DallasNews Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Dallas News Corp. 3rd 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 conference call, please press star, then zero, and an AT&T specialist will assist you offline. As a reminder, your conference call today is being recorded. I'll now turn the conference call over to your first speaker, Gary Cobley. Please go ahead.

Good morning, everyone. This is Gary Cobley, controller of 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 Deckard, 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 10Q. Both of these are posted on our website, dallasnewscorporation.com, under the investor relations section. Unless otherwise specified, comparisons used on today's call measure third quarter 2021 2021 performance against third 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 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 will now turn the call over to Katie.

Good morning, everyone. Thank you for joining today's call. Dallas News reported third quarter 2021 net income of 1.6 million or 30 cents per share and an operating loss of 2.6 million. In the third quarter of 2020, the company reported a net loss of $100,000 or 2 cents per share and an operating 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 non-cash, uncertain tax reserve recorded in 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 $100,000 reported in the third quarter of last year. The decline is due to increases of $900,000 in employee compensation and benefit expense and $700,000 in revenue-related outside services expense, partially offset by an increase in total revenue. For the third quarter this year, total gap revenue was $38.3 million, an improvement of 600,000 or 1.5% when compared to the 37.7 million reported for the third quarter of last year. The improvement is primarily due to an increase of $900,000 or 15.5% in digital advertising revenue and $700,000 or 42.5% in digital subscription revenue, partially offset by a print advertising decline of $300,000 or 2.5% and a print circulation revenue decline of $700,000 or 4.9%. Last year, in the early stages of the pandemic, we sold personal protective equipment through our digital marketing automation platform. Because 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 dallasnews.com, creative and strategic brand marketing services, and web development. Revenue generated from digital advertising on DallasNews.com grew $400,000 or 49.5% for the third quarter and $800,000 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. An example of the growth we are seeing in digital advertising and marketing services is a recently won RFP having a total contract value of approximately $1 million. This agreement will primarily focus on strategic and branding services and replaces services provided by an incumbent agency. 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 in print subscribers, and growing digital subscriptions. The News currently has approximately 147,000 print and digital subscribers. This compares to 136 print and digital subscribers in Q3 of last year and 143,000 in Q2 of this year. Digital circulation revenue was 2.5 million in the third quarter of this year, an increase of 700,000 or 42.5% compared to last year. The news ended the third quarter of 2021 with 57,084 paid digital-only subscriptions an increase of 10,361, or 22.2%, when compared to the third quarter of last year, and 4,154, or 7.8%, 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 700,000 or 4.9% 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 4.6%. Single copy sales declined 7.9%. For the nine-month ending, September 30, 2021, home delivery revenue declined 3.8%, 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 $100,000 decrease in commercial printing revenue. Third quarter 2021 total gap operating expense was $40.9 million, an increase of $700,000 or 1.8% compared to the third quarter of last year. The change is due to increases of $700,000 in revenue-related outside services expense and $600,000 in employee compensation and benefit expense, partially offset by a decrease of $700,000 in depreciation expense. The employee compensation and benefit expense increase is primarily due to medical cost savings in the third quarter of 2020 and restoring employees' 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 non-cash Uncertain tax reserve of $2.6 million. The federal statute of limitations lapsed in August, and this non-cash reserve was reversed. As of September 30, 2021, 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 will now turn the call over to Robert.