Q2 2022 Dallasnews Corp Earnings Call
Oh.
Hum.
Okay.
Hum.
[music].
Yeah.
Yes.
Uh huh.
Your conference will begin momentarily please continue to hold.
Yes.
[music].
Yeah.
Hum.
[music].
Yes.
Hum.
Hum.
Okay.
Okay.
[music].
Oh.
Okay.
Thank you for standing by and welcome to the Dallas News Corporation second quarter Investor call. At this time all parties are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you should require assistance you can press star and then zero and as a reminder, this call is being recorded.
I'd now like to turn the conference over to our host Mr. Gary Cobley. Please go ahead Sir.
Good morning, everyone.
This is Gary Cowboy, Vice President and controller of Dallas News Corporation, welcome to our second quarter 2022 Investor call.
I'm joined by Katie Murray, President and Chief Financial Officer, who will be reviewing financial results.
Moyes, Chief Executive Officer, who will provide brief business remarks, and Robert <unk> Executive Chairman, who is also available for your questions.
Yesterday afternoon, we issued a press release announcing second quarter 2022 results and we will file our second quarter 10-Q later this week.
Both of these will be posted on our website Dallas News Corporation Dot com under the Investor Relations section.
Unless otherwise specified comparisons used on today's call measure second quarter 2022 performance against second quarter 2021 performance or.
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.
Ill turn the call over to Katy.
Good morning, everyone and thank you for joining today's call. We are encouraged by the progress. The company has made thus far in 2022 and are optimistic about the remainder of the year despite external market conditions.
On a GAAP basis for the second quarter, Dallas News Corporation reported a net loss of $2 4 million or <unk> 45 per share and an operating loss of $2 3 million.
In Q2 last year, we reported a net loss of $125 million and an operating loss of $3 million.
On a non-GAAP basis for the quarter, we reported an adjusted operating loss of 1 million.
$500000 greater than the 600000 loss for the same period last year.
The decrease was primarily due to a decline in total revenue of $1 1 million, partially offset by expense improvements of half a million in distributions and 300000 in employee compensation and benefits.
We reported 37.6 million of total net revenue for the quarter and this compares to $38 7 million last year.
The $1 $1 million decline year over year is primarily due to an 800000 dollar reduction in print advertising revenue.
Turning to circulation revenue increased 200000, when compared to the second quarter of 2021. This growth follows the trend we experienced last year driven by continued focus on growing digital circulation revenue by effectively monetizing our digital subscriber base.
As of June 30th the Dallas morning News had 62688 digital only subscribers, which is 9758 or 18, 4% year over year improvement.
Total subscribers, including both home delivery and digital subscribers was 146065 as of June 30th and that compares to 146564 as of June last year.
Total adjusted operating expense for the second quarter was $43 9 million an improvement of $1 7 million from last year, primarily related to savings in distribution and compensation and benefit expense.
At the end of Q2 headcount was 671 compared to 724 as of last year cash on the balance sheet was $27 million on June 30th and as of July 22nd last Friday cash was $30 million.
Consistent with the interim periods last year, we use the estimated annual tax rate method and recorded 165000 of tax expense for the Texas franchise tax this quarter, we paid approximately 700000 of Texas franchise tax for fiscal year 2021.
On June 30, the company signed an amendment with charter holdings to extend the maturity date of the $22 4 million note receivable to this Friday July 29th.
We expect full payment and an additional 116000 in interest income to be paid in full on Friday.
Overall, we are pleased with the company's progress in the first half of this year. Our strong balance sheet continues to provide Dallas News Corporation, an advantaged position and we look forward to continued success throughout the remainder of this year I will now turn the call over to grant.
Thank you Katie before I provide my thoughts on our second quarter performance and general economic conditions I'd, just like to say how excited I am to have this opportunity to lead Dallas News Corporation, and our two core businesses, the Dallas morning news and medium giant and achieving our goal of becoming a sustainably profitable digi.
It'll first company. This is a wonderful time to be in the media and marketing services business and my team and I see our role in this community is one of our Convenor and a catalyst to help shape the future of North, Texas, which is one of the most dynamic markets in the country and is growing by 1 million residents every seven years.
<unk>.
Turning to the second quarter I'm pleased with our performance and how Dallas News Corporation has positioned entering the second half of 2022.
Medium giant had a very solid quarter of closing new digital advertising and marketing services business and closing significant contract renewals were very pleased to announce that this quarter Taco Bueno selected medium giant to be its agency of record and medium giant will be partnering with them to enhance their marketing strategy.
We're also excited that the iconic cotton Bowl New year's day game has selected medium giant as its agency of record.
Clients like both of these ideally fit the profile of the digital marketing services agency, we're building at medium giant.
We continue to be pleased with circulation revenue trends at the Dallas morning News. This is the second quarter in a row that we've seen year over year growth in total circulation revenue.
While total subscribers declined by 499 year over year our revenue.
Growth is the result of optimized pricing.
This past quarter taught us that price sensitivity is rising in the market. So we're adjusting our pricing strategy to offset that change in consumer behavior.
Regarding operating expense, while the team continues to do a great job managing controllable expenses, we're still seeing expense pressure with newsprint and fuel prices as mentioned last quarter, we are monitoring newsprint prices, which in the second quarter averaged $708 per metric ton.
The average newsprint price was $544 per metric ton in the second quarter of 2021, reflecting a 31% increase year over year in.
In addition, as all consumers are keenly aware average gas prices have increased from $2 65 per gallon in the second quarter of 2021 to $4 12 per gallon this quarter, which was a 55% increase.
As Katie mentioned this Friday, we expect full payment of the $22 4 million note from charter holdings for the sale of our former headquarters.
Our board will continue its regular discussion of capital allocation, including the possibility of a special dividend and a voluntary pension contribution at its regular meeting in September .
In closing I am very pleased with the progress, we're making and Brad will pause here and open up the line for questions.
Thank you.
Ladies and gentlemen, if you do wish to ask a question. Please press one and then zero on your telephone keypad you can withdraw your question at any time by repeating the one zero command and if youre using a speakerphone. Please pick up the handset before pressing the numbers.
Again, if you have a question you May press wanted then zero at this time.
And one moment.
We'll go first to Chris Mooney with Wedbush Securities. Please go ahead.
Chris.
Okay.
Chris You said with US your line is open.
As you move around by chance.
We're not getting any audio from Mr. Moody's line here.
We can move on and then Chris If you want a press one zero again, we'll try again here when next go to David Cohen with Minerva advisors.
Good morning folks.
Hi, David.
So good news.
We expect to land sale that closed this week.
By my calculation that would leave us with about a weapon dollars a share in cash using the $30 million in July 22nd balance that you mentioned.
OE.
And the stock is trading at $646 50.
A special dividend.
What helped a little.
Buying back some stock at that kind of discount would help a lot more.
And so I really like to and quasi public forum.
<unk> ongoing that route instead.
To allow those people that want some liquidity for liquidity for their shares and those people that want to stick around.
Can fully stick around so that's part one and.
Part two is I guess, a question which is.
Given the divergence between the stock price and the cash per share.
Why would the board wait until September Board meeting.
To make a decision about what to do next assuming this transaction closes on Friday.
It just seems to me that this is important enough to the shareholders that you don't have to wait for your next scheduled quarterly board meeting and I'd. Appreciate understanding why there seems to be no sense of urgency. Thank you.
Yeah.
Hi, David This is Katie I'll I'll.
I'll take the first part of this I think.
Juan Thank you for calling in and you are right. We are pleased that this transaction is going to be behind us on Friday.
We do have a regularly scheduled board meeting in September .
I appreciate your question around the sense of urgency and that is something that.
From my position can bring that to the board.
And obviously, you know give them that.
That feedback.
From a.
From an option around capital allocation you know we have talked about the the buyback before we have done limb.
Limited buybacks as you know and we're not in our current policy not occurring open window buying right. Now those are all things David that the board would be considering around capital allocation, including the special dividend and including as you know how we feel about the pension.
And making sure that we take care of that a very important liability that we have to our former employee. So those are all things that are going to be discussed.
We are pleased to be in a position where we can have those discussions after receiving the full payment and there'll be more to come on that and I think.
With that I'm going to ask Robert to give some additional thoughts and insights on that as well.
David David Good morning, I would just underscore what Katy said.
Excuse me.
There is.
Tremendous focus on this and that may be.
Subtlety in the sense of urgency as you know we have.
Anticipated this ever since.
Sale of the headquarters occurred almost three years ago.
Did you go through the deferrals as a result of external conditions and things are way beyond our control there will be plenty of conversation.
Among the directors as soon as we have this payment.
Saying its September meeting because thats. The next scheduled time, but there's nothing to say we wouldn't.
We didn't take action sooner it just not something we have decided one way or another.
And as you pointed out there are choices as to.
Whether we look at again at share repurchase we've done that from time to time.
There are other aspects of that that are a little tricky.
We already are thinly traded that would make us even.
More thinly traded challenging security.
So all of those things are a part of the conversation we worked with external advisors, we always have.
And they were people who are not.
Not only the experience, but they're extremely.
Insightful about what the choices are.
It's not as if we're going into radio silence until September .
We'll be on this as soon as we get the money in.
We would have been last months, if we've done it time.
Yeah.
Fair enough. Thanks, Robert Thanks, Katie Good luck.
Thank you David.
Yeah.
And we'll go next to Chris Mooney. Please go ahead.
Chris Your line is open you may be muted.
Hi.
We're still not hearing you.
Yeah I apologize speakers. Your line is open but we're not getting any audio can you hear me now.
We are we go Hey, Chris Hey, Chris.
Good morning, Hey, first off congratulations on the news new roles to grant in Katy.
Thank you Christian and thank him aboard the working continuing to work with both of you and.
Robert.
I'm sure you'll be very involved.
Yeah.
So.
David's right I mean, the first off the $30 million market cap company is pretty.
On investable for most people.
And it's a very heavy cost burden to be a very small public company. So I.
I think he's correct in light of the probable cash that you share repurchase should be at the top of the list.
And you don't need to you you've already commented on that so that's fine.
And Katy so the cash was just a sort of a seasonal thing.
That you picked up additional cash liquidity by paying down receivables or something like that I guess.
It is Chris I mean really it's just the timing.
Wayne.
Payroll accounts payable receivables coming in and the like and so it's just a timing.
The 30 million is a good baseline right now.
And again feel really good and the one we have really strong collections. DSO is is the best it's been in a number of years coming out of the last couple of years and.
Again, the reduced expenses just in general on the payroll and the payables.
Okay.
Could you just.
Do you have those numbers on the subscriber counts again for both print and digital I didn't have a pen in hand.
Absolutely and then also Chris as a reminder, the digital subscriptions are also on the website under the Investor Relations side, if he would like to see that.
But on our subscription.
<unk>.
As of the end of June we had 62688.
And then our total subscribers as of the end of June was 146000.
65, so from a print perspective it is 83377.
And what was it in the prior period that you were noting.
It was 146564 and that was 52930 digital subscriptions and 93634. So when you do the net it really is the 499 is a decline on the print side.
And the offset obviously with the growth in the digital.
And that was year over year data, yes, yes, okay.
Alright.
On the charter I assume.
Seemed kind of odd to see the announcement in a specific date of July 29.
But can I assume that they came to you with a request and she raised the interest rate and.
I feel confident that you're going to receive it in light of the.
Great Washburn being the keynote speaker.
Symposium on downtown development and.
Coming weeks.
David We do and the July 29, I will say that that was my my choice because the.
The way that the first fell I wanted this closed out in July they did come to US we did raise the interest as you know we're going to be getting an additional 116000. This purely was timing on their part they were in the middle of their financing they needed a few extra weeks to finalize some of the requirements for the bank.
I'm fully confident that we're going to be paid on Friday and.
To Gary's point, when we talked about filing. The 10-Q later, we wanted to be able to get this in July .
And we'll be able to file the 10-Q after that so we can update the subsequent event footnote.
Okay, and just out of curiosity. It might've made a little more sense to me at least to have actually done your earnings announcement.
After receiving the payment it's pure that confident.
For what it's worth maybe you would've been able to say we received.
Chris you are we talked about that unfortunately, the way the schedule for next week work it was not possible, but we did talk about that.
But we felt like you know putting this in the press release and being able to talk confidently about it today.
Would I know, it's not that we have received it but we are confident that we're going to be receiving it.
Okay.
And could you.
Maybe grant.
Chime in and put a little more.
Information on the optimism.
You're expressing in the.
And the business.
Sure happy to.
As you were just as Katie was just clarify Chris obviously, there is the volume piece of subscription revenue.
Yeah, Theres volume piece of the equation and then Theres pricing.
My optimism is the fact that we are now growing and have grown now for a second consecutive quarter total consumer revenue, which means you know when you combine print subscriptions and digital subscriptions growing that revenue line was a very important goal of ours as a leadership team now.
Sustaining that and finding greater growth will be a focus as we move forward.
And so.
That's an example of one where.
Three short years ago, we were declining consumer revenue in the 4% range.
So getting that back to stability getting that into growth territory to me is a very encouraging sign.
Of what we're able to.
One of the things I was mentioning in there.
My prepared comments is that we have priced digital subscriptions at one of the more aggressive ends of the spectrum in the industry, we're averaging over $16 a month.
We're charging the industry overall is closer to $10 a month.
But that's okay that gives me confidence to that now we can go to to try to push volume.
Were going to discount a little bit more on some introductory offers to keep the volume is strong and we just feel confident in the in the way that might move team has their arms around that.
Shifting over to medium giant as I was saying, giving the example of Taco Bueno.
The Cotton Bowl classic these are really full service agency retainer based contracts.
That are in.
We had mentioned last quarter Frisco economic development and as you know Chris the city of Frisco is one of the fastest growing cities in the United States.
Obviously, the Cowboys have put their headquarters up their Toyota in North America is up there I'm just very pleased not only are we adding new substantial clients to medium giant but more importantly, we're retaining over 90% of our top 20 clients at medium giant and what that tells me.
Chris is that our team is providing the types of marketing services that are giving these clients in ROI or they wouldn't be staying with us. So.
Those are a couple of examples of just things that give me.
Optimism of where we are in the business and I think puts us on solid ground as we continue to.
To kind of try to work our way back here to sustainable profitability.
And on the advertising trends for the print side is there any change taking place.
The print side the print side is interesting overall.
I would say that the pre print business is it's far more stressed than our display print business our display print business, Chris is actually quite stable.
And that's encouraging to me as well because it's a higher margin higher gross margin piece of the advertising pie in print.
Sunday pre prints have really dropped off considerably and continue to.
Meaning in the high teens range and part of what that is as we know it is not only the vehicle of print shrinking but its also predominantly big box retailers that have used those Sunday pre prints.
Big box retail is not the highest growth area in the market.
One thing that we are encouraged by them pre prints is Wednesday, which is predominantly grocery.
For those of you on the call who are from North, Texas understand a very big grocery chain is entering our market in the fall of this year and H E. B and that is growing we're starting to see some some larger interest they are a wednesday pre print advertiser in that I think.
It's going to stabilize that line of revenue for a couple of few quarters to come just because it's a very competitive grocery market here in north Texas in grocery as one of our largest advertising categories that we have in our company.
Okay.
<unk>.
Yeah.
Thank you that's all I have for today.
Thank you Chris.
And again, that's one zero to ask a question. We'll go next to ramp Ramsey Dalian with Evergreen. Please go ahead.
Good morning, everyone.
A couple of questions.
Just what are you how do you guys view the timeline to profitability.
That's kind of question number one.
And then the second question is just if you do go down the special dividend path I agree with everything thats been sat around the repurchase being preferable, but understand the constraints around.
Generally traded and everything like that what what kind of magnitude could shareholders expect like could it be the.
As much as the $22 5 million or even more than that as you guys certainly have the cash.
To pay that kind of a special dividend. So how do you guys think about how much cash you need to to keep versus.
What's sort of available to return to shareholders.
Randy. Thank you for your question I'll give you some thoughts and then.
We will get some additional color both from from grant and Robert.
So you know the timeline to profitability, we've talked about this I think.
The consideration these last two years of the impact from Covid has obviously been some.
Headwinds for us as we've talked very openly on prior earnings calls and in our press releases, we knew and know that returning to profitable are sustainably profitable.
Financials. It is going to take some time and I think as we think about this we don't think about it just in terms of 2022, we think about where are we going to be in 'twenty, three and 'twenty four.
And I think this actually ties into your your question around.
What could be.
The special dividend look like and what kind of a cash balance do we need.
Really do tie together, we are investing in our business right now as we are using cash or investing in our products, we're investing in our applications.
We're investing significantly in our newsroom to produce the content that is being made and that is using cash so as we're thinking about.
Where we need from a cash balance perspective, we're taking all of those considerations and again, it's returned to profitability is not a short term overnight, it's going to take.
You know whether it's the next couple of years and as grant mentioned a minute ago, we are making progress and we're showing that and we're trying to do that diligently as were working forward.
As to the size of a special dividend or weather.
<unk> repurchase I would go back to what Robert said that the board is going to take consideration.
Any an opportunity around capital allocation, but specifically around the size that is going to come back also to as I mentioned a minute ago, where do we think the cash balance needs to be as.
As we think about where we're going over the next thing of call. It three to five years and with that I'll ask Robert to give them. Some additional color on his thoughts.
I would just.
Reiterate the point about the quality of the content and certainly I can defer to grant on that we are investing in the overall quality of the newspaper all of our online.
<unk> and that's reflected in the growth of our digital subscription base and also the pricing.
Grant talked about.
The big gap between what he and the team have achieved.
Versus the industry average so there's a correlation between.
The investment in the business and the quality of our journalism and the potential.
To get to the other side of this divide.
Every newspaper in America is trying to sort out so to katie's point.
What we have to calibrate from a board standpoint.
What what's the cash requirement to enable the business to continue to improve and ultimately to have the stock price reflect the value of the business.
I mean as we've discussed on this call and all of you have noted.
For many investors. This is this is just about the cash and Theres no focus.
Broadly.
The quality of the business and no value assigned to it so all of those things have to happen.
Synchronously.
Over a period of two to three years and that's the backdrop.
For the board's deliberation, all of the points made by you and our other investors are valid and they are all part of the calculus.
The board and its advisers are looking at.
Yeah, and the only thing Ramsey, it's grant that I would add to it as you know.
Robert hit the nail on the head are our two biggest investments are especially in the digital product itself, whether that be our website or our app.
It's just a big part of what the user.
Especially if we're going to be charging $16, a month and higher for digital subscriptions, they're expecting a digital product that is commiserate with the Wall Street Journal or the New York times or the Washington Post.
And we need to keep increasing our investments in those products, if we want to keep charging these prices.
Look we're always talking to consumers getting their feedback and we understand that.
However.
Look we are and I just want you to know.
I am committed to the fact as we all are as we know we need to get back to a profitable state, but what we're really trying to figure out is what is the balancing act between investing in the business.
Finding those revenue lines that not only are going to help.
The offset the expenses, but that are built in a way that's sustainable.
That's why I go back to these medium giant contracts and things that I'm talking about is I.
I am looking for retainer based work on that side of the business otherwise.
Otherwise that can be very.
Why they're wide swings in the advertising business without solid base longer term retainers and so.
That's just another example, where we're looking for that monthly recurring revenues subscriptions, obviously that far more predictable line for us, but what I'm pleased about on the advertising side is.
That we are entering into longer term contracts. The one thing I will say that an unknown on this is we're still seeing problems in the supply chain with some of the categories of advertising that used to be very big for us in Ramsey I'll just give you. The example of automotive advertising.
Just four or five years ago, we had over $10 million in automotive advertising in our company.
And now with supply chains that car dealerships and the fact that cars are selling before they even hit the lot.
That is pretty much gone away to almost nothing.
I'm ready to go staff up a team in advertising sales once the car dealerships are ready to spend money again, because they need to but again. It's just an example of the supply chain were something that was a top three category of advertising for US I do believe will come back at some point probably not back.
To previous levels, but.
It's just an example of things where the supply chain is still kind of this question Mark out there to us that I guess kind of surprises me two and a half years into the pandemic, but I think we're seeing that in many different industries.
Got it all makes sense.
On timeline to profitability.
It sounds like.
Yes.
<unk> had multiple years is how we should.
Think about.
Thinking about the timeline there yes.
You are correctly.
Okay.
Got it.
Got it.
Awesome I appreciate that.
As far as folks recognizing the value of <unk>.
The business I think a big enough of a special dividend.
It would go a long way there so appreciate it.
You are in the boards consideration of that and I. Appreciate the time this morning.
Thank you.
And again to ask a question Thats, one and then zero.
And giving it a moment here and no further questions in queue.
Okay.
Alright, Brad well it sounds like we've gone through the questions I'd like to thank everybody for joining our second quarter call. We look forward to.
Speaking again after our third quarter and hope everybody on the call has an enjoyable rest of your summer. Thank you.
Thank you and ladies and gentlemen, this conference will be available for replay after 11 o'clock. This morning and running through August 3rd at Midnight, you can access the ATT replay system at anytime by dialing one 806 62071041 and entering the access code nine nine.
44335.
International parties May dial four zero to 90 700847, those numbers again 18662071041.
Or international for zero to 90 700847 with the access code 90, 944335 that does conclude our conference for today. Thank you for your participation and piecing AT&T teleconference. You may now disconnect.
We're sorry your conferences ending now please hang up.