The New York Times Company — Q3 2017 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. The quarter ended September 24, 2017 and comprised 13 weeks; nine-month results cover 39 weeks. Figures below are in millions of dollars unless otherwise stated.
Financial performance
| Metric | Q3 2017 | Q3 2016 | First nine months 2017 | First nine months 2016 |
|---|---|---|---|---|
| Subscription revenue | $246.6 | $217.1 | $739.1 | $654.6 |
| Advertising revenue | $113.6 | $124.9 | $375.9 | $395.7 |
| Other revenue | $25.4 | $21.6 | $76.6 | $65.4 |
| Total revenue | $385.6 | $363.5 | $1,191.5 | $1,115.7 |
| Operating profit | $33.0 | $9.0 | $89.7 | $46.0 |
| Net income attributable to common stockholders | $32.3 | $0.4 | $61.1 | $(8.1) |
| Diluted EPS from continuing operations | $0.20 | $0.00 | $0.37 | $(0.05) |
| Operating cash flow | — | — | $147.9 | $85.6 |
Total revenue rose 6.1% in Q3 and 6.8% year to date. Subscription revenue increased 13.6% and 12.9%, respectively; digital-only subscription revenue rose 46.3% in Q3. Paid digital-only subscriptions reached approximately 2.487 million at quarter-end, up 59.1% year over year. Advertising revenue declined 9.0% in Q3 and 5.0% year to date: digital advertising grew, but print advertising fell 20.1% in Q3. Other revenue growth chiefly reflected Wirecutter affiliate referrals.
GAAP operating margin was approximately 8.6% in Q3, versus 2.5% a year earlier; year-to-date margin was approximately 7.5%, versus 4.1%. Management reported adjusted operating profit, a non-GAAP measure, of $56.5 million in Q3, up 44.1%, and $176.2 million for nine months, up 21.4%. Adjusted diluted EPS was $0.13 in Q3 versus $0.06, and $0.42 year to date versus $0.27. These adjusted measures exclude specified costs and special items and should be considered alongside GAAP results.
Cash, liquidity and obligations
- At September 24, cash and cash equivalents were $244.7 million; short- and long-term marketable securities totaled $578.2 million. Together, cash and securities were $822.9 million, exceeding debt and capital lease obligations of $249.4 million by $573.5 million.
- Current assets were $767.8 million and current liabilities $418.7 million. The company reported total assets of $2.239 billion and stockholders’ equity of $918.7 million.
- Nine-month operating cash flow was $147.9 million, investing cash flow was positive $15.6 million, and financing cash flow was negative $19.7 million. Cash increased by $143.8 million to $244.7 million. Cash capital expenditures were $47.8 million; total capital expenditures were approximately $67 million.
- Debt and capital lease obligations were $249.4 million, mainly the discounted carrying value of a $250 million option to repurchase an ownership interest in the headquarters building in 2019, plus capital leases. The company stated that liquidity and other cash sources should meet financing needs over the next 12 months.
- Pension benefit obligations were $518.4 million at quarter-end. In October, after the reporting date, the company contributed $100 million to pension plans from cash on hand and agreed to transfer obligations for about 3,800 retirees, expected to reduce qualified pension obligations by approximately $225 million. It expects a fourth-quarter pretax pension settlement charge of about $95 million.
Material changes and unusual items
- Q3 operating profit and net income were boosted by a $30.1 million gain from the Madison paper-mill joint venture’s sale of remaining assets. The company’s share was $16.1 million after tax and noncontrolling interest. This gain materially affects comparison of reported earnings; adjusted measures exclude it.
- Q3 operating costs declined 1.8%, while year-to-date costs rose 4.5%. Year-to-date selling, general and administrative costs increased 11.3%, reflecting higher compensation, marketing and severance costs. Q3 severance was lower than the prior-year quarter.
- Interest expense, net, fell 48.4% in Q3 and 43.9% year to date. The company attributed the improvement in part to lower interest expense and higher interest income.
- The company reclassified marketable securities from held-to-maturity to available-for-sale after changing its investment policy to permit sales before maturity. The change produced a $1.1 million unrealized loss in other comprehensive income; no other-than-temporary impairment was recognized.
- Q3 included $2.5 million of headquarters redesign and consolidation expense; nine-month expense was $6.9 million. The project is intended to consolidate office space and generate rental income.
Outlook, commentary and risks
- Management expected advertising revenue to remain under pressure in Q4 2017; digital advertising was expected to be flat or slightly lower year over year. No broader quantified earnings or revenue guidance is provided in the filing.
- Management cited digital subscription growth, higher home-delivery prices and digital advertising gains as revenue supports, while print advertising declines and declining print copies sold remain headwinds. Print advertising weakness affected several categories, including luxury, travel, real estate, media, technology and telecommunications.
- The company expects comparable cash dividends to continue, subject to Board review of earnings, capital needs, financial condition and other factors.
- The company was appealing a final arbitration award concerning a multiemployer pension withdrawal assessment. It recorded a $7.3 million liability and said the reasonably possible additional loss could range from zero to approximately $10 million.
- Other legal proceedings could adversely affect results or cash flows in an individual period, though management did not believe their ultimate resolution was likely to materially affect financial position. The filing reported no material changes to previously disclosed risk factors or market risks.
- The business is seasonal, and interim results are not necessarily indicative of full-year performance. Management reported effective disclosure controls and no materially significant change in internal control during the quarter.
Important facts for investors to verify
- How much of reported earnings growth reflects ongoing operations versus the Madison asset-sale gain and other excluded items.
- Whether digital subscription growth and pricing can continue to offset print circulation and print advertising declines.
- Q4 advertising performance, particularly digital advertising, against management’s stated expectation of flat to slightly lower revenue.
- The cash and liquidity impact of the October $100 million pension contribution, and the timing and accounting effects of the expected $95 million pension settlement charge.
- The eventual outcome of the pension withdrawal liability appeal and any additional exposure beyond the recorded $7.3 million liability.
- Execution, spending and expected rental-income benefits of the headquarters redesign, alongside elevated capital expenditures.