The New York Times Company — Q2 2019 Form 10-Q
Reporting period: 13 weeks ended June 30, 2019; comparisons are with the 13 weeks ended July 1, 2018. Six-month figures compare the periods ended on those dates. The company reports one operating segment and earns revenue mainly from subscriptions and advertising.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Change |
|---|---|---|---|
| Revenue | $436.3 million | $414.6 million | +5.2% |
| Operating profit | $37.9 million | $40.0 million | −5.2% |
| Operating margin | 8.7% | 9.7% | Down about 1.0 percentage point |
| Net income attributable to common stockholders | $25.2 million | $23.6 million | +6.7% |
| Diluted EPS | $0.15 | $0.14 | +7.1% |
| Adjusted operating profit (non-GAAP) | $55.6 million | $59.4 million | −6.4% |
For the six months, revenue was $875.3 million, up 5.7%; operating profit was $72.5 million, down 2.1%; net income attributable to common stockholders was $55.3 million, up 21.6%; and diluted EPS was $0.33 versus $0.27. Six-month operating cash flow was $64.0 million, compared with $77.7 million a year earlier. Capital expenditure cash payments were $23.1 million versus $45.5 million.
Revenue mix and operating trends
- Q2 subscription revenue rose 3.8% to $270.5 million. Digital-only subscriptions grew 30.7% year over year to 3.78 million; digital-only subscription revenue increased 14.1% to $112.6 million.
- Advertising revenue increased 1.3% to $120.8 million: digital advertising rose 13.7% to $58.0 million, while print advertising fell 8.0% to $62.7 million.
- Other revenue increased 29.7% to $45.0 million, mainly reflecting “The Weekly,” commercial printing growth, and rental revenue.
- Total operating costs increased 6.7% to $398.3 million. Management cited newsroom and other employee costs, “The Weekly,” commercial printing labor and materials, and advertising costs. Marketing expense was $36.6 million in Q2, compared with $35.6 million.
Liquidity, debt, and capital allocation
- At June 30, cash, cash equivalents, and short- and long-term marketable securities totaled $846.5 million. Debt and finance lease obligations totaled $254.4 million, leaving these liquid resources $592.1 million above those obligations.
- Cash and cash equivalents were $255.8 million; marketable securities were $590.7 million. Six-month operating cash flow was $64.0 million. Management attributed its year-over-year decline partly to higher cash taxes and lower subscription cash receipts, partly offset by higher customer collections and lower incentive compensation payments.
- Most debt related to the headquarters sale-leaseback repurchase option, with a stated option price of approximately $245.3 million, exercisable in December 2019. The company said it intended to exercise the option using existing cash and marketable securities and believed the property’s market value exceeded the exercise price.
- The company said its cash balance, operating cash flow, and other sources should meet financing needs over the next 12 months. It expected to continue comparable cash dividends, subject to Board review. The quarterly dividend was raised from $0.04 to $0.05 per share in 2019.
- On August 1, 2019, the company purchased the previously leased College Point facility land for $6.9 million. It also expected a final $5–$8 million distribution from the Madison investment during 2019.
Outlook, risks, and unusual items
- No numerical earnings or revenue guidance was provided. Management cautioned that interim results may not indicate full-year performance because of seasonality.
- Management identified ongoing print advertising declines and rising operating costs as factors weighing on operating profit. Digital subscriptions and digital advertising continued to grow.
- The company had $1.4 million accrued for a multiemployer pension withdrawal dispute. Management said the ultimate loss could exceed that liability by a range of zero to approximately $11 million. Appeals were pending; the company had paid $20.7 million relating to the initial assessment, subject to the dispute’s resolution.
- The filing notes other ordinary-course legal matters that could adversely affect results or cash flows in an individual period, although management did not expect their ultimate resolution to materially affect financial position.
- No special items were recorded in 2019 under the company’s non-GAAP presentation. The 2018 comparison included headquarters redesign and consolidation charges. Q2 2019 adjusted diluted EPS was $0.17, unchanged from Q2 2018; adjusted operating profit fell 6.4%.
- Adoption of the new lease standard resulted in recognition of operating lease right-of-use assets of $36.8 million and lease liabilities of $42.9 million at June 30. A subsequent Long Island City lease commenced in July 2019, with a commencement-date liability present value of $22 million.
- The company reported no material changes to its previously disclosed risk factors or market risks. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification priorities
- Track whether digital subscription growth and digital advertising gains continue to offset print declines, and whether subscription growth translates into revenue and cash collection.
- Assess operating-cost growth, particularly employee, marketing, content, commercial printing, and production costs, against revenue growth and margins.
- Verify the December 2019 headquarters repurchase price, funding and completion, and the effect on liquidity; also consider the subsequent College Point purchase and Long Island City lease.
- Monitor the pension withdrawal litigation, potential exposure above the $1.4 million accrual, and any resulting cash payments.
- Reconcile reported GAAP results with management’s adjusted non-GAAP measures and note that no formal numerical guidance was provided.