New York Times Company (The)

Good morning, everyone, and welcome to the New York Times Company's fourth quarter and full year 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please see 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 and then one on your telephone keypad. To withdraw your questions, you may press star and two. Please also note, today's event is being recorded, and at this time, I'd like to turn the conference call over to Harlan Soplitsky, Vice President of Investor Relations. Please go ahead.

Thank you, and welcome to the New York Times Company's fourth quarter and full year 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 10-K 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'll turn the call over to Meredith Kopit-Levian.

Thanks, Harlan, and good morning, everyone. 2021 was a terrific year for the New York Times Company. It was our second best year ever for net subscription additions, despite changes in the news cycle following 2020's historic period. and it was also a strong year in advertising. With these results, we saw the attractiveness of our digital-first, subscription-first approach show through. The company achieved $2 billion in annual revenue for the first time since 2012, with revenue growing 16% compared with last year. Adjusted operating profit grew 34%, and was our highest in many years, and we saw a $250 basis point improvement over 2020 margins, boosted by a recovering ad business. Looking ahead, our priority is to continue this momentum by further penetrating our growing total addressable market and leveraging our unique platform and the deliberate investments we've made in our journalism, technology, and adjacent products to build a larger and more profitable New York Times company. Before I go into more detail about the future, let me put these plans in context of the incredible growth and successful execution of our strategy over the last few years, particularly in 2021. In early 2019, we established a goal of reaching 10 million subscriptions by 2025. With the acquisition of The Athletic, which closed yesterday, and the 8.8 million subscriptions we achieved On our own, we have now surpassed this target. Even without The Athletic, we believe we would have reached 10 million subscriptions far sooner than we originally anticipated. Our 1.273 million total net additions in 2021 were 23% higher than 2019, the year before the pandemic. Our profit growth in 2021 meant another year of strong cash flow, that added to an already robust balance sheet, which has improved meaningfully over the past decade. This strong balance sheet and our confidence in the continued cash-generative nature of our business model enabled our all-cash acquisition of The Athletic, a strategic move intended to further accelerate our growth. This morning, we also announced that our Board of Directors has authorized a $150 million share repurchase and a 29% increase in the quarterly dividend. As is always the case, the unmatched impact and breadth of our journalism is at the heart of our success. That was clear once again in 2021, from our reporting on the violent aftermath of the US presidential election, to our consequential investigation into America's systematic mistakes in the use of airstrikes, which prompted reform at the highest levels of the US military, to our expansive work on the ongoing COVID-19 pandemic, including our case tracking database, which just a week ago crossed a billion page views. Turning to the fourth quarter, we drove continued growth and progress against our strategy. With 375,000 net digital only additions, Q4 was our second best fourth quarter subscription performance ever. Our subscription results in news, reflected progress in key areas we've talked about all year, including bolstering engagement for our live news formats and our growing suite of newsletters. We continue to evolve the customer journey, including improving how we use machine learning to determine the ideal moment to ask people to pay and better delineation of the experience between anonymous, registered, and subscribed user states. That work has meant greater success converting users earlier in the customer journey. It was a record quarter for net additions to our non-news products. Cooking and games each crossed a million subscriptions just before year end, the result of strong audience demand and product improvements, such as the addition of spelling bee to the games app. It was an especially strong quarter in cooking. We also had a record fourth quarter in advertising, It was our largest ever quarter for digital advertising, beating the record set in 2018 by 8%. This growth capped a year in which we were able to make the most of a recovering market with a suite of high-performing proprietary ad products grounded in first-party data, a strong audio offering, and the ability to work with marketers on large multi-platform partnerships. This strong performance in 2021 was a result of our consistent strategy and focus. Since we launched our current strategy in 2015, we've been investing steadily into a once-in-a-generation opportunity to pioneer the development of a large and growing news and information market at a time when habits are up for grabs. Over that time, we've seen our audience reach new heights with 100 million or more visiting each week during peak news periods and more than that number becoming registered users. At the same time, we've increased digital subscriptions sixfold. With this foundation, we believe we're in a strong position to drive greater subscriber growth. To penetrate the market more deeply, we now aim to be the essential subscription for every English-speaking person seeking to understand and engage with the world. That starts with building on our lead in news by continuing to provide the highest quality expert journalism on the broadest range of subjects. Dominant coverage of the biggest news stories has proven to be the largest single driver of our growth. At peak moments, we've reached as many as one in two adults in the US, and millions more internationally. News drives tens of millions of people a week into our subscription funnel, and 85% of our digital subscriber base pays for our news product today, either on its own or together with other products. We believe news will always be core to our growth story, and the company's most important economic driver and we remain confident that strong demand for news will continue. Our ambition is to leverage the power of our brand and that news audience to also become a category leader in other areas that can occupy a big place in people's lives, like games, cooking, shopping advice, and sports. That's the reason we bought the wildly popular game Wordle earlier this week, It joins our portfolio of original engaging puzzle games that delight and challenge solvers, and it gives them reasons to come to the Times every day. All of this means we are now pursuing an enormous opportunity through a broader portfolio of products to meet more needs for more people. Our latest audience research suggests that there are now at least 135 million adults worldwide who are paying or willing to pay for one or more subscriptions to English language news, sports coverage, puzzles, recipes, or expert shopping advice. That compares to the $100 million we previously estimated for English language news. Sports, in particular, is a big category in its own right, which is what makes our acquisition of the athletics so compelling. Our research indicates that about 25 million adults in the U.S. alone are either paying or willing to pay for sports information. The Athletic has also been demonstrating strong international potential, particularly in soccer. Today, our overlap with the Athletic subscriber base is modest, and we believe there is ample runway for growth. We're increasingly optimistic about the Athletic as we've solidified our integration plan, The exhaustive diligence and analysis we did before coming to an agreement supports our belief that this is the right time, the right category, and the right model to add to our platform. As we said in January, the athletics business isn't profitable today, but as we apply many of the same insights that drove our subscription business to grow sixfold since 2015, including widening its audience, building a deliberate customer journey, and driving repeat engagement, We believe that it will be a driver of the Times achieving a larger scale in subscribers and profits over time. We also believe there's a lucrative advertising business to be built, and we have the capabilities and track record to build it. Everything I've described, continuing to lead news, building our strength in other categories, adding sports, is about unlocking our potential to become the essential subscription. In service of that vision, I'll note a key change in how we're measuring our progress and talking about our strategy. We're moving toward an emphasis on individual subscriber growth rather than growth of total subscription. A central part of this strategy will be offering a single high-value New York Times subscription or bundle of interconnected products. We believe this will create an even more compelling value proposition for the enormous audience of potential consumers of our non-news products, and this diversity of value will give people multiple reasons to engage with us every day, whatever the news cycle. To attract the widest audience, we'll continue to offer standalone subscriptions to each of our products, but by focusing on the bundle, we're providing the most value to our customers and, in turn, building the best opportunity to monetize the entirety of our platforms. While we're in the early days of a true multi-product bundle playing a leading role in our strategy, the data so far are encouraging. Over 30% of our subscribers now pay to access more than one of our subscription products. Subscribers to our existing bundle have lower monthly churn rates than news-only subscribers and significantly higher ARPU. And with our research showing that most of our addressable market is interested in news and one or more other products, we believe moving toward a bundled offering will be an increasingly large profit driver. Putting it all together, we still believe we're in the early days of an extraordinary opportunity to win a larger share of a still growing market. Given our success to date and the platform we've built, we are now for the third time in six years setting a new, more ambitious target. This one is based not on total subscriptions, but on the number of unique subscribers. We ended 2021 with 7.6 million total subscribers to the time. Beginning in 2022, we're now aiming for a new goal of at least 15 million total subscribers by year-end 2027, a number that would be larger if expressed in individual subscriptions and a number that represents roughly doubling the number of total subscribers the Times had at the end of last year. Roland will have more to say about our shift from subscriptions to subscribers in a few minutes. This new goal is meant as yet another mile marker, not an end state, and based upon our analysis of the opportunities ahead of us in the portfolio, products, and platform we've built, We believe the journey to this new subscriber target will drive meaningful revenue and profit growth. In order to accomplish this, we'll continue to invest into the opportunity, and we won't sacrifice long-term growth in the name of short-term profit. But let me share a few top-line thoughts about how we're thinking about costs in this next phase of our strategy. Given that our investments in journalism, our digital product experience, and tech continue to yield strong organic subscriber conversion, we expect that we'll be able to improve the overall efficiency of our marketing spend for our core product set. We intend to continue to invest in our digital product development and our underlying tech, but in doing so, we believe we will see further benefit from its capabilities as they improve. As an example, we plan to apply some of the machine learning practices we've developed for our news product to cooking to identify the right moment to prompt the user to subscribe. We expect our people costs will rise in order for us to continue to attract and retain top talent. That reflects the state of the talent market generally, and we also expect that we'll continue to add people in journalism, other content areas, and tech. However, the unique nature of our product means that every dollar we invest here goes a long way. Turning to how we expect this to play out in 2022, we expect to grow adjusted operating profit dollars in our core business in 2022 before the previously disclosed impact from the Athletic. So we do not expect that growth to entirely offset the dilutive impact of the athletic in our first year of ownership. While we understand there is a short-term impact on profitability, we're confident in the long-term opportunity that the athletic represents. Given our progress in 2021, we are at a natural time to provide a strategic update to our investors. So we plan on hosting an investor day. in the middle of this year where we look forward to sharing more about our outlook for the company and the opportunities ahead of us. Before I hand it over to Roland, I want to say just how proud I am of our team and for all they accomplished last year, journalistically and commercially. And I want to express how optimistic I am about this next phase in our growth journey. I believe we are still in the early days of building our business, We have a leading but low penetration of a large market that we think will continue to grow for secular reasons. And we have a business model that can scale and deliver meaningful revenue and profit growth as it does. Our 15 million subscriber target represents what we're aiming for in this next phase of our strategy, but is by no means an endpoint. And I believe our journey to achieving it will yield an even more exciting and resilient, and valuable New York Times company.