DallasNews Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Dallas News Corporation second quarter 2021 investor call. At this time, your telephone lines are in a listen-only mode. Later, there will be an opportunity for questions and answers with instructions given at that time. If you should require assistance during the call, please press star then zero and an AT&T specialist will assist you offline. I'll now turn the conference call over to your first speaker, Chief Financial Officer of Dallas News Corporation, Katie Murray. Go ahead, please.

Good morning, everyone, and welcome to our second quarter 2021 investor call. I am joined by Robert Deckard, Chairman, President and Chief Executive Officer of Dallas News Corporation, and Grant Moise, publisher and president of the Dallas Morning News, who are available for q&a. Yesterday afternoon, we issued a press release announcing second quarter 2021 results. And we filed our second quarter 10q. We have posted both of these on our new website, dallasnewscorporation.com, under the investor relations section. Unless otherwise specified, comparisons used on today's call measure second quarter 2021 performance against second 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. As a reminder, the company's board of directors approved a one-for-four reverse stock split of issued, outstanding, and treasury shares of the company's common stock par value one penny per share, which became effective June 8, 2021. The per share amounts in yesterday's release reflect the reverse stock split. In addition, effective June 29, 2021, the company changed its name to Dallas News Corporation and transferred to NASDAQ under the ticker symbol DALM. Dallas News reported a second quarter 2021 net loss of $1.5 million or $0.28 per share and an operating loss of $3 million. In the second quarter of 2020, the company reported a net loss of $3.4 million or $0.64 per share and an operating loss of $4.4 million. The 2021 net loss we reported in the second quarter includes severance expense of $1.4 million related to the previously announced voluntary severance offer. Adjusted operating loss, which adjusts GAAP operating loss to exclude severance expense, depreciation, amortization, and asset disposals and impairments was $600,000 for the quarter, an improvement of $1.9 million when compared to an adjusted operating loss of 2.5 million reported in the second quarter of last year. For the second quarter this year, total GAAP revenue was 38.7 million, an improvement of 3.3 million, or 9.2%, when compared to the 35.4 million reported for the second quarter of last year. This improvement is primarily due to a 3.4 million increase in print advertising revenue. Digital advertising and marketing services revenue of 6.3 million reflects a decrease of 400,000 when compared to last year. Excluding the decline in sales of BELO and companies' brokering of personal protective equipment associated with the pandemic for its customers, digital advertising increased 1 million or 21.7%. Total circulation revenue of $16.1 million reflects a 2.4% growth over Q2 of last year. This is the first quarter to show year-over-year growth since Q1 of 2015. The growth in total circulation revenue is a result of a number of initiatives focused on subscription pricing, lowering attrition in print subscribers, and growing digital subscriptions. The news currently has approximately 143,000 print and digital subscribers. Digital circulation revenue was 2.3 million in the second quarter of this year, an increase of 800,000 or 52.3% compared to last year. The news ended the second quarter of 2021 with 52,930 paid digital-only memberships, an increase of 9,340 or 21.4% when compared to the second quarter of 2020. Print circulation revenue for the second quarter was 13.8 million a decrease of 400,000 or 2.9% compared to the prior year. The news has experienced relative stability in its print member base as home delivery revenue only declined 2.4%. Single copy sales have been impacted by the pandemic and revenue declined 7.6%. Other revenue reported in the second quarter of this year was 4 million compared to 4.1 million reported in the second quarter of last year. The decline is due to a $100,000 decrease in commercial printing revenue. Second quarter 2021 total GAAP operating expense was 41.7 million, an increase of 1.9 million, or 4.7% compared to the second quarter of last year. This change is due to expense increases of 1.1 million in employee compensation and benefits, primarily driven by the voluntary severance offer, $1.1 million in advertising and promotion, $900,000 in distribution, partially offset by expense decreases of $800,000 in depreciation and $300,000 in outside services. The company recorded tax expense of approximately $100,000 this quarter related to the Texas margin tax. As of June 30, 2021, the company had 724 employees. a decrease of 45 or 5.9% when compared to the prior year period. Current headcount is 688, reflecting an additional decrease of 36 relating to the voluntary severance offer. Cash and cash equivalents were 37.8 million and the company has no debt. As of July 23rd, the company had approximately 40 million in cash and cash equivalents. As a reminder, we do not have any mandatory pension payments in the next 10 years and the pension plans are currently funded at 94%. Effective June 30th, 2021, the company signed a second amendment with Charter Holdings extending to June 30th, 2022, the original promissory note of $22.4 million related to Charter's purchase of the company's former headquarter campus in downtown Dallas. All other amounts due from Charter were paid in full in the second quarter. The $22.4 million promissory note will continue to bear interest at the rate of 4.5%, generating $1 million of interest income over the next 12 months. The promissory note continues to be secured by a first priority lien on the property. I will now provide some additional operating updates. In Q2, we completed the voluntary severance offering with 40 back office and production employees electing to take the offer. We expect to realize approximately $3 million in annualized compensation and benefit expense savings. In June, The News won more than 20 Associated Press Managing Editor awards, including six first places. Our Spanish language paper, Aldea, won 10 Texas Associated Press Managing Editor awards, including five first place finishes. The News also won 11 National Headliner awards, including two first place honors. Based on research and analysis of the news subscribers, the business news department was recently expanded by two reporters, and we have seen immediate results in terms of content and new subscriptions. VLO and company continues to see recovery in print and digital advertising. While spending is not completely back to pre-pandemic levels, we have seen increases primarily driven by the grocery, restaurant, and telecommunication verticals. Every year, the Dallas Morning News Charities run the Kids Summer Feeding Campaign. We would like to thank everyone who donated to this very important campaign. This year, we raised more than $150,000 to support nine regional nonprofit organizations that offer summer feeding programs to provide hungry children with enough food to get through the summer months. Overall, our financial results and the progress we are making in growing total digital-based revenue are very encouraging. I will now turn the call over to Robert.

Katie, thank you and good morning, everyone. When we met as a board almost two years ago in September of 2020, we realized that the transformation of the Dallas Morning News and all of its distribution channels would take time. And we described that to you and our other investors and people who follow the company, of course, without any idea that 2020 would turn out to be what I call the gap year. So as we reported in our last call, the board revisited those plans, those long-range plans, earlier this year in a regular meeting and concluded that if we're going in the right direction, we need to see measurable progress. But as we can, contrasted with so many other newspapers, work through this smartly and patiently, we still think that the possibility of a sustainably profitable digital newspaper is real. The progress that Katie just described is evidence of this, and I want to touch on just two or three things before we go to Q&A. First of all, we are extremely excited to welcome Catrice Hardy as the executive editor of the Dallas Morning News. Grant has personally conducted a search that went on for almost eight months, And as he looked at the candidates and the finalists who we interviewed, she stood out in almost every way imaginable. In an important sense, he and she are connected very strongly as to what needs to happen with our products, both print and digital, the pace at which change needs to occur, and the quality standards that are an absolute requirement of being successful over the long term. he can comment further about catrice if you'd like to i'd like to hear more later in this call as katie noted we've made substantial progress in growing our digital footprint and the revenues associated with it the circulation revenues and subscriber or member numbers that she reported are encouraging to us and the advertising that will follow that we believe is likely to come about based on what we're seeing through the first half of the year and looking forward to the second half. The six-month performance, I hope you agree, is impressive given the circumstances of 2020 and the opportunities that presented themselves earlier this year. Those opportunities continue to exist. When I look at Q2 revenue up 9 plus percent, that obviously is aberrational in the sense that it's a comparison to the first quarter where the full impact of COVID occurred, but that was an aberrational down quarter. So we are optimistic that we're leveling out here in Q3 and Q4 while still going up against comparatively easy comparisons. We'll give evidence that the trends we've seen and we reported today can continue and on into 2022. There are a number of opportunities ahead, as I noted. Grant and Katie can comment on those. They all relate, though, to the basic long-range view that the board has that we have to achieve certain milestones on the digital side, think about the transition to digital on a day-to-day basis, not occasionally, and take actions that are anticipatory rather than reactive. So there's good news ahead if we can just count on the economy and pre-pandemic spending levels becoming typical again. I'm reluctant to use the word norm in our industry, but if we can get back into that environment, we think there's plenty of upside. I'm sure you've done the math on the net loss for the quarter. We almost broke even. Whether you look at net loss or operating, adjusted operating loss, We're not saying we've turned the corner of profitability, but again, against the backdrop of what's occurred over the last 15 to 18 months with the pandemic, we're very pleased with that performance. The last thing I'll say before we go to Q&A, Katie mentioned the pension plan. We are 94% funded with that plan, and as we both plan, they roll up together. One is the legacy fund. Dallas Morning News AHB look plan. The other is the Providence Journal plan. But they're very similar in size and they're managed by the same team at Fidelity. My point is that we made a decision earlier this year to be even more conservative with that portfolio. And as we've seen the volatility of the markets, both in the U.S. and around the world, we are very confident that's the right place to be. And when we say we don't have any required contributions for a prolonged period of time, part of that is because of the conservative posture of the portfolio. So we're planning to stick with that approach. I assure you we're not all cash, but we are heavily weighted to the fixed income side that we can manage through any, I'll say, typical volatility. Let me pause there, Katie, and let's see if we've got Q and A. All right, Alan, we'll open it up for questions.