New York Times Company (The)

And welcome to the New York Times Company's third quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask 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 Harlan Toplitsky, Vice President of Investor Relations. Please go ahead.

Thank you, and welcome to the New York Times Company's Third Quarter 2021 Earnings Conference Call. On the call today, we have Meredith Kopit-Levian, President and Chief Executive Officer, and Roland Caputo, 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 2020 10K and subsequent SEC filings. Given the impact that the COVID-19 pandemic had on our business in 2020, We will also present certain comparisons of our operating results in 2021 to 2019, which we believe in many cases provides useful context for our current year results. 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 Kopit-Levien.

Thanks, Harlan, and good morning, everyone. The times have a strong third quarter with the power of our subscription-first strategy on full display. It was our best third quarter in both news and total net subscription additions since the launch of the digital pay model more than a decade ago. And outside of 2020, it was our best quarter ever for digital subscription additions. We hit an important milestone during the quarter. The Times now has more than 1 million international digital subscriptions. We've said for some time that we see a huge opportunity to reach curious English-speaking people, not just in the U.S., but around the globe, and we continue to prove that out in Q3. We added a total of 455,000 net new digital subscriptions in the quarter, including 320,000 for news and 135,000 for games, cooking, and Wirecutter. This progress reflects the enduring demand for quality independent journalism and our long-term potential to mean more to more people across a range of news and life needs. Total revenues grew 19% in the quarter with digital subscription revenue rising 28% and advertising up 40% for both print and digital. As a result, adjusted operating profit grew 15% despite a 20% increase in adjusted operating costs. The quarter was a busy one in news. While COVID remained the dominant story as it has for the last 20 months, A wide range of topics also captured the public's attention, including the Afghanistan withdrawal and the tragic events in Haiti, the resignation of New York's governor, and our ongoing climate reporting. These are the kinds of stories that our 2,000-person journalism operation is uniquely positioned to cover with depth and thoughtfulness. The news cycle no doubt played a role in the quarter's performance, but so too did our improved command over the levers of our model. I've talked in the past about our efforts to build enduring daily habits, whatever the news cycle. Those efforts are now bearing fruit. A prime example is our flagship newsletter, The Morning, which now has more than 5.5 million daily readers. Not only does The Morning provide real value to our audience, helping them quickly digest the day's most important stories, Its programming mix is increasingly effective at driving people on site. That, plus improved marketing messaging, makes it a steady source of new subscriptions. We improved conversion in the quarter with a variety of planned experiments across the customer journey. We're using data and machine learning in increasingly sophisticated ways to identify the right moment to ask a reader to become a subscriber. Tests involving our algorithmic meter and paywall have been particularly promising. We also continue to experiment more broadly with friction and value exchange to find the right balance between converting readers into paying subscribers and growing the pool of prospects at the top of the funnel. Some of those experiments entailed more aggressive limiting of access to our journalism for non-subscribers, which had a meaningful positive impact on starts in the quarter. We've loosened those restrictions somewhat in the current quarter as we fine tune and balance the model. We're also working to improve and differentiate the subscriber experience to showcase the benefits of subscribing to prospects and also to drive retention. To that end, we introduced a portfolio of subscriber-only newsletters in the quarter, leveraging some of our existing newsletters with strong followings, like Paul Krugman, Watching, and Well. We also launched several new newsletters, including Professor John McWhorter on race and language and Tressie McMillan Cotton on culture, politics, and the economics of our everyday lives. As a result of strong demand for news and strengthened conversion in the quarter, we were able to profitably increase media spending. That, too, contributed to our record quarter for net additions, and we did so while our mix of paid and organic starts remained heavily weighted to organic. We continued to pay close attention to churn, which will require increased focus and energy as our subscription base grows. As I've said in prior calls, we generally view our churn rate, which has vacillated within a relatively narrow band over the last few years, as a strength. That continued in the third quarter with a slight improvement. We expect pressure on churn in the fourth quarter as promotional pricing ends for the cohort that started last year around the presidential election. and as credit card regulations tighten in some markets. We continue to believe that our focus on driving repeat engagement and on enhancing the subscriber experience will reduce reasons to cancel over time. One of the ways we intend to boost engagement and showcase the benefits of subscribing is by getting more people to experience the full value of the times, including our current standalone products. cooking, games, and wire cutter. The success of these standalone products alongside the growth of our core news product begins to demonstrate the potential of our multi-product bundle. As we experiment more with cross-promotion, we're seeing more news readers also engage deeply with cooking and games. Over time, we expect that a bundle offering all of our products can play a big role in driving conversion and in giving subscribers more reasons to engage and retain. But in the meantime, cooking and games continue to show promise as compelling propositions for subscribers in their own right, with each product nearing a million total subscriptions. Net subscription additions to games were 35% higher in Q3 than the prior quarter and more than 20% higher than last year. Cooking net additions more than doubled quarter over quarter and were on par with last year's elevated Q3 with a first-time price promotion and access model experiments driving the results. We also launched paid subscriptions to Wirecutter in the quarter. While a relatively small contributor to overall subscription additions, it's off to a promising start, especially among existing time subscribers with 10,000 net subscriptions in the first month. It's been a fertile period for product development at the Times, both within and beyond our existing products. Last month, we announced that we'll test a new digital experience we're calling New York Times Audio. It's a single destination for listeners to enjoy the full range of our audio storytelling, which today reaches 20 million listeners a month. We also officially launched a beta for a digital kids how-to product. inspired by our popular monthly print kids section. Costs were higher in the third quarter, largely driven by higher paid media expenses, as well as the strategic investments we're making in journalism, product development, and technology to allow our digital subscription business to scale efficiently. The guidance we provided in our earnings release suggests a similar level of cost growth in the fourth quarter, including increased marketing costs. As I've said in the past, you can expect us to continue to invest into our long-term opportunity to lay the foundation for a larger, more profitable business over time. Turning to advertising, we had another strong quarter of revenue growth. While year-on-year growth slowed in the third quarter compared with the second, as expected, digital advertising revenues grew 22% compared with 2019 and the same rate of growth as we reported in the second quarter. Our third quarter results continue to reflect the benefits of the overall market recovery, as well as marketer interest in our proprietary products, including the first-party data that stems from our subscription business and our growing offering of captivating podcasts. I'll close by reiterating that our business success is tied primarily inextricably to our mission of helping people understand the world. Key to that is hiring the best journalistic talent available. Several exceptional journalists joined us in recent months, including Lulu Garcia Navarro from NPR, Peter Coy from Bloomberg Businessweek, and Paul Volpe, who returned to The Times from Politico, where he was executive editor. And before I turn it over to Roland, I also want to make note of an effort by many of my colleagues to evacuate 159 of our current and former Times colleagues and their families from Afghanistan. These Afghan colleagues and so many others fleeing the country went through a harrowing experience, and it has been nothing short of awe-inspiring to watch this institution come together to help. I'm incredibly grateful to the many colleagues who supported their journey to safety and continue to do so as they resettle. And with that, over to you, Roland.