Q3 2023 New York Times Co Earnings Call
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Good morning, and welcome to the New York Times Company's third 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 followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
Draw. Your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Anthony Diclemente Senior Vice President of Investor Relations. Please go ahead.
Thank you and welcome to the New York Times Company's third quarter 2023 earnings conference call on.
On the call today, we have Meredith Kopit, Levien, President and Chief Executive Officer, and Wilbur <unk> Executive Vice President and Chief Financial Officer before we begin I would like to remind you that management will make forward looking statements. During the course of this call.
These statements are based on our current expectations and assumptions, which 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 that N Y T C O dot com.
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.
Thanks, Anthony and good morning, everyone.
Let me begin by noting this is deeply troubling complex period for the world.
Last month horrific attack on Israel.
In sealing war and devastation and got them.
The reverberating global comps.
In this difficult.
Tynes Bay some title work.
It was a century of expertise covering the region. Our newsroom has doesn't have some journalists on the ground and many more around like what do you mean.
The essential work of original reporting and analysis to eliminate extra lives either that's just they've been doing for more than a year.
On the war in Ukraine.
Our mission to be the truth and help people understand the world propels our business strategy that strategy is to become the essentials prescription.
Uraeus English speaking person.
Understand and engage with the world.
Our strong results in the third quarter underscore that our strategy is working.
Goodbye.
Essential needs, creating news coverage and lifestyle products.
It shouldn't be valuable they drive audiences to seek us out directly built enduring daily.
We believe the best opportunity to build direct lifelong relationship it's been people experienced Oh Brett.
Variety of our product portfolio package and bundle that bundle fuels our growth.
And separately.
First our multiple products give us a complementary audience.
What's the opportunity.
We expand our reach second we see better conversion of new users to paying subscribers as our varied product portfolio captures demand for a wide range of audience interest.
Third people, who subscribe to a bundle engage and routine better as the bundled creates more opportunities for them to discover and enjoy our products and sport, we're achieving better monetization of our engaged audiences as the full bundle enhances value.
For subscribers advertisers licensees.
For all these reasons are essential subscription strategy continues to perform well and we surpassed 10 million subscribers this quarter.
That's been a engage subscribers, giving us a large recurring revenue stream powers, our revenue streams beyond subscription and enable continued.
Our competitive advantages.
World Class journalism premium lifestyle products.
Allergy that underpins that.
In turn enables further growth and value creation.
Indeed, we expect the quality and comprehensiveness of our news coverage and the scale and distinctive lifestyle products chips fuel our progress toward our next milestone.
King.
Right.
Accordingly, we expect at least half of our subscribers over the next few years can be on the bundle.
That matters, because bundle subscribers engage more stay longer and monetize better than subscribers.
Individual product, thereby improving our unit economics, and advancing our efforts to build a larger and more profitable company.
I'll turn now to the major contributors to our third quarter results. This quarter, we met or beat quarterly guidance on subscription revenues advertising revenues and adjusted operating costs.
We added 210000 net new digital subscribers in the quarter and the bundled played an outsized role. It was the preferred choice for news subscribers by a wide margin and set another record share of alcohol starts we achieved strong net add.
Adds great even platforms than you were casuals newsreader is to us and other publishers.
We see our continued.
New subscription growth and this environment is evidence that our investments in news and our wider product portfolio are paying off and that our strategy is building resilience.
We also saw clear evidence that our non news funnels are increasingly effective at all.
On ramps to the bundle.
Our home ground hit connection is now played by over 10 million users a week another proof point for the scale of our opportunity in that space and we grew the athletics audience again in the quarter reinforcing our conviction in the very big potential we see in sport.
Sure.
New York time subscriber engagement hit its highest level in the quarter in nearly three years as measured by the percent of subscribers on our sites or apps. Each week. This is a testament to the depth and breadth of our newsprint bridge as well as the ability of our product.
Well, we have different complementary needs.
We are steadily improving the monetization of our products with consolidated digital subscribers are two growing year on year for the second quarter in a row as well as quarter on quarter.
I'll note that in Q3, we saw the largest ever volume a bundle subscribers graduate from promotional to higher prices or encourage either retention and monetization signals, we're seeing among those cohorts.
Still early days.
Total advertising revenues grew 6% in the quarter anchored by three strengths that we believe getting a long term advantage. Despite near term market headwinds that are strengths are one our high performing premium display at Kansas and first party data box.
Which are unique to the Thai and emanate from the quality of our <unk>.
Byron and scale of user engagement.
Two the fact that we are now extending our AD products across the bundle to attract new advertisers and categories. We're just getting started here and seeing particular success with the athletic, which Peru RASM do you have more than three fold in the corner.
And three our brand enduring appeal for the world's top marketers, who can reach our big influential audiences through multiple channels across our platforms.
We're all advertising results in the quarter also benefited from better than expected resiliency and print, which we nevertheless expect to decline over time.
On the cost side, we continue to actively manage our expenses. This cost discipline supports our ability to keep growing AARP and free cash flow, which we did again in Q3, even as we continued investing into our strategy.
I'll wrap up by noting that the successful execution of our strategy reinforces our confidence in the path ahead.
Our journalism of lifestyle products to me, that's the category leader in subscription journalism.
Wide margin are essential subscription strategy is delivering steadily improving unit economics and with this foundation and against the backdrop of an ever changing information ecosystem. We believe strongly in our ability to achieve our financial goals and build a larger.
And more profitable company now, let me turn it over to will for more detail on the quarter.
Thanks, Meredith and good morning, everyone.
Our essential subscription strategy is designed to do more of and increase customer value and fuel growth.
Meredith just described are bundled with market, leading news and lifestyle products is also designed to improve our digital unit economics and company profitability in a few ways.
First we plan to increase our subscriber lifetime value over time because of the bundled strong engagement retention and <unk> potential.
Second we expect to sustain attractive subscriber acquisition costs as the bundled converts organic demand from multiple areas of the body. Its interest and third we expect strong engagement with our scale subscriber base will fuel the growth of our additional advertising affiliate and licensing revenue streams.
We see these improving digital unit economics reflected in our financial results.
Steady revenue growth and disciplined cost management have been driving continued a O P growth and margin expansion.
Today I'll discuss the quarter's key results followed by a financial outlook for next quarter.
Please note that all comparisons are to the prior year period, unless otherwise specified.
I'll start with a discussion of our subscription business. We added approximately 210000 net new digital subscribers in the quarter.
Largely driven by strong performance in bundled multi product subscriber additions.
We added more than three times as many bundled multi product subscribers as we did in the same period last year.
They now make up 38% of our total base well along the path to exceeding 50% over the next few years.
Total digital only ARPA grew steadily for another quarter to $9 28 up.
The 5% year over year, and 1.4% quarter over quarter.
Our continued sequential digital only ARPA growth was driven by our success with graduating subscribers from promotional to higher prices as well as the ongoing impact of our digital price increase on tenured dawn bundled subscribers.
We continue to be pleased with the results of the digital price increase rollout.
As Meredith noted, we transition to a greater number of bundled subscribers from promotional to higher prices in Q3 than in prior quarters.
While it is still relatively early we are encouraged by the signals that bundled subscribers retained and monetize better the news only subscribers as we stepped them up to higher prices.
As a result of the growth in both subscribers and digital only argue in the third quarter digital only subscription revenues grew 16% to $282 million.
Total subscription revenues grew approximately 9% to $419 million.
Now turning to advertising.
Advertising revenues for the quarter were $117 million coming in above expectations with growth of 6% compared to our guidance of approximately flat.
The outperformance was primarily driven by better than expected results from print advertising, which was up approximately 5%.
Digital advertising came in towards the high end of our expectations in the quarter growing approximately 7% to $75 million.
This growth was driven by strong performance at both the New York Times group and didn't get it.
Atlantic for a core premium display and first party data product offering.
The strength in these products helped to more than offset softer results from podcast advertising, where we continued to see headwinds.
Other revenue grew in line with our guidance, increasing approximately 15% to $63 million wire.
Wire cutter affiliate revenue and licensing continued to be strong contributors to year over year growth.
Moving now to costs and the progress, we're making driving a O P growth and free cash flow growth.
We continued to demonstrate cost discipline this quarter, along with a strategic approach to areas of ongoing investment.
Adjusted operating cost growth was in line with our expectations, increasing approximately 6%.
Growth was driven in large part by our continued investments in journalism and product development.
The strategic investments we've made in these areas have enabled us to improve our operating leverage by broadening our addressable market and fueling organic subscriber growth.
Sales and marketing costs were down approximately 3%, reflecting our ability to continue leveraging our journalism and product investments to acquire the majority of our new subscribers organically and improve the effectiveness of our overall sales and marketing spend.
We saw improved marketing efficiencies in the quarter in part due to a simplification of our media programs, which have consolidated much of our media spend to focus on the bundle.
The increase in our general and administrative cost growth was due principally to higher compensation and severance expenses and certain one time items. It's worth noting that we don't believe Q3's higher level of growth to be representative of future G&A growth.
As a result of strong revenue growth and disciplined cost management adjusted operating profit grew 30% to $90 million.
Adjusted operating profit margin was 15% in the quarter, an increase of approximately 240 basis points compared to the prior year.
We view these results as a testament to our strategy's ability to drive growth and margin expansion over time.
This also translated into strong earnings growth.
Diluted earnings per share increased 13 to 37 cents.
EPS growth was also aided by higher interest income on our cash and marketable securities and a favorable effective tax rate.
As of the third quarter and the company has generated approximately $208 million of free cash flow year to date gehman.
Demonstrating the strong cash generation of our model.
Turning to capital allocation.
I wanted to take this opportunity in my first full quarter as CFO to restate, our capital allocation priorities, which remain unchanged.
First to organically reinvest into the growth of our essential subscription strategy in ways that drive value creation and extend our long term competitive advantage.
Second to return excess capital to shareholders in the form of dividends and share repurchases.
And third to maintain the flexibility to consider targeted strategic acquisitions that can accelerate our strategy should we see a high return opportunity.
We continue to have a balanced approach to capital returns with a target of returning at least 50% of free cash flow over the midterm.
Year to date as of November 3rd we have returned approximately $114 billion through a combination of $69 million in dividends and $45 million in stock repurchases.
I'll now look ahead to Q4 for the consolidated New York Times Company.
Before I do I would like to note that we have updated our presentation of total operating costs to include special items, which are items that are outside the ordinary course of our operations.
As a result of this change we will no longer provide quarterly guidance for total operating costs due to the inherent difficulty in forecasting. These special items, we will continue to provide guidance for adjusted operating costs.
And as a reminder, due to a change in the company's fiscal calendar. The fourth quarter of 2022 included an additional six days of revenue and costs compared to the fourth quarter of 2023.
In order to provide clarity around our outlook, we've provided fourth quarter 'twenty two 'twenty three revenue guidance on both a reported basis and an adjusted basis, which excludes the additional six days of revenue from 2022 in the year over year comparison.
The full details of our fourth quarter guidance can be found on page nine of our earnings release.
On an adjusted basis total subscription revenues are expected to increase 8% to 11% compared with the fourth quarter of 2022.
And digital only subscription revenues are expected to increase approximately 13% to 16%.
Overall advertising revenues are expected to range from a decrease of low single digits to an increase of mid single digits. While digital advertising revenues are expected to increase low to high single digits.
These ranges reflect the ongoing low visibility we are seeing in the advertising market.
Other revenues are expected to increase low to mid single digits.
On a reported basis adjusted operating costs are expected to be in the range of flat to up 2%.
With more than half of the year behind US. We believe we are on track for modest margin expansion, we've been aiming to deliver beginning this year.
And with that I'll send it back to Meredith to wrap up.
Thanks Wes.
In closing this quarters results are further proof that our essentials subscription strategy is working.
Our unrivaled journalism and market, leading lifestyle products give people many reasons to seek us out of different mandates.
We believe integrating its products into a single bundled offering increases the value, we deliver to customers and deepen their engagement and willingness to pay more over time.
The product multi revenue stream model makes us more resilient in the face of an honest.
Certain economy and world in an ever changing information ecosystem.
All of which.
We're well positioned to continue creating value for our readers for our colleagues and for our shareholders.
With that we would be happy to take your questions.
We will now begin the question and answer session.
That's a good 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 to withdraw your question. Please press Star then two.
At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Thomas <unk> from Morgan Stanley. Please go ahead.
Thank you so much.
I noticed during the quarter that you reduce their promotional rate on the bundle to a dollar a week, which is or was equivalent to what the news only product was offered had before can you talk a little bit about just the role of being the only over time are you still seeing growth starts coming into the news only product at this point or has how you changed.
The selling strategy and the marketing of the bundle really shifted that.
Yeah.
Yes, Thomas I'm happy to take that.
Yes, we as we talked about we've been testing the dollar week promotion, which had been so successful on views for the bundle and we had.
You know as you know our strategy is to maximize subscriber lifetime value, we like what we see there and so that is b essentially.
Essentially bringing in.
The bundles start on that.
If we take a step back I think I I mapped out in the in the last call.
Three things, we want to look at our.
Growth in total subscribers that mixed shift to the bundle because what Meredith night discussed pertaining better.
Engaging more and.
And paying more.
And and then lastly, sort of the overall growth in total digital only or two.
Those are the three sign posts that we we look to and in this quarter you can see that very much playing out.
The way our strategy is designed so we like to see them bundled growth.
And we.
We are essentially no longer.
You know marketing news only we're marketing the bundle for that reason and so I think you can expect to see the trends generally that you're seeing.
This quarter play out as our strategy is working as designed.
I'm going to add one to that comment which is that we have a long and good track record of being able to bring people in any of our products now with a promotional price entering gauge get them to engage more over time, and then stepped them up either.
One or two or a few goes to higher prices and you have to imagine in the background, we're just getting better and better at the execution of that and we like the results, we're seeing and that's what gives us confidence that sort of be working at all and the demand curve here.
Okay makes sense and then Meredith you mentioned the news aggregator pressures and you've been talking about that for probably the better part of that year. Now are we lapping some of that as we exit this year from a year over year perspective, or do you see further changes.
Developing maybe just an update on that would be helpful.
Yeah, that's a really good question and it's probably been a year might even be five quarters now that we've been talking about it I would say our strategy is designed for us to be resilient to sort of however, the ecosystem continues to evolve.
The point here is to build products in news and beyond is that are you know it sounds good so necessary to people that how ever you know what what whatever the ways to get to those products people are confined. So that's that's the first thing to say that that's what we're trying to do here and I think are sort of.
Continued strong results against that clearly straight stated strategy all year long with those headwinds. This is evidence of that I think it's fair to assume that who knows but that that information ecosystem gonna keep evolving them for any number of reasons and not so much.
Much of what we're doing is intended to be able to harness demand no matter what happens.
Our next questionnaire compartmental go to the next question.
The next question comes from David Karnofsky from J P. Morgan. Please go ahead.
I think you will just maybe following up on your comments before.
<unk>, we saw a sequential decline for bundle and multi product RPM in the quarter, which makes sense given the net adds but as you start to graduate early cohorts to interim or full prices should we start to see some stabilization in this number eventually and then just on the outlook for Q4, it's a bit wider range than normal on revenue I think that's to the advertiser.
<unk> Meredith can you speak to what Youre seeing in the AD market and how does the kind of elevated news cycle. We're in play into that thank you.
No need to go go go go ahead yeah.
Thanks, David on advertising I'll sort of give me that whole picture yesterday. It is a wide range of net wells that in his prepared remarks that sort of flex.
Just how much uncertainty there is on the positive side.
You know, we feel very confident that our approach and our fundamental strategy and advertising is working the core of the digital business, which is premium out in Kansas.
First party data.
Across the New York times groups that newness and our other products and it now but it is really working and that's been really resilient even in a tough.
Macro economy, and we expect that to continue to work in there. There's a lot of demand for that also on the positive side athletic advertising really well you know that.
Idea here is bringing in new advertisers and get different campaigns from existing advertisers you know we work across a lot of categories that we have got real optimism there and were more assertively, extending the product, but add products at places like games, which I think I talked about in the last quarter and you'll see that.
That kind of as we move across the portfolio. So I'd say, that's all that all feels good at the same time I think a lot of that that's kind of why guide is being driven by you know there was a second word now being bought and that can create uncertainty in the broader market and therefore.
The AD market and I would say macro economically it remains pretty uncertain time and then there are two places where we said we just expect some amount of continued headwinds one is print print spend punch really hard to call in a decade here I would say, it's always print advertising is always really hard.
Hard to call them did better than we expected in the last quarter, we will see them in the current quarter and then podcast truly news podcast remain sort of under pressure for a number of reasons for all of those reasons I'd say broadly we feel very confident in our.
Underlying AD approach and products that we think it's really working for marketers, but theres just a lot going on at a macro level that makes it hard to know.
And then on the you know the.
Trajectory of bundled multi product or our pool as you know that is our <unk>.
Strategy working as designed as we bring on.
Large cohorts of bundled subscribers at the promotional prices.
Jos.
You've been following us for well thought out and use only as well and certainly we expect over time for that to stabilize and eventually I would turn back to.
To growth.
You know, we're not sort of calling that to some extent. This is a period of sort of a rapid shift to the bundle and a lot of effort going into that.
Bumble cohorts.
We have a lot of levers at our disposal on <unk>, which you know the two big ones you've been seeing.
The digital price increases as well as over time, we're gonna see more impact from the transitioning of these cohorts to higher prices. So that it would take a more impact beginning next year and as we've said the overall.
Expectation is for that total digital only argue to continue to modestly expand increase overtime.
The next question comes from Ashwin Wells from Evercore ISI. Please go ahead.
I know it's early to talk about 2024 at this point, but can you talk a bit about how you're thinking about the puts and takes for expense growth next year is still low to mid single digit rate. We've seen this year the right run rate to think about for the business going forward.
Yeah.
Actually I'm happy to take that I mean, we don't.
You know guide on 2024, but I think it's.
Fair to say that you know.
We feel good about.
Our costs.
Performance, both our ability to continue to invest strategically.
And the key areas of our journalism and product development.
Also being relentlessly focused on efficiency and making sure we're reallocating our resources to areas of highest impact.
We feel like we are definitely on track.
Doing what we telegraphed at the beginning of the year is to sort of see that cost growth moderate.
And that's our general expectation as we head into next year into Q4 and into next year.
Thank you.
Yeah.
The next question comes from Doug Arthur from Huber Research Partners. Please go ahead.
Yeah. Thanks, Meredith you you called out the strong advertising results of the athletic which was really quite a surprising number I guess the flip side.
Is digital advertising backing out the athletic was kind of a push.
Year over year was that a bit of a disappointment or is that the podcasting reference you made and then I've got a follow up.
It's it's certainly more than that in the first in your in the way you're answering yet I'll say again remember, we sort of did better than our own earn died there and the thing that we pay closest attention to even setting aside yeah. Yeah is how is.
Core display on the New York Times, and with the group generating which is premium not campuses plus first party data and I wouldn't say that remains resilient in the face of it doesn't really complicated market said most of what where you're seeing the pressure is and pod casting and then.
You know broadly.
Moving around in the market in the big kind of biggest categories that we play in.
Okay. Thank you and then as a follow up I mean, it looked like the investment and expense growth at the athletic was pretty robust in the quarter.
Is that just investment.
In the marketing is it content are you hiring people with what's happening there.
Let me, let me give a broad answer well you shouldn't you shouldn't providing any more detail you think it's appropriate I would say on the athletic things start going probably kind of according to plan and as we suggested they would.
Point of acquisition, and where you see us investing it is in the two things that we think are going to drive the most value on the athletic which is ensuring that the coverage is widely appealing and widely seen so that's that's a place of investment.
We've talked about that on prior calls I think that they get an opportunity at the athletic as Ted get many more people to know that exists and read it and to engage with it that's one.
No single biggest area of expense and so anywhere you see sort of increased investment that's going to play out there and then the digital product and making you know creating.
Creating more opportunity.
Technologically and the product experience to engage them.
So I think that's where you're seeing it and it's all in and a little bit I'll just add one more beat them you know the AD business is going very very well and there are some number of things you're doing there lesser but some number of things you see up your narrative.
You can't throw gas on that fire.
I'll just add one more thing which is is that.
You know this.
The success of the bundle and the growth of the bundle.
He is in part also assigned.
A sign of the success of the athletic as part of the bundle and one of the things. We are doing is allocating the expenses from that growth.
Back to the athletic as well so.
You know as you have to let it grows you're going to see expenses expense growth.
At the other way.
The next question comes from the Silly care sales from Cannonball Research. Please go ahead.
Thank you good morning.
Just wanted to follow up with a bigger picture question on.
Your comments about <unk> growth and the.
We have confidence in and how that will continue. So you did provide longer term goal of 15 million subscribers and I'm sure that internally you also have estimates of what our pool would look like now of course, it is unexpected to shed that estimate to worry about but maybe you can help us think.
How do.
You know what the right.
Sort of directions, along which the sync with.
Our pool could be kind of be.
The teams are in teens kind of be in double digits, and what sort of puts and takes we should be.
Thinking about when estimating what kind of pool the fifth.
$10 million.
Subscribers, New York Times would have thank you so much.
Yeah, Great. Let me just make a couple of broad comments will I suspect you'll have that anymore.
Satisfyingly detailed answer on our appeal.
On the top 215 million and you should expect us to really be aiming for more than half.
Over the next few years of the total subscriber base to be on the bundle one that has economic benefits in myriad ways to the whole business not just not just items that you're asking about sun. So you know continuing to push toward bundled penetration, but for starts and also for <unk>.
Existing standalone subscribers to news or any of our other products. So that's going to play a big role in ERP trajectory and then I'll just make one more broad comment which is you have a number of them will I think referenced earlier you have a number of things going on around price rises that.
So far I would say we are executing well on this one is bring people in at promotional prices stepped them up over time, either in year or across a multi year period as they engage more as they realize more value and as I said earlier, our ability to execute against that or attack is getting better.
Better the IV route power that is getting better and better so that that's one to them.
As we get more people to understand the time isn't just the product they came for and that that presents nice news, but you know we've got cooking factors getting subscribers and athletic subscribers getting people to take the whole gives them more of a reason to pay us more engaged more than past more every time, we really.
We like what we see there so far and then three.
This has played a big role this year and I think we'll continue to every time, we now have a good history of at the point of tenure in news and executed games for the first time a week.
Talked about doing it in cooking as well and are beginning to do that at a certain point of tenure for certain subscribers based on engagement level. We can do a price increase in exercise our pricing power. So all of those things successful execution on all of those things would point toward how we expect it to go over.
Time, as we're growing volume and you know bearing down the path to $15 million well what did I Miss there.
Think what all I can say this wave is over the mid term.
The way we are thinking about it is still the way we articulated it which is essentially modest.
Year over year ARPA growth is essentially our expectation with.
They won't be totally linear and there are lots of puts and takes and levers as Mary described but that's generally still how we are.
Thinking about it ourselves.
Okay. Thank you so much.
This concludes our question and answer session I would like to turn the conference back over to Anthony Diclemente for any closing remarks.
Thank you all 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.
Yeah.
Yeah.
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