Business context and reporting period
The New York Times Company’s unaudited Form 10-Q covers the 13 weeks ended March 27, 2016, compared with the 13 weeks ended March 29, 2015. It reports one segment, with revenue primarily from circulation and advertising. The company cautions that seasonal interim results are not necessarily indicative of full-year results.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $379.5 million | $384.2 million |
| Operating profit/(loss) | $27.9 million | $(11.1) million |
| Net loss attributable to NYT common stockholders | $(8.3) million | $(14.3) million |
| Loss per diluted share | $(0.05) | $(0.09) |
| Operating cash flow | $(20.7) million | $11.1 million |
Circulation revenue rose 2.4% to $218.0 million; advertising fell 6.8% to $139.7 million; other revenue increased 1.4% to $21.8 million. GAAP operating margin was approximately 7.4%, versus a loss margin of approximately 2.9% a year earlier. Adjusted operating profit, a company-defined non-GAAP measure, was $51.5 million versus $59.2 million; adjusted diluted EPS was $0.10 versus $0.11.
At quarter-end, cash and cash equivalents were $185.7 million, short- and long-term marketable securities totaled $688.6 million, and total debt and capital lease obligations were $432.5 million. Cash and securities exceeded debt by $441.8 million. Debt included $188.6 million of senior notes due December 2016 and $237.1 million related to a headquarters repurchase option in 2019, plus capital leases. Management said available cash, operating cash flow and other sources should meet financing needs over the next 12 months.
Cash from investing activities was $122.8 million, primarily reflecting marketable-security maturities and a $38.0 million distribution from corporate-owned life insurance investments. Cash and cash equivalents increased by $79.8 million during the quarter. Total assets were $2.31 billion and stockholders’ equity was $793.1 million at March 27, 2016.
Material changes versus the prior comparable period
- Total revenue declined 1.2%. Paid digital-only subscriptions, including Crossword, reached approximately 1.357 million, up 23.5%; related revenue increased 14.2% to $54.2 million. The company revised prior-period subscription counts and reclassified Crossword revenue into circulation.
- Print advertising revenue declined 9.0%; digital advertising revenue declined 1.3%. Management attributed the digital decrease mainly to traditional website display advertising, partly offset by mobile, programmatic channels and HelloSociety.
- Operating costs were broadly flat, up 0.4%. Adjusted operating costs increased 0.9% to $328.0 million. Lower newsprint expense and lower non-operating retirement costs were offset in part by hiring, compensation and severance costs.
- The 2016 quarter included a $41.4 million loss from joint ventures tied to the announced closure of Madison Paper Industries’ mill. The 2015 quarter included $40.3 million of pension settlement charges and $4.7 million of multiemployer pension withdrawal expense. These differing items materially affect reported operating comparisons.
- Interest expense, net, decreased to $8.8 million from $12.2 million. Operating cash flow turned negative, which management attributed to higher tax payments and costs and lower revenue.
Outlook, commentary, risks and unusual items
- The company acquired digital marketing agency HelloSociety for $12.3 million in cash, effective February 29, 2016. Management expects it to complement branded content and contribute to digital advertising revenue; the purchase price was preliminarily allocated to intangible assets.
- The Madison mill closure reduced the investment to zero and resulted in a $29.6 million liability. The company said it expects Madison’s existing assets to fund the wind-down and does not currently expect to contribute cash.
- As a subsequent event, the company proposed international operations changes expected to eliminate approximately 70 positions. It estimated total costs of approximately $15 million, mostly relocation and severance charges, with substantially all expected in Q2 2016; implementation remained subject to consultation with the Paris works council.
- A pension fund has assessed approximately $34 million of disputed partial-withdrawal liability. The matter is in arbitration; the company does not believe a loss is probable, has not accrued a contingency, and had paid $13.4 million under required quarterly payments through March 27, 2016.
- In litigation concerning newspaper deliverers in Worcester, the company said it could not estimate a loss or range. It also disclosed other routine legal matters that could affect results or cash flows in an individual period, while management did not expect the matters collectively to materially affect financial position.
- The board maintained a quarterly dividend of $0.04 per share. The company had $16.2 million remaining under its share-repurchase authorization at quarter-end. Management reported no material changes in risk factors or market risk from the 2015 year-end disclosures and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether digital subscription growth and mobile/programmatic advertising gains can offset continuing pressure in print and traditional digital advertising.
- The final cash and accounting impact of the Madison mill wind-down and whether the recorded $29.6 million liability proves sufficient.
- The December 2016 senior-note maturity and the company’s plans for repayment or refinancing.
- The outcome and potential financial exposure of the pension-fund arbitration and Worcester deliverer litigation.
- The final scope, timing and costs of the proposed international restructuring, and the effect of subsequent severance charges.
- How recurring operating performance compares with the company’s non-GAAP adjusted measures, including the exclusions used in those measures.