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spk07: Good morning, everyone, and welcome to the New York Times Company's second quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please email 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 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 Anthony DiPlemente, Senior Vice President, Investor Relations. Please go ahead.
spk04: Thank you and welcome everyone to the New York Times Company's second quarter 2024 earnings conference call. On the call today, we have Meredith Kopit-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 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 2023 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. In addition to our earnings press release, we also have posted a slide presentation relating to our results on our website, once again, 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.
spk01: Thanks, Anthony, and good morning, everyone. It was a strong second quarter for the Times, one in which we made further progress on the path to becoming the essential subscription for every curious person seeking to understand and engage with the world. Our Q2 results demonstrate that our strategy continues to work as designed. Let me describe how. First, Our world-class news destination, combined with our distinctive products in games, sports, cooking, and shopping advice, attracted large and passionate audiences in giant spaces. Together, these products gave many people multiple reasons to come to the Times and numerous pathways by which to do so. Second, our subscribers were deeply engaged. In Q2, we saw the share of subscribers on our sites and apps each week hit another multi-year high. That's a clear sign that we're delivering unique value to users and building long-term relationships with them. Third, we saw another quarter of increasing ARPU, further evidence of the distinctive nature of our journalism and that it's increasingly valuable to people over time. That also supports our conviction that we can keep growing digital-only ARPU year-on-year as we use our multiple pricing and monetization levers. And fourth, growth in Q2 across digital advertising, affiliate, and licensing demonstrated the ability of our diverse product portfolio to power multiple revenue streams beyond subscriptions. In sum, our high-quality, increasingly diverse portfolio of products attracted tens of millions of people each week and engaged them deeply. And we're showing that we can sustainably translate that interest into more direct relationships, more subscribers, growing revenue, and increasing profitability, even as the market continues to experience significant audience headwinds driven by shifts in the platform landscape. Halfway through 2024, we are on track for another year of higher AOP and margin expansion, as well as strong free cash flow generation. I'll turn now to some of the details from the quarter, starting with subscribers. We added 300,000 net new digital subscribers marking further progress on the path to our next milestone of 15 million total subscribers. The key to driving subscriber growth is having products that are continuously becoming more differentiated and valuable. That starts with news, where our ongoing investments in coverage mean the Times is well prepared to follow the story wherever it goes. In recent months, that's ranged from the historic events unfolding around the U.S. presidential election to the ongoing wars in Gaza and Ukraine to intensifying weather to sweeping technological change. Alongside our broad and deep coverage of hard news, Times users are also benefiting from the increased science-backed health and wellness coverage I mentioned last quarter, and an enhanced culture report. An example of the latter was last month's ranking of the best book of the 21st century, which was read by millions and it included an array of features for people to create their own lists and track what they've read. We're also driving engagement through format innovations that make our coverage more accessible and compelling. That includes live briefings that deliver real-time reporting and commentary during the biggest news moments and more prominent use of video to demonstrate the expertise and hard work of our reporters across beats. It also includes an expanded audio offering that makes much of our day-to-day coverage listenable. and further experiments with AI-assisted translations into Spanish. Games had another strong quarter in Q2 and contributed to our business in multiple ways. It drove new standalone game subscribers, was a valuable funnel for new bundle subscribers, it generated meaningful advertising revenue, and it brought millions of prospects to the Times portfolio. Games had two notable product enhancements in the quarter. We brought our popular new word game, Strands, out of beta and into our mobile games app where we can reach an even bigger audience. And we added Wordle Archives as a subscriber-only benefit and an example of the kind of feature that entices audiences to pay and stay. We also made palpable progress on the athletics journey to become a household name among sports fans in the quarter, with strong coverage of the Copa America and the Euros, and substantial growth in both audience and revenue. We completed the first phase of the athletics technical migration to the Times web domain in the quarter, which enables us to better connect the athletic to the rest of our products. And just a few weeks ago, we launched a new multi-format NFL franchise called Scoop City. All of that progress helps keep the athletic on track for profitability by next year and underscores the generational opportunity we see to build a top destination for sports fans globally. The quarter's year-on-year ARPU growth I noted earlier was a function of our ongoing success at transitioning bundle subscribers to higher prices. This reflects our strategy and action. As we steadily add value to our journalism and products, people engage more and value them more. This strengthens our ability to transition subscribers to higher prices over time, And it gives us confidence that we'll see continued year-on-year ARPU growth. Advertising revenue in the quarter was in line with guidance, reflecting growth in our sub-brands and a modest pickup in overall demand, despite the continued impact of some marketers avoiding certain hard news topics. And we continue to build new ad products that can drive even more value to marketers. Last month, we launched Brand Match, an AI-powered tool to pair advertisers with the most relevant, high-performing content and audiences for their campaigns. Revenue beyond subscriptions and advertising exceeded guidance, driven by a strong quarter for Wirecutter and licensing. Wirecutter is providing product reviews across more categories, spotlighting more deals, and delivering more advice to help people get the most out of what they buy, all of which increases its value over time. Our costs in the quarter reflected ongoing discipline, even as we continue to invest in the areas that differentiate our journalism and products. That discipline, combined with strong execution, resulted in another quarter of AOP growth and healthy free cash flow generation. I'll wrap by reminding you of what we're working to do every day to make journalism and products so valuable that people will seek them out, ask for them by name, and form 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 the Times resilient in a changing media landscape and well-positioned for continued value creation. Now let me turn it over to Will for more details.
spk03: Thanks, Meredith, and good morning, everyone. As Meredith stated, our Q2 financial results keep us on track to deliver another year of healthy revenue growth, AOP growth, margin expansion, and free cash flow generation. Q2 also demonstrated how our portfolio of market-leading news and lifestyle products is working to drive these economics. Our growing subscriber base, along with increasing subscriber engagement, enabled us to strengthen our multiple revenue streams As our subscriber base has scaled, we've driven operating leverage even as we continue to prioritize strategic investments aimed at further differentiating our high-quality journalism and digital products. We grew overall revenue in the quarter by approximately 6% as increasing digital subscription, digital advertising, affiliate, and licensing revenue more than offset ongoing declines in print. AOP grew by approximately 14% year over year, and AOP margin expanded by approximately 110 basis points to 16.7%. Consistent with our capital allocation strategy and the strength of our free cash flow generation, we have returned $82 million to shareholders in the first six months of the year. This included approximately $42 million in share repurchases, and $40 million in dividends. Now I'll discuss the second quarter's key results, followed by our financial outlook for the third quarter of 2024. Please note that all comparisons are to the prior year period unless otherwise specified. I'll start with the discussion of our subscription business. We added approximately 300,000 net new digital subscribers in the quarter, with growth coming from multiple products across our portfolio. Bundle and multi-product subscribers now make up approximately 45% of our total base, along the path to exceeding 50% by the end of next year. Total digital-only ARCU grew 2.1% year-over-year to $9.34, as we continue to step up subscribers from promotional to higher prices and raise prices on tenured, non-bundled subscribers. As Meredith highlighted, the value we've added to our products across our portfolio in Q2 led to higher levels of subscriber engagement. This strong subscriber engagement, combined with the encouraging results we're seeing in pricing step-up points, gives us confidence that modest year-over-year ARCO expansion will continue for the remainder of the year. As a result of both higher digital subscribers and digital-only ARCU in the second quarter, digital-only subscription revenues grew approximately 13% to $305 million, and total subscription revenues grew approximately 7% to $439 million. Both were in line with the guidance we provided last quarter. Now turning to advertising. Total advertising revenues for the quarter were $119 million, an increase of approximately 1%. Digital advertising revenues increased approximately 8% to $80 million. Both digital advertising and total advertising revenues were within the guidance ranges we provided last quarter. Other revenues exceeded our guidance increasing approximately 5% to $66 million as Wirecutter affiliate and licensing revenues continued to perform well in Q2. Adjusted operating costs came in within our guidance range of 4% to 5%, increasing by approximately 4.4%. Looking at each of the lines, cost of revenue increased approximately 4%, Sales and marketing costs decreased approximately 1.5%. Product development costs increased approximately 11%. And adjusted G&A costs increased approximately 5%. Adjusted diluted EPS in Q2 increased $0.07 to $0.45, primarily driven by higher operating profit and higher interest income. I'll now look ahead to Q3 for the Consolidated New York Times Company. Digital-only subscription revenues are expected to increase 12% to 15% compared with the third quarter of 2023, and total subscription revenues are expected to increase 7% to 9%. Digital advertising revenues are expected to increase high single digits, and total advertising revenues are expected to be flat to increase low single digits. Other revenues are expected to increase 9% to 11%, as we expect licensing and Wirecutter affiliate revenues to be even stronger drivers of growth in Q3. Adjusted operating costs are expected to increase 5% to 6%, which takes into account the opportunity we're seeing in the quarter to lean into marketing investment during a period of strong returns. While cost growth rates can fluctuate quarter to quarter, particularly on individual lines, we remain focused on sustaining healthy revenue growth, AOT growth, and margin expansion for this year and beyond through a disciplined approach to cost management. We expect to continue investing in our high-quality journalism and digital product portfolio while reallocating resources to the areas that create the most value for our audience. I'll close by noting that our results demonstrate our essential subscription strategy is working as designed and we remain on track to achieve our previously stated midterm targets for subscribers, AOT growth, and capital returns. With that, we're happy to take your questions.
spk07: Ladies and gentlemen, we'll now begin the question and answer session. To ask a question, you may press star and one on your touch-tone telephones. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys. To withdraw your questions, you may press star and two Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from David Karnofsky from JP Morgan. Please go ahead with your question.
spk08: Hey, thank you. Just on the digital subscription guide for Q3, looks healthy acceleration over Q2 at the midpoint. Maybe you could speak to the puts and takes of that. How much of the lift or growth you're seeing there as a product of the promotional bundle subs graduating to higher tiers? And what do you think for the cohort so far? And then just one for Will on the guide, the acceleration and other revenue in the third quarter. Maybe just can you give some detail around that? Thanks.
spk01: I mean, I'll just make a broad comment, which is I think you're seeing the model kind of play out as designed. with net ads coming from a number of places, bundle and single product, and the trajectory of being able to transition those bundle subscribers to higher prices, you know, broadly going very well. Will, you might add the detail he's asking in the second part of the question.
spk03: For the other income. Yeah, David. You know, as you know, that other revenue line has several different components in it, which, you know, can create some natural variability quarter to quarter. I think in Q3 in particular, wire cutter affiliate revenue, you know, can be seasonably stronger in certain periods. And we've been investing there, as Meredith said in her prepared remarks. create more value there, and we're seeing good returns. In addition, the timing of our licensing revenue can be somewhat lumpy. I think the important thing, you know, stepping back, as we've said in our remarks, we expect both affiliate and licensing to deliver growth in 2024, and you're seeing that in the Q3 guide.
spk04: Great. Thanks so much, David. Operator, we'll take our next question.
spk07: Our next question comes from Thomas Yeh from Morgan Stanley. Please go ahead with your question.
spk00: Great, thanks so much. Yeah, I really appreciate all the color on the ARPU expansion for the remainder of the year. Going off of what Dave was asking, I noticed the bundle and multi-product ARPU saw a sequential uptick. I know that's somewhat dictated by the inflows of new starts on promotional rates kind of going forward, but can you just give us an update on how the phasing of graduating promotional bundle subscribers is going? I think you alluded to that cohort building in terms of just the eligibility. And through the year, is that still the case? And then as a follow-up for Will, you mentioned leaning into marketing efforts. I think historically, during periods of elevated news cycle, you've actually kind of leaned off. I was just wondering if there's any change in dynamic there in terms of the ROI that you see from marketing spend. Appreciate it. Thank you.
spk03: Sure, Thomas. I'll take both of those. So on the first one, you know, But you've highlighted that sequential growth and bundle and multi-product ARPU. You know, we're really pleased, as Meredith and I both said, with how the bundle step-ups are going for the cohorts. And that's the primary driver of the increase in the bundle and multi-product ARPU we're seeing. You know, having said that, I just want to step back and say, you know, as we've said before, we're not overly focused on you know, sequential growth in any one subscriber bucket, the really important metric that we're focused on and we want everyone focused on is that year-over-year growth in total digital-only ARPU. So, you know, I'd say kind of leave it with the bigger picture is that those ARPU increases reflects our strategy and action. as we steadily improve our journalism products, people engage more and place higher value on the service. And that just continues to strengthen our ability to transition subscribers to higher prices over time and gives us confidence that we'll continue to see that year over year ARPU growth going forward.
spk01: I'm going to add one little beat, which is just all the products are getting more valuable as we go. And our ability to get people to engage with them gets better as we go, which is why In our prepared remarks, we both talk about the strength of engagement.
spk03: Yeah, and then on the marketing ROI, you know, what I'd say is, you know, what we've often said is, you know, in practice, sort of the growth rates can fluctuate quarter to quarter as we've seen over the last several quarters in marketing spend. And we're really ROI focused on that. So while just to step back, while the vast majority of our starts are coming in organically, we always consider every quarter whether to lean in a bit when we see particularly strong returns. And as I noted in my prepared remarks, that, you know, appears to be the case so far in Q3. So this may well be one of those quarters we lean in. I think stepping back, you know, the most important thing, you know, anytime we're talking about costs, is to just keep in mind that we expect to see year-over-year AOP growth and margin expansion this year and beyond. That's kind of the fundamental focus. And we are just really focused on that long-term investment strategy of investing in the high-quality journalism digital product portfolio, which enables us to, you know, that's the core of the growth driver, and we are reallocating resources to the areas that create the most value for our audiences.
spk04: Thanks a lot, Thomas. Operator, we'll take the next question, please.
spk07: Our next question comes from Jason Bazinet from Citi. Please go ahead with your question.
spk05: Yeah, I appreciate the capital returns, the buybacks and the dividends, but it seems like your cash balance has been gradually growing since you did the acquisition of The Athletic. back in the first quarter of 22. And so my question is, what do you think will end up happening with that cash?
spk03: Yeah, I appreciate the question since we're really pleased, as you can imagine, with the strong cash flow generation we're seeing. And it's reinforcing, it's only reinforcing our confidence in our capital allocation strategy, and that remains unchanged. So let me just make sure I remind everyone of that. Our top priority is first to continue that high return organic investment to grow our central subscription strategy. We see a lot of running room in those huge spaces we're in. Second, as you noted, returning at least 50% of our free cash flow to shareholders of the midterm between stock buybacks and dividends. And I think what you're hitting on here is the value we also see in the third leg of our capital allocation strategy. which is the balance sheet and having a really strong balance sheet. We have a really high bar for M&A, but what we see is a real benefit in sustaining a balance sheet that provides us with a lot of strategic optionality. We think that's an important advantage during a period of market dynamism where we see ourselves on the path to becoming among a small handful of scaled global digital subscription services, and that flexibility is really, really important.
spk04: Great. Thanks, Jason. Operator, next question.
spk07: Our next question comes from from Cannonball Research. Here's your question.
spk02: Thank you. Wanted to ask you to provide more color possible into the variability of wire cutter revenue from quarter to quarter and what drives that. Maybe that will help us better understand the acceleration and other ratings that you're guiding to. Another question, Meredith, you touched on it, that advertisers are still avoiding certain categories of news. Then you said that you're working on other products. Would it be correct to understand that you've figured out a way to work around this situation because it seems that your advertising revenue is stronger this quarter and the press release does not call out any business in like last quarter. Thank you.
spk01: Yeah, both good questions. On Wirecutter, I would say, you know, step back point first broadly, we're super happy with that business. I think some of the variability is just like how and when people shop and that, you know, follows. the broad trends, you know, in the marketplace. You've got back to school in Q3. We tend, you know, around holiday time to see a lot of activity around gift buying. And I think the track of the business reflects that. And we've been, you know, we've owned that company now for what, seven, eight, eight years. And we've been really deliberate about investing to, you know, you know, to harness what remains very strong demand for high quality product reviews. So just kind of working on every dimension. And I would think about it kind of quarter on quarter as just reflecting the broader trends and when people go out and shop. So I think that's what you're getting at there. On advertising, I'll say a few things as I think we'll said in his prepared remarks. We did see a modest pickup in demand in the second quarter, which was, of course, pleasing to see. There's kind of a lot of dynamics at play here. There's a lot of confidence in the sort of basic strength of our ad products, our big premium canvases with first-party data. So the products we've been building and executing on for you know, four or five years now. They really work for marketers, and we are extending those products to our sub-brands, you know, across the whole portfolio, even cooking and wire cutter now in a bigger way. But I'd say games and sports are a place where we're seeing real strength in that. And then on the other side, you know, we've continued to see some amount of of marketer news avoidance on certain topics. But broadly, I would say we remain confident in the ad product portfolio. We've got, you asked specifically, I think about brand match, which I referred to in my prepared remarks. That is a new targeting tool set that is AI powered. And I would say that will operate in addition to all the first party data we have. So it gives users AI to give marketers even more ways to sort of target across coverage, across the products and across audiences. And we have a lot of optimism that that'll help be a growth driver.
spk04: Great. Thanks, Cecilia. Operator, we'll take our next question, please.
spk07: Our next question comes from Doug Arthur from Huber Research Partners. Please go ahead with your question.
spk06: Yeah, thanks. Excuse me, Meredith, just a quick comment on the athletic. It seems like the bottom line is moving to break even quicker than expected and the take rate based on the sub numbers you threw out, you know, in the bundle product better than expected or at least a nice, you know, tone to it. So I'm wondering if you just sort of talk about the bottom line for the athletic over the next, you know, year or so?
spk01: Yeah, great, great question. I mean, the broadest thing to say is we're very happy with how it's going. You know, it's a big, important bet for us. We're playing a very long game to be a household name among sports fans, to really build awareness and audience for the athletic that's gone well. And I'd say still relatively early as far as the path to profitability. We were very descriptive about that at the point of acquisition two and a half years ago. And I think we are well on that path. And as you hear us talk about, feel really good about where we are. And it's been a night, you know, this past quarter was a great, You know, you saw some of that reflected in the quarters. We grew audience and revenue in sort of every dimension. So broadly happy with how it's going and kind of well on track to what we put out initially and looking to build something really big in the world and at the New York Times in terms of our ability to be a leading global destination for sports fans.
spk04: Great. Well, thanks, everyone, for joining our second quarter earnings call. We'll see you next quarter.
spk07: Ladies and gentlemen, the conference call has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.
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