The New York Times Company — Q1 2017 Form 10-Q
Reporting period: 13 weeks ended March 26, 2017; compared with the 13 weeks ended March 27, 2016. The company operates one reportable media segment. Interim results are subject to seasonal variability.
Financial performance
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $398.8 million | $379.5 million | +5.1% |
| Circulation revenue | $242.4 million | $218.0 million | +11.2% |
| Advertising revenue | $130.0 million | $139.7 million | -6.9% |
| Other revenue | $26.4 million | $21.8 million | +20.9% |
| Operating profit | $29.0 million | $27.9 million | +3.8% |
| Net income (loss) attributable to common stockholders | $13.2 million | $(8.3) million | Turned profitable |
| Diluted EPS | $0.08 | $(0.05) | Turned profitable |
| Operating cash flow | $30.1 million | $(12.0) million | Improved |
Operating margin was approximately 7.3%, versus 7.4% a year earlier. Adjusted operating profit, a non-GAAP measure, was $52.7 million versus $51.5 million; adjusted diluted EPS was $0.11 versus $0.10. These measures exclude specified depreciation, severance, retirement costs and special items.
Revenue drivers and material changes
- Digital-only subscriptions reached approximately 2.201 million, up 62.2% year over year. Digital-only subscription revenue rose 40.0% to $75.8 million, including news and Crossword products.
- Total advertising fell as print advertising declined 17.9% to $80.4 million; digital advertising grew 18.9% to $49.7 million. Management cited weakness in print display advertising, partly offset by mobile, programmatic and branded-content growth.
- Other revenue growth largely reflected affiliate referrals from the Wirecutter and Sweethome businesses acquired in October 2016.
- Operating costs rose 4.5% to $367.4 million. Higher marketing and compensation costs, acquired-business costs and $2.4 million of headquarters redesign costs were partly offset by lower production costs and retirement costs.
- Q1 2016 included a $41.4 million loss from the Madison Paper Industries mill closure. The absence of that charge was a major factor in the year-over-year improvement in net results.
Cash, debt and liquidity
- Cash and cash equivalents were $151.0 million at March 26, 2017, compared with $100.7 million at December 25, 2016. Cash plus short- and long-term marketable securities totaled $752.5 million.
- Total debt and capital lease obligations were $247.8 million, principally the discounted obligation associated with a 2019 option to repurchase an interest in the headquarters building. Cash and marketable securities exceeded debt and capital lease obligations by $504.7 million.
- Operating cash flow was $30.1 million. Investing activities provided $29.8 million, primarily from marketable-security maturities; financing activities used $9.9 million, mainly dividends and share-based compensation tax withholding.
- Quarterly dividends declared were $0.04 per share. No shares were repurchased during the quarter; $16.2 million remained under the existing authorization.
- Management said cash, operating cash generation and other sources should be sufficient for financing needs over the next 12 months. Restricted cash was $24.9 million.
Outlook, risks and unusual items
- Management expected year-over-year digital-only subscription growth to continue in Q2 2017, but at a slower rate than in the prior two quarters. No specific full-year financial guidance was provided.
- The Madison joint venture was being liquidated. A sale agreement for remaining hydro-power assets was signed in April 2017; management expected proceeds to cover Madison’s obligations and potentially permit reversal of the company’s recorded liability.
- The company had an $8.9 million liability for a disputed Newspaper and Mail Deliverers-Publishers’ Pension Fund withdrawal assessment. Management said a further loss of zero to approximately $10 million above the recorded liability was reasonably possible; it expected to appeal the arbitrator’s decision.
- Other pending legal matters could affect results or cash flows in an individual period, although management did not believe their ultimate resolution was likely to materially affect financial position. The filing reported no material change in risk factors or market risks from the prior annual report.
- The company adopted stock-compensation accounting guidance, recognizing $1.5 million of excess tax shortfalls in Q1 income tax expense. It was evaluating new lease and revenue standards; management expected most operating lease commitments to be recognized on the balance sheet under the lease standard and did not expect material effects on results or liquidity from that adoption.
Most important facts to verify
- Whether paid digital subscriptions and digital circulation revenue continue to grow as print advertising remains under pressure.
- Whether marketing and other operating-cost increases translate into improved operating margins.
- The outcome, payment requirements and appeal prospects for the disputed pension withdrawal assessment.
- Completion and proceeds from the Madison hydro-power asset sale, and any resulting reversal of the recorded liability.
- Whether liquidity, dividend payments and the headquarters-related debt obligation evolve as management expects.