New York Times Company (The)

Good morning and welcome to the New York Times Company's second quarter 2022 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 Tokutsky, Vice President of Investor Relations. Please go ahead.

Thank you, and welcome to the New York Times Company's second quarter 2022 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 2021 10-K 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 Kovalevian.

Thanks, Harlan, and good morning, everyone. In a world that is getting ever more complex, we believe that quality journalism can play an even more valuable role in people's lives. Over the course of the year, we've introduced the next phase of our strategy to become the essential subscription for every English-speaking person seeking to understand and engage with the world. That strategy is grounded in three pillars. First, to build on our leadership in news to be the best news destination in the world. Second, to be more valuable to more people by helping them make the most of their lives and passions. And third, to put those two things together in a more expansive and connected product experience or bundle that makes the times even more indispensable to the daily lives of millions more people. We're making palpable progress in each of these areas and have strong conviction in our path forward and ability to create shareholder value. Turning to our second quarter results, Overall revenue grew more than 11%, with digital subscription revenue up nearly 26%, and total advertising revenue up just over 4%. We had 180,000 net digital subscriber additions in the quarter, which represents approximately 70% improvement over the second quarter of 2021. driven by the bundle, games, and the athletic. It was also a relatively strong period for subscriber engagement. There were two big success stories in the quarter, our effectiveness at getting more people to buy our all-access bundle, and the performance of our recent acquisitions. Together, they show our strategy in action. As I've said on the last few earnings calls and at our June Investor Day, we believe that the bundle will allow us to better penetrate our addressable market and drive more volume and higher ARPU. News remains core to our value proposition, but the bundle helps ensure that the time is indispensable to an ever-widening group of people, even as news engagement ebbs and flows. In the second quarter, we brought in the highest ever number of new starts to the bundle, thanks to a deliberate effort to prompt more people to buy it versus news only subscription. As a result, the bundle made up a majority of the quarter's total net subscriber addition. That means we are seeing discernible momentum on a key element of our strategy to drive revenue, profit and shareholder value. Our experience so far is that bundle subscribers, including our newest ones, pay more, engage more frequently, and retain better. So our plan is to lean even more heavily into selling the bundle to new subscribers and getting existing subscribers to upgrade in the back half of the year. We expect much of the revenue benefit from this to begin in 2023, as we follow our proven playbook of moving subscribers from introductory offers to higher prices over time. Our acquisitions also played a big role in the quarter. We had 50,000 standalone net additions to The Athletic, which is 50% higher than The Athletic's performance in the second quarter last year before we acquired it. Two quarters into owning The Athletic, we are even more excited about the opportunities we see, and we are moving quickly to realize them. We added The Athletic to our all-digital access bundle in June, extending access to existing bundle subscribers and, at the end of the month, print subscribers. We also began promoting The Athletic stories on time surfaces, including our homepage, the morning newsletter, and our social feeds. And we plan to aggressively market The Athletic as part of a Times bundle to potential new subscribers globally in the second half of the year. The quarter was also our best one yet for games net additions, thanks to the continued success of Wordle in attracting an outsized number of new regular users. While smaller than the bundle as a percent of total net additions, games-only starts were significantly higher than the second quarter last year. Weekly active users of Wordle have come down off the peak as expected, but they remain high, and we have successfully capitalized on Wordle demand to drive engagement with our broader portfolio of games. For example, the number of people playing more than two games in a given week has nearly doubled quarter over quarter. The Times now has 9.2 million subscribers with 10.6 million subscriptions, and we believe we are well on our way to our next mile marker of 15 million subscribers by the end of 2027. On advertising, performance for the quarter was on track for total revenue, though digital grew less than expected and print grew more. Let me set this quarter's results and the next quarter's guidance into a broader context. Our advertising revenue is cyclical and it's subject to significant fluctuations as a result of exogenous conditions. Having been in and around the ad business for a long time, I would call the patterns we're currently seeing in line with what we'd expect given the macroeconomic uncertainty. We're confident in our advertising approach, which is grounded in the market-leading suite of first-party data and premium ad products that our subscription-first strategy enables. So we fully expect digital advertising to be a growth driver over the midterm, and overall advertising to continue to be a significant contributor to the company's profits. Now let me turn to costs. Our adjusted cross-growth in the New York Times group slowed in the first and second quarters. Consistent with our plan, and as you'll see in our guidance, you can expect more meaningful improvements to cost growth in the back half of the year. And given the uncertain macroeconomic environment, we'll continue to look closely at costs while prioritizing investment in areas that widen our moat, like journalism and digital product development. Our second quarter results and our actions underscore the five-part value creation thesis we shared at Investor Day in June. Our confidence in the business is grounded in the following beliefs. First, that our high-quality portfolio of journalism and lifestyle products is our competitive advantage and the basis of our company's value. Second, that our product portfolio positions us to pursue a large and still-growing team of at least 135 million people. Third, that our model itself is advantaged with favorable unit economics, numerous levers for value creation, and multiple revenue streams. Fourth, given the scale that we've begun to achieve, we believe that our model will lead to sustained profit growth over time, even as print continues to decline and even as we continue investing to widen our moat. And finally, these things together mean that our model is and we expect will continue to be increasingly cash-generative. As we've articulated, vis-a-vis targets, we're aiming for 15 million subscribers by the end of 2027, which we view as a mile marker, not an endpoint. We're targeting compound annual growth in AOP of between 9% and 12% over the next three to five years, with 2022 as the base year. This is more profit growth than we achieved on a CAGR basis in the previous five years. We expect to achieve margin expansion on a consolidated basis beginning in 2023, and we expect to return free cash flow to our shareholders in a range of 25% to 50% annually over the midterm. On that last point, in the second quarter and into the third, we continue to be active buyers of our stock. As we articulated at Investor Day, we factored headwinds into our midterm AOP target, given the outsized role that advertising plays in our profitability and its sensitivity to macroeconomic conditions. These headwinds have begun to appear and are reflected in our second quarter results and in our forward-looking guidance. We also see potential tailwinds. We're encouraged by this quarter's progress. which strengthens our belief in the power of the bundle and our ability to translate our strategy into results. We're also executing well so far with the athletic, and we have moved faster than initially anticipated in adding it to the bundle. As a result, we expect the impact of the athletic on this year's consolidated profit will be less negative than we forecasted at the time of acquisition. Let me close with our full year 2022 outlook. We are reaffirming the guidance that we shared in February and again in May that we continue to expect to grow adjusted operating profit in our core business before the impact from the athletic, but we do not expect that growth to entirely offset the dilutive impact of the athletic on a consolidated basis. We will see how macroeconomic trends play out and also what we can achieve on subscriber ARPU as we lean more aggressively into selling the bundle. And we'll continue to keep you apprised of our progress and trajectory as we go. I look forward to your questions. In the meantime, over to Roland.