New York Times Q3 2023 Earnings Call Transcript

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November 8, 2023

There are 7 speakers on the call.

Operator

Good morning,

Speaker 1

and welcome to The New York Times Company's Third Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Anthony take Clemente, Senior Vice President of Investor Relations.

Speaker 1

Please go ahead.

Speaker 2

Thank you, and welcome to The New York Times Company's 3rd quarter 2023 earnings conference call. On the call today, we have Meredith Kopit Levien, President and Chief Executive Officer and Will Bardeen, Executive Vice President and Chief Financial Officer. Before we begin, I 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, are

Speaker 3

in the

Speaker 4

range of 2,000,000,000,000

Speaker 2

of revenue from the company's in the Q2, 10 ks and subsequent SEC filings. In addition, our presentation will include non GAAP financial measures, and we have provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investors. Nytco.com. 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.

Speaker 4

Thanks, Anthony, and good morning, everyone. Let me begin by noting this is a deeply troubling and complex period for the world With last month's horrific attack on Israel by Hamas, the ensuing war and devastation in Gaza And the reverberating global consequences. In this difficult moment, the time plays a vital role. With a century of expertise covering the region, our newsroom has dozens of journalists on the ground and many more around the globe are doing the essential work of original reporting and analysis to illuminate and contextualize these events are in the midst of the war in Ukraine. Our mission become the essential subscription for every curious English speaking person seeking to understand and engage with the world.

Speaker 4

Our strong results in the Q3 underscore that our strategy is working as designed. Being essential means creating news coverage and lifestyle products that are sufficiently valuable. They drive audiences to speak us out directly and build enduring daily habits. We believe our best opportunity to build direct Lifelong relationships is when people experience the full breadth and variety of our product portfolio are packaged as a bundle. That bundle fuels our growth and our economic success in several ways.

Speaker 4

1st, our multiple products give us complementary audience funnels, each with the opportunity As our varied product portfolio captures demand for a wide range of audience interest. Create more opportunities for them to discover and enjoy our products. And 4th, we're achieving better monetization of our engaged audiences as the full bundle enhances value for subscribers, advertisers and licensees. For all these reasons, our essential subscription strategy continues to perform well and we surpassed 10,000,000 subscribers this quarter. That base of engaged subscribers gives us a large recurring revenue stream, powers our revenue streams beyond subscriptions and enables continued investment into our competitive advantages, Indeed, we expect the quality and comprehensiveness of our news coverage and the scale and distinctiveness of our lifestyle products should fuel our progress toward our next milestone of 15,000,000 subscribers.

Speaker 4

Importantly, we expect at least half of our subscribers over the next few years to be on the bundle. That matters because bundle engage more, stay longer and monetize better than subscribers to any 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 Q3 results. This quarter we met or beat quarterly guidance on subscription revenues, advertising revenues and adjusted operating costs. We added 210,000 net are new subscribers by a wide margin and set another record in its share of overall starts.

Speaker 4

We achieved that strong net ads growth even as platforms sent fewer casual news readers to us and other publishers. We see our continued subscription growth in this environment as 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 are non news funnels are increasingly effective as on ramps to the bundle. In games, our homegrown hit connection is now played by over 10,000,000 users a week, another are proof points 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 sports.

Speaker 4

New York Times subscriber engagement hit its Highest level in the quarter in nearly 3 years as measured by the percent of subscribers on our sites are in the range of 2nd quarter. This is a testament to the depth and breadth of our news coverage as well as the ability of our product portfolio meet different complementary needs. We are steadily improving the monetization of our products With consolidated digital subscriber ARPU growing year on year for the Q2 in a row as well as quarter on quarter. Were encouraged by the retention and monetization signals we're seeing among those cohorts, though it is still early days. Total advertising revenue grew 6% in the quarter, anchored by 3 strengths that we believe give us long are in the range of 10% to 15% to 15% of the total revenue of the are in 1st party data products, both of which are unique to the time and emanate from the quality of our environment and scale of user engagement 2, the fact that we are now extending our ad products across the bundle to attract new advertisers and categories.

Speaker 4

Were just getting started here and seeing particular success with The Athletics, which grew ad revenue more than 3 folds in the quarter And 3, our brand's enduring appeal for the world's top marketers who can reach our big and influential audiences through multiple channels across our platforms. The overall advertising results in the quarter also benefited from better than expected resiliency in successfully manage our expenses. This cost discipline supports our ability to keep growing AOP and free cash flow, Which we did again in Q3, even as we continued investing into our strategy. Will wrap by noting that the successful execution of our strategy reinforces our confidence in the path ahead. Our journalism and lifestyle products have made us the category leader in subscription journalism by a wide margin.

Speaker 4

Our essential subscription 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 details

Speaker 2

on the quarter.

Speaker 3

Thanks, Meredith, and good morning, everyone. Our essential subscription strategy is designed to do more than increase customer value and fuel growth. As Meredith just described, our bundle of 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 have time because of the bundle's strong engagement, retention and ARPU potential. 2nd, we expect to sustain attractive subscriber acquisition costs as the bundle converts organic demand from multiple areas of audience interest.

Speaker 3

And third, we expect strong engagement with our scaled 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 AOP growth and margin expansion. Today, I'll discuss the quarter's key results, followed by our 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.

Speaker 3

We added approximately 210,000 net new digital subscribers in the quarter, largely driven by strong performance in bundle and multiproduct subscriber additions. We added more than 3 times as many bundle and multiproduct subscribers as we did in the same period last year. May now make up 38% of our total base, well along the path to exceeding 50% over the next few years. Total digital only ARPU grew steadily for another quarter to $9.28 up approximately 5% year over year and 1 are in the range of 0.4% quarter over quarter. Our continued sequential digital only ARPU growth was driven by We continue to be pleased with the results of the digital price increase rollout.

Speaker 3

And as Meredith noted, we transitioned a greater number of bundle 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 retain and monetize better than news only subscribers as we step them up to higher prices. As a result of the growth in both subscribers and digital only ARPU in the 3rd quarter, digital only subscription revenues grew 16% reached $282,000,000 Total subscription revenues grew approximately 9% to $419,000,000 Now turning to advertising. Total advertising revenues for the quarter were $117,000,000 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%.

Speaker 3

Digital advertising came in towards the high end of our expectations in the quarter, are growing approximately 7% to $75,000,000 This growth was driven by strong performance at both The New York at Times Group and at The Athletic for our core premium display and first party data product offerings. The strength in these products helped more than offset soft grew in line with our guidance, increasing approximately 15% to $63,000,000 Wirecutter affiliate revenue and licensing continue to be strong are contributing to year over year growth. Moving now to costs and the progress we are making in driving AOP 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%.

Speaker 3

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 have invested 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 will 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.

Speaker 3

It's worth noting that we don't believe Q3's higher level of growth to be representative of future G and A growth. As a result of strong revenue growth and disciplined cost management, adjusted operating profit grew 30% to $90,000,000 adjusted operating profit margin was 15% in the quarter, an increase of approximately 2 40 basis points compared to the prior year. We view these results as a testament to our strategy's ability to drive AOP growth and margin expansion over time. Have also translated into strong earnings growth as adjusted diluted earnings per share increased $0.13 to $0.37 EPS growth was also aided by higher interest income on our cash and marketable securities and a favorable effective tax rate. As of the Q3 end, the company has generated approximately $208,000,000 of free cash flow year to date, demonstrating the strong cash generation of our model.

Speaker 3

Turning to capital allocation. I want to take this opportunity in my 1st full quarter as CFO to state our capital allocation priorities, which remain unchanged. 1st, to organically reinvest into the growth of our essential subscription strategy in ways that drive value creation and extend our long term competitive advantage. 2nd, to return will be able to access capital to shareholders in the form of dividends and share repurchases and third, to maintain the flexibility to consider targeted 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, have returned approximately $114,000,000 through a combination of $69,000,000 in dividends $45,000,000 in stock repurchases.

Speaker 3

Will 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 will be available 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 are experiencing 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 Q4 of 2022 included an additional 6 days of revenue and costs compared to the Q4 of 2023.

Speaker 3

In order to provide clarity around our outlook, we have provided 4th quarter 20 in the Q3 revenue guidance on both a reported basis and an adjusted basis, which excludes the additional 6 days of revenue from 2022 in the year over year comparison. The full details of our Q4 guidance can be found on Page 9 of our earnings release. On an adjusted basis, total subscription revenues are expected to increase 8% to 11% compared with the Q4 of 2022 and digital only subscription revenues are expected to increase approximately 13% to 16%. Are expected to increase low to high single digits. These ranges reflect the ongoing low visibility we are seeing in the advertising market.

Speaker 3

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 the 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.

Speaker 4

Thanks, Will. In closing, this quarter's results are further proof that our essential subscription strategy is working. Are unrivaled journalism and market leading lifestyle products give people many reasons to seek us out at different moments. We believe integrating these products into a single bundled offering increases the value we deliver to customers who deepen their engagement and willingness to pay more over time. And our multi product, multi revenue stream model makes us more resilient in the face have an uncertain economy and world and an ever changing information ecosystem, all of which That we're well positioned to continue creating value for our readers, for our colleagues and for our shareholders.

Speaker 4

And with that, we would be happy to take your questions.

Speaker 1

We will now begin the question and answer session. Our first question comes from Thomas Yee from Morgan Stanley. Please go ahead.

Operator

Thank you so much. I noticed during the quarter that you reduced the promotional rate on the bundle to $1 a week, which is or was equivalent to what the news product was offered at before. Can you talk a little bit about just the role of news only over time? Are you still seeing growth starts coming in through The news only product at this point or has how you changed the selling strategy and the marketing of the bundle really shifted that?

Speaker 3

Yes. Thomas, I'm happy to take that. Yes, as we talked about, we've been testing the Dollar Week promotion, which had been so successful on news are in the range of $1,000,000 for the bundle. And we had as you know, our strategy is to maximize subscriber lifetime value. We like what we see there.

Speaker 3

And so that is the essentially bringing in the bundle starts on that. If we take a step back, I think I mapped out in the last call, the 3 things we want to look at are Growth in total subscribers, that mix shift to the bundle because what Meredith and I discussed, retaining better, engaging more and are paying more. And then lastly, sort of the overall growth in total digital only ARPU, Those are the 3 signposts that 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 that bundle growth.

Speaker 3

And we are essentially no longer marketing news only. We're marketing 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.

Speaker 4

I'm going to add one beat to that, Thomas, which is that we have a long and have a good track record of being able to bring people into any of our products now at a promotional price, Get them to engage, get them to engage more over time and then step them up either in 1 or 2 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 were seeing and that's what gives us confidence to sort of be working at all ends of the demand curve here.

Operator

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.

Speaker 4

Yes, that's a really good question and it's probably been a year, might even be five 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 news that are so good, so necessary to people that however whatever the ways are get to those products, people are going to find them. So that's the first thing to say. That's what we're trying to do here. And I think our are continued strong results against a clearly stated strategy all year long with those headwinds is I think it's fair to assume that, who knows, but that the information ecosystem are going to keep evolving, for any number of reasons and that so much of what we're doing is intended to be able to harness demand no matter what happens.

Speaker 3

Thanks Bob.

Speaker 2

Let's go to the next question.

Speaker 1

The next question comes from David Karnovsky from JPMorgan. Please go ahead.

Speaker 5

Hey, thank you. Will, just maybe following up on your comments before on ARPU, we saw the sequential decline for bundle and multiproduct ARPU 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 It's a bit wider range than normal on revenue. I think that's due to advertising.

Speaker 5

Meredith, can you speak to what you're seeing in the ad market? And how does the kind of elevated news cycle were in play into that. Thank you.

Speaker 3

You want me to go? Yes, go ahead.

Speaker 4

Yes. Thanks, David. On advertising, I'll sort of give you the whole picture. Yes, it is a wide range. And as Will said in his prepared remarks, that sort of reflects Just how much uncertainty there is.

Speaker 4

On the positive side, we feel are very confident that our approach and our fundamental strategy in advertising is working. The core of the digital business, which is Premium ad canvases and first party data, both across the New York Times Group, so news and our other products and in the athletic are really working, that's been really resilient even in a tough macro economy and we expect that to continue to work and there There's a lot of demand for that. Also on the positive side, athletic advertising is going really well. The idea here is bring in new advertisers and get different campaigns from existing advertisers. We work across A lot of categories, so we've got real optimism there and we're more assertively extending the product the ad products places like games, which I think I talked about in the last quarter and you'll see that kind of as we move across So I'd say that all feels good.

Speaker 4

At the same time, I think a lot of the kind of wide guide is being Driven by there's a second war now being fought and that can create uncertainty In the broader market and therefore the ad market and I would say macro economically it remains, a pretty uncertain Print's been print's really hard to call in my decade here. I would say it's always print advertising is always really hard to call, did better than we expected in the last quarter. We'll see in the current quarter. And then podcasts, particularly news podcasts, remain sort of under pressure for a number of reasons. So with for all those reasons, I'd say Broadly, we feel very confident in our underlying ad approach and product set, and we think it's really working But there's just a lot going on at a macro level that makes it hard to know.

Speaker 3

And then on The trajectory of bundled and multiproduct ARPU, as you know, that is our strategy working as designed As we bring on large cohorts of bundled subscribers at the promotional prices, Those of you who've been following us for a while saw that in news only as well. And certainly, we expect over time for that to stabilize and eventually will return back to growth. 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, those bundle cohorts. We have a lot of levers at our disposal on ARPU, which the 2 big ones you've been seeing are the digital price increases as well as over time we're going to see more impact from the transitioning of these cohorts to higher prices. So that will take more impact beginning next year.

Speaker 3

And will expand, increase over time.

Speaker 1

The next question comes from Ashin Wells from Evercore ISI. Please go ahead.

Operator

Thank you. 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 the low to mid single digit rate we've seen this year the right run rate to think about for the business going forward?

Speaker 3

Ashley, I'm happy to take that. I mean, we don't guide on 2024, but I think it's Fair to say that we feel good about our cost performance, both our ability to continue to invest strategically in the key areas of our journalism and product development, while also being relentlessly focused are focused on efficiency and making sure we're reallocating our resources to areas of highest impact. We feel like we're definitely on track to be doing what we telegraphed at the beginning of the year as to sort of see that growth moderate, and that's our general expectation as we head into next year into Q4 and into next year. Thank you.

Speaker 1

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

Speaker 2

Yes, thanks. Meredith, you called out the strong advertising results at 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.

Speaker 4

It's certainly more the second than the first in the way you're answering it. I'll say again, remember we sort of did better than our own guide there and the thing that we pay closest attention to Even setting aside the athletic, Doug, is how is core display on the New York Times and within the group doing, which is premium ad Market, so most of what where you're seeing the pressure is in podcasting, and then just Less money moving around in the market in the biggest categories that we play in.

Speaker 2

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?

Speaker 2

Are you hiring people? What's happening there?

Speaker 4

Let me give a kind of broad answer. Will, you should provide any more detail you think is appropriate. I would say On The Athletic, things are going broadly kind of according to plan and as we suggested they would at the 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 a place of investment and we've talked about that on prior calls. I think the biggest Unity at The Athletic is to get many more people to know it exists and to read it and to engage with it.

Speaker 4

That's one and that's the single biggest area of expense. And so anywhere you'd see sort of increased investment, it's going to play out there. And then in the digital product and making Creating more opportunity, technologically in the product experience to engage people. So I think that's where you're seeing it, but it's all and a little bit, I'll just add one more beat. The ad business are going very, very well and there are some number of things you're doing there, less so, but some number of things you see us doing there to throw gas on that fire.

Speaker 3

I might just add one more thing, which is that the success of the bundle and the growth of the bundle is in part also 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 as the athletic grows, you're going to see expense growth are happy to

Speaker 2

answer your questions.

Speaker 1

The next question comes from Vasily Karasyov from Cannonball Research. Please go ahead.

Speaker 6

Thank you. Good morning. Just wanted to follow-up with a bigger picture question on, Meredith, your comments about ARPU growth and your confidence in how that will continue. So you did provide longer term goal of 15,000,000 subscribers and I'm sure that internally you also have estimates of what ARPU would look like. Now, of course, I don't expect you to share that estimate with us, but maybe you can help us think how to what are the right sort of directions along which to think what that ARPU could be, can it be in our teens cannot be in double digits and what sort of puts and takes we should be are thinking about when estimating what kind of a pool of the 15,000,000 subscribers New York Times would have.

Speaker 6

Thank you so much.

Speaker 4

Yes, great. Let me just make a couple of broad comments. Will, I suspect you'll have a more will be able to answer on ARPU. On the path to $15,000,000 you should expect us to will really be aiming for more than half, over the next few years of the total subscriber base to be on the bundle, and that has Economic benefit in myriad ways to the whole business, not just subs, but you're asking about subs. Continuing the push to more bundled penetration, both for starts and also for existing standalone subscribers to news Or any of our other products, so that's going to play a big role in the ARPU trajectory.

Speaker 4

And then I'll just make sort of one more broad Comment, which is you have a number of Will, I think referenced this earlier, you have a number of things going on around price rises that So far, I'd say we are executing well on. One is bring people in at promotional prices, step them up over time either in a year or across a multiyear period as they engage more, as they realize more value. And as I said earlier, Our ability to execute against that our tech is getting better and better. The AI we use to power that is getting better and better. So that's one.

Speaker 4

2, as we get more people to understand the time isn't just the product they came for and that presents most in news, but We've got cooking, subscribers and games, subscribers and athletic subscribers, getting people to take the whole give them more of a reason to pay us more engage more and then pay us more over time. We really like what we see are there so far and then 3 and this has played a big role this year and I think will continue to over time. We now have a good history of at the point of tenure in news and executed games for the first time and we 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 have a price increase and exercise our pricing power. So all of those things, successful execution on all of those things would $15,000,000 Will, what did I miss there?

Speaker 3

I think what all I'd say, Vasily, is over the midterm, The way we are thinking about it is still the way we articulated it, which is essentially modest Year over year ARPU growth is essentially our expectation with, it won't be totally linear and there are lots of puts and take some levers as Meredith described, but that's generally still how we are thinking about it ourselves.

Speaker 6

Okay. Thank you so much.

Speaker 1

This concludes our question and answer session. I'd like to turn the conference back over to Anthony DiClemente for any closing remarks.

Speaker 2

Thank you all for joining us this morning and we look forward to talking to you again in the quarter.

Speaker 1

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

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New York Times Q3 2023
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