DallasNews Corporation (NASDAQ:DALN) Q4 2024 Earnings Call Transcript

DallasNews Corporation (NASDAQ:DALN) Q4 2024 Earnings Call Transcript March 18, 2025

Gary Cobleigh: Good morning, everyone. This is Gary Cobleigh, Vice President and Controller of DallasNews Corporation. Welcome to our fourth quarter and full year 2024 investor call. I am joined by Cathy Collins, DallasNews’ Chief Financial Officer who will be reviewing financial results, Katy Murray, President of DallasNews, and Grant Moise, Chief Executive Officer, who will provide brief business remarks. Yesterday afternoon, we issued a press release announcing fourth quarter and full year 2024 results and filed our 2024 10-Ks. 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 fourth quarter and full year 2024 performance against fourth quarter and full year 2023 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 will now turn the call over to Cathy.

Cathy Collins: Morning, everyone, and thank you for joining today’s call. On a GAAP basis for the quarter, DallasNews Corporation reported net income of $4 million or $0.74 per share, and an operating loss of $1.8 million. In Q4 last year, we reported a net loss of $2.2 million and an operating loss of $2.5 million, which includes severance expense of $2.7 million for the 2023 voluntary severance offer. On a non-GAAP basis for the quarter, we reported an adjusted operating loss of $1.3 million, a decrease of $1.9 million when compared to adjusted operating income of $600,000 reported for the same period last year. We reported $31.1 million of total revenue for the quarter, which compared to $34 million last year. Advertising and marketing services revenue decreased $1.3 million for the quarter due to a print advertising revenue decline of $1.1 million or 6% compared to the same period last year.

Circulation revenue decreased $800,000 for the quarter, primarily due to a $700,000 decline in print circulation revenue, which included $200,000 from single copy sales for the fourth quarter of 2023 for the Texas Rangers winning the 2023 World Series. Other revenue decreased $800,000 or 19.4% for the quarter, resulting primarily from a canceled commercial printing partnership and non-recurring revenue of $500,000 generated in 2023 from Texas Rangers World Series product sales. On a non-GAAP basis, total adjusted operating expense for the quarter was $32.4 million, an improvement of $1 million when compared to the same period last year, driven by expense savings of $600,000 in employee compensation and benefits, and $500,000 in newsprint. Turning to full year results.

On a GAAP basis, we reported net income of $131,000 or $0.02 per share and an operating loss of $7.1 million, which includes severance expense of $2.8 million related to the transition of our print and distribution operations to a smaller printing. Net income includes a non-cash tax benefit of $5 million resulting from a reduction in the valuation allowance in anticipation of the use of net operating losses to offset the 2025 gain on the sale of the Plano property. For 2023, we reported a GAAP net loss of $7.1 million and an operating loss of $8.1 million. On a non-GAAP basis for the year, we reported an adjusted operating loss of $1.6 million, an improvement of $1.1 million when compared to an adjusted operating loss of $2.7 million reported in 2023.

The improvement is primarily due to expense savings of $15.4 million, with the greatest reductions in employee compensation and benefits, distribution expense, and newsprint, partially offset by a total revenue decline of $14.3 million. $10.7 million of the revenue decline and $9.1 million of the expense savings are the results of the discontinuation of the shared mail program and print only of our niche publications in 2023. We reported $125.4 million of total revenue for the year, and this compares to $139.7 million last year. Advertising marketing services revenue decreased $11.1 million or 18.9% year over year. Excluding the $10.7 million reduction in print advertising resulted from the discontinued product line, print advertising revenue declined $1.4 million or 5.7%, partially offset by an improvement of $1 million or 6.5% in marketing and media services revenue driven by new customer contracts that began in 2024.

Circulation revenue decreased $500,000 from 2023, which was driven by a print circulation decline. And $200,000 which is attributable to single copy sales for the Texas Rangers winning the World Series. The print circulation decline was partially off. As of December 31st, the news has 64,334 digital-only subscribers, an increase of 1,334 or 2.1% compared to last year. We continue to focus on finding the optimal balance between pricing and volume strategies for digital subscription. And Grant will provide additional commentary on those efforts shortly. Total subscribers, including both home delivery and digital subscribers, was 126,973 as of December 31st, compared to 132,694 as of December last year. Other revenue decreased $2.7 million or 17.7% compared to last year, primarily due to a canceled commercial printing and distribution partnership of $900,000 in revenue.

On a non-GAAP basis, total adjusted operating was $127 million, an improvement of $15.4 million or 10.8% when compared to the $142.4 million of adjusted operating expense last year. The improvement is primarily due to expense savings of $5.5 million in employee compensation and benefits, $6.5 million in distribution, and $3.5 million in newsprint. Newsprint expense is favorable year over year. I found this on the web. For distribution. Newsprint expense is favorable year over year as the result of lower circulation and discontinuing print-only editions of our niche publication. The niche print purchase price has continued to trend favorably. As of year-end, the average newsprint industry cost per metric ton was $637 compared to $687 in 2023, a decrease of 7.3%.

We are monitoring for any potential impact as they relate to potential price increases and tariffs in 2025. As of December 31st, headcount was 526, down 75 compared to last year. As of the beginning of May, we expect headcount to be approximately 460 after the departure of production employees in the first quarter of this year. Cash along with short-term investments was $9.6 million on December 31st. And as of March 17th, cash was $47 million. In 2024, we paid $484,000 of tech franchise tax for fiscal year 2023, net of tax refunds. We expect the Texas franchise tax in May of this year to be approximately the same for 2024. For the year, the company recorded a tax benefit of $5 million due to a reduction in the valuation allowance for deferred tax assets that we determined to be realizable as an offset to the income from the Plano property sale.

As of December 31st of 2024, the company had $60.1 million of federal net operating loss carryforward, $17.5 million which expire in 2037, and $42.5 million that, you know, have no expiration. In the first quarter of 2025, we will record a gain on the sale of the Plano property and utilize a significant portion of our NOLs to offset the gain, which will minimize cash taxes. We are pleased with the progress the company has made this year towards our long-term strategy and we were right in line with how we expected to end the year. We remain in a good position on our balance sheet, made stronger with the recent sale of the property in Plano that Katy will elaborate on. And we are encouraged by the results we are seeing so far in 2025. I will now turn the call over to Katy.

Katy Murray: Good morning, everyone, and thank you for joining our year-end call. I am extremely pleased with the progress we made in 2024 on a number of initiatives. First, we have transitioned our print operations to a smaller, more efficient facility, and in addition to generating over $5 million in annualized expense savings to start in 2025, the move has allowed us to successfully monetize the Plano facility for $43.5 million. We are truly excited that Donego 88 EV will be repurposing the facility. Second, the sale of the property has provided capital which will allow us to voluntarily fully fund our pension plan. As Grant and I have always stated, we view the pension plan as our debt, and have been committed to ensuring that the retirement benefits of 1,300 of our former and current employees are secure and fully funded.

As of the end of January, the plan was approximately 94% funded, and the investment allocation had been moved to 100% immunizing to limit market risk and volatility. We expect that we will contribute between $14 million and $16 million before the end of the second quarter to complete the purchase of an annuity contract from an insurance carrier and complete the transfer of the plan assets. I will now turn the call over to Grant.

Grant Moise: Thanks, Katy. Reflecting on 2024, the year was highlighted by transformational projects focused on the long-term success of the company. As Katy noted, the transition of our print operations to a smaller and more efficient facility and the sale of the Plano property have been instrumental in our ability to strengthen reducing expenses, adding cash, and giving us the ability to eliminate the only debt the company has. In addition to these print production changes, Medium Giant’s contribution to the company’s operating income was a priority in 2024 and continues to be in 2025. As we reviewed the business at the end of 2023, I needed better visibility into the margin that we knew our agency business could deliver and this led to the implementation of segment reporting.

Segment reporting not only gives us the management team and me the visibility we need into the business, but it also provides our investors that same insight. While Medium Giant has not hit the margin we are seeking, on a year-over-year basis, Medium Giant improved its as we continue to grow our business. As John Piker, President of Medium Giant, continues to implement his strategy. On the Dallas Morning News side of the business, investments in our website and our app were a priority last year. We chose to prioritize these product enhancements over the creation of new digital products in 2024, which was a deviation from our original plan to diversify our digital product portfolio. This change was necessary because our digital audience for our core products had begun to decline after many years of consistent growth.

We need a growing digital audience to continue to fuel our digital subscriptions and digital advertising revenue from our core product. We have chosen to stabilize that audience before shifting additional resources to expand the portfolio. These product enhancements in 2024 included our website performance. The speed of a website is one of the largest determining factors of its prioritization on search engines. In December of 2024, the page load speed of dallasnews.com was 5.9 seconds. This improvement is 19% better than the beginning of 2024, and 46% faster than where we were 18 months ago. We also chose to upgrade our core app. We upgraded this app for both iOS and Android, and we have received positive feedback from consumers from those material upgrades in its user experience.

We will continue to do the same thing in 2025 so our journalism can shine on all platforms. Launched an in-article video player in our sports section last year, and we are rolling it out, the video player, across the entire website in the coming months. Early results are strong as we are meeting direct advertising goals and we have increased the time spent on page by 3.2 times than prior to the implementation of the same of this in-article video player. In addition to video, we also brought back reader commenting on our website. We heard from our customers that not being able to comment on stories made our website experience less valuable than other news websites. Similar to how we launched video, we are starting with a single section of the website and will.

Going from product to digital subscriptions, as Cathy noted, when we think about digital subscriptions, we continue to focus on the right balance between price and volume. In the third quarter of 2024, we made an intentional shift from pricing to strategies that would grow our digital subscription volume. While we are still in the early stages of this new price strategy, we grew our digital subscription base by 3,119 in the fourth quarter, which was the strongest volume growth we had seen in eight quarters. Last but not least, our focus has and always will be on the excellence of our journalism. In 2024, we had an investigative series entitled Bleeding Out. Our journalists uncovered that tens of thousands of Americans die from preventable bleeding each year because ambulances were not carrying blood.

As a result of this excellent journalism, a new program in Dallas has been implemented that will ensure paramedics have blood supplies in the field, which will help prevent deaths between accident sites and the hospital. For a journalism company focused on excellence, we see that our work translates into policy changes that improve or in this case save lives, it reminds us why journalism is important to our region and our country. As we look to 2025, our team remains focused on continuing to produce excellent journalism, improving our digital products, growing digital subscriptions, and maintaining the excellence from our new plant in Carrollton. Krista, we will now open it up to questions.

Operator: Thank you. We will now begin the question and answer session. Your first question comes from Rohan Gilmore. Please go ahead.

Q&A Session

Rohan Gilmore: Hey, good morning, guys. Thanks for taking my questions.

Grant Moise: Good morning.

Rohan Gilmore: On the print advertising side, there was a pretty substantial decrease quarter over quarter and year over year. Can you guys share some color on kind of what led to that decrease and what you saw in the quarter and what you are seeing in the year to date for advertising?

Grant Moise: Yeah. So, Rohan, it is Grant. I will answer that. You know, print advertising is unique because less than 10% of our print advertisers are on an annual contract. So what that means is that, you know, we get it sometimes just in time. It is like just-in-time inventory. We get these things in very short order. And what happened in the fourth quarter with that 16.6% drop was obviously much lower than the rest of the year. It came from a variety of areas, but mostly in our class revenue. Our classified revenue was just uniquely soft in the quarter. It continued a little bit into the early part of this year and we are seeing March start to pick up. So again, when it is one of those things that is not contracted, it has some volatility and, you know, that is the bad news as we saw. But the good news is that that pendulum can swing in the other direction as well. Got it.

Rohan Gilmore: On the expense side, can you guys provide the total operating expenses incurred in the quarter that is associated with the 80 or so employees that are going to be leaving the company as related to the plan of severance plan?

Cathy Collins: So, Rohan, I will take that question. We are not going to provide the fourth quarter. There was a lot of activity happening then and think everybody knows. We were really pleased that the sale was completed last week. It took a little bit longer than we had expected, but the patience was worthwhile, and we have got the right buyer for the property. The first quarter on a year-over-year basis, that is really going to be clean. It is going to be the second quarter this year. Even in this first quarter, we have been incurring, you know, facility charges and employees, etcetera, because we have owned the building up through last week. And so, I think on the first quarter call, that will be really the first opportunity for us to get some insight into the second quarter where we are going to start seeing again, year-over-year favorability.

But what I will say is, and I made in my comments, the $5 million on an annualized basis is a good number. Again, that is annualized. So while we had hoped that it was started on January 1, it is not. So it is going to be really kind of starting second half of March and full first month of April. But we will get visibility to that on our first quarter call. But, again, those savings are substantial and are going to be realized.

Rohan Gilmore: Got it. And that makes sense. On the digital volume circulation, Grant, could you would you be willing to provide that year to date?

Grant Moise: Yeah. I will tell you. I do not have the specific numbers, Rohan, of kind of where we are year to date. I will tell you that three thousand that is over thirty-one hundred where we were in the fourth quarter, has slowed down in the first quarter. And a bit of in some of that may be the market. I mean, I will for those of you on this call who track the industry. Digital subscriptions overall across the industry have softened. However, we also are doing something. On February 18th, we implemented a new AI algorithm technology for our paywall. And so what that is going to do is measure the propensity of someone to subscribe when they get to the site. The technology will kind of intercept them based on who has the highest propensity to subscribe.

And like any technology, you know, again, that I said we implemented in mid-February, it is just taking a little bit of time for those algorithms to kind of read what is unique to our market. So again, we are going to be softer in the first quarter than we were in the fourth quarter. It is hard to tell at this point, Rohan, how much of that is just because we have done such a significant paywall technology change, you know, versus you know, what is you know, you know, you know, caused more by the market. But, obviously, we will have more to come on that at the end of the first quarter.

Rohan Gilmore: Understood. That is all for me. Thank you for taking my questions.

Operator: Thank you, Rohan. Next question comes from the line of Adam Ballantyne with Gondolin Capital. Please go ahead.

Adam Ballantyne: Hey, everyone. Thanks for taking my questions this morning.

Cathy Collins: Hi, Adam.

Adam Ballantyne: On the asset sale with the utilization of NOLs was just curious what you might expect the after-tax proceeds to be.

Cathy Collins: So on an after-tax basis, so the gross proceeds were $43.5 million. We expect that we are probably be paying less than about a million in taxes between state and federal. And then net of the sales cost, Adam, we are really looking at net proceeds probably close to $39 million.

Adam Ballantyne: Oh, great. Okay. And then on a capital expenditure basis, I know that you guys noted $2 million in additional CapEx for the new facility, and I think mostly in the first quarter. And then once that is completed, do you kind of go back to the pre-2024 run rate that you guys have of, you know, it is $100,000 to $200,000 a quarter? Or maybe you could help me out on the CapEx intensity going forward after the first quarter.

Cathy Collins: Yeah. Adam, you are exactly right. Look, the first quarter, we had some of the final payments of the press. And we also had some capitalized items that are related to the lease facility. Going forward, our capital requirements are going to be minimal. Really just around, you know, laptops and things like that. So I would say each quarter, substantially, you know, probably in that $250,000 to $500,000 range. But that would be the max at $500,000.

Adam Ballantyne: Okay. Great. And then on the I know that there was a lot of noise as you said, and in the fourth quarter, but just kind of looking at the consolidated expense lines for the like, the other production distribution operating costs that had a pretty major jump in the fourth quarter, and I was wondering if I did not see any fourth quarter non-cash severance in there. It had a jump on from a margin point of view, so it becomes at 52%. Is that going to come down in 2025, or are we going to see the majority of the $5 million savings come from the employee comp and?

Cathy Collins: So, Adam, it is a great question. So look, I think in the fourth quarter, obviously, on a year-over-year basis related to the new Carrollton facility lease. That will be consistent in 2025. However, we will see reductions along the production and distribution expenses. Again, probably not going to see a lot of those coming through until the second quarter of this year. However, the $5 million I would tell you is going to be majority is going to be sitting in comp and then which would be the salary cost and then also the benefit cost. And then the remainder of that will be down in the production and distribution and operating expense line. As Cathy mentioned on newsprint and ink, right now we have been seeing favorability on newsprint pricing, but that is an area that we are going to continue to watch. This year, especially as the discussions around tariffs increase.

Adam Ballantyne: Great. Just one more for me if I could. In terms of sort of cash flow and profitability and tie it all together, you know, you know, spent and the gains, obviously, you need from that. But still, is it too serious to say if the business will be cash flow positive this year. I am just getting kind of cyclicality of advertising spending.

Cathy Collins: So, Adam, what I would say, as you know, we do not give guidance. I am not going to speculate on the cash flow of the company. It is everything that we are focused on. Right? I mean, obviously, the CapEx will become more minimal throughout the year, but it really will depend on operations. Our goal is to be cash flow positive as soon as we possibly can. But, again, I cannot speculate on the exact timing of that.

Adam Ballantyne: Okay. Thanks for the question, guys.

Cathy Collins: Thanks, Adam.

Operator: Your next question comes from the line of Booker Smith with Smith Management. Please go ahead.

Booker Smith: Hi, guys. Congrats on the sale. Thanks for taking the questions. You comment more on the capital allocation? Understand you are annuitizing the pension and I will require I think you said roughly $14 million to $16 million of cash contribution. But after that, how much CapEx exactly will be required for the remainder of the Carrollton facility? And after that, what do we think the proceeds are going to be used for? Is it going to is the delta primarily going to be used for distribution to shareholders, do you think? Is there other CapEx that needs to be funded? Like some color on that. Thank you.

Cathy Collins: Great, Booker. Thank you for joining our call. So great question. Look, I think, as everybody knows, this sale of this real estate was our last significant actually, our last real estate that we had to sell and it just closed last week. As I mentioned in reference to Mary’s comment, we took the opportunity in January to immunize the investment allocation of the pension and anticipate that and historically, we have talked about three different things that one, from a capital allocation perspective, the board really looks at it in three ways. One, what do we need as the investment in the business? Ongoing? How do we think about our ongoing obligation to the pension? And then what do we about from a capital allocation for shareholders?

We have just answered the second question on the pension. It is going to take really through the second quarter to fully annuitize that. What I would say though, as we think about capital allocation, back to your question, CapEx on an annual basis outside of the Carrollton facility expense or the capital in Q1. Annual capital should be somewhere between $0.5 million and $1 million, $1 million on the top end. If there needs to be some replacement of something significant. Right now, the board is continuing to think about capital allocation. So everybody knows, we have got board meetings every quarter. But right now, just really focused on eliminating this pension obligation that we had and really giving the management time to really assess what the capital needs are for the business to continue to invest in our digital applications.

As we all know, digital growth is, you know, a key part of a return to growth plan.

Booker Smith: Okay. Thanks. Might return to that in a second. I got one question in terms of your transaction expenses. So the gross purchase price on the Plano facility, understanding that was $43.5 million and then there is a $600,000 escrow. Did I hear that right that you are anticipating net proceeds of roughly $39 million?

Cathy Collins: Yes. And we had, based expenses related to whether that is commissions, legal expenses, environmental work that we had to do, that is the difference.

Booker Smith: Got it. So that am I right in taking up around 10%? A little less than 10%.

Cathy Collins: A little bit less than 10%. Got it. Okay.

Cathy Collins: Will be some taxes as well. So we will have some cash taxes, but less than a million dollars.

Booker Smith: Okay. But so is $39 million the right number to think about in terms of net proceeds?

Cathy Collins: Yes. Okay.

Booker Smith: Alright. Thank you. And actually, last thing, how much is expected for Carrollton for the remainder? For in Tolleson?

Cathy Collins: I am sorry. Were you asking about the capital expenditures?

Booker Smith: Yes. The CapEx for Carrollton.

Cathy Collins: They are going to be completed in Q1 with a couple million dollars related to the press and then the finalization of any of the leasehold build-out that we have to do. But they are basically all incurred at this point.

Booker Smith: Oh, okay. Great. And actually, I like one more. Your digital margins, are you seeing those accretive to your overall margins? Or are you seeing those, like, inch up, I guess, to your print margins? How would you describe the digital margins in your digital investments?

Grant Moise: Yeah. Booker, it is Grant. I will take that. On the digital margins that you I had mentioned video is an example. Video is really a good yield play for us. Because what advertisers are willing to pay for video advertising is considerably higher than print. And that is why every bit of video we can add to the site, one, it is great for the subscriber, but also, two, it is very good for us to continue to improve the digital margin, which is already very strong. On the Dallas Morning News side of the business. But again, that is the main financial driver for us behind this focus on video is that it just continues to make the margin better from the core digital asset. Okay. So your view is that margin will be accretive to the overall or, I am sorry, digital will be accretive to the overall margin? For Dallas Morning News.

Booker Smith: In total.

Grant Moise: Yes. Great. Thank you. That is all I have. Thanks for taking questions.

Operator: Thanks, Booker. And we have no further questions in our queue at this time. I will now turn the conference back over to Cathy Collins for closing remarks.

Cathy Collins: Thank you, Krista, for your assistance this morning and to everyone who has joined, thank you again for listening to our fourth quarter and full year 2024 results. And we look forward to updating everyone on our first quarter 2025 results which will be held in mid-April. And ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation and you may now disconnect.