Good morning. My name is Carol, and I will be your conference operator today. At this time, I would like to welcome everyone to The New York Times Company Q2 2016 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, please press the pound key. Thank you. I would now like to turn the call over to Harlan Toplitzky, Executive Director of Financial Planning and Analysis.
Thank you, and welcome to The New York Times Company's second quarter 2016 earnings conference call. On the call today, we have Mark Thompson, President and Chief Executive Officer, James Follo, Executive Vice President and Chief Financial Officer, and Meredith Kopit Levien, Executive Vice President and Chief Revenue Officer. Before we begin, I would like to remind you that management will make forward-looking statements during the course of this call, and our actual results could differ materially. Some of the risks and uncertainties that could impact our business are included in our 2015 10-K. 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. With that, I turn the call over to Mark Thompson.
Thanks, Harlan, good morning, everyone. We have a thesis that in an unpredictable and sometimes frightening world, that the demand for truly exceptional journalism, which helps people make sense of what's happening, will only grow, and that more and more people will be prepared to pay for it. We plan to meet that demand not just by continuing to invest in world-class reporting, analysis, and contextualization, but by aggressively innovating in the way we tell our stories, especially through new forms of visual and multimedia journalism, and by rapidly pivoting our products and our business model to address fast-changing user behavior and market conditions. Now, all of these themes played out in the second quarter of 2016. First, it's been a truly extraordinary period for news.
I want to pay tribute to our newsroom and editorial departments, led by Executive Editor Dean Baquet and our new Editorial Page Editor, James Bennet, respectively. From the Orlando massacre to Brexit, to Dallas, to Nice, to the conventions, they and their colleagues have produced an amazing report day after day, a report that we believe sets the Times apart from even our closest competitors. Everything we do is built on that excellence. In the quarter, consistent with where we believe consumption is moving, we increased our efforts to make our report more visual with video, virtual reality, and live interactive journalism. In the quarter, we produced our 12th and 13th virtual reality films and have done more than 400 livestreams using Facebook Live. This platform allows for two-way communication between our journalists and Facebook users and helps increase audience engagement.
Popular livestreams have ranged from breaking news stories to beautiful nature scenes to a truly riveting crack of dawn discussion of Brexit by our media commentator, Jim Rutenberg, and yours truly. What each Facebook Live video has in common is an active involvement with our audience. We're being recognized for our achievements. This year, the Times won two significant prizes at the Cannes Lions International Festival of Creativity. We won the Mobile Grand Prix for our VR app. In presenting this award, the mobile jury president said our VR efforts were, quote, "transforming the industry." We also won the Entertainment Grand Prix for The Displaced, our first virtual reality film produced in collaboration with Vrse.works.
The jury called this a quote, “real business driver that helped catapult the Gray Lady 100 years forward.” Just a few days ago, we learned that we've been nominated for no fewer than 9 news and documentary Emmys for the great strides we're making in video. How did all this play out in business results? Let me start with the digital story before turning to print and then to costs. It was an excellent quarter for audience growth, engagement, and our digital subscription business. In the month of June, we attracted no fewer than 126 million unique users, with engagement among non-subscribers up 20% year-over-year. Those numbers helped us add 51,000 net paid digital-only subscriptions to our news products in the quarter. That compares with 33,000 in the same quarter last year. We also added 16,000 net paid subscriptions to our crossword product.
Combined at the end of the quarter, we had 1,424,000 digital-only subscriptions, an increase of more than 25% year-over-year. The acceleration in the number of digital subscriptions makes this not just a growing but an accelerating revenue stream. Our consumer marketing team has made great progress in understanding and optimizing our conversion funnel. Both they and we believe there is potential for significant further advances in the coming quarters. Digital advertising was somewhat lower than we expected for the quarter, down 7% compared to Q2 2015. We continued to see large year-over-year increases in smartphone, branded content, and programmatic, but these were not enough to offset declines in web homepage and other traditional display advertising. In our last earnings call, however, we predicted a much stronger second half to 2016 in digital advertising, and we're indeed already seeing a marked turnaround in July with strong year-over-year growth.
We expect Q3 as a whole to show double-digit year-over-year growth in digital advertising as well as in digital subscription revenue. As we noted in our last earnings call, our digital advertising business is becoming more lumpy, but we're also now seeing a series of large-scale programs roll out, and we're confident that our strategy, which is to replace standard desktop display with larger canvas, more integrated formats, and a focus on smartphone branded content, programmatic video, VR, and other new forms of storytelling, is now paying off. We continue to face fairly tough market conditions in print advertising during the quarter. Although our visibility into September, the most important month in Q3, is limited, we do not expect these print advertising headwinds to moderate in the present quarter. It's worth pointing out that print advertising only accounted for 23% of total revenue in Q2 2016.
We are, in other words, far less reliant on it than we once were. When we put digital and print advertising revenue together, the substantial gains we expect in the first means that despite continued pressure on the second, we expect a marked improvement in total advertising in Q3. Jim will spell that out when he gives his guidance shortly. Revenues for the company as a whole were down 3%, while our adjusted operating profit of $54 million represents a 15% decline compared to the same quarter last year. This decline is due in part to that advertising revenue weakness, which as I said, we expect to see moderate in Q3, and in part to the investments we're making in our international business, in visual journalism, and in our digital products to deliver our path forward, the strategic roadmap we unveiled last fall.
However, we are continuing to bear down on costs. During the quarter, we announced a voluntary buyout program, and various other cost-saving initiatives are now also underway. We'll have more to say about them and other initiatives in future quarters. Now I'll turn it over to Jim for a more detailed financial review.
Thanks, Mark, and good morning, everyone. As Mark said, the second quarter reflects a solid digital subscriber growth, but a challenging advertising environment both in print and traditional digital. Adjusted diluted earnings per share was $0.11 in the second quarter, compared to $0.13 in the prior year. We reported GAAP operating profit of about $9 million, compared to an operating profit of $38 million for the same period in 2015. Overall revenues is down 3% in the quarter, with weakness in advertising offsetting circulation and other revenue growth. Total circulation revenues increased by approximately 3% in the quarter, with digital-only subscription revenue growing strongly, up 15% to $56 million. As a reminder, beginning in the first quarter of this year, we include revenues from both our core news product and our crossword product within digital-only subscription revenues.
On the print circulation side, revenues are down less than 1%, driven by lower single copy revenues. Home delivery revenues increased slightly in the quarter as the home delivery price increase in early 2016 more than offset volume declines. Total daily circulation declined 6% in the quarter, while Sunday circulation declined 4%. Total advertising revenues are down 12% in the quarter, with print advertising declining 14% and digital ad revenue declining 7%. As Mark noted earlier, the digital advertising results reflect the changing mix of advertising that we have been experiencing over the last several quarters. In the second quarter, we saw strong growth in mobile, programmatic, and creative services revenue, while traditional web display advertising was weak. Mobile revenues continued to grow at a rapid rate versus 2015 and represented approximately 22% of total digital advertising revenue in the quarter.
We did record a full quarter of digital advertising revenue from our February acquisition of Hello Society. However, its contribution was immaterial to the results in the quarter. Lower print advertising revenue was due to declines in both The New York Times and the International New York Times. For The New York Times, luxury, entertainment, and retail categories were particularly weak. While luxury category was primarily responsible for the decline in the International New York Times. On a monthly basis, overall advertising revenues were down 13% in April, down 6% in May, and down 15% in June. On the revenue side, other revenues were up 4% in the quarter, largely driven by our NYT Live business. GAAP operating costs decreased 1% in the quarter, while adjusted operating costs remained relatively flat.
We continue to keep a sharp focus on our cost base while investing where necessary to support growth. To that end, our print production and distribution costs were lower in the quarter, while costs grew in both advertising and technology. Non-operating retirement costs were lower, while severance, and depreciation and amortization was slightly lower as well. Non-operating retirement costs, which exclude special items, were down in the quarter to $5 million from $9 million in the prior year due to a change in the methodology of calculating the discount rate applied to retirement costs. To reiterate Mark's comments, we continue to focus efforts on our cost structure, and while we expect to experience an increase in operating costs in the second half of 2016 due to targeted investments, we will begin to accelerate reductions to our structural cost base thereafter.
In the quarter, we recorded two charges, which have been excluded from our pro forma results. First, we incurred a $12 million charge in connection with the streamlining of our international print operations, principally in Paris. We expect to achieve savings related to this effort in the latter part of this year, but more fully in 2017. Most of this charge was for severance. Second, we recorded a $12 million charge for a partial withdrawal obligation under a multi-employer pension plan, approximately $11 million. Moving to the balance sheet, we grew our cash and marketable security balance during the quarter and ended the quarter at $915 million, with debt and capital lease obligations of $434 million. We have a debt maturity due in December, and at that time, we expect to use approximately $190 million of cash on hand to retire that obligation.
Now let me conclude with our outlook for the third quarter of 2016. Circulation revenues are expected to increase at a rate similar to the second quarter trend, driven by the continued benefit of our digital subscription revenue growth, partially offset by slightly lower print circulation revenues. We expect approximately 55,000-60,000 net additional subscriptions to our digital news products and approximately 15,000 net additional subscriptions to our digital crossword products. Overall, advertising revenues are expected to decrease in the mid-single digits with double-digit growth in digital advertising. As Mark mentioned, it's worth noting that our visibility into September print advertising is limited, which is not unusual at this point in the quarter. However, since September's print advertising revenue typically represent a disproportionate amount of the third quarter's advertising revenue, any change to that month will likely have an outsized impact on the quarter.
Other revenues are expected to increase in the mid- to high-single digits. On the cost side, operating costs are expected to increase in the mid-single digits, which will include severance of approximately $11 million, which I just mentioned. Third quarter adjusted operating costs are expected to increase in the low- to mid-single digits. Finally, we expect non-operating retirement costs to be approximately $5 million in the third quarter. With that, we'd be happy to open it up for questions.
As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Our first question today comes from Alexia Quadrani from J.P. Morgan. Your line is open.
Hi. Thank you very much. I know you guys have talked about for a while expecting better digital advertising growth in the back half of the year, but could you remind us, I guess, what is really the delta? Why so sluggish in the first half and expecting such stronger growth, particularly already starting in Q3?
Sure. Hi, Alexia. I think that I'll start by saying, if you look at the second quarter, our growth businesses, so mobile, programmatic branded content, were actually collectively larger than our more traditional digital businesses. Standard rotational adjacent desktop display, direct sold, and homepage. I think that's worth noting, and we do expect those growth businesses and video to grow strongly in the back half of the year and as they have in the first half of the year. I think that, as we've said in prior calls, the character of deals and deal flow has changed pretty significantly. More bigger deals with a fair amount of complexity that take a while to get in flight, and we're going to begin to see a number of those in the second half of the year. That accounts for some of our optimism there.
I would also say, in general we're seeing a rapid transition in the market for desire for all ads, not just mobile ads, not just branded content ads, but all ads to be more seamlessly integrated into the surrounding experience. What you'll see from us in the back half of the year is more of that in terms of the character and the nature of our ad units on the desktop. We have a number of new things that we'll roll out there. Then finally, video, which has still been a relatively small business for us, but an enormous effort in the first half of this year.
You'll begin to see the fruits of that in the second half of the year in terms of increased stream production, increased advertising around that, new shows launching with sponsors, and video becoming more central to just the broader mobile and desktop ad product set.
I think it's worth perhaps just adding, Alexia, it's Mark here, that this isn't wishing upon a star. It's actually a pipeline. It's the run rate we're seeing in July. It's done deals working their way through the system. I think what is true, and I use the word
Rather British word lumpy, a few minutes ago, is that it's not just us, it's the counterparties, it's advertising clients and agencies also adjusting to, in our case, perhaps not for every publisher, but our case, much larger, more ambitious, more creatively imaginative deals, which take longer to conclude and take longer to make. In a sense, we're seeing that strategy playing out, I think, we think very successfully, and we are very optimistic about the second half of the year.
Should we assume that lumpy is just a little bit different than volatile in the sense we won't see necessarily the month-to-month big?
Yeah
pieces that you'd see?
Well, everyone didn't want me to use lumpy because they thought nobody would know what it means, and they were probably right. What we essentially mean is made up of a smaller number of much larger campaigns, which take a little bit longer to land and longer to make. And where, because of the amount of effort and attention that's required by both sides, in a sense, they take time to gather pace over the year rather than volatility, as it were, in general demand. It's the changing character and the fact that it's made up of a, as it were, a smaller number of very large deals play a disproportionately bigger part in the mix than they used to. Is that fair?
Exactly right.
Thank you. I like the word lumpy. The only other, I think you meant this, and I must have missed it, you said a percentage of digital ad revenue that's mobile. Did you give us that?
Yep.
I may have missed it.
I think Jim said 22%.
Okay, perfect. Thank you very much.
Yeah. In its universe growing.
Yes
at rates that even Mr. Zuckerberg's little firm would recognize.
Yes. Probably worth noting that the growth is all coming from smartphone. Very substantial growth in smartphone, and we expect that to continue.
Thank you.
Your next question comes from Douglas Arthur from Huber Research Partners. Your line is open.
Hello? We can certainly hear. We can't hear Doug's question.
No, I'm sorry. I'm unable to retrieve his line. We will move on to John Janedis from Jefferies. Your line is open.
Thank you. Good morning. You're in one of those unusual times where you have a tough print and easy digital comp for the next quarter or so. I wanted to know, on the digital side, can you talk about your ability to shift your traditional display advertisers to mobile and to what extent there's overlap in digital advertisers? Also, I know you commented on the mobile piece, but what % is not display at this point?
Both good questions. Shift to mobile, I think we've talked about we're seeing quite a bit of demand in the market for mobile. We are also seeing quite a bit of demand for just better canvases and more seamlessly integrated canvases across the board. It used to be that we would sell a mobile line item, sell a desktop line item, and now very often we can actually sell those things together. I mentioned earlier in answer to Lexi's question, in the fall of last year, we launched Mobile Flex Frames, which were more seamlessly integrated mobile units with a larger canvas. We're doing the same thing in the second half of this year on the desktop, and marketers will be able to buy those essentially across both platforms.
We think that's going to be very positive, and we do think that's where the market is going in terms of buying. You'll have to remind me what the second part of your question was.
Well, I guess now as that's growing, is there a fair amount of overlap between maybe the traditional display advertiser versus a mobile and-
Yeah
on that point, I guess, how much is not display at this point?
Yeah. Good question. I would say the overlap is significant, if not, it's entirely overlapping. A marketer is basically trying to reach our audience, and they're doing that both on mobile and on desktop. We led our ad unit improvements on mobile. Now we're going back and actually bringing them to the desktop as well. We do have some optimism around the desktop because of that and because they trade together, for the back half of the year. Then I'll just go back to the point I made before that the growth businesses collectively, which are mobile and programmatic, branded content and video together, are actually larger than the sum total of what I would call traditional display or standard rotational desktop display in the first half.
We've seen that tipping point.
Yes
Actually in recent months.
Very-
What happened in the first part of 2016 is that's the moment when the new growth digital businesses have grown larger in revenue terms than traditional-
Yes
digital display.
Which gives us quite a bit of optimism, and particularly because, again, on the desktop, we are going through a re-imagination and reinvention of the nature of the ads, making them more like the mobile ads.
That's helpful. Thanks. Mark, just to your opening remarks about the value of news, to what extent are you assuming any benefit to circ or advertising from the election? Just to clarify, is September typically, say, 40% plus of ad dollars for the quarter?
I missed the last part. What was the last part? I just didn't hear the last phrase.
In terms of the month-to-month, is September normally about 40% of ad dollars for the calendar third quarter?
It's actually more than that.
A little bit more than that, yeah.
It's pretty much more than that.
It's about half for print.
Yeah.
It's less pronounced for digital.
Yeah.
Half for print.
September is an important month, and as we've said, I think we've said it every year I've been doing this job, the character of the summer months and the summer weeks means that we get visibility into September, particularly September print, relatively late.
Yeah.
What I want to say is, I think that the U.S. presidential cycle is part of what is manifestly an extraordinary period for news, and really, there have been peaks and troughs in that, but the early part of the year was extraordinarily newsy. Slight lull in April, May, June. Actually, from late June onwards and through July, we've seen not just big news here, but in my own country, Brexit, and of course, some terrible stories, both domestically and internationally, of violence and terrorism and so forth.
It's been an extraordinary period, and I would say that the growth we've seen both in unique users, we're hitting regular records in terms of unique users in America and around the world, and the real gains we're making in engagement, so we're seeing metrics which we think are really important to us, the numbers of consumers who come back 4 times a month, at least on 4 occasions a month, 4 different days a month, come back 10 times a month, and so all of these metrics have been looking very promising. I do associate that with a very lively news cycle, though obviously, one of our tasks is to make sure that when we get someone who becomes engaged in "The New York Times" because there's a big news event they're following, that we show the sheer range of what we do.
Yeah
We capture them and turn them into a regular engaged customer. I think the fact that we're seeing our digital subscription model continuing to grow so strongly five years into its life, we're seeing better numbers now than we were seeing a year ago, two years ago, in terms of conversion and so forth, and we're making progressive gains in retention, reducing churn, is all to do with making sure that the experience people have when they come to "The Times" is a rich one which keeps them coming back for more.
Your next question comes from Douglas Arthur from Huber Research Partners. Your line is open.
Yeah, 2 questions. I did cut off for a second, so I may have missed this, you may have answered it. Meredith, the branded content work, obviously, I assume that's part and parcel of this lumpiness and big project work. How big could that become over time as a % of total digital? And then I've got a follow-up on print. Thanks.
Sure. Yes, branded content plays a very big role in the lumpiness. We continue to feel incredibly strong demand for branded content work, and what I would say there is there are three aspects to it, and in all three aspects, we're seeing strong demand. One is the creative work itself and the content strategy work that goes into it. Lots and lots of forthcoming work there. We've already got a lot behind us. We're known for the quality there, and there's quite a bit of demand. We're getting better and better quarter over quarter at distribution, so we're seeing increasing amounts of demand for that, both on our platforms and beyond them. We are also sort of moving up the supply chain in terms of being able to work on other aspects of marketing services with partners.
All to say, we think it's going to be a very important part of our business going forward, and we still see quite a bit of demand optimism for the back half of the year and beyond.
In terms of growing the funnel, are there opportunities to make tuck-in acquisitions that could bolster your effort there?
Sure. We have said, I think publicly, and we talk quite a bit internally about the fact that we see ourselves playing a role in the whole supply chain of marketer storytelling, and that's strategy, creative distribution, and measurement. Our acquisition of Hello Society was around both creative and distribution, and we are constantly looking at what other parts of the supply chain we can round out.
Okay. Just the print decline, you talked about the categories that were weak.
Yep.
Is there sort of a major structural price shift going on? Are your ad rates too high? Because the rate of decline is accelerating here, so I'm just wondering what's new is going on.
Yeah. That's a good question, and I'll give a little bit more color around the categories Jim mentioned, luxury and entertainment. I'll say we saw particular pressure in retail, in American fashion, which is tied to retail, and in live entertainment. In the first two of those categories, I think you could actually say that that just relates to sort of general pressure in the world around retail and changing consumption and what that's meant for retail. There's a fair amount of secular stuff going on in the world.
On the demand side of the world.
On the demand side. What I think is fair to say is we've seen periods of steep declines like this before, and we've also seen those periods of steep decline be followed by periods of moderation. While we saw decline in a number of categories for us, luxury is very big, retail is big. They travel together. We have also seen categories that had growth in the quarter, and some of that will continue in the back half of the year. Telecom was strong, real estate was strong, home was strong. I want to say that we do still see, and we see it because we hear it in the market, and our partners see it, a particular and important and meaningful place for print advertising, and we don't think that's going away. We are certainly always thinking about price.
I would say at this point, our strategy has been, and will continue to be in the back half of the year, to make strategic investments in making sure that the product continues to have real value to the consumer, and therefore real value to the marketer. You've seen us over the last year make big investments, last year and a half, in things like Sunday Magazine and Men's Style, and you can actually expect to see a couple of additional strategic and focused investments in print in the back half of this year.
Okay, great. Thank you.
Your next question comes from Craig Huber, from Huber Research Partners. Your line is open.
Thank you. A few housekeeping questions first. Going forward here, for digital-only subs, are you guys going to continue to break out the news product versus the crossword puzzles?
Yes.
Both the revenue and the subs?
Yes.
The revenue and the subs?
Yeah.
I saw that the other day, but you
Yes, that's the plan.
When you guys talk about digital deals being larger, and you've said this on a few of these conference calls now, can you just give us a broad range of what size you're talking about? Are these a few $ million each? How big are these deals you're talking, rough range?
What I'll say is, in general more big deals has been a very focused part of our strategy. Those deals, rather than talk in terms of dollars, what I would say is those deals are getting much broader in terms of the aspects of our product set that they touch. They can range. Many of these deals include every asset we have, which is a newspaper or a magazine, live events, homepages, traditional desktop, mobile, branded content, programmatic, and Hello Society. You can imagine numerous deals that have many of those things that I've talked about or in some cases, all of them. The other thing I would say that we're increasingly focused on to very positive end is wrapping marketer programs around our best and most exciting consumer innovations.
I think virtual reality and what we did last year was a great representation of that. The terrific thing about VR was it was a major advancement and innovation to story form. When we launched it, we launched with five films, one major editorial film, the sub film, and three films from marketers from two partners. That's a great model for how we think about putting storytelling innovation, putting journalistic innovation into the market going forward. What you see with VR, and I think this is a good metaphor for what you'll see kind of across the board with product innovations, is that you bring marketers in from the beginning. You sort of roll out the innovation for news, for the consumer, for advertising, all at the same time, and then you keep advancing it all at the same time.
You will see that be a big part of our strategy going forward. All to say that the consumer business and its value proposition, making something worth paying for, is becoming more and more deep engagement around our product and our storytelling and our story form. It's becoming more and more also what marketers genuinely want to buy from us. We think that's a very good thing and a very differentiating thing for the time.
It's fair to say, though, isn't it, that we're doing more deals in the million-dollar-plus range, and we're-
Oh, yeah.
we're doing more multi
We're doing more big deals.
We're doing more multimillion-dollar deals than we would have done. Craig, I think one of the reasons that we're confident we can scale our business is because we have, because of our brand and our relationship with advertisers, the chance to engage in really big campaigns.
Yes.
Trying to get a branded content or a video business to scale significantly when the average size of the deal is small is, I think, very difficult, and I think some of our competitors are finding it hard to scale.
That's right. I'll add one more thing to that, which is to say duration is changing, and I think that's really important and ultimately will be very good for us. Marketers are thinking generally more in terms of always on programming. Content programming that lasts beyond a particular piece of content. If you wrap around a particular innovation, having that be something that is lasting across a year or multiple years. Think less in terms of tactical day-to-day, week-to-week campaigns, which is how the newspaper business on its own tended to trade, and more in terms of long-ranging partnerships. We've been hard at work at that for quite some time. I think you're going to see the efforts of that really begin to bear fruit in the second half of the year and then well beyond.
Can you just talk further about the print ad categories you laid out with the ones that were weak in the second quarter year-over-year? Which categories are meaningfully better, that are significant, meaningfully better trending in the third quarter versus a year ago, again, for print?
Sure. In the second quarter, I think I said telecom, home, and real estate, which often tend to trade together, were strong. Looking forward, and Jim, stop me if I'm saying anything I shouldn't, but from a category perspective, we are seeing some strength in advocacy, and we expect to see more as we cycle past the election, and there's a good window of time post-election in the back part of the year when we think that will dial up. Corporate is a strong category for us, and interestingly, that's a good example of where you're seeing messaging tying into big deals. The jewelry and watch part of luxury is also a strong category for us in print. I think real estate will continue to be strong, and you'll see some innovations from us there.
My final question, if I remember correctly, your guidance for the second quarter on cost, I think, was up low single digits. Obviously, the revenues have not materialized as well as you had hoped or expected on the ad revenue front. I think costs were down slightly when everything was all said and done. What did you adjust, Jim, on the cost front to go from up low single to be down low single? Was it incentive comp? Was it people leaving the company? What was the change there, please?
A number of factors. Incentive comp matters. That's some factor in it. Hiring has been slower than we had planned. Look, we are mindful of the revenue environment, and we adjust our business accordingly. We did, by the way, it didn't affect the quarter, but I did point out in the quarter, we announced a voluntary buyout that will benefit third quarter and beyond. I would say we're mindful. Some of the stuff is just we've got a lot going on in the business. We've got a lot in the international area where we are investing. I think we might be a little bit slower in getting to some of that than we maybe anticipated. There's clearly a real mindful adjustment to how we think about our costs as the business evolves.
Yeah. It's worth saying, Craig, I said this actually in the last earnings call as well, we're taking a good, hard strategic look at costs. We want to maintain the quality of what we do, increase it where we can. We want to invest in our digital business, but we also want to make sure we've got a cost base which is consistent with growing operating profit over time. We're taking a hard look this year at cost, and again, you'll expect to hear more from us about that in future earnings calls.
Great. Thank you.
We have no other questions in the queue at this time, so I'll turn the call back to Harlan Toplitzky.
Thank you for joining us this morning. We look forward to talking to you again next quarter.
This concludes today's conference call. You may now disconnect.