A.H. Belo Corporation (NYSE:AHC) Q3 2018 Balance Appointment Alarm October 31, 2018 10:00 AM ET
Katy Murray – Chief Banking Officer
Robert Decherd – Chairman, President and Chief Executive officer
Grant Moise – Publisher and President-The Dallas Morning News
Tim Storer – President-Belo and Company
Chris Mooney – Wedbush Securities
Ladies and gentlemen, acknowledge you for continuing by, and acceptable to the Third Division 2018 A. H. Belo Banking Results. At this time all participants are in a listen-only approach and afterwards we will conduct a question-and-answer affair and instructions will be provided at that time. [Operator Instructions] As a reminder, this appointment is actuality recorded.
I will now about-face the alarm over to your host, Ms. Katy Murray. Please go ahead, ma’am.
Good morning, everyone. This is Katy Murray, Chief Banking Administrator of A. H. Belo Corporation. Acceptable to our third division 2018 appointment call. I am aing by Robert Decherd, Chairman, President and Chief Executive administrator of A. H. Belo Corporation; Grant Moise, Publisher and President of The Dallas Morning News; and Tim Storer, President of Belo and Company, who are all accessible for Q&A.
Yesterday morning, we issued a columnist absolution advertisement our third division 2018 results. We accept acquaint this absolution on our website beneath the Broker Relations section. Unless contrarily specified, comparisons acclimated on today’s alarm admeasurement third division 2018 achievement from continuing operations adjoin third division 2017 achievement from continuing operations. Our altercation today will accommodate advanced statements.
Forward-looking statements are accountable to risks, uncertainties and added factors that could account absolute after-effects to alter materially from those statements. The aggregation assumes no obligation to amend the advice in this advice except as contrarily appropriate by law. Added advice about these factors is abundant in the company’s columnist releases and about accessible filings with the SEC.
Finally, today’s altercation will accommodate non-GAAP banking measures. We accept that non-GAAP banking measures accommodate advantageous added advice to abetment investors in free achievement comparisons to our peers. Reconciliations to the best anon commensurable banking measures based on our articulation advertisement presented in accordance with GAAP are provided on our website beneath the Broker Relations section.
Before I analysis the quarter, I basic to admonish anybody we adopted two new accounting pronouncements able January 1st of this year. Abundant advice is accessible in our GAAP to non-GAAP reconciliation, provided on our website beneath the Broker Relations section.
For the third division of 2018, we appear a net accident attributable to A. H. Belo Corporation of $1 actor for a accident of $0.05 per allotment compared to net assets of $2.6 actor or $0.12 per absolutely adulterated allotment in the third division of aftermost year. As a reminder, in the third division of 2017, the aggregation awash a absolute acreage fractional in city Dallas that generated basic assets of about $5 million. For the third division of 2018, we appear adapted operating assets for A. H. Belo Corporation of $2.6 actor compared to adapted operating assets of $4.2 actor in the third division of 2017. Today’s altercation will abode the banking achievement of The Dallas Morning Account and Belo and Aggregation separately.
For The Dallas Morning News, in the third quarter, we appear absolute acquirement of $43.7 million, a abatement of $8.9 actor or 16.9% aback compared to the $52.6 actor appear in the third division of aftermost year. About $2.3 actor of this abatement is attributable to the new acquirement standards acute assertive affairs to be appear net against gross, adapted for this change, absolute acquirement beneath by $6.6 actor or 12.6%. Book and agenda advertisement acquirement of $19.9 actor in the third division of 2018 is bottomward $7 actor or 26% aback compared to the $26.9 actor appear aftermost year. $2 actor of the abatement is due to the new acquirement standard.
Excluding the appulse of the new acquirement guidance, book acquirement decreased $5 actor or 18.5% aback compared to the above-mentioned year period. In addition, $800,000 of the year-over-year abatement is accompanying to revenues of The Denton Record-Chronicle, which was awash in the fourth division of 2017. Apportionment acquirement of $17.9 actor in the third division of 2018 is a abatement of $900,000 or 5% aback compared to the third division of aftermost year, about $300,000 of abatement is the aftereffect of the new acquirement guidance.
Excluding the aftereffect of the new acquirement guidance, home commitment acquirement beneath by $600,000 or 3.5% net of an admission in agenda alone cable acquirement of $317,000 and single-copy acquirement abatement by $100,000 or 4.6% from the third division of aftermost year. The abatement is primarily due to lower home commitment and single-copy volumes, partially account by single-copy bulk increases. About $300,000 of the home commitment acquirement abatement is accompanying to the auction of The Denton Record-Chronicle in the fourth division of aftermost year.
As we accept declared afore one of our accomplished priorities is to abound The Dallas Morning Account pay agenda subscriber abject and the agenda cable revenue. In the third quarter, we appear about $1 actor of digital-only cable revenue, an admission of $317,000 or 45.2% over aforementioned aeon aftermost year. Added acquirement at The Dallas Morning Account decreased $900,000 or 13.8% to $5.9 actor for the third division of 2018. $400,000 of the abatement is due to a abatement in bartering columnist acquirement and $200,000 is accompanying to a discontinued artefact line.
Total circumscribed operating bulk for the Dallas Morning Account for the third division was $45.3 million, a abatement of $8.2 actor or 15.3% compared to the above-mentioned year. Excluding the $2.3 actor abatement accompanying to the acceptance of the new acquirement guidance, circumscribed operating bulk decreased $5.9 actor or 11% aback compared to the above-mentioned year period. The abatement is primarily due to improvements of $3 actor in agent advantage and allowances expense, $1.8 actor in administration expense, $400,000 in advertisement and advance bulk and $200,000 in able fees.
Adjusted operating expense, which adjusts absolute operating bulk for the new acquirement standard, alimony benefit, severance, abrasion and acquittal bulk and asset crime was $44 actor for the third quarter, a abatement of $5.5 actor or 11.1% compared to $49.5 actor in the third division of aftermost year. The cogent year-over-year advance in adapted operating bulk is a aftereffect of cost-reduction initiatives allowable aboriginal in 2017 that are now actuality absolutely realized. Adapted operating assets for The Dallas Morning Account was $2 actor in the third division of 2018, a abatement of $1.1 actor or 35.1% aback compared to the $3.1 actor appear in the third division of aftermost year.
Turning now to banking highlights for Belo and Company. First, I’m action to analysis GAAP and non-GAAP results. Then, I will accommodate some added operational metrics on how Belo and Aggregation is advised internally. For the third quarter, we appear absolute acquirement of $5.3 actor for Belo and Company, a abatement of $2.6 actor or 33% aback compared to the third division of aftermost year. About $1 actor of this abatement is attributable to the new acquirement standards acute assertive affairs to be appear net against gross.
Adjusted for this change, absolute acquirement beneath by $1.6 actor or 20.3%. Absolute circumscribed operating bulk at Belo and Aggregation for the third division was $5.1 million, a abatement of $2 actor or 28.6% compared to the above-mentioned year. Excluding the $1 actor abatement accompanying to the acceptance of the new acquirement guidance, circumscribed operating bulk decreased $1 actor or 14.5% aback compared to the above-mentioned year period. The abatement is primarily due to improvements of $0.5 actor in agent advantage and allowances expense, $1.1 actor in agenda bulk of appurtenances as a aftereffect of the lower revenue.
Adjusted operating expense, which adjusts absolute operating bulk for the new acquirement standard, severance, abrasion and acquittal expense, was $5.8 actor for the third quarter, a abatement of $1.1 actor or 15.7% compared to the third division of aftermost year. The year-over-year abridgement in adapted operating bulk is a aftereffect of lower agenda bulk of sales due to lower revenue. Adapted operating assets for Belo and Aggregation for the third division of 2018 was $537,000, a abatement of $541,000 from the $1.1 actor appear aftermost year.
As mentioned at the alpha of the call, we accept adapted our GAAP to non-GAAP reconciliation, which is acquaint on our website beneath the broker relations section, to accommodate a adaptation of articulation reporting, in accession to the circumscribed reconciliation. To accommodate added accuracy with commendations to the operational achievement of Belo and Company, we accept provided unaudited 2017 and 2018 annual operational metrics that accommodate acquirement and bulk per the 10-Q with an adapted centralized operating assets metrics.
This centralized operating appearance includes two items in the reconciliation: First, alpha in 2018, Belo and Company’s advantage and account bulk added as a aftereffect of the added headcount actuality transferred from The Dallas Morning Account to Belo and Aggregation and an admission in healthcare cost. We confused all A. H. Belo advisers into a distinct absolutely insured account plan this year to lower A. H. Belo’s all-embracing bulk of healthcare. However, for Belo and Company, this after-effects in an admission in account accountability aback Belo and Aggregation had a self-insured plan in 2017.
Second, we accept included what the gross-down for acquirement and costs would accept been in accordance with the new acquirement advice had it been adopted in 2017. The year-over-year abatement in internally appear acquirement of $1.1 actor included in the adaptation is predominantly attributable to the abrasion of six accounts in backward Q4 2017 and aboriginal Q1 of this year. These accounts would accept generated annual pass-through acquirement in 2018 of about $800,000 and annual acquirement of $500,000.
We accept accomplished advanced and advancing backup of these accounts, but feel that Belo and Company’s sales teams are now authoritative assessable advance in accomplishing so. As a result, Belo and Aggregation is on clue to accomplish year-over-year advance in acquirement and EBITDA in the fourth division of this year. Internally appear operating costs in Q3 beneath by $900,000 with the majority of that advance accompanying to pass-through bulk and the antithesis actuality a abatement in advantage bulk on a year-over-year basis.
Internally appear operating assets of $537,000 reflects a $161,000 abatement from the $698,000 appear in the third division of aftermost year. Internally appear operating allowance for the third division was 10.1%, a slight abatement from the 10.9% appear in the third division of aftermost year. Attractive to the fourth quarter, we are assured that we will see abundant advance in the adapted operating assets appear in the fourth division of 2018 compared to the fourth division of aftermost year.
Turning afresh now to A. H. Belo consolidated. As of September 30, headcount was 978, a abatement of 129 or 11.7% from September 30th of aftermost year. Best of this abatement is due to job eliminations in 2017. As of September 30, the aggregation had about $58.5 actor of banknote and no debt. As of October 29th, we had about $61 actor in banknote and banknote equivalents. For the antithesis of the year, we apprehend basic expenditures to be about $1 million.
On Monday, we filed a Form 8-K advice that we accept entered into an acceding to advertise the company’s above abode at 508 Young Street in city Dallas for $33 million. This transaction is referenced in our balance absolution that was issued above-mentioned to the bazaar aperture bygone morning. We apprehend this transaction to aing on December 28. And while the transaction will accomplish a basic accretion of about $23 actor for federal tax purposes, net operating losses will absolutely account the basic gains.
After fees and expenses, net banknote gain to A. H. Belo will be about $32 million. In commendations to taxes for the third quarter, the aggregation appear tax bulk of $596,000. We apprehend that banknote taxes this year will be about $1.2 actor with the majority accompanying to Texas allowance tax.
So Wanda we are now accessible for questions.
[Operator Instructions] And our aboriginal catechism will appear from the band of Chris Mooney with Wedbush Securities. Your band is open.
Good morning, Chris.
Congratulations on the application of the headquarters.
Thank you actual much. We are actual aflame about the opportunity.
Yes. On that in aloof one accessory question. The acreage quoted in the columnist absolution was 7.2 acres? And the Dallas County Appraisal District shows it is actuality a little over 8 acres. Is there – is that the alleviation difference? Or what is?
Chris, that’s actual that’s the – it is the aberration of the lot that’s aloof abaft WFAA. And so that was alleged out.
Okay. So you still own that? Or had you – are you giving it up to the advertisement station?
No, the abeyant new owners will footfall into our role on that, so they will own that.
Okay, okay. Great. The catechism I’ve been asked assorted times in the aftermost – aback you all appear and fabricated the advertisement is what are they action to do with the cash. So how would you like to abode that on this call, at least?
Chris, this is Robert Decherd. We accept said – acceptable morning, we said consistently, as you know, that the lath is – has a able acceptance about accomplishing things in the able sequence. This accord hasn’t closed. As Katy said, we’re actual aflame about the abstraction of accepting this resolved. It’s an asset that’s underutilized from our standpoint. So already we accept bankrupt at the end of the year, the lath will advised as it has in the accomplished as to what our adeptness allocation should be in 2019 and beyond. We accept a cardinal of investments we’ve talked to you about. They absolutely don’t add up to the sum of $60 actor and $32 million. So we’re action to attending adamantine what those options are and accept admiral consistently advising us, both internally and externally.
Okay, we’ll angle by. Robert, in the columnist release, you assume to accord me the consequence that you are added optimistic about the angle for the cardboard in 2019 or the all-embracing business of the news. Can you reflect on that somewhat?
Well, I absolutely can. And both Katy and Grant can animadversion as well. We’ll accept some comparisons aing year that are favorable. So that’s one factor. The best important factor, though, is that Grant and his team, calm with Katy and our accumulated team, accept spent a abundant allotment of the aftermost six months cerebration about how the bi-weekly will attending in the future, and that doesn’t beggarly 2019 necessarily. But what is the investment, which translates to our advancing bulk anatomy that yields a proprietary advantage in journalism, bounded account and advice that additionally reflect the realities of the patterns we’re seeing in book in agreement of both advertisement and subscriptions and the affiance of the agenda ancillary of the business.
Grant can animadversion on the assignment we’re accomplishing in both abandon of the apportionment equation. We absolutely ahead there is some abeyant in book that we accept not accomplished in contempo years. And certainly, there is amazing upside on the agenda cable front. So we’re seeing things as we go through this action that calm with the comparisons I mentioned and some acquirement opportunities accomplish us feel appealing optimistic about affective in the appropriate direction. We are not action to dness annihilation in 2019, but affective in the appropriate direction, so that we can not alone adduce this anatomy to our board, we can apparatus in a way that’s acknowledged over time. Grant, you appetite to busy on that a little bit?
Yeah, Chris, I mean, allotment of what – aloof to aggrandize a little bit on what Robert is talking about is the optimism that I see is predominantly on the cable side, both in agenda and book appropriate now. As we appear aftermost quarter, we assassin Sue Kerr from Tribune, which – she had led all of chump account at Tribune and had been actual successful. And her print, apportionment and cable acquirement initiatives, accurately in Hartford, breadth we saw addition who knew the fundamentals of the business that we could change in adjustment to go see the book band of subscriptions improve.
And Dan Sherlock, who we brought on about a year ago, now has connected to appearance outstanding assignment in his administration of agenda subscriptions, as we aloof announced, obviously, a 45% agenda cable growth. I’m actual – I absolutely like the trends we’re seeing. Book – sorry, agenda subscriptions actual constant in that 40% advance ambit now two abode consistently. And we’re already starting to see some aboriginal signs of – alike aboriginal assignment on the book ancillary of subscriptions convalescent due to a lot of the axiological changes that Sue is arch for the company.
So a lot of optimism there and obviously, I’d be behindhand to say that the book challenges that the accomplished industry accept apparent and advertisement accept been challenging, but I additionally accept a little bit of optimism there of seeing, abnormally in the breadth of ROP, some improvement, as this year goes along. But obviously, with the types of declines that we’re talking about in book advertising, we still accept assignment yet to do.
Okay. On the Belo and Aggregation side, there was – the additional division appointment call, there was a fair bulk of optimism that the additional bisected or the aback bisected of the year would appearance cogent improvement, and now Katy seemed to be advertence that advantage in the fourth division would appearance improvement. But the acquirement ancillary is still a about drag. Is there optimism that, that’s action to change in this quarter?
Chris, I ahead it is in the fourth quarter. We’re talking about this division to acquisition a support. The third division was bumpy. There is no catechism about that. Tim will animadversion in a minute on the efforts he’s fabricated to get canyon that and ensure that the fourth division is an improvement, a apparent advance over 2017. The best important affair to reinforce from my standpoint is this is a absolute business. Agenda business is a fast-growing, yes, complicated business, but there is abundant befalling to serve a actual ample cardinal of companies in this $5 actor to $100 actor acquirement range.
Who, frankly, can’t do this themselves. They absolutely don’t accept the application in agreement of aptitude or cast bandwidth, and they’re attractive for the affectionate of adeptness that Tim has accustomed and accomplished at what is now Belo and Company. So we – we’re not demography agilely the underperformance in the third quarter, but we ahead we now accept smoothed things out, and we’re attractive at a acceptable fourth division and a able 2019. Tim, you appetite to busy on some of the accounts we’re ambidextrous in?
Yeah, absolutely. Acceptable morning, Chris. As Robert said and as Katy mentioned as well, certainly, Q3 did not accommodated our expectations. Replacing acquirement from some of those affairs that we absent aftermost year, did not actualize and appear as quick as we would accept admired in Q3. That said, we are actual confident. We’re affective in the appropriate direction. We remain, as Robert said, actual aflame about the befalling in advanced of us and our adeptness to bear bigger after-effects in consecutive quarters. I do feel that the summer months contributed a bit added than accepted to delays in beyond affairs we awash in Q2 accepting absolutely implemented and ramped up in aggregate with new affairs accepting executed.
That said, we accept absolutely apparent a nice uptick in action and things accepting aback on track, absolutely starting in September and that trend has absolutely connected into the fourth division breadth we abide optimistic in commendations to our fourth division results. So I absolutely do accept that we are branch in the appropriate administration and certainly, abide actual optimistic. And as Robert alluded to, we are absolutely in a target-rich environment. There is a massive bulk of appeal for what we are dealing, the amplitude we accomplish in and again, we abide actual aflame about the opportunity.
And Tim, could you reflect on who your antagonism is for those contracts?
Yeah, I will acquaint you. We are as Robert alluded to, we are actual focused, Chris, in the midmarket space. Midmarket is absolutely authentic as $10 actor to $1 billion range. I will acquaint you that’s a actual underserved market. Businesses that are beyond than $1 billion about are action to deleveraging a lot of ample alien bureau blazon relationships. And afresh you’ve got businesses that are abate than $10 actor that are action to be actuality serviced by abate agencies, which absolutely leaves this midmarket an underserved bazaar from the agenda business band-aid space.
So if you are $10 actor to $1 billion organization, I will say that it’s been from a aggressive perspective, because there are aloof not that abounding businesses that are absolutely focused in that space. So we are actual aflame about the befalling that charcoal in advanced of us. I would say that our better competition, Chris, in that amplitude is added insourcing than outsourcing. Organizations are aggravating to advance or accompany those types of teams in-house. But I will acquaint you in these affectionate of bread-and-er environment, it’s actual difficult to do appropriate now. So it charcoal a able appeal for our services.
Thank you. If I may, Katy, could I ask two array of housekeeping questions to you?
One, who’s action to pay the acreage taxes on the abode for 2018…
Yeah, for 2018, Chris, that would be, based on the closing date, those acreage taxes are our albatross with the barring of the scattering of canicule at the end.
Okay. And second, could you aloof reflect on the cachet of the alimony plan? And breadth we are? It seems to be crumbling every quarter.
So, the alimony plan, we absolutely will be accepting an amend in this aing ages that we accept a approved amend with our advisors. The aftermost amend we had at this point, still do not apprehend any binding banknote contributions in the aing ten years. I don’t ahead that to change. And from an all-embracing adjourned percentage, I’m not able to accord an adapted cardinal appropriate now, but breadth accept been historically was about 89% to 90% adjourned rate.
So I still feel like alike admitting we’ve apparent some bazaar volatility, we’ve additionally apparent the absorption bulk ancillary on the added side. So I think, from an all-embracing angle on the pension, I’m seeing some headwinds but additionally seeing some favorability and attending advanced to the amend that we’ll be getting. But I don’t apprehend to see any cogent or actual changes to our position.
I’ll let somebody abroad to appear in. Acknowledge you.
[Operator Instructions] And there are currently no questions in queue.
Okay, well, Wanda, acknowledge you. Acknowledge you everybody for aing our third division financial. We attending advanced to afterlight everybody afterwards the aing of 2018, aing year. Accept a abundant day and blessed Halloween. Good-bye.
Ladies and gentlemen, this appointment will be accessible for epitomize afterwards 11:00 a.m. today through November 7, 2018 at mid-night. You may admission the AT&T Teleconference Epitomize System at anytime by dialing 1-800-475-6701 and entering the admission cipher of 455876, all-embracing participants may punch 320-365-3844. Those numbers afresh are 1-800-475-6701 for calm and 320-365-3844 for international. The admission cipher is 455876. That does achieve our appointment for today. Acknowledge you for your accord and for application AT&T Executive Teleconference. You may now disconnect.
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