News Corporation

Good day and welcome to the News Corp second quarter fiscal 2022 conference call. Today's conference is being recorded. Media will be allowed 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. Please go ahead, sir.

Thank you very much, Jess. Hello, everyone, and welcome to News Corp's fiscal second quarter 2002 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'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 it over to Robert Thompson for some opening comments.

Thank you, Mike. We are delighted that the considerable momentum shown over the past two years has continued unabated in the most recent quarter. While the first quarter was the most profitable first quarter since our rebirth in 2013, the second quarter was the most profitable of any quarter with record revenues and record profitabilities. Plaudits are certainly deserved by our employees for their collective and unstinting effort, energy and creativity. We are all proud to be furthering a tradition of purpose and principle created by and curated by Rupert and Lachlan Myrtle. Credit too must go to a board that has provided thoughtful, prescient guidance during a particularly challenging period for most media companies in most countries. Revenues for the quarter exceeded 2.7 billion dollars a 13% increase year over year, while profitability rose 18% to $586 million, and net income reached $262 million. In the first half of this fiscal year, News Corp amassed nearly $1 billion of total segment EBITDA, a 30% surge, while reported net income was $529 million, compared to $308 million in the previous year. The platform agreements with big tech continue to benefit our bottom line. In addition to our substantial deals with Google and Facebook, we have extended and expanded our multi-year global agreement with Apple, which is expected to be an important source of subscriptions and of advertising revenue for our news sites around the world. There is no doubt that Tim Cook and Eddie Q have a visceral, enlightened understanding of the importance of professional journalism, and we genuinely appreciate their personal and corporate commitment. Our businesses are flourishing. There was again strong performance at digital real estate services, Dow Jones and book publishing, and a rapid expansion of profitability at our news media segment. We are delighted that agreement has been reached to acquire the Opus and Base Chemicals businesses after their required sale for antitrust reasons. They will surely add to the luster of the already lucrative Dow Jones professional information business. Those acquisitions should formally close in the first half of calendar 2022. We had indicated that the strength of our cash position and our robust growth would enable us to make opportunistic purchases, and that has come to fruition, and at reasonable prices that we believe will benefit all our shareholders. That studied strategic expansion has been complemented by a $1 billion share buyback program already well underway and which we expect will provide ongoing value to our investors. Turning first to digital real estate services, it is manifest that there is a global shift in the housing market, with families wanting more space, a higher quality of life, and the opportunity to work from home, which is simply not feasible without a home. Unsurprisingly, there were 6.12 million existing home sales in the US last year, the highest figure in 15 years. And that total came despite the disruption of COVID in viewing and reviewing homes. We see much macro strength ahead in a market that is still far from being fully digitised and should benefit from rising employment and from interest rates that, while on an incline, remain close to historic lows. In the second quarter, digital real estate services reported 35% revenue growth and 25% segment EBITDA growth. Listing volume improved noticeably at REA, while realtor.com reinvested in valuable adjacencies and continued to generate strong revenue growth despite relatively low US housing inventory levels. As of December, according to Comscore, realtor traffic growth exceeded that of Zillow Trulia for 23 straight months, which is vindication of our resolute focus on our core mission and customers, we were not mired in the capricious cul-de-sac of house flipping. In Australia, REA reported revenue growth of 56%, which includes the integration of mortgage choice. The tapering of rapid house price rises has been accompanied by a flurry of new listings, even though the COVID situation remained somewhat unpredictable. And one state, Western Australia, has chosen not-so-splendid isolation. The Australian government is expecting an economic renaissance over the next year or so, and that should benefit REA and all of our businesses in that country. Dow Jones had a superb quarter, with 14% revenue growth and a 32% increase in segment EBITDA at $144 million. Bear in mind that these outstanding numbers come on top of a particularly strong quarter a year ago, underscoring the scale of Dow Jones' achievements. We are successfully building upon success. Subscriptions expanded across the Dow Jones portfolio, and there was 23% advertising revenue growth in the quarter. Risk and Compliance reported a revenue increase of 17%, the 26th successive quarter of double-digit revenue growth. To emphasize, 26 successive quarters of double-digit revenue growth. Total Dow Jones subscriptions, including IPT, rose 17% in the quarter, reaching approximately 4.7 million. And the Wall Street Journal's total subs exceeded 3.6 million, with nearly 3 million of them being digital only, an increase of 19% year over year. To be clear, these are core subscribers who are signing up to a premium product at a premium retail price. Our ability to offer high margin professional products will certainly be enhanced by the integration of opus and base chemicals, both of which have still growing traditional businesses and rapidly expanding offerings in renewables. We plan to use Dow Jones expertise to create truly verifiable carbon products and prices in a market that is patently immature and lacking in transparency and veracity. And we expect the pressure for credible disclosure to be an additional source of revenue for our risk and compliance business. For clarity, these two new businesses have revenue bases that are close to 100% digital and recurring. They are highly profitable with healthy revenue growth and modest capex requirements. We expect that investors will be able to see clearly their positive impact in coming quarters. That these deals were done at rather attractive multiples is self-evidently a bonus for our investors. Book publishing posted record numbers a year ago and the growth continued inexorably in Q2. This continuing success is thanks to the diverse front list and deep back list at HarperCollins, augmented over the past year by the opportunistic acquisition of the Horton Mifflin Harcourt books and media segment. Notable success was seen with Reed Drummond's The Pioneer Woman Cooks, Super Easy, and Dave Grohl's The Storyteller. Looking ahead, We have High Hopes for the Paris Apartment by Lucy Foley, another David Walliams installment in his superlative best-selling World's Worst series, and what may well be the most telling book of the Trump administration, One Damn Thing After Another by Bill Barr, who was Attorney General and had a remarkable career before that service. Having read the text, I can report that this is a brilliantly written, profoundly important work, which will shed thoughtful light on a turbulent period in the country's history. Also of note in the second quarter, Harlequin launched Harlequin Plus, a direct-to-consumer digital subscription service that will appeal to romantics around the world. The app and website will give subscribers an opportunity to have a literary liaison with book bundles, e-books, movies and games. This multimedia offering is yet another example of the clever contemporary leveraging of our world-class content. News media had a particularly strong quarter, with segment EBITDA up 68%. That outstanding performance reflected growth in advertising, the benefits of the deals with the big tech platforms, sensible sustained cost discipline, and the benefit of savvy product and technology investments made in recent years. The robust advertising results, up 17% in the quarter, were evident at all major mastheads across both print and digital. Our digital trends are particularly pleasing, which speaks to the value of our global network and improvements in our understanding of permission data. It also reflects the sage leadership of Michael Miller in Australia, Rebecca Brooks in the UK, and both Sean Giancola and Keith Poole at the New York Post. Newscore Australia showed a highly noteworthy improvement in profit contribution, with digital paid subscriptions scaling to nearly 910,000 and the intelligent expansion into digital adjacencies. The New York Post had an especially successful Q2, with an appreciable contribution to segment EBITDA, thanks to a resounding advertising performance and its vast and growing digital audience. We recorded 160 million unique users in the months of December. The Post's increase in profit contribution has, it is fair to say, exceeded even our demanding expectations. News UK had its highest second quarter profit contribution since fiscal 2011, helped by an acceleration in digital paid subscriber growth. In addition, the Sun's traffic has soared, with global monthly uniques for December up 25% to 163 million, and our fledgling US Sun site growing rapidly. It's worth reiterating and pondering for a moment some of those astounding numbers. Based on internal metrics, as of December, we had 160 million uniques for the New York Post, 163 million uniques for the Sun, over 80 million uniques for realtor.com, and 123 million iniques for Dow Jones. That is certainly a firm foundation for network growth. In the UK, Wireless made a positive contribution to news media's revenue and segment EBITDA growth. We're also looking forward to the launch of Talk TV, which will be available on platforms including Linear TV and OTT. The channel will take full advantage of our talent and content in the UK, and via the global deal with Piers Morgan, our platforms in the US and Australia. It will be high quality, low cost, and certainly impactful. Subscription video services benefit from increasing subscriptions and decreasing churn. Thanks to the ongoing appeal of our streaming platforms, the high quality of our technology, our increasingly sophisticated understanding of audience data, and the depth and broad appeal of our unparalleled entertainment, sports, and news offerings. Sports seasonality is always a factor in Australia, but our total streaming subscribers expanded by 66% year over year, with Binge exceeding 1 million subscribers and Flash, our news aggregation service, in its infancy. In total, as of December, we had almost 2.3 million streaming subs, representing 56% of Foxtel's total subscriber base, which was 4.1 million. It's worth noting that in addition to the increase in streaming subs, broadcast churn was at a three-year low. The team, led by Siobhan McKenna and Patrick Delaney, is executing successfully on our strategy to scale streaming, having developed world-class technology and compelling user interface. We are increasingly confident in Foxtel's future and thus actively looking at ways to maximize its value and ensure that we can build on that success. We are delighted with the patent progress at Newscore, but certainly not complacent as we contemplate the exciting potential in our company, which we will relentlessly realise for our investors. That our trajectory has been transformed despite the vicissitudes of the virus is a testament to the inherent potential of the businesses and the enduring culture of the company. There is no doubt that we will thoughtfully review our current structure and be institutionally introspective on behalf of shareholders. We have made many timely disposals and self-evidently successful purchases and are committed to maximising value for those who have invested in our company. While our profits and revenues are at record levels, we are certainly far from sated and will never be complacent. We firmly believe the best quarters and years are yet to come. Now, for more details about the most profitable quarter since our reincarnation in 2013, Susan Panuccio.