Good morning everyone and welcome to The New York Times Company’s First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note, today’s event is being recorded. At this time, I would like to turn the floor over to conference over Mike Brown, Vice President, Assistant General Counsel and Corporate Secretary. Please go ahead.

Thank you, and welcome to The New York Times Company's first quarter 2023 earnings conference call. On the call today, we have Meredith Kopit Levien, President and Chief Executive Officer; and Roland Caputo, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that management will make forward-looking statements during the course of this call. These statements are based on our current expectations and assumptions, which may change over time. Our actual results could differ materially due to a number of risks and uncertainties that are described in the company's 2022 10-K and subsequent SEC filings. In addition, our presentation will include non-GAAP financial measures, and we have provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investors.nytco.com. And finally, please note that a copy of the prepared remarks from this morning's call will be posted to our investor website shortly after we conclude. With that, I will turn the call over to Meredith Kopit Levien.

Thanks, Mike, and good morning, everyone. Last year, we presented the next phase of our long-term strategy with the goal of becoming the essential subscription for every curious English-speaking person seeking to understand and engage with the world. In the first quarter, we made steady progress on that strategy with clear signs of substantial runway ahead. Let me share some of the highlights. We crossed 3 million bundle and multi-product subscribers in the quarter and hit a number of new records for bundled uptake. We drove sequential ARPU expansion as we fully applied our value-based pricing strategy, we enjoyed the strongest enterprise-wide subscriber engagement we've seen in more than a year, and we slowed cost growth for the third consecutive quarter through disciplined cost management. Our performance in the quarter reflects our strategy playing out as it was designed to, with our high-quality product portfolio and multi-revenue stream models, giving us a variety of levers for growth even in an uncertain market. And the cash-generative nature of our model was on full display. I'll turn now to the quarter's specifics. We added 190,000 net new digital subscribers roughly on pace with the last three quarters growth delay in miserable market headwinds. We now have more than 9.7 million total subscriber remain on the path for a goal of 15 million subscribers by year-end 2027. Thanks to aggressive marketing across all of our product [funnels] [ph]. We had our highest ever number of bundled starts in the quarter, highest percentage of bundle starts, and highest number of bundle upgrades. This matters as strong uptake of the bundle is a positive signal of revenue growth because the average bundled subscriber engages more, pays more, and retains better than the average single product subscriber. Subscriber engagement in the quarter measured in weekly usage…

Thank you, Meredith, and good morning. As Meredith said, in the first quarter, we made steady progress executing on our strategy with plenty of runway ahead. Turning to the specifics of the quarter. Adjusted diluted earnings per share was $0.19, $0.02 lower than in the prior year. We reported adjusted operating profit of $54 million in the quarter, lower than the same period in 2022 by approximately $7 million. Adjusted operating profit at The New York Times Group was approximately $62 million, a decrease of approximately $6 million, compared to the prior year, while the Athletic had adjusted operating losses of approximately $8 million, an increase of $1 million compared to the prior year. Please note that the first quarter of 2023 includes three months of results for the Athletic, while the first quarter of 2022 included only two months of Athletic results. Free cash flow in the quarter was approximately $45 million, compared with negative free cash flow of approximately $23 million in the same period of 2022. The $45 million of free cash flow in the quarter was composed of approximately $51 million of operating cash flow, less approximately $6 million of capital expenditures. In the first quarter, the company added 190,000 net new digital-only subscribers with continued strong growth and adoption of the bundle. The number of digital-only bundle and multiproduct subscribers grew by approximately 520,000 in the quarter, driven mainly by increases to the number of new subscribers choosing to bundle augmented by existing subscribers who upgraded to the bundle. We now have over 3 million digital-only bundle and multiproduct subscribers. Moving to revenues. Total subscription revenues increased approximately 7% in the quarter, with digital-only subscription revenue growing approximately 14% to approximately $259 million. Digital-only subscription revenue grew primarily as a result of the new subscriptions…

[Operator Instructions] And our first question today comes from Doug Arthur from Huber Research. Please go ahead with your question.

Yes. Thank you. Roland, thanks for all your help over the years, and William, congratulations on your appointment. Meredith, I'm just trying to untangle these bundled versus subscriber numbers. It looks sequentially that your bundles take-up was very high. I mean you added a lot of bundled subscribers on a sequential basis. The actual digital subscriber number was okay. It was up 120,000. So, the difference between bundled ads and actual underlying subscribers is quite stark in this quarter. Is that a pattern that we're likely to see? And how does that play out in terms of its impact on ARPU?

I make two sort of headline comments then Roland, you might do the detail. It was a very strong quarter for everything about the bundle. As I said in the prepared remarks, our bundle starts were very good, bundle engagement, strong. But the percentage of folks who bought the bundle versus a new seasonal product was very, very good. And the number of people upgrading was very good. And that was all because of kind of deliberate work to make that happen. And Roland can talk in more detail, but all of that should ultimately have a positive effect on ARPU. But Roland, why don't you answer, Doug’s question?

Sure. So Doug, in the quarter, we had – and specific to the bundle numbers, we had quite a few new subs, but we also had – and that was the biggest single contributor to the number, but we also had quite a large number of upgrades and most of those upgrades are coming from the news product. So, you don't see an increase in total subscribers from that. You have to switch from one category to the other. We like that because as we said a few times, we like the bundled subscribers, they retain better. We think they'll have a longer life of the company. They'll ultimately pay more. So that should be a positive contributor both to ARPU in the near and long-term and also to life-term value.

Okay. And just as a quick follow-up, Meredith, you've made several references over the quarter that the big platforms we're sending less leads to the times. Can you quantify the impact of that versus year-over-year or quarter-over-quarter?

Yes. I can't really quantify it. What I can tell you is, we've talked about it, I think, for three quarters now in a deliberate way because we're feeling the effects of it, and it's kind of across the board. The sort of most prominent example is Facebook has really dramatically shifted away from sending referrals to news and includes the news stab, but I would say it's hipped across the board change. And we are doing a ton of work. We anticipated ecosystem change. We've got a really good track record of, kind of evolving around it. And we now have this wide products that gives value to people in lots of different ways, for journalism, [indiscernible] shopping advice, games, those all attract audiences and sort of different ways. Four of our five products are also destinations. We've got a very big registration model and lots of e-mails, lots of ways to be in touch with people. So, I would say we're feeling the pressure from audience. We've said that the referral sources, but also doing a lot of work, I would say, in the short-term to counteract that, but also to, kind of build the audience funnels for each product, which is really meant to be the medium and long game on counteracting that.

Great. Thank you.

And our next question comes from David Karnovsky from JPMorgan. Please go ahead with your question.

Hi, thank you. Meredith or Roland, I wanted to see if you could comment a bit more on the pricing initiatives, how that looked in the testing phase in terms of churn or subs, kind of uptick in the bundle? And then Roland, I think you mentioned a total of 1.5 million subs that will see a price increase. Can you confirm, does that number basically reflects the number of fully tenured new subs? And then can you also just confirm will that price increase be for $3?

Roland, do you want to take both of those?

Yes, sure. David, thanks for the question. So, on the pricing, we increased the price on about 550,000 news and game subscribers in the first quarter – most of them – about 500,000 of them actually were news-only subscribers, and we're happy with the results we're seeing in terms of retention there. It’s very similar to what we've seen in the past when we increased the price originally – up to $17 back in the beginning of 2020. So, all that's going according to plan. So, we're happy with that. On the number of subs that are going to ultimately get an increase this year. So that's going to be new subs, also game subs – it will also be the cooking subs, which will happen later in the year. So, I mentioned last quarter was about 550,000, mostly news. Next quarter is going to be about 700,000, and that's going to be mostly folks who are multi-product subscriptions. So, they're paying for more than one individual subscription. And then that will taper down for the rest of the year. But yes, the total we expect for calendar year is about 1.5 million people getting increases in their individual subscriptions.

And would you be willing to quantify the level of the [price rise] [ph]?

So, tenured new subs in general, are moving from $17 to $20 per four weeks and gains in cooking are moving from $5 to $6.

Great. And then, Meredith, just wanted to see if you could discuss just Athletic advertising, how that rollout is going and maybe how that's complicated just by the overall softer market you're launching into? Thanks.

It's gone well. I'll just remind folks on the call that we took our, kind of long-serving, highly effective Head of Times advertising, and we sent them over to the Athletic to run the commercial all the non-sub efforts there. And the idea behind that is, you take the playbook from The New York Times, which is premium ad canvases and first-party data and build that on the Athletic. And we really like what we see so far. The whole ad market is obviously uncertain and complicated and there's lots of pressure, but the Athletic is starting from a tiny base. So, even in a tough market. If you've got a great product, you can really get growth. And we like what we're seeing. There are two other things I'll say. There's just a ton of interest in advertising around sports and the Athletic is pretty wide in its coverage so that – there's a lot of marketer appeal there. And what we like kind of everything about it so far, but one of the things that we've been particularly focused on is bring new advertisers to the enterprise of the times, and I keep joking [indiscernible]. But that is also having a positive effect. So, it's all going well. It's early days. You're going to hear us continue to talk about building the audience for the Athletic and that's obviously going to be an important driver of how big the ad business can be as well. And we saw a really nice lead up in audience this quarter, but there's a lot more room to go and grow there, and we are highly, highly focused on that.

Okay, thank you.

And our next question comes from Vasily Karasyov from Cannonball Research. Please go ahead with your question.

Thank you. Good morning. Roland, I wanted to ask you sort of a modeling question. Now that your sales and marketing expenses are – have a different trajectory as Meredith pointed out with organic starts growing and so on, what is the best way for us to sort of think about modeling expenses, specifically cost of revenue, sales marketing, and G&A? Is it – some of them are just quarter-to-quarter will remain more or less constant like G&A. And then should we look at cost of revenue as a percentage of digital revenue, same with sales and marketing or should we look at quarter-to-quarter progression? I would appreciate your help here, especially if we look past the Q2 and in the outer years, how are you thinking about it? Thank you.

You're welcome. Thanks for the question, Vasily. I don't know if I'll be quite as specific as you'd like. But I think the way I would think about it is what we're going to continue to invest in our journalism as you know. And that quarter-to-quarter and year-to-year, that's important for us to, kind of grow our moat and continue to increase the value of the company. As you mentioned, we have slowed the growth on our marketing spend. And actually, we've been reducing that. I think going forward, you can think about that more as being in the range of what we're currently spending. So, we don't really see big drops from that area in the future and always with the possibility that we might see a reason to up spend in one quarter or another. But the general trend should be pretty flattish. Product development, Meredith mentioned how we've attracted some great talent over the last few years, and you've noticed that we've been putting a bunch of money into that area over the last few years. You can expect that to slow. That growth should slow over the remainder of this year and in the future. And G&A also should slow. We did spend quite a few dollars there over the last recent quarters. And we can expect that to slow as well. In terms of overall costs, as I mentioned in my prepared remarks, we expect to slow the rate of growth year-over-year in the back half of the year, and I'd say, most significantly in Q4.

Thank you.

And our next question comes from Kannan Venkateshwar from Barclays Capital. Please go ahead with your question.

Thank you. Roland, thank you for all the help over the years and all the best for the future and William welcome. I look forward to interacting with you in the future as well. And in terms of the pricing trajectory, Roland, you mentioned all the price increases that you plan to pass through over the course of the year. Could you help us think through what that means for the ARPU trajectory for the rest of the year? Because I think Q1, excluding the Athletic, you guys were up 2% on the core product. And sequentially, it was up as well. Should that accelerate going forward as these price increases take effect? [Multiple Speakers] Sorry, go ahead.

No, go ahead, give your other question.

The other question I had was on sales and marketing. I mean, the absolute dollars did drop year-over-year, but the ratio to sales actually went up after dropping for a couple of quarters, I think. And so, if we think about the quarter in itself, was there any extra spending you guys did from a unit growth perspective just because there were price increases and you want to manage that process or something along those lines? And is it fair to think about sales and marketing as a percentage of revenue? And is that how you manage that budget? Thanks.

So, maybe I'll take your second question first. Actually, we reduced the media spend, as you heard as in the press release and in my prepared remarks. But actually, if you split that between brand and direct acquisition spend, we actually spent a hair more in acquisition than we had last year in this quarter, but we cut way back on brand. So, there's a little bit of a rebalancing between that ratio of acquisition and brand. And yes, we did see a reason to spend a little bit more on direct for a number of reasons. One is, we're really pushing hard on the bundle because that's a big ROI to get folks up to the bundle. And that we've got those price increases in the market. But I'd say it's mostly because we're making a more fully focused effort on marketing the bundle. On your ARPU question. Starting next quarter, we expect year-over-year ARPU to be increasing. So, in addition to sequential increases, we expect the year-to-year increases to begin next quarter and continue for the remainder of the year. We have a large number of people stepping up to higher prices, which is really the biggest driver. It's a bigger driver than the price increases. You should understand that. And we'll be done lapping the acquisition of the Athletic next quarter. This quarter, even though we had the Athletic in both quarters. As I mentioned earlier, we only had it in our financial results for two months of the quarter last year, and we had it for three months. So there was still a bit of a dilutive effect there.

Got it. Thank you.

Our next question comes from Thomas Yeh from Morgan Stanley. Please go ahead with your question.

Hi, good morning and my congratulations to Roland and Will as well. I wanted to ask about the pricing strategy for the bundle itself and kind of dovetail that with the really strong comments on engagement trends that you're seeing, Roland, you kind of just mentioned the majority of an ARPU uplift might be coming more from just the gradual migration of some of these promotional subs as we, kind of lap that one-year mark. Could you talk about the strategy around that initial cohort on higher pricing? I mean given their higher engagement, any signs of being able to take more than you would typically to a high full price tier relative to your stand-alone product, that would be helpful?

So, on the ability to take to higher prices, it's yet to be seen. Right. We fully believe in the value that the bundle will deliver. All of our early signs on all of those metrics are positive. We're only now beginning to see – if you recall, we only really leaned into the bundle beginning last year. So, we're only now beginning to see the initial surge of new bundle subscribers hitting the end of their promotional period. So far, so good. But I don't know that we have any indications that we'll be able to move them to higher prices faster than we were able to move the new sub cohorts for instance.

Okay. That's helpful. And that really notable Athletic subscriber growth, even more so than overall bundle net ads. What were the big levers for the quarter? Where there any more new subscribers being granted access or is that purely organic?

I mean the biggest driver to the increase in the number of subscribers with access to the Athletic is those who are buying the bundle. That is far and away, the biggest driver to the increase in that number. We're actually much more focused on opening up that funnel and building the audience for the Athletic than selling individual subs right now. The focus is setting ourselves up to sell more of those in the future and to make the Athletic a more well-known brand and destination to both sell individual subs, but also to illustrate the value that is added to the bundle by the addition of the Athletic.

And I'll just add to that. If you think about what we've done with Wordles on games, Wordle is this incredible kind of megaphone to say, it's free, lots of passionate players played every day, every week. And then they get exposed to the other things The Times is doing in games and across the bundle. That is like in very broad terms, part of the aim with the Athletic. We want a really wide audience who comes to us every day, every week for their sports journalism and then they get to know the whole of the times as they do that. So, to Roland's point, the big thing we're aiming for right now on the Athletic is strong audience growth, and we like what we saw in the first quarter, and we're going to be focused on that for some time. The new editor who started, I'm forgetting if it was right at the end of the year, I think the very beginning of this year is off to a really good start and a lot of the moves we're making about, sort of being more on the news in sports and having the, sort of during game experience being rich should help with that.

Great. Thank you so much.

And with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Mike Brown for any closing remarks.

Thank you for joining us this morning, and we look forward to talking to you again next quarter.

And with that, we'll conclude today's conference call and presentation. We do thank you for attending. You may now disconnect your lines.