New York Times Company (The)

Good morning, and welcome to the New York Times Company's third quarter 2024 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 would 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 Anthony DiClemente, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and welcome everyone to the New York Times Company's third 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 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 have also posted a slide presentation relating to our results 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.

Thanks, Anthony, and good morning, everyone. The third quarter was another strong one for the Times as we made further progress toward becoming the essential subscription for every curious person seeking to understand and engage with the world. We passed 11 million total subscribers in the quarter, more than 5 million of whom now subscribe to the bundle or multiple products. Digital subscription revenue growth accelerated to more than 14% year on year. And that, combined with growth in digital advertising and other revenue, propelled healthy growth in total revenue. These results reflected our strategy playing out as designed. First, our multi-product portfolio continued to attract tens of millions of people each week to read, listen, watch, learn, and play. They were drawn by our world-class news coverage of the major stories in politics, international affairs, society, entertainment, and beyond, as well as our distinctive products in games, sports, cooking, and shopping advice. Second, these people increasingly sought out the Times directly and engaged deeply. Subscriber engagement, as measured by the share of subscribers visiting the Times each week, reached its highest point since 2020. And we once again grew direct relationship, even as the market continues to experience significant audience headwinds, driven by shifts in the platform landscape. Third, that strong subscriber engagement is a sign of the value we're delivering and enabled us to keep growing ARPU in line with our expectations. And finally, all of this taken together means we can sustainably invest in the areas that we believe give us enduring advantage, our expert journalism and premium digital products. Those products generate more direct relationships and growing revenue across subscriptions, as well as advertising, affiliate, and licensing. With three quarters of the year behind us, we're well 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 260,000 net new digital subscribers in the quarter, putting us further along the path to our next milestone of 15 million total subscribers. The continuing popularity of our all-access bundle means bundle and multi-product subscribers are on track to account for over half of our base by the end of next year. That matters because bundle and multi-product subscribers have a higher expected lifetime value than subscribers to any individual product. At the core of our offering is our news report, where our ongoing investments ensure the Times can follow the biggest stories of the day, no matter how difficult or complex. That commitment is evident in our election coverage, which includes comprehensive coverage of the candidates, voters, issues, stakes, and the state of the race. Key to our strategy is having a diversified portfolio that meets different needs and moments in users' lives and making them available in a single integrated product experience. To that end, in September, we launched a redesign of the core New York Times app to make it easier for people to find and engage with everything we have to offer. The redesign puts much more of our unmatched news reports in front of users, with panels dedicated to today's headlines, important long-running storylines like the election, arts and culture coverage, and more. We've also made our lifestyle products easier to find, so users are just a swipe away from the best of games, the athletic, cooking, wire cutter, and audio. Beyond the redesign, we continued to innovate across formats in the quarter, which is part of our strategy to make audio, video, and other visual formats a bigger part of the time. We made more of our coverage listenable via automated voice, expanded the availability of our latest new show, The Headlines, increased production of Modern Love, and launched a weekly podcast from Wirecutter. We also began experimenting to make audio a more direct driver of subscriptions with new paid offerings available through Spotify and Apple. In video, we're experimenting with filmed versions of many of our podcasts and putting our reporters on camera more often to explain the major stories of the day. NYT Games, beloved by users, once again played a big role in getting millions of people to create direct daily relationships with the Times. This propelled growth in both subscriptions and advertising. We're optimistic that games will continue to be a growth engine as we keep innovating around new features, new games, and new ways to bring people to them. We've also made further progress in the quarter on the athletics journey to become a household name among sports fans with strong coverage of the Olympics and great momentum at the start of the NFL and English Premier League seasons. The athletics is already an important component of our bundle offering in more deeply engaging subscribers. We began testing it more directly as a driver of bundle subscription starts in Q3, which was enabled by the technical integration with the Times web domain that we completed in Q2. And we continue to be pleased with the overall economic performance and direction of the athletics. Digital advertising revenue was up nearly 9% in the quarter, in line with guidance. Ad growth reflected strong performance across all our lifestyle products as we broadened our ad offering and reached a wider set of marketers. This came even as some advertisers continued to avoid certain hard news topics. Revenue beyond subscriptions and advertising also met our expectations, driven by another good quarter for wire cutter and licensing. Finally, we continue to be disciplined in how we grow the business, prioritizing investments in the areas that differentiate us, our world-class journalism and premium product experiences. 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 make journalism and products so valuable that people will seek them out, ask for them by name, and form direct relationships and daily habits. That value takes many forms, from landmark investigations to unrivaled coverage of important issues like the Middle East and the rise of AI, to expert recommendations on what to read or watch. The Times is where people go to follow their favorite NBA team, play the daily game that their whole family loves, get holiday shopping tips, or plan Thanksgiving dinner. All these complementary sources of value address big user needs and in turn power multiple growing revenue streams. We believe our portfolio and our ability to keep adding value to it over time is what makes the Times resilient in a changing media landscape and well-positioned become a larger and more profitable company. Now let me turn it over to Will for more details.

Thanks, Meredith, and good morning, everyone. Our Q3 financial results keep us on track to deliver another year of healthy revenue growth, AOP growth, margin expansion, and free cash flow generation. Q3 also demonstrated how our portfolio of high-quality news and lifestyle products is working to drive these economics. Our growing subscriber base along with strong subscriber engagement and increasing ARPU, led to growth in our digital subscription revenues. And with growth across our multiple revenue streams, 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 third quarter by approximately 7% as increasing digital subscription, digital advertising, affiliate, and licensing revenue more than offset ongoing declines in print. AOP grew by approximately 16% year-over-year, and AOP margin expanded by approximately 130 basis points to 16.3%. We generated approximately $238 million of free cash flow in the first nine months of the year. Over that same period, we returned approximately $122 million to shareholders. consistent with our capital allocation strategy. This included approximately $60 million in share repurchases and approximately $62 million in dividends. Now I'll discuss the third quarter's key results, followed by our financial outlook for the fourth 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 260,000 net new digital subscribers in the quarter, bringing our total number of subscribers to over 11 million, with growth coming from multiple products across our portfolio. Bundle and multi-product subscribers now make up approximately 46% of our total base, well along the path to exceeding 50% by the end of next year. Total digital-only ARPU grew 1.8% to $9.45, as we continue to step up subscribers from promotional to higher prices and raise prices on tenured, non-bundled subscribers. The value we've added to our products, combined with the encouraging results we're seeing at pricing step-up points, gives us confidence that modest year-over-year ARPU expansion will continue for the remainder of the year. As a result of both higher digital subscribers and digital-only ARPU in the third quarter, Digital-only subscription revenues grew approximately 14% to $322 million, and total subscription revenues grew approximately 8% to $453 million. Both were in line with the guidance we provided last quarter. Now turning to advertising. Total advertising revenues for the quarter were $118 million, an increase of approximately 1%. Digital advertising revenues increased approximately 9% to $82 million. Both digital advertising and total advertising revenues were within the guidance ranges we provided last quarter. Other revenues were also within our guidance range, increasing approximately 9% to $69 million as wire cover affiliate revenues and licensing revenues continued to perform well in Q3. Adjusted operating costs came in within our guidance range of a 5% to 6% increase, growing by approximately 5.4%. Looking at each of the lines, cost of revenue increased approximately 7%, sales and marketing costs increased approximately 10%, product development costs increased approximately 6%, and adjusted G&A costs decreased approximately 4%. Adjusted diluted EPS in Q3 increased $0.08 to $0.45, primarily driven by higher operating profit and higher interest income. Before I turn to our Q4 guidance, I'd like to add two notes. The first note regards our subscriber disclosures. After the fourth quarter of 2024, we plan to discontinue our supplemental disclosure of subscribers who have entitlements to the athletic. As Meredith noted in her remarks, The athletic is now both a part of our bundle offering as well as a contributor to bundle subscription starts. The athletic subscribers will continue to be included in our total company digital only subscriber disclosures just as we report subscribers of our other products. The second note regards a work stoppage commenced today by a union representing certain of our technology employees. We've known this was a possibility and have prepared for a range of scenarios. While the effects on our operations and results will depend on further developments, our revenue and cost guidance for Q4 incorporates our current best estimates. We have a track record of working effectively with unions and continue to aim for a fair contract. I'll now look ahead to Q4 for the Consolidated New York Times Company. Digital-only subscription revenues are expected to increase 14 to 17 percent compared with the fourth quarter of 2023, and total subscription revenues are expected to increase 7% to 9%. Digital advertising revenues are expected to increase high single digits to low double digits, and total advertising revenues are expected to increase low single digits. Other revenues are expected to increase 11% to 13%, as we expect Wirecutter affiliate revenues to continue to be a strong driver of growth and also expect some benefit from the timing of revenue recognition related to licensing revenue in Q4. Adjusted operating costs are expected to increase 5% to 6% as we are continuing to effectively manage costs while strategically investing in the areas that best position us for sustainable growth, including our world-class news, journalism, and lifestyle products. In summary, Our results demonstrate our essential subscription strategy is working as designed and keeps us 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.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Benjamin South with Deutsche Bank. Please go ahead.

Hey, good morning, everyone. Thanks for taking the question. I first wanted to ask about the strength in digital advertising. It sounds like some of that growth came from bringing on new supplies, so I was wondering, can you talk about where that new supply is showing up in your portfolio and how it's performing? relative to your base. And maybe as part of that, can you talk about where we are with the rollout on the games with advertising things?

I'm happy to take that one. Good morning. So I would say broadly, the digital advertising number came from two places. One, I think as we as we put more ad products into our lifestyle products, we're just more valuable and more marketers. So we have more more demand that we can tap into. And two, as you suggest, we are sort of steadily rolling out supply in each of those products. And actually, it's the case that we have new supply that's come online at one point or another this year in all four of our lifestyle products. In games specifically, you saw the rollout of more ads in the games app, which It's early, but we're excited about it. And I would say, you know, more to come there and also more to come on the athletic, which continues to grow audience and continues to grow at opportunities. But, you know, games and the athletic are certainly the biggest within the lifestyle portfolio in terms of where we can go from here, biggest in terms of the opportunity. But all four products really have opportunity.

Ben, are you all set or do you have a follow-up? Sorry.

Oh, one more if you have time. You saw a pretty nice step-up in bundle ARPU, both on a sequential basis and then the year-over-year decline moderated. Can you talk about what you're seeing with promo step-ups and how you see the path to getting back to bundle ARPU growth on a year-over-year basis? Thanks.

Sure, I can take that. I mean, I think the most important thing to say any time we're talking about ARPU is is making sure we kind of reiterate the overall focuses on our long-term revenue growth, not ARPU per se. And specifically what we really focus on ourselves and what you focused on is that total digital only ARPU line and our target of driving year-over-year modest increases in that. We have a lot of levers to do that and the disclosure allows you to sort of see that strategy playing out. To your question on sort of what we're seeing, you know, as we've been sort of saying throughout the year and looking towards the rest of the year, certainly there are multiple factors that are giving us real confidence in our trajectory. The first is the bundle and the encouraging results we continue to see as bundle subscribers are transitioning to those higher prices. Still feeling really good about what we're seeing there. And then the second are our single product subscription price increases for tenured, you know, certain groups of tenured subscribers there. As we just keep adding value into the products, we're, you know, we're confident in our ability to use the lever of continually raising prices. And, you know, when you add all that up, we feel really good about our trajectory over time.

Great. Thanks, Ben. Operator, we'll take our next question.

Absolutely. Our next question comes from Thomas Yeh with Morgan Stanley. Please go ahead.

Thanks so much. I wanted to ask about the net ads with news entitlement. I think it's been seeing a smoother cadence in recent quarters and years relative to historical volatility quarterly, just given some of the news cycle that kind of comes up and down. Can you talk about just how much a heavy news cycle still plays a role in quarterly volatility? or the opportunity that you see in pulling in paid subscriptions on those moments relative to maybe just a broadening effect that you're seeing, just given more of the holistic bundle offering that you're providing to these consumers these days?

I'm happy to start, Will. You should feel free to add anything. I would say at the highest level, the model is designed to harness demand wherever that demand comes from, and I think we're just getting better and better doing that. And I would say because we have this very kind of broad and deep and innovative news product that is always the case within news and then different moments, different quarters, different products or, you know, because of the time of year, the news cycle, whatever, will present differently in the quarter. But that is all the model working as it's intended to. And I would say you're asking about news. In news specifically, you know, we have invested in such a way that we are prepared to cover the story wherever it goes and to do that in an increasing array of formats. And over the last year, I think we've been particularly good at format innovation in video and visual formats. You've got more, you know, on-camera sort of reporters talking about their stories. which is great for engagement. You've got more visual formats on the election coverage. You've got a more sophisticated polling operation that we had previously and more audio, more shows and more ways for people to listen to all that we have to offer at the times. And if you take that and apply that kind of wherever the story goes, I think we're just getting better and better at engagement. And the last thing I'll say is we keep pointing to very strong enterprise subscriber engagement because that really matters. That's like the high-octane gas in the whole model. And as I said in my prepared remarks, we've gotten to a point in this last quarter where it was the strongest it's been since 2020.

That's helpful. If I drill down a bit just to the acceleration in digital subscription revenue growth reflected in your 4Q guidance, How much of that is maybe a function of just the continued buildup of cohorts coming up for pricing step-ups, or are you embedding some expectation for net ads to accelerate and benefit from? Typically, I think an election year gives you a little bit more juice in terms of the ability to bring in more subscribers.

Thomas, I'll take that. As you know, we don't guide on that ad specifically. I think when you're highlighting that 14% to 17% digital subscription revenue growth guide, I mean, the explanation is pretty straightforward. It's, you know, the strategy playing out is designed for both volume and rate. So, you know, as we've been talking about through the year, we are pleased with the subscriber growth we're seeing, the engagement, you know, passing 11 million total subscribers in the quarter. as well as our approach to monetizing, which I already talked about in the previous question, but continuing to be pleased with the performance at promotional step-up moments, as well as when we're asking people on standalone products to pay higher prices. So when you're adding all that up, it's the model working as designed to underpin that revenue growth that we're guiding to in Q4. Great.

Thanks a lot, Thomas. Operator, your next question.

Absolutely. Our next question comes from David Karnofsky with J.P. Morgan. Please go ahead.

Hey, thank you. Meredith, you've commented on these calls, including today, you know, a lot about how prior changes in social media or search impacted not only the Times but the whole news complex in terms of website traffic. I'm interested. We're a couple quarters in now on search results that include a healthy amount of content. delivered with AI. Are you seeing any impact to traffic as a result, not just on news, but for other verticals like athletic or wire cutter? And then one for Will, you mentioned the strike. I know this just like literally started within the past hour or so, but can you just clarify what you've built in for your Q4 forecast in terms of cost or any disruptions which could impact the top line? Thanks.

Thanks, David. I'll go first. On your question about AI, I'll just say sort of stepping back, we've been talking for, I think, close to two years now about audience headwinds generally, including the fact that platforms are sending less and less traffic to publishers. You know, this is not new. And it certainly makes aspects of the business harder. I'll say we do believe that products like ChatGPT and AI Overviews are playing a role in those headwinds. But having said that, our whole strategy is intended to build resilience to those dynamics by making products that are so good that people seek them out and, you know, ask for them by name and build direct relationships and daily habits with them.

And I'm happy to take the follow-up on the strike. You know, I don't think I really have anything to add here beyond my prepared remarks. You know, while it was just announced today, we're definitely not surprised. And we've known about this as a possibility. We're prepared for a range of scenarios. And I think in terms of, you know, the guide, we are – It represents our best estimate of what we think Q4, how it will play out. Of course, the effects on operations results will depend a bit on further developments, but the guide is contemplating what we see today.

Great. Thanks so much, David. Operator, next question, please.

Thank you. And our next question today comes from Kanan Venkateswar with Barclays. Please go ahead.

Thank you. Maybe one on subscriber trends. I mean, typically you guys tend to see some tailwind in Q3 sequentially versus Q2. And then, of course, this is also an election quarter. But it looks like net ads actually slowed a little bit. So could you just provide some context on the sequential trends and maybe why it slowed down a little bit? And then also the same thing for Q4, I guess. I mean, well, implicit in the guidance is obviously an acceleration in Q4, which you typically see in Q4. But when I look at the delta in terms of the degree of acceleration you normally see, it feels a little bit lower than usual. And I'm just wondering if price increases and some degree of churn is embedded in that guidance. Thanks.

Why don't I start, Kanaan, and Will, you can add anything that you feel would be useful. Let me just start by saying we feel really good about the headline number of 260,000 net ads in the quarter and also, to your point, the value that those subscribers are bringing to the portfolio. And I think, in general, our results in the quarter and all year show that we're kind of firing on all cylinders across the portfolio. We've been very, very focused on two things, and I would say both are going well. One is getting our news product and the rest of the portfolio to drive very strong enterprise subscriber engagement. That is such an important part of the model, and that's really working. And then secondly, and this is kind of a newer focus this year, we have been – intently focused on getting the lifestyle products to begin to be more powerful funnels for the bundle. And, you know, we have a lot of confidence and optimism there. So I would just say we feel very good about where we are on both sort of volume and revenue. Will, do you want to add anything?

No, I think, you know, I don't know what too much else to add. I mean, I think just translating that into the Q4 guide, as Meredith said, you know, we're really pleased with with that guide, and it's fundamentally built on adding a lot of value into the product that we continue to see the high levels of engagement. And for whether it's single product subs or the bundle step-ups, you know, throughout this year, every time we've been asking people to pay more, we've been really pleased with what we see, and that's continuing to underpin what we see as attractive digital subscription revenue growth rates.

Next question, please.

Thank you. And our next question today comes from Vasily Karasayov with Cannonball Research. Please go ahead.

Thank you. Good morning. Meredith, I wanted to follow up and ask you to elaborate on something you said in your prepared remarks, and I may misquote you here, but you said something about audience headwinds and other platforms impacting your audience growth. So could you please tell us what exactly you meant there, and did you feel that you needed to bring this up? Is that trend getting worse for you and how you're planning on dealing with that? Thank you very much.

Thanks for the question. I'll just say, you know, it's more of a step-back point, and I think we've been making it consistently for two years or close to two years. that the platforms are sending less and less traffic to publishers. And I think I already answered a prior question about how AI plays a role in that. I think the important takeaway is that our model is designed to build resilience to that. And we feel really, really good about how we're doing that, both in terms of driving engagement from the subscribers we already have and the ability of those you know, multi-product portfolio to bring us new direct relationships and reasons to call to action the direct relationships we already have. You can regard us as, you know, keenly understanding the direction of travel from the platforms and also building our own ways to get people to come to us. And I think that's really working. And I'll just finish by saying, you know, we didn't mean to intend anything further than what we've been saying for probably seven quarters. Now, maybe eight. I'll leave it there.

Great. Thanks, Vasili. Operator, we have time for one last question. Thanks.

Absolutely. And our last question comes from Doug Arthur at Huber Research Partners. Please go ahead.

Yeah, good morning. Actually, I've got two questions. One, first question, there's been a fair amount of chaos and churn at the Washington Post and the LA Times. Are you seeing any benefit from that?

I'm happy to take that one, Doug. I want to say, first and most importantly, we take no joy in watching any other quality independent journalism institution go through anything difficult. As you know, we are laser focused on our own strategy and our own growth trajectory. And, you know, we expect we'll continue to attract subscribers from all sorts of places for all sorts of reasons. And I'll leave it there.

Got it. Okay. And, Will, just on the cost breakdown, if you take the athletic out and just look at the movement in You know, cost of expenses, sales and marketing, product development, G&A. There was a lot of, you know, unusual movement this quarter. I think sales and marketing was up 22% at the times it was down a year ago. Is there anything driving these categories unusually in the quarter?

I think the way to think about our costs, as we've always said, in any given quarter – you know, things can move around a bit. I think, you know, the most important thing is just stepping back to say we're really focused over the long term on sustaining healthy revenue growth, AOP growth, and margin expansion, kind of in simple terms, revenues growing faster than costs. And, you know, we're doing that through a long-term investment approach that both closely manages costs in places like G&A, while strategically investing in the areas that best position us for sustainable growth. We've identified repeatedly the world-class news journalism and lifestyle products. So it's that disciplined approach we have been executing. We intend to continue, and that should enable us to continue to target year-over-year AOP growth and margin expansion going forward.

Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to Anthony DiClemente for any closing remarks.

Great. That's it. Thank you all for joining us this morning, and we'll see you next quarter.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.