The New York Times Company — Q2 2017 Form 10-Q
Business context and period: Global media company with one reportable segment, including The New York Times, NYTimes.com and related businesses. The quarter ended June 25, 2017 and comprised 13 weeks; comparisons are with the quarter ended June 26, 2016. The filing is unaudited.
Key financial results
| Metric | Q2 2017 | Q2 2016 | Change |
|---|---|---|---|
| Revenue | $407.1 million | $372.6 million | +9.2% |
| Operating profit | $27.7 million | $9.1 million | Higher; prior period included special charges |
| Operating margin | 6.8% | 2.5% | Calculated from reported revenue and operating profit |
| Net income/(loss) attributable to NYT common stockholders | $15.6 million | $(0.2) million | Turned positive |
| Diluted EPS | $0.09 | $0.00 | Adjusted diluted EPS: $0.18 vs. $0.11 |
Revenue mix: Subscription revenue rose 13.9% to $250.0 million, led by digital subscription growth and higher home-delivery prices. Digital-only subscription revenue increased 46.4% to $82.5 million; paid digital-only subscriptions reached approximately 2.333 million, up 63.4%. Advertising revenue increased 0.8% to $132.2 million, as digital advertising rose 22.5% while print advertising fell 10.5%. Other revenue grew 12.8% to $24.8 million, partly from Wirecutter and Sweethome affiliate referrals.
Costs and profitability: Operating costs rose 11.0% to $377.4 million. SG&A increased 23.8%, principally due to severance, compensation and marketing; production costs declined 2.2%. Adjusted operating profit, a non-GAAP measure, increased 23.2% to $67.1 million. Adjusted diluted EPS was $0.18, up from $0.11; these measures exclude specified costs and items and should be considered alongside GAAP results.
Six months ended June 25, 2017: Revenue was $805.9 million, up 7.1%; operating profit was $56.7 million, up 52.9%; and net income attributable to common stockholders was $28.8 million versus a loss of $8.5 million. Operating cash flow was $99.5 million versus $40.8 million.
Cash, debt and liquidity
- Cash and cash equivalents were $204.1 million at June 25, 2017, compared with $100.7 million at December 25, 2016. Short- and long-term marketable securities totaled $603.3 million; cash and securities together were $807.4 million.
- Total debt and capital lease obligations were $248.6 million, including the discounted obligation associated with a 2019 option to repurchase part of the headquarters building. Cash and marketable securities exceeded debt and leases by $558.8 million.
- Current assets were $775.4 million and current liabilities were $398.5 million. The balance sheet also showed pension obligations of $532.9 million and postretirement obligations of $56.3 million.
- Six-month investing cash flow was positive $18.1 million, primarily reflecting marketable-security maturities net of purchases and capital spending. Financing cash outflow was $14.3 million, including $13.0 million of dividends. Capital expenditures were $21.4 million.
Material changes, outlook and risks
- Newsroom workforce reductions announced in May generated $19.3 million of Q2 severance expense. The company expected up to approximately $6 million of additional related costs in the second half of 2017.
- Headquarters redesign and consolidation costs were $2.0 million in Q2 and $4.4 million for the first half. The company reported approximately $11 million in first-half capital expenditures related to the project.
- Management said cash, operating cash flow and other sources should meet financing needs over the next 12 months. It expected to continue comparable quarterly dividends, subject to board review. No specific revenue or earnings guidance was provided.
- Madison Paper Industries was being liquidated after its mill closed in 2016. Following a July 31, 2017 asset sale, the company expected a third-quarter gain of approximately $20–$25 million, which would reduce its related liability.
- In the NMDU pension-fund dispute, an arbitrator issued a final award in July 2017 and the company planned to appeal. The company reported an $8.1 million liability and said the potential total loss could exceed that amount by zero to approximately $10 million. Other pending legal matters could affect results or cash flows in an individual period, though management did not expect a material effect on financial position.
- The company reported no material changes in risk factors or market risks from its 2016 Form 10-K. Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether digital subscription growth and pricing continue to offset declines in print circulation and print advertising.
- Whether digital advertising growth can persist, given the decline in traditional website display advertising and weakness in several print-ad categories.
- How severance, compensation and marketing spending affect operating costs and GAAP profitability after the current restructuring.
- The outcome and cash implications of the NMDU arbitration appeal, including any loss above the recorded liability.
- Realized proceeds and accounting impact of the Madison asset sale, versus the company’s estimated $20–$25 million gain.
- Dividend sustainability, pension funding needs and the eventual obligations associated with the headquarters sale-leaseback arrangement.