Q2 2023 New York Times Co Earnings Call
Good morning, and welcome to the New York Times Company's second quarter 2023 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. That's a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Mike Brown, Vice President Assistant General Counsel and corporate Secretary Secretary. Please go ahead.
Thank you and welcome to the New York Times Company's second quarter 2023 earnings Conference call.
On the call today, we have Meredith Kopit, Levien, President and Chief Executive Officer, and will Bardy Executive Vice President and Chief Financial Officer.
Before we begin I'd like.
To remind you that management will make forward looking statements during the course of this call. These.
These statements are based on our current expectations assumptions may change over time.
Our actual results could differ materially due to a number of risks and uncertainties that are described in the company's 2022 10-K and subsequent SEC filings.
In addition, our presentation will include non-GAAP financial measures and we've provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investors thought and why Chico.
Yeah.
And finally, please note that a copy of the prepared remarks from this morning's call will be posted to our investor website. Shortly after we conclude with that I will turn the call over to Meredith Kopit Levien.
Thanks, Mike and good morning, everyone.
For more than a year, we've been executing on our strategy to becoming a central subscription every curious English speaking person seeking to understand and engage with the world.
Strong results this quarter demonstrate that the strategy is working as designed.
Sure the Highland.
Digital subscription revenue is growing.
Both subscriber volume.
Subscriber engagement remains high and fueling growth in all of our major revenue streams.
Leading digital subscriptions and digital advertising, there, yet and we continue to exercise.
Even while investing into enhancing the value of our products and bus.
We owe these result in large part to getting more people to experience an unmatched breadth of the time.
Which they are increasingly buying as a bundle.
We expect uptake at the bundle is an essential part of our ability to drive sustainable value creation, including A&P growth free cash flow growth and margin expansion on that note. We are on track to deliver all three.
Despite ongoing market challenges.
I'll turn now the major contributors to our second quarter results.
We added 180000, net new digital subscribers with more than half of our digital started taking the bundle for the second quarter in a row more than a third of our nearly 10 million subscribers are now bundle or multi product subscribers, which supports our belief that EVAR.
The next few years, we can get to 50% or more of our total subscribers on the bundle.
We also grew digital art too for the fourth consecutive quarter.
For the first time since our acquisition of the athletic we grew digital our year on year.
That growth is a direct result of our value based pricing strategy, which combines attractive promotional pricing multiple subscription options and a proven ability to step up subscribers to higher prices and more products over time.
They come to your experience how valuable our products are in their lives. We saw all of the elements of our pricing strategy on display in the second quarter and all of that particularly in our ongoing deployment of price increases for tenured subscribers to news and games, it's going well as we continue.
To enrich both of these fronts.
We view the quarter subscriber results as a testament to our broad and valuable product portfolio, which continues to attract a large engaged audience.
By the ongoing reality of less traffic platform and a new cycle less dominated by singular stories that capture unprecedented attach.
Consistent with the pattern, we saw last quarter subscriber engagement with strong across products and subscribers.
We were especially encouraged to see engagement for early tenure subscribers. Many of them bought the bundle even higher than last quarter four of last year as we've said before the strong subscriber engagement as a leading indicator for healthy retention and long term pricing power.
Also an outcome of the inherent appeal of our offering and our ability to regularly deliver compelling new product features let me give you a few examples.
Hey news, we added a new data journalism feature that tracks extreme weather across the U S. In a personalized way and includes a tool to monitor the places you care about most and near real time.
We also expanded our newest daily morning audio show called the headlines which can be found in our subscriber only audio which we made available widely in the second quarter. New features like these supplement the strong engagement. We continue to have unparalleled a bridge a big important.
Stories like the war in Ukraine, the global economy, and the forthcoming presidential election.
And Gabe.
We launched a new word matching puzzle, India called connection which is already attracting millions of users. We also added two more popular Brussels to the game that letter box and trials and we introduce spelling Bee has puzzled as a new subscriber only benefit.
These enhancements, even as tens of millions of people continuing to play word elaborate week, which gives us a huge audience. We can introduce other games news sports recipes and shopping but.
I'll note that while world is a hit like no other our audience of people playing games other than word or has experienced record growth over the last year.
The giant audience now have for game.
<unk> continues to power start for both our gaming subscription bundle.
We expect the athletic play a similar role in our final lever time, when we've made a number of technical and journalistic in him.
In order to drive engagement those enhancements helped propel us audience to substantial growth for the second quarter in a row and we continue to make good progress toward our goal of athletic profitability.
Advertising performed better than we expected in the corner with digital advertising up six 5%, we attribute our strength to growth in our core offering a combination of proprietary premium out campuses and first party data. We also saw the benefit in the quarter of our effort to extend our ad products.
Cross the bundle and in particular in the games and the athletic advertising revenue for the athletic more than doubled year on year, the second quarter in a row and the athletic is driving new advertisers not just on its own destination, but across the time.
Print advertising declined in line with our expectations I'll close on advertising by noting that while visibility from quarter to quarter remains limited. We continue to believe the fundamentals of our business position us well for long term growth in digital advertising.
Our other revenue category was up 16% in the quarter anchored by wire cutter, which had its best non holiday quarter ever.
Momentum continues in the current quarter with wire cutter, having its best ever sales around five days.
I'll turn briefly now to cost in Q2, we continued to exercise cost discipline with moderation of cost spread coming earlier in the year than plan, we feel really good about where we are on course and plan to maintain our active management of cost growth, even while continuing to invest strategically to build off.
No.
I'll wrap up by noting that these results showcase the resiliency of our model and the multiple levers. We have progressed. This is particularly important given the context in which we're operating.
But it is an uncertain economy audience headwinds and an information ecosystem that continues to evolve we're confident that our clear strategy and continued strong execution position us well against this backdrop, we view our essentials subscription strategy as a real success story, thus far.
<unk> subscriber volume and <unk> increases building engagement that fuels growth across multiple revenue streams, and creating leverage that allows us to control our costs.
All of that enables us to build a larger and more profitable company, which in turn allows us to continue to do the most ambitious high quality journalism across an ever broadening range of topics and important.
And before I close I would like to officially welcome Bill Bardeen on his first earnings call as CFO I'll turn it over to will now to walk through our financials in more detail, including an update about changes we've made to our disclosures to more clearly communicate our progress to invest.
Everybody is well.
Thanks, Meredith good morning, everyone. It is a truly exciting moment to step into the CFO role at the New York Times Company.
<unk> is a global market leader with a large opportunity in front of us I.
I see us clearly demonstrating a virtuous cycle between the pursuit of our journalistic mission and the success of our business.
I believe the strategy that Meredith described positions us to deliver sustainable digital revenue growth.
Free cash flow growth and margin expansion in what continues to be a challenging market.
Today I'll start with this quarter's key results followed by our financial outlook for next quarter I'll conclude by discussing the enhanced disclosures, we've made to help investors better track our strategic progress.
Please note that all comparisons are to the prior year period, unless otherwise specified.
I'll first turn to subscription revenue and its drivers which are at the core of our business model.
Total subscription revenues increased approximately 7% in the quarter with digital only subscription revenue growing 13% to approximately $270 million.
Digital subscription revenue growth was driven by large numbers of subscribers paying higher prices as well as the net new digital subscribers. We added over the last year 180000 of which we added in the second quarter.
Meredith highlighted that bundle adoption for both new and existing subscribers continued to be strong.
We now have well over 3 million digital only bundling multi product subscribers after adding 280000 this quarter.
This is approximately double the number we added in the same quarter last year.
Digital subscription revenue growth was also driven by higher total digital only ARPA.
This quarter's total digital only <unk> of $9 15 increased.
Increased approximately one 2% sequentially and three 6% compared to the same quarter last year.
The growth in digital only <unk> was driven primarily by our price increases on tenured single product subscribers.
We are pleased with the results of the price increase rollout, so far which reflects the significant value we've been adding to our products over multiple years.
In total over 1 million subscribers began paying higher rates from price increases within the second quarter. As a reminder, by the end of the year. We expect to have notified at least one 5 million total subscribers of price increases for single product subscriptions.
Moving onto advertising and other revenue streams.
Total advertising revenue for the quarter was approximately flat with digital advertising revenue, increasing six 5% to approximately $74 million.
The digital increase was primarily due to first party data products at both the athletic and the New York Times group, partially offset by continued weakness in podcast advertising.
Print advertising was lower by approximately 9% driven by declines in most categories other than luxury.
While we were pleased to have exceeded advertising guidance. This quarter, it's clear that market visibility remains a challenge.
We also exceeded our guidance in other revenues, which increased approximately 16% to approximately $64 million. The outperformance was primarily the result of higher than expected wire cutter affiliate revenue and TV and film revenue.
Turning now to cost and the progress we are making in driving <unk> growth and free cash flow growth.
Adjusted operating costs growth moderated in the quarter to approximately 4%.
Consistent with our strategy. This growth was driven primarily by investments in journalism and product development.
Marketing costs were down in the quarter, but still at levels that reflect.
Relatively stable marketing investments for several quarters now and.
And we continued to slow head count growth in areas of the business, where we believe we can operate more efficiently.
Cost overall in the quarter came in lower than guidance due primarily to the timing of contractual agreements as well as the deferral of some discretionary expenses for the second half.
We reported <unk> of $92 million in the quarter higher than the same period in 2022 by approximately $16 million.
A L. P. At the New York Times Group was approximately $100 million, an increase of approximately $11 million.
Yeah Balletic have adjusted adjusted operating losses of approximately $8 million, an improvement of $5 million.
Our business model generates strong free cash flow.
$109 million in the first half of the year.
This compared with negative free cash flow of approximately $3 million in the same period of 2022, which was anomalous due to the impact of the acquisition costs for the athletic.
The $109 million of free cash flow year to date.
Instead of approximately $120 million of operating cash flow less approximately $11 million of capital expenditures.
We have a balanced approach to capital allocation, which includes both ongoing investment and disciplined return of capital.
We've returned almost $77 million year to date through a combination of $44 million in stock repurchases and $33 million in dividends. As we have previously stated we expect to return at least 50% of free cash flow going forward.
We had one special item in the quarter of $13 million impairment charge related to excess leased satellite office space that is being marketed for sublet.
I will now look ahead to Q3 for the consolidated New York Times Company.
Total subscription revenues are expected to increase 8% to 10% compared with the third quarter of 2022 with digital only subscription revenue expected to increase approximately 14% to 17%.
Overall advertising revenues are expected to be approximately flat.
Digital advertising revenues are expected to increase mid single digits.
Other revenues are expected to increase 13% to 16%.
Operating costs are expected to increase by approximately 5% to 7%.
While adjusted operating costs are expected to increase by approximately 5% to 8%.
Our general expectation of cost growth moderation over the course of 2023 has not changed and we currently expect cost growth in Q4 to be closer to what we experienced in Q2 after adjusting for the extra week in Q4 2022.
With half the year behind US. We believe we are on track for the modest margin expansion, we've been aiming to deliver beginning this year.
Finally, some remarks about our enhanced disclosures designed to help communicate progress on our strategy to investors.
Our central aim of our strategy is to maximize the profitable growth of digital subscription revenue over the long term in other words, the lifetime value of our current and future subscriber base.
We believe the three best signposts for tracking success here are the growth in our total number of subscribers the mix shift of our subscriber base to the bundle and the growth in total digital only <unk>.
To make it easier for investors to understand the key dynamics that are driving changes in total or two we are breaking out digital subscribers and <unk> into three mutually exclusive categories.
Bundled multi product subscribers.
<unk> only subscribers and other single product subscribers.
The enhanced disclosure will illuminate our progress as we aim for the bundle and multi product subscriber category to surpass 50% of our total base over the next few years up from 33% at the end of the second quarter and 22% at the same time last year.
It will also help investors better understand the impact of subscriber mix shifts and our value based pricing strategy on <unk>.
As we grow our total subscriber base, we continue to aim for modest expansion in total digital only RPM.
With this change we will no longer report digital only subscribers with news as a separate metric.
We are now disclosing news only subscribers and all of our bundled subscribers as well as the vast majority of our multi product subscribers pay for access to the news product. So the sum of subscribers in these two categories serves as a good proxy.
With that we'd be happy to take your 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 youre using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question comes from Doug Arthur from Huber Research Partners. Please go ahead.
Yeah. Thank you very much.
Meredith, it's the bottom line in the quarter. It seems to me much better than anticipated digital advertising I mean, you were guiding down there.
And obviously the athletic helps and lower media costs.
So traffic was slower.
I assume you saw less opportunity to convert I mean that that seems is of course much better than expected is that a misread.
Digital advertising is correct.
Great.
Much better than expected quarter on marketing I can't quite tell what you're asking but I'll say that sort of reduction in marketing spend you've seen us make over the last year is strategic.
For a long time now and then.
In journalism invest in the product investing in marketing until we get to a point, where the organic engine is doing more of the work and then you can begin to.
Rationalize that investment in marketing, so I would regard that.
As part of the plan.
But but feel pretty good.
And in another way, if I'm not getting getting what you're poking at no no. That's fine in terms of the digital advertising you know environment are you seeing what you would regard as you know.
A modest paradigm shift in momentum.
I think you called out programmatic is being better has anything changed in your guidance certainly for Q3 is pretty good too.
But that's a good question.
I called out is that the core of our digital AD business, which is basically the bill.
Yeah. That's you know the premium AD units that we have with first party data kind of underlying them that part of the business. It's actually been resilient in kind of the whole way through all AD environment, and that's what did really well relative.
Relative to our expectation in this quarter that we believe that is a very good signal because that's sort of the fundamental thing, we're doing and what you're seeing us do now is surgery.
And that is that products that the big <expletive>, Kansas.
And the first party data to other parts of the bundle athletic is a real bright spot there.
Super excited about sports doesn't add proposition in the athletic specifically there is a lot of interest there, but it's not just the athletic we.
Extended the AD products to them you know the.
Gamers are made a particular way this quarter for the first time, we did this really cool partnership with door Dash that works at that Theres, just lots of opportunity to take those products and expand that across the bundle and we feel good about that I'll say the ability isn't great.
Bookings still happens pretty late which is consistent with an uncertain economy I didn't hear a decade, now and I've seen a pattern, but you know that as you say certainly our outlook going into Q3 reflects what we see today and that feels better Earth and what our outlook was going into P. J.
Great. Thank you very much.
Yeah.
The next question comes from Ashton Wells from Evercore ISI. Please go ahead.
Thank you for taking the question two questions for me one on the digital strategy and one on wire cutter first just in terms of the digital strategy going forward, how should we think about sort of you guys having different products for the times, such as creating a standalone audio app versus sort of bundling everything into one central App as you did with using games lost.
Sure.
And then secondly on wire cut or just how should we think about the durability of this wire cutter affiliate revenue strength is this more a function of where our customers having access to wire cutter with the bundle now or is this sort of more driven by unique factors in the calendar that benefited wire cutter recently, thank you.
Thanks for the question Ashwin I'll I'll take the first pass and where you should feel free to add anything I Miss them I think the answer to your first question. If I understood. It correctly is how do we think about sort of the product portfolio and its component parts.
I would say we are very very focused on having the strategy and world's best news destination, a set of destination that help people make the most of their lives and passion beyond news and then putting all that together in a comprehensive.
Subscription bundle them that's.
Valuable to you whatever is going on sort of in the world and your passions or in the news cycle that that's the strategy. The way that has played out for the most part not everywhere, but the most part is we obviously have our core news destination that as al said, the gateway to everything else, we offer and then.
Each of our other products with the exception of wire cutter also presented in the form of an end destination or in App and you know we think for now that's a you know that's that's really working I I can't say enough about how strong subscribe.
Engagement has been this quarter and last quarter and so we see that as really working them. So I don't know if that's what you're pushing on but that's that's the strategy and we want to get as many people to.
<unk> experience and ultimately by the time that it was kind of most comprehensive form and breath as the bundle as we possibly can because if they buy the bundle. They are so far the pattern has been they're more likely to engage more to say.
Stay longer and over time to pay more so that's that.
My answered the first part of your question on wire cutter.
And what we see so far wire cutter has consistently I think were five and a half six years into needing wire cutter.
It's been a great story of the whole way through I think we've got a differentiated product in product reviews, and I think what youre seeing there is just strong performance that answers to a real consumer need for deeply reported product reviews.
Got you. Thank you.
Yeah.
The next question comes from Thomas <unk> from Morgan Stanley . Please go ahead.
Thanks, So much I appreciate all the new color on dissecting, our proven net adds by product type I I wanted to follow up a bit on that bundle adoption point.
It's a subset of the bundle and multi product segment and I think you mentioned bundle crossing a million.
Milestone a couple of quarters ago, which still is a minority I think of the overall multi product.
Piece of it if the vast majority of them are also subscribers news entitlement, what's kind of keeping some of those multi product subs from moving towards the bundle and maybe some color on you know whether they are higher or lower RPT and perhaps on a related point as a follow up why has that bundle <unk> been coming down sequentially over the last few.
So is it that mix of bundled versus the multi product or a more promotional uptake.
Yeah, Thanks, Thomas I'll take that.
Let me start actually with the second second part of your question.
What youre seeing there with some large who is the direct result of our strategy is exactly what we would expect.
It doesn't have to do with the multi product bundle relationship. It just has to do with the overall.
Value based pricing strategy that we have seen at play and used in the past where we are.
In a period of growth, where we're getting a lot of people wanted to bundle.
The promotional pricing.
You see that relationship between growth in subscribers and at <unk>.
Yes.
As I said.
We expected as part of the strategy over time as we get people to step up in price, we'll see that stabilize and.
Turning the other way.
But.
What we expect today and keep in mind, the key thing to look at.
In this disclosure ultimately the Big fund hosted success is that modest.
Total digital only <unk> increase overtime.
On the first part of your question.
I don't think it's fair to say that.
That.
The bundle is a minority it's actually over $2 million of that of that total and we like both the bundle and multi product subscribers. Obviously our strategy. We think the bundle is the best value product over time, and we're encouraging people.
Two to take the bundle as you noted the vast majority of our market product subscribers also take news so they're very high value subscribers.
Subscribers to us either way and that's why we bought it.
Together this is.
Essentially people, who have access to either all or the vast majority of our products.
Great that's super helpful and maybe just as a final follow up maybe stepping back any color on how much of the bundle growth Youre seeing do you think is happening from news only subscribers that you're successfully converting into a broader offering or any idea of maybe.
And the ability to attract new bigger Tam as you lean into the suite of offerings versus versus the focus originally on news only.
Yeah, I'll take that one well you should feel free to add anything.
Yeah.
The second part of your question first the point.
The bundle was could be attractive.
<unk> has many clients, but one of them has to be attractive to even more people. You know we think we've got a big Tam we've talked about that Tam and I think the bundle helps us penetrate that they can better and I think you're seeing that actually we've seen that in action now for.
Five or six or six quarters. So we feel very good about that and then tablets remind me get the first part of your question.
Just the mix shift of news only subscribers.
Moving into and migrating into the into the bundle yeah, what youre seeing in terms of the high number of bundle that adds and high percentage of starts on the bundle is a combination of new people, taking the bundle and also upgrade them, but it is more <unk>.
New people, taking the bundle and it is upgrades.
That's the important thing to know and the sort of underlying detail that may not be obvious.
Is that is because we are anywhere we would otherwise sell new subscription and in a number of other places like games. We are intervening in saying do you want to buy the bundle it and said well do not particularly in news. So many of the people who are buying the bundle or people, who would have otherwise thought is in a previous era.
Got it very helpful. Thank you.
The next question comes from David Karnofsky from J P. Morgan. Please go ahead.
Alright, Thanks, just going back to digital advertising for a second you mentioned the strength in your directional products want to see if you could speak a bit on where you're seeing some of that stronger demand maybe by vertical.
I just wanted to get a sense for how much of the outperformance in the quarter is maybe a general market rebound versus you expanding your at your AD inventory.
Yeah, Great question.
Second part of it is so hard to call what's happening.
We'll just keep thing our visibility is pretty well with that.
Manifestation of that is late booking and you see that in the guide and then the beat on the guide.
But certainly if you look at the guide for the next quarter, it's better than our outlook was a quarter ago. So that feels you know that in that is our sense of the market and then I would say so so that is a piece of it but I do think the other piece of that is we've got these AD units that really.
Warm for marketers and we're opening up new birth.
New supply and I think new pockets of demand sports is probably the best most prominent example of that we're just bringing new advertisers to the times I keep using beer. It's the Big example, but it's not the only one we're just bringing new advertisers into the fold that we didn't.
Before and we're really seeing that play out.
We're excited about that but it's not the only place I think games I think cooking overtime potentially the wired part or all of these.
<unk> presents an opportunity for the times to be relevant across a wider array of categories and I'll say, we were already kind of relevant across a lot of categories, but there are some consumer lifestyle categories, where we maybe weren't as relevant and given the scale of our audience.
Uniqueness.
These products I do think we're opening up more channels for demand and I'm going to say one more thing that you didn't ask but we've also got.
We took our former head of advertising and he is now overseeing the athletic which you know has been terrific. So far and we have a new head of advertising named joined Robins.
Times and you know we.
We feel optimistic about what's ahead there.
Okay and then just on the AI question, we've seen some reports that times along with maybe some other digital publishers may look to negotiate collectively with tech platforms over use of their data is there anything you can say on your strategy and should investors tend to think of the opportunity here, that's something akin to your commercial agreement.
Or is it something different from that.
Yeah.
It really really good question, let me, let me give me a kind of a step back answer which is.
<unk>.
Are incredibly focused on you know further resolution of the information ecosystem that we've been very focused on it for the last half dozen years, and we see real opportunity in the change that that you know.
Potentially it's essentially coming here and we feel very prepared to navigate that I'll say specifically to your question. We think our IP, we're sitting on a mountain of very valuable IP. We also produced every single day, New IP and we think that IP has tremendous value and we're working our way.
Through the best way to to manifest and realize that value I'll say, even more broadly I think.
If you imagine an information ecosystem, where a lot of what is out there is that a great produce them.
Which we could be heading heading to the premium and value for human made content.
Trustworthy brands I think becomes that much more important.
That's an underpinning to that information ecosystem and sort of for the.
For readers for people for consumers for society. So you can imagine we're spending a lot of time on that they get very hard about it.
Thank you.
The next question comes from Vasily <unk> from Cannonball Research. Please go ahead.
Thank you good morning.
Just a question about the revenue so it seems like.
Judging by your guidance, we should expect more or less constant.
Revenue in Q3 compared to Q2.
A couple of questions should we still expect the same seasonal uptick in Q4 as we saw it.
In previous in previous.
Previous years, that's number one and number two did.
The incremental margin on that revenue changed compared to previous years since the composition of the revenue seems to be changing with the.
More film debuted television and film revenue Gogo agreement and.
Why that kind of revenue.
Being a higher proportion of the of this line. Thank you.
I'll take that.
The other revenue.
As we.
We said was that in Q2 was really driven more than anything by real outperformance in wire cutter.
Meredith mentioned in her prepared remarks.
<unk> Prime day, so so I think.
If we look at our Dod and other revenue, it's very much being driven by similar factors.
And we don't guide on Q4.
But obviously.
Part of our strategy is to continue to drive these these revenue streams.
In terms of incremental margins.
Wire cutter are.
Our licensing these are high incremental margin business is obviously there is a mix of things in other revenue, but to the extent that the.
Revenue growth has been driven by by those.
That's attractive.
Okay. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mike Brown for any closing remarks.
Thank you for joining us this morning, and we look forward to talking to you again next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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