News Corporation

Good day, everyone. Welcome to the News Corp Fourth Quarter Fiscal 2020 Conference Call. Today's conference is being recorded. Media will be on a listen-only basis, and at this time, I would like to turn the conference over to Mike Florin, Senior Vice President and Head of Investor Relations. Please go ahead.

Thank you very much, Nicole. Hello, everyone, and welcome to News Corp's Fiscal Fourth Quarter 2020 Earnings Call. We issued our earnings press release about 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'll open 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. Definitions and GAAP to non-GAAP reconciliations of such measures can be found in our earnings release. With that, I'll pass it over to Robert Thompson for some opening comments.

Thank you, Mike. Let me say initially that I trust all on the call and your families are faring well. These are certainly complex times, and there are few who have not been touched in some manner. the coronavirus has irrevocably changed businesses and our businesses in expediting pre-existing digital trends, in challenging established practices, and in prompting necessary introspection about work habits and the workplace itself. There has been much agility and adaptation at News Corp. The vast majority of our employees across the world have been working at home, and the resilience of the company's culture has been a core component in continuity. Without doubt, digitisation has accelerated. And without doubt, all of our businesses have been affected and responded with customary ingenuity. I would like to express my sincere thanks to each of our employees and their families for having responded so promptly, so intelligently and so thoughtfully to these testing circumstances. Evidence of that response was seen in the fourth quarter, when virtually all of our businesses prudently reduced costs, sometimes painfully, to ensure that they were robust enough to cope with volatility and disruption. Preserving cash was a priority, and it is worth noting that our cash balance increased in the last quarter by $129 million to over $1.5 billion as of June 30th. Revenue comparisons are obviously made complex by the sale of News America Marketing and Unruly, plus the consequences of COVID. But our adjusted revenue for the quarter declined by 13%. Obviously, the net income and EPS were affected by non-cash impairments, primarily at our UK and Australian businesses. And Susan will be able to provide more details momentarily. However, our adjusted total segment EBITDA declined by a modest 10%. This is particularly significant, a somewhat historic earnings call. Regular listeners will recall that we had pledged to simplify the company and make the results more transparent. The sale of News America Marketing and Unruly certainly simplified the structure. And in the quest for transparency, beginning this quarter, we are presenting Dow Jones as a separate segment. This will highlight what we believe are two incontrovertible facts, the substantial and growing value of that company and its superior profit profile and prospects to those of the New York Times. In what has been a difficult year for many media companies, Dow Jones reported a 13% increase in segment EBITDA based on the strength of its professional information business and the preeminence of the Wall Street Journal. Our other global mastheads and digital information properties are gathered in the news media segment, which will include our Australian titles, many of which are now digital only. The Times, The Sun and The Sunday Times, as well as Talk Sport and Virgin Radio. It may be called news media, but obviously the segment is increasingly digital in personality and virtually all of our mastheads had record audiences during the year. Our journalists have performed admirably in providing crucial insights to readers during the COVID crisis, delivering accurate information and analysis and providing an antidote to conspiracy theories and noxious nonsense proliferating elsewhere on the web. We are continuing to focus on acquiring digital subscribers and audience while right-sizing our businesses to be digital first, which is necessarily resulting in significant cost reductions. The closure in Australia of many of our storied print editions and the emphasis on digital was further evidence of our willingness to be decisive at an epochal moment. We are very proud of our traditions and we will always invest in the very best journalism. But the format is less important than the function. And we firmly believe that the digital reincarnation of these titles will ensure a profitable future and a continuing role in their communities. We are also constantly, restlessly reviewing our portfolio with a view to ensuring that we have the optimum asset mix. All of our executives understand that these are testing times, and many of our executives around our businesses internationally have volunteered hefty cuts to their bonuses, which form a large part of their compensation. The Executive Chairman has forsaken 100% of his bonus, and Susan Panuccio and David Pitofsky, our General Counsel, who are with me on this call, have also voluntarily given up a meaningful chunk of their bonus. All understand the importance of a stringent cost strategy, so we have launched a genuinely meaningful shared service program that we believe will transform the company by centralizing many of our functions. The mission is being led by two of our most talented executives, Damian Eales from Australia and Jane Viner from the UK, in tandem with our CTO, the global head of HR and CFO, in other words, Susan. The early indications are that the shared service program should be able to appreciably reduce our costs and we expect it to have a materially positive impact on our bottom line. We will always emphasize integrity and creativity. but our ability to prioritise imperative projects will be enhanced by the program. We expect our technology platforms to be the best in class at the lowest available price, and the overall level of cooperation and coordination among our businesses will certainly be enhanced. This is not an ephemeral project, but one that we believe will have a fundamental impact on the way we do business and on our earnings. One other trend is already having an appreciable impact on our earnings, the change to terms of trade with the digital platforms. Those of you who watched the congressional testimony last week by the tech titans would have noticed overall that the political understanding of the issues has vastly improved. That is also true in Brussels, London, and Australia, where the ACCC has just introduced a draft mandatory code of conduct. I recommend that anyone seeking enlightenment Google the name Rod Sims and read a few of his recent interviews. Mr. Sims chairs the ACCC. It is fair to say, without revealing details, that we are deep in discussion with these companies and that the ecosystem has absolutely begun to evolve. For News Corp, which has been pursuing this issue for well over a decade, this favourable outcome would simply not have been possible without the leadership of Rupert and Lachlan Murdoch and the support of a board which backed advocacy, even when News Corp often stood alone in pursuit of the principle of a premium for premium content. Now for the numbers. At the new Dow Jones segment, revenues improved in fiscal year 2021. and profitability was up 13%, as I had mentioned. At $236 million, Dow Jones' full-year segment EBITDA was the highest since separation, as were margins. Digital revenues surpassed $1 billion in fiscal 2020 for the first time and represented 66% of total revenues, rising to 70% for the fourth quarter. We saw strong circulation volume growth, with digital-only subscriptions increasing 23% year-over-year for the Wall Street Journal in Q4 and 51% for the Barron's Group. MarketWatch, our finance website, reported the highest annual revenue numbers in the brand's history, making it the third year in a row of record-breaking results. Equally impressive, Unique users more than doubled to 62 million in the month of June. In contrast to most COVID-affected media sites, digital advertising was down only 7% in the quarter, and the general shift towards digital as a source of revenue continues, with that segment representing 54% of advertising revenues in the quarter. We expect that digital will continue to outpace print, given we are seeing robust digital advertising, despite the social and commercial volatility that has prompted many companies to be cautious in marketing spend. Even with the pandemic impact, digital advertising at Dow Jones was 4% higher for the year. Full year revenues for the professional information business rose 7% year over year, driven by risk and compliance, which surged 20%. We remain particularly excited by the prospects for our risk and compliance business, given the intensification of regulatory scrutiny around the world. As we have noted on this call in the past, who among you does not want to minimize risk and maximize compliance? We are expanding our risk-related product lines, enhancing our software, and ensuring that the increased flow of actionable intelligence is complemented by thoughtful analysis and compelling news feeds for our growing audience of clients. We contend that the all-digital risk and compliance business is a highly undervalued part of a highly undervalued company, given the revenue trajectory, the still expanding market, and the necessity for companies and individuals to have an audit trail of compliance. The creation of the Dow Jones segment allows us to make a direct comparison with the New York Times, and on most important measures, the Wall Street Journal and the board of Dow Jones performed far better. The Journal is both the most trusted general newspaper in the US, according to the Reuters Institute, and the world's leading business news provider. and that vast, well-heeled, well-informed audience provides an opportunity to upsell value-added lucrative business products to serve a specialist need. Here are a few metrics comparing the two companies for the quarter. Dow Jones segment EBITDA of $60 million was higher than the New York Times, having benefited from the stability of our vibrant professional information business. While Dow Jones segment EBITDA expanded by 13% year-over-year, New York Times declined by 6%. Dow Jones EBITDA margins were 15.7%, about three percentage points higher than the New York Times. In this time of COVID, Dow Jones revenue declined moderated at a higher rate than the New York Times at 4% versus down over 7% for the Times. Dow Jones COVID-affected advertising revenue declined at a much lower rate than The Times, thanks largely to significant outperformance in digital advertising, which was down just 7% at Dow Jones versus down 32% at The New York Times. In fact, Dow Jones generated more total ad dollars than The New York Times. We feel strongly that we should explain the virtues of Dow Jones to shareholders and to potential shareholders. So we will have an investor day in mid-September at which Dow Jones' chief executive, Elmar Latour, and other Dow Jones executives and myself will give you a more granular explanation of the company's extraordinary potential and an opportunity for you to interrogate them. The news media segment, of course, had a challenging year and we took prompt measures to confront those challenges. These included the aforementioned sales of NAM and Unruly, as well as immediate cost reductions and the launch of strategic shared service project. In Australia, apart from migrating publications to digital only, we also sold our investment in the Australian Associated Press Newswire and unfortunately implemented hundreds of redundancies. The end of the relationship with AAP was both necessary and historic. as the service was founded in 1935 by Sir Keith Murdoch. Digital subscriptions across News Corp Australia rose 25% to nearly 650,000 by the end of the fiscal year. Meanwhile, at News UK, the Times and the Sunday Times paid subscribers rose to 336,000, an increase of 11% year over year, and benefited from a focus on attracting premium subscribers with a concomitant improvement in retention rates. The Sun's online audience expanded markedly during the year, including with the launch of a U.S. edition. In total, the Sun reported 133 million unique users globally in June for one month, which also reflects our expansion in the U.S. Importantly, the Sun remains as the leading news brand in the U.K., according to PAMCA. The sheer scale of our collective reach should not be underestimated. In the US, the New York Post digital network reached 177 million monthly unique users during the fourth quarter. It has long been known that the Post has been loss-making, but those losses have fallen dramatically in the past 18 months as we increased cover prices and benefited from ad revenue for our expanding digital readership and reduced the cost base. We can now see a clear path to profitability for the Post. In book publishing, despite the viral vicissitudes, which included the near shutdown of US physical stores, profitability was up in Q4. This is a testament to the resourcefulness of the team at HarperCollins, which moved quickly to bolster supply chains and emphasize e-books and online sales. These actions allowed us to make the most of changes in reading behavior during the pandemic. As we had indicated on previous calls, the second half of the fiscal year at HarperCollins was more propitious than the first half, with segment EBITDA improvement in both Q3 and Q4. Among the titles that performed well were the latest instalment of Joanna Gaines' highly successful Magnolia Table series, Dutch House by Anne Patchett, The One and Only Bob by Catherine Applegate, and World's Worst Parent by David Walliams. Looking ahead to fiscal 21, we're already eagerly anticipating the release of Tiger Woods autobiography and expect strong results from the upcoming launch of Jenna Bush Hager's Everything Beautiful in Its Time. We're certainly pleased by the early performance of Daniel Silver's The Order and Ben Shapiro's How to Destroy America in Three Easy Steps, and we expect much from LeBron James' first children's book, I Promise, scheduled for release next Tuesday. In digital real estate services, REA's traffic and lead volume have rebounded in the wake of the shutdown in Australia, with record audiences in June and a dramatic increase in users potentially interested in a house move. There is simply no doubt that the COVID crisis has prompted many families to consider their housing circumstances and that ultra-low interest rates have made a move more possible. We noted similar trends in the US at Realtor.com, And we saw a significant improvement in profitability at Move, which runs the realtor.com site in the fourth quarter and for the year as a whole. The new leadership team at Move is working closely with the Dow Jones executive team as the combined audience and lucrative demographic of the two sites in the U.S. is a hefty 124 million based on Comscore statistics as of June. We are confident that the Dow Jones size will provide a flow of potential buyers for Realtor.com and that Realtor.com will provide a flow of potential subscriptions for the WSJ and Barron's. Also in Australia, at Foxtel, our emphasis on streaming has brought a leap in new customers for both KO, the sports streaming service, and Binge, our entertainment offering, which has just launched. As of August 4, KO, showing great resilience, had 590,000 subscribers, including 48,000 trialists, while Binge had 217,000 subscribers, which includes 185,000 paying, just a short time after its formal launch. Both services are making the most of our existing rights without incurring extra content expenses and are certainly expanding the reach of Foxtel. which has now approached a new record number of total subscribers following an acceleration in July. Just this week, we crossed the 1 million OTT paying subscriber mark, setting a new record thanks to our expanded streaming strategy. While there is certainly seasonality to KO given the scheduling of the popular winter sports, we are reassured that so many subscribers have returned to the service so promptly and particularly encouraged by the early rush of subscribers at Binge. Our past acquisition of cricket rights means that we are well positioned when the Indian cricket team arrives in Australia later this year. On our last call, you will recall that I insisted that there would be a reset of sports prices, and in the midst of this year's shortened season, that has absolutely come to pass. While negotiations with some sports continue, deals already completed will reduce the cost of sports rights at Foxtel by at least $180 million Australian dollars over the next three years as compared to the prior contracted value. This reset will have a positive long-term impact on Foxtel's profitability. No doubt the events of the first half of calendar year 2020 will remain resonant in our memories. I am particularly proud of the performance of all those who work at News Corp for showing professionalism, passion, and compassion throughout these most difficult of times. Our reporters and opinion writers around the world have provided a profoundly important service, and many of our employees have contributed to their communities through philanthropic service in recent months. And now, for more granular detail and customary insight, Susan.