The New York Times Company — Q2 2020 Form 10-Q
Reporting period: 13 weeks ended June 28, 2020; six-month comparisons are for the 26 weeks ended June 28, 2020. The company operates as a global media organization with one reportable segment. Amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Change |
|---|---|---|---|
| Revenue | $403.8 | $436.3 | -7.5% |
| Operating profit | $28.8 | $37.9 | -24.1% |
| Operating margin | 7.1% | 8.7% | Down 1.6 percentage points |
| Net income | $23.7 | $25.2 | -6.0% |
| Diluted EPS | $0.14 | $0.15 | |
| Adjusted diluted EPS (non-GAAP) | $0.18 | $0.17 | +5.9% |
- Subscription revenue rose 8.4% to $293.2 million, while advertising revenue fell 43.9% to $67.8 million and other revenue fell 5.0% to $42.8 million. Digital-only subscription revenue increased 29.6%; print subscription revenue decreased 6.7%.
- Digital-only subscriptions reached 5.67 million, up 50.0% year over year, including 4.39 million news subscriptions and 1.28 million subscriptions to other products. Domestic home-delivery subscriptions were approximately 840,000, down 4.3% year over year.
- Operating costs declined 5.9% to $374.9 million. Lower marketing, print production and distribution, and advertising servicing costs were partly offset by higher product development, journalism, digital delivery and severance costs.
- For the six months, revenue was $847.4 million (-3.2%), operating profit $56.1 million (-22.6%), net income $56.5 million (+2.1%), and diluted EPS $0.34 versus $0.33. Operating cash flow was $118.6 million versus $64.0 million.
- Operating cash flow benefited from collections of receivables and prepaid subscriptions; cash used in investing was $72.9 million and cash used in financing was $28.2 million. Capital expenditure cash payments were $21.5 million and dividends paid were $18.4 million.
- At June 28, cash and cash equivalents were $249.3 million; short- and long-term marketable securities totaled $507.3 million. Management reported $756.7 million of cash and marketable securities, no debt, and no borrowings under the $250 million revolving facility. Current assets were $682.5 million and current liabilities $371.1 million.
- The board declared a $0.06 per-share dividend on June 30, paid July 23. The company paid no dividends declared in Q2, but paid $18.4 million during the first half.
Material changes and unusual items
- COVID-19-related economic weakness sharply reduced advertising demand; Q2 print advertising fell 55.0% and digital advertising fell 31.9%. Print single-copy and bulk sales, live events and commercial printing were also affected.
- Management attributed exceptional digital subscription growth partly to increased news traffic during the pandemic and cautioned that the pace may not persist or may represent growth brought forward from later periods.
- Six-month results included a $10.1 million gain on a non-marketable equity investment ($7.6 million unrealized and $2.5 million realized). The company reported adjusted six-month diluted EPS of $0.35, versus $0.37 a year earlier.
- Severance expense was $6.3 million in Q2 and $6.7 million in the first half, largely related to advertising-department workforce reductions. The company also changed expense classifications in 2020 and recast prior-period presentation; it stated this did not change operating profit, net income or cash flows.
- After quarter-end, the company paid approximately $25 million to acquire substantially all assets and certain liabilities of Serial Productions, LLC. It acquired Audm in the first quarter for $8.6 million, including a previously issued note.
Outlook, risks and contingencies
- Management said cash, operating cash flow and other sources should meet financing needs for the next 12 months and expected to continue hiring in the newsroom, product and technology. No specific revenue or earnings guidance was provided.
- Management expected advertising revenue to remain adversely affected if economic conditions persisted. Risks include weaker advertiser spending, slower subscription growth or increased cancellations as pandemic-related traffic normalizes, pressure on discretionary consumer spending, and continued declines in print sales and live events.
- The company described potential operational, cybersecurity, workforce and print-distribution risks from extended remote work and pandemic disruption. It warned that pandemic impacts and their duration remained uncertain.
- Various legal proceedings are pending. Management did not expect their ultimate resolution to materially affect financial position, but an unfavorable outcome could materially affect results or cash flows in an individual period.
- The company was in compliance with its credit-facility covenants. Management reported no material change in market risks and effective disclosure controls.
Important facts for investors to verify
- Whether exceptional digital subscription additions translate into durable paid subscribers, retention and revenue after pandemic-driven traffic normalizes.
- Whether advertising demand, especially print and digital display, recovers and how quickly live events and commercial printing resume.
- The underlying earnings trend excluding the $10.1 million investment gain, severance and other adjustments; compare GAAP results with the company’s non-GAAP measures.
- Whether operating cash flow remains strong after the effects of receivables, prepaid subscriptions and payment timing normalize.
- The financial and strategic contribution of the Serial Productions and Audm acquisitions, and the level of future acquisition and severance costs.
- Any material developments in litigation, pandemic-related operating risks, or the company’s dividend policy and liquidity position.