Ladies and gentlemen, thank you for standing by. Welcome to the 2018 Fourth Quarter and Full Year Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time.

[Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to your host, Katy Murray. Please go ahead..

First, beginning in 2018, Belo and Company's compensation and benefit expense increased as a result of additional headcount being transferred from The Dallas Morning News to Belo and Company and an increase in healthcare costs. All A. H. Belo employees moved into a single fully-insured benefit plan this year to lower A. H.

Belo's overall cost of healthcare. However, for Belo and Company, this resulted in an increase in benefit burden since Belo and Company had a previously been under a self-insured plan. Also the gross-down for revenue and expense that would have been in accordance with the new revenue guidance had it been adopted in 2017 is included.

Full year-over-year decline in internally reported revenue of $3.6 million in the reconciliation is predominantly attributable to the attrition of six accounts in late Q4 2017 and early Q1 2018 as we have mentioned before. These accounts would have generated pass-through revenue in 2018 of approximately $3.5 million and net revenue of $2.7 million.

Belo and Company experienced lower-than anticipated replacements of these accounts, but in the fourth quarter its sales teams made headway in filling these gaps and reestablishing momentum. As a result, Belo and Company achieved year-over-year improvement in EBITDA in 2018.

Internally reported operating expenses at Belo and Company in 2018 declined by $3.7 million with the majority of improvement related to pass-through expense. The balance reflected a decrease in compensation expense on a year-over-year basis.

Internally reported operating income of $2.3 million at Belo and Company reflects an increase of $80,000 from the $2.2 million reported in 2017. Internally reported operating margin for full year 2018 was 10.4%, an increase from the 8.7% from 2017. Turning now to A. H. Belo financial metrics.

As of December 31, headcount was 982, a decrease of 108 or 9.9% from December 31 of 2017. This decrease is predominantly due to open position eliminations in 2018. Headcount is forecasted to be below 900 at March 31, 2019, based on recently announced position eliminations.

As of December 31, the company had approximately $55.3 million of cash and no debt. As of March 6, the company had approximately $53 million in cash and cash equivalents. We expect capital expenditures to be approximately $2 million in 2019. In 2018, we repurchased 266,000 shares and we will be continuing our share repurchase program in 2019.

In addition, we will also have the capability to execute block share repurchases. With regard to the company’s pension plan, we do not have a mandatory contribution in 2019 and do not expect to have any for several years. The company reported a tax benefit of $565,000 in 2018.

Due to the company’s reincorporation to Texas in June of 2018, we’ve reduced cash taxes by approximately $250,000. We expect that cash taxes will be approximately $900,000 in 2019 related to the Texas margin tax.

While the sale of the company’s former headquarter did not close in December 2018, the property is being actively marketed, and we are optimistic that a transaction is possible this year. Thanks to operating decisions implemented over the past year and in early 2019. We are encouraged that these initiative investments will yield tangible benefits.

The implementation of the Art platform, The Dallas Morning News, new content management system will go live in the third quarter of 2019 and allow the News to launch a new digital product design and digital platform that complements changes made to the print product in January of this year.

This effort supports the News priority to grow digital subscriber revenue to a significant extent. In addition, we are extremely pleased that the Dallas Morning News series Pain & Profit won the prestigious national Scripps Howard First Amendment Award.

This series was praised for its critical use of public records request and the impact of investigative journalism. Overall, while A. H. Belo ‘s results in 2018 fell short of our expectations, we remain well positioned with a very strong balance sheet. The Board and management committee are optimistic about the company’s opportunities in 2019.

Greg, we are now ready for questions. .

[Operator Instructions] Your first question comes from the line of David Cohen from Minerva Advisors. Please go ahead..

Good morning, guys. .

Good morning, David. .

I am glad it’s 2019..

We are too..

So, I know, you’ve been assiduous about scrubbing every expense item you can think of and unfortunately I think that’s probably involved cutting some muscle, as well as some fat. And I am just wondering, there is one expense item that I had sort of have no visibility into which is the public company cost.

Could you talk a little about how you would estimate that number? And whether it’s changed over the last few years?.

David, I’ll be happy to answer that question. Over the last year, we have made significant decisions around how to reduce our public company expenses. I think you are aware that we did change from KPMG to Grant Thornton this year. We announced that in the proxy last year and you saw that.

And in part that was thinking about where we were as a public company and what we needed to do from an audit perspective and the types of fees that we were able to afford and that actually saves significant dollars. It will save over $400,000 in a year.

The other thing that we do is we are continually looking at other areas of public company expenses that we can reduce and you kind of get down to a point of – there is some certain fixed things that you have, but I would say the other piece of that is, being a public company has afforded us a lot of opportunity over not just the last several years, but really over the last couple of decades.

And I think, while there is regulatory and some things that we need to do as a public company, I would have to say that I think a lot of private companies that our size are doing the same thing. They just may not have the quarterly filings and things like that.

But I think that we’ve done a really good job of managing our public company expenses and we continue to look for opportunities of ways to reduce those as we can. .

Well, so, can you give us a ballpark number? I mean, I have thought obviously this is now based on the last proxy that audit cost last year prior to the change were $1 million, forward fees were $1 million, and obviously your time and the time of the accounting staff adds to that.

And I came to a number which was certainly over $2 million and $2 million isn’t that much compared to adjusted operating income of $15 million or $20 million, which we use to generate. $2 million compared to $5 million of adjusted operating income.

That’s pretty substantial and I am just not sure I agree that historically, there were some benefits of being public. I am just not quite clear on what the value is as being public right now. I don’t know, if you want to comment on that. .

Well, I think David, I mean, there are couple things. I think, one, there are some easy expenses that you could point to and say those are public company expense as you could reference the audit. You could reference the Board’s fee and things like that.

But I would also say that, some of that is in, how people look at certain expenses and what you want to put in Board’s fees or what you are going to put in public company fees could be really discretionary and based on individual input.

So, look, I agree that, if you had a $2 million public company expenses, you are looking at that at directly across adjusted operating income is it could look alike. I would challenge you that I don’t think our public company costs are that much.

But then again, it’s going to be whatever you decide that you want to put into that bucket of expenses and when you look at private companies, I mean, they are still going to have an audit. They are still going to have an executive staff, private companies have Boards.

And so, I think, it’s not necessarily a one-for-one on what you would be able to eliminate by not being a public company, versus being a private company. .

David, this is Robert Decherd. There are two other aspects for this, of course are apparent to you. One is, as it has always been the case for us, the benefit of the disciplines financial accounting operating of being a publicly reporting company are significant. It’s a different management environment.

And I would say, one that is very beneficial as we work our way through this transition through a digital world. This one is a big deal. And we applied a lot that thinking in the last year, many of the moves we made reflects that.

It’s not because we are public that we do that, but those protocols, those routines, match up to the intensity of the challenges that we are facing or how intensely we are addressing them. And what I’ve been advocating and preaching internally is, we had to think like a small company which we have become.

And I would say, we are almost through that change in mindset and behaviors. We were a much larger company. We grew for a long time. You know us so well. And when you say, we are public, you have to think in the context of how large a company you are at the moment and we are definitely a small company with lots of obvious issues that we need to address.

But I think we are making progress there and whether public or private, this is I think the more important point, anyone in the newspaper business has got to get to the digital side of this river and do it on the back of subscriptions, both print and digital, which is what Grant has articulated very persuasively internally.

It’s where all of our attention is focused. It’s the internal shift of resources that we’ve discussed and that process as he going to test is well underway. So I think – not for a moment minimize the importance of, pick your number, $2 million or $2 million plus dollar expense line and whether Katy’s interpretation is exactly right.

Now I do think some of those expenses will persist in a non-public environment. But for now, I and the Board like where we are in terms of the required disciplines, the intensity of the focus we have to bring to this and the things we’ve undertaken are measurable.

I mean, we will know that we are making progress, The Dallas Morning News moving to this subscriber-oriented subscriber first approach and we’ll know whether Tim is able to establish momentum that is sufficient to grow at the range we know we need to grow.

While we are dealing a company not only that complements what The Dallas Morning News has done historically, but build a business on its own. I mean, we are not early stage, but we are certainly not half way there. And all these things we have to be looked at together. .

Good morning, Robert. Thank you.

Respectfully, because I do have a lot of respect for you, I think, the discipline of being public which you refer to, is cosmetic and superficial on the circumstance, because, as you know, it’s not as if voting control of this company is in the public marketplace, so, from our perspective, you bear many of the costs of being public including, not only these direct financial costs, but the inability to manage this transition, sort of without a light shining on you, if I can put it that way.

And I guess, the thing that’s really acute to me right now, is you’ve got the previous architect of the corporate strategy which I would say, has not been a rage in success namely the marketing diversification. Constantly in the market, selling his non-voting or selling his shares that don’t matter in terms of the votes.

He has sold 130,000 shares out of 420,000 that he filed to sell. He is still collecting Board fees as far as I am concerned. I just don’t – I think the message that you are sending to the public market that you want to be responsible to and responsive to is extremely negative.

And I am not – as you know, I’ve been very supportive and I think The Dallas Morning News is an incredibly important piece of the Dallas media environments and it’s a civic institution.

I don’t think that as a public company, that’s - the health of that civic institution can be assured and in fact you are working across purposes to what’s held by being public.

And I just – I really want to make that clear, because I think there is some misunderstanding that outside shareholders don’t believe that The Dallas Morning News is important. I don’t know, if you want to respond to that, but..

Rather than respond, I will say, well taken and to the last point, you and I’ve known each other a long time. I fully appreciate and all of us to the extent which you do recognize the importance of The Dallas Morning News and your other points are all well taken.

I will communicate those to John Beckert, who is our Lead Director and we are attentive to these matters. I’ll just leave it that. .

[Operator Instructions] Your next question comes from the line of Michael Melby from Gate City Capital. Please go ahead. .

Good morning and thank you for taking my questions. .

Good morning, Mike..

Good morning, and thanks again. Robert, I was hoping you could provide the rationale for maintaining two classes of common stock for the company? Thanks..

Well, the rationale is the same it’s always been, which is, the industry, many, many years ago was generally characterized by having two classes of voting stock for the companies that went public. That includes us.

It provides a certain degree of continuity and stability, which I know is, from a public shareholder standpoint and it’s arguable both ways. But the Board believes it’s served our interest well and as no particular incentive or idea of that changing. .

Thank you. .

Your next question comes from the line of Boris Senderzon from Hilbar Capital. Please go ahead..

Yes, good morning. I have two questions. First question I was wondering [Indiscernible] real estate sales and second, your pension liability went up since last year and I was curious whether it’s the return from an asset side didn’t perform as you expected or is it something else? Thank you..

Hi, Boris. Thank you. I’ll take these questions. First on the pension, I think you will see this across all organizations who have pension plans. The market performance at the end of the year was less than stellar. So I think from an asset return perspective, everyone saw the pain of that on the pension plans.

And then, also from – while the daily, from a discount rate, there was some movement on that. When you look at pitch and plans, you are also looking at 30 year discount rate that is impacted by day-to-day market activity.

So, the pension swing that you are referring to in the unfunded liability, it was a direct correlation to the market and to economic events. There was nothing to do with the management specifically of the pension.

And I will say, with that, the very strong first two months of 2019 has helped to turn a lot of that market activity from the fourth quarter of last year around. So, again, we feel very good about the pension and pension plans where we are. We don’t have any mandatory contributions this year on in the near-term.

And we have been very active and very successful in all of the derisking plans that we executed on over 2016 and 2017. On the real estate sale, on 508 Young, as I mentioned, it is actively being marketed. There is a lot of activity around that property and we are optimistic that something could transact this year outside of that real estate.

We do not have any other real estate that is for sale. And do not own any other real estate in Downtown Dallas.

Boris, Robert Decherd, just tagging on, it’s also worth noting that the former campus 508 Young Street is in an opportunity zone and as all of you are probably aware, this has become a very active market in the last 90 to 120 days. And once the rules for how capital gains are deferred through opportunity zone investments would actually be applaud.

So that’s helping us and as Katy said, we are optimistic the Dallas commercial real estate market remains very healthy. .

Thank you. .

Your next question comes from the line of Chris Mooney from Wedbush Securities. Please go ahead..

Good morning. .

Hey, Chris..

Good morning, Chris..

One simple question. In prior calls over the last year or year-and-a-half, you were confident that $30 million was an appropriate price for the prior corporate headquarters.

Is that still what you are thinking?.

Chris, absolutely, it’s higher than that..

Yes, that’s – I think, it’s – our expectation has moved up with the opportunity zone development or evolution of that. .

Well, that’s good news. Can you give us some additional color or can Tim, on what’s going – happening with the Belo and Company? It seems like we’ve had several quarters of disappointment despite the profits and positive EBITDA.

Could we get a little more color on that? And why there seems to be optimism going forward?.

Yes, hi, happy to chime in. I think that, as we alluded to and talked throughout the year, last year, we started the year off with a significant amount of large accounts that we have attritioned late 2017 early 2018. So we spent a good portion of 2018 working to replace that revenue and EBITDA in the business.

I think that, as Katy alluded to, during earnings call, the internal operating metrics that Katy has published does show that we had good quarter-over-quarter growth as we made headway replacing many of those larger accounts.

Specifically, starting in September, we noticed a nice rebound in our ability from a sales perspective to replace that revenue. Coincidentally, that results in us having really strong quarter-over-quarter sequential growth that we were happy to see as well as resulting in significant quarter-over-quarter EBITDA growth as well.

So, we are encouraged by that trend and are optimistic that we are going to be able to hold that and continue that into the future. We feel very strongly that the offering that we have from a market perspective is being very well received.

And it’s the matter was continuing to operate and execute the business in order to continue to show value with those accounts. .

And are you – the clients that you are gathering up more regional and local than national?.

I would say, that 2018 certainly represented an uptick in more regional-focused accounts..

And is there a year-over-year comparison in the Belo Company you can give us in headcount?.

From a headcount perspective, so, in 2018, we ended with 105. .

Thank you. Robert, you were optimistic in your brief comments about 2019.

Can you give us a little more around that?.

Chris, optimism in the newspaper business and even tagging into marketing services were just – is we know highly competitive. You have to – I think put it in context, we believe, we are making important progress. The optimism is that we have the right people in the leadership positions.

The moves that we have made, the ones The Dallas Morning News particularly where the result of deep analytic work that we started last May and continued through the fall and it gives us confidence that these are the right kind of steps to support the Subscriber First strategy that Grant is leading.

We’ve also recruited some very talented people to both organizations. I am sure, you saw the release recently about Eric Myers who is joining The Morning News and Belo Marketing Group as Chief Revenue Officer. Eric is a big talent and someone Grant has known for a long time. I am going to let him comment on the impact Eric will have in just a minute.

And some of with Eric’s digital experience, really tracks exactly where we want to go to the Belo and Company partnership and, I’ll say, go to market strategy that relates both to The Morning News individually or separately to Belo and Company where we have in the presence of two leaders of print and digital subscriptions, two industry savvy, very outstanding people and there are other moves that Grant can talk about.

So, when you – and then say, what about the product repositioning at The Morning News, that’s all about supporting or correlating to the Subscriber First strategy.

Given that we are just beginning that and we have the Art platform coming on soon, my optimism is that, these moves set the stage or begin a process where we can accelerate growth in digital subscriptions.

We can hold our print subscriptions and subscription revenue and ultimately that’s the crossover that has to occur for any newspaper regardless of its size. And it applies to everyone, but a very few newspaper publishing companies which are in a different part of the galaxy.

On the Belo and Company side, Tim has also restructured some of his management team, brought in a very capable person with lots of agency experience. He is filling in importantly some of the creative capabilities that we need for Belo and Company to drive. That’s also just getting traction.

So, as we go through the year, these are all things we’ll be able to talk about on our quarterly calls.

It’s certainly the focus of a lot of the effort here and we are also with various, I’ll say trusted advisors looking at all sorts of operating opportunities and they are not just efficiencies, they are ways to actually do the higher math to get the three out of one plus one, which I believe with our focus, we are doing fewer things and we are trying to excel at all of them.

Because of the way we are structured, as you know, so well, and because we are small, and because we have a balance sheet that is as strong as ours, we are able to do this in a way that none of our peer companies can.

And again, I am excluding the New York Times and The Wall Street Journal, The Washington Post, they are not peer companies to any of the major metros of the United States. So, we are on the way and we’ll be able to measure progress that’s one thing that I like about where we are now. It was a little harder to do that just a year ago.

So, Grant, do you want to elaborate on your team and you might do the same, Tim?.

Sure, just from a talent standpoint, Chris, as Robert was talking about, recently hiring Eric Myers from Cox, Eric was over all four of the Cox Newspaper properties in terms of running all of sales and advertising revenue. Eric has been widely known to be one of the best in the country. I feel great that we have that in very capable hands.

Eric also very uniquely has a background where he is been able to maximize the marketing services and what we call kind of the internal agency space. And so, we also believe that our sales force at The Dallas Morning News will also be able to continue to grow the revenue into Tim and the Belo and Company businesses.

Also, I will just specifically focus on two other key leadership positions, because for us, these are all the most important three revenue positions in our company. The other two is Dan Sherlock who is running our Digital Subscription business and I was very pleased with having over 40% growth last year in digital subscription revenue.

I’ve got great confidence in what Dan is leading in that regard.

And then, we split the digital leadership of digital subscription revenue from print, where Sue Kerr from Tribune about nine months ago now and I am seeing very good quarter-over-quarter progress with the exception of the fourth quarter, where we had some fees that we had kind of cycled up against in print subscription revenue.

But we are focused on the basics and I’ve got great confidence in the three key revenue leadership positions at this point. .

And I’ll just tag on to Grant. Likewise, we’ve added a couple senior leaders into our organization that we are very excited about the first being Cody Bailey who is our Senior Vice President of Marketing Operations. He has extensive agency experience. He was a former managing partner of a large digital agency.

In addition, we added Susan Irish as our Vice President of Client Services who also has extensive digital agency experience and was formerly Vice President of Client Services and Strategy at another large digital agency with over 1,000 employees.

So, we are very excited to have both of these join our organization and help us continue to build a foundation that we can build upon and scale the business. .

The other thing this does , Chris, having this kind of talents in the leadership development force we are doing with all of our key leaders is, we will be better able to take the inevitable bumps along the way. This is not going to be a predictable course from where we are to this digitally dominated environment.

In the 10-K for example, we note that we got cars.com’s negotiation underway. Well, we have to have this kind of talent and this kind of energy and imagination to figure out what an alternative is, if that agreement isn’t renewed and that’s next fall, it’s a big deal. I am much more confident.

In fact your question about optimism that we are able to anticipate and respond to those inevitable bumps or hiccups along the way, eventually, we get to a steady state. That’s the goal and I feel like we are on the way. .

Yes, and I’ve got one final question for Katy on the tax status of the sale of the former corporate headquarters.

Has anything changed?.

No, it does not. Given the net operating losses that we have coming out of prior years, and being generated, we fully expect that we will be able to shield the sale of 508 Young from a capital gains perspective. .

Well, I certainly hope you all succeed. You oversee a very important institution in the State of Texas. Thank you very much. .

Thank you, Chris..

Thank you, Chris..

And at this time, there are no further questions. .

All right, Greg. Thank you. Thank you everyone for joining us and we will talk with you again when we have our first quarter earnings later this year. Thank you. .

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