Welcome to News Corp’s Second Quarter Fiscal 2024 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 2024 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 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 the earnings releases for the applicable periods posted on our website. With that, I’ll pass over to Robert Thomson for some opening comments.

Thank you, Mike. For the second quarter in succession, News Corp has achieved growth in both revenue and profitability, and we believe there are strong prospects for further growth as difficult, inauspicious macro conditions ease in some of our markets. We saw particularly robust results across the three core pillars of our company, Dow Jones, Book Publishing and Digital Real Estate Services, where there was resounding improvement in Australia in Q2 and there are early signs of recovery in the U.S. residential sector after the most sluggish market conditions in almost three decades. Given the potential of our world-leading brands, we remain intent on creating long-term value for investors, and, as part of that commitment, our diligent, concerted review of the company’s structure continues apace. Looking at the topline results, News Corp’s second quarter revenues rose 3% to $2.6 billion and profitability surged 16%, marking the third consecutive quarter of profit growth in testing economic times. Our net income for the quarter rose to $183 million from $94 million in the same quarter last year, while our reported EPS was $0.27 against $0.12 for the same period last year. The company’s digital progress and prowess are increasingly evident. Halfway through fiscal 2024, digital now comprises approximately 52% of all revenues. That is more than an e-evolution, it is an e-revolution, one that has touched and transformed every element of every business and we are far from satisfied, far from complacent, far from completion. We are seeing the collective benefit of our conscious strategic shift away from potentially volatile advertising revenues to growth in circulation and subscription revenues. In fiscal 2014, nearly half of News Corp revenues were from advertising, with 31% from circulation and subscriptions. There has been a fundamental metamorphosis. In the first half of the fiscal year, advertising…

Thank you, Robert, and good afternoon to everyone. As Robert mentioned, we had a strong second quarter, resulting in first half year-over-year improvements in both profitability and revenues. We continue to transform the company and move towards higher, recurring and digital revenues, together with exercising strong capital allocation discipline and balancing reinvestment across the portfolio with ongoing fixed cost reductions. Our second quarter total revenues were $2.6 billion, up 3% compared to the prior year, an increase from the 1% growth delivered in the first quarter. Adjusted revenues grew 2% compared to the prior year. Total segment EBITDA was $473 million for the quarter, up 16% compared to the prior year, driven by strong performances across our three key growth pillars, Book Publishing, Digital Real Estate Services and Dow Jones, which all posted double-digit profit gains. In fact, in the aggregate, those key segments delivered 24% profitability growth this quarter. Our second quarter total segment EBITDA was also the highest in two years. Adjusted total segment EBITDA grew 14% versus the prior year. For the quarter, we reported earnings per share of $0.27, compared to $0.12 in the prior year. Adjusted earnings per share were $0.26 in the quarter, compared to $0.14 in the prior year. Moving on to the results for the individual reporting segments, starting with Digital Real Estate Services. Segment revenues were $419 million, up 9%, a notable improvement from the first quarter rate and a return to revenue growth for the first time since the fourth quarter of financial year 2022. On an adjusted basis, segment revenues rose 8%. Segment EBITDA rose an impressive 15% to $147 million due to a higher contribution from the REA Group partially offset by revenue headwinds at Move. Adjusted segment EBITDA rose a healthy 16%. REA had another very strong…

Thank you. [Operator Instructions] Our first question comes from David Karnovsky from JPMorgan.

Hi. Thanks for taking the question. I guess I’ll ask the AI topic. Robert, you noted in the release you expect to be a core content provider for gen AI companies. Maybe you can speak a bit to current negotiations. What are the key sticking points, key priorities for you or even the red lines for News Corp as you engage on this?

Yes. David, obviously, these are confidential negotiations and so I can’t go into too much detail. I mean, it is fair to say that we’ve been leading the intellectual debate among media companies on AI, and also fair to say that we’re probably leading the commercial discussions. I mean, 17 years ago, when prestige-craving media executives were sashaying with Silicon Valley, we were raising doubts, doubts about provenance, but also about the baleful impact on vulnerable young people, the smartest engineers on the planet, creating compulsive, addictive experiences. Anyway, we’re certainly not naive as well about the potentially positive and negative impacts of AI on our journalism, our creativity, our content. We’ve had almost two decades of distribution dominating creation and almost 60% or so of journalists have lost jobs in the U.S. And candidly, unfortunately, a certain percentage of that is down to journalistic pomposity and prize consciousness, not audience consciousness and relevance consciousness. But AI is a hyper-effective form of or gen AI is a hyper-effective form of derivative distribution. It’s retrospective, not prospective, and the thoughtful AI companies understand that fact, and so that’s why on this occasion, I would like to highlight the thoughtfulness of Sam Altman. Thoughtful people do understand that counterfeiting is not creating, and crucially, in this exceedingly erratic era, we have deep facts, not deep fakes.

Thank you, David. Leila, we’ll take our next question, please.

Our next question comes from Entcho Raykovski from Evans & Partners.

Hi, Robert. Hi, Susan. Maybe if I can pick up on the generative AI question as well. I appreciate there’s only so much you can say, but how do you think about the potential payments which could come for the value of your content relative to what you’re currently receiving from the digital platforms? Is it a similar sort of quantum, could it be even a greater quantum over time? At least on a relative basis, I’d be interested in how you’re thinking about it. And longer term, do you expect that those payments from the digital platforms will continue to come through? Thank you.

Entcho, I’m sorry to be a basic, but I simply can’t comment on the content of the negotiations. But I can say they’re at an advanced stage and we are dealing with willing partners.

Thank you, Entcho. Leila, we’ll take our next question, please.

The next question comes from Kane Hannan from Goldman Sachs.

Good morning, guys. Thank you. Maybe just Dow Jones. I think the costs were down about $3 million in the quarter. We can talk a bit more about the Dow Jones cost base, whether we can extrapolate that sort of performance going forward. And maybe to follow on to that, just the professional information services within Dow Jones. I mean, obviously, appreciate the extra disclosure. Did that business see margin expansion in the quarter or is the strong margin expansion for Dow Jones overall more of a mix and cost out in the other businesses?

Hi, Kane. Welcome back. Just in relation to the cost, we did see a pretty good cost performance for the first half of Dow Jones and I think like all our businesses, they are pretty cost focused. So they do constantly have a look at transformation opportunities within the business and they certainly participated in the 5% headcount reduction and they’re getting the benefit of that. But like all the businesses, we do like to invest in them. So we do see variable costs going up as the revenue scales. They’ve had inflationary costs in relation to headcount and will continue to invest in headcount given the growth in that business. And the second half of the year, we would expect to see some phasing and additional costs coming through for marketing. We do tend to have seasonally higher net ads in the second half than we do in the first half and so that typically warrants some additional marketing costs. So that’s sort of in relation to the cost base. And then in relation to PIB, we don’t give out the margins, as you know. But the PIB margins did improve for the quarter, which was really pleasing to see as they continue to scale that business. And as we said in our prepared remarks, for the full year, we’re continuing to expect to see the majority of the profit come from the PIB segment.

Yeah. And just to supplement Susan’s answer, obviously, PIB is a priority for Dow Jones and for News Corp. And we are providing more visibility overall about Dow Jones because it’s such a positive story, and frankly, the more you see, the more you’ll like. I mean, overall, the margin at Dow Jones has risen from 24.7% a year ago to 27.9% and now that we’re lapping the purchases of OPIS and CMA, the strong growth rates are clear at these companies, which we have grouped into Dow Jones Energy, where revenues expanded by 15% and it is also, though, worth noting the results of the always burgeoning risk and compliance segment where revenues rose 16%. In short, these are high margin recurring businesses providing essential services and thus have renewal rates well north of 90%.

Thank you very much. Leila, we’ll take our next question, please.

Our next question comes from Craig Huber from Huber Research.

Great. Thank you. I wanted to ask on a portfolio review and simplification announcement that you mentioned three months ago and you briefly touched on it today. Can you just give us a further update? I’m just curious on the timing of this. I mean, I personally didn’t expect a major announcement within just this first three months. But also, the flip side, I wouldn’t expect it to take another six-plus months from this stage going forward. Can you just give investors a little sense of the timing there and I assume you guys did an awful lot of work behind the scenes before you even talked about it three months ago in your conference call. You’ve certainly done some -- I’m sure some, in this last three months. Just give us a little sense of the timing when we might get an announcement here, please? Thank you.

Craig, your presumption about preparation is not ill-conceived. But this being a rather sophisticated audience, one which understands the nuances of phrases and the subtleties of the SEC, you can take the words I used in my statement as purposefully delivered. There is clearly much introspection, not casual, not peripheral, but significant, serious introspection about structure, and it’s functional, not emotional. And the prevailing truth is that we have created options for our shareholders and that’s a tribute to all at News Corp, with the active support of an enlightened Board and leadership from Rupert and Lachlan, and the efforts of our employees around the world. Let us not forget that misguided investment bankers were decidedly downbeat at the time of the split a decade ago. And now, however, the discussion is how to get full value from, how to fully monetize a precious, prestigious portfolio that has an obvious growth trajectory. That is indeed not an evolution, but a revolution.

Thank you, Craig. Leila, we’ll take our next question, please.

Our next question comes from Lucy Huang from UBS.

Good morning, Rob and Susan. My question’s on PIB as well. Given we’re kind of getting through the end of the integration of OPIS and CMA, just wondering strategically how you’re thinking about the growth in business and are there any other data sets that you would be looking to maybe build out or acquire over time? Are there intentions or I guess capabilities you’ll like to plug with PIB?

Lucy, obviously, we’re pleased with the progress of the PIB business, and as I said, you can see the overall increase in margin at Dow Jones and that is to a large extent due to the success of the PIB businesses. I can’t go into any more details about what plans are, but needless to say, PIB is core to Dow Jones and its core to News Corp.

And Lucy, what I can say is that, the thing that’s great about PIB and the Energy businesses is that the new products can leverage the existing data sets that we have, so the pricing, reporting, analytics and newsletters, and they can draw off a lot of the core data that we have. So I think that’s fantastic. And I think Robert’s mentioned in previous quarters, we’ve got areas like renewables that are coming in that we really think that could provide an exciting opportunity for us.

Thank you, Lucy. Leila, we’ll take our next question, please.

Our next question comes from Brian Han from Morningstar.

Susan, I noticed the second quarter PCP growth in books EBITDA is exactly the same as the first quarter PCP growth, both exactly, I think, two-thirds up on prior period. Is there some sort of a contracted step up in earnings for books or is that just pure coincidence?

I’d like to think there would be at that level, but no, no, I think, it’s just a coincidence. As we sort of said in the remarks, the Book Publishing segment has continued to exceed our expectations. And look, it’s partly because we’ve had a return to more stability in the revenue post-COVID. So the returns have settled down and the market has settled down a little bit. And it’s also partly because of the great work that the HarperCollins team has done in relation to their cost base in the face of some pretty challenging conditions last year. They also took the opportunity to push through some price rises on books. So a combination of all of that has really helped with putting the good results in for the first half. Look, I think across the full year, we’re still expecting margins to be sort of in low-double digits, a good improvement from the prior year, but probably not to the levels that we’ve seen in the first half.

Thank you, Brian. Leila, we’ll take our next question, please.

Our next question comes from Darren Leung from Macquarie.

Hi, guys. Thanks for the opportunity. I just wanted to ask a bit about the cost out program. Can you give us a feel as to how much has been completed so far this fiscal year of the previous $160 million number? And just a feel for, you know, do you expect more of it to be weighted in third quarter or fourth quarter or maybe another way to answer the question is, what divisions should we expect to see a lot of this cost out come from, please?

Yeah. Look, we are -- it’s pleasing to say that actually we quoted I think $160 million number in relation to that cost out program and we are going to exceed that number. And actually, from a run rate perspective, we’re pretty much there already. We have said in previous statements, though, that’s the gross cost savings. And we do have reinvestments across our businesses, as you can see, within Dow Jones, within our REA, we’re investing in new Foxtel with the Hubbl launch. And so that is the gross cost savings. What I would say is, notwithstanding that, we are always looking at cost savings across our businesses and so that was pertaining just to headcount reductions. We’re constantly looking at our cost space and our workflows and our efficiencies, and we do continue to drive greater savings than that, which helps us reinvest in these businesses.

And Darren, I’d just like to supplement Susan’s point where we are not going to let these excellent results in any way induce complacency in the company. All the teams are extremely cost conscious and we already are seeing very interesting trends in the ability of AI to reduce costs related to technology spend, to the creation of code, to the cultivation of code. And so not only are we going to be pursuing conventional costs, but we’re looking ahead and trying to make the most of new developments.

Thank you, Darren. Leila, we’ll take our next question, please.

[Operator Instructions] At this time, we have no further questions. I’ll now hand over to Michael Florin for closing remarks.

Thank you, Leila, and thank you all for participating. Have a wonderful day and we will talk to you soon. Take care.