Q1 2020 Earnings Call

[music].

To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then too. Please note. This event is being recorded I would now what's your turn the conference over to Harlan Toplitzky Vice President Investor Relations. Please go ahead.

Thank you and welcome to the New York Times Company's first quarter 2020 earnings conference call on the call today, we have Mark Thompson, President and Chief Executive Officer, Meredith Kopit, Levien Executive Vice President and Chief operating Officer, enrolling Koodo Executive Vice President and Chief Financial Officer.

Well, we begin I would like to remind you that management will make forward looking statement. During the course of this call and our actual results could differ materially some of the risks and uncertainties that could impact our business are included in our 2019 10-K. In addition, our presentation will include non-GAAP financial measures and we have provided reconciled.

The agents to the most comparable GAAP measures in our earnings press release, which is available on our website investors that and why T. C O dotcom.

I will turn call over to Mark Thompson.

Thanks, all and good morning, everyone.

I'll start with a few high level observations about the current pandemic I'll then all my colleagues measured at the moment to go through the quarter in detail.

Good day, you're going to hear a broadly encouraging story about how the time is performing so far during the pandemic with record breaking audience isn't subscriptions.

Believes that we can and should continue to rollout our ambitious growth strategies the company.

But we haven't I never will lose sight of the scale of the human tragedy and economic disruption and hardship that the current of ours is bringing to America in the world.

Well reported colleagues are chronically this tragedy on the ground everyday.

And then we're doing everything we tend to keep them say stay running somewhat the same risks is fun line.

Okay professionals.

It's another fall from them all from the patients on health workers that covering.

We're incredibly grateful to them and indeed to all of our colleagues who are working around the clock and overcoming any number of obstacles to keep this great newspaper strong unable to service read is everywhere at a time when those leaders need at most.

Our business model that it's increasing emphasis on subscription revenue and reducing reliance on revenue and all fortress balance sheet.

But as soon as far back to position. The most me organizations not just the successfully ride out the store, but to thrive in a post corona bar as well.

But we should also help a humility do acknowledge that does much we still don't know uncommon predicts about this pandemic and its economic impact.

Patients responsiveness flexibility and the Zillions will be key over the coming courses.

Our response to the crisis is sort of thought being affected we track the impact of the bars and the moment told reporters arrived.

On the ground him with Honda coupled with an outbreak we moved to home working in the initial wave of U.S. companies and that those comp much a previous I'm working drilled an overall business continuity planning helped ensure that the transition went smoothly and without interruption to either newsroom old business operations.

And as a result, we currently operating at a very high level of productivity. Despite the limitations of remote working and the inability to travel all but essentially journalistic reasons.

We're delivering what we believe is the most trustworthy news and most useful guidance about the granola bars.

As was offering a full suite of known by rescues opinions and features to inform and does this all read is through the crisis.

Oh digital teams are leading aggressively into our growth strategy.

Well I'll put it teams are doing a magnificent job getting our newspaper printed and distributed readers everywhere. Despite the immense challenges involved.

I'd like everyone else, we'd love to return to something approaching normality as soon as possible, but we're also being realistic.

Yesterday, we sell colleagues that we don't expect the majority of them to return to the office until the age of September at the earliest.

That health and safety will always be Paramount to us.

Given the current effectiveness of our remote booking we do not believe its decision will have any significant impacts on business results.

All digital transformation has succeeded said Bob because we've maintained the momentum of change yeah in idea out over many years now.

We determined not to allow the present disruption to reduce this momentum.

As you'll hear lower AD revenue will put pressure on profitability some time.

To mitigate that will come costs, where we can but only in ways. We believe will not slow down the execution of our strategy.

These cost reductions will leave likely lead to some job losses in the coming months. So we expect to comparatively small number of the.

We expect no substantial reductions in journalism and that would impact our core growth strategy.

We will continue to invest in that strategy and high both in journalism and in engineering data and the other digital product functions.

We expect the company's net headcount increase rather the decrease by year's end.

This is clearly a strange unsettling time for everyone.

But this week, we do have some things to celebrate at the time.

Once again the work about Berlin, Germany has been celebrated the taught you pull it says Meredith will give you details of those in a moment.

And thanks to the nice insurgent new subscribers Neil times as past some significant new milestones.

By the end of April 2020, another words, including the first month of the president quarter.

We have more than 4 million subscribers to our digital news product.

More than 5 million digital only subscriptions and all and more than 6 million total subscriptions across digital and print or historic highs. Both for this company and for the entire American news business.

But now let me hand over to Merit is for a full review of Q1, and our assessment about prospects going forward.

Thanks, Mark and good morning, everyone.

For over a decade, we've made the most ambitious investment in original journalism and the company history.

The importance of that investment centrella due to our business strategy has never been more.

Let me start I think and extraordinary staff from New York Times, our colleagues in the news during every person in the organization. He supports their work as Mark said the Pulitzer prizes for what we did earlier this week and the times was almost three for international reporting for investigative report.

And for commentary that brings the total number of Pulitzers word into this institution to 130 far more than any other news organization.

So expiring about this years awards as our executive editor deemed the case on Monday is that they involve many desks and many journalists and there are a testament to modern news organization honoring not just narrative storytelling and also work from our visual investigation.

Video television and audio teams.

Our mission is to seek the treats and how people understand the world and that this incredibly difficult time, our news room up more than 1700 people is working tirelessly arm a readers with the trusted information that they need to understand and to navigate pandemic.

No U.S. government public Health agency was publicly tracking all county by County, domestic cases of current a virus times' journalism, let into action in late January and begin building a comprehensive dataset.

We made that data said publicly available to the other journalists researchers scientists and government officials.

Study and better understand the spread and the virus.

Having a deep bench of expertise has been especially helpful. In this moment you see it work for portals like Donald No. Two it's covered pandemics around the globe for more than 30 years, where doctors Sherry think in calmness, Nick Chris Dodd, who along with their photographer and videographer.

I've reported from hospitals to tell the story at healthcare workers risking their lives to save others.

And countless people on our news and business desks, we're working around the clock to deliver lives up to the minute briefing on the spread of the virus and its implications for businesses markets and economies.

Our investment in original journalism has also meant that we can innovate and adapt to changing leader needs over the last six weeks, we've expanded our lifestyle coverage and our service journalism to help people deal with quarantined.

Our new at home section.

Recommendations on maybe it's to watch recipes to try games to play to look to plan and even instructions on how to give yourself basket.

All of this has meant record audience and engagement.

In March well over half of all American adults came to the New York times and readers viewed two and a half billion pages almost double what we typically see in a month, we had around 240 million wearable unique users based on our internal data.

As far the highest number ever.

The new customer journey that we launched almost a year ago, which requires registration and log in most places to see more than one story. Then we also saw a millions more research Register and then return and log in each week that combined with the surgeon audio.

Jim gave us historic number of total net digital only subscription additions in the first quarter and 587000, including 468000 for news and 119000 Standalone products.

Put that in context 587000 total digital only addition is two thirds more net ads and we brought in the first quarter 2017 at the peak of the so called Trump bump.

Given the extraordinary circumstances, we made the decision in early March to open up access to the vast majority of our virus coverage that meant readers did not see a pay well on the vast majority of the time stories that they view.

Well fewer readers convert it to subscription because they ran into a pay wall anonymous readers and those who registered skilled subscribed in record numbers.

While we don't expect the striking surge in traffic from the first quarter to continue indefinitely. Indeed, we've already seen novitas tropic begin to come down we've been encouraged by the behavior registered leaders, whose return rates are improving week after week.

That's in part because the unique nature the news cycle, but it's also because the deliberate work on stimulating return by helping people follow storylines get continuous flybe update and explore a broader range their interest.

Well the news environment will change as it always does we expect that the larger number of registered reader.

Our growing effectiveness the getting them to return warm habit will mean, an improvement in the underlying rate of net additions versus the period prior to the crisis.

Another encouraging sign is the continued diversification of our subscriber base.

Our newest subscribers are more likely to be younger and more diverse geographically and also in terms of race <unk> mid city.

Subscription software cooking and crossword products have been especially strong as has affiliate revenue from Wirecutter.

That's where it had its highest quarterly net add on record in the first quarter and cooking had its second highest it shouldnt surprise no one that Melissa Clarks advice on how to stock you're pantry has gotten more than two and a half million page views and count.

We continue to be excited about our early foray into TV with the weekly I'm proud of the work that our team has made with our partners, an FX and who live.

In fact, a weekly episode share with one of the three Pulitzer prizes I mentioned earlier, where its investigation into how reckless London devastated the generation of New York City taxi drivers.

We expect to continue to work with the FX into the when TV production Brazilians likely in the form of a smaller number of longer specials, but we don't expect this change to have a material impact on our bottom line.

Now we talked in prior calls about the important audio in enabling the time to reach new audiences and play new role in People's lives.

The dailies audience has surged to almost 3 million downloads everyday despite the change in the morning, reaching for many listener.

We're also continuing to add to our audio talent Lang onto our programming, we announced last week that opinion contributor Caris Swisher will launch a new interview show with US This fall and last month, we launched a new leadership theories that we're referring to as the quarantine season.

We also made a small acquisition in the quarter of an audio subscription and business called auto which provide read aloud or do you have adient version of magazine stories, including our own and those are the Atlantic worker and New York magazine among others.

All to say that even with the profound difficulty caused by the crisis, it's been a period of growth innovation and strategy acceleration in our journalism across our platforms and in our subscription.

The story on advertising is quite different though here too we see an opportunity for strategy acceleration.

First quarter advertising revenue declined 15% overall with the economic slowdown beginning to play a role in March where the declines from much steeper.

As marks congested there as macroeconomic uncertainties, our visibility limited, but we're expecting a pronounced downturn in advertising for at least for next quarter and likely beyond.

The decline will likely be steeper in print and digital but significant but places.

That said, we continue that real confidence in our ability to run a sustainable and highly profitable AD business in a post pandemic world. One that is the downstream odd and draws its unique strengths from our large and growing subscription business.

We put on a multiyear journey to transform our AD business and the current circumstances mineable hasten that transformation as the key trends we've been talking about for some time play out faster in a recession.

One of those trend is a greater concentration of our AD business.

Smaller number of growing categories like Tech Telecom and financial services, where we're able to build larger multi platform collaboration like the ones, we talked about with Google and Bryce.

Another trend is significant growth in demand for advertising products that bring grant closer to the deeply engaged audiences of the time.

As we talked about in prior quarters, we're increasing our investment in and focus on AD products. They get their value from first party data collected from our readers and privacy Ford ways and also consumer insights about what drives engages those readers.

Our AD business will also benefit from our increasing investment in audio.

Podcast AD revenue grew 30% in the first quarter and the daily became an even larger and more sought after platform for advertisers.

We do expect some softening of demand for but data driven display and audio during a recession, but less so than in our legacy products.

Let me pull all of what I just said together.

Notwithstanding pressure from advertising.

Fundamentals of our subscription first business model give us we'll come to them in the long term prospects for the company.

And all and we're Mark again, we're living through real and harrowing period for our city, our country and the world.

So appreciate the essential workers first responders and medical professionals everywhere, we're saving lives and keeping so many state.

And we are deeply grateful to all of our time people in New York and around the World, we're helping our audience understand and navigate this unprecedented crisis. They have our approach sound, thanks, and with that alternative for Boland.

Thank you Meritas and good morning, everyone.

But we do expect short term results to be negatively affected by a decline in advertising our subscription business, which represents approximately two thirds of our revenue provides a source of strength and resilience drew a recurring revenue stream that is expected to grow further as we continue to excel at our core mission.

Adjusted diluted earnings per share was 17 cents into quarter three cents lower than the prior year.

We reported adjusted operating profit of approximately $44 million in the first quarter, which is $8 million lower than the same period in 2019.

Total subscription revenue increased approximately 5.5% in the quarter with digital only subscription revenue growing 18% to $130 million.

This represents a continuation in the sequential increase in the rate of quarterly growth.

Largely as a result of the large number of new subscriptions, we have added in the past here as well with strength in retention of the dollar per week promotional subscription who have passed a yearlong promotional period and have graduated it's a higher prices.

Quarterly digital news subscription ARPU declined approximately 10% compared to the prior year and approximately 3% compared to the prior quarter consistent with the rates have declined reported for the fourth quarter of 2019.

For both sequential and year over year ARPU trend, a large number of newly acquired subscription mostly on the dollar per week promotion domestically and deeper promotional rates in many areas outside of the U.S. more than offset the benefit from subscriptions, graduating from the introductory promotion to either step off.

Or full price.

What was a one month benefit from price increases on 500000 of our more tenured Oh price subscriptions.

We expect that the digital new subscription price increase which went into effect in March will begin to more significantly benefit ARPU in the second quarter, but we'll be more than offset by the impact of continued strength in subscription additions largely at the dollar per week promotion as well with from continued outsized growth in.

International subscription, which monetize at a lower rate than our domestic ones.

International subscriptions made up approximately 18% of our digital only news subscription at quarter end.

On the French subscription side revenues were down 3.4% largely due to a decline in single copy sales as many cells outlets were close beginning in the latter half of March and to a lesser extent decline and the number of home delivery subscriptions.

This decrease in print subscription revenues was partially offset by a home delivery price increase that was implemented early in the year.

Total daily circulation declined 11.9% in the quarter compared with prior year, well Sunday circulation declined 8.6%.

Well the rate of decline in home delivery copies was in line with recent historic trends the increase in the rate overall comp decline was driven by reduced newsstand and other single copy cells.

The closure of hotel universities and other outlets as a result of stay at home orders across the country contributed approximately one percentage point to the coffee decline.

Well the losses Starbucks has a distribution outlets in August of 2019 contributed approximately two percentage points to decline.

Production and distribution of our print products, both in New York area and across the United States continue to operate like Clockwork.

Albeit with new safety measures in place.

Well, we expect that the continued closure of newsstands will be more time, you would have to revenue in the second quarter than in the first quarter.

Hi, I'm happy to report that our home delivery business has been much less impacted and we are receiving on fulfilling many new orders for home delivery subscriptions, both locally and across the nation.

Total advertising revenues declined approximately 15% in the quarter as you would expect results for the month of March were significantly below those of January and February.

Digital advertising declined approximately 8% in the quarter compared with the prior year.

Largely as a result of strong comparisons in the prior year in direct sold advertising as well as lower demand related to the pandemic.

Higher traffic on the site resulted in an increase in open market programmatic advertising, which only partially offset lower direct sold demand.

Print advertising, which declined approximately 21% was more directly impacted by the pandemic, especially in the luxury media entertainment and financial categories.

Other revenues grew 21% compared the prior year to $52 million, principally driven by revenue associated with our television series the weekly which aired seven new episodes in the quarter as well from licensing revenue related to Facebook news.

I was afraid to the discussion of our cost for the quarter I want to call attention to would change we have made in the presentation of our operating costs.

These changes were made I wanted to better reflect how we manage the business and to provide readers with more clarity into the investment the company is making to further its subscription first strategy.

As a reminder, we have repeatedly said that even investments are expected to come in three main areas.

One journalism to fulfill our mission and create compelling content.

Sure.

Yeah.

Enhance the digital products, which are journalism consumed and three marketing, which we expect will become increasingly efficient as we continue to invest into the first two areas.

Most costs previously label production.

Now included in cost of revenue and reflect all costs related to our newsroom print production and distribution digital content delivery and subscriber and advertisers servicing.

The selling general and administrative costs have been split into three categories sales and marketing product development and general administrators.

Please see the earnings release, we published this morning for a more detailed description and reconciliation of first quarter 2019 results in the new presentation.

That's what was two years a quarterly history under this presentation.

We have also posted two years quarterly history under the new presentation on our Investor Relations website.

GAAP operating costs and adjusted operating cost each increased approximately 3% in the quarter.

Cost of revenue increased slightly largely due to higher journalism costs, including growth in a number of newsroom employees and costs related to the weekly.

Which was partially offset by lower print and distribution costs.

Sales and marketing costs decreased approximately one half percent as lower advertising sales costs were partially offset by higher marketing costs.

Media expenses, a component of sales and marketing costs increased only slightly in the quarter demonstrating that we have become less reliant on increased acquisition spend to drive subscription gross.

Oh development costs increased by approximately 30% largely due to growth in the number of employees engaged in digital subscription strategic initiatives.

Our effective tax rate for the first quarter was 15.5%, which was lower than the statutory tax rate largely due to a benefit from stock price appreciation on stock based awards that settled in the quarter.

On a going forward basis, we continue to expect our tax rate should be approximately 25% on every dollar marginal income we record with some variability around the quarterly effective rate.

Moving to the balance sheet, our cash and marketable securities balance ended the quarter at $687 million, which was flat compared with the fourth quarter.

The company remains debt that's rate with a $250 million revolving line of credit available.

On our last earnings call I reported that are qualified pension liability was 99% funded.

While we typically only update status of these and annually.

Given the recent market volatility I will make an exception to that practice and report that as of yesterday, we estimate the funded ratio to be approximately 94%.

And we continue to believe that performance of the planned assets alone should be sufficient to fully closed the funded status overtime without any material need for company cash.

The consistently conservative approach, we have taken in managing our balance sheet in tandem with the continued strong results produced by our subscription first business as trucks provided us the financial flexibility in confidence to continue pursuing our growth strategy, even as we managed to economic fall out of the Kogan 19 crisis.

Let me conclude with our outlook for the second quarter of 2020, which is based on our current knowledge and assumptions and could be impacted by the evolving pandemic.

Oh subscription revenues are expected to increase in the mid to high single digits compared with the second quarter of 2019.

Digital only subscription revenue expected to increase in the high Twentys.

Overall advertising revenues are expected to decrease approximately 50% to 55% compared to second quarter of 2019 and digital advertising revenues are expected to decrease approximately 40% to 45%.

Other revenues are expected to decrease approximately 10% as licensing revenue from Facebook news is expected to be more than offset by lower revenues from our television series the weekly and lower revenue from a life events business as a result of the Kobin 19 pandemic.

Well operating costs and adjusted operating costs are expected to be flat or to decline in the low single digits compared with the second quarter of 2019, as we pulled back on nonessential spending while continuing to invest in the drivers of digital subscription growth.

And with that we'd be happy to open it up for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we will pause momentarily.

To assemble our roster.

The first question comes from John Dalton of Evercore. Please go ahead.

Thanks, everyone. Good morning.

I just wanted to talk a little bit more about the subscriber trends you're seeing so I think Meredith you talked about expecting a higher net addition trajectory.

After the crisis winds down relative to what you were saying before the crisis, how is that impacting the way you think about the 10 million subscriber target longer term and then I just wanted to double check one thing I think he said you now have over 4 million digital only new subscribers as of the end of April.

So that implies something north of 100000 net additions for that product alone in April. Thank you.

Good I'm I'll I'll go ahead and answer that good morning, John that I.

Same version of what I said earlier, which is what what drives our optimism on in.

Our continued ability to drive the step function increase and then is the idea that where we're getting many more registered users in this period, and we're getting better stimulating them to come back to get them to form a habit so even as.

Overall audience begins to come down one we're confident that we'll see some lift in the model and I think your your second question and where to where does that worry about on the top to 10 million I think we've said all the.

Way through that we see that more as a aggregator milestone and I know, it's been a goal isn't that right.

[noise] and it doesn't just perhaps agile.

Above.

Also what we're looking at is the is the appeared on the 2016 election, where we hit a peak.

As we said in fiscal 2017, I'm not as big a because we just hit now and then also heavily quotas are audiences are fell back [laughter] a lot of people had come to the times because of that I may stay down we off to the from them.

[laughter] diminish we had a much higher run rate of of subscribers, then I'm, particularly given what Matt It says about.

About a the large number of registered long don't users were gaining we've got real confidence that the although certainly a lot of people coming to us now for the Corona bars that many of them will stay and we hope will become.

Loyal long term users and subscribers sometimes.

Got it.

Thank you very much.

The next question comes from Alexia Quadrani of JP Morgan. Please go ahead.

Thank you and good morning, I hope everybody is safe and well. Thank you again.

Well I'd just ask you a couple questions I'm on the heightened demand our subscriber growth can you walk to your thinking of maintaining your level of promotions. If you have you know I know you do badly hurt go back and forth <unk> dollar we to $2 should we get different times, a month, but I'm curious, what you're thinking of maintaining that sort of high level given that you.

Our teams up so much more demand and then just sort of staying on that topic. You know I understand you don't have a crystal ball, but you probably have more insight into readership trend to meet you on the outside how should we think about sort of churn in these you know bass towards new subscribers show ones crisis began you know.

Please to eventually died down [noise].

Yeah and opposed to noted for the for the first part of the questions you might want to live in setting, but just on churn.

Sure It to say manifestly bleach, new big event like base, we get new people in has made to says we're seeing some actually I think very exciting me. So to your time somebody were seeing some younger more geographically in ethylene diverse people coming to the times.

And you know we touched in March you know modem half of U.S. adults.

[noise] 80 cents, you'll be foolish to be too precise about future trends I want to say the backdrop is of a company, which has got far more expert at understanding every stage of the subscriber kinda lifecycle.

He was tension and Ah, we we thing very good now understanding jud.

And even before closing the kind of ours Strug every sinewy organization was focused on trying to make the customer journey, but also the fundamental experience of times' journalism, so compelling and so kind of been addictive in terms of features which when you back day after day that.

Usage will be high perceived value will be high and therefore, Chen will be low, but let me hand Tonight is now for the for the for the main both the question.

Sure. Thank you Mark and good morning, Lexia I'm now on the question of promotion what I would say is you know you can see this is a period, where we're leaning in to very strong demand and we have had been aggressive in our east of a dollar week.

The <unk> promotional offer impart because we think it takes us the outer edge is of our propensity circle and the comments I made earlier about the widening of our subscriber base to include more young people, where a geographic and racial and ethnic diversity I think it is a testament.

To that and and I would say, we're also getting and I think we've said this and in prior calls more confident about our ability to really work across the whole the demand for bringing people into the promotional price and manage them through a step up moment.

And then ultimately to two being a tenured subscriber that will except a price rise because they're getting so much value and the product and I think that's rolling in I I eluded to the fact that that were feeling real confident in our pricing power in or our ability to bring.

All along that curve instead I just described so that that's why you see us continuing to use the dollar week because because we can we can graduate we'd get to successfully graduating people.

Let me say couple things on on churn to come in the high Mark One is that's a very strong corn is net adds number in the quarter was a function both hi, hi starts and let it stops. So churn you know did play a big role in that.

I'm good news on on churn and I think and Mark alluded to this I think the most important thing on churn its not that were sort of it that we keep improving it that the mechanically bad although we do but I think a lot of those games have been realized it's that we are getting.

Better at getting people to just engage in the product and I I mentioned, a couple of things, though underscored them. There was a ton of work done in advance of koranda virus and that we really leaned into entering a pandemic and still are to be better it at covering things and alive way.

To give people a reason to keep coming back and that's playing a big role in engagement ads is just getting I'm getting people to find other things they're interested in on the time and money when users are registered and long been work, which is much more effective but.

Being able to do that.

And then just a quick follow up on advertising if I may I'm, just really on digital advertising how widespread we do weakness across your different advertiser encourage it was really isolated just several verticals you really saw cuts across the board and you mentioned you know.

Members of the daily I'm curious if she's also some pullback in advertising at the daily.

Yeah, Mark I'm I'm happy that to take that one I would say broadly advertising.

That the advertising trends are sort of follow what's going on macro economically. So we've seen pressure everywhere as I said earlier in general in both print and digital particularly in digital or some of the categories like Tech.

Financial services, and telecom, where we tend to do a bigger integrated collaboration has held up better and will likely continue to hold up better one of the trends we talked about for a while it's just the idea that we'll have a word your concentration of advertisers and.

On a number of categories and I think it's fair to say that print and digital we saw more pressure in on legacy category and I think weakness in that that will continue.

Through the crisis.

And your second question was about the daily we and no I'm trying to answer you tell me if I'm getting to your actual question I already mentioned the surge in audience and I would say marketer demand from the daily continues to be strong though demand for every.

We do from an advertising perspective, it's softer than it was before the pandemic, but the daily thats because the audience gains are so significant them because demand is strong relative to other places today Weve is still very good story for us in the first quarter and I think we'll continue to be Oh, yes.

Thank you and I was very helpful. Thank you and I feel actually I'm going up I just had one final point come to come back once again to to churn just to start out I'm not joke quite how telling you said this in a in a written remarks as you know what we're involved in a number of exercises.

UBS offsetting.

New subscribers, who were previously on on on a dollar week to higher prices and we also as you know we mentioned we go to a general price rise.

I'm going to the system for 10 needed.

Subscribers.

For the granola bars hits, we will continue to see we think very encouraging results on both of those.

I actually better than a I'm modeling beforehand. So.

So the underlying story with with all these change the price was I mean very encouraging for the long term future the model and as you've heard we think it's it's it it's more likely to the kind of ours will be as it were retentive.

ER and have a positive.

In fact tone on retention and and will as it will all things being equal reduce propensity to churn on top of that so this is deep the jump, which is actually very good Hudson.

Thank you.

The next question comes from what's Sealy Congress I off of Cannonball Research. Please go ahead.

Thank you good morning, I have a couple one I wanted to ask you. If you could you remind us how kids subscription revenue usually behaves in <unk> in <unk> economic downturn, if we could isolated from the call that 19 impacts.

What normally happens in an environment, so that did not make recession.

And then quick question for Rolling growing they think in your prepared remarks, you said that the revenue from the weekly is a is down due to carve. It 19 can you explain maybe why does it happens as it is a type advertising.

That's what makes sense to me. Thank you. Thank you for city I think maybe as you wrote and you should you should address both of these questions. Okay, great privacy only how are you.

So a home delivery and the and revenue associated with its a question as it is about how that react I guess in a recessionary periods. So yes. The answer is actually it. It holds up very very well if we if you looked at or how that worked out in <unk>.

Eight or nine we actually were able to raise prices during that period and if we look at the reaction of consumers now during the pandemic, we actually have seen an increase in and new starts also locally in across the country. So when you.

Aspect that to hold very well, but the single copy side of it is really where we.

Well get get hurt the most with the closure of of all the outlet.

We see some of that demand is getting swept up in in home delivery for folks, who who had a single copy habit and now can't get a single copy.

More and more of them are already home delivery. So that's that's very stable in a recession. The question about the weekly I think its impact in the guidance for Q2.

And its not about advertising revenue, it's about a lower number of episodes that we expect to air and we we we book revenue when we enter the episodes and I think Meritas mentioned also for I'm going forward with our with our agreement.

With FX and Hula, we expect to make fewer episodes in.

In the coming months, and we expect that to be longer form. So that the economics will will change somewhat but you just repeat where maris had on the bottom line, we don't expect any significant impact from that.

The next question comes from Doug Arthur of Huber Research Partners. Please go ahead.

Yeah. Thanks, two questions.

First.

Digital subscription revenue was up about 18.3 or so in Q1, you're saying high Twentys in Q2, I believe Uh huh.

You sort of talked about some of the.

Contours of that but is that mostly because of higher volume is did the impact of the one of the price increase so what's the driver of the Delta between Q O Q2, Q1 that I've got a follow up on costs.

Okay minuscule influenced Oh my question.

Yeah, I'm happy to I think it's its a combination of those things probably driven more by volume, but as we've said on on a price in particular I'm still a very large number of people coming in on promotional price, but we.

We are seven eight month in now to stepping those folks up and that is going very well. It's broadly in line with what we saw on a step up sometime back for 50% off folks and then we've also I think Boeing mentioned this in his prepared remarks, we've also taken a large number 10.

And your subscriber is through through a price increase that annual increase in that has also gone well. So I think it's a combination of things.

And you had a question, but rather than on cost as well yeah. Just looking at the reclassification Roland They go back to Q1 of 19, it looks like about 30% of SGN, a is being a kind of re bucketed into cost.

Production costs of goods.

Good so I guess that is mostly in circulation in.

You broke it down but can you just describe a little bit the thinking behind the re bucketing.

Sure. So the idea here is.

Like what was the fact or our previous presentation really was the vestige of how the business had been run for many many decades and so the idea is to create a like presentation. That's much more representative of how we're running the business today. So we have that cost of revenue category.

Sorry.

And and that is really you know a content creation.

What it costs us to service our subscribers on our and our advertisers all the French production and distribution and also the digital content delivery. So the cloud cost associated with hurting our content on the web.

Our our costs to produce that content.

And then.

Breaking out product development as a single line item and that that's really the cost to produce and enhance our our apps and our and our web products.

And then isolate and sales and marketing so that there's a better illustration of what we're spending there I mean and really G.N. a is kind of general management. It does include corporate enterprise Tech. So you know.

The cost of the accounting system right, that's going to be in NGL <unk>.

And our other unallocated cost, but we really wanted to isolate <unk>.

The areas, where we're investing.

Okay. Thank you very much.

Oh.

Justin comes from Craig Huber of Huber Research partners. Please go ahead.

Yes, hi, good morning. Thank you if you could start my first question they were just.

Or mark when you think about the opportunity set long term here internally addressable market for your digital subscribers. He just sort of update us on your thoughts on that the pass you sort of talked about is as far as you know.

People outside the U.S. College educated English speaking and stuff, but however, you want to talk with a please there's some follow ups. Thank you.

I was wondering if I just want.

Yeah, I'm happy to we have we have a few different ways of looking at it but every way we look at it was essentially suggests that there was no fewer than 100 million people in the addressable target audience.

English speaking college educated.

Some demonstration at willingness to pay for use in some one so and I you know I think as time has gone on <unk> number 100 million for probably a couple of years now I think it's probably getting bigger or smaller and.

That's a number that you know.

People roughly half in the United States and half outside the United States and I would say I'm just based on what we've shared today in terms of numbers subscribers. We have now I think we've still got a lot of running room on converting that addressable audience and one more thing that's worth saying this was I don't.

I don't think we've said, but nothing about that it's a very.

Very strong period domestically, but it was also very strong period internationally and we have.

Launched it I think we talked about this a quarter ago no new approach internationally, where we are more aggressive in pricing assuming that were second we need in most markets in particularly markets.

On Canada, and Australia beyond that the English speaking world. So we've got more aggressively pricing and also with how we apply the meat or in markets like Latin America, and southern Europe and parts of Asia.

Yeah, Yeah, we're just at the beginning of that and I think that open up everything we've seen so far would suggest that that by the addressable audience and also gives us a very good approach to to get to get that audience.

[noise], especially.

You, probably just I'd, probably briefly the b the I'm into some of them as them as mentioned.

In her remarks are really striking I mean.

Are we going to come sooner rather than 63 million uniques in the U.S. and as major said already modeling.

Suggest 240 million people came to the times in March.

That's a fourfold Grayson number them, we received five to 10 years ago, when I run the time in 2012.

We will see unique you noted that uniques way under 100 million typically and the real sense of the real time is a brand that its broad appeal kind of moving up a shoe size. So this is both becoming a genuinely global news provider, but also reaching into younger.

Most of us more geographically spread audience is the was historically the case I think that from sometimes could be meaningful in terms of posting very closely missed the fact that the beat the times is becoming a much broader appeal than some of those classic stereotypes was just so I think I think Ben and within that of course the.

That's the kind of the fishing grounds the.

More engaged users for people, who can become subscribers. They also grow bigger so I think very encouraging.

And my other question on wanted to ask on the legacy part of the business am I correct thinking that on your print volumes for circulation at roughly 15% is non home delivery. If that's the case assumed the overwhelming majority that is going away right now given this virus right now.

Stuff.

It would you take that in conjunction with you I think you said the fall off.

Acceleration maybe home delivery.

It's come down a little bit worse, but nothing overly significant it sounds like about how that all right.

Underlying number was down roughly 10% between daily and Sunday.

In the first quarter, maybe it might be or a picking might be down 25% or so if not worse in in the second quarter. When you think about that.

In conjunction with advertising for Printwear down, 50% plus right now.

And I don't know why do you want to make the Spain focus of the call, but just long term you guys are positioned your company here to eventually shut down the hard copy paper does this environment now that numbers, you're seeing on the print volume side print advertising side in your mind potentially accelerate the move to digital only product here long term here and it was sort of <unk>.

Points you before there is it's just when you get to free cash flow negative is that when you would cut off the print version go to digital only down the road here I know, it's not anytime real soon but what sort of thought there just accelerate as my main question.

<unk>.

North ran into two to address this substantively, but let me just just cut off by saying.

We believe that Oh pinpoint it just got many many years old.

A successful and profitable lies ahead of it.

A principal strategic focus as you know is building a big digital business, but we we love often put about so do is it subscribers as Roland said actually we've seen it.

Very very encouraging signs in many ways in terms of fresh demands the print product during the crown the bars crisis. So we're very committed I mean this is clearly a a tough time for this product single copy sales as you suggested.

I'd be massively hit that completely obvious reasons I think you really want something that they're much less than 15% of the total revenue from front from print, but if I can just says as chief executive we have really still committed to the print product and we see as part of our portfolio for a long time to come but rather than what did you.

Hi, good.

Sure Firstly I want to say is that there's not been an increase in the trend of of home delivery decline so nine consecutive quarters.

That volumes dropped between six and 7% <unk>, we don't see that changing.

And we've been able to pass due because of the value of the product in the loyalty of the subscriber base, we've been able to pass through price increases on an annual basis. So I don't I don't see that trend changing at all.

On a single copy side, it is somewhat less than 15%.

Of our revenue.

And that the single copy side, that's been in slow decline for <unk> I want to say 25 years or something like that but admittedly I think the the covert crisis, if that changes the landscape of retail and outlets that will change the landscape a single copy.

Yet to be determined how many folks have a very strong single copy habit in what well then moved to a home delivery subscription. So I don't see I don't see that being a a giant I'm change in our in our revenue profile there on the AD side, though our experience has been that.

Most dollars that leave from print advertising product do not return so I'd say, there's probably an acceleration there and I guess the last thing I want to say is true a mind folks that the print newspaper is profitable without a dollar of advertising and so as.

As long as their sufficient demand.

Well well continue to have a print product and it will continue to be cash generative.

Thank you Linda only only add to that that are launching a new homes section in print is a testament to our beliefs that there's still a deeply engaged in very high value customer and we think there's still lots.

You know imagination in innovation to put into that product. So we still think there's more to come there in terms of delivering real value to our audience.

If I could just ask the question here your outlook for advertising for the second quarter does it assume anything materially different than the month of June that what you saw in the month of April.

And what would make coming behind man and give a sharper answered, but I would say as you think about our remarks on advertising you know for for Yeah. I would take what you think about only business generally in trends that you general.

Really.

Right and then and put them in the macroeconomic context, I described and I think that's it as much as we're ready to say.

Thank you.

The next question comes from can on Venkateshwar of Barclays. Please go ahead.

Thank you this is a calvin on Cercon I've two questions.

First one is on costs and print can you talk about how much cost you can take out in the print segment offset revenue declines you mentioned advertising cuts earlier, but any other drivers of cost flexibility there and the second is on on pricing does the current economic environment change how you are approaching price step ups.

On those promo subs are rolling off in other words are you say proactively or reactively stepping up more subs to say a dollar to $2 instead of a dollar to full price. Thank you.

Thank you thanks.

I've been run one he says.

Yeah, so on the upfront costs I'm not going to cite a figure but we've found for many years. We've we've been on a on a path to driving more and more efficiency.

In very successful at that and I expect that to continue there'll be some changes, we make either internally or with our partners.

As a as a result, so we would chase efficiencies I think we'll chase them a little bit more aggressively given that the the the AD dollars being less than we otherwise would have expected.

I'm.

Not much more to say that we'll continue to chase that on the pricing side first.

We have pause our price increase on digital subs. So we had the first tranche of tenured sub that were lined up to get a price increase that occurred in March they're or a few more less than 200000 that came a little.

Later were notified and haven't started paying higher prices yet.

I would have hit another tranche and early fall, we've made a decision to pause that and wait and see and we'll reinstate that when we believe is appropriate.

Maybe meritas wants to talk a little bit about the dollar we promotion and how we're managing that.

Yeah, I'm I'm happy to well and I think I've said this earlier, but I'll say again, yeah were seven or eight months in Q being at an annual renewal for people that first group of folks who came in on a dollar a week and it's it's going at least.

Well, there expectations and it's going if the.

Broadly inline with what we saw for the the 50% off folks who moved up to full price prior to dollar week being or our primary promotion. So we're pleased with that and I'll say, we expect I'm pleased with what we've seen so far but we.

Also expect to get continually better added we've we've said in prior calls that was a training algorithms.

To to sort out what are the engagement signal, we can use to determine who we step up personally I'm, how we get a full price and I would say you know a bit by bit we get a little bit better and executing on this but in general this has gone very well.

And you should take of the signal of our continued use of the promotion recognizing how important price is to be Interboro economics that we have no competence in the ability to get people up in price.

Great. Thank you.

This concludes our question and answer session I would like to turn the conference back over to Harlan Toplitzky for any closing remarks.

Thank you for joining us. This morning, we look forward to talking to again next quarter.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].