The New York Times (NYT) has had a strong quarter, surpassing estimates on the top and bottom lines. In the first quarter, we saw increases in revenue and overall profitability and the company continued solid growth in its digital subscription business.

The strong demand for the high quality, independent journalism that The Times produces resulted in a 139,000 net increase in digital-only subscriptions for the quarter. The company has had good retention of new cohorts of subscribers and continues to believe there is a big opportunity to further grow this increasingly important part of its business. Let us discuss the quarter.

Top line strength

Total revenues for the first quarter of 2018 increased 3.8 percent to $413.9 million from $398.8 million in the first quarter of 2017. Subscription revenues increased 7.5 percent, while advertising revenues decreased 3.4 percent and other revenues increased 5.0 percent.

Subscription revenues in the first quarter of 2018 rose primarily due to growth in recent quarters in the number of subscriptions to the Company’s digital-only products. Revenue from the Company’s digital-only subscription products (which include news products, as well as Crossword and Cooking products) increased 25.8 percent compared with the first quarter of 2017, to $95.4 million.

Paid digital-only subscriptions totaled approximately 2,783,000 at the end of the first quarter of 2018, a net increase of 139,000 subscriptions compared with the end of the fourth quarter of 2017 and a 25.5 percent increase compared with the end of the first quarter of 2017. Of the 139,000 additions, 99,000 came from the Company’s digital news products, while the remainder came from the Company’s Cooking and Crossword products.

First-quarter digital advertising revenue decreased 6.0 percent, while print advertising revenue decreased 1.8 percent. Digital advertising revenue was $46.7 million, or 37.2 percent of total Company advertising revenues, compared with $49.7 million, or 38.2 percent, in the first quarter of 2017. The decrease in digital advertising revenue reflected a continued decrease in traditional website display advertising, which more than offset increases in revenue from smartphone advertising.

Other revenues rose 5.0 percent in the first quarter largely due to affiliate referral revenue associated with the product review and recommendation website, Wirecutter and commercial printing revenue, which was partially offset by a decline in our live events business.

Operating Costs

Operating costs increased in the first quarter of 2018 to $378.0 million compared with $368.6 million in the first quarter of 2017, largely due to higher compensation costs, which was partially offset by lower print production and distribution costs. Adjusted operating costs increased to $358.5 million from $348.6 million in the first quarter of 2017.

Raw materials costs were $16.7 million in the first quarter of 2018, flat to the same period in the prior year, as volume declines were mostly offset by higher prices.

Other Components of Net Periodic Benefit Costs/(Income)

Other components of net periodic benefit costs/(income) increased $3.2 million primarily due to lower expected returns on pension assets partially offset by lower interest costs.

Interest Expense and Other, net

Interest expense and other, net decreased in the first quarter of 2018 to $4.9 million compared with $5.3 million in the first quarter of 2017 as a result of higher interest income from cash and cash equivalents and marketable securities.

Income Taxes

The Company had income tax expense of $5.3 million in the first quarter of 2018 compared with $10.7 million in the first quarter of 2017. The decrease was primarily due to a reduction in the U.S. federal corporate income tax rate which took effect in 2018, and a tax benefit from stock-based compensation.

Liquidity

As of April 1, 2018, the Company had cash and marketable securities of approximately $749.3 million (excluding restricted cash of approximately $18.1 million, substantially all of which is set aside to collateralize certain workers’ compensation obligations). Included within marketable securities is approximately $63 million of securities used as collateral for letters of credit issued by the Company in connection with the leasing of floors in our headquarters building. Total debt and capital lease obligations were approximately $251.1 million.

Capital Expenditures

Capital expenditures totaled approximately $19 million in the first quarter of 2018 compared with $6 million in the first quarter of 2017. The expenditures were primarily related to improvements at our College Point printing and distribution facility and the ongoing redesign and consolidation of space in our headquarters building.

Outlook

Total subscription revenues in the second quarter of 2018 are expected to increase in the mid-single digits compared to the second quarter of 2017.

Total advertising revenues in the second quarter of 2018 are expected to decrease in the low-teens compared with the second quarter of 2017.

Operating costs are expected to increase in the low-single digits, while adjusted operating costs are expected to increase in the mid-single digits in the second quarter of 2018 compared with the second quarter of 2017.

The Company expects the following on a pre-tax basis in 2018:

  • Depreciation and amortization: $60 million to $65 million,
  • Interest expense and other, net: $18 million to $21 million, and
  • Capital expenditures: $60 million to $70 million.
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