News Corporation

Good day and welcome to the News Corp 3Q Fiscal 2020 Conference Call. Today's conference is being recorded. We'll be on a listen-only basis at this time. I would like to turn the conference over to Mike Florence, Senior Vice President and Head of Investor Relations. Please go ahead.

Thank you very much, Chloe. Hello, everyone, and welcome to News Corp's Fiscal Third Quarter 2020 Earnings Call. We issued our earnings press release about a half an hour ago, and it's now posted on our website at newscorp.com. On the call today are Robert Thompson, Chief Executive, and Susan Panuccio, Chief Financial Officer. We've all been with some prepared remarks and then we'll be happy to take questions from the investment community. This call may include certain forward-looking information with respect to News Corp's business and strategy. Actual results could differ materially from what is said. News Corp's Form 10-K and Form 10-Q filings identify risks and uncertainties that could cause actual results to differ and contain cautionary statements regarding forward-looking information. Additionally, this call will include certain non-GAAP financial measurements such as total segment EBITDA, adjusted segment EBITDA, and adjusted EPS. The definitions and GAAP to non-GAAP reconciliations of such measures can be found in our earnings release. With that, I'll pass over to Robert Thompson for some opening comments.

Thanks, Mike. We are operating in a different difficult time, so this will be a rather different distant experience. Before the business of the day, I sincerely hope that all on this call, each of our investors, our business partners and their families are safe during this exacting era. Every business and family is facing challenges and our thoughts in particular are for those who are suffering under the curse of COVID-19 and have had to deal with complications from this dreaded disease. For our company, the safety of our employees has obviously been paramount. And many of our journalists have displayed much courage in recent months, including reporting from Wuhan during the intense first phase of what has become a pandemic. I would also like to honour Anthony Cosi, who passed at a relatively young age, by which time he had already become a legendary sports photographer for the New York Post. As noted in our 8K filing with the SEC last month, we expected a broad impact on our business from the pandemic's inevitable economic consequences. We were affected somewhat in Q3 and those effects will likely be significantly more pronounced in the fourth quarter. As we expect this impact to continue in the near term, significant cost reductions have been implemented across the company and additional steps will be taken in coming months. These cuts are designed to deal with the short-term exigencies and to reposition the company for long-term growth. There will obviously be an impact on executive compensation. For many senior executives, bonuses are the largest component of their cash compensation, and these will be reduced by at least 20%. The cuts will be led by our executive chairman, Rupert Murdoch, who is voluntarily foregoing his entire cash bonus for the current fiscal year. And as chief executive, I will forgo 75% of my annual cash bonus. In addition, our board of directors have decided to reduce their cash compensation. These significant cost reductions of all kinds across the company will clearly have a positive impact on our total segment EBITDA and our cash position and help mitigate some of the effects of the pandemic. We obviously leave open the possibility of further compensation cuts next fiscal year, depending on the ongoing impact of the crisis. Turning now to the third quarter results for fiscal year 2020. Our revenues declined 8% to $2.3 billion, including a $78 million or 3% impact from adverse currency movements. Total segment EBITDA was down, although only 2%, to $242 million. It is worth highlighting that operationally, adjusting for currencies, acquisitions and disposals and other items mentioned in our release, our adjusted revenues were down 4%, but our adjusted total segment EBITDA rose 1%. Reported results also include a $1.1 billion non-cash write-down, mostly attributable to Foxtel. At the news and information services segment, the sale of News America marketing has formally closed. This is a significant step in terms of enhancing shareholder value and part of the continuing simplification of our company. A thorough re-evaluation of our assets continues and a strategic review of our community and regional newspapers in Australia is at an advanced stage. We are also reviewing ways to improve transparency in our segment disclosure. which will enable investors to better appreciate the inherent value in and the growth potential of Dow Jones, which we believe is the best business news and analysis brand in the world. We are working towards making that company's potential more obvious and to highlighting its various strengths, certainly relative to other business brands and, for example, to the New York Times. Speaking of demand for premium content, as you know, we have entered into valuable partnerships with Apple and Facebook for use of our world-class journalism. Clearly, there are harbingers of positive change with Google, where the CEO, Sundar Pichai, has shown a more enlightened and socially empathetic attitude to journalism. In the past, some in Silicon Valley sought to create a system of petty patronage through faux philanthropic handouts and sententious sops. seemingly designed to institutionalize a mendicant media. Enlightened executives at Google patently seek more meaningful changes to a dysfunctional ecosystem. The terms of trade in the digital world are certainly changing. The regulatory pressure is also intensifying as, two weeks ago, the Australian government announced the introduction of a mandatory code that would require the larger digital companies to pay for content, and to adjust their algorithms to give additional weight to original news. It is absolutely crucial that more be understood about the character, the power, and the potential manipulation of algorithms and data. A recent Wall Street Journal report on Amazon's business practices showed the potential danger of companies having a dominant horizontal marketplace and selling their own products in segment verticals. In essence, exploiting proprietary marketplace data and competing with and potentially undermining their clients. In the third quarter, news and information services improved in profitability for the second straight quarter with 15% growth in segment EBITDA. Dow Jones recorded a particularly strong performance as digital paid subscriptions rose 20% year on year to more than 2.5 million average daily subs at quarter end. The Wall Street Journal's digital paid subs were up 15% to more than 2 million, also a record. In recent days, the journal has shown further acceleration, with total subscriptions reaching approximately 3 million for the first time, including 2.2 million digital only. Overall, at the end of April, digital subscriptions rose over 20% year on year. Digital advertising at Dow Jones rose 25% year over year, despite the challenges we faced with ad sales later in March. This is in strikingly marked contrast to the performance of the New York Times, where digital ad revenue actually declined 8%. I should repeat those figures for the purpose of clarity. Digital advertising rose 25% at Dow Jones, and it fell 8% at the New York Times. Dow Jones' profit contribution improved and was a significant contributor to segment EBITDA growth, while EBITDA slumped 15% at the New York Times. We announced earlier this week that the head of the Barron's Group, Elmar Latour, will replace Will Lewis as CEO from the middle of this month. Will certainly leaves Dow Jones in fine fettle and with enormous capacity for future growth. Speaking of Barron's, subscriptions rose 14% year over year, and over the past four years under Elmar's leadership, the digital audience at Barron's Group Brands has quadrupled. During the quarter, the Wall Street Journal Digital Network broke records and hit 196 million unique users in March, up 155% versus the prior year. Traffic was particularly strong at MarketWatch in March. where users more than tripled to 90 million compared to the prior year. The professional information business reported a 5% increase in revenues, with risk and compliance once again demonstrating strength, rising 18% year-over-year. Elsewhere in the segment, newspaper digital subscriptions at News Corp Australia were up 24% year-over-year, rising to more than 613,000 a quarter, and with two-thirds of subscriptions at The Australian now digital-only. At News UK, the Sun reached 164 million global unique visitors in March, representing a 17% increase over December, according to Google Analytics. While at The Times and Sunday Times, digital subscriptions grew 21% year-over-year to 345,000 and now account for nearly 60% of the base. Meanwhile, the New York Post's advertising revenues in the quarter rose 19%, and the Post Digital Network had 169 million average monthly unique visitors, according to Google Analytics, up from 107 million in Q2. Turning now to book publishing, revenue declines moderated HarperCollins in the quarter compared to the first half, while segment EBITDA grew year over year, despite very difficult comparisons. As more people have moved to work and study from home, we've seen a revival in e-book sales. We are particularly pleased with early sales for Joanna Gaines' Magnolia Table Volume 2, which already sits atop the US bestseller lists. Digital real estate was showing solid progress through January and February, but began experiencing pandemic-related declines in March. Business at REA and Realtor.com will depend on the reopening of the Australian and U.S. economies, but traffic to both sides remains encouraging, and Realtor.com is outperforming the traffic trends of its house-flipping competitor, according to the March Comscore data. In the subscription video services segment, KO subscriptions rose to 444,000 in Q3, including Trialist, which was more than double the prior year. and CAO also showed strong growth over the prior quarter. That figure has obviously been adversely affected in recent weeks by the suspension of sports in Australia, as we disclosed in the earnings release. We are in serious negotiations with the major sports over a fundamental reset of rights costs. Susan will discuss the possible accounting impacts shortly. In coming weeks, we plan to launch our entertainment streaming product and expect that there will be strong demand, given the power of our media portfolio's marketing platform and the nascent demand in Australia. We're also very excited by the multi-year deal with WarnerMedia announced this week. That means Foxtel will be the exclusive home in Australia for HBO, the soon-to-launch HBO Max, and other WarnerMedia hits. Let me now turn to the lingering impact of COVID-19. which began to have an effect towards third quarter's end, but clearly will be a major factor in our Q4 results, as we signaled in our 8K filing last month. I would first like to commend our leaders and our employees around the globe as we rapidly and successfully moved approximately 90% of our workforce, around 25,000 people, into a work from home environment. Looking at the longer term, we have clear plans for addressing the immediate challenges we face and for emerging vigorously on the other side of this crisis. This will not be done by random cost cutting but by strategic decisions about the business we need to fashion for a profitable future. That strategy is informed by a candid assessment of our capabilities and deficiencies and a clear sense that the business environment will be very different when the world finally returns to the new abnormal. It is worth noting at this crucial time that News Corp continues to have a strong balance sheet. As of March 31st, we have $1.4 billion in cash and cash equivalents, and in addition, we have access to a $750 million corporate revolving credit facility, which remains unruined. That bedrock of financial stability will help us weather the Category 5 storm, as will the power of our brands and the energy and the creativity of our people. The headwinds will buffet the company in the short term, but I am extremely positive about our prospects for delivering long-term growth and increasing shareholder value. Now, for more particulars on our results in this quarter, I turn to Susan Paniccia.