The New York Times Company — Q1 2019 10-Q
Business context and period. The New York Times Company is a global media organization with one reportable segment. The unaudited quarter ended March 31, 2019, covered 13 weeks; comparisons are with the 13 weeks ended April 1, 2018. Management cautions that seasonal interim results are not necessarily indicative of full-year results.
Financial performance
- Revenue: $439.1 million, up 6.1%. Subscription revenue rose 3.9% to $270.8 million; advertising was nearly flat at $125.1 million; other revenue increased 55.8% to $43.2 million.
- Digital subscriptions: 3.583 million at quarter-end, up 28.7% year over year. Digital-only subscription revenue increased 15.1% to $109.9 million. News-product subscriptions totaled 2.857 million; other-product subscriptions totaled 726,000.
- Advertising mix: Digital advertising revenue rose 18.9% to $55.5 million, while print advertising fell 11.9% to $69.5 million. Total advertising declined 0.4%.
- Profit: Operating profit was $34.6 million, up 1.6%; operating margin was approximately 7.9%, versus 8.2% a year earlier. Net income attributable to common stockholders was $30.2 million, up 37.6%; diluted EPS was $0.18 versus $0.13. Adjusted diluted EPS, a non-GAAP measure, was $0.20 versus $0.17.
- Costs: Operating costs rose 7.0% to $404.5 million. Adjusted operating costs, a non-GAAP measure, increased 7.9% to $386.7 million. Adjusted operating profit fell 5.6% to $52.4 million.
- Cash flow: Operating cash flow was $25.2 million, versus $17.9 million. Capital expenditures were approximately $11 million. Cash, cash equivalents and restricted cash ended at $252.5 million, down from $259.8 million at year-end.
- Liquidity and debt: Cash and marketable securities totaled $808.8 million; debt and finance lease obligations totaled $254.5 million, leaving $554.3 million more in cash and securities than debt and finance lease obligations. All reported debt and finance lease obligations were classified as current.
- Margins and balance sheet: Total assets were $2.195 billion and stockholders’ equity was $1.060 billion at March 31. The company reported pension obligations of $353.1 million and postretirement obligations of $39.5 million.
Key changes and management commentary
- Revenue growth was driven primarily by digital-only subscriptions, digital advertising, commercial printing and headquarters rental revenue. Other revenue included $7.6 million of building rental revenue.
- Higher costs, especially marketing, labor and raw materials, largely offset revenue growth. Marketing expense increased to $47.5 million from $31.6 million, mainly reflecting subscription-acquisition and brand marketing.
- Print advertising remained under pressure, while digital advertising grew, including direct-sold advertising and podcasts. Management attributed print display declines mainly to studio entertainment, luxury and financial categories.
- The effective tax rate was 4.1%, compared with 19.3%, reflecting tax benefits from stock-price appreciation on stock-based awards settled during each quarter.
Outlook, liquidity, risks and unusual items
- Management said available cash, operating cash flow and other sources should be sufficient to meet financing needs for the next 12 months. No specific revenue or earnings guidance was provided.
- The company gave notice of its intent to exercise, in Q4 2019, a $250 million option to repurchase part of its headquarters condominium interest. It expects to use existing cash and marketable securities and believes the property’s market value exceeds the option price.
- The Board increased the quarterly dividend from $0.04 to $0.05 per share in February 2019. Management expects comparable dividends to continue, subject to the Board’s review of earnings, capital needs and other factors.
- A dispute over a multiemployer pension withdrawal assessment remained under appeal. The company had recorded a $2.3 million liability; management said the total loss could exceed that amount by as much as approximately $11 million.
- The company reported other pending legal matters that could adversely affect results or cash flows in an individual period, but management did not believe their ultimate resolution was likely to materially affect financial position. No material changes to the risk factors in the 2018 Form 10-K were reported.
- Q1 2019 included $1.4 million of severance expense and a $1.9 million gain from fair-value adjustments to non-marketable equity securities. There was no headquarters redesign charge in Q1 2019; Q1 2018 included $1.9 million of such expense.
- The company adopted lease accounting on December 31, 2018, recording approximately $36 million of operating lease right-of-use assets and $42 million of lease liabilities. Comparative periods were not retrospectively adjusted.
Important facts for investors to verify
- Whether digital subscriber growth and digital subscription revenue can continue to offset declines in print advertising and rising operating costs.
- Cash and marketable securities available after the planned $250 million headquarters repurchase, including the timing and funding of the transaction.
- The ultimate outcome and possible additional cost of the pension withdrawal liability appeal and other legal proceedings.
- How much of the reported earnings increase reflects operating performance versus the lower effective tax rate and investment fair-value gain; review the company’s GAAP and non-GAAP reconciliations.