New York Times Company (The)

Good morning, everyone, and welcome to the New York Times Company's first quarter 2023 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 your question, you may press star and one on your telephone keypads. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mike Brown, Vice President, Assistant General Counsel, and Corporate Secretary. Please go ahead.

Thank you, and welcome to the New York Times Company's first quarter 2023 earnings conference call. On the call today, we have Meredith Kopit-Levitt, 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 2022 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'll turn the call over to Meredith Kopit-Levian.

Thanks, Mike, and good morning, everybody. Last year, we presented the next phase of our long-term strategy with the goal of becoming the essential subscription for every curious English-speaking person seeking to understand and engage with the world. In the first quarter, we made steady progress on that strategy with clear signs of substantial runway ahead. Let me share some of the highlights. We crossed 3 million bundle and multi-product subscribers in the quarter and hit a number of new records for bundle uptake. We drove sequential ARCU expansion as we fully applied our value-based pricing strategy. We enjoyed the strongest enterprise-wide subscriber engagement we've seen in more than a year. And we slowed cost growth for the third consecutive quarter through disciplined cost management. Our performance in the quarter reflects our strategy playing out as it was designed to, with our high-quality product portfolio and multi-revenue stream models giving us a variety of levers for growth, even in an uncertain market. And the cash-generative nature of our model was on full display. I'll turn now to the quarter's specifics. We added 190,000 net new digital subscribers, roughly on pace with the last two quarters growth, despite considerable market headwinds. We now have more than 9.7 million total subscribers and remain on the path for a goal of 15 million subscribers by year-end 2027. Thanks to aggressive marketing across all of our product funnels, We had our highest ever number of bundled starts in the quarter, highest percentage of bundled starts, and highest number of bundled upgrades. This matters as strong uptake of the bundle is a positive signal of revenue growth potential because the average bundled subscriber engages more, pays more, and retains better than the average single product subscriber. Subscriber engagement in the quarter measured in weekly usage, was especially strong, driven in part by high usage from early tenure subscribers, many of whom bought the bundle. We also continued our deliberate efforts to grow top-line audiences and widen our pools of high-quality prospects across our product portfolio. That work is intended to be a driver of medium- and long-term subscriber growth, and also to counteract the headwinds on news we've talked about for some time now, including slowing referrals from the platforms and fluctuations in demand driven by a changing use cycle. While the full impact of this work will play out over time, we're already seeing results. Progress was most evident on the athletics, where weekly active users are up 50% year-on-year and new registrations have grown strongly. This is the result of leaning into covering the daily sports news cycle and big game moments while tapping into new audiences via the Times and on platforms. We're pleased with this early progress, which validates our approach and sets us up well to capitalize on the big opportunity we see in sports. More than a year into our ownership, Wordle is still attracting tens of millions of passionate players each week and acting as a robust top of the funnel to both NYT Games and the bundle. And we've been busy adding value to NYT Games so that as Wordle players move deeper into the games funnel, they find more reasons to convert and retain. We added Sudoku puzzles into the app in the quarter and continue to drive strong engagement with Spelling Bee. Another area of momentum was pricing. We advanced a coordinated set of pricing strategies in the quarter designed to drive the modest digital ARPU expansion we've been aiming for while continuing to scale subscribers. To optimize for conversion, we used attractive promotional pricing for the bundle in combination with a new full funnel bundle marketing campaign. We also continue to have success in the quarter, stepping up subscribers on promotion to interim and full prices at the one year mark. And the high levels of engagement we see with early tenure bundle subscribers give us confidence that we'll be able to continue stepping up subscribers to higher prices as their tenure increases. We also began rolling out price increases for tenured non-bundle news and games subscribers toward the end of the quarter, and we are pleased with the early results. We expect this component of the playbook to increase digital revenues in Q2 and beyond, while driving even more people to the bundle as its relative price becomes more attractive. The net result is that in Q1, we had our fully coordinated value-based pricing strategy in action aimed at maximizing the lifetime value of our growing subscriber base. Let me turn now to advertising. Macroeconomic pressure on our ad business is playing out largely as we thought it would. although visibility from quarter to quarter remains a challenge, and we expect it to continue to impact our ad business in the near term. Given this volatility, advertising was down more than we expected in the quarter, a function of marketers pulling back on brand spend, especially in some of our largest categories like tech, finance, and media. We view this as cyclical, meaning nothing has changed in our optimism about advertising as a medium and long-term growth driver. In fact, there were a number of encouraging signs about the competitiveness of our ad product set and growth prospects. Direct sold premium display advertising held up well in the quarter, which we believe reflects the effectiveness of our proprietary ad canvases and first-party data to drive performance for marketers. Athletic advertising was also strong. We doubled revenue over the last year and we added new advertisers to the enterprise. We have big ambitions for advertising, especially as we apply our high-performing ad products across the bundle. To help us realize those ambitions, during the quarter, we hired a seasoned new leader, Joy Robbins, as Global Chief Advertising Officer. Joy is our first outside executive hire in advertising in a decade and has hit the ground running with our strong team. Beyond subscriptions and advertising, other revenue, which includes our Wirecutter affiliate business, licensing, and more, was strong in the quarter and is another testament to the power of our multi-revenue stream model. Let me spend a few minutes now on costs. Q1 was the third consecutive quarter during which we meaningfully slowed cost growth. Consistent with our plans and the last two quarters, we found efficiencies in three major areas. First, given the fact that we continue to drive the vast majority of our subscriber starts organically, we reduced our overall marketing spend while also making the dollars we did spend more efficient. These savings are strategic, as we continue to lean into our product as a more and more effective driver of growth. We also continue to actively manage headcount growth, particularly in digital product development, where we have succeeded in attracting top-tier talent and expect growth to slow from here. And finally, we're always on the lookout for ways to modernize our legacy operations and to find efficiency. Over the last two quarters, that has resulted in modest headcount reduction in non-digital areas of our business and G&A functions. I'll summarize the quarter's results by saying that we're making steady progress executing our strategy in a dynamic market. While advertising continues to experience near-term challenges, our bundle strategy is gaining momentum, subscriber engagement metrics are strong, Pricing initiatives are taking hold, and we're slowing cost growth. Our strategy was purpose-built to give us multiple growth levers, and we are confident that we're on the path to building a larger and more profitable company. Now, before I close, I want to congratulate my colleague, Will Bardeen, who will become our next CFO, effective July 1st. Will's appointment follows the comprehensive search to identify Roland's successor. We evaluated many talented candidates, and it was clear that Will is the most uniquely suited and qualified leader to step into the role. Will has served as the Times Chief Strategy Officer since 2018 and as a key leader within our finance organizations. In my 10 years here, Will has been a driving force in all the major strategic decisions we made to put us on the promising path we're on today. Few people understand our business, our strategy, and the market better than Will, and we're confident he is the right person to help the Times deliver on our financial and operational goals. Among his early priorities as CFO will be to ensure that we're communicating as clearly as possible with investors so they understand the track of our progress. And finally, I want to take a moment to celebrate Roland and his 37-year career at the New York Times. Now, many of you on this call know Roland personally and understand what a wonderful leader and colleague and person he is. So much of our strong relationships with the investment community, our reputation as good stewards of capital, and our commitment to financial discipline is attributable to Roland. And on top of being a remarkable strategic and financial operator and representative of the times, Roland has been a trusted partner and advisor to me and so many others, and I will miss him very much. Roland will stay on with the company through the end of September to help ensure a smooth transition of responsibilities. And our entire team wishes him all the best and a well-deserved retirement. And with that, I will hand it back to Roland one last time.