The New York Times Company — Q1 2015 Form 10-Q
Reporting period: 13 weeks ended March 29, 2015; comparisons are with the 13 weeks ended March 30, 2014. The company reports one segment, encompassing The New York Times, the International New York Times, digital businesses and related operations. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Circulation revenue | $211.5 | $209.7 | +0.8% |
| Advertising revenue | $149.9 | $159.2 | -5.8% |
| Other revenue | $22.9 | $21.5 | +6.5% |
| Total revenue | $384.2 | $390.4 | -1.6% |
| Operating profit/(loss) | ($11.1) | $22.1 | Turned to loss |
| Net income/(loss) attributable to NYT common shareholders | ($14.3) | $1.7 | Turned to loss |
| Diluted EPS from continuing operations | ($0.09) | $0.02 | Turned to loss |
| Operating cash flow | $11.1 | ($4.4) | Improved |
Reported operating loss included a $40.3 million pension settlement charge and a $4.7 million multiemployer pension withdrawal charge. Management’s non-GAAP adjusted operating profit, excluding depreciation and amortization, severance, non-operating retirement costs and special items, was $59.2 million versus $56.6 million, up 4.5%. Adjusted diluted EPS was $0.11 versus $0.07. These are non-GAAP measures and should be considered alongside, not in place of, GAAP results.
Operating costs were $350.3 million, down 4.2%; depreciation and amortization fell 26.1% to $14.8 million. Management attributed cost reductions chiefly to distribution efficiencies and lower raw materials, external printing and depreciation costs. Adjusted operating costs were $325.0 million, down 2.6%. The filing does not provide a gross-margin measure.
Liquidity, debt and cash flow
- Cash and cash equivalents were $266.2 million at March 29, 2015. Cash plus short- and long-term marketable securities totaled $847.8 million, compared with total debt and capital lease obligations of $427.7 million; the company reported these liquid resources exceeded those obligations by $420.1 million.
- Total debt and capital lease obligations declined from $650.1 million at December 28, 2014, after repayment at maturity of $223.7 million of 5.0% senior notes. Remaining obligations included $187.8 million of 6.625% senior notes due 2016, a $233.1 million headquarters sale-leaseback repurchase option due in 2019 and $6.7 million of capital leases. The company reported compliance with financing covenants.
- Net interest expense was $12.2 million versus $13.3 million. The fair value of long-term debt was $531 million, compared with carrying value of approximately $421 million.
- Operating cash flow was $11.1 million, compared with cash use of $4.4 million. Investing activities provided $211.5 million, chiefly reflecting marketable-security maturities; financing activities used $131.7 million, mainly for debt repayment, partly offset by warrant exercise proceeds. Capital expenditures were $8.8 million.
- Cash and marketable-security balances changed with security maturities and purchases, debt repayment, employee variable compensation, taxes, dividends, and warrant proceeds. Restricted cash of $30.6 million was held primarily for workers’ compensation collateral.
Business changes and management commentary
- Circulation revenue rose as digital subscription growth and a print home-delivery price increase more than offset lower print-copy sales. Digital-only subscription revenue increased 14.4% to $46.1 million; paid digital-only subscribers reached approximately 957,000, nearly 20% above the prior-year quarter.
- Advertising remained under pressure: print advertising revenue fell 11.1%, while digital advertising revenue grew 10.7%. Digital growth reflected mobile, video, Paid Posts and programmatic channels. Print accounted for 71.8% of advertising revenue and digital for 28.2%.
- In January 2015, holders exercised warrants for 15.9 million Class A shares, providing $101.1 million in proceeds. The company authorized repurchases of up to that amount and repurchased 282,943 shares for $3.8 million in Q1. As of April 29, repurchases totaled $7.3 million, leaving $93.8 million authorized.
- The $40.3 million pension settlement charge followed lump-sum payments of approximately $98.3 million funded from qualified pension plans, not company cash. Management said the offer reduced pension obligations by $142.8 million. The company also recorded the $4.7 million partial withdrawal charge.
Outlook, risks and contingencies
Management described a challenging, competitive and fragmented environment with limited visibility. For Q2 2015, it expected circulation revenue to grow at a rate similar to Q1 and approximately 30,000 net digital subscriber additions; the forecast reflected the conversion of NYT Now to a free product and associated expected losses of paid digital subscriptions. Advertising revenue was expected to decline in the mid-single digits year over year, with digital advertising growth similar to Q1. Other revenue was expected to grow in the low-single digits, and operating and adjusted operating costs were each expected to decline in the low-single digits.
For full-year 2015, management expected depreciation and amortization of $60–$65 million, net interest expense of $40–$45 million, capital expenditures of $35–$45 million, and joint-venture results around breakeven. It expected approximately $9 million of Q2 non-operating retirement costs, versus $8.3 million a year earlier. Management warned that the industry-wide transition to advertising viewability standards could reduce ad impressions and affect advertising revenue beginning in the second half, though it expected long-term benefits for digital advertising.
- A pension fund assessed approximately $34 million of partial withdrawal liability. The company disputes both whether a withdrawal occurred and the calculation, has initiated arbitration, and said a loss was not probable; it had not recorded a contingency. It was making required quarterly payments while the dispute proceeded.
- Management said pending legal matters were not expected to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors, contractual obligations or market risks.
- The company expected $8.6 million of pension contributions in 2015 to meet minimum funding requirements. Pension and retirement costs, advertising weakness, print declines, and the viewability transition remain relevant risks.
Investor verification points
- Track whether digital circulation growth and pricing continue to offset declines in print copies, and whether paid subscriber additions meet the Q2 expectation.
- Monitor print and digital advertising trends, including the effect of viewability changes on impressions and revenue from the second half of 2015.
- Separate GAAP results from adjusted measures and verify the effects of pension-related charges, ongoing retirement costs and future pension funding.
- Follow the disputed approximately $34 million pension withdrawal assessment, arbitration outcome and required payments.
- Confirm progress on debt reduction, share repurchases, liquidity and capital spending against management’s stated outlook.