The New York Times Company: Q3 2020 Form 10-Q
Business context and period. The Company is a global media organization with one reportable segment, generating revenue principally from subscriptions and advertising. This unaudited filing covers the 13 weeks ended September 27, 2020, and the first 39 weeks of fiscal 2020; comparisons are with the corresponding 2019 periods.
Financial performance
| Metric | Q3 2020 | Q3 2019 | First 9 months 2020 | First 9 months 2019 |
|---|---|---|---|---|
| Revenue | $426.9 million | $428.5 million | $1,274.3 million | $1,303.8 million |
| Operating profit | $39.6 million | $25.1 million | $95.7 million | $97.6 million |
| Net income | $33.6 million | $16.4 million | $90.1 million | $71.8 million |
| Diluted EPS | $0.20 | $0.10 | $0.54 | $0.43 |
| Operating costs | $387.3 million | $401.5 million | $1,178.6 million | $1,204.2 million |
| Cash from operations | Not separately stated for quarter | Not separately stated for quarter | $206.7 million | $121.6 million |
Q3 subscription revenue rose 12.6% to $301.0 million, while advertising fell 30.2% to $79.3 million and other revenue declined 2.0% to $46.7 million. Digital-only subscription revenue grew 34.0% to $155.3 million; digital-only subscriptions reached 6.063 million, up 49.6% year over year. Digital-only subscription revenue exceeded print subscription revenue for the first full quarter. Total subscriptions were 6.894 million, including 831,000 print subscriptions.
For the first nine months, subscription revenue increased 8.8% to $879.6 million, but advertising decreased 29.6% to $253.2 million. Total revenue declined 2.3%. Operating profit was up 57.8% in Q3 but down 1.9% year to date. Q3 operating margin was approximately 9.3%, compared with 5.9% a year earlier; nine-month operating margin was approximately 7.5% in both periods. Q3 adjusted operating profit, a non-GAAP measure, increased 28.3% to $56.5 million; adjusted diluted EPS was $0.22 versus $0.12.
Liquidity and capital. At September 27, 2020, cash and cash equivalents were $215.8 million and marketable securities were $584.4 million, for total cash and securities of $800.1 million. The Company reported no debt and no borrowings under its $250 million revolving facility, and said it was compliant with facility covenants. Current assets were $721.0 million and current liabilities $425.9 million. Nine-month operating cash flow was $206.7 million; investing cash use was $187.3 million, including net purchases of securities, acquisitions and capital expenditures; financing cash use was $35.7 million, principally dividends and share-based compensation tax withholding. The Company paid $28.4 million of dividends in the period and had $16.2 million remaining under its share repurchase authorization; it made no repurchases in the first nine months.
Material changes and notable items
- Q3 operating costs fell 3.5%. Lower print production and distribution, advertising servicing, and marketing costs were partly offset by increased journalism, digital content delivery, subscriber servicing and product-development spending.
- Print advertising revenue fell 46.5% in Q3 and digital advertising fell 12.6%. The Company cited pandemic-related weakness, lower creative-services demand and secular print declines. Digital advertising also benefited from increased traffic and programmatic impressions, while direct-sold display performance remained pressured.
- Year-to-date net income included a $10.1 million gain on a non-marketable equity investment ($7.4 million after tax, or $0.04 per share). Adjusted results exclude this and other specified items.
- The Company acquired Audm in Q1 and substantially all assets and certain liabilities of Serial Productions in Q3. Serial consideration included $25.0 million paid at closing and $9.3 million of contingent consideration; the recorded liability was $8.4 million at quarter end.
- In October 2020, after quarter end, the Company agreed to transfer approximately $235 million of pension obligations for about 1,850 retirees to MassMutual, funded with pension plan assets. It expects a non-cash pretax pension settlement charge of approximately $80–85 million in Q4.
Outlook, commentary and risks
Management said available cash, operating cash flow and other sources should meet financing needs for the next 12 months, and it expected to continue investing in newsroom, product and technology hiring. It expected comparable cash dividends to continue, subject to Board review. The Company expressed confidence in its longer-term prospects but gave no specific revenue or earnings guidance in the provided filing text.
Management warned that the pandemic’s full effect remained uncertain. Advertising and live-events revenue were adversely affected, and the Company expected pressure to persist while economic conditions remained weak. Digital subscription growth had moderated from early-pandemic levels and may slow further or reverse through weaker acquisition, higher cancellations, lower-priced plans or reduced discretionary spending. Print sales, operations and distribution could also be affected by closures, remote work, travel reductions, workforce or supplier disruption. The Company cited potential additional pandemic costs and remote-work operational and cybersecurity risks. Legal proceedings are ongoing; management did not believe their ultimate resolution was likely to materially affect financial position, but an unfavorable outcome could materially affect an individual period’s results or cash flows.
Important facts for investors to verify
- Whether digital subscription additions and pricing can sustain growth as pandemic-driven traffic effects moderate; monitor subscriber totals, cancellations and revenue per subscriber.
- Whether advertising, live events and print revenue recover, and the extent to which continuing declines are structural versus pandemic-related.
- The Q4 timing and final amount of the expected $80–85 million pension settlement charge and the effect of the annuity transaction on pension obligations and plan assets.
- Cash-flow sustainability and capital allocation, including dividends, acquisitions, capital spending and any future share repurchases.
- Potential COVID-19 operational effects, contingent payments related to Serial, and material developments in pending legal matters.