The New York Times Company — Q2 2015 Form 10-Q
Business and period: Global media company with one reportable segment, including The New York Times, the International New York Times and related digital businesses. The quarter ended June 28, 2015 (13 weeks); comparative quarter ended June 29, 2014. Six-month results cover 26 weeks.
Financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $382.9m | $388.7m | $767.1m | $779.1m |
| Operating profit | $38.1m | $16.5m | $27.0m | $38.6m |
| Net income attributable to common stockholders | $16.4m | $9.2m | $2.1m | $10.9m |
| Diluted EPS from continuing operations | $0.10 | $0.06 | $0.01 | $0.07 |
| Operating cash flow | — | $65.7m | $8.1m |
- Q2 operating margin was approximately 9.9%, versus 4.2% a year earlier. Management’s non-GAAP adjusted operating profit was $64.4m, up 15.6% from $55.7m; adjusted diluted EPS was $0.13 versus $0.07. These measures exclude specified costs and should be considered alongside GAAP results.
- Q2 circulation revenue rose 0.9%; advertising fell 5.5%; other revenue rose 4.5%. Digital-only subscription, e-reader and replica-edition revenue increased 13.8%; paid digital-only subscribers were approximately 990,000 at quarter-end.
- Digital advertising grew 14.2% in Q2, but print advertising declined 12.8%. Total advertising revenue fell 5.7% for the first half.
- Total operating costs declined 4.9% in Q2, reflecting print-distribution efficiencies, lower raw-material and outside-printing costs, lower depreciation and amortization, and reduced promotion spending.
- Six-month GAAP operating profit included a $40.3m pension settlement charge and a $4.7m multiemployer pension withdrawal charge. Q2 2014 included a $9.5m pension settlement charge. The 2015 qualified-plan lump-sum payments were funded by plan assets, not company cash.
Cash, debt and liquidity
- At June 28, 2015, cash and cash equivalents were $155.0m; short- and long-term marketable securities totaled $724.7m. Together, these liquid investments were $879.7m.
- Total debt and capital lease obligations were $428.8m, leaving liquid investments in excess of these obligations by $450.9m. The company repaid $223.7m of 5.0% notes at maturity in March; remaining obligations included 6.625% notes due in 2016 and the headquarters building repurchase option due in 2019.
- Six-month cash from operations was $65.7m. Investing activities provided $57.4m, principally reflecting maturities of marketable securities; financing used $143.7m, mainly for debt repayment, dividends and share repurchases, partly offset by $101.1m from warrant exercise. Cash ended the period at $155.0m, down from $176.6m at year-end 2014.
- Management said cash, operating cash flow and other sources should be sufficient for financing needs over the next 12 months. The company was in compliance with financing covenants.
Outlook, risks and notable items
- For Q3 2015, management expected circulation revenue growth at a rate similar to Q2 and net digital subscriber additions in the high-30,000s. It expected total advertising revenue to decline in the mid-single digits, while digital advertising was expected to increase in the mid-single digits. Other revenue was expected to grow in the low-double digits, and operating costs to decline in the low-single digits.
- Management cited a challenging, fragmented media market and limited visibility. Advertising remained under pressure and subject to month-to-month volatility. The transition to industry viewability standards could affect advertising revenue beginning in the second half, although management expected a long-term benefit to digital advertising growth.
- For 2015, the company expected pre-tax joint-venture results to break even, depreciation and amortization of $60m–$65m, net interest expense of $40m–$45m, capital expenditures of approximately $35m, and pension contributions totaling $8m.
- A pension fund assessed approximately $34m of partial withdrawal liability. The company disputed the assessment and initiated arbitration; management did not consider a loss probable and recorded no contingency. It had paid $8.1m through June 28 under required quarterly payments.
- Other notable developments: the company received $101.1m from exercise of warrants and authorized repurchases using that amount; $9.3m had been spent on repurchases by quarter-end. The quarter’s $11.7m income tax expense compared with a $5.7m tax benefit in Q2 2014. The filing reported no material change in risk factors or market risks.
Investor verification points
- Track whether digital circulation growth and subscriber additions continue to offset print-volume declines.
- Verify the pace and mix of advertising trends, particularly print declines, digital growth and the effect of viewability changes.
- Assess the sustainability of cost reductions and adjusted operating-profit improvement against GAAP results and pension-related charges.
- Monitor cash generation, remaining debt maturities, repurchases and dividends, and the disputed pension-fund assessment and arbitration.
- Compare Q3 and full-year outcomes with management’s outlook; the filing cautions that interim results are seasonal and not necessarily indicative of full-year performance.