The New York Times Company — Q3 2019 Form 10-Q
Business context and period. The Company is a global media business with one reportable segment, earning revenue principally from subscriptions and advertising. This unaudited report covers the 13 weeks ended September 29, 2019, and the nine months then ended; comparisons are with the corresponding 2018 periods.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Change |
|---|---|---|---|
| Revenue | $428.5 million | $417.3 million | +2.7% |
| Operating profit | $25.1 million | $41.4 million | -39.5% |
| Operating margin | 5.9% | 9.9% | Down 4.0 percentage points |
| Net income attributable to common stockholders | $16.4 million | $25.0 million | -34.2% |
| Diluted EPS | $0.10 | $0.15 | -33.3% |
| Adjusted operating profit (non-GAAP) | $44.1 million | $53.7 million | -17.9% |
| Adjusted diluted EPS (non-GAAP) | $0.12 | $0.15 | -20.0% |
For the first nine months, revenue was $1.304 billion, up 4.7%; operating profit was $97.6 million, down 15.5%; and net income attributable to common stockholders was $71.8 million, up 1.8%. Diluted EPS was $0.43 versus $0.42. Adjusted operating profit was $152.0 million, down 9.8%, while adjusted diluted EPS was $0.49, unchanged. Adjusted measures are non-GAAP and should be considered alongside GAAP results.
Revenue and operating trends
- Q3 subscription revenue increased 3.7% to $267.3 million. Paid digital-only subscriptions reached approximately 4.053 million, up 31.0% year over year; digital-only subscription revenue rose 14.5% to $115.9 million.
- Advertising revenue fell 6.7% to $113.5 million. Print advertising declined 7.9%; digital advertising declined 5.4% in Q3, though digital advertising was up 8.2% for the nine months.
- Other revenue rose 25.9% in Q3 to $47.7 million, principally reflecting revenue from “The Weekly.”
- Q3 operating costs increased 5.4% to $401.5 million. Management cited higher newsroom and product-development staffing and “The Weekly” costs, partly offset by lower print production and distribution costs.
Cash flow, liquidity and debt
- Cash provided by operations for the first nine months was $121.6 million, versus $116.4 million in 2018. Capital expenditures were approximately $33 million; cash used in investing activities was $37.3 million and cash used in financing activities was $43.1 million.
- At September 29, 2019, cash, cash equivalents and short- and long-term marketable securities totaled $877.9 million, compared with total debt and finance lease obligations of $246.2 million; the reported excess was $631.7 million.
- The Company had $246.2 million of short-term debt, principally the headquarters repurchase option. It expected to repurchase the leased headquarters condominium interest for $245.3 million in December 2019, funded from existing cash and marketable securities. It also paid $6.9 million in August to purchase previously leased land at its College Point facility.
- A new $250 million, five-year unsecured revolving credit facility was entered into in September; no borrowings were outstanding at quarter-end. Management said liquidity and operating cash flow should be sufficient for financing needs over the next 12 months.
Material changes, outlook and risks
- Q3 profitability weakened as cost growth and lower advertising revenue more than offset subscription and other-revenue growth. Q3 operating profit also included a $4.0 million restructuring charge related to closing HelloSociety and a $2.0 million gain from a pension-liability adjustment.
- Management provided no numerical forward earnings or revenue guidance in the supplied filing text. It said it currently expects to continue comparable cash dividends, subject to Board review; the quarterly dividend had increased from $0.04 to $0.05 per share in 2019.
- The Company settled its dispute with the Newspaper and Mail Deliverers-Publishers’ Pension Fund in September, recognized an approximately $2.0 million gain, and reported no remaining contingent liability for that matter. Other ordinary-course legal matters remain; management did not expect their ultimate resolution to materially affect financial position, while acknowledging a possible material impact on results or cash flows in an individual period.
- Operating lease liabilities totaled $63.9 million at quarter-end. The Company also had $42.4 million of letters of credit related to leasing headquarters floors, with approximately $47 million of marketable securities designated as collateral.
- Management reported no material change in risk factors or market risks from its 2018 Form 10-K. It noted that interim results are not necessarily indicative of full-year performance because of seasonality.
Investor verification priorities
- Track digital subscriber additions, retention and revenue growth against continuing declines in print and digital display advertising.
- Assess whether staffing, marketing and content-cost growth can be supported by recurring subscription and other-revenue growth, and compare GAAP with adjusted results.
- Verify completion and cash funding of the December 2019 headquarters repurchase and the resulting liquidity position.
- Review performance under the new credit facility’s interest-coverage and leverage covenants, and monitor restricted cash and collateralized securities.
- Follow pension-plan assumptions and contributions, remaining legal contingencies, and the timing and realization of the $95 million in disclosed remaining performance obligations.