News Corporation

Good day, and welcome to the News Corp First Quarter Fiscal 2022 Conference Call. Today's conference is being recorded. Media will be on a listen-only basis. At this time, I would like to turn the conference over to Mike Florin, Senior Vice President and Head of Investor Relations. You may begin, sir.

Thank you very much, Bobby. Hello, everyone, and welcome to News Corp's Fiscal First Quarter 2022 Earnings Call. We issued our earnings press release about 30 minutes 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 will 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 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 it over to Robert Thompson for some opening comments.

Thank you, Mike. We are journeying through the contours of a complex commercial landscape that has been a sterling test of the mettle of companies and countries. For us, the first quarter was the most profitable of its kind since the relaunch of News Corp in 2013, continuing the trends that were evident in the last financial year and building on those rapid rates of growth. And we continue to have much confidence in our immediate and long-term prospects. I would like to honour the work done by our employees around the world. They have coped with extraordinary exigencies and provided a profound service to their customers and to their communities. That the company's purpose has endured and indeed thrived through such challenging times is a tribute to Rupert and Lachlan Murdoch and the culture they created and have curated. Revenues for the quarter were $2.5 billion, an increase of 18%, while our profitability rose 53%. I should repeat that figure for clarity. Profitability rose 53%. It is worth bearing in mind that this increase follows a 21% increase in profitability in the first quarter last year. Every one of our key operating segments posted significant revenue expansion and strong segment EBITDA growth. I would like to reiterate that our Board authorised a billion dollar stock repurchase program in September. As we previously indicated, we have refrained from executing on the buyback during this quiet period, but that period officially ends in coming days. It is a very different buyback to that which was approved in 2013 when we were unsure about share dislocation at the time of the separation from Fox. We now have confidence in our performance, our resilience, our ability to generate cash for our investors and our potential. Bolstering that confidence is the fact that our recent acquisitions are exceeding our expectations and our core segments are thriving. We now have an optionality across the businesses and significantly more flexibility in our ability to return capital to our investors. One noteworthy sign of that optionality is our ability to capitalize on the patent success of the Foxtel streaming strategy, which was highlighted during the Foxtel Strategy Day. We have been working through the potential permutations and will continue to provide updates as appropriate. In the meantime, it is worth noting that subscription video services segment EBITDA rose a rather healthy 46% in the first quarter. As for our campaign to hold big digital accountable, clearly there have been pronounced and profound developments in recent times. We are pleased with the agreements we have reached and the work that has progressed on revaluing content. But we have always regarded the digital ad market as a separate issue, and the release of an unredacted complaint by the Texas Attorney General last month has highlighted the extent of the problem. The manipulative language was deeply concerning. We are obviously considering our position on this important matter and want to ensure that, in the future, the AdMark promptly recognises the value of our audience and of our inventory. Now, turning to the first quarter, Dow Jones recorded a 15% increase in revenues compared to the same quarter last year, with segment EBITDA surging 32%. That profitability was a record for the first quarter. Revenue at risk and compliance grew 26%, meaning that we have had 25 consecutive quarters of double-digit growth. Overall, the professional information business experienced a solid 13% increase in revenues, and that should expand when we complete the acquisition of Opus, which is expected to close early next calendar year. The past few weeks have highlighted the importance of intelligence about energy and carbon markets, and we fully expect to become a world leader in that area. Advertising at Dow Jones expanded a first quarter record of 29%, with digital advertising climbing 38%. Meanwhile, subscription growth remains robust, with an 18% increase across our consumer products to approximately 4.6 million, with circulation revenues rising approximately 13%. The ongoing transformation of Dow Jones continues apace, with digital now accounting for 75% of the segment's revenues. Digital real estate services was again a source of express growth, with Move, the operator of Realtor.com, seeing revenues surge 30%. The US housing market is sturdy, with price rises moderating, more properties coming to the market, and longer listing times, all of which work in our favor. As for the house-flipping flip-flop by Zillow... We have always been focused on the digital market, not on bricks and mortar, and certainly not on sorting out the septic tank or papering over wall cracks. We concentrated on our core competency and never took on excessive balance sheet risk or chased what appeared to us to be very low margin returns. It appears Zillow now finally understands what we always knew to be true. That said... As an open platform, we do see opportunities to be a marketplace for the industry, including iBuyers, such as Open Door, providing them with the same kind of dependable and trusted information that agents and consumers alike have valued. In Australia, REA had a remarkable first quarter, with revenues burgeoning 62%. That is correct, 62%. Australia has slowly been emancipated from severe lockdowns and access to homes for sale has been limited. So we believe that positive market conditions will likely continue as the country returns to a semblance of normalcy. One harbinger is that site traffic was strong in Q1 with 129 million average visits, up 13% year over year. That is essentially an average of five visits for every person in the country. Our book business is thriving, and even more so with the successful integration of HMH. Excluding the $50 million contribution of HMH, book sales have reset in the post-pandemic period to around 22% higher than the same period in 2019. There has been a resurgence of interest in printed books, as their tactility and talismanic quality is increasingly important at a time when many people have screen fatigue. We saw notable success in Q1 with the Bridgerton series, The Authoritarian Moment by Ben Shapiro, and The Cellist by Daniel Silva. In the months ahead, we have high hopes for The Pioneer Woman Cooks Super Easy by Ree Drummond, The Storyteller by Dave Grohl, and Gangster Granny Strikes Again by David Williams. In subscription video services, the first quarter built on the significant progress made in FY21, in reshaping the Foxtel Group as a streaming-led business with improved revenues, profitability and cash generation. For the second consecutive quarter, growth in KO and binge revenues clearly offset the not unexpected modest decline in retail broadcast revenues. As of September 30, total subscribers were approximately 4 million, up 18% year over year. This includes a record 2.2 million total streaming subscribers, up 68% thanks to KO and Binge. While there will always be a certain seasonality in sports viewing in Australia, KO is quickly establishing itself as a year-round provider as it now offers 50 sports in total and is furnishing engaging off-season programming for the football tragics ahead of the new season early next year. Foxtel's appeal was further broadened with the launch of the Flash streaming news service, featuring a non-parade collection of 20 local and global news sources, with content for all political persuasions. That breadth, combined with a cutting-edge, world-class user interface, adds to the luster of Foxtel and is indicative of its renaissance. We are now obviously in a position to be even more ambitious for Foxtel and are always seeking to maximise its undoubted potential. News media was a strong contributor to News Corp profitability this quarter, with segment EBITDA of $34 million in the quarter after a loss in the same period last year. That is a tribute to Rebecca Brooks, Michael Miller and Sean Giancola and their talented, committed teams. The transformation was, in part, due to the benefits of our deals with the major tech platforms, notably Google and Facebook. Together, these deals will contribute annual revenues in the nine figures to News Corp, clearly putting our news businesses on a more profitable path. Despite the successive lockdowns, our Australian business is faring well, showing significant improvement in profitability thanks to cost initiatives and rising digital advertising revenues and Newsmasthead subscriptions, which improved to 850,000, up 24% year over year. NewsUK performed admirably, particularly in advertising, both digital and print, and in subscriptions. The Times and Sunday Times reported contributed meaningfully to profits, and their digital paid subscriptions have now reached 380,000. Wireless, our radio network, increased its revenue and profit contribution, with exclusive football broadcasts drawing large audiences and increased advertising. Wireless reported record reach of 6 million unique listeners per week, according to the most recent Raja survey. Our broadcast expertise is assisting our other media properties in the UK and will complement Talk TV, which is scheduled to launch in the early months of 2022, with Piers Morgan taking a global role across our broadcast and news properties. We believe Talk TV will be contemporary, low cost and high impact. In the US, the New York Post, once legendarily loss-making, is now contributing to segment profitability, and is an increasingly important voice in the national political debate. Its digital network reached 151 million unique users in September, almost half of the US population, according to Google Analytics. Digital advertising revenue was 28% higher compared to the same quarter last year, and print advertising increased 62%, recovering from the COVID-related lows of last year. The company built on its momentum from last fiscal in the first quarter and we remain optimistic about growth prospects going forward. Clearly, there are macroeconomic pressures affecting certain companies, but our increasingly digital orientation has bolstered our ability to weather the pandemic and deal with the economic uncertainty in some of our markets. We are confident in our employees, confident in our businesses and very confident in our prospects. And now, for further details and invaluable insight, I cede the floor to Susan Panuccio.