Business context and reporting period
The New York Times Company’s unaudited Form 10-Q covers the 13 weeks ended March 27, 2022, compared with the 13 weeks ended March 28, 2021. The company earns revenue primarily from subscriptions and advertising. It acquired The Athletic on February 1, 2022; its results are included from that date, and it is reported as a separate segment. The company also changed its fiscal year to the calendar year beginning in 2022.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $537.4 million | $473.0 million | +13.6% |
| Subscription revenue | $372.0 million | $329.1 million | +13.0% |
| Advertising revenue | $116.3 million | $97.1 million | +19.7% |
| Operating profit | $6.3 million | $51.7 million | -87.8% |
| Net income | $4.7 million | $41.1 million | -88.5% |
| Diluted EPS | $0.03 | $0.24 | -87.5% |
| Adjusted operating profit (non-GAAP) | $60.9 million | $68.1 million | -10.6% |
| Adjusted operating margin (non-GAAP) | 11.3% | 14.4% | -3.1 percentage points |
| Adjusted diluted EPS (non-GAAP) | $0.19 | $0.26 | -26.9% |
Digital-only subscription revenue rose 26.3% to $226.8 million, while print subscription revenue fell 2.9% to $145.2 million. Digital advertising increased 12.6% and print advertising increased 30.9%. The company ended the quarter with 8.328 million paid digital-only subscribers and 9.108 million total subscribers; reported subscriber growth includes The Athletic’s acquired base.
Operating costs increased 17.8% to $496.4 million. The $34.7 million of acquisition-related costs, principally option acceleration and transaction and integration expenses, materially reduced GAAP operating profit. The New York Times Group’s adjusted operating profit was $67.7 million, down 0.6%; The Athletic recorded $12.2 million of revenue and a $6.8 million adjusted operating loss for the period included.
Cash flow, liquidity and capital
Operating cash flow was negative $14.7 million, versus positive $32.9 million a year earlier. Investing cash outflow was $84.0 million, including $515.3 million paid for acquisitions, partly offset by marketable-security maturities. Financing cash outflow was $51.9 million, including $29.0 million of share repurchases and $11.8 million of dividends. Cash, cash equivalents and restricted cash ended at $183.6 million; cash and marketable securities totaled $474.8 million.
Total assets were $2.529 billion at March 27, 2022, versus $2.564 billion at December 26, 2021. The filing reports no outstanding borrowings under the $250 million five-year revolving credit facility and states the company was in compliance with its covenants. The filing does not report funded debt outstanding. The company said its cash, operating cash flow and other sources should meet financing needs over the next 12 months.
Material changes, outlook and risks
- Revenue growth was led by digital subscriptions and advertising, but cost growth outpaced revenue growth. Management cited higher employee-related, marketing, journalism, technology and print costs.
- The Athletic acquisition was completed for approximately $550 million in cash. Purchase accounting was preliminary; acquired goodwill was $249.8 million and acquired intangible assets had a net carrying value of $327.5 million at quarter-end.
- The company provided no specific forward earnings or revenue guidance in the supplied filing text. It expected comparable cash dividends to continue, subject to Board review, and increased the quarterly dividend to $0.09 per share.
- A $150 million Class A share repurchase authorization was approved in February; $29.0 million had been used by quarter-end, leaving approximately $121.0 million.
- Management warned that a tax-law requirement to capitalize and amortize research and development expenses could significantly increase 2022 cash tax payments if Congress did not defer or repeal it.
- The company cited uncertainty from COVID-19, competition, subscriber and advertising trends, technology and cybersecurity, labor, pension obligations, newsprint supply and costs, and integration and realization of benefits from The Athletic. Pending legal matters could affect an individual period’s results or cash flows, although management did not expect a material effect on financial position.
- Subsequent to quarter-end, a lease commenced for land at the College Point facility. The company recognized an approximately $34 million gain at lease commencement in April 2022; the parcel is expected to be sold for approximately $36 million when the lease expires in February 2025. This gain is not part of Q1 results.
Important facts for investors to verify
- Track subscriber additions, retention and average revenue per digital subscriber; Q1 digital-only ARPU was $9.04, down 1.2% year over year.
- Assess The Athletic’s post-acquisition revenue, operating losses, subscriber performance and progress toward integration benefits; Q1 includes only ownership from February 1.
- Separate recurring operating performance from the $34.7 million acquisition charge and other non-GAAP adjustments when comparing profitability.
- Monitor operating cash generation and liquidity after the acquisition, repurchases and dividends, as well as any change in cash taxes from R&D capitalization rules.
- Confirm final acquisition purchase accounting and subsequent-period recognition of the College Point lease gain.