Good day, and welcome to the News Corp Second Quarter Fiscal 2022 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, sir.

Thank you very much, Jess. Hello, everyone, and welcome to News Corp's Fiscal Second Quarter 2022[ph] 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've all been 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 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 our earnings release. With that, I'll pass it over to Robert Thomson for some opening comments.

Thank you, Mike. We are delighted that the considerable momentum shown over the past two years has continued unabated in the most recent quarter. While the first quarter was the most profitable first quarter since our rebirth in 2013. The second quarter was the most profitable of any quarter with record revenues and record profitability. Products are certainly deserved by our employees for their collective and unstinting effort, energy and creativity. We are all proud to be furthering a tradition of purpose in principle created by and curated by Rupert and Lachlan Murdoch. Credit too must go to a Board that has provided thoughtful prescient guidance during a particularly challenging period for most media companies in most countries. Revenues for the quarter exceeded $2.7 billion, a 13% increase year-over-year, while profitability rose 18% to $586 million and net income reached $262 million. In the first half of this fiscal year, News Corp amassed nearly $1 billion of total segment EBITDA, a 30% surge while reported net income was $529 million compared to $308 million in the previous year. The platform agreements with Big Tech continued to benefit our bottom line. In addition to our substantial deals with Google and Facebook, we have extended and expanded our multiyear global agreement with Apple, which is expected to be an important source of subscriptions and of advertising revenue for our new sites around the world. There is no doubt that Tim Cook and Eddy Cue have a visceral enlightened understanding of the importance of professional journalism, and we genuinely appreciate their personal and corporate commitment. Our businesses are flourishing. There was again strong performance at Digital Real Estate Services, Dow Jones and Book Publishing and a rapid expansion of profitability at our News Media segment. We are delighted that agreement has been reached…

Thank you, Robert. As Robert mentioned, we are delighted with our second quarter and first half results, marked by strong revenue growth, further margin expansion and record high total segment EBITDA. Fiscal 2022 second quarter total revenues were over $2.7 billion, up 13%, reflecting strong revenue growth across the company with our three-core pillars, Digital Real Estate Services, Dow Jones and Book Publishing growing 19%. Total segment EBITDA was $586 million, higher than the prior year by 18% and a record high total segment EBITDA for the company since separation. Excluding acquisitions, currency fluctuations and other items disclosed in the release, adjusted revenues and adjusted total segment EBITDA rose 8% and 16%, respectively. Reported EPS were $0.40 as compared to $0.39 in the prior year. Adjusted earnings per share were $0.44 in the quarter compared to $0.34 in the prior year. During the quarter, we commenced our share buyback and announced the acquisition of Base Chemicals. As Robert mentioned, we anticipate both the OPIS and Base Chemicals acquisitions to close in the first half of calendar 2022. Moving on to the results for the individual reporting segments, starting with Digital Real Estate Services. Segment revenues were $456 million, an increase of 35% compared to the prior year. The results include the acquisition of Mortgage Choice and the consolidation of REA India, formerly Elara at REA. On an adjusted basis, segment revenues increased 22%. Segment EBITDA rose 25% to $178 million or 29% on an adjusted basis. We continue to see higher investment spending at Move and at REA, but at a more moderated rate than the first quarter, notably at Move. Move's revenues were $169 million or up 9% year-over-year off the back of 28% revenue growth in the prior year, primarily driven by the historically high lead volumes, which…

Thank you. [Operator Instructions] Our first question comes from Kane Hannan with Goldman Sachs. Your line is open. Please go ahead.

Good morning guys. Just two quick ones for me. Just firstly, Move. The revenue growth did slow down in the quarter despite the improving lead decline. Just talk a little bit about the pricing tailwinds you're seeing so how we think about that into the second half? And then just quickly on News Media. The payments from the tech platforms, were that the full run rate in the second quarter? Or should we expect those to continue to grow into the second half?

Kane, I'll take those two questions. First of all, the macro trends at REALTOR generally are specious. I mean, clearly, there's some fluctuation in the U.S. housing market. But the overall impetus for families and individuals to buy larger homes to work from home to move location to take advantage of labor opportunities and certainly of those job opportunities and mobility when as a positive of employees are all positive influences. First-time mortgages are still at near historic lows. And so financially, home purchases make sense, particularly as rents are rising. You'll not see reduction in refis, but that's not a market to which we have exposure. And the digitalization of the U.S. property market is still at an early stage, a very early stage and we're poised to take advantage of the opportunity in the short, the medium and the long term. As for the big digital payments, you are starting to see the run rate, but it does – those payments alone are really base payments, and so they don't take into account advertising and shared advertising and generally speaking, the improvement in the commercial rates for distribution of our content nor do they yet reflect the impact of the enhanced deal with Apple.

And Kane, I'd just like to add for the phasing of those content cost, with licensing costs that we've got in – so Q2 was slightly higher than Q1, and we would expect the second half of the year to be slightly higher again as they continue to ramp, particularly given showcase hasn't launched in the U.S.

Thank you, Kane. Jess, we will take our next question please.

We'll go next to Entcho Raykovski with Credit Suisse. Your line is open. Please go ahead.

Hi, Robert. Hi, Susan. I've got two as well. The first one is, I guess, a follow-up to those comments on the content licensing revenues. I'm just interested in your view on the sustainability of the earnings uplift at each of Dow Jones and News Media? And for News Media, in particular, do you expect this quarter and this year to reflect a peak? Or can you at least sustain these earnings. You're obviously investing in the second half, but just how you view the earnings trajectory would be helpful. And then secondly, I think this has been a pretty clear theme in markets. But given the slowdown in subscribers noted by some of the global streaming operators, what are the dynamics that you've seen in the Australian streaming market. I mean do you see any risk to the three ambitions that you put out last September for Foxtel subscribers to get to over [indiscernible] million. Thank you.

Well, on the first question around the News Media numbers, clearly, the big digital agreements had an impact. But I think to focus on that alone is to actually not give you credit to the companies with a News UK, News Australia or the New York Post in the way that those businesses have been transformed in recent years. And it has been a heavy lift, as you know, in Australia, we had to close many of our print editions and regions and communities and enhance our digital service. So those are more fundamental to the transform fortunes. And when you look at the increase in EBITDA over the past year – the same quarter last year, 11.5%; most recent quarter, 17.4%; News UK advertising, up 21% in local currency; News Australia advertising, up 11%; New York Post, up 19%. These are fundamental shifts in the businesses. And there's no reason to think that those fundamental shifts won't have an enduring impact. As for streaming, the Australian situation is rather different to the prevailing trends in the U.S. Foxtel really is the village square for video. And we have many partners there in a way that's not common in the U.S., Australia, in that sense is rather like the Galapagos Islands, a unique viewing ecosystem. And the recent rapid growth in BINGE is actually exceeding our expectations. And Kayo is a very different sports streaming service with the most important watchable winter sports, along with the increasingly compelling Formula 1 and supercars, among many others. That complete content package is certainly and consistently are compelling. I mean that's appointment viewing day after day, week after week, month after month. That's not churn data, churn some. [ph]

And Entcho, I'd just like to add to Robert's comments in relation to News Media. And he's absolutely right. I mean the transformation of that segment, in particular, has been great, and we've been really delighted with it. And just to give some context of the $65 million increase in revenue, $42 million of that was advertising, $23 million was circulation and subscriptions, which is where those content licensing fees are. So a lot of it was advertising – a lot of that's being fueled by digital advertising and the work that the teams have done around driving those audiences and converting their businesses to digital and benefiting from obviously strong yields. And also the cost work that they've done, they've done a huge amount of cost work and heavy lifting over the past couple of years, which has really helped to underpin those results. So it does give us confidence about how those businesses are going to continue going forward.

Thank you. And Jess, we will take our next question please.

Our next question comes from Craig Huber at Huber Research Partners.

Great. Thank you. What's your general thought here on this inflationary environment we have going on right here as you think across your portfolio, I mean, obviously, your numbers were really good here in the prior quarter. The outlook I hear you talking about here is quite favorable as well. But what's your general thoughts on inflation, what you think it's doing to your top line, but also your revenues – I'm sorry, your revenues as well as your costs. And I do have a nitpick question, Susan. Your overall cost for the company for the quarter, if you adjust for currency and acquisitions, how much was that up placed in the quarter year-over-year? Thank you.

Well, I will make a quick observation about inflation and then Susan will follow up on both subjects. The inflationary pressures vary segment by segment and country by country. And this was obviously going to be an important issue of challenge. And clearly, from quite a way ago, not transitory. And so we started our planning long ago, asking each of the businesses to be cost conscious to look at whether open positions needed to be filled to be focused on retention payments in an intelligent way to ensure, though, that our teams also feel as though they're part of a purposeful journey which they most certainly are. The cultural component of loyalty complements the complement component. Susan?

And Craig, just on your question. So reported costs were up 11% and adjusted costs were up 5%.

Thank you, Craig. Jess, we will take our next question, please.

Our next question comes from Alan Gould at Loop Capital.

Well, thank you for taking the question. I've got two, please. Some of the digital platforms are talking about supply chain issues and inflation impacting our marketers desire to advertise and impacting advertising, you have a global perspective, wondering what you're seeing with respect to that. I know your advertising is looking quite good. And then secondly, the platform fees that you're getting from the digital players, what is the opportunity for the advertising subscription revenue on top of what you're already receiving on licensing fees?

Susan, would you like to present?

So just in relation to the platform fees, I mean we are working through, obviously, driving continued audiences and looking and working with those tech platforms in order to build out those audiences. And so that will help us contribute to growing the advertising client. And particularly if we can grow the overall subscriber pie, then we've got a high-quality audience that we can look at. Just in relation to the comments that other companies may have made around supply chain pressures and advertising. We – as you mention, we haven't seen that actually impact us from an advertising perspective. We've had great growth actually across digital, and we've been really pleasantly surprised with the bounce back of print advertising, obviously off relatively low comps from the prior year, but it still has exceeded our expectations. So we're not really experiencing that at the moment, and we haven't seen that coming through our results.

Thank you, Alan. Jess, we will take our next question, please.

We'll go next to Darren Leung with Macquarie. Your line is open. Please go ahead.

Thanks for taking the time. Just one question from me. Just a bit of color around the Professional Information Business, 9% growth, please. So it looks like risking appliance is going pretty well, but that would sort of imply that it's affecting the Newswire sort of partners sort of growing a bit slower. Just any color around price or subscribers coming off or anything there, please? Thanks.

Darren, I would make a general observation. That business is itself being transformed by Almar and the team at Dow Jones, you're seeing obviously, the success of Risk and Compliance. Those of you who use Factiva will notice that the interface is changing in a way that's frankly more user-friendly. And the acquisition of both OPIS and Base Chemicals will itself have a positive effect on the Professional Information Business, including Newswires, which will already have a focus on energy, chemicals, renewables, carbon, but that will obviously increase. And similarly with Factiva we're already, as you no doubt know, we have a remarkable array of sources. It's a real Aladdin's cave of content that will both complement the existing offering at OPIS and Base Chemicals, but also overall strengthen those offerings because it's – I think it's a fair observation – that in recent years, those businesses haven't been growing at the same rate as Risk and Compliance. But that's why a lot of work is going into transforming them and you'll see the results in the coming quarters, I suspect.

Thank you, Darren. Jess, we will take our next question, please.

Our next question comes from Brian Han with Morningstar.

Hi. Two quick ones, if I may. For your streaming services, can you please talk about any recent trends in the conversion rate of trial subscribers to paying prescribers? And Susan on free cash flows, do you expect that working capital buildup to reverse in the next couple of quarters? Or should we expect free cash flow to remain sort of impressed relative to earnings growth?

Well, I'll make just a general observation about streaming it to Foxtel, which is overall, you can see the strong growth and the increasing portion of Foxtel revenue ascribed to streaming, while at the same time, and I think this is particularly noteworthy, where it three-year low with broadcast churn. And so the fears that some had that the increase in streaming would lead to a market deterioration of broadcast or unfounded. Susan?

And just in relation to free cash flow, yes, we will expect to see some reversal of that working capital as we work through the year, and we would definitely expect to see the second half have very, very strong free cash flow relative to the first.

Thank you, Brian. Jess, we will take our next question, please.

Our next question comes from Drew Figdor with TIG Advisors. Your line is open. Please go ahead.

This is Edmonds Bafford for Drew Figdor. I had a quick question around the OPIS and Base Chemical business. Congratulations on actually getting them at a very good valuation, but I was a bit surprised by the timing. I have it kind of the process being done by the first quarter of 2022, and I have it in my model on – and kind of in the back half of the third quarter. So what is driving that first half of calendar 2022 timing?

Well, Edmonds, obviously, we'd like to get the deals done as quickly as possible because we cherish these companies because we can see how valuable are and what they'll add to Dow Jones and to use core more generally. And you will see in our accounts in coming quarters and years, the value of them. Clearly, we're subject to a regulatory calendar, and there are sometimes variables, unpredictable variables in that. But we're fairly confident that the OPIS deal will close next month and the Base Chemicals will close a couple of months after that.

Okay. Thank you very much.

Thank you. Jess, we will take our next question, please.

And at the moment, I do not have any other questions holding. So I'll turn the conference back for any additional or closing comments.

Great. Well, thank you, Jess, and thank you for all participating. Hope to talk to you soon. Have a wonderful day. Take care.

Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time, and have a great day.