News (NWS) - 2023 Q3 - Quarterly Report

Financial Information (Part I) Financial Statements (Item 1) This section presents the unaudited consolidated financial statements for News Corporation for the three and nine months ended March 31, 2023, and 2022, including Statements of Operations, Comprehensive Income, Balance Sheets, and Cash Flows, along with detailed notes covering accounting policies, segment information, acquisitions, and other financial details Consolidated Statements of Operations For the third quarter of fiscal 2023, News Corp reported total revenues of $2.45 billion, a slight decrease from $2.49 billion in the prior year quarter, with net income attributable to stockholders at $50 million, down from $82 million year-over-year, while for the nine-month period, revenues decreased to $7.45 billion from $7.71 billion, and net income attributable to stockholders fell significantly to $157 million from $513 million Consolidated Statements of Operations (in millions, except per share amounts) | | For the three months ended March 31, | For the nine months ended March 31, | | :--- | :--- | :--- | :--- | :--- | | | 2023 | 2022 | 2023 | 2022 | | Total Revenues | $2,447 | $2,492 | $7,446 | $7,711 | | Net income | $59 | $104 | $219 | $633 | | Net income attributable to News Corporation stockholders | $50 | $82 | $157 | $513 | | Diluted EPS | $0.09 | $0.14 | $0.27 | $0.86 | Consolidated Balance Sheets As of March 31, 2023, News Corp's total assets were $17.03 billion, a slight decrease from $17.22 billion at June 30, 2022, with cash and cash equivalents decreasing to $1.66 billion from $1.82 billion, total borrowings increasing slightly to $2.99 billion, and total equity decreasing to $8.98 billion from $9.14 billion Consolidated Balance Sheet Highlights (in millions) | | March 31, 2023 (unaudited) | June 30, 2022 (audited) | | :--- | :--- | :--- | | Cash and cash equivalents | $1,659 | $1,822 | | Total current assets | $4,032 | $4,093 | | Goodwill | $5,136 | $5,169 | | Total assets | $17,034 | $17,221 | | Total current liabilities | $3,204 | $3,519 | | Borrowings (non-current) | $2,960 | $2,776 | | Total liabilities | $8,050 | $8,078 | | Total equity | $8,984 | $9,143 | Consolidated Statements of Cash Flows For the nine months ended March 31, 2023, net cash provided by operating activities was $670 million, a decrease from $1.03 billion in the prior year period, net cash used in investing activities was $440 million, significantly lower than the $1.55 billion used in the prior year, and net cash used in financing activities was $382 million, compared to net cash provided of $174 million in the prior year, reflecting higher share repurchases and debt repayments Consolidated Cash Flow Summary (in millions) | | For the nine months ended March 31, | | :--- | :--- | :--- | | | 2023 | 2022 | | Net cash provided by operating activities | $670 | $1,030 | | Net cash used in investing activities | ($440) | ($1,554) | | Net cash (used in) provided by financing activities | ($382) | $174 | | Net change in cash and cash equivalents | ($152) | ($350) | | Cash and cash equivalents, end of period | $1,659 | $1,865 | Notes to Financial Statements The notes provide detailed explanations of the financial statements, including revenue disaggregation by segment, recent acquisitions, restructuring charges, investments, borrowings, equity transactions, and legal contingencies, with key events including acquisitions in the Dow Jones and Digital Real Estate segments and ongoing restructuring efforts - The company acquired OPIS for $1.15 billion in February 2022 and Base Chemicals (CMA) for $295 million in June 2022, both of which are included in the Dow Jones segment[33][36] - In fiscal 2023, the company recorded restructuring charges of $65 million for the nine months ended March 31, 2023, primarily for employee termination benefits related to headcount reductions announced in February 2023[39] - The company repurchased $194 million of its Class A and Class B stock in the nine months ended March 31, 2023, under its $1 billion repurchase program[52][55] - The company has accrued approximately $123 million for liabilities related to the U.K. Newspaper Matters, with a corresponding receivable from FOX for indemnification[87] Management's Discussion and Analysis (MD&A) Management discusses the company's financial performance, business developments, and liquidity, with key themes including revenue declines driven by foreign currency impacts and challenging market conditions in real estate and book publishing, offset by growth at Dow Jones from recent acquisitions, and the company is implementing cost-saving initiatives, including a 5% headcount reduction, to address macroeconomic challenges Business Overview and Developments The company provides an overview of its six operating segments and discusses key business developments, including the acquisitions of OPIS and CMA to bolster the Dow Jones segment, and UpNest for the Digital Real Estate segment, noting the withdrawal of a proposal to combine with FOX Corporation and the termination of sale discussions for its subsidiary, Move, and in response to macroeconomic challenges, the company announced a 5% headcount reduction expected to generate over $160 million in annualized gross cost savings - In February 2022, the Company acquired OPIS for $1.15 billion in cash, and in June 2022, it acquired Base Chemicals (CMA) for $295 million, both part of the Dow Jones segment[123][124] - In January 2023, a proposal from K. Rupert Murdoch to explore a potential combination with FOX Corporation was withdrawn, and the special committee formed to evaluate it was dissolved[126] - The company announced an expected 5% headcount reduction (around 1,250 positions) in calendar year 2023, anticipating annualized gross cost savings of at least $160 million[129][130] Consolidated Results of Operations For the third quarter of fiscal 2023, total revenues decreased 2% to $2.45 billion, and for the nine-month period, they decreased 3% to $7.45 billion, with the decline primarily driven by negative foreign currency fluctuations, which impacted revenues by $98 million in the quarter and $422 million for the nine months, and lower revenues in the Digital Real Estate, News Media, and Book Publishing segments were partially offset by growth at Dow Jones, fueled by acquisitions, while net income attributable to stockholders declined 39% in the quarter and 69% for the nine months Consolidated Results of Operations (in millions) | | For the three months ended March 31, | For the nine months ended March 31, | | :--- | :--- | :--- | :--- | :--- | | | 2023 | 2022 | 2023 | 2022 | | Total Revenues | $2,447 | $2,492 | $7,446 | $7,711 | | Change | ($45) | | ($265) | | | % Change | (2)% | | (3)% | | | Net income attributable to News Corporation stockholders | $50 | $82 | $157 | $513 | | Change | ($32) | | ($356) | | | % Change | (39)% | | (69)% | | - Foreign currency fluctuations negatively impacted revenues by $98 million (4%) for the third quarter and $422 million (5%) for the nine months ended March 31, 2023[134][136] Segment Analysis Total Segment EBITDA for Q3 FY23 was $320 million, down from $358 million year-over-year, with the Digital Real Estate segment seeing a 26% decline in EBITDA due to a challenging housing market, Subscription Video Services EBITDA falling 14% on higher sports programming costs, Dow Jones being a bright spot with EBITDA up 24% driven by acquisitions, Book Publishing EBITDA dropping 9% due to higher costs, and News Media EBITDA decreasing 13% from lower revenues and higher newsprint and investment costs Segment EBITDA (in millions) | Segment | Q3 2023 | Q3 2022 | % Change | 9M 2023 | 9M 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Digital Real Estate Services | $102 | $137 | (26)% | $349 | $453 | (23)% | | Subscription Video Services | $68 | $79 | (14)% | $269 | $279 | (4)% | | Dow Jones | $109 | $88 | 24% | $361 | $327 | 10% | | Book Publishing | $61 | $67 | (9)% | $151 | $259 | (42)% | | News Media | $34 | $39 | (13)% | $111 | $184 | (40)% | | Total Segment EBITDA | $320 | $358 | (11)% | $1,079 | $1,354 | (20)% | Digital Real Estate Services Q3 revenues decreased 13% to $363 million, and Segment EBITDA fell 26% to $102 million, driven by challenging macroeconomic conditions affecting the U.S. housing market, leading to a 17% revenue drop at Move, while REA Group's revenues fell 10%, impacted by foreign currency fluctuations and lower Australian residential listings - Move's revenues decreased 17% to $141 million, primarily due to a 30% decline in lead volumes caused by higher interest rates and a market downturn[165] - REA Group's revenues decreased 10% to $222 million, reflecting a $13 million negative impact from foreign currency, lower Australian residential listings, and reduced financial services revenue[165] Subscription Video Services Q3 revenues decreased 3% to $477 million, primarily due to a $28 million negative impact from foreign currency, and Segment EBITDA declined 14% to $68 million, driven by higher sports programming rights costs, while streaming subscribers showed strong growth, with total paid subscribers reaching 4.59 million, up from 4.34 million in the prior year, led by Kayo and BINGE - Foxtel Group's total paid subscribers grew to 4.59 million as of March 31, 2023, up from 4.34 million a year prior[175] - Streaming revenues grew by $26 million in Q3, driven by increased volume and pricing at Kayo and BINGE, now representing 26% of total circulation and subscription revenues, up from 20% last year[170] Dow Jones Dow Jones was a strong performer, with Q3 revenues increasing 9% to $529 million and Segment EBITDA growing 24% to $109 million, with growth fueled by the acquisitions of OPIS and CMA, which contributed to a 13% rise in circulation and subscription revenues, and total subscriptions for The Wall Street Journal grew 5% to 3.9 million - Q3 revenues increased 9% year-over-year, driven by the acquisitions of OPIS and CMA, which contributed $27 million and $19 million in revenue, respectively[176] - Professional information business revenues grew 38% in Q3, driven by acquisitions and a $9 million increase in Risk & Compliance revenues[179] - Total subscriptions for The Wall Street Journal grew 5% to 3.89 million, with digital-only subscriptions up 9% to 3.30 million[181] Book Publishing Q3 revenues were flat at $515 million, as higher Christian Publishing sales were offset by negative foreign currency impacts, and Segment EBITDA decreased 9% to $61 million, primarily due to higher manufacturing, freight, and distribution costs from supply chain and inflationary pressures, while for the nine-month period, revenues fell 9% and Segment EBITDA dropped 42%, reflecting difficult market conditions and Amazon's inventory reset - For the nine months ended March 31, 2023, revenues decreased 9% and Segment EBITDA decreased 42%, impacted by lower sales, difficult frontlist comparisons, and Amazon's inventory rightsizing[190][191] - Q3 Segment EBITDA declined 9% due to ongoing supply chain, inventory, and inflationary pressures, which increased manufacturing, freight, and distribution costs[189] News Media Q3 revenues decreased 3% to $563 million, impacted by a $42 million negative effect from foreign currency, and Segment EBITDA fell 13% to $34 million, driven by lower revenues, a $14 million impact from higher newsprint prices, and $13 million in costs for TalkTV and other digital investments - Q3 revenue decline was primarily due to a $42 million (7%) negative impact from foreign currency fluctuations[193] - Segment EBITDA decreased by $5 million in Q3, pressured by higher newsprint costs ($14 million impact) and increased costs for digital investments like TalkTV ($13 million)[194][195] Liquidity and Capital Resources As of March 31, 2023, the company held $1.7 billion in cash and cash equivalents, with net cash from operating activities for the nine-month period at $670 million, down from $1.03 billion year-over-year, and free cash flow available to News Corporation was $258 million, a significant decrease from $618 million in the prior year, while the company continued its stock repurchase program, buying back $194 million in shares during the nine-month period, and paid a semi-annual dividend of $0.10 per share - The company's cash and cash equivalents stood at $1.7 billion as of March 31, 2023[202] Reconciliation of Free Cash Flow Available to News Corporation (in millions) | | For the nine months ended March 31, | | :--- | :--- | :--- | | | 2023 | 2022 | | Net cash provided by operating activities | $670 | $1,030 | | Less: Capital expenditures | ($350) | ($315) | | Free cash flow | $320 | $715 | | Less: REA Group free cash flow | ($153) | ($184) | | Plus: Cash dividends received from REA Group | $91 | $87 | | Free cash flow available to News Corporation | $258 | $618 | - During the nine months ended March 31, 2023, the Company repurchased $194 million of its Class A and Class B Common Stock[206][211] Market Risk Disclosures (Item 3) The company states that there has been no material change in its assessment of sensitivity to market risk since the disclosures made in its Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - There has been no material change in the Company's assessment of its sensitivity to market risk since its presentation in the 2022 Form 10-K[232] Controls and Procedures (Item 4) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023, with no material changes to the company's internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the reporting period[233] - No changes in internal control over financial reporting occurred during the third quarter of fiscal 2023 that materially affected, or are reasonably likely to materially affect, these controls[234] Other Information (Part II) Legal Proceedings (Item 1) This section refers to Note 10 of the Consolidated Financial Statements for information on legal proceedings, with key matters including ongoing civil claims related to the U.K. Newspaper Matters and antitrust litigation involving HarperCollins - For details on legal proceedings, the report refers to Note 10—Commitments and Contingencies in the financial statements[237] Risk Factors (Item 1A) The company states that there have been no material changes to the risk factors described in its Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - There have been no material changes to the risk factors described in the 2022 Form 10-K[238] Share Repurchases (Item 2) Under its $1 billion stock repurchase program, the company repurchased 0.8 million Class A shares and 0.4 million Class B shares during the third quarter of fiscal 2023 for a total of approximately $20 million, and as of April 2, 2023, approximately $623 million remained available for future repurchases under the program Share Repurchases for Q3 FY2023 | Period | Class A Shares Purchased (millions) | Class B Shares Purchased (millions) | Total Value (millions) | | :--- | :--- | :--- | :--- | | Jan 2 - Apr 2, 2023 | 0.8 | 0.4 | ~$20 | | Remaining Authorization | | | $623 | Other Information (Item 5) The company entered into amended and restated employment agreements with CEO Robert Thomson and CFO Susan Panuccio, effective July 1, 2023, with Mr. Thomson's agreement extending his term to June 30, 2027, with no increase in target compensation for fiscal 2024, and Ms. Panuccio's agreement extending her term to June 30, 2026, with increases to her base salary and target bonus - CEO Robert Thomson's employment agreement was extended to June 30, 2027, with his FY2024 target compensation unchanged from FY2023[244][245] - CFO Susan Panuccio's employment agreement was extended to June 30, 2026, with increases to her annual base salary (to $1.7 million), target bonus (to $2.7 million), and target equity bonus (to $2.85 million)[249]