New York Times Company (The)

Q1 2024 Earnings Conference Call

5/8/2024

spk09: Good morning and welcome to the New York Times Company's first quarter 2024 earnings conference call. All participants will be in a 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 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. At this time, I'd like to turn the floor over to Anthony Cimenti, Senior Vice President of Investor Relations. Sir, please
spk05: go
spk09: ahead.
spk05: Thank you and welcome everyone to the New York Times Company's first quarter 2024 earnings conference call. On the call today, we have Meredith Coppett-Levian, President and Chief Executive Officer, and Will Bardeen, 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 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 2023 10K 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 .nytco.com. In addition to our earnings press release, we have also posted a slide presentation relating to our results on our website at .nytco.com. And finally, please note that a copy of our prepared remarks from this morning's call will be posted to our investor website shortly after we conclude. And with that, I will turn the call over to Meredith.
spk02: Thanks, Anthony, and good morning, everyone. As our Q1 results demonstrate, we're off to a strong start this year. Our strategy to become the essential subscription for every curious person seeking to understand and engage with the world is working as designed and is positioning us to sustain our growth through a dynamic media environment. Let me describe how. First, our world-class news destination, combined with our distinctive products in games, sports, cooking, and shopping advice, are attracting large and passionate audiences in giant spaces. Each of these complementary products addresses a different need in people's lives, meaning there's always a reason to seek out the time. Second, our subscribers are deeply engaged. The share of subscribers spending time on our site and apps each week is now at its highest point since the surge we saw during the pandemic. That's a clear sign that we're delivering value to users and increasing their likelihood of building long-term relationships with the times. Third, the high level of engagement we see reinforces our conviction that we can grow digital-only ARPU year on year as we use our multiple pricing and monetization levers. And fourth, we've strategically designed our diverse product portfolio to also power multiple revenue streams beyond subscription in advertising, affiliates, and licensing, each of which we expect to deliver growth in 2024. In sum, our portfolio of products creates many paths for the times to reach big audiences and drive the type of deep engagement that grows subscribers and revenue. That makes our business more resilient and positions us well to take advantage of new opportunities even in a rapidly changing media landscape. With focused execution and disciplined cost management, we expect that our essential subscription strategy will propel another year of improving profitability and margin expansion, as well as strong free cash flow generation. Turning now to our first quarter results. We had a quarter of steady revenue growth and significant AOP growth powered largely by our digital subscription business. We added 210,000 net new digital subscribers in the quarter, making further progress on the path to our next milestone of 15 million subscribers. Volume growth in the first quarter was driven by bundle and multi-product subscribers, as well as single-product subscribers, with our bundle and multi-product subscribers accounting for over half the digital starts in the quarter. Bundle and multi-product subscribers now represent 43 percent of our subscriber base, and we expect to surpass 50 percent by the end of next year. Four to driving subscriber growth is having products that deliver unique value. That starts with news, where just this past Monday, the Times was recognized with three Pulitzer Prizes, our industry's highest honor. The awards showcased the many ways our journalism impacts society. Investigative reporter Hannah Dreier was honored for documenting the pervasive exploitation of migrant children in unsafe working conditions, a series that led to sweeping reforms in business and government. Katie Engelhardt, the contributor to the Times Magazine, won for her intimate portrait of a mother's dementia and her family's ensuing legal, emotional, and ethical struggles. And we received the International Reporting Prize for our investigative work into the origins and aftermath of the Israel-Gaza War. This is a recognition of the importance of our ongoing and extensive coverage of the war, which has included thousands of articles and photos, hundreds of videos, and real-time reporting from around the world. Beyond illuminating the most urgent stories of the day, we are continuously expanding our report, making it more accessible and evolving how our journalism comes to life. That includes producing more personally relevant reporting into science-backed health and wellness, and it includes experimenting more ambitiously with audio by introducing the ability to listen to much of our report via AI-powered automated voice and also by introducing a new listen tab in our core news app. The performance of games in the quarter provides further evidence for how creating more valuable products translates into user and business impact. We now have two puzzles, Wordle and Connections, with tens of millions of weekly users and another homegrown hit in Strands, our daily word hunt game released in March. Our growth here means we have lots of opportunities to deliver more value to more people. As one example, we're unlocking the ability for subscribers to play the full archive of a thousand-plus Wordle puzzles. Given the very strong engagement with games and our focus on continuing to add product value, we expect to be able to increase monetization over time. We're also adding value at the Athletic, where we've been deliberate about building awareness and it's paying off. Audience levels were up again in Q1, both -on-year and -on-quarter, helping fuel advertising growth and keeping us on track to profitability by next year. The Athletic is making the most of major moments of fan interest, like the Super Bowl and March Madness, and excelling in its always-on coverage of coaching changes, free agency, drafts, and other news-impacting teams. We're as excited as ever about the giant opportunity we see in sports and making steady progress on our ambition to become a top destination for sports news globally. We delivered another quarter of the modest -on-year ARPU growth we've been targeting since 2022. Our ability to successfully transition subscribers on promotional prices to higher prices is a durable driver of ARPU expansion and the primary reason we're confident we'll see continued ARPU growth this year. Total advertising revenue came in slightly better than guidance, thanks to print declining less than expected. We continued to feel the impact of some marketers avoiding certain hard news topics last quarter. Even still, we are seeing a pickup in advertiser demand so far in Q2 and we're steadily expanding our high-performing ad products across the entirety of our product portfolio, which together give us optimism. Revenue beyond subscriptions and advertising exceeded guidance driven by a strong quarter for licensing and wirecutters. We believe the value of wirecutters' rigorous, research-backed recommendations will keep increasing, and we're investing to cover more products in more categories, which should build an even bigger business over time. We remain disciplined on costs and are aggressively reallocating investments to strategic areas. This discipline, together with capable execution, resulted in another strong quarter of AOP growth and healthy free cash flow. I'll wrap by reminding you of what we're trying to do every day. Build scaled products so valuable to people that they will be sought out, asked for by name and worthy of direct relationships and daily habits. The combination of our world-class news destination plus market-leading lifestyle products means we have complementary offerings in big spaces, each with multiple growth levers fueling multiple revenue streams. Together, we believe these make our business more resilient and well positioned for continued value creation. Now let me turn it over to Will for more details on the quarter.
spk07: Thanks, Meredith, and good morning, everyone. As Meredith stated, our Q1 financial results demonstrate a strong start to the year and position us to deliver another year of AOP growth, margin expansion, and healthy free cash flow generation. Our portfolio of market-leading news and lifestyle products is working as designed to grow our subscriber base, increase subscriber engagement, and strengthen our multiple revenue streams. As our subscriber base is scaled, we've moderated our overall expense growth, driving operating leverage even as we continue to prioritize strategic investments that help position us for long-term value creation. We grew overall revenue in the first quarter by approximately 6% as increasing digital subscription, licensing, affiliate, and digital advertising revenues more than offset ongoing declines in print. Combined with slower than expected cost growth, AOP grew by approximately 41% year over year, and quarterly AOP margin expanded by approximately 320 basis points to 12.8%. Our free cash flow generation continues to be strong, and consistent with our broader expectations for capital allocation, we returned $51 million to shareholders in Q1. This included approximately $32 million in share repurchases and $19 million in dividends. Now I'll discuss the first quarter's key results, followed by our financial outlook for the second quarter of 2024. Please note that all comparisons are to the prior year period, unless otherwise specified. I'd also like to note that there was one additional day in the first quarter of 2024 compared with the first quarter of 2023 as a result of 2024 being a leap year. I'll start with the discussion of our subscription business. We added approximately 210,000 net new digital subscribers in the quarter, with growth coming from multiple sources across our portfolio of products. As Meredith mentioned, bundle and multi-product subscribers now make up 43% of our total base, along the path to exceeding 50% by the end of next year. Total digital-only ARPU grew .9% year over year to $9.21, as we continue to step up subscribers from promotional to higher prices and raise prices on tenured non-bundled subscribers. The promising bundle monetization we're seeing at step-up points, combined with the increasing number of bundle subscribers transitioning to higher prices throughout the year, suggests a tailwind to ARPU in the back half of the year. Additionally, as Meredith highlighted, we continue to improve the products in our portfolio and are seeing that value reflected in higher levels of subscriber engagement. This pattern is increasing our confidence in the ability to improve monetization through single-product pricing over time and is one driver of the modest -over-year ARPU expansion that we continue to target for the midterm. As a result of both higher digital subscribers and digital-only ARPU in the first quarter, digital-only subscription revenues grew approximately 13% to $293 million, and total subscription revenues grew approximately 8% to $429 million. Both were in line with the guidance we provided last quarter. Now turning to advertising. Total advertising revenue for the quarter was $104 million, a decline of 2.4%. This was slightly better than our guidance amid single-digits decline, as print advertising performed modestly better than expected. Digital advertising results were within our guidance range in the quarter, increasing approximately 3% to $63 million. Other revenues exceeded our guidance, increasing approximately 8% to $61 million, as licensing and wire cutter affiliate revenues continued to be strong drivers of growth in Q1. Adjusted operating costs came in better than our guidance, increasing by 2.2%. Our underlying cost growth in Q1 continued to reflect our discipline of relentlessly reallocating resources to areas of highest impact. We also benefited in Q1 from some unexpectedly favorable compensation and benefits items that helped drive the outperformance relative to our guidance range. Cost of revenue increased approximately 3%, largely due to our continued investment into journalism. Cost of revenue was favorable to our expectations, in part due to timing of content and hiring costs. Sales and marketing costs decreased approximately 3%, largely due to lower subscriber acquisition costs as our products continued to drive the majority of starts organically. Product development costs increased approximately 11%, as we continued to strategically invest into the product and technology teams enabling our digital subscriber growth. Adjusted general and administrative costs were down approximately 4%, as we continued to drive efficiencies. I'd also like to note that in the first quarter, we recorded a severance charge of approximately $4 million due to targeted reductions in certain areas of the business. Our steady revenue growth and disciplined cost management in Q1 translated into strong earnings growth, as adjusted diluted EPS increased 12 cents to 31 cents. EPS growth in Q1 was also aided by higher interest income. Our tax rate in the quarter was approximately 27%, close to our expected ongoing marginal tax rate of approximately 26%. I'll now look ahead to Q2 for the Consolidated New York Times Company. Total subscription revenues are expected to increase 6% to 8% compared with the second quarter of 2023, and digital-only subscription revenues are expected to increase 11% to 14%. Overall advertising revenues are expected to increase low single digits, while digital advertising revenues are expected to increase high single digits. As Meredith noted, we're seeing a pick-up in ad demand so far in Q2 and are continuing to expand our first-party premium ad products to more surfaces across our product portfolio. Other revenues are expected to be flat to increase low single digits. Adjusted operating costs are expected to increase 4% to 5%, which reflects that we are investing for growth in a disciplined manner and that we don't currently anticipate the unexpectedly favorable comp and benefits cost performance to extend beyond Q1. I'll close by noting that due to our strong Q1 profit performance, we now expect our AOP and earnings growth in 2024 to no longer be backed half-weighted. With our essential subscription strategy working as designed, we remain on track to achieve our previously stated midterm targets for subscribers, AOP growth, and capital returns. With that, we're happy to take your questions.
spk09: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then 1 on your touchtone telephone. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and 2. Again, that is star and then 1 to join the question queue. Our first question today comes from David Karnowski from J.T. Morgan. Please go ahead with your question.
spk08: Thank you. Meredith, you spoke to very high engagement around your games product. I wanted to know how you think about translating this to registrations and ultimately to subscriptions or bundle sign-ups. Can you also speak to the opportunity around building more advertising into games? For Will, on the adjusted cost in the quarter, the growth was nicely below your outlook. I wanted to follow up here on what came in lower. Are there any shifts to remaining quarters to be aware of? You noted some timing benefit. And just given the result in Q1 and the outlook, do you have any update of you on margin for the year? Thank you.
spk02: Thanks for the question, David. I'll start on games. I mean, the first thing to say is we have invested into a product people really love. And we know that they love it because they're deeply engaged. And I would just say broadly that engagement gives us monetization power over time both in subs and in ads. In subs, I would say the games funnel, so people coming into the app store and downloading the app or on the web, finding games is a very effective entry point for someone just in their relationship with the times. That can be they come in and we get them to register. That can be we come in and we sell them a bundle subscription. We offer a bundle subscription. Or it can be they come in and we sell them a game subscription. And if they buy that game subscription, we have potential to use that, harness that direct paying relationship to introduce them to other things. And obviously with games, there's lots of surface area to do that. And then I'll just say, you know, one of the things we've learned over the over time in the model is that, you know, high engagement and the continuous addition of new value can can mean you have pricing power that that you can exercise because people love the product so much and engage with them so often. So we've got lots of optimism there on ads. I would just say plenty of running room to introduce more ad product within games in a way that is friendly to sort of the broad proposition that we have free games, we have paid games. One of the places that will be focused in the back half of the year is in the games app, which is awesome and got a redesign. And so you'll see you'll see some ads there that you haven't seen before. And I would just say there's lots of room for experimentation on the kinds of ad products within games as well, because obviously the formats are different. So we're very excited about that.
spk07: And David on costs, you know, but we're quite pleased with the overall cost performance in the quarter, which, you know, it is core reflects the discipline that that we've been discussing for some time. Now, as I said, my remarks, the outperformance relative to our guidance range was also in part due to some unexpectedly low comp and benefits items and Q1 that we don't expect to extend beyond the quarter. So looking forward, our Q2 guide of four to five percent is what to focus on there, which we believe really reflects investing for growth in a disciplined manner. And maybe a couple of step back points to put the year in context, what we mean by disciplined growth there, we're focused on relentlessly reallocating our resources to areas of high impact in particular, our differentiated journalism and product and technology. These are the areas which sustainably fuel organic subscriber growth based on our strategy. And then in terms of sort of overall, you know, AOP growth and margin expansion, we're expecting that for the year strong through cash flow generation. And we made the comment that we're just given the strong profit growth we saw in Q1. We're no longer expecting the growth to be weighted to the back half of the year.
spk05: Great. Thanks a lot, David. Operator, we'll take our next question,
spk09: please. Our next question comes from Jason Fisina from Citi. Please go ahead with your question.
spk06: I just had a very simple question. Would you guys just mind summarizing some of the promotions that you've done on the digital side, how those promotions have changed and what you're looking for as those promotions roll off? What are some of the key metrics you guys are going to be looking for to measure success?
spk07: Sure, I'll take that. I mean, overall, we, you know, our promotional strategy is all about maximizing lifetime value of our subscriber base. And we're, you know, modeling this very carefully. The general way to think about our promotions is that we bring the vast majority of our bundle subscribers, which is the primary offering in on a dollar a week, and then step them up over time to higher prices. That is driven by a lot of data science that is measuring a variety of input into that. And, you know, what we're looking for, as you can imagine, at those step up moments is retention and monetization. And as we said last quarter and reiterating this quarter, we've been very pleased with what we're seeing on both of those fronts as we have increasing numbers of bundled subscribers coming in throughout the year.
spk05: That's great. Thank you, Jason. Operator will take our next question,
spk09: please. Our next question comes from Vasily Karasayev from Cannonball Research. Please go ahead with your question.
spk04: Thank you. Good morning, Meredith. I wanted to ask you to talk in a little more detail about the underlying trends in digital advertising. Maybe you could break down for us the growth that you had and you expect Q2 by volume versus price. Because it looks like you are going to have a higher growth rate against tougher comps. So can you help us understand maybe for both display and digital, what is driving this variance in quarterly performance? And if there are any comps that are coming up that are getting easier for you in terms of volume or price. So thank you very much.
spk02: Yeah, good morning. I think the most important thing to say is just what I said in my prepared remarks, which is that demand, we're feeling demand pick up in Q2 and you see that in the guide. And I'll also say we are going to be rolling out more ad supply continuously for the rest of the year. So we're bringing the high performing ad products to places in our portfolio where we're seeing a lot of marketer demand. Seeing that demand really grow like the games app and sports. And when I say high performing ad products, I mean premium canvases with first party data. We are still in a process of extending that to other other parts of the portfolio with kind of more ahead than behind us. And that really makes the sort of pick up in demand plus that. And then just the kind of broad appeal of the times with multiple places for marketers to get a message out and multiple ways for marketers to put a big idea into the world. All of that gives us optimism in the ad business.
spk04: Thank you. And what it is, we
spk02: have one one one more beat, which may be the ads are efficacious. They work as premium canvases and first party data are high performing in the context of a publisher ad offering. So we have a lot of confidence in
spk04: them. Thank you. And quick, quick follow up. Would it be fair to say that the high performing ads, what you refer to as high performing ads, that they have much higher CPM than display that you call out in the release?
spk02: The way we think about it, the sort of core of the digital ad business that we've been talking about for years now is premium ad canvases. We have an ad unit called flex frame, which is like a large canvas unit that can do a lot of different things. And that's what targeting with our first party data, which we've been building for years now is sort of the core of the business. That's that's what we're talking about. That's bought a lot of different ways. Mostly directly some some programmatically, but that's that's what we're referring to. And that is generally a high CPM business in the context of the publishing industry.
spk05: Thanks facility operator. We'll take our next question, please.
spk09: Our next question comes from Thomas Yay from Morgan Stanley. Please go ahead with your question.
spk01: Thanks so much. Yeah, following up on the bundle graduation question, can you help us just think through the cadence of the wave of eligible cohorts that are coming up for graduation? Well, you mentioned some greater back half opportunity on our poo, just to kind of put a finer point on it. Is it right to interpret your comment as the year of your growth on subscriber our poo should pick up and speed in the second half?
spk07: So, Thomas, you know, a couple points there, you know, I think that the only sort of color I'd say on through. Bundle cadence is that the cohorts are just getting bigger through the course of the year. So we're just seeing more and more coming through. And then, you know, as you know, we don't guide on our poo. I think there are a couple of things that I mentioned that are just giving us general confidence in what we have targeted, which is essentially modest year over year growth and total digital only article. And those two things are that the experience we've been seeing so far on the bundle step ups is encouraging retention and monetization. So, you know, as that plays out with bigger and bigger cohorts, that's one of the things that is giving us confidence in our poo trajectory. And then the second, you know, as we mentioned, single product subscribers. And this is something that as we think over time is also giving us confidence, which is the increasing amounts of engagement that Meredith has highlighted. And as we found in the pattern, the more engagement that gives us pricing over pricing opportunities over time and also as a tailwinds monetization. So with those two among, you know, several levers, we feel good about the our trajectory given the target we've sort of put out there the expectation for modest year over year extension.
spk01: Okay, makes sense. I mean, on the standalone pricing front, I think last year you kind of pulled a lever for more of the tenured subs. Is it safe to say that there potentially is more appetite for that given the success of that rollout and the engagement that you spoke to?
spk07: I think it's safe to say that, you know, as we continue to add value into the products and see that value, you know, reflected in increasing levels of engagement, meeting consumers are really experiencing that value. And I think that we're always looking at pricing and that's something that as a lever, you should just, you know, continue to expect us to look at and use as a way to continue to improve monetization over time.
spk05: Great. Thanks so much, Thomas. Operator, next question, please.
spk09: Our next question comes from Doug Arthur from Huber Research Planners. Please go ahead with your question.
spk03: Yeah, good morning. Will, I was struck by the sales and marketing being down, I don't know, six percent or something in the quarter. I think,
spk07: you know, let me make sure I'm clear that, you know, I think we've always experienced and continue to expect that growth. And I think that's the best way to experience the vast majority of our subscribers coming in organically. I think on any given quarter that can fluctuate, you know, we're very, in terms of the amount of marketing we're actually spending. And so that sales and marketing line can fluctuate, you know, for a few reasons. But one of the main ones will just be how much media we're putting into the quarter. We're really ROI focused there. And, you know, we certainly consider leaning in when we see subscriber acquisition costs being particularly attractive. And that'll, you know, so I think you can expect that to fluctuate around the quarter. Overall, as you've seen, this is a line given our strategy and everything we've said about the way our model works that we have seen leverage on and that we continue to expect to get leverage on over time.
spk03: Okay. Do you have a follow
spk07: up?
spk03: Yeah, I have just a nitpick. On page 17 of the press release, you've got this content licensing item, very small, $563,000. Is that a, is that new? And B, is that an add back to adjusted EBITDA?
spk07: Okay, so we're just making sure we understand what you were describing. I'm looking
spk03: at the schedule on page 17 with these, you know,
spk07: what's
spk03: broken out.
spk07: Yeah, so what that represents is essentially intercompany licensing between New York Times and the Athletic for use of athletic content at the Times.
spk03: Okay. And I mean, it looks, I mean, because you're laying out your costs here. So it looks like it's sort of a duplication add back. Is that in terms of normalized EBITDA? Is that a fair way to think about it? We can deal with this later. It's
spk07: expense to NYT, Doug, and then revenue to the Athletics. So, you know, for the consolidated company wouldn't have an impact. If we're, we can, we can follow up to make sure that we're talking about the same thing. But if we understand you right, that's the explanation.
spk05: All right. Well, with that, thank you all for joining us this morning. We look forward to talking to you again next quarter.
spk09: Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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