NEWS CORP quarterly report, Q1 FY2022

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Business context and reporting period

News Corporation is a diversified media and information-services company with businesses in digital real estate, subscription video, Dow Jones, book publishing and news media. This Form 10-Q covers the first quarter of fiscal 2022, the three months ended September 30, 2021; the company notes its operating period ended September 26, 2021. Comparatives are for the corresponding 2020 quarter.

Financial performance

  • Revenue: $2.502 billion, up 18% from $2.117 billion. Growth reflected higher real-estate, advertising, consumer and subscription revenues, acquisitions and favorable currency effects.
  • Profit: Net income was $267 million, versus $47 million; income attributable to News Corp stockholders was $196 million, or $0.33 per diluted share, versus $34 million, or $0.06. Pretax income rose to $338 million from $72 million.
  • Margins: Total Segment EBITDA, a non-GAAP measure, was $410 million (16.4% of revenue), compared with $268 million (12.7%). Net income attributable to News Corp stockholders was 7.8% of revenue, versus 1.6%.
  • Cash flow: Operating cash flow was $68 million, down from $155 million. Capital expenditures were $101 million; investing cash outflow was $95 million and financing cash outflow was $85 million. Cash declined to $2.100 billion from $2.236 billion. The company’s non-GAAP free cash flow available to News Corp was negative $25 million, versus positive $65 million.
  • Liquidity and debt: Current assets were $4.372 billion and current liabilities $3.272 billion. Total borrowings were $2.264 billion, including $300 million classified as current; cash was $2.100 billion. The company also had an undrawn $750 million revolving facility. Foxtel and REA Group debt is non-recourse to News Corp, according to the filing. News Corp reported compliance with debt covenants.

Material changes versus the prior comparable period

  • All six operating segments improved Segment EBITDA: Digital Real Estate Services $138 million (up 16%); Subscription Video Services $114 million (up 46%); Dow Jones $95 million (up 32%); Book Publishing $85 million (up 20%); News Media $34 million versus a $22 million loss; and Other costs of $56 million versus $50 million.
  • Subscription video EBITDA benefited from the absence of $36 million of sports-rights and production costs recognized in the prior-year quarter after deferral related to COVID-19. News Media improved with higher circulation, subscription and advertising revenues.
  • Interest expense rose to $22 million from $8 million, primarily reflecting the $1 billion of senior notes issued in fiscal 2021.
  • Operating cash flow fell despite higher earnings, mainly because of working-capital outflows, including employee bonus and equity-compensation payments, legal settlement payments and higher tax payments.

Outlook, commentary, risks and unusual items

  • Management does not ordinarily provide projections of future operating results and gave no specific financial guidance. It said cash, expected operating cash generation and financing access should meet liquidity needs for at least 12 months, while noting access to financing depends on performance, ratings, debt terms and market conditions.
  • Other, net was $137 million, including a $107 million gain from REA Group’s exchange of its Malaysia and Thailand entities for an 18% interest in PropertyGuru, and $28 million of gains on equity securities. These items materially contributed to the year-over-year earnings increase.
  • The company agreed to acquire OPIS for $1.15 billion in cash, subject to customary conditions and regulatory approvals, with closing expected in the second half of fiscal 2022. It also acquired Investor’s Business Daily, HMH Books & Media and Mortgage Choice in 2021.
  • A new $1 billion share-repurchase authorization was announced; no shares were repurchased in the quarter. A $0.10-per-share semi-annual dividend was declared and paid on October 13, 2021.
  • Risks include unresolved litigation and investigations, uncertain tax examinations, foreign-exchange and interest-rate exposure, and COVID-19-related effects on advertising and subscription businesses. The filing reports an accrued $38 million liability and a $46 million FOX indemnification receivable for U.K. Newspaper Matters; additional claims could change both amounts. The company said risk factors had not materially changed from its fiscal 2021 Form 10-K.
  • The MD&A states that recent technology-platform news-payment agreements contributed incremental content-licensing revenue, but the amount appears as “[$xx million]” in the supplied filing text and is not clear.

Important facts for investors to verify

  1. Confirm the amount of incremental content-licensing revenue; the filing text provided does not contain a clear value.
  2. Assess how much earnings growth came from recurring operations versus the $107 million PropertyGuru-related gain and equity-security remeasurement gains.
  3. Track operating cash flow and working-capital movements, given the decline to $68 million and negative free cash flow available to News Corp.
  4. Review OPIS transaction financing, approval status and closing timing, alongside subsidiary debt and refinancing requirements.
  5. Monitor subscriber trends, including declining broadcast subscribers and rising streaming subscribers, as well as Move lead volumes, which fell 18% year over year.
  6. Follow litigation and tax matters, including potential changes to U.K. Newspaper Matters liabilities and the related indemnification receivable.