Good morning, and welcome to The New York Times Company's Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Anthony DiClemente, Senior Vice President of Investor Relations. Please go ahead.

Thank you, and welcome to The New York Times Company's third 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.

Thanks, Anthony, and good morning, everyone. Let me begin by noting this is a deeply troubling and complex period for the world, with last month's horrific attack on Israel by Hamas, the ensuing war and devastation in Gaza, and the reverberating global consequences. In this difficult moment, The Times plays a vital role. With a century of expertise covering the region, our newsroom has dozens of journalists on the ground and many more around the globe, doing the essential work of original reporting and analysis to eliminate and contextualize these events, just as they have been doing for more than a year and a half on the war in Ukraine. Our mission, to seek the truth and help people understand the world, propels our business strategy. That strategy is to become the essential subscription for every curious English-speaking person seeking to understand and engage with the world. Our strong results in the third quarter underscore that our strategy is working as designed. Being essential means creating news coverage and lifestyle products that are sufficiently valuable, they drive audiences to seek us out directly and build enduring daily habits. We believe our best opportunity to build direct lifelong relationships is when people experience the full breadth and variety of our product portfolio packaged as a bundle. That bundle fuels our growth and our economic success in several ways. First, our multiple products give us complementary audience funnel, each with the opportunity to meaningfully expand our reach. Second, we see better conversion of new users to paying subscribers as our varied product portfolio captures demand for a wide range of audience interest. Third, people who subscribe to our bundle engage and retain better as the bundle creates more opportunities for them to discover and enjoy our products. And fourth, we are achieving…

Thanks, Meredith, and good morning, everyone. Our essential subscription strategy is designed to do more than increased customer value and fuel growth. As Meredith just described, our bundle of market-leading news and lifestyle products is also designed to improve our digital unit economics and company profitability in a few ways. First, we plan to increase our subscriber lifetime value over time because of the bundle strong engagement, retention and ARPU potential. Second, we expect to sustain attractive subscriber acquisition costs as the bundle converts organic demand for multiple areas of audience interest. And third, we expect strong engagement with our scaled subscriber base will fuel the growth of our additional advertising affiliate and licensing revenue streams. We see these improving digital unit economics reflected in our financial results. Steady revenue growth and disciplined cost management have been driving continued AOP growth and margin expansion. Today, I'll discuss the quarter's key results, followed by our financial outlook for next quarter. Please note that all comparisons are to the prior year period unless otherwise specified. I'll start with a discussion of our subscription business. We added approximately 210,000 net new digital subscribers in the quarter, largely driven by strong performance in bundle and multi-product subscriber additions. We added more than 3x as many bundle and multi-product subscribers as we did in the same period last year. They now make up 38% of our total base, well along the path to exceeding 50% over the next few years. Total digital-only ARPU grew steadily for another quarter to $9.28, up approximately 5% year-over-year and 1.4% quarter-over-quarter. Our continued sequential digital-only ARPU growth was driven by our success with graduating subscribers from promotional to higher prices, as well as the ongoing impact of our digital price increase on tenured non-bundled subscribers. We continue to be…

Thanks, Will. In closing, this quarter's results are further proof that our essential subscription strategy is working. Our unrivaled journalism and market-leading lifestyle products give people many reasons to seek us out at different moments. We believe integrating these products into a single bundled offering increases the value we deliver to customers who deepen their engagement and willingness to pay more over time. And our multi-product multi-revenue stream model makes us more resilient in the face of an uncertain economy and world and an ever-changing information ecosystem. All of which means that we are well positioned to continue creating value for our readers, for our colleagues, and for our shareholders. And with that, we would be happy to take your questions.

We'll now begin the question-and-answer session. [Operator Instructions] Our first question comes from Thomas Yeh from Morgan Stanley. Please go ahead.

Thank you so much. I noticed during the quarter that you reduced the promotional rate on the bundle to $1 a week, which is our – was equivalent to what the news-only product was offered at before. Can you talk a little bit about just the role of news-only over time? Are you still seeing growth starts coming in through the news-only product at this point? Or hence, how you changed the selling strategy and the marketing of the bundle really shifted that?

Yes. Thomas, I'm happy to take that. Yes, as we talked about, we've been testing the $1-a-week promotion, which has been so successful on news, for the bundle. And we had as you know, our strategy is to maximize subscriber lifetime value. We like what we see there. And so that is the – essentially bringing in the bundle starts on that. If we take a step back, I think I mapped out in the last call, the three things we want to look at are growth in total subscribers, that mix shift to the bundle because what Meredith and I discussed, retaining better, engaging more and paying more. And then lastly, sort of the overall growth in total digital-only ARPU. Those are the three signposts that we look to. And in this quarter, you can see that very much playing out the way our strategy is designed. So we like to see that bundle growth, and we are essentially no longer marketing news-only. We're marketing the bundle for that reason. And so I think you can expect to see the trends generally that you're seeing this quarter play out as our strategy is working as designed.

I'm going to add one beat to that, Thomas, which is that we have a long and good track record of being able to bring people into any of our products now at a promotional price, get them to engage, get them to engage more over time. And then step them up either in one or two or a few goes to higher prices. And you have to imagine in the background, we're just getting better and better at the execution of that, and we like the results we're seeing. And that's what gives us confidence to sort of be working at all ends of the demand curve here.

Okay. Makes sense. And then, Meredith, you mentioned the news aggregator pressures, and you've been talking about that for probably the better part of the year now. Are we lapping some of that as we exit this year from a year-over-year perspective? Or do you see further changes developing? Maybe just an update on that would be helpful.

Yes. That's a really good question, and it's probably been a year, might even be five quarters now that we've been talking about it. I would say our strategy is designed for us to be resilient to sort of however the ecosystem continues to evolve. The point here is to build products in news and beyond news that are so good, so necessary to people that however – whatever the ways are to get to those products, people are going to find them. So that's the first thing to say. That's what we're trying to do here. And I think our sort of continued strong results against a clearly stated strategy all year long with those headwinds is evidence of that. I think it's fair to assume that, who knows, but that the information ecosystem is going to keep evolving for any number of reasons and that so much of what we're doing is intended to be able to harness demand no matter what happens.

Thanks, Tom. Let's go to the next question.

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

Hey, thank you. Will, just maybe following up on your comments before on ARPU. We saw the sequential decline from bundle and multi-product ARPU in the quarter, which makes sense given the net adds. But as you start to graduate early cohorts to interim or full prices, should we start to see some stabilization in this number eventually? And then just on the outlook for Q4, it's a bit wider range than normal on revenue. I think that's due to advertising. Meredith, can you speak to what you're seeing in the ad market? And how does the kind of elevated news cycle we're in play into that? Thank you.

Do you want me to go?

Yes. Go ahead.

Yes. Thanks, David. On advertising, I'll sort of give you the whole picture. Yes, it is a wide range. And as Will said in his prepared remarks, that sort of reflects just how much uncertainty there is. On the positive side, we feel very confident that our approach and our fundamental strategy in advertising is working. The core of the digital business, which is premium ad canvases and first-party data, both across The New York Times Group, the news and our other products, and in The Athletic, is really working. That's been really resilient even in a tough macro economy, and we expect that to continue to work, and there's a lot of demand for that. Also, on the positive side, Athletic advertising is going really well. The idea here is bringing new advertisers and get different campaigns from existing advertisers. We work across a lot of categories. So we've got real optimism there. And we're more assertively extending the product – the ad products to places like Games, which I think I talked about in the last quarter, and you'll see that kind of as we move across the portfolio. So I'd say that all feels good. At the same time, I think a lot of the kind of wide guide is being driven by – there's a second war now being fought and that can create uncertainty in the broader market and, therefore, the ad market. And I would say macro economically, it remains a pretty uncertain time. And then there are two places where we've said we just expect some amount of continued headwinds. One is print. Print has been – print is really hard to call. In my decade here, I would say it's always – print advertising is always really hard to call. Did better than we expected in the last quarter. We'll see in the current quarter. And then podcasts, which really news podcasts, remain sort of under pressure for a number of reasons. So with – for all those reasons, I'd say broadly, we feel very confident in our underlying ad approach and product set, and we think it's really working for marketers. But there's just a lot going on at a macro level that makes it hard to know.

And then on the trajectory of bundle and multi-product ARPU. As you note, that is our strategy working is designed as we bring on large cohorts of bundled subscribers at the promotional prices. Those of you who have been following, saw that in news only as well. And certainly, we expect over time for that to stabilize and eventually return back to growth. We're not sort of calling that to some extent. This is a period of sort of a rapid shift to the bundle and a lot of effort going into that – those bundled cohorts. We have a lot of leverage at our disposal on ARPU, which the two big ones you've been seeing are the digital price increases, as well as over time we're going to see more impact from the transitioning of these cohorts to higher prices. So that will take more impact beginning next year. And as we've said, the overall expectation is for that total digital-only ARPU to continue to modestly expand and increase over time.

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

Thank you. I know it's early to talk about 2024 at this point. But can you talk a bit about how you're thinking about the puts and takes for expense growth next year? Is the low to mid-single-digit rate we've seen this year the right run rate to think about for the business going forward?

Ashton, I'm happy to take that. I mean we don't guide on 2024, but I think it's fair to say that we feel good about our cost performance, both our ability to continue to invest strategically in the key areas of our journalism and product development, while also being relentlessly focused on efficiency and making sure we're reallocating our resources to areas of highest impact. We feel like we're definitely on track to be doing what we telegraphed at the beginning of the year as to sort of see that cost growth moderate. And that's our general expectation as we head into next year – into Q4 and into next year.

Thank you.

The next question comes from Doug Arthur from Huber Research Partners. Please go ahead.

Yes. Thanks. Meredith, you called out the strong advertising results at The Athletic, which was really quite a surprising number. I guess the flip side is digital advertising backing out The Athletic was kind of a push year-over-year. Was that a bit of a disappointment? Or is that the podcasting reference you made? And then I've got a follow-up.

It's certainly more the second than the first in your – in the way you're answering it. I'll say, again, remember, we sort of did better than our own guide there. And the thing that we pay closest attention to, even setting aside The Athletic, Doug, is how is core display on The New York Times and within the group doing, which is premium ad canvases plus first-party data. And I would say that remains resilient in the face of a really complicated market. So most of what – where you're seeing the pressure is in podcasting, and then just broadly less money moving around in the market in the biggest categories that we play in.

Okay. Thank you. And then as a follow-up, I mean it looked like the investment and expense growth at The Athletic was pretty robust in the quarter. Is that just investment in the marketing? Is it content? Are you hiring people? What's happening there?

Let me give a kind of broad answer. Will, you should provide any more detail you think is appropriate. I would say, on The Athletic, things are going, broadly, kind of according to plan and as we suggested they would at the point of acquisition. And where you see us investing, it is in the two things that we think are going to drive the most value on The Athletic, which is ensuring that the coverage is widely appealing and widely seen. So that's a place of investment, and we've talked about that on prior calls. I think the biggest opportunity at The Athletic is to get many more people to know it exists and to read it and to engage with it. That's one, and that's the single biggest area of expense. And so anywhere you'd see sort of increased investment, it's going to play out there. And then in the digital product and making – creating more opportunity technologically in the product experience to engage people. So I think that's where you're seeing it. But it's all – and a little bit, I'll just add one more beat. The ad business is going very, very well. And there are some number of things you're doing there, less so, but some number of things you see us doing there to throw gas on that fire.

I might just add one more thing, which is that the success of the bundle and the growth of the bundle is in part also a sign of the success of The Athletic as part of the bundle. And one of the things we are doing is allocating the expenses from that growth back to The Athletic as well. So as The Athletic grows, you're going to see expense growth at The Athletic.

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

Thank you. Good morning. Just wanted to follow-up with a bigger picture question on, Meredith, your comments about ARPU growth and your confidence in how that will continue. So you did provide longer-term goal of 15 million subscribers, and I'm sure that internally you also have estimates of what ARPU would look like. Now of course, I don't expect you to share that estimate with us. But maybe you can help us think how to – where is the right sort of directions along which to think what that ARPU could be? Can it be teens – in teens, can it be in double digits? And what sort of puts and takes we should be thinking about when estimating what kind of ARPU the 15 million subscribers New York Times would have? Thank you so much.

Yes. Great. Let me just make a couple of broad comments, and Will, I suspect you'll have a more satisfyingly detailed answer on ARPU. On the path to 15 million, you should expect us to really be aiming for more than half over the next few years of the total subscriber base to be on the bundle, and that has economic benefit in myriad ways to the whole business, not just subs, but you're asking about subs. So continuing the push to more bundled penetration both for starts and also for existing stand-alone subscribers to news or any of our other products. So that's going to play a big role in the ARPU trajectory. And then I'll just make sort of one more broad comment, which is you have a number of, Will, I think, referenced this earlier, you have a number of things going on around price rises, that so far, I'd say, we are executing well on: one is bring people in at promotional prices, step them up over time, either in a year or across a multiyear period as they engage more, as they realize more value. And as I said earlier, our ability to execute against that, our tech is getting better and better, the AI we use to power that is getting better and better. So that's one. Two, as we get more people to understand The Times isn't just the product they came for, and that presents most in news, but we've got Cooking subscribers and Games subscribers and Athletic subscribers, getting people to take the whole gives them more of a reason to pay us – engage more and then pay us more over time. We really like what we see there so far. And then three, and this has played a big role this year and I think will continue to over time. We now have a good history of – at the point of tenure in news and executed in Games for the first time, and we talked about doing it in Cooking as well and are beginning to do that, at a certain point of tenure for certain subscribers, based on engagement level, we can do a price increase and exercise our pricing power. So all of those things, successful execution on all of those things would point toward how we expect ARPU to go up over time as we're growing volume and bearing down path to 15 million. Will, what did I miss there?

I think what all I'd say, obviously, is over the mid-term, the way we are thinking about it is still the way we articulated it, which is essentially modest year-over-year ARPU growth is essentially our expectation with – they won't be totally linear and there are lots of puts and takes and levers, as Meredith described, but that's generally still how we are thinking about it ourselves.

Okay. Thank you so much.

This concludes our question-and-answer session. I'd like to turn the conference back over to Anthony DiClemente for any closing remarks.

Thank you all for joining us this morning, and 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.