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

Thank you, and welcome to the New York Times Company's second quarter 2023 earnings conference call. On the call today, we have Meredith Kopit Levien, President and Chief Executive Officer; and Will Bardeen, Executive Vice President and Chief Financial Officer. Before we begin, I'd 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'll turn the call over to Meredith Kopit Levien.

Thanks, Mike, and good morning, everyone. For more than a year, we've been executing on our strategy to become the essential subscription for every curious English-speaking person seeking to understand and engage with the world. Our strong results this quarter demonstrate that the strategy is working as designed. Let me share the highlights. Digital subscription revenue is growing, thanks to gains in both subscriber volume and ARPU. Subscriber engagement remains high and is fueling growth in all of our major revenue streams, including digital subscriptions, digital advertising and affiliate, and we've continued to exercise cost discipline even while investing into and enhancing the value of our products and bundles. We owe these results in large part to getting more people to experience the full and unmatched threats of the time, which they are increasingly buying as a bundle. As we've said, uptake of the bundle is an essential part of our ability to drive sustainable value creation, including AOP growth, free cash flow growth and margin expansion. On that note, we are on track to deliver all three this year despite ongoing market challenges. I'll turn now to the major contributors to our second quarter results. We added 180,000 net new digital subscribers with more than half of our digital starts taking the bundle for the second quarter in a row. More than a third of our nearly 10 million subscribers are now bundled or multiproduct subscribers, which supports our belief that over the next few years, we can get to 50% or more of our total subscribers on the bundle. We also grew digital ARPU for the fourth consecutive quarter. And for the first time since our acquisition of the Athletic, we grew digital ARPU year-on-year. That growth is a direct result of our value-based pricing strategy, which combines…

Thanks, Meredith. Good morning, everyone. It's a truly exciting moment to step into the CFO role at The New York Times Company. I view us as a global market leader with a large opportunity in front of us. I see us clearly demonstrating a virtuous cycle between the pursuit of our journalistic mission and the success of our business. I believe the strategy that Meredith described positions us to deliver sustainable digital revenue growth, AOP growth, free cash flow growth and margin expansion in what continues to be a challenging market. Today, I'll start with this quarter's key results, followed by our financial outlook for next quarter. I'll conclude by discussing the enhanced disclosures we've made to help investors better track our strategic progress. Please note that all comparisons are to the prior year period unless otherwise specified. I'll first turn to subscription revenue and its drivers, which were at the core of our business model. Total subscription revenues increased approximately 7% in the quarter, with digital-only subscription revenue growing 13% to approximately $270 million. Digital subscription revenue growth was driven by large numbers of subscribers paying higher prices as well as the net new digital subscribers we added over the last year, 180,000 of which we added in the second quarter. Meredith highlighted that bundle adoption for both new and existing subscribers continued to be strong. We now have well over 3 million digital-only bundle and multiproduct subscribers after adding 280,000 this quarter. This is approximately double the number we added in the same quarter last year. Digital subscription revenue growth was also driven by higher total digital-only ARPU. This quarter's total digital-only ARPU of $9.15 increased approximately 1.2% sequentially and 3.6% compared to the same quarter last year. The growth in digital-only ARPU was driven primarily by our…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Doug Arthur from Huber Research Partners. Please go ahead.

Yes. Thank you very much. Meredith, the bottom line of the quarter seems to me much better than anticipated digital advertising. I mean you were guiding down there. And obviously, the Athletic helps and lower media costs. So traffic was slower. I assume you saw less opportunity to convert. I mean that seems the cost much better than expected. Is that a misread?

The readout – the digital advertising is correct. Great. We had a much better-than-expected quarter. On marketing, I can't quite tell what you're asking, but I'll say the sort of reduction in marketing spend you've seen us make over the last year is strategic. We've said for a long time and that's been journalism invest in the product, invest in the marketing until we get to a point where the organic engine is doing more of the work and then you can begin to rationalize that investment in marketing. So I would regard that as kind of part of the plan. So - but feel free to ask the question in another way, if I'm not getting to what you're poking at.

No. No, that's fine. In terms of the digital advertising environment, are you seeing what you regard as a modest paradigm shift in momentum. I think you called out programmatic is being better. Has anything changed? And your guidance certainly for Q3 is pretty good, too.

That's a good question. The thing that I called out is that the core of our digital ad business, which is basically the big ad units, the premium ad units that we have with first-party data kind of underlying them. That part of the business has actually been resilient in kind of the whole way through in a difficult ad environment, and that's what did really well relative to our expectation in this quarter that we believe that is a very good signal because that's sort of the fundamental thing we're doing. And what you're seeing us do now is start to extend those ad products for the big ad campuses and the first-party data, the other parts of the bundle, the Athletic is a real bright spot there. We're super excited about sports as an ad proposition and the Athletic specifically, there's a lot of interest there, but it's not just the Athletic. We extended the ad products to game in a particular way this quarter for the first time. We did this really cool partnership with Storebatch [ph] that works - there's just lots of opportunity to take those products and expand them across the bundle, and we feel good about that. I'll say visibility isn't great. Bookings still happens pretty late, which is consistent with an uncertain economy, I've been here a decade now. I've seen the pattern. But as you say, certainly, our outlook going into Q3 reflects what we see today and that feels better than what our outlook was going into Q2.

Great. Thank you very much.

The next question comes from Ashton Welles from Evercore ISI. Please go ahead.

Thank you for taking the question. Two questions for me. One on the digital strategy and one on Wirecutter. First, just in terms of the digital strategy going forward, how should we think about sort of you guys having different products for the time such as creating [ph] a stand-alone audio app versus sort of bundling everything into one central app as you did with news and games last year? And then secondly, on Wirecutter, just how should we think about the durability of this Wirecutter affiliate revenue strength? Is this more a function of more customers having access to Wirecutter with the bundle now? Or is this course sort of more driven by unique factors in the calendar that benefited Wirecutter recently? Thank you.

Thanks for the question, Ashton. I'll take the first pass, and Will, you should feel free to add anything I miss. I think the answer to your first question, if I understood it correctly, is how do we think about sort of the product portfolio and its component parts. I would say we are very, very focused on having - the strategy is world's best news destination, a set of destinations that help people to make the most of their lives and passions beyond news and then putting all that together in a comprehensive subscription bundle that's valuable to you, whatever is going on sort of in the world and your passions are in the news cycle. That's the strategy. The way that has played out for the most part, not everywhere, but for the most part, is we obviously have a core news destination that is also the gateway to everything else we offer. And then each of our other products with the exception of Wirecutter, also presents in the form of a destination or an app. And we think for now that's really working. I can't say enough about how strong subscriber engagement has been this quarter and the last quarter. And so we see that as really working. So I don't know if that's what you're pushing on, but that's the strategy. And we want to get as many people to experience and ultimately buy the times [ph] in this kind of most comprehensive form and breadth as a bundle as we possibly can because if they buy the bundle, there so far as the pattern has been, they're more likely to engage more to stay longer and over time to pay more. So that's my answer to the first part of your question. On Wirecutter, we're loving what we see so far. Wirecutter has consistently, I think we're 5.5, 6 years into owning Wirecutter. It's been a great story the whole way through. I think we've got a differentiated product in product reviews. And I think what you're seeing there is just strong performance that answers to a real consumer need for deeply reported product reviews.

Got you. Thank you.

The next question comes from Thomas Yeh from Morgan Stanley. Please go ahead.

Thanks very much. I appreciate all the new color on dissecting ARPU and net adds by product type. I wanted to follow up a bit on that bundle adoption point. It's a subset of the bundle in multiproduct segments. And I think you mentioned bundle crossing 1 million milestone a couple of quarters ago, which still is the minority, I think, of the overall multiproduct piece of it. If the vast majority of them are also subscribers with news entitlement, what's kind of keeping some of those multiproduct subs from moving towards the bundle? And maybe some color on whether they're higher or lower ARPU. And perhaps on a related point, as a follow-up, why has that bundle ARPU been coming down sequentially over the last few quarters? Is it that mix of bundled versus multiproduct or more promotional uptake?

Yes. Thanks, Thomas. I'll take that. Let me start actually with the second part of your question. What you're seeing there with bundle ARPU is a direct result of our strategy. It's exactly what we would expect. It doesn't have to do with the multiproduct bundle relationship. It just has to do with the overall value-based pricing strategy that we have that you've seen at play in news in the past where we - in a period of growth where we're getting a lot of people into the bundle. The - with promotional pricing. You see that relationship between growth in subscribers and ARPU. That's, as I said, completely expected as part of the strategy over time as we get people step up in price, we'll see that stabilize and turn the other way. But completely what we expect today, and keep in mind, the key thing to look at in this disclosure, ultimately, the big Signpost to success is that modest total digital-only ARPU increase over time. On the first part of your question, I don't think it's fair to say that the bundle is a minority. It's actually over 2 million of that total. And we like both the bundle and multiproduct subscribers. Obviously, our strategy, we think the bundle is the best value product over time, and we're encouraging people to take the bundle. As you noted, the vast majority of our multi-product subscribers also take news. So they're very high-value subscribers to us either way, and that's why we bucketed them together. This is essentially people who have access to either all or the vast majority of our products.

Great. That's super helpful. And maybe just as a final follow-up. Maybe stepping back, any color on how much of the bundle growth you're seeing do you think is happening from news only subscribers that you're successfully converting into a broader offering? Or any idea of maybe an ability to attract new bigger TAM as you lean into the suite of offerings versus the focus originally on news only?

Yes, I'll take that one. Will, you should feel free to add anything. The - I'll take the second part of your question first. The point of the bundle was to be attractive to. It has many points, but one of them is to be attractive to even more people. We think we've got a big TAM. We've talked about that TAM and I think the bundle helps us penetrate that they can better and I think you're seeing that in action and we've seen that in action now for 5 or 6 or 6 quarters. So we feel very good about that. And then, Thomas, remind me on the first part of your question.

Just the mix shift of news only subscribers moving into - migrating into the bundle.

Yes. What you're seeing in terms of the high number of bundled net adds and high percentage of starts on the bundle is a combination of new people taking the bundle and also upgrades. But it is more new people taking the bundle than it is upgrades. So I think that's the important thing to know. And the sort of underlying detail that may not be obvious is that is because we are anywhere we would otherwise sell a new subscription and in a number of other places like games, we are intervening and saying, do you want to buy the bundle instead we're doing that particularly in news. So many of the people who are buying the bundle are people who would have otherwise bought news in a previous era.

Got it. It's very helpful. Thank you.

The next question comes from David Karnovsky from JPMorgan. Please go ahead.

Hi, thanks. Just going back to digital advertising for a second. You mentioned strength in your directional products. I want to see if you could speak a bit on where you're seeing some of that stronger demand maybe by vertical. Just wanted to get a sense for how much of the outperformance of the quarter is maybe a general market rebound versus you expanding your ad inventory?

Yes. Great question. On the second part, it is so hard to call what's happening. We'll just keep saying our visibility is pretty low and the kind of mass station [ph] of that is late booking and you see that in the guide and then the beat on the guide. But certainly, if you look at the guide for the next quarter, it's better than our outlook was a quarter ago. So that feels - in that is our sense of the market. And then I would say - so that is a piece of it. But I do think the other piece of it is we've got these ad units that really performed for marketers, and we are opening up new - both sort of new supply and I think new pockets of demand. Sports is probably the best, most prominent example of that. We're just bringing new advertisers to The Times, I keep using [indiscernible] It's the big example, but it's not the only one. We're just bringing new advertisers sort of in the fold that we didn't have before, and we're really seeing that pay out in for - we're very excited about that, but it's not the only place. I think games, I think, cooking over time, potentially the Wirecutter all of these present an opportunity for The Times to be relevant across a wider array of categories. And I'll say we were already kind of relevant across a lot of categories, but there are some consumer lifestyle categories where we maybe weren't as relevant. And given the scale of our audience and the uniqueness of these products, I do think we're opening up more channels for demand. I'm going to say one more thing that you didn't ask, but we've also got - we took our former Head of Advertising, and he is now overseeing the Athletic, which has been terrific so far. And we have a new Head of Advertising named Joy Robbins for The Times, and we feel optimistic about what's ahead there.

Okay. And then just on the AI question. We've seen some reports that Times along with maybe some other digital publishers may look to negotiate collectively with tech platforms over use of their data. Is there anything you can say in your strategy and should investors tend to think of the opportunity here as something I can to your commercial agreements? Or is it something different from that?

Really, really good question. Let me give you kind of a step-back answer, which is we are incredibly focused on further evolution of the information ecosystem. We've been very focused on over the last half dozen years, and we see real opportunity in the change that potential - is potentially coming here, and we feel very prepared to navigate that. I'll say specifically to your question, we think our IP, we're sitting on a mountain of very valuable IP. We also produce every single day, new IP, and we think that IP has tremendous value. And we're working our way through the best way to manifest and realize that value. I'll say even more broadly, I think if you imagine an information ecosystem where a lot of what is out there is synthetically produced, which we could be heading to the sort of premium and value for human-made content trustworthy brands, I think, becomes that much more important, but as an underpinning to that information ecosystem and sort of for readers, for people, for consumers, for society. So you can imagine, we're spending a lot of time on this and thinking very hard about it.

Thank you.

The next question comes from Vasily Karasyov from Cannonball Research. Please go ahead.

Thank you, good morning. I wanted to ask a question about other revenue. So it seems like judging by your guidance, we should expect more or less constant revenue in Q3 compared to Q2. So a couple of questions. Should we still expect the same seasonal uptick in Q4 as we saw in previous years? That's number one. And number two, did the incremental margin on that revenue change compared to previous years since the composition of the revenue seems to be changing with more film and TV, TV and film revenue, the Google agreement and Wirecutter revenue being a higher proportion of this line? Thank you.

I'll take that, Vasily. The other revenue, as we said was - in Q2 was really driven more than anything by real outperformance in Wirecutter. And Meredith mentioned in her prepared remarks, it's a strong Prime Day. So I think if we look at our guidance and other revenue, it's very much being driven by similar factors. And we don't guide on Q4. But obviously, part of our strategy is to continue to drive these revenue streams. In terms of incremental margins, Wirecutter, our licensing, these are high incremental margin businesses. Obviously, there is a mix of things in other revenue. But to the extent that the revenue growth is being driven by those, that's attractive.

Okay. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Mike Brown for any closing remarks.

Thank you for joining us this morning. We look forward to talking to you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.