Good day, and welcome to the News Corp. 2Q Fiscal 2021 Conference Call. Today's conference is being recorded. [Operator Instructions] 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.

Thank you very much, Ally. Hello, everyone, and welcome to News Corp.'s Fiscal Second Quarter 2021 Earnings Call. We issued our earnings press release about 30 minutes 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 identifies 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 will pass it over to Robert Thomson for some opening comments.

Thank you, Mike. Across this country and around the world in so many places for so many people, these past few months have been characterized by considerable upheaval, with social, political, financial and health-related tribulations and turmoil deeply profoundly affecting many families, economies and communities. I trust that all on this call and your families have been weathering the storm safely and safely. In the midst of this tumult, which has been a severe stress test for individuals and businesses and countries, I am gratified to report that News Corp has navigated the turbulence, and to be candid, significantly very significantly, increased profitability. We noted 3 months ago that the first quarter was particularly robust. And so I am pleased to report that our second quarter results were even more robust. And this burgeoning is a tribute to the efforts and the commitment and the professionalism of all our employees and to the enduring value of the company's culture created by Rupert Murdoch. In fact, the second quarter of fiscal year 2021 was the most profitable quarter since the new News Corp was launched more than 7 years ago, and there were other significant records established. We have the largest profits for Dow Jones since the acquisition of the company in December 2007. While we reported a 77% rise in EBITDA at subscription video services, where at Foxtel, streaming customers hit an historic high, and we also benefited from lower costs. As Digital Real Estate Services, Move accounted for approximately 80% of that segment's EBITDA growth. And history was made when the New York Post reported a profit for the quarter and for the year-to-date. That is the first profit in modern times at the very least, for what was a chronic loss-making masthead founded in 1801 by Alexander Hamilton.…

Thank you, Robert. Fiscal 2021 second quarter total revenues were over $2.4 billion, a decline of 3% versus the prior year, while total segment EBITDA was $497 million, up 40% year-over-year, reflecting strong performances across all of our key reportable segments, driven by a combination of improved operating trends and cost reductions. This is the highest quarterly segment EBITDA since the company was formed in 2013. 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 fiscal 2020 as well as currency fluctuations and other items disclosed in our release revenues rose 2%, while total segment EBITDA grew 39%. Net income for the quarter was $261 million compared to $103 million in the prior year. For the quarter, we reported diluted earnings per share of $0.39 as compared to $0.14 in the prior year. Adjusted EPS was $0.34 in the quarter compared with $0.18 in the prior year. Turning now to the operating segments. Digital Real Estate Services segment revenues were $339 million, an increase of 15% compared to the prior year, which is more than double the rate in the first quarter, driven by another record quarterly performance for Move. On an adjusted basis, revenues increased 11%. Segment EBITDA rose 20% to $142 million or 19% on an adjusted basis despite higher investment spending, which was in contrast to the first quarter. Results also included $6 million of costs associated with Move's acquisition of Avail and the Elara transaction at REA. Move's operating results accounted for over 75% of segment revenue growth and approximately 80% of segment EBITDA growth this quarter. Move's revenues accelerated to $155 million, a 28% year-over-year increase, with real estate revenues rising 30%. As Robert mentioned, realtor.com traffic reached 80…

[Operator Instructions] And we'll go ahead and take our first question from Alexia Quadrani from JP Morgan.

This is Zilu Pan on for Alexia. Digital advertising at Dow Jones continues to outperform some of your peers. And I'm wondering if there's any further color you can give on why you think you are doing relatively quite well on that front. Is there a vertical SKU or specific advertising products driving the outperformance? And then just some Foxtel with better results at the segment due to the streaming products, what indicators or trends are you looking for to determine the next steps for that asset?

Well, first of all, Dow Jones. We have a great team at Dow Jones led by Almar Latour and Josh Stinchcomb, our Chief Revenue Officer, he's done a sterling job in developing our digital ad expertise. And that's across wsj.com, MarketWatch, Barron's and beyond. And the increase has been across categories, but also in new categories in custom advertising. And it's clear that if you want not just a safe space, but a space that is brand-enhancing and an audience that's still most influential in the world in [indiscernible] well heeled, then Dow Jones has comparative advantages. Just one broader point to bear in mind with the imminent death of the cookie, our vast audience in the U.S., for example, will be particularly valuable and Dow Jones is a significant component in that. When you add together the uniques across our U.S. businesses, and this is not dejobbing, as you can tell from the number, but we have a close to 350 million monthly nicks. So that's in the advertising audience that's important for Dow Jones but for all our properties.

And I think just to add to Robert's comment, we also, under Josh, who leads the sales team at Dow Jones have been very focused over the past 18 months on improving our ad tech capabilities, upskilling the sales force and improving yield management, which we now believe we're starting to see the benefit of in addition to obviously, the audience growth. And just in relation to the second question for Foxtel. When we think about the trends that we're looking at and the next steps for the assets, well, clearly, OTT will be an ongoing focus for us in that business. As well as the stability in broadcast as the team focus on the management of the base subscribers within broadcast. And they are clearly focused on costs as well. They've done a tremendous job in the first half or really over the last10 months since COVID-19 started in taking out the underlying cost of the business, the renegotiation of sports and entertainment contracts, but we'll be particularly looking forward to the growth within the OTT properties.

And to complement Susan's comments, so let's consider how the Foxtel narrative has changed to the questions we have been asked a couple of quarters ago whether we would need to put extra capital into Foxtel and then we're asked whether some spec wanted to buy more speculation and speculation. And the truth is that the successful development of the business has given us real options. And our immediate task and the team's task is to keep driving the business to keep striving, we've obviously made a fairly successful migration to streaming up 90% year-on-year. And we obviously have hits with Kayo and Binge, and we obviously have more work ahead. But the path to the future is certainly paid with possibility.

We'll go ahead and hear from Kane Hannan from Goldman Sachs.

Congratulations on the result. Just 2 for me. Firstly, just the Move revenue outlook. You're talking about $40 million back to the incremental investment. You're seeing strong traffic growth. You won't have the agent concessions in the fourth quarter. Do you think it's possible that, that revenue growth continues to accelerate in the second half? Or just how should we think about the revenue trends? And then secondly, just on the global shared services initiative, I think it was the $100 million bucket you were talking about at the full year result. Just given some of these increasing investment you're talking to in the second half, just interested how we should be thinking about that program in FY '22 and whether there's any change to those sorts of targets?

Thanks. Kane, I might take those questions, and Robert can add and supplement as he will. So just in relation to the sustainability of Move growth, I mean, we remain very confident in the growth of the business and are encouraged by the traffic and the lead volumes, as we talked about in our prepared remarks, notwithstanding the industry listing volumes remain at historically low levels. We do expect with the revenue growth, the cost will increase. And I think the interesting thing to note, when we think about the results for this quarter versus the first quarter, actually, the cost increased this quarter. And so it was really top line revenue growth that was dropping down to the bottom line. So we do think that the revenue growth will continue, and we do want to scale up those costs in the reinvestment areas that I mentioned, marketing and product development. Just in relation to shared services, yes, we did quote $100 million for financial year '22. We're still holding that number at this stage, notwithstanding the cost work that we've done across the business. We do still think that there are enormous opportunities, but it will require, obviously, a lot of work and reconfiguration of our systems in order to unlock those savings. But at this stage, the guidance is still $100 million for financial year '22.

And just to supplement, Susan, particularly on Move, clearly, we have to be somewhat cautious in the second half of the year simply because of the complications of COVID. There's a lack of visibility for many of our businesses. And you can see that reflected in our words today. We are certainly taking nothing for granted despite the excellence of the Q2 results. But at Move, the signs are positive, at least in January, and David and the team at REALTOR. With January normally a slower month, unique users rose 37% to $94 million, and the lead volume remained robust. Those are indicators, but we are taking nothing for granted.

Next we'll hear from Entcho Raykovski from Credit Suisse.

Robert, Susan, I've got a couple. Firstly, within News Media, obviously, significant cost reductions in the quarter. Just interested in whether you can make any comments about the extent to which those cost reductions are permanent. You obviously indicated that print circulation may be challenged in future quarters. So I don't know if that just results in lower print costs, which may come back down the track. And whether you, in fact, see further opportunities for cost reductions within that division. And then second question is around SVS. Following the announcement of the Telstra live pass users transitioning to Kayo, do you have a sense for how many of -- how many of those circa 3 million users do you expect to transition? And do you have any projections you're willing to share around how many of those you'd expect to hold on to after that promotional period is over?

Entcho, maybe if I start with your first question just in relation to News Media. Obviously, there's been a lot of cost work that's been done. And you're right. Some of that is obviously volume related, and some of that will scale up and down depending on how those businesses trade in light of COVID. But there are also significant permanent cost reductions that the teams have been working on. We've had significant reduction in head count that came through in the back end of last fiscal year that is obviously flowing through here. But we do have a lot of costs that have come out in the overhead space as well. Now some of that naturally will come back in as the businesses open up, but we would also hope that some of that may be permanent as we change the way that we work going forward. We also had in the back end of last year significant reduction in marketing expenditure within News Media, we would expect to see some of that start to come back in, but not necessarily the levels that we're seeing. So I think a balance of both as we look forward. And I do think actually that there are still permanent cost reduction opportunities that the businesses are working on within that segment. A lot of that has to do with the restructuring of the business and the reconfiguration, and the teams are actively working on that.

And as for the transition from Live Pass to Kayo, this is obviously an extraordinary opportunity for Foxtel. And our partners at Telstra will be doing everything as they can to encourage their users to make that migration around a total of 3.2 million Live Pass members. For those who are interested in Aussie Rules or rugby or any of the many sports on Kayo, this is an extraordinary opportunity to be able to watch a world-class streaming operation at work. And the -- those who've used Kayo and have experienced its ability to not only show 1 game, but many games simultaneously. That experience is definitely compelling. And so we believe that a very large number of Live Pass subscribers will make that migration, but it's so early in the process that at the moment, we don't want to put numbers out there. But with the imminent start of the winter sports season in Australia, I think you are going to see the metrics in coming months, and we'll be able to update you next quarter.

And I think, Entcho, the only other thing to add to that would be that as we think about this exciting opportunity that Foxtel now have, it will scale clearly more from year 1 given the introductory office. So whilst we would expect subscriber numbers to pick up, we'd expect the actual impact on revenue and EBITDA to be more back-ended from year 1 onwards.

Got it. That's very useful. Maybe just a very quick follow-up. Do you know if there's much overlap at the moment between the existing Kayo subspace and the Live Pass users?

It's relatively small, Entcho. Well below 20%.

We'll now hear from Craig Huber from Huber Research Partners.

Susan, I wanted to hear a little bit further about the costs within your subscription video services, just the remaining part of the year and maybe as we think out to the next fiscal year, anything out of the ordinary there you want to call out further you haven't already touched on?

I guess probably the easiest way to maybe frame the cost in the second half is I expect them to be broadly in line with the cost for the first half, which is net of any of the movements that we've obviously talked about with the deferral of sports rights. With the remainder, we are reminded that the full year cost will absorb approximately AUD 156 million of additional cost year-on-year due to the deferrals of those sports cost. So I think the underlying cost work that, as I said, the Foxtel team has done is starting to pay dividends, but clearly, we've got this double off of sports rights in the current year. But as a frame, I would say, broadly speaking, in line with the first half.

And my follow-on question, if I quickly ask, as you think out to the next fiscal year, is there any large sports programming contracts up for renewal that might have a significant jump if taken into account in our models, the next fiscal year?

No. We've got -- we've obviously just executed the renewals of the AFL and NRL. So we have those deferred up now 2024 and 2027, and we're not expecting in next financial year significant step-up from an overall basis on sports cost.

It appears we have no further questions. That does conclude our question-and-answer session for today. I would now like to turn over to our speakers for any additional or closing remarks.

Well, thank you very much, Ally, and thank you all for participating. We look forward to talking to you soon. Have a great day, and stay safe. Take care.

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.