DallasNews Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Dallas News Corporation third quarter 2023 investor conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. 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. I would now like to turn the conference over to your host, Gary Cobley. Please go ahead.

Good morning, everyone. This is Gary Kalme, Vice President and Controller of Dallas News Corporation. Welcome to our third quarter 2023 investor call. I am joined by Katie Murray, President and Chief Financial Officer, who will be reviewing financial results, and Grant Moise, Chief Executive Officer, who will provide brief business remarks. Yesterday afternoon, we issued a press release announcing third quarter 2023 results and filed our Q3 2023 10Q. Both of these are posted on our website, balancednewscorporation.com, under the investor relations section. Unless otherwise specified, comparisons used on today's call measure third quarter 2023 performance against third quarter 2022 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. I'll now turn the call over to Katie.

Good morning, everyone, and thank you for joining today's call. On a GAAP basis for the quarter, Dallas News Corporation reported a net loss of $1.4 million, or 26 cents per share, and an operating loss of $1.6 million. In Q3 of last year, we reported a net loss of $2.6 million and an operating loss of $2.3 million. On a non-GAAP basis for the quarter, we reported an adjusted operating loss of $900,000, an improvement of $700,000 when compared to an adjusted operating loss of $1.6 million reported for the same period last year. The improvement is primarily due to expense savings of $3.9 million, partially offset by a total revenue decline of $3.2 million. We reported $34.5 million of total revenue for the quarter compared to $37.7 million last year. The decline is primarily due to a 2 million or 18% decrease in print advertising revenue, which was driven by the company's strategic decision to exit its shared mail program to deliver weekly preprints and inserts. After accounting for this decline, core print advertising was flat year over year. Digital advertising and marketing services revenue was down $800,000 or 13% year over year, primarily due to a decline in marketing services revenue resulting from some contracts ending, partially offset by an increase in digital advertising on dallasnews.com, primarily related to financial service clients. Circulation revenue was flat compared to last year. The digital-only subscription revenue increase of $700,000, or 21.4%, mostly offset the print circulation revenue decline of $800,000, or 6.1%. As of September 30th, the news had 66,563 digital only subscribers which is a 2,391 or 3.7 percent year-over-year improvement. However, we did have a sequential decline in our digitally only subscribers. Grant is going to provide some additional comments on overall digital subscriber trends in a moment. Total subscribers including both home delivery and digital subscribers was 137,493 as of September 30th compared to 144,631 as of Q3 last year and 142,436 as of June 30th. Printing distribution and other revenue was 3.6 million, a decrease of 300,000 or 8.3% when compared to the third quarter of 22 and 2, primarily due to a decline in commercial printing revenue. On a non-GAAP basis, total adjusted operating expense for the quarter was $35.4 million, an improvement of $3.9 million, or 9.9%, when compared to the same period of last year, driven by expense savings of $1.7 million in distribution, $900,000 in outside services, and $800,000 in newsprint. The company will continue to experience savings in distribution expense for the remainder of the year with the recent discontinuation of the briefing and ALDEA publications. Newsprint expense is favorable year over year as the result of lower circulation and fewer out-of-market preprints when compared to last year. The newsprint purchase price has continued to trend favorably down. The cost of newsprint in September was $683 per metric ton, a decrease of $91 or 11.8% per metric ton when compared to September of last year. We expect to continue realizing these savings in late Q4 and early next year. As of September 30th, headcount was 608, down 60 headcount compared to last year. Headcount reductions and increase of an expense are expected to continue into the fourth quarter related to the previously announced voluntary staff reduction program. Cash and short-term investments was $24.5 million on September 30th. As of October 20th, we have $23.3 million in cash, including short-term investments. For the fourth quarter, the company recorded $100,000 of tax expense for the Texas franchise tax. I will now turn the call over to Grant.

Thanks, Katie, and good morning, everyone. I want to start by mentioning an important event that took place in September of this year when Robert Deckard retired after 50 years of service as an employee and 47 years as a director. Robert's commitment to Dallas News Corporation and the North Texas region is hard to capture in words, but on behalf of the board and our employees, I want to thank Robert for his commitment to journalism and for being a pillar of this institution for five wonderful decades. While I'm on the topic of our commitment to journalism, I'm proud of our newsroom for the ambitious fentanyl series that was entitled Deadly Fake. where we published a story per day every day for the entire month of September. We focused on fentanyl in this unique way because last year fentanyl killed an average of five Texans every day and almost 500 of them lived in North Texas. Most North Texans did not know how to identify nor treat the lethal effects of fentanyl. And in the words of Catrice Hardy, our executive editor, If this series helped save one life, it was worth it. Shifting topics from journalism to the financial progress of the company, we've had a year of mixed results. I've been pleased with the team's ongoing expense management Katie was just referring to, but our revenue performance has fallen short of our expectations. Many of you are familiar with the return to growth plan we have in place with our board that we've been discussing for quite some time. The goal of what we call the RTG plan is to build a sustainably profitable media and marketing company. For this plan to ultimately be successful, we need to grow revenue from the core product lines of digital membership, digital advertising, and marketing services. This year we have grown in two of those three areas, but we want to see growth in all three. In the third quarter, we were more aggressive with the pricing of our digital subscription offerings. and I'm pleased with the early returns from this change. This change will result, as we are seeing, in short-term volume declines, but will improve the revenue trajectory of digital subscription revenue. On the marketing services side of the business at Medium Giant, this year has been marked by trepidation from our current clients who are being cautious with their advertising dollars in the midst of a challenging economic environment. In order for us to return to growth in this important area, we are focused on attracting new retainer-based clients while helping our current clients with marketing solutions to help them grow their businesses. Greg, we will now open up the line for questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press 1 and 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press 1 and 0 at this time. And one moment, please. And at this time, there are no questions.

Well, Greg, thank you. Thank you, everyone, for joining our call. I'm sorry, Greg?

You just had one queue up. Would you like to take that question? Absolutely. Okay, that question comes from the line of Chris Mooney from Wedbush Securities. Please go ahead. Hey, good morning, all. Good morning, Chris.

The 608 headcount, where do you anticipate that going to by the end of the year?

You know, Chris, as we announced earlier, probably about a month ago, we're having a voluntary severance offer. We expect probably about maybe 40 or so people to take that, give or take. We don't know yet. There was not a set target. We didn't have any kind of specific headcount number or expense number. So I expect that this number, we will probably be, we're going to be below 600, probably maybe 580, 570, just depending on what we do with the DSO. And again, that's just to be determined.

Understood. And the cost of this will appear in the fourth quarter. Will it roll into the first quarter as well?

No, it won't. The cost of the offering and the program will be fully booked in the fourth quarter. And while there may be cash payments in 2024, the expense will be in 2023.

Okay. And what was the union response to this?

As part of our collective bargaining agreement, we have the ability to offer a voluntary severance offering whenever we would like to. So there really was no response from the guild. Okay.

Thank you.

Thank you, Chris.

If there are any additional questions, please press 1 and 0. Okay.

Well, again, Greg, sorry?

There are no further questions.

Greg, thank you. Everyone, thank you again for joining our third quarter call. We look forward to a great fourth quarter, and we'll have our earnings call in the first quarter of next year. And for those of you in Dallas and Texas, go Rangers.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconferencing. You may now disconnect.