Q3 2021 Dallasnews Corp Earnings Call

Yeah.

Okay.

Ladies and gentlemen, thank you for standing by welcome to the Dallas News Corp, third quarter, 2021 investor call.

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As a reminder, your conference call today is being recorded.

Now I'll turn the conference call over to your first Speaker Gary Cobley. Please go ahead.

Good morning, everyone. This is Gary calmly controller, a Dallas News Corporation.

Welcome to our third quarter 2021 investor call.

I am joined by Katie Murray, Chief Financial Officer, who will be reviewing third quarter 2021 financial results and Robert Decherd, Chairman, President and Chief Executive Officer of Dallas News Corporation.

Grant Moise publisher and President of the Dallas morning News is also here and available for Q&A.

Yesterday afternoon, we issued a press release announcing third quarter 2021 results and we filed our third quarter 10-Q.

Both of these are posted on our website Dallas News Corporation Dot com under the Investor Relations section.

Unless otherwise specified comparisons used on todays call measure third quarter 2021 performance against third quarter 2020 performance or.

Our discussion today will include forward looking statements.

Well, we're 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.

I'll now turn the call over to Katy.

Good morning, everyone. Thank you for joining today's call Dallas News reported third quarter 2021, net income of $1 6 million or <unk> 30 per share and an operating loss of $2 6 million in the third quarter of 2020, the company reported a net loss of $100000 or <unk> <unk> per share and an operating loss.

Loss of $2 4 million.

The third quarter of 2021 net income includes a tax benefit of $2 4 million primarily related to the release of a noncash uncertain tax reserve recorded in 2000 and December of 2017.

The statute of limitations expired in this quarter.

Adjusted operating loss, which adjusts GAAP operating loss to exclude severance expense depreciation amortization and asset disposals and impairments was $1 2 million for the third quarter, a decline of $1 1 million when compared to an adjusted operating loss of $100000 reported in the third quarter of last year.

The decline is due to increases of $900000 in employee compensation and benefit expense and 700000 in revenue related outside services expense, partially offset by an increase in total revenue.

Yes.

For the third quarter. This year total GAAP revenue was $38 3 million an improvement of 600000 or one 5% when compared to the $37 7 million reported for the third quarter of last year.

The improvement is primarily due to an increase of $900000 or 15, 5% in digital advertising revenue and $700000 or <unk> 42, 5% and digital subscription revenue, partially offset by a print advertising decline of $300000 or two 5%.

And a print circulation revenue decline of $700000 or four 9%.

Last year in the early stages of the pandemic, we sold personal protective equipment through our digital marketing automation platform.

Cause that platform was used to order the equipment. The revenue was included in digital advertising and marketing services revenue.

Therefore for comparative purposes, when excluding the sales of personal protective equipment last year digital.

Advertising and marketing services revenue grew $1 4 million or 26, 1% for the third quarter and $1 8 million or 10, 4% year to date.

This year over year growth in digital advertising and marketing services revenue was generated from sales of high margin owned and operated assets such as digital advertising on Dallas News Dot com.

Creative and strategic brand marketing services and web development.

Revenue generated from digital advertising on Dallas News Dot Com grew $400000 or <unk> 49, 5%.

For the third quarter, and $800000 or 33, 9% year to day, when compared to last year comparable periods.

This growth reflects our strategic focus on driving revenue from the company's owned and operated assets.

Yes.

An example of the growth we are seeing in digital advertising and marketing services is a recently won RSP, having a total contract value of approximately $1 million. This agreement will primarily focus on strategic and brand services and branding services and replaces services provided by an incumbent agency.

<unk>.

Total circulation revenue in the third quarter was $16 2 million, a slight increase when compared to $16 1 million reported last year.

This is the second consecutive quarter to show year over year circulation revenue growth.

The continued stability in total circulation revenue is the result of a number of initiatives focused on subscription pricing.

Lowering attrition and print subscribers and growing digital subscriptions.

The news currently has approximately 147000 print and digital subscribers.

This compares to 136 print and digital subscribers in Q3 of last year and 143000 in Q2 of this year.

Digital circulation revenue was $2 5 million in the third quarter of this year, an increase of 700000 or 42, 5% compared to last year.

The news ended the third quarter of 2021 with 57084 paid digital only subscriptions an increase of 10361 or 22, 2% when compared to the third quarter of last year.

And 4154 or seven 8% when compared to last quarter.

New digital subscription starts are up 35% year over year.

Print circulation revenue for the third quarter was $13 7 million a decrease of 700000 or four 9% when compared to the prior year.

As I noted the news has experienced relative stability in its print subscriber base as home delivery revenue only declined four 6%.

Single copy sales declined seven 9%.

For the nine months ending September 32021 home delivery revenue declined three 8% and single copy sales declined 15, 5%.

Single copy sales have improved over the course of this year as we are seeing people return to pre pandemic schedules and activities.

Other revenue reported in the third quarter of this year was $4 1 million compared to $4 2 million reported in the third quarter of last year.

The decline is due to a $100000 decrease in commercial printing revenue.

Third quarter 2021, total GAAP operating expense was $40 9 million, an increase of 700000 or one 8% compared to the third quarter of last year.

The change is due to increases of 700000 in revenue related outside services expense.

600000 in employee compensation and benefit expense, partially offset by a decrease of 700000 in deep and depreciation expense.

The employee compensation and benefit expense increase was primarily due to medical cost savings in the third quarter of 2020, and restoring employee base salaries to pre pandemic amounts beginning last year.

As I noted earlier the company recorded a tax benefit of $2 4 million in the third quarter of this year the sale of the Denton record Chronicle in December of 2017 resulted in the company recording a noncash uncertain tax reserve of $2 6 million.

The federal statute of limitations lapse in August and this noncash reserve was reversed.

As of September 32021, the company had 672 employees.

A decrease of 78 or 10, 4% when compared to the prior year.

Cash and cash equivalents were $34 7 million and the company has no debt.

Currently the company has approximately $34 million in cash and cash equivalents.

Overall, our financial results and the progress we are making in growing digital based revenue are very encouraging.

I'll now turn the call over to Robert.

Okay. Thank you and good morning, everyone.

As noted in previous shareholder communications, we are investing in the business and this will continue over the next two to five years.

It results in operating losses in the earlier part of the transition, but we eventually become an even more dynamic digital focused company.

At the same time the board is keenly aware of the need to return capital to shareholders, while becoming a sustainably profitable business.

And we are optimistic that events anticipated for 2022 will help advance both priorities.

As Katie noted we are feeling very encouraged by the operating trends we saw in the third quarter.

Indications are that these will continue through the end of 2021 and into next year.

Improved sales of owned and operated revenue in digital subscription revenue growth remain the keys to creating long term enterprise value.

Circulation performance <unk> outlined is very promising in this context.

Good news on the product and dei fronts as recent word that the Dallas morning News has been recognized by the National Association of Black journalists with its best practices Award for our work with Dallas based Texas Metro News as well as with news as overall coverage of the social justice movements.

This is only the beginning of the news is commitment to better reflect the entire community we serve.

As we've reported along the way the company's pension plans are stable and sound financial condition. We further derisked the plans this month.

And continue to hold a funded percentage of 94% to 95% there.

There will be no mandatory pension contributions for the foreseeable future.

This month, we completed vacating the Companys leased office space at Campbell sooner in Dallas.

By sub leasing this space over the remaining term of our lease which ends in 2023, we generate an incremental $1 3 million and cash that would not have been received otherwise.

Finally, dunia shive election to the board of Directors last month is an important moment in so far as continuing to add expertise and insight to our board's deliberations.

<unk> is a highly successful media executive with substantial digital knowledge. She fully understands the complexities of the course, we've chosen for Dallas News Corporation and brings to bear insights gained from serving in leadership roles on other much larger publicly company boards.

Operator, we're going to pause at this point to take questions.

We look forward to.

Healthy Q&A here, so we're all square on the formal remarks.

Thank you ladies and gentlemen, if you do have questions press. One then zero on your Touchtone phone.

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Again for questions Press, one then zero at this time.

One moment please for our first question.

Yeah.

Your first question, we will go to the line of Chris Mooney with Wedbush Securities.

One moment, please while we opened your line.

Your line is open go ahead please.

Good morning.

Can you I hope you could hear me.

We can Chris good morning to you as well.

Hi, Katy.

Help us out a little bit.

On the second quarter Conference call I believe you said.

Yes.

<unk> had approximately $40 million in cash and this morning. He said you now have $34 million in cash.

Can you walk us through where the $6 million difference.

Right, Yeah, I mean, Chris primarily from the second quarter to now we had a fair amount of severance that was paid out as you recall, we offered the VSO.

And so there was.

Settlements of approximately 2 million in cash that went out from a VSO perspective.

The other thing that we did have in the quarter as you know we also had our.

<unk>.

Our dividends are normal dividends at went out there really wasn't anything extraordinary but I would say that the main difference between that is really the payment of the severance related to the VSO offering that we had everything else has been normal course of business. There may have been some timing.

Round when the quarter ends it ends between accounts payable and payroll, but right now our cash balance is where we had expected it to be.

And what's the quarterly dividend.

Great.

At $16 per share or <unk> 16 per share and its approximately $8 850 850000.

Okay.

Okay.

The.

Robert mentioned that you did something with the pension plan is that post quarter.

So in the fourth.

Well, what we did in the pension plan and we did do this it was effective in October if you recall.

Oh, it's been earlier I think even this year, we modified our investment strategy to really take out the risk of the asset returning assets, we had been at an investment.

Break between we had 45% asset return seeking and 55% hedged.

We had moved that to approximately 90% asset return seeking and 10% hedged and we have recently in this past month or this current month.

Move that to 5% asset return seeking and 95% hedged.

Really Chris this opportunity for us with our pension plan staying around 94%, 95% funded felt like that was the right thing to do to be able to.

Sustained net funded percentage, allowing a lot of the market activity that we've been seeing it does not impact us from an asset perspective, so when the markets go up our hedging offset that so again, while we have this opportunity.

And we have no mandatory cash contributions felt like it was the right thing to really go ahead and hedge the pension plan, even more if there's a point in time in the future that we wanted to to change that investment portfolio. We could obviously do that with no cost, but that would be something we would decide later in the future and obviously disclose that on a call. If we make such a decision.

<unk>.

Chris Let me just stay with that for a second.

As you know there are several factors.

Determining your pension liability and it's even reported in two different forms with the discount rate potentially moving up this makes even more sense and the other factor is that since we froze the plan two years ago.

We really are skewed in terms of age of participants.

Well to an older.

Cohort and that group of employees, who were active as they move into the plan.

They retire move into the plan and then the plan itself is.

<unk> improving its financial condition as the actuarial tables go to work.

We can just sit on this for a long time and since we view it as our only real debt or liability in that regard.

Having it in a certain condition just seem to make a lot of sense to that.

Pension investment Committee, which.

Katie chairs and Ron Mccray, our audit Committee chair sits on.

You appear to be in very good position there.

Just wanted to clarify for myself and maybe others.

Was not a cash.

No no no no no no this was strictly.

Changing the portfolio mix.

Could we get a little more color on the million dollar.

<unk> contract is that within the old Belo <unk> company, or where is that business being generated.

Yes, that's correct, Chris It's grant good morning.

That is below company, it's just a sign of kind of continued its.

It's a great example of the type of and size of accounts that that team is going after.

It's a big win for US, it's a regional company here in North Texas.

But I think the thing and the reason why we really call that out as we've been working Eric Myers, who leads that group and his team have done a heck of a job really moving more into what we call strategic and branding services, which.

<unk> R.

Things, where they are paying for our brains. They are paying for the talent of our group and those accounts are Chris have proven to be stickier in terms of the tenure that they'll stick with us rather than those where we're simply kind of.

<unk> media on their behalf.

Okay.

Yeah.

Continued progress too.

Okay.

Below.

<unk> vacated the officers I assume I saw the note in the Q.

You would.

Sublease space. So it was just the cold Belo space in Campbell Center.

It was Chris.

<unk> sublease the fifth in the 16th floor. So.

Very excited to be able to have done that during this kind of uncertain rental time and as Robert mentioned, we are fully sub leased through the end of the lease term, which is August of 2023.

Great.

I'm finished for now thank you.

Thanks, Chris.

And if there are any additional questions at this time. Please take this opportunity now to press. One then zero on your Touchtone phone.

Alan I think.

Yes, with the with no more questions I think we will go ahead and conclude the conference call I want to thank everybody for joining us and we look forward to our next conference call, which will be on our year end results.

In early 2022, thank you so much.

Ladies and gentlemen that will conclude your conference call for today. Thank you for your participation and for using AT&T event Teleconferencing you may now disconnect.

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