Lachlan Murdoch - Executive Chair, Chief Executive Officer John Nallen - Chief Operating Officer Steve Tomsic - Chief Financial Officer Gabrielle Brown - Chief Investor Relations Officer

Ladies and gentlemen, thank you for standing by. Welcome to the FOX Corporation First Quarter Fiscal Year 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. I would like to emphasize that functionality for the question-and-answer queue will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I'll now turn the conference over to Chief Investor Relations Officer, Ms. Gabrielle Brown. Please, go ahead, Ms. Brown.

Thank you, operator. Good morning and welcome to our fiscal 2023 first quarter earnings call. Joining me on the call today are Lachlan Murdoch, Executive Chair and Chief Executive Officer; John Nallen, Chief Operating Officer; and Steve Tomsic, our Chief Financial Officer. First, Lachlan and Steve will give some prepared remarks on the most recent quarter and then we'll take questions from the investment community. Please note that this call may include forward-looking statements regarding FOX Corporation's financial performance and operating results. These statements are based on management's current expectations and actual results could differ from what is stated as a result of certain factors identified on today's call and in the company's SEC filings. Additionally, this call will include certain non-GAAP financial measures, including adjusted EBITDA or EBITDA as we refer to it on this call. Reconciliations of non-GAAP financial measures are included in our earnings release and our SEC filings, which are available in the Investor Relations section of our website. And with that, I'm pleased to turn the call over to Lachlan.

Thanks Gabby and thank you all for joining us this morning to discuss our first quarter results, and Happy Halloween everyone. I was trying to think of a Halloween reference or a joke, but in fact there's nothing scary in these results. Actually fiscal ‘23 has started off – by the way, that's called a dad joke in my household. Fiscal ‘23 has started off on a solid footing for us, supported by healthy viewership at sports and news, revenue growth across our platforms, and impressive momentum at TUBI. Financially we delivered 5% growth in our top line revenues, led by an 8% increase in advertising and 3% growth in affiliate revenues. Our advertising growth in the quarter was driven by strong pricing at FOX News and FOX Sports. Record first quarter political revenues at the local stations, and in a quarter where industry-wide digital advertising revenues appear to have been under pressure, to be posted standout revenue growth of almost 30%. These are great results for FOX. However, we recognize that there is a lot of commentary around advertising headwinds as the macro environment evolves. Yes, the broader national advertising market is looking more fluid compared to the time of our last earnings call. However, the macro impact is not uniform across our verticals. We have observed some softness in the linear entertainment scatter marketplace. Remember that FOX does not over-index to network entertainment. So any impact there is nominal to us and has been more than offset by the digital entertainment strength delivered by TUBI. Additionally, despite the economic headwinds, we are seeing continued strength across our linear news and sports portfolios, led by the pharmaceutical, restaurant and streaming categories. These dynamics underscore a flight to quality, and the importance of our focus on live content with over…

Thanks Lachlan and good morning everyone. As Lachlan mentioned, we have made a solid start to fiscal 2023, delivering total company revenue growth of 5%. This top line momentum was led by 8% growth in our advertising revenues, where in the quarter we continued to see healthy scatter demand for our leading news and sports properties, and generated meaningful revenue reacceleration at TUBI. We also benefited from a record fiscal first quarter for political advertising revenues at our owned and operated television stations. Notably, we are able to drive 3% affiliate fee revenue growth without the benefit of any significant renewals impacting the quarter, and trailing 12 months subscriber losses running at approximately 7%. Quarterly adjusted EBITDA was $1.09 billion, up 3% as our revenue growth was partially offset by higher expenses led by continued investment in our digital initiatives and increased rights amortization at FOX Sports. Net income attributable to stockholders of $605 million or $1.10 per share, compares to the $701 million or $1.21 per share reported in the prior period. Once again, this was impacted by the change in fair value of the company's investment this quarter, which we recognize in other net. Additionally, our effective tax rate was slightly higher in the quarter, primarily due to a re-measurement with our net deferred tax assets associated with the reduction in state taxes. This had no impact on our cash taxes in the quarter. Excluding this impact and other known core items, adjusted EPS was $1.21, up 9% over last year's $1.11. Turning now to our segments starting with cable network programming. Cable advertising revenues were up 2% as our market leadership in news continue to drive linear pricing gains at the FOX News channel. This was partially offset by lower programmatic revenues at our digital news properties…

Thank you, Steve. And now we would be happy to take questions from the investment community.

Thank you. [Operator Instructions] One moment please for the first question. That will come from the line of Jessica Reif Ehrlich of Bank of America Securities.

Thank you. Good morning. One question. Okay, let me think about this. Well, first on the decline in the Pay TV Universe. Could you talk about how that impacts your affiliate discussions, both cable and retrans on the broadcast side, and how you're thinking about maybe hedging your reliance on the Pay TV bundle? And then Lachlan I heard you say, you know you don't want to talk about News Corp, but obviously it's out there and maybe you can just talk a little bit about why now? What do you think the benefits are from the combination and the balance sheet, your balance sheet is so incredibly strong, but so is theirs. How do you think about using those balance sheets?

Good morning, Jessica. Thank you very much and I appreciate keeping your questions short. A number of questions, so thank you. I know it's tough, cause there’s a lot to talk about. But on the decline in the Pay TV universe as Steve called out, you know we've seen a decline of just about 7%. We're not seeing in sort of the most recent remiss that that decline is getting any worse, so it's obviously – the last year was 5% this time last year. This year we've seen this tick down to 7%, but it looks to have stabilized at 7%. And our focus is really in you know continuing to invest in our brands, particularly News and Sport, which are really essential to the Pay Television bundle. So we're not in a position as I think a lot of the cable, general entertainment channels, which are – you know are more at risk to people going to SVOD services and streaming to get that type of content, whereas you know there's only one place you can get FOX News and there's only one place you can get FOX Sports. So our strategy is to continue to invest and be essential for all of our distributors for their Pay Television bundles. And we've seen that play out through our renewals. We're at the beginning of our renewal cycle and so it's a massive three year cycle. I think in fiscal ’23, 34% of our aggregate cable and television segment distribution revenue is up for renegotiation. The next fiscal year it's also 34% up for renegotiation and in fact fiscal ’25 is still 28%. So we almost you know over the next three years, you know completely renew and refreshing and extend our cable distribution agreements. You know we are well underway with the first – having completed the first round of those renewals and I have to say we are extremely pleased with the outcome of those renewals because our distribution partners do value what we bring to the bundle and our commitment to the bundle. So those renewals have gone very well and have met every expectation we've had for them. The split between cable affiliate revenue and television segment affiliate revenue will shift slightly. I think you'll see the television affiliate segment grow at a faster pace than the cable affiliate revenue, and that's just in terms of how we negotiate those agreements with the distributors. In terms of a potential recombination with news corporations, I really can't talk about it. It's actually an independent process going through with the independent committees and it's not for me to you know discuss the conversation. Well, I don't know the conversation they are having or nor can I discuss them, so sorry about that Jessica.

Operator, next question please.

We'll go to the line of Robert Fishman with MoffettNathanson.

Hi! Good morning, everyone! Maybe just more broadly, can you discuss the importance of scale in the media industry or are there advantages to having a smaller portfolio where you can focus on the core of sports and news assets that you just started to talk about, especially when thinking about the cable network negotiations that you already alluded to.

Good morning, Robert. How are you? Look, I think you know scale, it has to be focused right, and scale is important and what we've seen amongst our media peers over the last few years are our peers getting bigger through mergers and acquisitions, and so I think scale lends flexibility in many ways. So we continue to grow our business, we continue to look at M&A and be very disciplined in how we how we look at it, but we also do look at the importance of scale, particularly over the next couple of years when opportunities I think in the marketplace will emerge. They are having the scale be flexible and how we deal with them will be important.

Operator, next question please.

And that will come from the line of Ben Swinburne of Morgan Stanley.

Thank you. Good morning. You guys may be the only ones to talk about revenue – advertising revenue growth accelerating into the December quarter during earnings, as particularly with your comments around TUBI. We've seen a lot of weakness in digital advertising broadly. Can you talk a little bit about the drivers there? I know you mentioned TBT, but are there other aspects to what TUBI is offering advertisers that explains you know the strong growth this quarter and what you're seeing into Q4. And just to come back to capitol allocation if I can sneak one more in. I guess I'm a little surprised buyback isn't accelerating. Just your stocks got like a 15% plus free cash yield and you're sitting on cash, you know $5 billion earning, I don't know 2% or 3%. It seems given the position of the company's cash flow profile, like a pretty attractive opportunity to sort of increase the pace. So I don’t know Steve, if you have anything you want to add in terms of just what you guys are waiting for, looking at to resolve itself to maybe get more aggressive or maybe the environment just means you want to be more conservative. I'd love to hear your thoughts there. Thank you guys.

Good morning, Ben. I'll start obviously with the TUBI and Steve, you can talk about the buyback and capital allocation. So to start with TUBI, you know if you look at TUBI as a business and what the team there have built is really a best-in-class AVOD service and they've had several years head start in this business. They are entirely focused on AVOD, but that's both from a – you know having established really a superior ad-tech stack and ad-tech team and also now combined with FOX, you know an advertising sales team with a proven track record. You know you couple that with the largest library available in the United States with 48,000 titles, which you know by the way is 5x the Netflix library. The cross platform opportunities that we are executing on across Sports and News and entertainment, you know it really sort of provides you know a tremendous platform that's absolutely taking off. You know TBT was up 53%. That really drives you know a tremendous amount of the sort of monetization as it flows through. We hold our CPM rates are pretty steady at TUBI. So it's really – it's not pricing that is – pricing has increased, but it's not pricing that’s accelerating. It's really the TBT time that's offering our clients and advertisers you know more opportunities on the platform. So we are tremendously excited about the future of TUBI as we sit here today.

Hey Ben! Its Steve. Just on the capital allocation, I think this environment obviously lends itself to being more conservative on balance sheet management, but it's our nature to be measured in the way we manage the balance sheet. If you look at what we’ve done since the establishment of FOX and why capital has been directed, which sent $4 billion back to the shareholders, whether it be in the form of the $2.9 billion buybacks plus over $1 billion in dividends versus M&A which sits as – net M&A sits at below $1.5 billion. So I think the bias so far has been to return capital to shareholders where we haven't had other alternative uses for it, but right at the moment we feel like being measured is a touch more conservative, is the right place to be.

Next question, please.

We'll go to the line of Phil Cusick of JPMorgan.

Hi! Thank you. First, a follow up on the TUBI data points. Those are helpful, thank you. Can you discuss the potential of that business to evolve maybe from what it looks like today and I know you're in, specifically in investment mode, but what does it take to get that EBITDA number to a positive over time. And then second, any sort of update on the Flutter negotiation or timing there? Thank you.

So on TUBI, TUBI is being profitable in past quarters and we've made the proactive and I think prudent decision to use not this opportunity to invest in TUBI. Its modest investment compared to – very modest investment compared to what our peers are investing in their SVOD platforms, but we think it's a sage investment, because the opportunity to really lead in the in AVOD market is absolutely there for the taking. We are leading the AVOD market, but to sort of cement that lead and to win in the AVOD market is absolutely our goal. So we'll continue to invest into the short to medium term in TUBI. I think particularly in an environment where there is potential sort of economic stress in households, having a free service is a great position to be in and I think TUBI will benefit from any – frankly from any economic chills that the people might feel. So it's the right time to invest this. It's the right time to extend our lead.

Flutter?

Oh! And Flutter, we expect a decision in the Flutter arbitration imminently and you know once we have that handed down we'll assess our position, but we expect an imminent decision and we expect to be pleased by it, so.

Next question please operator.

That will come from the line of Steven Cahall of Wells Fargo.

Thank you. I know you're not commenting on the merger itself, but I think you mentioned that a majority of independent shareholders need to approve it. So I was wondering if you could at least comment as to whether shareholders are going to be provided with some incremental information between now and I guess what will be a required shareholder vote. And the reason I ask is I think that FOX in my opinion, is a great business. So I think shareholders are wondering why they want to mix a great business with just a different business. So if you could at least comment not specifically on the deal, but what that investor education is going to look like, I think that would help everybody envision what's going on. Thank you.

Thank you very much. As I mentioned, I can't really comment on it, because we don't know if there is a deal or if there will be a deal, what that deal would look like. So it's hard to comment on anything or impossible to comment anything that doesn't exist today. So, we like you have to be patient, sorry, and wait to see what the special committees are – what the outcome of their discussions and processes is.

Operator, we have time for one more question.

And that will come from the line of John Hodulik of UBS.

Great! Thanks guys. Maybe first a couple of follow-ups on the TUBI data. I mean first and Lach, you may have covered this, but like what content is driving that 50% increase in TVT there? And then is the $50 million investment that we saw in the quarter, is that a good run rate going forward? And is that – I mean I would imagine that's not a – that doesn't constitute a change in the guidance for sort of flattish digital dilution in the quarter. And then lastly, just back to the ad market. I mean anything you could say about sort of ad-trends, especially in the local TV market, ex-political as we head into the December quarter, because again you know there's been – apparently there’s been a number of sources of weakness there and just wondering what you're seeing in that part of the market? Thanks.

So, let me start on TUBI and Steve can talk about the run rate, and then I'll come back to the local ad market ex-political and with political as well. So look, the TVT growth across TUBI has really been across all genres. It's been pretty widespread. You know TUBI as we've discussed on previous calls, you know TUBI'S core proposition is video-on-demand. So it's their movies and their television series on demand. They have worked hard over the last year or so launching, I think it’s now over 200 FAST Channels, which are a combination of both News, but also general Entertainment and Sports FAST Channels. Those FAST Channels are doing very well and are growing rapidly, but are overall a smaller percentage of their TVT. But it's pleasing that this is – you know the growth has been really across the entire platform. Steve, do you want to talk about the run rate?

Just John, run rate for TUBI is at $50 million absolute EBITDA deficit in the quarter. Last year we sort of across - TUBI across the whole year was in the low 200’s in terms of EBITDA deficit for the company. I would anticipate that the $50 million we saw last year, and I expect this to be the same case this year, where the second half of the year had relatively more investment than first half and so you should expect to see a relatively consistent pattern with that. And listen we – it doesn't change sort of our guidance in terms of the dilution around digital investments across the company, whether that includes TUBI, Nation, whether block-chain, the rest of the portfolio that remains intact as it is. But TUBI listen, as we see that business develop, we'll continue to invest in as we see that top line continue to grow, which is exceeding our expectations.

And then on the advertising market, it's interesting as you sort of look at the, what’s the word, the sort of ins-and-outs of the market. Like you know in some categories where local might have some softness or more fluidity in the market, you're seeing it being picked up in national advertising in the same category. So you know sectors that were strong in Local, now are strong in National. So there's some sort of swings and roundabouts there. But overall, the trend is really a flight to quality, particularly around our News and Sports brands and platforms. So you know Nationally, I think I called out pharmaceutical is very strong. Restaurants, particularly quick service restaurants and even more particularly pizza category is doing very well. I know my household is – the advertising is working and media, really streaming, particularly as SVOD services are more and more competitive. They are spending a lot of money marketing themselves on our platforms. On the soft side and we're seeing softness in wagering. Again, that's more of a local softness in wagering, but we're picking up a lot of that in national wagering, sort of betting spend and government health services, right. So this time last year there was still a lot of COVID-19 health advertising messaging from governments and obviously that's very significantly less this year around. Locally, automotive remains very strong. Again, this is the first time in a couple of years that we've seen a local automotive advertising as strong as it is now. The other category locally that's very strong is general services, which is good to see, and any softness some elsewhere is more than made up by this record political year. I think you have to remember that in our markets, and we have a tremendous local station footprint, and there are Senate races in 13 out of our 18 markets and particularly the hard fall ones are Arizona, Georgia, Pennsylvania, and we're certainly seeing a tremendous amount of political spending flow through those markets. But also you know this year, gubernatorial races, we have I think 17 gubernatorial races in our 18 markets. So it's an incredibly busy time and we'll certainly see it flow through in our political revenues.

At this point we are out of time, but if you have any further questions, please give me or Dan Carey a call. Thank you once again for joining today's call everyone.

Thanks everyone.

And ladies and gentlemen, that does conclude your conference for today. Thank you for using AT&T Executive Teleconference. You may now disconnect.