10-K: DallasNews Corporation Reports 2023 Annual Results Amidst Shifting Media Landscape

DallasNews Corporation's 2023 annual report reveals a continued decline in print advertising revenue, offset partially by growth in digital subscriptions and marketing services.

Summary

• DallasNews Corporation's 2023 annual report shows a net operating revenue of $139.7 million, a 7.3% decrease compared to $150.7 million in 2022.
• The company experienced an operating loss of $8.1 million in 2023, a slight improvement from the $9.0 million loss in 2022.
• Advertising and marketing services revenue decreased by 15.3% to $59.0 million, with print advertising declining by 21.8% to $35.0 million.
• Digital advertising and marketing services revenue saw a slight decrease of 3.5% to $24.0 million.
• Circulation revenue remained relatively stable at $65.3 million, with a 0.2% increase, as a 24.1% increase in digital circulation revenue to $16.3 million offset a 5.8% decrease in print circulation revenue to $49.0 million.
• Printing, distribution, and other revenue decreased by 3.1% to $15.3 million.
• The company's newsprint consumption decreased to 6,658 metric tons in 2023 from 7,735 metric tons in 2022, with an average cost of $779 per metric ton in 2023 compared to $728 in 2022.
• The company ended 2023 with 63,000 digital-only subscriptions, a decrease of 7.4% compared to 68,010 at the end of 2022.
• Employee compensation and benefits increased by 3.5% to $69.4 million, primarily due to severance expenses related to a voluntary program.
• The company invested $10.5 million in Certificates of Deposit (CDs) during 2023.
• The company paid out $3.4 million in dividends in 2023, compared to $11.5 million in 2022, which included a special one-time dividend of $8.0 million.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the continued decline in print advertising and the overall revenue decrease. While there are some positive aspects, such as the growth in digital circulation revenue and cost management efforts, the overall financial performance and challenges in the industry create a cautious outlook.

Positives

• The company's operating loss improved slightly year-over-year.
• Digital circulation revenue increased by 24.1%, showing growth in the digital sector.
• The company has implemented effective rate increases for select subscribers and retailers.
• The company has a strong local brand and full-service agency, Medium Giant, which provides a competitive advantage in the digital marketing space.
• The company has sufficient liquidity to invest opportunistically in its business.
• The company is actively managing operating costs to align with market pressures.

Negatives

• Print advertising revenue continues to decline significantly, decreasing by 21.8% year-over-year.
• Digital advertising and marketing services revenue decreased by 3.5%.
• The company experienced a decrease in digital-only subscriptions by 7.4% year-over-year.
• The company's total net operating revenue decreased by 7.3% year-over-year.
• The company's newsprint costs increased by 7% per metric ton.
• The company exited its shared mail program, impacting preprint advertising revenue.

Risks

• The company faces ongoing revenue declines primarily in print advertising, which is expected to continue.
• The print media industry is experiencing a secular shift to digital platforms, posing a risk to traditional print revenue streams.
• The company operates in a competitive environment with increased competition from other media, particularly internet-based media.
• The company's ability to monetize online content effectively while balancing traffic volumes is a challenge.
• The company faces risks related to cybersecurity threats and potential breaches of its IT systems.
• The company's reliance on third-party distributors for newspaper delivery poses a risk if these providers face financial difficulties or terminate their relationship.
• The company's pension plans could require future mandatory contributions due to market conditions.

Future Outlook

The company is committed to maintaining leading digital and print platforms, growing digital subscriptions, and diversifying revenue streams through its agency capabilities. However, there is no guarantee that the company will be able to generate enough digital revenue to offset the possible future loss of print advertising and circulation revenue and margin. The company expects to use cash to fund operating activities and capital spending.

Management Comments

• The company is committed to maintaining the leading digital and print platforms for delivering news of the highest quality and reliability in the North Texas area.
• The company continues its efforts to diversify revenues through its digital platforms for delivery of news and advertising, growing its paid digital subscriptions, and leveraging its brand and personnel to enhance its media agency solutions.
• The company is committed to producing quality journalism for its communities and providing innovative digital marketing solutions for its customers through its agency capabilities, while creating value for shareholders over the long-term.

Industry Context

The report reflects the broader challenges faced by the print media industry, including declining print advertising revenue and the shift to digital platforms. DallasNews is attempting to adapt by focusing on digital growth and diversifying its revenue streams through its agency, Medium Giant. The company's performance is indicative of the ongoing transition in the media landscape, where traditional print media is struggling to compete with digital alternatives.

Comparison to Industry Standards

• The decline in print advertising revenue at DallasNews is consistent with trends seen across the newspaper industry, with companies like Gannett and McClatchy also reporting significant declines in print advertising.
• The growth in digital subscriptions, while positive, is not unique to DallasNews, as many media companies are focusing on digital subscriptions to offset print losses. The 7.4% decrease in digital subscriptions is a concern compared to some competitors who have seen growth.
• The company's efforts to diversify revenue through its agency, Medium Giant, are similar to strategies employed by other media companies, such as the New York Times, which has expanded its digital marketing and services offerings.
• The company's newsprint consumption and cost trends are comparable to other newspaper publishers, who are also facing challenges with rising newsprint prices and declining print volumes.
• The company's operating loss, while improved, is still a concern, and its performance is not as strong as some of the larger, more diversified media companies that have successfully transitioned to digital models.

Corporate Governance

Legal Proceedings

• There is a legal proceeding pending against DallasNews, but management believes that any liabilities arising from this proceeding would not have a material adverse effect on the company's results of operations, liquidity, or financial condition.
• The company may be subject to litigation, including matters relating to alleged libel or defamation, governmental proceedings, and investigations.

Stakeholder Impact

• Shareholders may be concerned about the continued decline in print advertising revenue and the overall revenue decrease, but may be encouraged by the growth in digital circulation revenue and cost management efforts.
• Employees may be affected by the company's cost-cutting measures, including the voluntary severance program.
• Customers may benefit from the company's focus on digital platforms and innovative marketing solutions.
• Suppliers may be impacted by the company's efforts to manage costs and reduce newsprint consumption.
• Creditors may be concerned about the company's operating losses and the challenges it faces in the changing media landscape.

Next Steps

• The company will continue to evaluate its operations and investments against various economic factors to determine appropriate strategies.
• The company will focus on producing quality local journalism at scale, distributed through digital platforms.
• The company will develop new ways to grow advertising dollars on its digital platforms.
• The company will grow recurring advertising and digital marketing services revenue through a client-first approach and enhanced full-service agency capabilities.
• The company will improve print revenues and increase utilization of operating assets by maintaining profitable print and distribution services to third parties.
• The company will continue to align costs with revenue and maintain strong liquidity to support future business and product initiatives.

Key Dates

Keywords

print advertising, digital advertising, digital subscriptions, circulation revenue, newsprint, Medium Giant, marketing services, cybersecurity, pension plans, operating loss