The New York Times Company — Q1 2020 Form 10-Q
Reporting period: 13 weeks ended March 29, 2020; comparable period ended March 31, 2019. Amounts below are in U.S. dollars unless stated otherwise.
Business context and key financial results
The Company operates as one reportable segment, generating revenue primarily from subscriptions and advertising. The quarter coincided with the onset of the COVID-19 pandemic and related economic disruption.
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $443.6 million | $439.1 million | +1.0% |
| Operating profit | $27.3 million | $34.6 million | -21.0% |
| Operating margin | 6.2% | 7.9% | -1.7 percentage points |
| Net income | $32.9 million | $30.2 million | +8.9% |
| Diluted EPS | $0.20 | $0.18 | +11.1% |
| Operating cash flow | $38.9 million | $25.2 million | +54.3% |
Subscription revenue rose 5.4% to $285.4 million, while advertising revenue fell 15.2% to $106.1 million. Other revenue increased 20.6% to $52.1 million. Digital-only subscription revenue grew 18.3% to $130.0 million; paid digital-only subscriptions reached 5.001 million, up 39.6% year over year. Print subscription revenue declined 3.4% to $155.4 million.
Print advertising fell 20.9% and digital advertising fell 7.9%. Total operating costs increased 2.9% to $416.3 million, including a 29.8% increase in product development costs, partly offset by lower print production and distribution costs. Adjusted operating profit, a non-GAAP measure, declined 15.4% to $44.3 million; adjusted diluted EPS was $0.17 versus $0.20.
Financial position, liquidity and cash flow
At March 29, 2020, cash and cash equivalents were $218.3 million; short- and long-term marketable securities totaled $468.6 million. The Company reported $686.9 million of cash, cash equivalents and marketable securities and no outstanding debt. Its $250 million five-year revolving credit facility was undrawn, and the Company was in compliance with its covenants. Total assets were $2.02 billion and total stockholders’ equity was $1.19 billion.
Cash from operations was $38.9 million. Investing activities used $33.4 million, including $15.2 million of capital expenditure cash payments and $8.1 million for an acquisition. Financing activities used $18.8 million, principally for dividends and share-based compensation tax withholding. Cash, cash equivalents and restricted cash ended the quarter at $234.1 million. The quarterly dividend was $0.06 per share.
Material changes, outlook and risks
Net income included a $10.1 million gain on a non-marketable equity investment, comprising a $2.5 million realized gain and a $7.6 million unrealized gain. Management reported adjusted diluted EPS of $0.17 after excluding the gain and other specified items. The effective tax rate was 15.5%, compared with 4.1% in the prior-year quarter.
Management said COVID-19 contributed to weaker advertising demand and expected advertising revenue to remain adversely affected, including in Q2 2020. The Company also warned that print single-copy sales, live events and potentially subscriber growth could be affected; first-quarter digital subscriber gains may not be sustainable or may represent demand brought forward. Management considered its balance sheet strong and expected cash, operating cash flow and other sources to meet financing needs for the next 12 months. It expected to continue hiring and investing in newsroom, product and technology, and expected comparable cash dividends, subject to Board review. The filing provides no specific full-year revenue or earnings guidance.
Other risks include potential disruption to printing and distribution, workforce and cybersecurity risks from remote work, and possible additional pandemic-response costs. The Company disclosed pending legal matters; management did not believe their ultimate resolution was likely to materially affect financial position, though an unfavorable outcome could materially affect results or cash flows in an individual period. The Company acquired Listen In Audio, Inc. (Audm) for $8.6 million, including cancellation of a previously issued note; purchase-price allocation was not complete at quarter-end.
The Company changed its income-statement expense captions in Q1 2020 and recast prior-period presentation for comparability; management said the change did not affect operating income, operating expenses, net income or cash flows.
Important facts for investors to verify
- Whether advertising weakness persisted beyond Q1 and how it affected subsequent revenue and margins.
- Whether digital subscription additions and revenue growth continued as pandemic-related traffic normalized, including subscriber retention and pricing.
- The extent to which the $10.1 million investment gain affected reported earnings compared with underlying operating performance.
- Liquidity and cash flow trends, including use of the undrawn revolver, capital spending, dividends and any additional pandemic-related costs.
- Audm acquisition accounting and any subsequent retention payments, as well as developments in legal matters and printing or distribution risks.