Earnings Labs

News Corporation (NWSA)

Q1 2021 Earnings Call· Sun, Nov 8, 2020

$26.24

-0.66%

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Transcript

Operator

Operator

Good day. And welcome to the News Corp 1Q Fiscal 2021 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 sir.

Mike Florin

Management

Thank you very much, Corey. Hello, everyone, and welcome to News Corp's Fiscal First Quarter 2021 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 Thomson, 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. 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 Thomson, for some opening comments.

Robert Thomson

Management

Thank you, Mike. Wherever you happen to be, and whatever time it happens to be virtually and actually, I trust that all are faring well, during these most challenging of times, personally and professionally. We are certainly in the midst of a political uncertainty in the U.S. and continuity is a blessing in these polarized and polarizing moments. Please continue to stay both, safe and sage. I would in particular like to express my gratitude to all our employees, who've traversed this difficult terrain with courage and commitment. And we've played an important empathetic role in their communities, during these stressful months. Despite the harsh conditions and the inevitable COVID-caused disruptions, I am pleased to report that News Corp had a particularly robust first quarter, with resounding year-on-year growth in our profitability and revenue expansion in several key segments. Three vital -- three vital pillars of our company, Dow Jones, Book Publishing and Digital Real Estate Services had notable EBITDA growth and higher revenue in Q1. Consolidated revenues were over $2.1 billion. And while that was down 10% year-over-year adjusted revenues which exclude News America Marketing, Unruly and other items noted in the press release were only 3% lower. Consequentially in Q1, News Corp's total segment EBITDA was $268 million, an increase of 21% year-over-year evidence of the strength of our core businesses and the growth potential of those sectors in which we have made significant acquisitions in particular, Digital Real Estate and Book Publishing. We are also benefiting from our strategy to simplify the company, allowing us to focus on the segments that have the greatest growth potential, as well as ensuring that we are resolutely reducing shared costs around the company. We are determined to provide greater transparency for investors and the presentation of Dow Jones, as a…

Susan Panuccio

Management

Thank you, Robert. As Robert mentioned, we are pleased with the start to the new fiscal year, particularly in an environment which has clearly been marked by unpredictability and uncertainty. Our businesses have responded well to the challenges as evidenced by these results. Fiscal 2021, first quarter total revenues were over $2.1 billion, down 10% versus the prior year while total segment EBITDA was $268 million, up 21% year-over-year led by very strong growth at the Digital Real Estate Services, Dow Jones and Book Publishing segments. On an adjusted basis, which excludes the impact from acquisitions and divestitures, most notably the sale of News America Marketing in the fourth quarter of last fiscal year, as well as currency fluctuations and other items disclosed in our release revenues were down by only 3% while total segment EBITDA increased by 23%. Net income for the quarter was $47 million compared to a net loss of $211 million in the prior year reflecting the absence of impairment charges and higher total segment EBITDA, partially offset by higher tax expense. The prior year figure reflected $273 million of non-cash impairment charges, primarily at News America Marketing. For the quarter, we reported earnings per share of $0.06 as compared to a loss of $0.39 in the prior year. Adjusted EPS were $0.08 in the quarter versus $0.04 in the prior year. Turning now to the operating segments. At the Digital Real Estate Services segment, revenues increased 7% to $290 million, a big improvement from the fourth quarter, primarily due to the strength of Move. On an adjusted basis revenues increased 4%. Segment EBITDA rose 45% to $119 million or 40% on an adjusted basis, primarily driven by a meaningful increase in profit contribution from Move, due to a combination of higher revenues and cost reduction…

Operator

Operator

[Operator Instructions] We'll take our first question from Kane Hannan with Goldman Sachs.

Kane Hannan

Analyst

Good morning guys. Two for me please. Firstly just on Move, very pleasing to see that revenue growth get back into the double digits. Just talk a bit more about how sustainable you think that growth is? And then the reinvestment you commented on Susan what sort of quantum we should be thinking about there? And then secondly just more broadly you've obviously seen the Elara investment come through. But just interested in your thoughts around how you should be capitalizing on your balance sheet strength which obviously have thus progressing the simplification agenda and then trying to realize the value in some of the parts in the current environment?

Robert Thomson

Management

Okay. It's fair to say, REALTOR has truly been renovated. I remember there was skeptics at the time of the acquisition the naysayers who wondered whether we could transform a company that frankly had seen better days. Well the best days are now clearly ahead. We've used our editorial expertise and reached the power of our media platforms and a relentless focus on the need of customers to improve user experience and that's showing up in the returns. For us the challenge as you indicated to get the blend rides between continuing expansion and contemporary returns. I mean obviously due to the savvy leadership of David Doctorow and Tracey Fellows, we have had a massive increase in margin. And we have elasticity there. But we believe that we're at the early stage of the exponential expansion of that business. And to be honest, it will also be a beneficiary of our advocacy to change the digital landscape whether it be through digital ad yields or algorithm transparency. And so it will be eminently efficacious for REALTOR for REA for our businesses in Asia and for our operations in India. Now as for structure the most important way of maximizing our real estate properties value is to ensure that they are the fastest-growing most lucrative most innovative sites in the world truly digital in orientation. And shall I say not weighed down by bricks-and-mortar and unsold inventory or the need to renovate a kitchen or add a bidet in the bathroom. The benefits of that creative committed approach to potential vendors to potential buyers and to real realtors is patently obvious in the results last quarter. Now we have Tracey Fellows overseeing our global real estate operations and we have just consolidated our India operations through REA. So there is a shape a structure emerging. And more than that there is a sense of purpose and of profitability. We are by many measures the world's largest real estate company and that business has more than withstood the stress tests of recent months. In fact, the recent months showed the extraordinary potential of that business.

Susan Panuccio

Management

And just in relation to the reinvestment question that you asked, look we don't obviously give guidance -- specific guidance in relation to the cost. But broadly speaking, we could probably think about the cost reductions that happened this quarter in buckets of headcount-related savings and marketing-related savings and probably half of those savings a little bit more related to marketing. So we would expect to see that scale up as we go throughout the year, obviously depending on audience and revenue growth. And we also will have some reinvestment in product innovation as we look to scale out the platforms. So without sort of giving guidance that's sort ofbroadly speaking how we're thinking about it.

Michael Florin

Analyst

Thank you, Kane. Corey, we will take our next question, please.

Operator

Operator

Thank you. We'll take our next question from Entcho Raykovski with Crédit Suisse.

Entcho Raykovski

Analyst

Hi, Robert. Hi, Susan. Well done on a very good result. I've got a couple as well. So firstly, I appreciate your comments on digital real estate simplification. But if I can ask directly would you consider spinning out those assets? I'm particularly conscious given the implied value ex-REA is now at very much historically low levels by my calcs REA is now more than 90% of market value. So there's clear -- there seems to be a clear disconnect. So is there some scope for a spinout? And secondly, on Dow Jones costs. Interesting the extent to which you can hold on to the cost reductions which have been achieved in the quarter whether they're largely temporary and really achieved as a result of COVID? Thank you.

Robert Thomson

Management

Entcho look, we're always open-minded. We're constantly institutionally introspective. But the priority at the moment is to do what we're doing, which is to maximize growth in the past quarter, to maximize profitability, to take advantage of opportunities. And I'm just very proud of what Tracey and David and Owen in Australia are doing at the moment in very difficult circumstances. And as I said in particular with realtor.com, and I'm sure you recall the time of the acquisition where people wondered what we were going to do with that business and whether it had indeed seen better days. And it's very clear from those results last quarter that our best days are ahead.

Susan Panuccio

Management

And Entcho just in relation to the cost question on Dow Jones. Look obviously, it's tricky to say exactly how we expect the year to pan out. But what I would say is that the team have been very focused on cost. Some of those you're right will be COVID-related cost reductions and we wouldn't necessarily expect to see those replication throughout the year. But some of them actually are real cost reductions. There's been a lot of work on headcount and looking at the right balance between permanent reductions and reinvestment. But we would expect to see ongoing investment in that business, particularly, in relation to subscriber growth risk and compliance and new products as well. So very similar to the commentary around -- I gave on REALTOR. But we are really pleased with the ongoing focus given COVID on costs and we do expect to see some of those cost savings certainly continuing as we go throughout the year.

Michael Florin

Analyst

Thank you, Entcho. Corey, we’ll take our next question, please.

Operator

Operator

Thank you. And our next question comes from Craig Huber with Huber Research Partners.

Craig Huber

Analyst · Huber Research Partners.

Yes. Hi. I've got a few questions here. Has your thoughts changed at all on the large cash balance that you guys carry every quarter every year in terms of what to do with that going forward?

Robert Thomson

Management

Craig, we're constantly reviewing cash and capital allocation whether that be returns directly to shareholders or share buybacks for which we have a provision as you know. Well the potential for company-enhancing investments either internally or externally that are transformative for our results and most importantly for shareholders. As Susan just mentioned, we've certainly raised consciousness around the company with the imperative of conserving and preserving cash at a difficult time at a time of pandemic and uncertainty. And the success of that program has given us genuine optionality. But I'd certainly suggest the big investments we've made and you'll be aware that REALTOR and Harlequin books approved their worth at a time when every company is being stress tested by the crisis. And we're proud of how those investments have faired, but particularly proud of how our teams around the world have transformed those divisions. And I think it's fair to say that investors and potential investors can see the momentum and the value in those investments.

Craig Huber

Analyst · Huber Research Partners.

Okay. Also want to ask…

Michael Florin

Analyst · Huber Research Partners.

Craig, do you want to ask another question?

Craig Huber

Analyst · Huber Research Partners.

Yes I did. Yes if I could please just real quick. And I guess just in the spirit of transparency here was the EBITDA for realtor.com can you disclose that? Was it roughly $20 million in the quarter?

Robert Thomson

Management

It would be. I mean Craig we said what the increase in profitability was and the increase in profitability was $28 million. So I think as Susan said that contributed the bulk of the EBITDA improvement at Digital Real Estate. And it was profitable.

Craig Huber

Analyst · Huber Research Partners.

Okay. Thank you, guys.

Michael Florin

Analyst · Huber Research Partners.

Thanks, Craig. Corey, we’ll take our next question, please.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from Brian Han with Morningstar.

Brian Han

Analyst · Morningstar.

Hi. The snapback in earnings and margins for books was that mostly just natural leverage from higher digital sales, or did your general cost-cutting program play a big role there?

Susan Panuccio

Management

Brian actually it wasn't cost-cutting programs within HarperCollins given their revenue growth. So, they have actually been scaling their costs in accordance with their revenue growth. But they do have clearly a different mix. So, there's a different mix between the front list and the back list quarter-on-quarter. And also it depends on the types of front list mastheads titles that we sell. So, it's a combination of those not necessarily cost-driven more revenue-driven this quarter.

Mike Florin

Management

Thank you, Brian. We'll take our next question please, Corey.

Operator

Operator

[Operator Instructions] We do have a follow-up question from Kane Hannan with Goldman Sachs.

Kane Hannan

Analyst

Hi guys. Thanks for the follow-up. Just around Foxtel just interested in $15 million increase in cost in the quarter and I take the point around currency. But just whether there's any change in the commentary from the full year around the $100 million reduction. And then just on the commercial side of things, just interested if you could talk about the revenue impact. Obviously, I think you said you're working with the pubs and clubs and the subs are back up to 200,000. But just wondering what the if you could talk about a revenue impact in the quarter.

Susan Panuccio

Management

No worries, Kane. So, just in relation to the cost it was a net underlying saving of AUD50 million. So, I think that's important. And that does include the deferral of the sports rights in there. So, that gives you a sense as to the scale of the reduction that we're seeing within Foxtel. We are expecting for underlying costs to be significant for the full year. The team is still very, very focused on that. But as we mentioned last time there will be a net impact of the deferral of sports costs AUD78 million for the year both programming and then production costs included within that number. But the underlying savings will be significantly higher than that. In relation to the commercial revenue impact of about $14 million this year quarter-on-quarter, you'll see from the subs numbers that we quoted that we have picked up a considerable amount since Q4. We're hoping actually with the opening up of Victoria that we'll actually start to pick that number up again as we move forward. So, they will continue to work on that as we look to build that base back up.

Robert Thomson

Management

And to supplement what Susan said in the context of the COVID-related restrictions on pubs and clubs the impact on advertising we're very pleased with the rapid growth of the streaming business at Foxtel under Siobhan and Patrick. And we will continue to provide the best possible experience for our subscribers wherever they happen to be. As Susan earlier noted our OTT subs are up 67% year-on-year. And by any standard that's a significant expansion of the customer base. While the Foxtel broadcast ARPU actually rose at the same period in U.S. dollars obviously affected by currency part from $53 to $56. As we've already made clear we foresee no need to bolster Foxtel with extra investment which shows that the business is on a particularly positive trajectory.

Mike Florin

Management

Thank you, Kane. Corey, we'll take our next question please.

Operator

Operator

Yes. And our final question comes from Craig Huber with Huber Research Partners.

Craig Huber

Analyst

Thank you. Just a couple of quick follow-ups here. On the divestiture front, do you think you're largely done with that? That's my first question. And then secondly is there anything else Susan, you'd want to call out within at Foxtel in terms of timing of costs things that are moving around related to the sports programming costs and anything else that we should be aware of here as we try to model it?

Robert Thomson

Management

On divestiture, look, we're obviously constantly reviewing the portfolio. But really one wouldn't speculate on speculation of any kind. What I would say is that we -- and you can see from the results, we're very proud of our teams around the world all our employees in the way that they've come together and put together a quarter of results which in the circumstances an indication not only of the strength of the company, but of the potential of the company.

Susan Panuccio

Management

And Craig just in relation to the Foxtel costs so just on phasing we had deferral of sports rights which we quoted at $51 million in this quarter. We've said we'll have another $26 million in Q2. So that sort of picks up the bulk of that deferral. But then of course, when you think forward to Q4, you won't have costs in Q4 in the last year in relation to sports rights which you will have next year. So, you almost have a double-up of those costs as we go through this year. In relation to the other cost savings the team actually did a really good job in Q4 of looking at that cost base and getting heads out of the business which sort of continued into the first month of this quarter. So, the actual underlying cost savings that they delivered in Q4 in relation to the heads and a lot of the overhead costs we expect that are in play now and they'll continue throughout the year.

Mike Florin

Management

Thank you. And Corey are there any other additional questions?

Operator

Operator

There are no further questions in queue at this time sir.

Mike Florin

Management

Great. Thank you, Corey and thank you for all participating. Be well, stay safe, and we will talk to you soon. Have a great day.

Operator

Operator

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.