Q3 2024 DallasNews Corp Earnings Call
Okay.
Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the Dallas News Corporation Investor call. At this time all participants 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 during the call. Please press Star then zero as a reminder, this conference is being recorded.
Speaker Change: I would now like to turn the conference over to your host Gary Kubly. Please go ahead.
Good morning, everyone. This is Gary Kelly, Vice President and controller of Dallas News Corporation, welcome to our third quarter 2024 Investor call.
Speaker Change: I'm joined by Kathy Congress, Dallas Music, Chief Financial Officer, who will be reviewing financial results and Katie Murray President of Dallas News and Grant Moise, Chief Executive Officer, who will provide brief business remarks.
Speaker Change: Tuesday afternoon, we issued a press release announcing third quarter 2020 for results and we filed our third quarter 10-Q.
These are posted on our website Dallas News Corporation Dot com under the Investor Relations section.
Speaker Change: Unless otherwise specified comparisons used on todays call measure third quarter 2020 for performance against third quarter 2023 performance.
Speaker Change: Our discussion today will include forward looking statements.
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.
Speaker Change: Today's discussion will include non-GAAP financial measures, we believe non-GAAP financial measures provide useful supplemental information to assist investors in determining performance comparisons to our peers.
Speaker Change: A reconciliation of GAAP to non-GAAP financial measures is included with our press release.
Kathy Congress: Now ill turn the call over to Kathy.
Kathy Congress: Good morning, everyone and thank you for joining today's call.
For the quarter Dallas.
We reported a net loss of $3 $9 million or 73 per share and an operating loss of $4 1 million.
Kathy Congress: Q3 last year, we reported a net loss of $1.4 million and an operating loss of $1 6 million.
Kathy Congress: 2024, net loss includes $3 million and ever since that deal.
Kathy Congress: Due to the anticipated head count reductions related to our transition to a smaller printing facility.
Kathy Congress: On a non-GAAP basis for the quarter, we reported an adjusted operating loss of $700000 an improvement of 200000, when compared to an adjusted operating loss of $900000 reported for the same period last year.
Kathy Congress: The improvement is due to expense savings of $1 $9 million in distribution $1 2 million in employee benefit and compensation and $1 1 million in newsprint, partially offset by a total revenue decline of $3 $4 million.
Kathy Congress: That is primarily due to discontinuing the shared mail program and printing our niche publications.
Kathy Congress: All other advertising and marketing services revenue, excluding the discontinued products I, just mentioned increased $400000 or three 3% when compared to the third quarter last year.
Kathy Congress: Print advertising revenue was down digital advertising revenue improved $48000, primarily due to an increase in advertisement and the Dallas morning News E paper.
Kathy Congress: Actually offset by a decline in digital advertisements on Dallas News Dot com.
Kathy Congress: In a moment grant will provide insight into the digital advertising trends, we are seeing on our website.
Marketing and media services revenue improved $900000, primarily resulting from two new customer contracts focused on media services that began in the third quarter of the year.
Yeah.
Kathy Congress: Circulation revenue decreased by $100000 or less than 1% the digital circulation revenue increase of $400000, mostly offset the print circulation revenue decline of $500000.
Digital only subscription rates increased approximately 13, 5% offsetting the decline of 5348 or 8% in digital subscribers.
Kathy Congress: Subscribers, including both home delivery and digital subscribers was 124886 as of September 30th compared to 132000 and 694 as of December 31.
Kathy Congress: And 137493 as of September last year.
Speaker Change: Grant will also provide commentary on our digital pricing strategy.
Speaker Change: Other revenue decreased $500000, primarily due to declines in commercial printing and distribution revenue and mailed advertisement to business customers.
Speaker Change: In the third quarter, our partner for our program to distribute shared mail located in Tempe, Arizona gave their six month termination notice this.
Speaker Change: This program has been experience who are experiencing revenue declines consistent with the overall industry trend.
Speaker Change: Ending this business relationship is consistent with the shared mail business in Dallas that we exited in 2023.
Speaker Change: Do not expect a significant financial impact from the termination of this agreement when production ends in April of 2025.
Speaker Change: On a non-GAAP basis total adjusted operating expenses for the quarter improved $3 $5 million driven by expense savings of $1 $9 million in distribution $1 $2 million in employee compensation and benefits and $1 1 million in newsprint, primarily resulting from the discontinued products and a decline in <unk>.
Speaker Change: The cost of newsprint, which was down six 2% compared to prior year.
As of September 30th head Count was 534 down 74 compared to last year, resulting from the voluntary severance program offered in the fall of 2023, and additional first quarter head count reductions within medium giant.
Speaker Change: As we previously announced in May of this year and we expect additional head count reductions in the first quarter of 2025 due to our transition to a smaller printing facility and less staff needed to operate a more modern press.
Speaker Change: Consistent with the interim periods because the company use the estimated annual effective tax method and recorded $345000 of tax expense in the quarter for the Texas franchise tax.
Speaker Change: We continue to have a strong balance sheet with no debt at the end of September cash and cash equivalents were $14 million and as of November eight we had $11 6 million in cash and cash equivalents.
Speaker Change: As we look to the last quarter of the year, we will continue our disciplined expense management the transition to the new printing facility requires incurring additional capital and operating costs. This year, but once complete we will result in annual expense savings that is key to our return to growth plan I'll now turn the call over to Katy.
Speaker Change: Cathy good morning, everyone I'm going to be providing some updates on our pension plan funding status.
Speaker Change: Our printing and distribution facility transition and the status on the marketing for the sale of our existing printing facility in Plano.
Speaker Change: As we have always stated the funding of our pension plan is and continues to be a priority for management and for the board of directors I am pleased to say that the plans are currently over 90% funded and that we do not have any mandatory contributions in the near term. We continue to look at any opportunities to derisk the plan.
Speaker Change: The transition of our printing and distribution operations from Plano to Carrollton continues to move forward and we are in the process of installing the first of the two new presses.
Speaker Change: There is still considerable work to do including the receipt and installation of the second press, but we remain optimistic that we will complete the transition of the operations from Plano to Carrollton in the first quarter of 2025.
Speaker Change: As part of this transition we have worked with our national printing and distribution partners and I'm happy to say that the partnerships to print and distribute the Wall Street Journal, New York Times and USA today will continue as part of this transition.
The Fort worth Star Telegram decided as of third quarter to see if their daily printing and distribution in October of this year and moved to a three day a week print product distributed by mail and we are no longer printing their product.
Speaker Change: As we discussed on our last Investor call, we engaged brokers to assist us with the sale of the 28.8 acres and 620000 square foot facility in Plano, while I do not have a specific update on the status of the process I can say that we are encouraged by the level of interest and activity. We have seen from all types of buyers.
Speaker Change: Including data centers and users and industrial redevelopment.
In terms of how the company thinks about the future use of any potential proceeds we view this through three distinct lenses.
Speaker Change: First the investments we need to build into <unk>.
First the investments in the company, we need to build a sustainably profitable media company.
Speaker Change: Second continuing to be responsible stewards of the company's pension plan and third returning capital to our shareholders.
Speaker Change: I will now turn the call over to grant Thanks, Katie and good morning, everyone in the second quarter Investor call I discussed that while we have yet to reach sustainable profitability, we are making steady progress the third quarter of what did this progress with the $200000 a year over year improvement in the company's adjusted operating loss at a more deep.
Retail level, the third quarter was the last quarter in which medium giant reported revenue comparisons, including our discontinued shared mail program, which as you all will remember ended in the third quarter of last year.
Speaker Change: Giant has been focused on growing its revenue from continued operations and so I was very happy to see that grow that revenue by $400000.
Speaker Change: On the digital side of the Dallas morning News, we've been focused on our referral traffic trends to our website referral traffic is significant because it generates advertising revenue and provides potential consumers with whom we can convert into digital members. Google has been our most significant source of referral traffic for many years.
Speaker Change: So at the beginning of this year, we have witnessed a steady decline in the audience coming from Google.
Speaker Change: This decline in website traffic contributed to the slight decrease in our digital advertising revenue coming from Dallas News Dot Com, which is down 1% through September of this year and has typically been a source of growth for the company.
Speaker Change: The newsroom in our audience team are creating new audience engagement strategies to offset this decline.
Speaker Change: But the power of search engines is difficult to overcome.
Speaker Change: Shifting to the digital subscription side of the business at the morning News I noted in our last Investor call that we were reviewing our strategy to find the optimal balance between subscription volume and pricing.
This quarter, we modified our digital subscription strategy to be more volume centric by extending our introductory pricing window from one month to three while also testing the ongoing price the consumer is willing to pay for local digital news on an ongoing basis.
This strategic decision successfully ended our 14 months digital number of volume decline and I'm pleased to say that the digital member growth has exceeded our early expectations. Since we implemented this new strategy.
Speaker Change: This decision will take time to be reflected in the revenue growth, but we are cautiously optimistic given how consumers have responded to the new pricing and its early stages, Greg We're now ready to open it up for questions.
Speaker Change: Okay, ladies and gentlemen, if you'd like 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 if youre using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one zero at this time and one moment. Please for your first question.
Speaker Change: Your first question comes from roll him Gilmore, a private investor. Please go ahead.
Hey, guys good morning.
Speaker Change: Good morning.
Speaker Change: I have a few questions for you if that's okay.
Speaker Change: So number one what was the what was the digital circulation volume growth since the change in pricing midway through the quarter.
Speaker Change: Yeah, <unk>, so we have grown a little bit over 3100 digital subscribers since we changed the strategy back in early September.
Speaker Change: Got it and then in the one to one five months of the current quarter.
Speaker Change: Would you say that that that trend has continued.
Yes.
Speaker Change: It's gotten even a little bit better ROE on I would say in the fourth quarter. If you kind of referring to kind of where things have been since October 1st.
Out of that 3100.
Speaker Change: 2500 of that has come from the beginning of the fourth quarter.
Speaker Change: Yeah.
Speaker Change: Okay. So it's.
Speaker Change: So it's about 600 are.
Speaker Change: From the change in strategy in Q3 and then.
Speaker Change: 2500 in the quarter and the quarter to date is that what you're saying.
Speaker Change: Correct.
That's helpful.
Speaker Change: Where do you guys. What do you guys think about the Tam for the digital news product that the current price point.
Speaker Change: I've done some kind of research and back of the document.
My estimates.
Speaker Change: It could be somewhere between 250 and 500000, but is that way off is that a ballpark figure or what how do you guys think about that.
Speaker Change: So rohit I guess from Tam just to clarify for everyone on the call Im guessing Youre just talking about the total addressable market for digital subscribers for Dallas, Dallas News Dot Com in Dallas morning News is that what Youre, saying.
Speaker Change: Yes, that's correct yes.
Yeah, I mean, the way we look at the total addressable market.
Speaker Change: As you know you can take the $8 3 million people in North, Texas, and then we narrow it down to how many our intelligence tells us are paying for news.
Speaker Change: Which is about 600000, so we think that the amount of people in North, Texas, who are paying for news is roughly 600 K. So if you look at where we are today, we're a little north of 10% of that so the question is and that's also why on the heels of what were what was.
Speaker Change: <unk> done on pricing.
Speaker Change: When we're thinking about volume. We're also trying to figure out at what price point ongoing is that volume is going to be in place. So.
Speaker Change: I think your number obviously would get closer to 50% of that addressable market.
I don't know if that's if that's attainable frankly, the way that we look at it strategically is just thinking through how do we get from roughly 10% of that market to 15 to 20 to 25 and just say if we can keep taking this up and 5% increments.
Speaker Change: As you can tell you know every 10% would be 60000 digital subscribers, if our addressable market size of people paying for news is accurate.
Speaker Change: That's great color. Thank you.
Speaker Change: On the advertising side has there been any meaningful pickup in advertising revenue related to in the current quarter related to election spending.
No I think someone I believe may have asked that question that at the end of last quarter.
Speaker Change: It's kind of the good news and the bad news I guess in our side of the industry. If you look at the TV side of the business. Obviously, they just saw a significant lift in AD revenue.
Speaker Change: Ours is.
Speaker Change: Probably going to be a rounding error rollout in the fourth quarter, it's just not material.
Speaker Change: In the you know kind of if you think about the newspaper side of it. They are just putting a lot of money into television and streaming we got a little bit of video revenue or digital AD revenue, but not enough to matter.
Speaker Change: Okay.
Speaker Change: And then last question on digital is there any update on kind of.
Speaker Change: The release of new digital products or any news there.
Yeah. So I mean, one of the things that we're always assessing and we think just to clarify for everyone on the call.
Speaker Change: When I think of a new digital product I'm thinking about standing something up with its own brand most likely its own website and its own app.
Speaker Change: And so for US we also look at where also weighing the cost of launching a new product versus watching new features and right now real Hahn.
Really a lot of the pro forma is that we're running on the new products are not where kt and I, especially would like to see them and so rather we just turned the team's attention in the short term too.
Speaker Change: Two launching as many new features as possible to drive revenue and operating income. Let me give you a couple of examples of what I mean by that.
Speaker Change: We are in beta test of an entirely new video platform.
Speaker Change: On our website that is being tested in sports it will roll out to the full website in the first quarter now that's great because it adds to engagement and the advertising revenue that comes from video for Us is more.
Speaker Change: The advertisers willing to pay more for video than they are for a static at.
Speaker Change: We are also.
Speaker Change: We just updated our new App. This week, if you have not updated that in the the I tunes I tunes is actually launched we have not launched yet in the Android store.
But that plus bringing in commenting to the website, which we'll launch in the first quarter. We all of our math is showing us real harm that focusing in the short term on these features can provide.
Speaker Change: More initial financial benefit to the company, but again, we are still going to keep looking for new products because that diversification in the long run is going to be valuable, but we've not seen something pencil out to where we are putting investment dollars behind it yet.
Speaker Change: Got it got it just two last questions. If that's okay. So.
Speaker Change: On agencies strong revenue improvement quarter over quarter and year over year.
Speaker Change: Okay.
Speaker Change: I believe there was an associated.
Speaker Change: Expenses.
Speaker Change: Expenses revenue related out.
Speaker Change: Expenses for outside services.
Speaker Change: What was that and is that something that that's going to be kind of.
Speaker Change: Ongoing or is that onetime in nature.
Speaker Change: Yeah. So we think of that ROE is what we call the revenue mix that's coming from the agency. So that revenue for mix for example of where you saw that in the most recent quarter comes from our media expense. So.
Speaker Change: Medium giant as the agency of record.
Speaker Change: Sure.
These clients and Wendy's, we actually place that media on their behalf and what you saw there and that was a quarter, where we had higher outside expenses as we think of them as Cogs for the media that we buy for clients to your second question of should we see that on an ongoing basis, it's just math.
Speaker Change: What type of clients, we're winning some of these clients if they are more.
Speaker Change: Doing more creative and strategy work for us that is a very low cogs area for us, but if if we are doing a bunch of the media buying on their behalf you will see a higher outside services expenses related to to us, placing that media with outside media companies.
Speaker Change: Got it my last question is on target cash balances just for modeling purposes. I'm wondering if you guys could provide some some insight on how you think about where you would like to see cash balances.
Speaker Change: Upon a return to growth.
Speaker Change: Yeah. Ron This is Katie it's a great question, it's one that we were.
Speaker Change: We think about a lot as you know we hit profitability in the second quarter, We had said and grant mentioned today.
Speaker Change: We're gonna be bouncing around a bit as we continue this path on the return to growth.
Speaker Change: Right now we're sitting at about call it $12 million of cash, we see ourselves getting back to profitability without Vietnam. It just depends on what kind of investments we need to make into the business. As grant mentioned, we continue to look at that so little early for me to speculate on what that target cash balances.
Speaker Change: But I think as we continue to get through 25.
Speaker Change: Obviously, if we see the sale of that building on the property that will be an impact as well but.
Speaker Change: It's a great question and something that we're thinking about but I think for right now.
Speaker Change: Feel good about our cash balance and where we're going.
Speaker Change: And you know more to come as we think about investments in the business.
Understood and it makes sense well that's all my questions. So thank you for taking them.
Speaker Change: Thanks, Ron.
Speaker Change: Your next question comes from the line of Adam Valentine from Gander Wind capital. Please go ahead.
Adam Valentine: Hey, everyone. Good morning.
Adam Valentine: Turning out of them.
Adam Valentine: Hey.
It's really great to see the digital subs growing again.
Adam Valentine: A strategy makes a lot of sense.
Speaker Change: Kind of wondering.
Speaker Change: Given that we've experienced.
Speaker Change: I believe sort of.
Speaker Change: An average of around 20%.
Pricing growth.
Speaker Change: Just that we kind of see on the top line at least over the last three years.
Speaker Change: What what are your sort of expectations.
Speaker Change: That that becomes as you substantially re crowns and volumes does it for example, does it kind of slow down.
Speaker Change: And sort of.
Speaker Change: Subscription price increases offset higher levels of kind of the trials or or maybe you could just kind of give us some color there.
Speaker Change: Yeah, Adam it's granted it's a really good question and it's something that we spend not only a considerable amount of time.
Speaker Change: Looking at internally of how are consumers responding, but we're also checking in with our peers around the country.
Speaker Change: Almost all the time I mean, it's trying to understand what's happening in different parts of the country with local media and subscription trends through a partner that we have called mother, who has been a partner of ours that we launched a partnership with a couple of years ago.
Speaker Change: The important part let me just kind of.
Speaker Change: The important part of where we are in this space is to say to also think through once they finish an introductory pricing window like we're in right now the dollar for three months is what percentage of them will take will.
Speaker Change: You don't do not churn and stick with us at the world to price, where we've been taking them.
Speaker Change: We're going to keep testing, we're going to have a b test a couple of different price points to see kind of what is ideal of people sticking with us in reducing our churn and that's really going to dictate where things go from a revenue standpoint.
Speaker Change: Because the volume is meeting our expectations, but I will have a lot more for you really probably in the FERC probably at the end of the first quarter, because we're going to see a bunch of these new starts as ROE Han was asking about you know the most important part is how many stay with us because thats when they go from paying an interim Dr.
Speaker Change: Re priced to that ongoing price, but also yes, we do see a short window here of where that digital subscription volume will be kind of leveling out to very light growth, but you know.
Speaker Change: Look we the volume is there for you know in the early stages to go see that growth to improve as.
Speaker Change: As we get further into next year, but at the same time, we are keenly focused on how many people are.
Speaker Change: Our taking the price increase and going with us outside of the introductory window.
Speaker Change: Hey, Adam one clarifying point on that and as grant was talking the volume we are seeing the increases and the growth. He referenced a slowdown that was on the revenue side. In this brief window that there will be some revenue impact on that but the volume is there and it's really going to be seeing how these subscribers take to the next.
Speaker Change: Increase in price and how long they stay with us.
Speaker Change: Good point, great. That's that's all really helpful color guys and just to kind of follow up there or what have you guys noticed.
Speaker Change: And as you've kind of meandered through the price versus volume pushed Paul over the last three or four years and an understanding of the digital side is still fairly nascent.
Speaker Change: For for your product.
Speaker Change: What have you guys noticed on churn levels.
Speaker Change: Like is there a broad trend over the last four or five years, where you've noticed a reduction in churn and understanding of course that varies.
Speaker Change: Changes in trials and pricing may may increase or decrease churn, but I'm just curious if there's sort of an apples to apples way to look at the long term.
Speaker Change: The reduction in potential churn or what color you might share there.
Speaker Change: Yes.
Speaker Change: It's also.
Speaker Change: Very good question, Adam when we look when I'm looking at the industry.
Speaker Change: The you can see churn.
I wish it was more of a straight line trends that we're seeing but I will say it bounces around a little bit.
Speaker Change: Even the most recent political season, probably if I were if we were to national publication.
Speaker Change: Can be more impactful.
Speaker Change: <unk>.
But what I will say is.
Got it.
Speaker Change: How long do you have an injury introductory window also.
Speaker Change: Impact can improve the churn you will see some meat newspaper companies around the country doing a dollar for six months rather than a dollar for three months well if someone's only paying a dollar your churn looks better as a percentage.
Speaker Change: So.
Speaker Change: I guess my point of telling you as national trends are hard to find because there are some papers that were doing a short window for us like a dollar for a month versus the dollar for six months and as you can imagine the churn from $1 six months looks much better, especially in that first year.
Speaker Change: You've got people, who are basically getting the product for free to test it to understand do they want to do they see enough value in the product to become a fully paying consumer so.
It is hard to find trends and I guess my point of that is is because many different media companies are testing very different introductory windows I've seen some in the past couple of weeks of one dollar for 52 weeks. So I mean, if youre doing a dollar for a year, that's someone who's going to throw off the churn trends quite a.
Speaker Change: Bit.
Speaker Change: Okay.
Speaker Change: That's really helpful and understood and then in terms of the medium giant growth.
Speaker Change: Which I believe is.
Speaker Change: Most of the housing marketing and media services segment is very very strong growth I think 26% year over year and I was wondering if theres anything special to call out there any one offs or big customer wins I know you mentioned no big election impact. So it would be creates kind of just.
Speaker Change: Breakthrough subpart of the majority of that growth out of it is coming from the agency side of medium giant and it's why we split out into segments, because it's a distinctively different business, even the <unk> question that you know.
Speaker Change: On the.
Speaker Change: The Cogs that are coming through that business as well.
Speaker Change: The focus of the agency has been to go win larger clients, so clients that will spend $250000.
Speaker Change: A year or more with us I've been really pleased that those bigger clients have improved and grown about 30% for us this year and that is really helping drive this growth, but we're also doing that simultaneously, while reducing our small clients because of the small.
Speaker Change: Clients are less profitable and often times take as much work.
Speaker Change: As the big ones and so that's been the strategy and a big part of what Youre seeing there and John Kiker, who is the president of our agency has just done a very nice job of attracting the bigger clients Sim.
Speaker Change: Simplifying the business, which is helping grow the topline and is improving the bottom line, but look we've still got more room for improvement.
On that bottom line as well.
Speaker Change: That's great glad to see you guys find some more success there and.
Speaker Change: I guess just my final question, if I could in terms of the E.
Speaker Change: The operating structure changes that are sort of taking place mostly in the first quarter of 2025 I was wondering if you.
Speaker Change: Could potentially give us a ballpark figure.
Speaker Change: For your.
Speaker Change: Comp benefits.
Speaker Change: Or maybe it's more of the other products distribution line item, what that run rate would be.
Speaker Change: Pro forma kind of these changes that are taking place so including.
Speaker Change: The head count reduction, it's Dave average each about the same about $15 million or so.
Speaker Change: Sorry, I was just kind of curious what what sort of that step down will be understanding that you probably have some investments as well back into the business.
Adam that's a great question.
Speaker Change: So look we're still in the transition right now.
Speaker Change: When we have our first quarter almost like when we have our 2024 call in March we will have a better sense of being able to kind of give a little bit more color on where comp and then it is going to come down obviously with the reduction in head count still targeted in early the first quarter.
Speaker Change: One thing we did back in May we did give.
Speaker Change: A range that once this is up and operational we did believe that annualized expense savings.
Speaker Change: It's going to be around $5 million.
Speaker Change: That's still something that I felt good about and so really that's all I can give you right now and I think and again in the March call, we'll be able to get better.
Speaker Change: Insight into where we see the trends just given that it will have already been implemented and the transition will be complete.
Okay perfect. Thanks, so much guys strict corner thank.
Adam Valentine: Thank you Adam.
Speaker Change: If there are any additional questions. Please press one then zero.
Speaker Change: And at this time there are no further questions.
Speaker Change: Yeah.
Speaker Change: Alright. Thank you Greg for your assistance this morning and to everyone who joined thank you again for listening to our third quarter 2020 for results and we look forward to updating everyone on our fourth quarter and full year 2024 earnings call, which will be held in March of 2025.
Speaker Change: Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.
Speaker Change: Yeah.
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