse stock split as we have to have the flexibility to remain actively traded on one of the prominent exchanges and we believe the board believes that's the way.
To achieve the flexibility so happy to talk more about the rationale.
<unk> of course from the standpoint of expecting or looking forward on dividend.
Would adjust the dividend.
If we do.
The reverse stock split such that the payout as the essentially the same as the day.
The very close in dollar terms, just depending on how many share someone.
Would one after the reverse split.
Should it occur in the board, obviously is going to look at that timely.
Given the authority of the annual meeting to consider the split.
Let me pause there <unk> if there are questions.
About any of that you and I have said and of course other questions of grant and Katie can address.
The Gloria we are ready to open it up for questions.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press. One then zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command once again for any questions. Please press one zero at this time one moment please.
We will go to the line of Chris Mooney with Wedbush Securities. Please go ahead.
Good morning, all.
Hi, Chris.
I've got like eight questions, if there's not a lot of other people in queue.
I'll just start you can tell me to get back in queue, if we need to.
So.
Digital subscribers and with.
I know there'd have to be some assumptions throne of this but where is there a.
The level of subscriber do you need to get to a breakeven cash flow.
Chris its grant.
I'll answer that.
Theres, obviously, two levers that have to be pulled as Robert was referring to on digital subscriptions. One is the volume of two is the price.
<unk>.
I know that there are some companies out there who of.
A gone over 100000 digital subscribers, but I think when you look at the rate that the average rate that they're charging I think it's difficult to get yourself to the kind of revenue needed to support the business.
The way we look at it is I think what we're trying to do first Chris is to get our cost of our newsroom covered by digital subscriptions.
I would say Thats really always the first.
Hurdle that a major metro newspaper is trying to achieve.
And roughly speaking are our newsroom is about a $15 million expense to cover the cash.
Kind of market and the size of the DFW market at scale.
But obviously in terms of reaching cash flow digital subscriptions is just one of so many levers in the company.
I would be guessing, it's something and so I don't want to do that but I think it is clear.
For us that at least the nearer term goal that we're trying to reach us to hit that $15 million Mark on digital subscriptions.
Chris It's a blend of course between print advertising and circulation revenue and digital so we're not suggesting we have to go to a 100% digital base that we need for it to grow continue to grow significantly and as the grant pointed out price opportunistically.
The big numbers with no price that's a non starter that does not work so for the long term, it's managing debt equilibrium.
Mentioned.
Our legacy revenue and the digital it underscores the importance of a relationship with our long term print subscribers and how we ultimately migrate.
Either to receiving the printed newspaper in a different form or going all digital.
Not all of the cohorts ready for that book, we are making.
Making plans to bring them along.
That was that was useful I appreciate the.
Sort of color on the background there.
The VSO.
<unk> got 15 jobs open on your website.
And the VSO seems to come a year after the pandemic.
Started so a are you did you waste a good crisis or can you give us more details on the.
The goal of the costs and the cost savings you expect.
Chris It's a very important question and I would characterize our decision making during 2022 as we acknowledged that it was a crisis.
And made sure that our employee cohort was.
<unk> cared for and supported.
Now that things are more stable, we're looking at what do we need to do to continue this.
Pathway to being a smaller company.
A lot of people were in a lot of a lot of pain in 2020.
As you know we initially when things look very dire.
<unk> implemented an across the board wage decrease, but we restored that because we're in this for the long haul.
There is no more important aspect of our success from the people who.
Make up this company.
And I think as a consequence of the way we worked our way through that we are in a position now where we can make the adjustments on the expense side and.
The way that is much more consistent with the company. We are in the company we need to be a.
And the key in this first step is it's voluntary.
So if we're able to.
Provide an exit from folks who've been here for a long time.
Good and then as we see revenue patterns evolve during 2021 grant in Katy and their teams can evaluate how we continue to.
<unk> worked through the expense side of the equation, obviously, we gotta be smaller businesses.
That's a that doesn't take.
Three case studies from Harvard business school to figure out.
And the are there any details you can give us as far as a goal or costs or cost savings expected.
Hey, Chris This is Katie so first of you asked about the open head count there is open head count in the company. We are hiring in the newsroom, we are hiring a within Belo <unk> company and then we're also hiring developers and so again all areas that are focused on our strategy around digital growth and both on the advertising.
The.
Membership side, what we did on the DSO as we offer this to really what I would say kind of more of our shared service back office areas of the North plant finance accounting and <unk>.
Consumer revenue and.
And areas like that.
Right now, it's a voluntary as Robert mentioned and so at this point, we're in a really seeing what comes in and taking an opportunity to look at those that have made a decision that it's time for them maybe to retire do something differently and at that point we.
We will take that information and the <unk>.
What we need to do going forward, but there's not a specific target or goal that we gave out to the company. This is a lead.
Let's see really where we are for all of these organizations and make a decision on how to move forward.
Okay.
Let's see a have you are you receiving now payments from either a Facebook or Google.
And there sort of a global support.
News creators industry.
It's grant Chris we are receiving.
Some payments from a Facebook, specifically, which is was part of something that a.
I believe if my memory serves me correctly, we've started in 2019.
However, those are more of a revenue share of type agreement that was done industry wide.
Obviously, that's quite different than the types of a licensing agreements of debt.
<unk> been a reported in countries like Australia, and France and.
We hope are coming soon too.
Two to more companies here in the United States, but we do have current.
Payments with Facebook that we're receiving but not from Google.
Okay.
And a.
Just looking at where we are now.
Are there any change in the trends of <unk>.
Subscriber trends or AD trends for both.
And digital.
Since the <unk>.
Start I'll start on the subscription side, we call. It a membership side of the house, Chris the print print.
<unk> has become quite stable for us Sucre, who runs that group has done a very good job getting that stabilized for us I feel like we've kind of reached especially on the home delivery side.
Kind of.
A very healthy equilibrium between volume and price obviously as Kt had mentioned in the earnings script. Our single copy channel is extremely pressured being down 27% on the digital subscription side. Obviously in this kind of high 40% range, we're very pleased with that but all shoes, you could on our investor.
Relations tab, we've shown the net gain or kind of incremental game volumes.
It had been a.
Softer than they were in the early stage of the pandemic in the second and third quarters of last year.
But.
We believe we've got some strategies here on the horizon that are going to really help us on the on net subscription side of the house, we've hired some talent out of Boston, who really helped the Boston Globe a reach some significant levels and we're in the middle of deploying those and so feel good about kind of where that.
But we're gonna be able to get ourselves back to some volume increases in the.
In the near of the near term on the advertising side of the house, Chris as we mentioned I would say it really has reached what I call debt pre pandemic level, where print on the average was down around that 10 of 11% range on print advertising.
That is about where we settled in the first quarter, which is a.
Far better than where we were last year, obviously with the pandemic.
What we're seeing on the digital side of the house is a very quick rebound in things like search and things like programmatic advertising.
Those are.
Kind of easier to turn on and off.
But not as a profitable for us as some of our other lines of business, which we call our strategic services or our advertising on Dallas News Dot com. However.
However, we do believe that as more categories and industries of advertisers come back on online that we will see the debt that improve as well travel and tourism is an example of that the event business is another one of those where these are obviously just parts of better really lagging as the.
The economy and pandemic and help the returned to normal.
Those are important categories for us and we're starting to see signs of them reaching out to us.
And having an interest in advertising once again.
Chris I was gonna see if glory of our operator, if there was anybody else in queue.
For a question, but if not we can continue the glory is there anyone else.
Thank you.
Yes, ma'am you have Jonathan with KMF investments. Thank you.
Alright, Christy mind, if we move to Jonathan and come back to your next four questions.
Not at all.
Okay.
Okay, one moment please.
And please go ahead.
Good morning, Thanks for the consideration can you hear me okay.
Absolutely.
Just had two quick questions given the cash balance and the desire to grow.
The the digital subscription business do you see meaningful capital allocation of investments this year over the next 18 to 24 months five Ken.
<unk> million dollars worth of the cash balance to accelerate the digital transition or do you just see that.
Progressing more steadily and then I had a follow up question as well.
Jonathan we would be in the progressing steadily camp.
As a flow.
Folks who've been a long for this a ride for the last decade, no. We are very focused on our balance sheet and maintaining significant cash balances we did do a.
I will say some of.
Of one off investments in the mid 2015 16 timeframe.
Were intended to accelerate our digital.
Presence, but actually turned out to be pretty significant distractions so far.
Focused again on the core competencies and the opportunities around those that ultimately translate to a large digital presence.
We may invest but not in the orders of magnitude you're describing.
If we had the right kind of internal.
Investment opportunity, whether it's a software or.
Talent or a combination of the two.
That we think would.
Measurably increase the rate of our growth in digital membership or in digital advertising, we would do that.
But we have to be convinced that it has the potential and that we have metrics in place to evaluate that in fact, it is having a positive effect. This is a.
It seems a contrarian, but in a digital world that moves so fast and changes. So predictably. This is a a focus to grind it out long term strategy to determine.
Whether a distinguished local journalistic organization.
Can make this happen and we think we of all the the components to do that.
So circling back to your question.
We invested five or $10 million again in something outside of our core business.
It was it would have to be an opportunity the so obvious the line around the.
Building to invest in it.
Crowd us out.
Understood I appreciate that commentary one other I guess just a more strategic question. If we look at the digital subs and the <unk>.
50, 60, K range, but then you look at your Twitter followers.
Well north of the.
I think 700000, the lifestyle of all right.
Yeah, that's a great top of funnel.
Channel four.
For the paid subs, but just wondering how do you drive higher conversion between that number that's close to a million followers on Twitter side versus the paid sides and Twitter has.
The.
As a launching more subscription based products for content owners.
Have you evaluated.
And a revenue generation opportunities through that platform.
Twitter specifically Jonathan is a.
I have a person who basically manages all of our kind of social what we call social media top of the funnel, we have a social media top of the funnel and then we also have an email top of the funnel, where obviously we are trying to capture email addresses so that people can get into the kind of a relationship of receiving our content, whether that'd be true social.
Or through email.
Twitter a M.
The the other social media platforms.
All have a part of what we do is not only have a relationship with them directly but we're also talking to our peers about what type of conversion rate. They are seeing of not only a one time subscribers, but those that stick with us.
To make sure that we can not only bring someone in but make sure that that really turns into a monthly recurring revenue not just a one time hit.
And we just continue to study it but what we've found is and especially I kind of mentioned, we're stealing a little bit from that Boston Globe playbook.
Austin has found themselves well north now of 200000 digital subscribers.
And we're really trying to stick to a lot of the basics of finding a allowing ourselves to get from this 50 range first over a 100 and then kind of in the long term and so a social has played a part of that strategy, but I would call it more of a a.
Wider role the more of a dominant role I would say the email acquisition and building a relationship.
Relationship the registration has probably been that the primary top of the funnel a strategy that we're following but obviously, we're keeping our eye on everything and we've got great relationships directly with Twitter with Google with Facebook and were trying to make sure. We're on top of anything thats cutting edge that can help us.
Just add one thing in the larger context, which is our content depends on.
Users members, who are able and willing or interested in time on site.
So our content is not really as geared to the quick hit as it is a slightly longer time on site and the longer we keep people on site the <unk>.
Later, the chance of converting them.
How we present content and how that content is differentiated from the avalanche of content in the social World is really key to our strategy long term.
Thank you.
Thank you. Thank you.
Glen.
ARIA.
The additional questions. Please press one zero at this time.
Okay.
We will go back to the line of Chris Mooney. Please go ahead.
Interesting questions. So I'm glad you got him in.
Let's see it related to that last question do you have a what's the capex budget for this year and it sounds based on where you exited the.
First quarter and currently now you seem to be building cash slightly again is that your expectation for the year.
So Chris from a Capex perspective.
Our budget is less than a million dollars consistent with last year really focused on.
A lot of income with the north plant things like that obviously on any kind of.
Replacement from things like that but there is nothing significant on a brand new capex perspective.
I will tell you from a cash balance perspective.
The thing we can do to minimize expenses to minimize capital.
Any kind of outlay anything we can do to preserve the cash balance is what we're doing and so we.
We had a really really strong first quarter in collections I would say that collections of now turn back to kind of pre pandemic, where we saw some of them maybe.
Maybe some people who aren't as familiar about how to work remotely and pay their bills and Q2 and Q3 of last year, but they figure that out and now people coming back so collections is definitely playing.
A significant portion of a significant role in that as well, which I'd call out debt.
Look we are still losing money.
Everything that we can do to minimize expenses. The DSO capex, we are doing that to preserve cash.
Okay and.
Brent can you give us a little more color and update on Belo <unk> company.
Sure I think the number one thing that we've been celebrating internally Chris is the retention of our key clients.
Eric Myers, Who's running that organization for me.
It has been.
A hyper focused I would say in customer service and what we call campaign management and so to understand what those clients need in terms of.
The kind of their kpis to make sure that these campaigns are performing well.
As you know and as we all saw as a trend the last year and it is not slowing down is the adjustment of our clients from a brick and mortar model to e-commerce.
What's nice for Belo <unk> company is because we build websites because we can help them with their own top of the funnel a strategy of how to drive commerce to their sites that has been a very big focus of ours and it's allowed us to.
To build a kind of a relationship with these clients that has them staying with us.
I'm very proud because.
Two to three years ago that was not our strength. We just were not hitting the kind of performance standards levels that these clients needed in order to feel that we were a partner and a strategic partner of theirs. We were really a vendor that they felt like they could kind of a trade in and out.
And so that's what I'm most pleased as we all know you can't build a business unless you are retaining your clients and you're growing the investment from those clients and Thats exactly where we are right now.
I would say what I mentioned earlier in terms of the lines of business programmatic programmatic video and search are the largest tools that they're using to grow their ecommerce lines of business and we're just trying to make sure of it strategically.
We keep getting Dallas news Dot com and what we call our owned and operated assets to become more of a meaningful part of that mix and that just has a lot to do with some of our technical.
Capabilities that we're trying to upgrade as well, which basically of that comes down to a targeting how well can we target the customer that they need while also preserving.
Those people, who entrust us as members of their privacy is critically important to us we only want a target what we think is responsible to the.
Those people, who entrust us.
As paying members.
Okay.
And 81.
Sort of cleanup items for me a advertising contra revenue was much larger.
It was.
Goes back to a grant was talking about on some of these lines of business. The cost of sale really is just a complete pass through.
Whether we're using Google other types of.
Our partners to be able to.
To provide for our clients that they're looking for so to Grant's point those lines of business, while growing and important in establishing a great client relationship because they're not just looking for one thing to be able to advertise on they need a multiple they need multiple different types of advertising.
Advertising capabilities and that's just one of them, but it is a high Cogs has a little bit of a lower margin and that was the spike that you saw in right now the grant point, we're seeing a lot of that revenue coming in.
So I would say that the Cogs that youre seeing this past quarter, it's probably going be a trend we're going to see part of that longer.
Okay.
My final question relates to the the <unk>.
A very Washburn note.
Yes.
Did you all approach him or did see approach you and.
It almost sounds like the all approached him.
Okay.
Well, we may have presented as well.
What happened.
Ray had.
And as you know with everyone in the.
Commercial real estate and <unk>.
Event business is one of the main sources of cash flow as a large restaurant business across several brands.
Things were pretty tough of a year ago, and that's why the first quarter payment in 2020 was extended.
And we were in touch with his colleagues through the year.
He broached this non.
Not long ago.
And as we thought about where we are from a balance sheet standpoint and.
Getting the business back in a in a progress mode. The timing is fine with us and the income is important.
So a.
If we paid in full or if we are paid in full in June that's fine, but we don't have an immediate strategic plan.
For that but.
Net cash.
We're very mindful of the concept of disturbing distributing capital to our shareholders. That's the whole dividend plan and why we paid an above average dividend.
Right.
Percent payout for a long time.
And once the business has progressed further and ultimately debt payments made whether to this june or slightly later.
That gives the board a number of choices that we've discussed.
With you and all of our shareholders for several years.
So we're listening put it that way, we're all ears in the.
Mou makes it very clear of what we would expect.
Which would be.
The four 5% interest rate.
And getting everything current.
Okay. Thank you.
Finished.
Thanks, Chris and we appreciate your questions we always do.
Andrew knowledge so.
Gloria.
Yes, ma'am there are no questions at this time.
Alright, well, thank you everybody and.
As a as Robert said, thank you for the questions. They are a great questions today we.
We hope to see everybody virtually at our shareholder meeting on Thursday may 13th at 930 and.
Our next quarterly earnings call, which will be later this summer. Thank you bye bye.
Thank you, ladies and gentlemen that does conclude our conference for today. Thank you.
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