A.H. Belo Corporation (AHC)
Q3 2008 Earnings Call
October 31, 2008 11:00 am
Maribel Correa - Director, Investor Relations and Corporate Communications
Robert Decherd - Chairman, President and Chief Executive Office
James M. Moroney, III - Executive Vice President
Donald (Skip) F. Cass, Jr. - Executive Vice President and Secretary
Alison Engel - Senior Vice President/Chief Financial Officer and Treasurer
Peter Salkowski - Goldman Sachs
Jack Ripstein - Potrero Capital Research
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I’d now like to turn the conference over to our host, Ms. Maribel Correa, Director, Investor Relations. Please go ahead.
Thank you, Lori. Good morning and thank you for joining AHC’s third quarter conference call. We issued a press release today announcing the company’s third quarter 2008 financial results. This release has been posted on our web site at ahbelo.com. Robert Decherd, our Chief Executive Officer and Ali Engel, our Chief Financial Officer will lead today’s call. Executive Vice Presidents Jim Moroney and Skip Cass are available for Q and A.
Before we begin, let me note that our discussion will include forward-looking statements. Forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those statements. Additional information about these factors are entailed in the company’s press release and publicly available filings with the FCC.
Also, we mention non-GAAP financial measures during this conference call. AHC management believes that non-GAAP financial measures provide useful supplemental information to assist in determining performance comparison’s to our peers. Reconciliation the most directly comparable financial measures presented in a course with GAAP, are provided on our web site at ahbelo.com under the investor relations section.
I would like to now introduce Robert Decherd.
Thank you, Maribel and good morning everyone. In the third quarter, A.H. Belo Corporation made important strides in streamlining operations and targeting incremental revenue streams. Despite a very challenging macro economic environment, the company succeeded in several major initiatives and accomplished them quickly.
In August, the Dallas Morning News launched Briefings, a free home-delivered condensed print news product that leverages existing resources and targets non-subscriber families who are interested in local news and information. Briefing has been very well-received by consumers and advertisers alike.
In its first five weeks of publication, Briefing generated approximately $500,000 in revenue. It’s lower than expected, single digit opt-out rate indicates that Briefing is engaging its target audience. Briefing further diversifies AHC’s product offerings, both for advertisers and audiences and strengthens readership.
The Dallas Morning News tripled the circulation of Al Dia, its free Spanish language newspaper, to increase effectiveness for preprint advertisers. Al Dia’s total revenue increased 14% in the third quarter, versus the same period last year.
On the expense side, the Dallas Morning News and the Fort Worth Star Telegram entered into a joint distribution agreement to maximize operating efficiencies and improve delivery time in certain parts of each newspaper’s distribution area. The Morning News understands the value of its brand equity and has incorporated service goals in the agreement to ensure quality delivery to subscribers.
In Riverside, The Press Enterprise reevaluated its circulation footprint and eliminated distribution to Palm Springs, which will improve EBITDA performance by approximately $600,000 for 2009.
As previously announced, A.H. Belo is restructuring its newspaper operations. The goal is to eliminate $50 million of ongoing costs by the end of the first quarter of 2009 and accelerate the allocation of resources to promising new products. We’ll receive approximately 60% of the $50 million in savings from head-count reductions. The voluntary severance offer or VSO, made to employees at the company’s three major publications was completed in the third quarter.
Charges in the third quarter related to the VSO totaled $11.1 million. On an annualized basis, the VSO is expected to save approximately $24 million. As of September 30, 2008, following the VSO, A.H. Belo had approximately 2,980 full-time and 480 part-time employees.
A reduction in force was necessary in order to achieve cost reduction targets and was completed in October. The reduction in force will cost approximately $2.4 million and be charged in the fourth quarter. The reduction in force affected about 90 employees in select departments at the three major publications.
On an annualized basis, the reduction in force is expected to save approximately $5 million. The combined workforce reductions will result in an overall savings of $29 million on an annualized basis and reduce head-count by approximately 14% from 2007 levels.
Realignment of AHC’s expense structure to match revenue trends is an ongoing process. For example, at the Dallas Morning News, the Monday, Tuesday and Wednesday classified sections have been integrated into the Metro, Sports Day and Business sections of the paper. The Dallas Morning News has reduced the number of zoned editions and publishes from five to three, thereby reducing press-runs and simplifying daily composition requirements. These steps were taken after careful consideration to ensure a smooth transition for our advertisers and consumers.
The Press Enterprise is expanding its circulation of La Printa, its Spanish language publication by approximately 3500, to 100,000 in the next year. This will provide advertisers with target audiences as the Hispanic population continues to grow in Southern California. La Printa will also be home-delivered in certain areas.