DALLASNEWS CORPORATION
This section and other parts of this Quarterly Report on Form 10-Q contain
certain 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. See Forward-Looking Statements and risk
factors disclosed under the heading "Risk Factors" in Item 1A in the Annual
Report on Form 10-K for the year ended
OVERVIEW
In the third quarter of 2019, in conjunction with a strategic change to move to a single decision-making reporting structure and based on how the Company's chief operating decision-maker makes decisions about allocating resources and assessing performance, the Company determined it has one reportable segment. With this reorganization, the Company has focused on enhancing its capabilities to provide customers with strategic, creative and media marketing solutions.
Currently, the rapid spread of coronavirus (COVID-19) globally has resulted in increased travel restrictions, and disruption and shutdown of businesses. The Company has experienced, and may continue to experience, impacts from quarantines, market downturns and changes in customer behavior related to the pandemic and impacts on its workforce if the spread of the virus widens and becomes of longer duration. Media has been designated an essential business, therefore the Company's operations are continuing. While digital subscriptions grew in the first quarter of 2020, the Company began to experience decreased demand for its print and digital advertising. As a result, the Company is implementing measures to reduce costs and preserve cash flow. These measures include reduction in the quarterly dividend rate, decreases in employee compensation, as well as reductions in discretionary spending. In addition, the Company will benefit from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). However, these measures may not be sufficient to fully offset the impact of the COVID-19 pandemic on the Company's business and, as such, the Company's results of operations may be negatively impacted.
The full impact of COVID-19 is not yet known and is rapidly evolving. The outbreak and any preventative or protective actions that the Company has taken and may continue to take, or may be imposed on the Company by governmental intervention, in respect of this virus may result in a period of disruption to the Company's financial reporting capabilities, its printing operations, and its operations generally. COVID-19 is impacting, and may continue to impact, the Company's customers, distribution partners, advertisers, production facilities, and third parties, and could result in a loss of advertising revenue or supply chain disruption.
As of
A. H. Belo Corporation First Quarter 2020 on Form 10-Q 19
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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
The table below sets forth the components of
Three Months Ended March 31,
Percentage
2020 Change 2019
(Recast)
Advertising and marketing services
16,414 (5.0) % 17,273
Printing, distribution and other 4,602 (12.8) % 5,275 Total Net Operating Revenue
40,343 (13.4) % 46,589
Total Operating Costs and Expense 45,103 (10.7) % 50,517
Operating Loss$ (4,760) (21.2) %$ (3,928)
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. 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, 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. In addition, the Company did experience some temporary decline resulting from the COVID-19 pandemic late in the first quarter.
In response to the decline in print revenue, the Company has developed agency and digital advertising capabilities through multiple media channels. The Company leverages its news content to improve engagement on the Company's digital platforms that results in increased digital subscriptions and associated revenue. The Company also continues to diversify its revenue base by leveraging the available capacity of its existing assets to provide print and distribution services for newspapers and other customers requiring these services, by introducing new advertising and marketing services products, and by increasing circulation prices.
Because of declining print circulation, the Company has developed broad digital strategies designed to provide readers with multiple platforms for obtaining online access to local news. The Company redesigned and expanded its website platforms and mobile applications in 2019 to provide a better customer experience with its digital news and information content. The Company continues to obtain additional key demographic data from readers, which allows the Company to provide content desired by readers and to modify marketing and distribution strategies to target and reach audiences valued by advertisers. The Company has implemented a programmatic digital advertising platform that provides digital ad placement and targeting efficiencies and increases utilization of digital inventory within the Company's websites and external websites.
A. H. Belo Corporation First Quarter 2020 on Form 10-Q 20
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Advertising and marketing services revenue
Advertising and marketing services revenue was 47.9 percent and 51.6 percent of
total revenue for the three months ended
Three Months Ended March 31,
Percentage
2020 Change 2019
(Recast)
Print advertising $ 12,799 (16.4) % $ 15,303 Digital advertising and marketing services 6,528 (25.3) % 8,738 Advertising and Marketing Services
$ 19,327 (19.6) %$ 24,041 Print advertising
Print advertising is comprised of display, classified and preprint advertising revenue.
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
Digital advertising and marketing services
Digital advertising and marketing services revenue consists of strategic
marketing management, consulting, creative services, targeted and multi-channel
(programmatic) advertising placed on third-party websites, digital sales of
banner, classified and native advertisements on the Company's news and
entertainment-related websites and mobile apps, social media management, search
optimization, direct mail and the sale of promotional materials. The Company's
auto sales division offered targeted advertising to auto dealerships primarily
in the
Circulation revenue
Circulation revenue was 40.7 percent and 37.1 percent of total revenue for the
three months ended
Three Months Ended March 31,
Percentage
2020 Change 2019
(Recast)
Print circulation $ 15,017 (7.2) % $ 16,184
Digital circulation 1,397 28.3 % 1,089
Circulation $ 16,414 (5.0) % $ 17,273
Print circulation
Revenue decreased primarily due to a decline in home delivery revenue, driven by
a volume decline of 28.4 percent for the three months ended
A. H. Belo Corporation First Quarter 2020 on Form 10-Q 21
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Table of Contents Digital circulation
Revenue increased in the three months ended
primarily resulting from increased interest in news related to the COVID-19 pandemic.
Printing, distribution and other revenue
Printing, distribution and other revenue was 11.4 percent and 11.3 percent of
total revenue for the three months ended
Three Months Ended March 31,
Percentage
2020 Change 2019
Printing, Distribution and Other
Revenue decreased in the three months ended
A. H. Belo Corporation First Quarter 2020 on Form 10-Q 22
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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
2020 Change 2019
(Recast)
Employee compensation and benefits
20,992 (5.4) % 22,184
Newsprint, ink and other supplies 3,271 (31.1) % 4,747
Depreciation 1,765 (26.0) % 2,386
Amortization 64 (15.8) % 76
Gain on sale/disposal of assets, net (5) N/A -
Total Operating Costs and Expense $ 45,103 (10.7) % $ 50,517 Employee compensation and benefits - The Company continues to implement
measures to optimize its workforce and evaluate strategies to 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
Depreciation - Expense decreased due to a lower depreciable asset base as a higher level of in-service assets are now fully depreciated and the Company has reduced capital spending.
Amortization - Expense decreased due to an intangible asset being fully amortized in 2019, and the only remaining intangible asset is comprised of customer relationships.
Gain on sale/disposal of assets, net - Includes the gain or loss from the sale or disposal of assets. From time to time, the Company will sell disposed assets, primarily production related assets that are no longer in use.
A. H. Belo Corporation First Quarter 2020 on Form 10-Q 23
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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
2020 Change 2019
Other income, net $ 1,352 63.1 % $ 829
Income tax benefit $ (1,787) (85.4) % $ (964) 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
A. H. Belo Corporation First Quarter 2020 on Form 10-Q 24
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Liquidity and Capital Resources
The Company's cash balances as of
The Company intends to hold the majority of existing cash for purposes of future
investment opportunities, potential return of capital to shareholders and for
contingency purposes. Although revenue is expected to continue to decline in
future periods, cash on hand, cash flows, relief from the CARES Act, and other
cost cutting measures, including the actions in response to the financial impact
of COVID-19 described below, are expected to be sufficient to fund operating
activities and capital spending of less than
The future approval of dividends is dependent upon available cash after considering future operating and investing requirements and cannot be guaranteed. The Company continues to have a board-authorized repurchase authority. However, the agreement to repurchase the Company's stock expired in the fourth quarter of 2019 and was not renewed. Current holdings of treasury stock can be sold on the open market.
As a result of the recent COVID-19 outbreak that began in
In response to COVID-19, the CARES Act was signed into law on
As a direct result of COVID-19 uncertainties, on
The Company continues to evaluate the future material impacts on its consolidated financial statements that may result from the actions taken by the Company and its customers in respect of this virus.
The following discusses the changes in cash flows by operating, investing and financing activities.
Operating Cash Flows
Net cash used for operating activities for the three months ended
Investing Cash Flows
Net cash used for investing activities was
Financing Cash Flows
Net cash used for financing activities was
respectively. Additionally, in 2019, the Company purchased 83,529 shares of its
Series A common stock at a cost of
A. H. Belo Corporation First Quarter 2020 on Form 10-Q 25
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Table of Contents Financing Arrangements None. Contractual Obligations
The Company has contractual obligations for operating leases, primarily for office space and other distribution centers, some of which include escalating lease payments. See Note 5 - Leases for future lease payments by year.
Under the applicable tax and labor laws governing pension plan funding, no contributions to the A. H. Belo Pension Plans are required in 2020.
On
Additional information related to the Company's contractual obligations is
available in Company's Annual Report on Form 10K for the year ended
A. H. Belo Corporation First Quarter 2020 on Form 10-Q 26
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Critical Accounting Policies and Estimates
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 filed with the
Forward-Looking Statements
Statements in this communication concerning
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