Welcome to News Corp's Second Quarter Fiscal 2023 Earnings Conference Call. Today's conference is being recorded. Media will be allowed on a listen-only basis. At this time, I would like to turn the conference over to Michael Florin, Senior Vice President and Head of Investor Relations. Please go ahead.

Thank you very much, operator. Hello, everyone, and welcome to News Corp's fiscal second quarter 2023 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 will 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 10-Q filings identify 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 the earnings release for the applicable periods posted on our website. With that, I'll pass it over to Robert Thomson for some opening comments.

Thank you, Mike. The second quarter produced challenges for some of our businesses and highlighted the progress made in other segments that had been challenged. Obviously, a surge in interest rates and persistent inflation had an impact on all of our businesses, but in particular, Digital Real Estate and Book Publishing, which remains a majority of physical business and continues to be subject to logistical exigencies. But we believe these challenges are more ephemeral than eternal. And just as our company passed the stress test of the pandemic with record preference. The reform is now underway at our businesses should create a solid platform for future profitability. Crucially, we will be reducing headcount across the company by 5%. That is a necessary response given these macro conditions. There are other broader trends that will inevitably be auspicious such as our evolving partnerships with major tech platforms and the incipient changes to the digital advertising market, which should enable us to improve yields for our valuable inventory and have more oversight of permission data. At the same time, we are absolutely focused on reducing costs across our businesses and making price adjustments where prudent. And we are continuing to work on the integration of our recent acquisitions, OPIS and CMA, which are already enhancing revenue and profits at Dow Jones. As for our discussions over the potential sale of Move, we will provide an update at the appropriate moment. Obviously, any potential deal would be designed to maximize value for our shareholders in the short and long term. Looking now at the second quarter of fiscal year 2023. We generated over $2.5 billion in revenues, representing a decline of 7% year-over-year, though most of that was due to foreign currency. Adjusted revenues were down only 3%. Profitability was $409 million compared…

Thanks, Robert. Before I discuss the quarterly results, I want to expand on Robert's opening comments. As we noted in our recent SEC filing, we have been engaged in discussions with CoStar about a potential sale of move. Any potential transaction would need to not only maximize shareholder value, but also strengthen realtor.com's competitive position. We do not plan on making additional comments on this call regarding the potential transaction, and we'll update the market when appropriate. Turning to our fiscal 2023 2nd quarter results. The macro environment weighed heavily on the financial results and conditions worsened as the quarter progressed, most notably in December. Second quarter total revenues were over $2.5 billion, down 7% year-over-year, which included a $171 million or 6% negative impact from foreign currency headwinds. We -- excluding the impact of foreign currency fluctuations, acquisitions and divestitures, second quarter adjusted revenues fell 3% compared to the prior year. The revenue decline was primarily driven by the Book Publishing and Digital Real Estate Services segment. On a constant currency basis, we saw continued growth in circulation and subscription revenues, which was partially offset by a modest decline in advertising revenues. Total segment EBITDA was $409 million, 30% lower compared to the prior year's record profits. The results included $6 million of onetime costs incurred by the special committee and the company regarding the proposal from the Murdoch Family Trust, which has now been withdrawn and the special committee has been dissolved. Adjusted total segment EBITDA declined 28% versus the prior year period. For the quarter, we reported earnings per share of $0.12 compared to $0.40 in the prior year due to lower total segment EBITDA and higher losses from equity affiliates. Adjusted earnings per share were $0.14 in the quarter compared to $0.44 in the prior year.…

[Operator Instructions] Our first question comes from Kane Hannan from Goldman Sachs.

Just 2 quick ones. One, just that $0.05 head count reduction you're talking about, I mean we saw the 5% reduction for books -- do we think that's broadly consistent across the News Corp group? Or could it be more skewed to Dow Jones or NIS or some of the other segments? And then try luck, obviously seen the move and I take your comments, Susan, or how do I think about the importance of REA in the broader portfolio, if we assume that the Move -- was complete. And so some of the synergies of owning REA would diminish without the Move asset in the portfolio. So just interested, there's any comments you can make that.

Okay. First of all, the 5% reduction will be across all businesses, and it will be conducted in coming months with a view to concluding this calendar year. We expect savings of the order of at least $130 million annualized. As for REA, what I can say is that REA is a core part of our portfolio. It's a different company to Move the -- and you can do the math for what REA is worth to us in terms of market cap, which is around AUD 16.6 billion and our shares around 61.4%. Obviously, we all loan -- gratitude for his digital property. But we're very pleased with the way the business is progressing. You heard a little from Susan about the success that we're currently having in India where traffic was up 37% to 38 million uniques. And we've transferred the oversight of the India business to the REA team whether you expertise evidence and candidly, the time zones more sympathetic. So not only do we have the most successful property site in Australia. We have the largest digital property side in India. So tell me what that's worth now and what that will be worth in a decade from now. .

Our next question comes from David Karnovsky from JPMorgan.

With Book Publishing, wondering if you could quantify the Amazon impact in the quarter or maybe relative to last quarter. And then you noted a slowing consumer demand generally -- is that a function of post-pandemic behavior of the economy or just the titles that are in the market? And then Susan, any update on when you might expect some easing on the inflationary pressures there?

Well, first of all, it's difficult to specifically identify or quantify the Amazon effect, I wasn't to say that it's real. And you can see from the fact that there was a 14% decline in revenues and will segment EBITDA fell 52%, that the impact of inflation generally was profound. But let's be very clear, this is not the new normal. The relatively large EBITDA fall shows inflation, which over the past year, has risen significantly had an impact. And it was because of the mix of titles, you've probably heard that physical was around 81% of the business in the most recent quarter. In the past, years, digital has been as much as 24% or 25%. So -- and the physical is obviously more impacted by inflationary pressures given paper, printing and distribution. Susan?

David, just in relation to Amazon, just to add a couple of points on that. One, we did see a slightly lower impact in Q2 than what we did in Q1. And actually, in January, we have seen Amazon sort of patterns return to relatively normal levels, albeit that is predicated on macro conditions going forward. Just in relation to inflation, unfortunately, I think we expect those inflationary impacts to continue through the balance of this fiscal year, which is one of the reasons that we've implemented the headcount reductions that we've talked about.

Our next question comes from Craig Huber from Huber Research.

Craig.

[Operator Instructions]

Two questions if I could real quick. If you can hear me, in your equity investment line, you had like a $29 million loss there. Can you explain that, if you would, please, is that -- is there sort of recurring here for next few quarters? And separate from that, I want to ask you, CMA and the OPIS acquisitions, what was the organic revenue growth there if you had owned it in both periods, please, in the quarter?

Craig, I'll just -- I'll take these. So the first question in relation to the equity losses, we've actually got a small investment in a wagering platform down in Australia, the sub USD 50 million investment, and the quarter reflects some start-up losses in relation to that venture. I think importantly, we don't expect that equity loss reflected in Q2 to the run rate going forward? And then just in relation to OPIS and CMA, we don't break out the run rate for that going forward. But you can see from the adjusted revenues was up 1%, and you can see the impact of what the reported numbers were.

And then our next question comes from Entcho Raykovski from Credit Suisse.

Susan. Just one very quick clarification around the 5% head count reduction and I'd appreciate that must be a difficult decision. Presumably, that only applies to the wholly owned assets and not REA. And then just secondly, I appreciate you're not talking about the sale move specifically. But assuming it was to go ahead, how do you think about the use of the proceeds, given they could be reasonably material. Are you thinking about reinvestment? Or are you thinking about further returns to shareholders?

And sure, obviously, REA is a separate listed company, but I think I can assure you that they are very much focused on cost reduction in the present climate and you'll be able to hear more from the REA team a little later. Look, I can only speak generally about capital allocation. We're constantly reviewing our capital allocation policies. As I said earlier, we're committed to our $1 billion buyback to our dividend program. And obviously, we're going to consider further measures given the potential proceeds of the Move deal and the savings inherent in the cost-cutting program we've announced today. But we'll also be opportunistic on investment as OPIS and CMA providential proved and we'll seek to share those profits that providence with shareholders.

Our next question comes from Alan Gould from Loop Capital.

Yes. I've got two, please. Robert, we're seeing the U.S. streaming companies sort of get religion and now looking for profits as opposed to just growth. How does that impact Foxtel? I know Foxtel had gotten a lot of its content from HBO and some of the other U.S. companies. So does it now appear that, that content will stay on Foxtel as opposed to those companies that are starting their own streaming areas? And secondly, you talked about 1 of your policies being simplification. Obviously, selling move would help for simplification, but are there any other simplification moves we're seeing?

Well, first of all, I think we've spoken on past calls about the prospect of Imperial overstretch among some of the U.S. entertainment companies. I think that prognostication is indeed coming to pass. And it also shows you the value of the Foxtel platform. It's of itself clearly a success story, not only for our company or for Australia, but globally. They've got the streaming mix right they've secured the sports rights long term truly matter to viewers and not only one sport in one region, but across sports and regions. And looking here from New York Foxtel genuinely being transformed by much toil and sustained sagacity and it has evolved from what you might call euphemistically, a complicated situation to a genuine opportunity, and we will be opportunistic with that opportunity.

And then the question on. Simplification. .

As for simplification, look, simplification and transparency, obviously important, as you can see by how the company is involved in recent years. We've broken out the Data Jones numbers, which shed some light, not only on its potential and potency, but on the situation of and revival of News Media, as you know, the New York Post was profitable last year and will be likely to be profitable again this year, and that profitability should increase over time. And -- you know that in that sector, we've sold News America Marketing, which became more peripheral over time given the changes in that sector. The peripheral is we're not the integral. But simplification does not mean reductio ad observers. And it does mean focusing on core growth engines which is why we've invested in the professional information business at Dow Jones and the fruits of that investment already obvious, even in difficult trading conditions overall.

Our next question comes from Brian Han from Morningstar.

Robert, you mentioned making price adjustments were necessary. Where do you see the priority divisions for such adjustments from this point onwards?

Maybe I can take that, Brian. I mean, look, I think we've all -- we've got opportunities in each of our segments. We take cover price increases as it pertains to the mastheads across news media, the journal, we're constantly having we get our yields on advertising to see what we can do to maximize those. As I've mentioned in my commentary, we've just recently announced is at Kayo that goes to the strength of the product down there. We had a price rise on BINGE not so long ago. And we've also been having a look at price rises across. So actually, we have a lot of pricing power and we think about our different segments, and we really just assess the market conditions as we work our way through what's appropriate.

Next question comes from Johnny Huynh from Evans & Partners.

I just wanted to ask on the interest in the advertising per and being so far. Like I know Netflix had some issues launching in Australia. We've done two high demand, but not enough audience. So I just wanted to see your thoughts on any strategies around this as well.

Look, I think we're just doing a soft launch in relation to the ad tier down in Foxtel. It hasn't yet launched. So we haven't got any learnings from that, and we just expect a modest uptick in the current financial year as a consequence of that launching later in the fiscal year. So we'll have more learnings from that once we've got it out in the marketplace.

Our next question comes from Darren Lung from Macquarie.

I just wanted to ask quickly, in the release, it indicates some in relation to Realtor or Move that as part of the transaction is to create shareholder value and strengthen Realtor’s competitive position. So I appreciate not talking about the transaction as such. But can you give us an idea as to what strengthened competitive position looks like, please?

Look, sorry, Darren, to be so circumspect, but we really can't say any more about the discussion so you'll have to stay tuned. You can presume that we are very much focused on shareholder value and we would have an ongoing role in value creation. Those are imperatives and always been the imperative of News Corporation. I have to say in passing, and we have much respect to CoStar as a company, its leadership, what they've created, what they could trade what they could do for competition in a very competitive digital real estate market here and frankly, how we could partner with.

And look, I think I'd also add that it is important for us if and when we complete any sale, what actually goes to an owner where we believe we'll continue to invest and grow that business going forward. I think that's important for any assets that we look to sell. .

At this time, we have no further questions. So I'll hand back to Michael Florin for closing remarks.

Great. Well, thank you, Leyla and thank you all for participating. We look forward to talking to you soon. Have a wonderful day to talk to you soon. Bye.