News Corporation Reports Third Quarter Results for Fiscal 2015

News Corporation (“News Corp” or the “Company”) (NASDAQ:NWS)(NASDAQ:NWSA)(ASX:NWS)(ASX:NWSLV) today reported financial results for the three months ended March 31, 2015.

Commenting on the results, Chief Executive Robert Thomson said:

“The new News Corp continues to build a firm foundation for digital growth. We see that most clearly in the successful integration of realtor.com®, which grew audience and revenue at record levels in the third quarter. News Corp is now a global leader in digital real estate, which we believe will underpin long-term expansion and complement our expertise in news and financial analysis, both of which have been important ingredients in realtor.com®'s accelerated growth. While the quarter faced some revenue challenges, particularly at News and Information Services, including currency headwinds, our adjusted EBITDA was relatively stable, underscoring the strength of our assets and the diversification of our revenue base. We believe the company is firmly on track and the signs are positive for year-over-year EBITDA growth in the fourth quarter.”

THIRD QUARTER RESULTS

The Company reported fiscal 2015 third quarter total revenues of $2.06 billion, a 1% decline as compared to prior year third quarter revenues of $2.08 billion. The majority of the revenue decline reflects negative foreign currency fluctuations and lower advertising revenues at the News and Information Services segment, offset in large part by growth in the Book Publishing and Digital Real Estate Services segments as a result of the acquisition of Harlequin Enterprises Limited (“Harlequin”) and Move, Inc. (“Move”), respectively. Adjusted revenues (as defined in Note 1) declined 2% compared to the prior year.

The Company reported third quarter Total Segment EBITDA of $163 million, a 7% decline as compared to $175 million in the prior year. These results include $15 million and $20 million in fees and costs – net of indemnification – related to the U.K. Newspaper Matters (as defined below) in the three months ended March 31, 2015 and 2014, respectively. Declines at the News and Information Services segment, including higher legal costs at News America Marketing, negative foreign currency fluctuations and increased stock-based compensation expense resulting from the acquisition of Move were partially offset by lower expenses at Amplify and increased revenues in the Book Publishing segment due to the inclusion of Harlequin results. Adjusted Total Segment EBITDA (as defined in Note 1) declined 1% compared to the prior year.

Net income available to News Corporation stockholders was $23 million as compared to $48 million in the prior year, due to lower Total Segment EBITDA as well as a higher effective tax rate, lower equity earnings of affiliates, and lower interest income. Adjusted net income available to News Corporation stockholders (as defined in Note 3) was $28 million compared to $66 million in the prior year. Impairment and restructuring charges were $10 million in both the three months ended March 31, 2015 and 2014.

Net income available to News Corporation stockholders per share was $0.04 as compared to $0.08 in the prior year. Adjusted EPS (as defined in Note 3) were $0.05 compared to $0.11 in the prior year.

Free cash flow available to News Corporation decreased by $105 million in the nine months ended March 31, 2015 to $391 million, primarily as a result of certain one-time items.

SEGMENT REVIEW

News and Information Services

Revenues for the third quarter of fiscal 2015 decreased $135 million, or 9%, compared to the prior year. Total segment advertising revenues declined 12%, driven primarily by negative foreign currency fluctuations, weakness in the print advertising market and lower revenues at News America Marketing. Circulation and subscription revenues declined 6%, due to negative foreign currency fluctuations, a decline in professional information business revenues at Dow Jones and lower print circulation volume, partially offset by higher subscription pricing, cover price increases and higher digital subscription volume. Adjusted revenues declined 3% compared to the prior year.

Segment EBITDA decreased $33 million in the quarter, or 23%, as compared to the prior year. Results were impacted by lower advertising revenues, negative foreign currency fluctuations and $8 million of higher legal expenses at News America Marketing, partially offset by lower expenses at News Corp Australia. Adjusted Segment EBITDA decreased 21% compared to the prior year.

Book Publishing

Revenues in the quarter increased $48 million, or 14%, compared to the prior year driven by the inclusion of the results of Harlequin and strong backlist sales in General Books resulting from the continued popularity of American Sniper by Chris Kyle, partially offset by lower revenues from the Divergent series. E-book revenues declined 3% versus the prior year period, driven by lower contribution from the Divergent series as well as a shift towards the non-fiction genre, which has lower e-book conversion, partially offset by the inclusion of Harlequin results. E-book revenues represented 22% of consumer revenues for the quarter. Segment EBITDA for the quarter increased $3 million, or 6%, from the prior year, primarily due to the inclusion of the results of Harlequin and lower expenses, partially offset by lower contribution from the Divergent series. Adjusted revenues decreased 5% and Adjusted Segment EBITDA decreased 8% compared to the prior year.

Cable Network Programming

In the third quarter of fiscal 2015, revenues increased $3 million, or 3%, compared to the prior year primarily due to higher affiliate and advertising revenues, partially offset by negative foreign currency fluctuations. Segment EBITDA in the quarter was flat compared with the prior year, as the higher revenues were offset by negative foreign currency fluctuations and higher programming rights costs. Both Adjusted revenues and Adjusted Segment EBITDA increased 15% compared to the prior year.

Digital Real Estate Services

Revenues in the quarter increased $68 million, or 67%, compared to the prior year, primarily driven by the inclusion of the results of Move, coupled with higher residential listing depth product penetration and higher pricing at REA Group Limited (“REA Group”), partially offset by negative foreign currency fluctuations and a decline in Australian listing volumes across the market which are down against the prior comparative period. Segment EBITDA in the quarter decreased $11 million, or 21%, compared to the prior year primarily due to negative foreign currency fluctuations, partially offset by increased revenues. Segment EBITDA also includes $11 million of stock-based compensation expense related to awards assumed in the acquisition of Move, of which $5 million is related to the acceleration of stock-based compensation resulting from the departures of senior executives. Excluding the impact of Move, divestitures and foreign currency fluctuations, Adjusted revenues and Adjusted Segment EBITDA increased 9% and 7%, respectively, compared to the prior year. In the third quarter, Move saw strength in its Connection for Co-Brokerage product and Media revenues. Based on Move’s internal data, average monthly unique users of realtor.com®’s web and mobile sites for the quarter grew 34% year-over-year to approximately 39 million, which was driven by more than 70% growth in mobile users; traffic accelerated in April to 44 million monthly unique users, or 38% growth year-over-year.

Digital Education

Revenues in the quarter were $21 million, which was flat compared with the prior year. Segment EBITDA in the quarter improved $24 million, or 53%, from the prior year, primarily due to the impact of the capitalization of Amplify Learning’s software development costs of $12 million and lower operating expenses.

Other

Segment EBITDA in the quarter improved by $5 million compared to the prior year, primarily due to lower fees and costs, net of indemnification, related to the claims and investigations arising out of certain conduct at The News of the World (the “U.K. Newspaper Matters”) of approximately $5 million.

The net expense related to the U.K. Newspaper Matters was $15 million for the three months ended March 31, 2015 as compared to $20 million for the three months ended March 31, 2014.

REVIEW OF EQUITY EARNINGS OF AFFILIATES’ RESULTS

Quarterly equity earnings from affiliates were $7 million compared to $23 million in the prior year.

On a U.S. GAAP basis, Foxtel revenues, for the three months ended March 31, 2015, decreased $77 million to $620 million from $697 million in the prior year period due to negative foreign currency fluctuations. Foxtel EBITDA decreased $61 million to $163 million from $224 million due to increased programming costs, higher marketing and support costs for the new Foxtel pricing and packaging, and investment in Presto and the launch of Triple Play, as well as negative foreign currency fluctuations. In local currency, Foxtel revenues increased 1% and EBITDA declined 17%. Total closing subscribers were approximately 2.8 million as of March 31, 2015, a 7% increase compared to the prior year period, as a result of higher subscriber sales and lower churn, driven by the new pricing and packaging strategy that was implemented in November 2014. In the quarter, cable and satellite churn improved to 10.9% from 13.1% in the prior year.

Foxtel operating income for the three months ended March 31, 2015 and 2014 after depreciation and amortization of $75 million and $92 million, respectively, was $88 million and $132 million, respectively. Operating income decreased as a result of the factors noted above. Foxtel’s net income of $44 million decreased from $76 million in the prior year period as a result of lower operating income as noted above.

FREE CASH FLOW AVAILABLE TO NEWS CORPORATION

Free cash flow available to News Corporation is a non-GAAP financial measure defined as net cash provided by operating activities, less capital expenditures, and 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 generated by the business after capital expenditures, which can then be used for strategic opportunities including, among others, investing in the Company’s business, strategic acquisitions, strengthening the Company’s balance sheet, dividend payouts and repurchasing stock. 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.

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

Free cash flow available to News Corporation in the nine months ended March 31, 2015 declined $105 million to $391 million from $496 million in the prior year. The decrease was primarily due to the absence of the net receipts related to a foreign tax refund of $73 million and lease incentives of $35 million received during the nine months ended March 31, 2014, as well as higher net tax payments of $53 million and approximately $45 million of higher deferred compensation payments related to the acquisition of Wireless Generation incurred in the current year period. The decrease was partially offset by lower restructuring payments of $62 million, lower payments for fees and costs related to the U.K. Newspaper Matters of $46 million and higher dividends received from REA Group.

COMPARISON OF ADJUSTED INFORMATION TO U.S. GAAP INFORMATION

Adjusted revenues, Adjusted Total Segment EBITDA, Total 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. This information is provided in order to allow investors to make meaningful comparisons of the Company’s operating performance between periods and 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 4:30pm EDT on May 5, 2015. To listen to the call, please visit http://investors.newscorp.com.

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 Corporation (NASDAQ:NWS)(NASDAQ:NWSA)(ASX:NWS)(ASX:NWSLV) is a global, diversified media and information services company focused on creating and distributing authoritative and engaging content to consumers throughout the world. The company comprises businesses across a range of media, including: news and information services, book publishing, cable network programming in Australia, digital real estate services, digital education, and pay-TV distribution in Australia. Headquartered in New York, the activities of News Corporation are conducted primarily in the United States, Australia, and the United Kingdom. More information is available at: www.newscorp.com.

NOTE 1 – ADJUSTED REVENUES, ADJUSTED TOTAL SEGMENT EBITDA AND ADJUSTED SEGMENT EBITDA

The Company uses revenues, Total Segment EBITDA and Segment EBITDA excluding the impact of acquisitions, divestitures, costs associated with the U.K. Newspaper Matters and foreign currency fluctuations (“Adjusted Revenues, Adjusted Total Segment EBITDA and Adjusted Segment EBITDA”) to evaluate the performance of the Company’s operations exclusive of certain items that impact the comparability of results from period to period. The calculation of Adjusted Revenues, Adjusted Total Segment EBITDA and Adjusted Segment EBITDA may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what type of events warrant adjustment. Adjusted Revenues, Adjusted Total Segment EBITDA and Adjusted Segment EBITDA are not measures of performance under generally accepted accounting principles and should not be construed as substitutes for amounts determined under GAAP as measures of performance.

However, management uses these measures in comparing the Company’s historical performance and believes that they provide meaningful and comparable information to investors to assist in their analysis of our performance relative to prior periods and our competitors.

The following table reconciles reported revenues and reported Total Segment EBITDA to Adjusted Revenues and Adjusted Total Segment EBITDA for the three and nine months ended March 31, 2015 and 2014.

Adjusted Revenues and Adjusted Segment EBITDA by segment for the three and nine months ended March 31, 2015 and 2014 are as follows:

The following tables reconcile reported revenues and Segment EBITDA by segment to Adjusted Revenues and Adjusted Segment EBITDA by segment for the three months ended March 31, 2015 and 2014.

The following tables reconcile reported revenues and Segment EBITDA by segment to Adjusted Revenues and Adjusted Segment EBITDA by segment for the nine months ended March 31, 2015 and 2014.