News Corporation

and welcome to the News Corp 1Q Fiscal 2021 Conference Call. Today's conference is being recorded. Media will be on a listen-only basis. At this time, I would like to turn the conference over to Mike Thorne, Senior Vice President and Head of Investor Relations. Please go ahead.

Thank you very much, Allie. 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 Thompson, 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 Thompson 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 characterised 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 sagely. 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 three 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 seven 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. Additional 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. In short, digital real estate services, book publishing, and Dow Jones all performed powerfully in Q2, collectively generating segment EBITDA growth of close to 40%. Their continuing expansion highlights the profound potential of the company to increase profits and generate value for our shareholders far into the future. These resilient results are founded on a long-term strategic shift in the company's assets, determined digitization, and a relentless discipline on costs. We were adamant that we would not be victims of digital dystopia, but that we would contribute to fashioning a more fruitful future for content creators, and we are seeing the results of that resolve. It is fair to say that regulators globally have joined the digital dots. In the second quarter, every segment in Newscore showed marked operating improvements and contributed meaningfully to our profitability. we continue to see increased cooperation across the company, with valuable digital lessons and insights that each business rigorously applied for the benefit of all and to the benefit of shareholders. While overall revenues at over $2.4 billion declined 3% year-on-year, that was fundamentally due to the sale of News America Marketing in 2020. On an adjusted basis, a more genuine like-for-like comparison, revenues rose 2%, despite the pernicious consequences of COVID-19. Segment EBITDA for the quarter was $497 million, the highest of any quarter since our reincarnation in 2013. Year over year, that represents profitability growth of 40%, while our free cash flow available to Newscore for the half rose by $373 million. A pandemic is indeed a stress test, and Newscore is surely passing that test. At the digital real estate services segment, moves revenue growth was 28%, and that came despite restrictions in certain states on inspections and thus sales. Having been an ardent supporter of the acquisition of Move, it is worth noting that we believe the net cost of this company, including the substantial settlement we ultimately received from Zillow in our trade secret lawsuit against them, is only a fraction of its current value. Net-net, we paid considerably less than $1 billion for Move in 2014. We believe it is worth vastly more today. And how much will it be worth in five years as the digitization of sales in the world's largest property market continues apace. At the time of our acquisition, a realtor.com was a struggling third place platform with modest profitability and fewer than 30 million monthly users. There was some tight tuck-tucking about the acquisition but we were absolutely clear that our media platforms and growing digital expertise plus our experience with RIA in Australia would enable us to transform the company. In the first half of this fiscal year, Realtor has contributed more to our profit growth than the brilliant beacon that is REA in Australia. So how much is Realtor worth now? How much is Newscore worth? I will let you do the math. To help you do that math, a few specifics. Realtor traffic has now outgrown Zillow for 19 of the past 21 months, according to Comscore, including the last 11 months in a row. According to our internal metrics, average unique monthly users in the second quarter were 37% higher than the prior year, and we reached each month, on average, 80 million people. Just to give you a sense of the site's scale and loyalty, we had 8.7 total billion page views in the second quarter, more than one page for every person on our planet, and that number does not include photo galleries of houses. Multiply the number of visitors by the images in those galleries and you get a sense of the scale of the intense interaction by users. Traffic has continued to grow since the quarter's end, with unique users reaching a record 94 million for the month of January. During Q2, Move expanded in the rental market through its acquisition of Avail, an online property management platform that focuses on do-it-yourself landlords and tenants. This is significant given the fact that DIY landlords own and manage about three-quarters of rentals in the U.S. And a rental market, according to the U.S. Census Bureau data, is a $500 billion per year business. So the addressable market is appreciable and appreciated. Also in Q2, Realtor.com launched an advertising partnership with Rocket Mortgage while continuing to build an even more seamless process for consumers wishing to qualify for mortgages to purchase a home. In January, Realtor announced a partnership with Qualia to provide simplified digital home closings allowing for greater online collaboration between agents and their clients. Let us be very clear. Buying a home is by far the largest investment that most families will make and the purchase around that acquisition, whether it be securing a mortgage or selling with electricity or broadband provider, are necessary and valuable adjacencies. The home purchase is at the very center of that cluster of commerce and realtors are at the very center of that purchase. From a macro perspective, The overall housing market in the U.S. not only has proven to be resilient during a time of crisis, it has demonstrated tangible strength with many positive signs of activity, even with listing volumes at a historic low. With mortgage rates at a minimum and families expanding their search for better, larger homes in new locations, there is reason to be optimistic about the trajectory of the sector. Resilience and optimism also characterize the housing market in Australia, where the emergence from lockdowns in the quarter has led to significant signs of recovery. Australia is still a growing economy, and it will continue to benefit from its location in the world's fastest-growing region. The deep ties with Asia, including India, give it a distinct advantage, along with its reliable legal procedures and stable, coherent, cogent political systems. We believe it is still a country that is far from maximising its potential and the growth opportunities are pronounced. In the second quarter, REA acquired a controlling interest in Alara Technologies, making it the majority owner of a large and growing Indian digital real estate portal, including Housing.com and PropTiger.com. As measured by audience, Alara runs India's fastest growing digital real estate business and India itself is one of the world's fastest growing economies. So the possibilities are profound. We are, under Tracy Fellows' leadership, by many measures, the world's largest digital property company and we are acutely focused on the countries that we believe have the largest digital property potential. Meanwhile, HarperCollins had one of its most lucrative quarters with double digit growth across every category. There were many successful new releases while the backlist bolstered both revenue and profitability as did our continued growth in digital. Brian Murray and the team are at a relatively early stage of the development of audio boards and the proliferation of audio devices for the home will only increase the demand for our content. I'm not sure that all investors have yet comprehended the full value of that digital opportunity. As for the resonant titles in a successful catalogue, there was Didn't You See That Coming by Rachel Hollis, The Happy In A Hurry Cookbook by Steve Doocy, The Greatest Secret by Rhonda Byrne, Frontier Follies by Reed Drummond, and the continuing strong demand for Magnolia Table by Joanna Gaines. And then, in January, there was Bridgerton. We have the series of nine Bridgerton books by Julia Quinn, which are prospering given the popularity of the eponymous series, for which a new series has recently been announced. In all, revenues at HarperCollins ascended 23% in the quarter, and segment EBITDA surged 65% over the prior year. Dow Jones also set records this quarter, including having his highest absolute EBITDA since News Corp acquired the company in late 2007, with segment EBITDA up 43%, while the New York Times eked out a 1% increase. Digital advertising expanded 29%, the highest quarter in Dow Jones history, while digital advertising at the New York Times fell by 2%. Print was challenged during a pandemic period in which distribution was compromised. But overall advertising was down just 4%, comparing dramatically with the New York Times, where it slumped 19%. In our professional information business, risk and compliance continues record of extraordinary expansion, with year-over-year revenue growth accelerating to 21%. Q2 marks risk and compliance 22nd consecutive quarter of double-digit revenue growth year-over-year. Given international tension, with both the US and China imposing controls on companies, and with a new administration in the US inclined to tougher regulation, how bright are the prospects for risk and compliance? If anyone on this call works for a company that is not yet a client, I'd suggest that you remedy that dereliction. Traffic and subscribers across Dow Jones properties are surging and Elmar and the team are determined to make the most of the opportunity. WSJ digital only subscriptions were up 28% and MarketWatch also had a successful digital subscription launch in Q2. We have always insisted that our strategy is to upsell at Dow Jones given our non-parade portfolio. And so it's worth noting that more than 70% of those MarketWatch subscribers chose a bundle that included a subscription to Barron's. As for traffic, average monthly unique users across the Dow Jones Digital Network were up 48% in the quarter, reaching 127 million, driven by 64% growth at both the Wall Street Journal and Barron's. In subscription video services, our strategy to reshape the Foxtel Group as a next generation subscription business is clearly gaining traction with total closing paid subscriptions increasing 12% and setting a new record of over 3.31 million. OGC now accounts for 40% of Foxtel's paying subscriber base with more than 1.3 million streaming subscribers. The actual growth rate in streaming subscribers was over 90%, driven by the strength of Binge, which launched last May, and the continued expansion of Kayo. In the past, there has been scepticism about whether we could transition from our reliance on traditional broadcasts, but those concerns have proven unfounded, and Foxtel is now accompanied with a diverse portfolio and much momentum. I would like to repeat that EBITDA at the subscription video services segment for the quarter rose 77% on the same quarter last year. And for the first half segment, EBITDA was 34% higher. Growth has been crucial for that success. But we have a leadership team at Foxtel steered ably by Siobhan McKenna and Patrick Delaney that has been absolutely focused on reviewing every aspect of the company's performance and diligently reducing costs where appropriate. That insight, foresight and discipline have contributed to the transformation of the company and given us a powerful platform and much optionality for the future. We have now secured long-term rights to the three most popular sports in the country, Aussie rules, rugby league and cricket, which had outstanding success in the summer with the tour of the triumphant Indian team. Record after record was set on a cricket pitch and on the screen, whether the traditional screen or a digital device. And that multi-platform future is now secure with both Australian rules and rugby, thanks to our partners at Telstra. Over 3 million life past customers will have the opportunity to transition to K over the coming months so that they can watch their teams when they want to watch, how they want to watch, where they want to watch and on whatever device they want to watch. This is a monumental moment for Foxton. Our news media segment also contributed meaningfully to news cause profitability this quarter with digital ad growth in the UK and at the New York Post. indeed indicated that the New York Post was on a path towards profitability, and it certainly achieved that goal in the second quarter. Our task now is to ensure its long-term profitability, given the challenges in that sector. Digital ad growth at the Post was 64% up year over year. For the quarter, digital advertising accounted for nearly 90% of the total. Page views at the Post were up 37%. It was also a quarter in which the Post recorded a significant victory for all media, for the freedom of the press, by standing resolute and principled against censorship imposed by Twitter. Ultimately, Twitter realised it had made an egregious mistake and thankfully reversed its decision. Our journalists are not lapdogs with laptops. Our journalists are not stenographers. Our journalists are not woke. Our journalists are awake to their profound responsibilities. In Australia, We were fortunately ahead of the curve in transitioning many of our local and regional print properties to digital platforms, which helped them weather the storm of lockdown. Our Australian leadership under Michael Miller was disciplined in reducing costs and yet remained ambitious for our news platforms during this time of transition for journalism. And Rebecca Brooks showed real leadership in the UK across our vastness, like the Sun and the Times, in our emerging digital businesses, and at wireless, our radio network, which reached nearly 5 million listeners. In both Australia and the UK, we are using our skills in video and audio to enhance our traditional platforms. And that is clear at Times Radio, which is an extension of a newspaper founded in London in 1785. On these calls, I have often referenced the ongoing debate with what is loosely called big digital. I personally regard that moniker as a euphemism. We are in a pivotal moment of those discussions in Australia, where new regulations and new terms of trade will be introduced. But that debate now extends across the globe. There is not a single serious digital regulator anywhere in the world who is not examining the opacity of algorithms, the integrity of personal data, the social value of professional journalism, and the dysfunctional digital ad markets. This has been an imperative for New School for far more than a decade. I gave evidence to the House of Lords in London on this very subject in 2007. And it has been an imperative because we truly care about the social value of journalism and we believe that the social value has a commercial value. This enduring often solitary campaign would not have been successful without the fervent support of Rupert and Lachlan Murdoch and the New School Board. We expect... that the new tech topography will benefit our company's financial fortunes. That is for certain. And it will also have a material impact in not only the countries in which we operate, but in every country. An ambitious, inspired young woman starting a digital news site in Nigeria or in Birmingham, England or Birmingham, Alabama now has a far better, a far, far better chance of sustainable success. Finally, I want to thank all who have contributed to the singular success of News Corp in this historic quarter. That would be all our employees who have contributed each day in courageous, compassionate ways. I salute those individuals for what they have done and for what they continue to do for the company and for their communities. Thank you. While the macro environment remains unpredictable, our goal is to ensure that Newscore is best positioned for long-term success and that our value is absolutely appreciated by investors. And now I hand you to Susan Pediccio for some wise words.