The New York Times Company: Q2 2023 Form 10-Q
Business context and period. The company operates a subscription-led media business, with reportable segments The New York Times Group (NYTG) and The Athletic. This unaudited filing covers the quarter and six months ended June 30, 2023; comparatives are the quarter and six months ended June 26, 2022. The 2022 six-month period included one additional day, and The Athletic was included for five months in 2022 versus six months in 2023.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $590.9 million | $555.7 million | $1,151.6 million | $1,093.1 million |
| Operating profit | $55.8 million | $51.7 million | $83.7 million | $57.9 million |
| Net income | $46.6 million | $61.8 million | $68.9 million | $66.5 million |
| Diluted EPS | $0.28 | $0.37 | $0.42 | $0.40 |
| Adjusted operating profit (non-GAAP) | $92.2 million | $76.2 million | $146.1 million | $137.1 million |
- Q2 operating margin was 9.4%, versus 9.3%; adjusted operating margin was 15.6%, versus 13.7%. For the six months, those margins were 7.3% versus 5.3%, and 12.7% versus 12.5%, respectively.
- Subscription revenue rose 6.8% in both comparison periods. Q2 digital-only subscription revenue grew 13.0% to $269.8 million; print subscription revenue declined 3.5%. Advertising was nearly flat in Q2 (+0.3%) but down 4.1% for the six months. Other revenue increased 16.1% in Q2.
- The company ended Q2 with approximately 9.88 million total subscribers, including 9.19 million digital-only subscribers. Digital-only subscribers increased 180,000 from Q1 and 780,000 year over year; domestic home-delivery print subscribers were approximately 690,000.
- Q2 adjusted operating profit growth reflected subscription and other revenue gains, partly offset by higher costs. Reported Q2 net income and EPS fell year over year, principally because 2022 included a $34.2 million land-sale gain and 2023 included a $12.7 million lease-related impairment. Adjusted diluted EPS was $0.38 versus $0.28. For the six months, adjusted diluted EPS was $0.56 versus $0.49.
- NYTG Q2 revenue grew 4.5% and adjusted operating profit 12.6%; The Athletic revenue grew 55.3%, while its adjusted operating loss narrowed to $7.8 million from $12.6 million. The Athletic’s reported growth comparisons are affected by its partial-period inclusion in 2022 and its introduction into the bundle.
- Six-month cash from operations was $119.8 million, versus $16.1 million; free cash flow, a non-GAAP measure defined as operating cash flow less capital expenditures, was $109.0 million versus negative $2.9 million. The 2022 comparison was affected by a payment related to accelerated Athletic stock options. Capital expenditures were $10.8 million.
- At June 30, cash and cash equivalents were $245.6 million, and short- and long-term marketable securities totaled $264.7 million, for $510.4 million in combined cash and securities. Current assets were $674.8 million and current liabilities $532.1 million. No borrowings were outstanding under the $350 million revolving credit facility; approximately $0.6 million of letters of credit were outstanding. The company reported compliance with facility covenants. The filing does not provide a clear consolidated debt balance.
Changes, outlook, risks and unusual items
- Digital subscription growth and higher prices, including promotional offers graduating to regular prices, supported subscription revenue. Print subscriber counts and print subscription revenue continued to decline.
- Digital advertising grew 6.5% in Q2, but print advertising fell 8.6%. Management cited secular pressures on print and an adverse macroeconomic impact on advertising spending. Direct-sold display impressions increased while average rates declined; programmatic impressions also increased while average rates declined.
- Management said cash, operating cash generation and other sources should be sufficient for financing needs over the next 12 months. It expects comparable cash dividends to continue, subject to Board review; the quarterly dividend was increased to $0.11 per share in February 2023. The company repurchased $43.6 million of shares in the first half and had approximately $251.4 million remaining under repurchase authorizations at June 30.
- The company expected a roughly $45 million negative 2023 operating-cash-flow impact from tax rules requiring capitalization and amortization of research and development expenditures. The actual effect depends on incurred costs, possible legislation changes and further guidance.
- Unusual items included the $12.7 million non-cash impairment of leased office and fixed assets after ceasing use of Long Island City office space. The 2022 comparatives included a $34.2 million College Point land-sale gain and $34.7 million of Athletic acquisition-related costs in the first half of 2022.
- Management cited competition, economic uncertainty, inflation, higher compensation and benefits, potential pressure on printing and distribution costs, labor negotiations, advertising-market volatility, technology and cybersecurity risks, and litigation among business risks. Pending legal matters could affect results or cash flows in an individual period, although management did not expect their ultimate resolution to materially affect financial position. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether digital subscriber additions and ARPU growth can continue; Q2 total digital-only ARPU was $9.15, up 3.6% year over year.
- Whether subscription growth can offset ongoing print declines and advertising weakness, especially falling print-ad revenue and lower average digital-ad rates.
- The recurring cost trajectory: Q2 adjusted operating costs rose 4.0%, with technology costs up 9.4% and investments in newsroom, product development and digital delivery.
- The Athletic’s path toward profitability: it generated a $7.8 million adjusted operating loss in Q2 despite strong revenue growth.
- Cash conversion and capital returns, including the expected R&D tax-related cash impact, dividend commitments and remaining share-repurchase authorization.
- The effect of the Long Island City impairment and any material developments in pending legal proceedings.