Company Overview
DallasNews Corporation (DALN) is a Dallas-based media company with a rich history dating back to 1885 when it was founded as The Dallas Morning News. Over the decades, the company has evolved from a traditional newspaper publisher to a diversified media conglomerate, leveraging its core journalistic expertise to expand into digital platforms, agency services, and commercial printing and distribution.
The company's flagship asset, The Dallas Morning News, has a long-standing reputation for quality journalism, having won nine Pulitzer Prizes over the years. This legacy, combined with the company's strategic initiatives to strengthen its digital presence and diversify its revenue streams, has positioned DallasNews as a resilient player in the rapidly changing media industry. DallasNews Corporation was formed in February 2008 through a spin-off from its former parent company. The company is the holding company of The Dallas Morning News and Medium Giant. In addition to advertising and subscription revenues, DallasNews provides commercial printing and distribution services primarily related to national newspapers.
In response to declining print revenue, DallasNews has worked to diversify its revenue streams. The company built a full-service agency, Medium Giant, which provides strategic and digital marketing services, as well as data intelligence to clients. This allowed DallasNews to leverage its existing assets and capabilities to generate new revenue. In 2023, DallasNews made the strategic decision to exit its shared mail program to deliver weekly preprints and discontinued print-only editions of its niche publications. This was done in an effort to optimize the company's operations and focus resources on its core business lines.
Financial Performance: Navigating the Digital Transition
DallasNews has faced the same challenges as the broader newspaper industry, with declining print advertising revenues and subscription volumes. However, the company has proactively responded to these headwinds by implementing a strategic plan to transform its business model.
In the latest fiscal year, DallasNews reported total revenue of $139.7 million, a decrease of 4.8% compared to the prior year. This decline was primarily driven by a 12.1% drop in advertising and marketing services revenue, which accounted for 43.7% of total revenue. Circulation revenue, which made up 45.6% of total revenue, remained relatively stable, decreasing by only 0.3%.
Despite the top-line challenges, DallasNews has made progress in strengthening its financial position. The company reported a net loss of $7.1 million, an improvement from the $9.8 million net loss in the previous year. The company's adjusted EBITDA, a non-GAAP metric that provides a clearer picture of the underlying performance, was a loss of $6.6 million, compared to a loss of $6.0 million in the prior year.
In the most recent quarter (Q3 2024), DallasNews reported revenue of $31.14 million, down 9.7% year-over-year. The net loss for the quarter was $3.93 million, with operating cash flow and free cash flow both at -$2.32 million. The revenue decline was primarily due to discontinuing the shared mail program and print-only niche publications, partially offset by growth in the Agency segment. The increased net loss was attributed to $3 million in severance expenses related to the printing facility transition.
Diversifying Revenue Streams: The Agency and Digital Initiatives
To offset the decline in traditional print-based revenue, DallasNews has been actively diversifying its business model. The company's agency division, Medium Giant, has been a key focus area, offering strategic and creative services, website management, content services, and media services to clients.
In the latest quarter, the Agency segment reported revenue of $4.4 million, an increase of 25.9% year-over-year. This growth was driven by the acquisition of new clients and the expansion of existing relationships, showcasing the company's ability to leverage its expertise in digital marketing and data-driven solutions.
On the digital front, DallasNews has been investing in enhancing its online presence and building a stronger digital subscriber base. The company's digital circulation revenue, which includes subscriptions to its online platforms, grew by 17.2% in the latest fiscal year, offsetting a 4.6% decline in print circulation revenue.
Streamlining Operations: The Printing Facility Transition
To improve operational efficiency and reduce costs, DallasNews recently announced a strategic initiative to streamline its printing operations. The company plans to transition its printing facility from the current location in Plano, Texas, to a smaller, leased facility in Carrollton, Texas.
This move is expected to result in annual expense savings of approximately $5 million once the transition is complete. The company has already begun the process, with capital investments of $5.2 million in the first nine months of the latest fiscal year. The new facility is expected to be operational in early 2025, and the company anticipates a headcount reduction of 75 employees, or 14%, in the first quarter of 2025.
Pension Plan Management: A Continuous Focus
DallasNews has consistently prioritized the responsible management of its pension plan obligations. The company's defined benefit pension plans are currently over 90% funded, and the company does not have any mandatory contributions in the near term. Katy Murray, DallasNews' President, has stated that the company continues to explore opportunities to de-risk the pension plan, reflecting its commitment to maintaining a stable financial footing. DallasNews sponsors the DallasNews Pension Plans, which provide benefits to approximately 1,300 current and former employees. Managing the funding status of these plans has been a priority for the management team and board of directors.
Navigating Macroeconomic Challenges
Like many companies, DallasNews is not immune to the broader macroeconomic factors that have impacted businesses across various industries. The company has acknowledged the risks posed by high inflation, which could lead to increased operating costs or potentially affect advertiser spending. Additionally, the company remains vigilant about the potential impacts of a pandemic, as any disruptions to its printing operations could result in delays in producing and delivering its publications.
DallasNews has demonstrated its ability to adapt to these challenges, leveraging its diversified business model and focusing on cost-cutting measures to mitigate the impact on its financial performance.
Financials
DallasNews Corporation's financial performance reflects the ongoing challenges in the media industry and the company's efforts to adapt to the changing landscape. Key financial highlights include:
- Total revenue of $139.7 million in the latest fiscal year, a 4.8% decrease year-over-year - Advertising and marketing services revenue declined by 12.1%, accounting for 43.7% of total revenue - Circulation revenue remained relatively stable, decreasing by only 0.3% and making up 45.6% of total revenue - Net loss of $7.1 million, an improvement from the $9.8 million net loss in the previous year - Adjusted EBITDA loss of $6.6 million, compared to a loss of $6.0 million in the prior year - Agency segment revenue increased by 25.9% year-over-year to $4.4 million in the latest quarter - Digital circulation revenue grew by 17.2% in the latest fiscal year
For the nine months ended September 30, 2024, total revenue was $94.30 million, down 10.8% from the prior year period. The TDMN segment revenue was $81.89 million, down 13.0% year-over-year, while the Agency segment revenue was $12.42 million, up 7.7% year-over-year. The company reported an overall adjusted operating loss of $332,000 for the nine months, an improvement from a $3.31 million loss in the prior year period.
Liquidity
DallasNews Corporation maintains a strong liquidity position, which provides financial flexibility as the company navigates the evolving media landscape. Key liquidity metrics include:
- Cash and cash equivalents of $11.70 million as of December 31, 2023 - No outstanding debt, providing a clean balance sheet - Suspension of dividend payments to prioritize capital investments in the printing facility transition - Anticipated annual expense savings of approximately $5 million once the printing facility transition is complete - Over 90% funding of defined benefit pension plans with no mandatory contributions in the near term - Debt/Equity Ratio of -31.47 as of December 31, 2023 - Current Ratio of 1.54 as of December 31, 2023 - Quick Ratio of 1.48 as of December 31, 2023
Shareholder Returns and Capital Allocation
In light of the required capital investments for the printing facility transition, DallasNews' board of directors has authorized the suspension of dividend payments until further notice. This decision reflects the company's prudent approach to capital allocation, prioritizing investments that support the long-term sustainability and growth of the business.
As of the latest reported quarter, DallasNews had a strong balance sheet, with $11.70 million in cash and cash equivalents and no outstanding debt. The company's disciplined approach to financial management and capital deployment positions it to navigate the evolving media landscape and pursue strategic initiatives that create value for shareholders.
Business Segments and Revenue Streams
DallasNews Corporation operates through two main reportable segments: TDMN and Agency.
The TDMN segment encompasses the company's traditional print business, including The Dallas Morning News. Revenue sources for this segment include:
- Print Advertising: Display and classified advertising space within the newspaper - Digital Advertising: Banner, classified, and native advertisements on news websites, social media platforms, and mobile apps - Print Circulation: Home delivery subscriptions and single copy sales - Digital Circulation: Digital-only subscriptions - Printing, Distribution and Other: Services for other newspapers and mailed advertisements for business customers
The Agency segment comprises the company's full-service agency, Medium Giant. Revenue sources for this segment include:
- Marketing and Media Services: Strategic and creative services, website management, content services, paid search, social and targeted digital advertising, traditional media services, and subscriptions to multi-channel marketing solutions - Printing, Distribution and Other: Sublease income from Medium Giant's former sales office
Digital Strategy and Market Opportunity
DallasNews has modified its digital subscription strategy to focus on volume growth by extending the introductory pricing window. This approach has successfully ended a 14-month digital member volume decline, with digital member growth exceeding early expectations.
The company believes the total addressable market for digital subscribers in North Texas is around 600,000 people. Currently, DallasNews' digital subscribers represent approximately 10% of that market, with a goal to grow to 15-25% of the market over time. This presents a significant opportunity for growth in the digital segment.
Future Outlook and Guidance
While DallasNews did not provide specific numerical guidance for the future, the company has outlined several strategic initiatives aimed at improving its financial performance:
- The transition to a smaller printing facility in Carrollton is expected to result in significant annual expense savings, which is key to the company's return to growth plan. - Continued focus on disciplined expense management. - Emphasis on growing digital subscriptions, leveraging the large addressable market in North Texas. - Ongoing efforts to diversify revenue streams through the Agency segment and digital initiatives.
In the most recent quarter (Q3 2024), DallasNews reported a net loss of $3.9 million or $0.73 per share, and an operating loss of $4.1 million. On a non-GAAP basis, the adjusted operating loss was $700,000, an improvement of $200,000 compared to the same period in the previous year.
Risks and Uncertainties
Despite the company's efforts to diversify its revenue streams and streamline operations, DallasNews continues to face risks inherent to the media industry. The ongoing shift in advertiser spending towards digital platforms, the challenges in maintaining a sustainable digital subscriber base, and the potential for further declines in print circulation and advertising revenue pose ongoing threats to the company's financial performance.
Additionally, the success of the agency business and the company's ability to execute the printing facility transition within the expected timelines and cost parameters will be critical in determining the company's future trajectory.
Industry Trends
The newspaper industry has faced significant revenue decline over the past decade due to the shift of advertiser spending to other media and the increased accessibility of free online news content. In response, DallasNews has sought to diversify its revenues through new product offerings, increased circulation rates, and leveraging existing assets for commercial printing and distribution services.
Conclusion
DallasNews Corporation has demonstrated its resilience and adaptability in the face of the significant disruptions affecting the media industry. By leveraging its strong journalistic heritage, diversifying its revenue streams, and proactively addressing operational challenges, the company is positioning itself to navigate the digital landscape and deliver long-term value for its shareholders.
As DallasNews continues to execute its strategic initiatives, investors will be closely watching the company's ability to grow its digital subscriber base, expand its agency services, and optimize its operational efficiency. With a focus on financial discipline, pension plan management, and disciplined capital allocation, DallasNews appears poised to capitalize on the evolving media landscape and emerge as a stronger, more diversified media company.
The company's success in transitioning to a more digital-focused business model, coupled with its efforts to streamline operations and reduce costs, will be crucial in determining its ability to return to profitability and sustainable growth in the coming years. While challenges remain, DallasNews' strategic initiatives and market opportunities in digital subscriptions provide a pathway for potential future success in the evolving media landscape.