DALLASNEWS CORPORATION
OVERVIEW
The Company's Publishing segment includes the operations of
All other operations are reported within the Company's Marketing Services
segment. These operations primarily include
A. H. Belo Corporation First Quarter 2019 on Form 10-Q/A 20
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RESULTS OF OPERATIONS
Consolidated Results of Operations (unaudited)
This section contains discussion and analysis of net operating revenue, expense
and other information relevant to an understanding of results of operations for
the three months ended
This Form 10-Q/A amends the Quarterly Report on Form 10-Q filed with the
Note 2 - Restatement of Financial Statements , for additional information.
The table below sets forth the components ofA. H. Belo's operating income (loss) by segment. Three Months Ended March 31, Percentage 2019 Change 2018 (Restated) (Recast) Publishing
Advertising and marketing services
17,273 (2.7) % 17,747
Printing, distribution and other 5,275 (11.6) % 5,965
Total Net Operating Revenue 40,703 (6.7) % 43,629
Total Operating Costs and Expense 44,743 (10.4) % 49,931
Operating Loss$ (4,040) 35.9 %$ (6,302)
Marketing Services
Advertising and marketing services
5,886 1.1 % 5,824
Total Operating Costs and Expense 5,774 0.6 % 5,739
Operating Income$ 112 31.8 %$ 85
Traditionally, the Company's primary revenues are generated from advertising within its core newspapers, niche publications and related websites and from subscription and single copy sales of its printed newspapers. As a result of competitive and economic conditions, the newspaper industry has faced a significant revenue decline over the past decade. Therefore, the Company has sought to diversify its revenues through development and investment in new product offerings, increased circulation rates and leveraging of its existing assets to offer cost efficient commercial printing and distribution services to its local markets. The Company continually evaluates the overall performance of its core products to ensure existing assets are deployed adequately to maximize return.
The Company's advertising revenue from its core newspapers continues to be adversely affected by the shift of advertiser spending to other forms of media and the increased accessibility of free online news content, as well as news content from other sources, which resulted in declines in advertising and paid print circulation volumes and revenue. The most significant decline in advertising revenue has been attributable to print display and classified categories. These categories have declined to 17.6 percent of consolidated revenue thus far in 2019, and further declines are likely in future periods. Decreases in print display and classified categories are indicative of continuing trends by advertisers towards digital platforms, which are widely available from many sources. In the current environment,
A. H. Belo Corporation First Quarter 2019 on Form 10-Q/A 21
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companies are allocating more of their advertising spending towards programmatic channels that provide digital advertising on multiple platforms with enhanced technology for targeted delivery and measurement.
The Company has responded to these challenges by expanding programmatic channels through which it works to meet customer demand for digital advertisement opportunities in display, mobile, video and social media categories. By utilizing advertising exchanges to apply marketing insight, the Company believes it offers greater value to clients through focused targeting of advertising to potential customers. The Company has a meter on its website and continues to build a base of paid digital subscribers.
The Company's expanded digital and marketing services product offerings leverage
the Company's existing resources and relationships to offer additional value to
existing and new advertising clients. Solutions provided by
Advertising and marketing services revenue
Advertising and marketing services revenue was 51.6 percent and 52.0 percent of
total revenue for the three months ended
Three Months Ended March 31,
Percentage
2019 Change 2018
(Recast)
Publishing
Advertising revenue $ 18,155 (8.8) % $ 19,917
Marketing Services
Digital services 4,309 (3.6) % 4,468
Other services 1,577 16.3 % 1,356
Advertising and Marketing Services
Publishing
Advertising Revenue - The Company has a comprehensive portfolio of print and
digital advertising products, which include display, classified, preprint and
digital advertising. Display and classified print revenue primarily represents
sales of advertising space within the Company's core and niche newspapers. As
advertisers continue to diversify marketing budgets to incorporate more and
varied avenues of reaching consumers, traditional display and classified
advertising continues to decline. Display and classified print revenue decreased
Preprint revenue primarily reflects preprinted advertisements inserted into the
Company's core newspapers and niche publications, or distributed to
non-subscribers through the mail. Revenue decreased
Marketing Services
Digital services - Digital marketing revenue includes targeted and multi-channel
advertising placed on third-party websites, content development, social media
management, search optimization, and other consulting. Revenue decreased
Other services - Other services revenue increased
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Table of Contents Circulation revenue
Circulation revenue was 37.1 percent and 35.9 percent of total revenue for the
three months ended
Three Months Ended March 31,
Percentage
2019 Change 2018
Publishing
Circulation $ 17,273 (2.7) % $ 17,747 Revenue decreased due to home delivery and single copy paid print circulation
volume declines of 12.5 percent and 20.2 percent, respectively, for the three
months ended
Printing, distribution and other revenue
Printing, distribution and other revenue was 11.3 percent and 12.1 percent of
total revenue for the three months ended
Three Months Ended March 31,
Percentage
2019 Change 2018
Publishing
Printing, Distribution and Other
Revenue decreased in the three months ended
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Operating Costs and Expense
The table below sets forth the components of the Company's operating costs and
expense.
Three Months Ended March 31,
Percentage
2019 Change 2018
(Restated) (Recast)
Publishing
Employee compensation and benefits
20,046 (4.7) % 21,039
Newsprint, ink and other supplies 4,318 (16.0) % 5,141
Depreciation 2,317 (4.9) % 2,436
Marketing Services
Employee compensation and benefits 3,062 (8.8) % 3,357
Other production, distribution and
operating costs 2,138 8.3 % 1,975
Newsprint, ink and other supplies 429 152.4 % 170
Depreciation 69 86.5 % 37
Amortization 76 (62.0) % 200
Total Operating Costs and Expense $ 50,517 (9.3) % $ 55,670
Publishing
Employee compensation and benefits - The Company continues to implement measures
to optimize its workforce and reduce risk associated with future obligations for
employee benefit plans. Employee compensation and benefits decreased
Other production, distribution and operating costs - Expense decreased
Newsprint, ink and other supplies - Expense decreased due to reduced newsprint
costs associated with lower circulation volumes and the elimination of brokered
printing for small business clients. Newsprint consumption for the three months
ended
Depreciation - Expense decreased in the three months ended
Marketing Services
Employee compensation and benefits - Expense decreased
Other production, distribution and operating costs - Expense increased
Newsprint, ink and other supplies - Expense increased
Depreciation - Expense increased in the three months ended
Amortization - Expense is related to developed technology associated with
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Other
The table below sets forth the other components of the Company's results of
operations.
Three Months Ended March 31,
Percentage
2019 Change 2018
(Restated)
Other income, net $ 829 (6.6) % $ 888
Income tax benefit $ (964) 26.7 % $ (1,315) Other income, net - Other income, net is primarily comprised of net periodic
pension and other post-employment benefit of
Income tax benefit - The Company recognized income tax benefit of
Legal proceedings - From time to time, the Company is involved in a variety of
claims, lawsuits and other disputes arising in the ordinary course of business.
Management routinely assesses the likelihood of adverse judgments or outcomes in
these matters, as well as the ranges of probable losses to the extent losses are
reasonably estimable. Accruals for contingencies are recorded when, in the
judgment of management, adverse judgments or outcomes are probable and the
financial impact, should an adverse outcome occur, is reasonably estimable. The
determination of likely outcomes of litigation matters relates to factors that
include, but are not limited to, past experience and other evidence,
interpretation of relevant laws or regulations and the specifics and status of
each matter. Predicting the outcome of claims and litigation and estimating
related costs and financial exposure involves substantial uncertainties that
could cause actual results to vary materially from estimates and accruals. In
the opinion of management, liabilities, if any, arising from other currently
existing claims against the Company would not have a material adverse effect on
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Liquidity and Capital Resources
The Company's cash balances as of
The Company intends to hold existing cash for purposes of future investment
opportunities, potential return of capital to shareholders and for contingency
purposes. Although revenue from Publishing operations is expected to continue to
decline in future periods, operating contributions expected from the Company's
Marketing Services businesses and other cost cutting measures, are expected to
be sufficient to fund operating activities and capital spending of approximately
The future payment of dividends is dependent upon available cash after considering future operating and investing requirements and cannot be guaranteed. The Company continued stock repurchases under its prior board-authorized repurchase authority and in the first quarter of 2019, the board authorized an additional 1,500,000 shares for repurchase. Current holdings of treasury stock can be sold on the open market.
The following discusses the changes in cash flows by operating, investing and financing activities.
Operating Cash Flows
Net cash provided by (used for) operating activities for the three months ended
months ended
Investing Cash Flows
Net cash used for investing activities was
Financing Cash Flows
Net cash used for financing activities was
Financing Arrangements None. Contractual Obligations
Under the applicable tax and labor laws governing pension plan funding, no contributions to the A. H. Belo Pension Plans are required in 2019.
On
Additional information related to the Company's contractual obligations is
available in Company's Annual Report on Form 10K/A for the year ended
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Critical Accounting Policies and Estimates
Beginning
Except for adoption of the new lease guidance (Topic 842), no material changes
were made to the Company's critical accounting policies as set forth in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations", included in the Company's Annual Report on Form 10-K/A filed with
the
Forward-Looking Statements
Statements in this communication concerning
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