News Corporation Reports Second Quarter Results for Fiscal 2019

FISCAL 2019 SECOND QUARTER KEY FINANCIAL
HIGHLIGHTS


Revenues of $2.63 billion, a 21% increase compared to $2.18 billion
in the prior year, reflecting the consolidation of Foxtel and
continued strength at the Book Publishing and Digital Real Estate
Services segments


Net income was $119 million compared to a net loss of ($66)
million, which included a $174 million negative impact related to the
U.S. Tax Cuts and Jobs Act in the prior year


Total Segment EBITDA was $370 million compared to $328 million in
the prior year


Reported EPS were $0.16 compared to ($0.14) in the prior year –
Adjusted EPS were $0.18 compared to $0.24 in the prior year


Continued revenue improvement at Dow Jones driven by record digital
advertising revenues and acceleration in digital paid subscriber growth


Digital Real Estate Services segment reported strong revenue growth
supported by continued product innovation, higher yields and expansion
into new revenue streams


HarperCollins achieved record revenue and Segment EBITDA in the
quarter


Launched Kayo Sports, a sports-only streaming service, in Australia


NEW YORK–(BUSINESS WIRE)–News Corporation (“News Corp” or the “Company”)
(Nasdaq:NWS)(Nasdaq:NWSA)(ASX:NWS)(ASX:NWSLV) today reported financial
results for the three months ended December 31, 2018.


Commenting on the results, Chief Executive Robert Thomson said:


“News Corp has reported increased profitability and revenue growth
during the first half of Fiscal 2019, highlighting the power of premium
content and authenticated audiences in a fact-challenged world that
craves credibility.


For the second quarter, the Company saw 21% revenue growth and a 13%
rise in profitability, reflecting the consolidation of Foxtel and a
healthy expansion of revenues in the Book Publishing and Digital Real
Estate Services segments.


At News and Information Services, we saw a continuation of positive
trends in paid digital subscriptions, including accelerating gains at
The Wall Street Journal, and stronger digital advertising revenues in
both the U.S. and Australia.


Although our teams have been diligent in pursuing revenue
opportunities, the digital platforms, which arbitrage algorithmic
ambiguity, remain dysfunctional. It is clear that there has been
a regulatory awakening and the time has come for a regulatory reckoning.


At our Digital Real Estate Services segment, despite sluggishness in
the U.S. property market, Move delivered another quarter of double-digit
revenue growth, driven by product innovation at realtor.com®
and the acquisition of Opcity, a strategically important asset that will
provide higher quality, value-added leads for brokers.


Within our Subscription Video Services segment, this quarter we
launched Kayo Sports, a sports-only OTT product, to positive reviews,
and we look forward, with confidence, to the peak selling season for the
most popular winter sports in Australia.


Finally, HarperCollins had another outstanding quarter, benefiting
from best-in-class content and the burgeoning of digital audio.”


SECOND QUARTER RESULTS


The Company reported fiscal 2019 second quarter total revenues of $2.63
billion, a 21% increase compared to $2.18 billion in the prior year
period. The growth reflects the impact from the consolidation of
Foxtel’s results following the combination of Foxtel and FOX SPORTS
Australia (the “Transaction”) into a new company (“new Foxtel”) and
continued strong performances at the Book Publishing and Digital Real
Estate Services segments, partially offset by lower print advertising
revenues at the News and Information Services segment. The results also
include a $67 million negative impact from foreign currency fluctuations
and $20 million of lower revenues as a result of the adoption of the new
revenue recognition standard. Adjusted Revenues (which exclude the
foreign currency impact and acquisitions and divestitures as defined in
Note 1) increased 3%.


Net income for the quarter was $119 million compared to a net loss of
($66) million in the prior year, reflecting the absence of the $174
million negative impact of the U.S. Tax Cuts and Jobs Act recognized in
the second quarter of fiscal 2018, higher Total Segment EBITDA, as
discussed below, and higher Other, net, partially offset by higher
depreciation and amortization expense and interest expense as a result
of the Transaction.


The Company reported second quarter Total Segment EBITDA of $370
million, a 13% increase compared to $328 million in the prior year, also
reflecting the Transaction. Adjusted Total Segment EBITDA (as defined in
Note 1) increased 2% as continued strength in the Book Publishing and
Digital Real Estate Services segments was partially offset by lower
contribution from the News and Information Services segment.


Net income per share available to News Corporation stockholders was
$0.16 as compared to a net loss per share of ($0.14) in the prior year.


Adjusted EPS (as defined in Note 3) were $0.18 compared to $0.24 in the
prior year.


SEGMENT REVIEW


 


 




 


 


 


For the three months ended


 


For the six months ended














December 31,




December 31,














2018


 


2017


 


% Change




2018


 


2017


 


% Change














(in millions)




Better/

(Worse)




(in millions)




Better/

(Worse)














































 


Revenues:














































News and Information Services








$


1,257




$


1,298




(3)


%




$


2,505




$


2,539




(1)


%






Subscription Video Services










562






120




**








1,127






265




**








Book Publishing










496






469




6


%






914






870




5


%






Digital Real Estate Services










311






292




7


%






604






563




7


%






Other








 


1




 


1




–


%




 


1




 


1




–


%


Total Revenues








$


2,627




$


2,180




21


%




$


5,151




$


4,238




22


%














































 


Segment EBITDA:














































News and Information Services








$


120




$


141




(15)


%




$


236




$


215




10


%






Subscription Video Services










84






33




**








197






60




**








Book Publishing










88






78




13


%






156






126




24


%






Digital Real Estate Services










121






119




2


%






226






214




6


%






Other(a)







 


(43)




 


(43)




–


%




 


(87)




 


(39)




**


 


Total Segment EBITDA








$


370




$


328




13


%




$


728




$


576




26


%














































 


** – Not meaningful










































(a)


 


Other Segment EBITDA for the six months ended December 31, 2017
included a $46 million benefit from the reversal of certain
previously accrued net liabilities for the U.K. Newspaper Matters as
a result of an agreement reached with the relevant tax authority
related to certain employment taxes.






 


News and Information Services


Revenues in the quarter decreased $41 million, or 3%, as compared to the
prior year, reflecting a $34 million, or 2%, negative impact from
foreign currency fluctuations. Within the segment, Dow Jones revenues
grew 4%, while revenues at News UK declined 10%, which includes the
negative impact from the absence of Sun Bets revenues discussed below.
News America Marketing and News Corp Australia revenues declined 7% and
5%, respectively. Adjusted Revenues for the segment decreased 1%
compared to the prior year.


Advertising revenues declined 5% compared to the prior year, of which
$18 million, or 2%, was related to the negative impact from foreign
currency fluctuations. The remainder of the decline was driven by
weakness in the print advertising market and lower revenues at News
America Marketing, partially offset by an increase in digital
advertising revenues. Advertising revenues at Dow Jones were flat in the
quarter, as record digital advertising revenues offset the weakness in
print advertising.


Circulation and subscription revenues increased 1%, including a $12
million, or 2%, negative impact from foreign currency fluctuations. The
growth was primarily due to a healthy contribution from Dow Jones, which
saw a 7% increase in its circulation revenues, reflecting 23% digital
paid subscriber growth at The Wall Street Journal, and growth in
its Risk & Compliance products. Cover and subscription price increases
also contributed to the revenue improvement. These increases were
partially offset by lower newsstand volume at News UK.


Other revenues declined 10%, of which $4 million, or 4%, was related to
the negative impact from foreign currency fluctuations. The decline was
primarily due to lower brand partnership revenues and the absence of
revenues from Sun Bets as a result of News UK’s exit from the
partnership in the first quarter of fiscal 2019.


Segment EBITDA decreased $21 million in the quarter, or 15%, as compared
to the prior year, primarily due to lower contribution from News UK,
mainly driven by lower revenues and higher newsprint and digital
reinvestment costs. The decline was partially offset by higher
contribution from News Corp Australia and Dow Jones. Adjusted Segment
EBITDA (as defined in Note 1) decreased 13%.


Digital revenues represented 32% of News and Information Services
segment revenues in the quarter, compared to 29% in the prior year. For
the quarter, digital revenues for Dow Jones and the newspaper mastheads
represented 35% of their combined revenues, and at Dow Jones, digital
accounted for 55% of its circulation revenues. Digital subscribers and
users across key properties within the News and Information Services
segment are summarized below:


The Wall Street Journal average daily digital subscribers in
the three months ended December 31, 2018 were 1,709,000, compared to
1,389,000 in the prior year (Source: Internal data)


Closing digital subscribers at News Corp Australia’s mastheads as of
December 31, 2018 were 460,300, compared to 389,600 in the prior year
(Source: Internal data)


The Times and Sunday Times closing digital subscribers
as of December 31, 2018 were 269,000, compared to 220,000 in the prior
year (Source: Internal data)


The Sun’s digital offering reached approximately 80 million
global monthly unique users in December 2018, compared to 86 million
in the prior year, based on ABCe (Source: Omniture)


Subscription Video Services


Revenues and Segment EBITDA in the quarter increased $442 million and
$51 million, respectively, compared to the prior year, primarily due to
the inclusion of Foxtel. Adjusted Revenues and Adjusted Segment EBITDA,
which exclude the impact of foreign currency fluctuations, acquisitions
and divestitures, increased 8% and declined 3%, respectively.


On a pro forma basis, reflecting the Transaction, segment revenues in
the quarter decreased $69 million, or 11%, compared with the prior year,
of which $39 million, or 6%, was due to the negative impact from foreign
currency fluctuations. The remainder of the revenue decline was driven
by the impact from lower broadcast subscribers and the changes in the
subscriber package mix, partially offset by higher revenues from Foxtel
Now.


As of December 31, 2018, new Foxtel’s total closing subscribers were
approximately 2.9 million, which was higher than the prior year,
primarily due to Foxtel Now subscriber growth, the inclusion of
commercial subscribers of FOX SPORTS Australia beginning in the first
quarter of fiscal 2019 and the launch of Kayo Sports, partially offset
by lower broadcast subscribers. 2.5 million of the total closing
subscribers were broadcast and commercial subscribers, and the remainder
consisted of Foxtel Now and Kayo Sports subscribers. As of February 5,
2019, there were 115,000 Kayo Sports subscribers, of which approximately
100,000 were paying subscribers. Broadcast subscriber churn in the
quarter was 15.6% compared to 14.5% in the prior year, reflecting the
impact of the price increase implemented in October. Broadcast ARPU for
the quarter declined 3% compared to the prior year to A$78 (US$56),
reflecting a 2% negative impact related to the adoption of the new
revenue recognition standard.


Pro forma Segment EBITDA in the quarter decreased $71 million, or 46%,
compared with the prior year, primarily due to the lower revenues
discussed above, planned increases in programming costs related to
Cricket Australia and National Rugby League rights, higher production
costs related to the new Fox Cricket channel and higher marketing costs
primarily related to the launch of Kayo Sports, partially offset by the
$33 million positive impact on expenses from foreign currency
fluctuations.


Book Publishing


Revenues in the quarter increased $27 million, or 6%, compared to the
prior year, primarily due to higher sales in general books and Christian
publishing, including the success of new titles such as Homebody
by Joanna Gaines and The Next Person You Meet in Heaven by Mitch
Albom, as well as the continued success of Girl Wash Your Face by
Rachel Hollis. Revenue growth was partially offset by $18 million of
lower revenues as a result of the adoption of the new revenue
recognition standard. Digital sales increased 12% compared to the prior
year and represented 17% of Consumer revenues for the quarter, driven by
the growth in downloadable audiobook sales. Segment EBITDA for the
quarter increased $10 million, or 13%, from the prior year, primarily
due to the higher revenues noted above.


Digital Real Estate Services


Revenues in the quarter increased $19 million, or 7%, compared to the
prior year, of which foreign currency fluctuations had a negative impact
on growth of $13 million, or 4%. The growth was primarily due to the
continued growth at REA Group and Move. Segment EBITDA in the quarter
increased $2 million, or 2%, compared to the prior year, primarily due
to the higher revenues, partially offset by higher costs associated with
the acquisition of Opcity and the $8 million negative impact from
foreign currency fluctuations. Adjusted Revenues and Adjusted Segment
EBITDA increased 10% and 12%, respectively.


In the quarter, revenues at REA Group increased 6% to $189 million from
$178 million in the prior year, primarily due to an increase in
Australian residential depth revenue, driven by favorable product mix
and pricing increases. The growth was partially offset by foreign
currency fluctuations, as mentioned above.


Move’s revenues in the quarter increased 11% to $122 million from $110
million in the prior year, primarily due to 23% growth in its real
estate revenues, partially offset by planned declines in advertising
revenues. The increase in real estate revenues, which represent 78% of
total Move revenues, was driven by the continued growth in its
ConnectionsSM Plus product revenues, which benefited from
higher lead volume and improvement in yield optimization, as well as the
acquisition of Opcity. Based on Move’s internal data, average monthly
unique users of realtor.com®’s web and mobile sites for the
fiscal second quarter grew 6% year-over-year to 53 million, with mobile
representing more than half of all unique users.


REVIEW OF EQUITY LOSSES OF AFFILIATES’ RESULTS


 




 


 


 


For the three months ended


 


For the six months ended












December 31,




December 31,












2018


 


2017




2018


 


2017














(in millions)






(in millions)
































 


Foxtel(a)







$


–




$


1




$


–




$


(4)


Other equity affiliates, net








 


(6)




 


(19)




 


(9)




 


(24)




Total equity losses of affiliates








$


(6)




$


(18)




$


(9)




$


(28)


(a)


 


The Company amortized $15 million and $32 million related to excess
cost over the Company’s proportionate share of its investment’s
underlying net assets allocated to finite-lived intangible assets
during the three and six months ended December 31, 2017,
respectively. Such amortization is reflected in Equity losses of
affiliates in the Statement of Operations.






 


Equity losses of affiliates for the second quarter was ($6) million
compared to ($18) million in the prior year. The improvement was
primarily due to the absence of $13 million in non-cash write-downs of
certain equity method investments’ carrying values to fair value, which
was recognized in the second quarter of fiscal 2018.


CASH FLOW


The following table presents a reconciliation of net cash provided by
operating activities to free cash flow available to News Corporation:


 




 


 


 


For the six months ended

December 31,












2018


 


2017












(in millions)




















 


Net cash provided by operating activities








$


358




$


204


Less: Capital expenditures








 


(264)




 


(128)














94






76


Less: REA Group free cash flow










(105)






(93)


Plus: Cash dividends received from REA Group








 


37




 


33




Free cash flow available to News Corporation








$


26




$


16




















 


Net cash provided by operating activities improved $154 million for the
six months ended December 31, 2018 as compared to the prior year period,
primarily due to higher Total Segment EBITDA as noted above, and lower
cash tax payments of $24 million, partially offset by $35 million in
higher cash paid for interest.


Free cash flow available to News Corporation in the six months ended
December 31, 2018 was $26 million compared to $16 million in the prior
year period. The improvement was primarily due to higher cash provided
by operating activities, partially offset by higher capital
expenditures, of which $139 million was related to new Foxtel.


Free cash flow available to News Corporation is a non-GAAP financial
measure defined as net cash provided by operating activities, less
capital expenditures (“free cash flow”), less REA Group free cash flow,
plus cash dividends received from REA Group.


The Company considers free cash flow available to News Corporation to
provide useful information to management and investors about the amount
of cash that is available to be used to strengthen the Company’s balance
sheet and for strategic opportunities including, among others, investing
in the Company’s business, strategic acquisitions, dividend payouts and
repurchasing stock. The Company believes excluding REA Group’s free cash
flow and including dividends received from REA Group provides users of
its consolidated financial statements with a measure of the amount of
cash flow that is readily available to the Company, as REA Group is a
separately listed public company in Australia and must declare a
dividend in order for the Company to have access to its share of REA
Group’s cash balance. The Company believes free cash flow available to
News Corporation provides a more conservative view of the Company’s free
cash flow because this presentation includes only that amount of cash
the Company actually receives from REA Group, which has generally been
lower than the Company’s unadjusted free cash flow. A limitation of free
cash flow available to News Corporation is that it does not represent
the total increase or decrease in the cash balance for the period.
Management compensates for the limitation of free cash flow available to
News Corporation by also relying on the net change in cash and cash
equivalents as presented in the Company’s consolidated statements of
cash flows prepared in accordance with GAAP which incorporates all cash
movements during the period.


OTHER ITEMS


Dividends


The Company today declared a semi-annual cash dividend of $0.10 per
share for Class A Common Stock and Class B Common Stock. This dividend
is payable on April 17, 2019 to stockholders of record as of March 13,
2019.


COMPARISON OF NON-GAAP TO U.S. GAAP INFORMATION


Adjusted Revenues, Total Segment EBITDA, Adjusted Total Segment EBITDA,
Adjusted Segment EBITDA, adjusted net income available to News
Corporation stockholders, Adjusted EPS and free cash flow available to
News Corporation are non-GAAP financial measures contained in this
earnings release. The Company believes these measures are important
tools for investors and analysts to use in assessing the Company’s
underlying business performance and to provide for more meaningful
comparisons of the Company’s operating performance between periods.
These measures also allow investors and analysts to view the Company’s
business from the same perspective as Company management. These non-GAAP
measures may be different than similar measures used by other companies
and should be considered in addition to, not as a substitute for,
measures of financial performance calculated in accordance with GAAP.
Reconciliations for the differences between non-GAAP measures used in
this earnings release and comparable financial measures calculated in
accordance with U.S. GAAP are included in Notes 1, 2 and 3 and the
reconciliation of net cash provided by operating activities to free cash
flow available to News Corporation is included above.


Conference call


News Corporation’s earnings conference call can be heard live at 5:00pm
EST on February 7, 2019. To listen to the call, please visit


Cautionary Statement Concerning Forward-Looking Statements


This document contains certain “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on management’s views and assumptions
regarding future events and business performance as of the time the
statements are made. Actual results may differ materially from these
expectations due to changes in global economic, business, competitive
market and regulatory factors. More detailed information about these and
other factors that could affect future results is contained in our
filings with the Securities and Exchange Commission. The
“forward-looking statements” included in this document are made only as
of the date of this document and we do not have any obligation to
publicly update any “forward-looking statements” to reflect subsequent
events or circumstances, except as required by law.


About News Corporation


News Corp (Nasdaq: NWS, NWSA; ASX: NWS, NWSLV) is a global, diversified
media and information services company focused on creating and
distributing authoritative and engaging content. The company comprises
businesses across a range of media, including: news and information
services, subscription video services in Australia, book publishing and
digital real estate services. Headquartered in New York, News Corp
operates primarily in the United States, Australia, and the United
Kingdom, and its content is distributed and consumed worldwide. More
information is available at: www.newscorp.com.


 


NEWS CORPORATION


CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited; in millions, except per share amounts)


 


 




 


 


 




 
















For the three months ended




For the six months ended














December 31,




December 31,














2018


 


2017




2018


 


2017


































 


Revenues:
































Circulation and subscription








$


1,029




$


637




$


2,063




$


1,288




Advertising










718






717






1,382






1,399




Consumer










478






453






878






839




Real estate










248






222






475






425




Other








 


154




 


151




 


353




 


287


































 


Total Revenues










2,627






2,180






5,151






4,238


































 


Operating expenses










(1,484)






(1,139)






(2,824)






(2,288)


Selling, general and administrative










(773)






(713)






(1,599)






(1,374)


Depreciation and amortization










(163)






(100)






(326)






(197)


Impairment and restructuring charges










(19)






(12)






(37)






(27)


Equity losses of affiliates










(6)






(18)






(9)






(28)


Interest (expense) income, net










(15)






1






(31)






7


Other, net








 


7




 


(30)




 


27




 


(21)


Income before income tax expense










174






169






352






310






Income tax expense








 


(55)




 


(235)




 


(105)




 


(289)


Net income (loss)










119






(66)






247






21






Less: Net income attributable to noncontrolling interests








 


(24)




 


(17)




 


(51)




 


(36)


Net income (loss) attributable to News Corporation stockholders








$


95




$


(83)




$


196




$


(15)






Less: Adjustments to Net income (loss) attributable to News
Corporation stockholders – Redeemable preferred stock dividends








 


–




 


(1)




 


–




 


(1)


Net income (loss) available to News Corporation stockholders








$


95




$


(84)




$


196




$


(16)


































 


Weighted average shares outstanding:


































Basic










585






583






584






583






Diluted










587






583






586






583


































 






Net income (loss) available to News Corporation stockholders per
share – basic








$


0.16




$


(0.14)




$


0.34




$


(0.03)






Net income (loss) available to News Corporation stockholders per
share – diluted








$


0.16




$


(0.14)




$


0.33




$


(0.03)


































 


 


NEWS CORPORATION


CONSOLIDATED BALANCE SHEETS


(in millions)


 


 




 


 


 


As of December 31, 2018


 


As of June 30, 2018




























(unaudited)




(audited)


ASSETS














Current assets:




















Cash and cash equivalents








$


1,618




$


2,034




Receivables, net










1,853






1,612




Inventory, net










400






376




Other current assets








 


558




 


372


Total current assets








 


4,429




 


4,394






















 


Non-current assets:


















Investments










345






393


Property, plant and equipment, net










2,517






2,560


Intangible assets, net










2,571






2,671


Goodwill










5,225






5,218


Deferred income tax assets










228






279


Other non-current assets








 


912




 


831


Total assets








$


16,227




$


16,346


















 


LIABILITIES AND EQUITY


















Current liabilities:




















Accounts payable








$


625




$


605




Accrued expenses










1,243






1,340




Deferred revenue










430






516




Current borrowings