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

Thank you, Kiley. Good morning, and welcome to our fiscal 2023 third 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.

Thank you, Gabby, and thanks, everyone, for joining us this morning. FOX's strong fiscal third quarter operating results once again demonstrate the power of our content and the brands it underpins and the repeated capability of our focused strategy to deliver solid financial results. In the quarter, we grew top line revenue by 18%, led by the remarkable 43% growth in advertising and a solid 3% growth in affiliate revenue. Underpinning this performance was a record Super Bowl LVII on the FOX Broadcast Network which generated approximately $650 million of gross advertising revenue across our businesses and was the key driver of our 61% advertising revenue growth at our Television segment. This year's Super Bowl matchup between Kansas City and Philadelphia delivered 115 million viewers across FOX platforms, making Super Bowl LVII the most watched program in U.S. television history and the pinnacle of an extraordinary year for FOX Sports. The strong lineup of programming and advertising demand for FOX Sports continues into our fourth quarter, which includes the return of NASCAR the second season of the USFL, the start of Major League Baseball's 2023 season, the finals of the UEFA Nations League and a first for FOX the Belmont Stakes. Leveraging the reach of a Super Bowl lead-in, we launched the second season of Next Level Chef, which promises to be the next big lifestyle franchise from our Studio Ramsay partnership. Our entertainment business also found success with the number one new series and new drama over the year in Accused and the number one new unscripted series in Special Forces: World's Toughest Test. FOX has now debuted the top new unscripted series for 5 consecutive seasons. In fact, the combined power of our sports and entertainment programming places FOX at number one amongst broadcast network season to date…

Thanks, Lachlan, and good morning, everyone. FOX again delivered strong underlying financials in our fiscal third quarter with 18% revenue growth and 3% EBITDA growth, bolstered by a record-breaking Super Bowl LVII. Our advertising revenues increased 43%, led by the Super Bowl, along with the higher volume of NFL playoff windows and accelerating growth at Tubi. Meanwhile, our affiliate revenues grew 3% on the back of pricing benefits from recent renewals partially offset by trailing 12-month subscriber losses continuing to run in the 7% range. Quarterly adjusted EBITDA was $833 million, up $22 million over the prior year quarter as these revenue increases were partially offset by higher expenses. This was primarily due to higher sports rights amortization and production costs associated with our NFL, Super Bowl and playoff schedule. The net loss attributable to stockholders was $54 million or negative $0.10 per share compared to net income of $283 million or $0.50 per share reported in the prior year period. The variance was primarily due to other net where we recognize charges associated with the FOX News Media litigation, partially offset by the gain associated with the change in fair value of the company's investments. Excluding these and other noncore items, earnings growth was strong with adjusted net income growing 8% to $494 million and adjusted EPS of $0.94 per share, up $0.13 against last year's $0.81 per share. Now turning to our segments, starting with Television, where revenue grew an impressive 36% in the quarter. Television advertising revenues led this growth with a 61% increase fueled by Super Bowl LVII, which, as Lachlan mentioned, generated over $650 million in gross revenue. We also benefited from 2 additional NFL playoff games, 1 divisional and 1 wildcard partially offset by the timing of 1 less regular season game. Momentum at…

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

[Operator Instructions] We'll go to the line of Robert Fishman with MoffettNathanson.

I have a couple of related questions, if I can. Lachlan, after the Dominion settlement, is there anything that you can share to better understand the future settlement risk? And then related, can you discuss whether the departure of Tucker Carlson will lead to changes in the prime time programming strategy and then potential opportunities for more national advertising? And then for John and Steve, just if you can expand on the early confidence you have from recent MVPD renewals? And after seeing the acceleration in retrains growth this quarter, any more insight on whether you can get better pricing to outpace the elevated levels of cord-cutting or just more economics from your affiliate partners?

Thanks, Robert. I don't know where to start. I'll talk about the 7 questions. So -- but thank you very much, and good to hear from you. On -- so let me start and hand over, I suppose, to Steve, for that -- the final questions. So I'm obviously limited about what I can say about any ongoing litigation, but I can make the following comments in regards to Dominion. And I referred to some of this in my prepared remarks. . Look, as we've stated many times, we always acted as a news organization reporting on the newsworthy events of the day. We certainly included allegations being made by the sitting President of the United States and his lawyers in the aftermath of a hotly-contested presidential election. Now we have been and remain confident in the merits of our position that the first amendment protects a news organization's reporting and allegations being made by a sitting President of the United States. However, the Delaware court severely limited our defenses and trial through pre-trial rulings, one example of being not being able to point to the newsworthy nature of the allegations. So we determined that the best course of action for the company and its shareholders was to settle instead of proceeding with a 6-week trial and potentially 2 or even 3 years of appeals. As you know, we have a pending case with Smartmatic, which is a fundamentally different case than Dominion and that all of our full complement of First Amendment defenses remain, and we'll be ready to defend this case surrounding extremely newsworthy events when it goes to trial, likely not until the calendar year 2025. As regards to our programming strategy in prime time, there's no change to our programming strategy at FOX News. It's obviously a successful strategy. And as always, we are adjusting our programming and our lineup, and that's what we continue to do. We are pleased with the strength of the advertising demand throughout our schedule, but particularly prime time. Steve, do you want to talk to the MVPD?

Yes, sure, on the affiliate. So Robert, yes, listen, we're pleased with the way our affiliate negotiations are going. You know that this year, we had roughly 34% the total affiliate book up for renewal. We've been successful in generating and establishing new pricing benchmarks for the network in FOX Sports or retrains and Fox Sports in those negotiations. And so with another sort of 1/3 of our book due for renewal in fiscal '24 and a touch under 30% during fiscal '25, we feel pretty confident that we can continue to deliver pricing gains in subscribers. If the subscriber rate of attrition stays at the same level, we expect to post ongoing affiliate revenue growth for the company.

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

I just want to ask about advertising. As you guys look into the rest of the year and head into the upfront, does Tubi give you guys an advantage as you go in to what is, at least, I would describe it as a soft demand environment for advertising and trying to drive pricing kind of across your properties, particularly with the new Tubi Media Group, just wondering if you think that's going to matter enough this year for us to maybe notice as we head into the fall. And then just on the direct response weakness at FOX News, do you guys have any visibility on sort of whether that's improving here in Q4 or what the drivers of that are? Any relationship to sort of some of the broader volatility around FOX News? Just wanted to get your updated thoughts on that.

Thanks, Ben. I'm glad Robert left your question. But on advertising, look, we -- I think you've alluded to a softness in the market. We're really not seeing that across our major platforms. I'll give you a bit of the detail. The national market, the sports market for us is very strong, very robust. Obviously, as we enter the summer, it's a slower acquired, a quieter -- always is a quiet period for us until the fall when our key marquee sports programming is on air, but we are seeing pretty robust demand for time and availability in the sports market. So we're very confident with sports. In news, the direct response issues, which is a market issue, it's not a FOX News issue, has stabilized. So we're not seeing any more deterioration in direct response pricing. So we feel pretty confident in the stabilization of that piece of revenue. Again, that's really a product or a result of oversupply in -- with our competitors with direct response. It's not so much a FOX News issue, but it's something that certainly has affected our ability to achieve the premium pricing that we've been used to. But again, that issue has stabilized, and we think it offers us a pretty good platform going forward. Another thing to mention on news, which is just a small data point, we're seeing political revenue earlier than we've ever seen before. It's still small, but it's sort of unheard of to have it this early in the political cycle. So again, we think that bodes well for the fall and as we enter the more significant part of the political cycle. And then coming on to Tubi, the revenue is accelerating there. It's -- revenue is -- while it's accelerating pretty strongly -- Gabby doesn't want me to give the number. It would break most of your models. But it's not keeping pace with TBT. TBT continues to grow even faster, which is a great metric. So we have the avails. We're looking forward to Tubi being a central part of our upfront negotiations. It's clearly not only a strategic driver for us but have been an important driver going forward. Then when you get down to local base markets, that's where we're seeing more mixed results in the different kind of verticals of revenue. We're very pleased to see auto, again, continuing its rebound with strong growth in the auto category. The entertainment category, we're also seeing growth in and the restaurant category, where we're seeing growth in. But this is offset by weakness across other categories such as retail, telecom, and sports wagering and betting. So the local market does feel -- overall. But again, we're looking forward for our businesses. Particularly in sports and news, we're looking forward to a strong -- a decent summer and a strong fall season. I think that's all the questions. Thanks, Ben.

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

A couple of questions and then a quick one. On tub, it sounds like your TBT is still outgrowing revenue, but are you starting to unleash the revenue and profit there a little bit. And then on the legal side, any direction on legal expenses from here? And then one stand-alone, any thoughts on appropriate leverage and capital return from here? We appreciate the $1 billion, but how should we think about this? Are you still going to sit on the cash until we get to the next sort of legal view? Or should something happen between now and then?

Thanks very much, Phil. On -- let me start with Tubi and apologies, Steve, for the capital management element of the question. So on Tubi, we're going to continue to invest in Tubi. It's at the same levels. We've been investing over the last year or so. We just think it's a tremendous opportunity for us. As I mentioned in my comments, the fact that we're now -- Nielsen's Gauge now has us over 1% of the U.S. television viewing is a tremendous sort of benchmark to have hit, and I see continued growth there. So from a consumer aspect and from a marketer's aspect, Tubi is becoming more and more a central part of usage and sort of an opportunity. And this is really because the focus Tubi's had or not -- we think of it over the last 3 years with our involvement, but obviously, the team there has done a tremendous job not only over the last 3 years but before that in really sort of driving sort of the best-in-class personalized AVOD experience, building an incredible library with nearly 55,000 titles in the U.S. alone. And again, to put that in context, that's 5 times the size of the Netflix library and now really being able to monetize that viewing in a more efficient, better way. So we're incredibly optimistic. And I would say the results are -- and we're incredibly pleased with the performance of tb going forward, and we think it's an appropriate area for us to continue to invest in. On the -- I'll turn it over to Steve on the -- on sort of capital management. But just on it, I'll just start by saying, look, we have a $7 billion buyback authorization. I think we spent about $4.4 billion of that. So we've -- my math's incorrect this time of the morning, a $2.6 billion remaining of the authorization. We fully expect to deploy all of that capital back to shareholders through our buyback. And any litigation has no impact on that at all. Yes, Steve.

Thanks, Lachlan. So Phil, just to go back on legal costs, legal costs over the last two orthree3 quarters have been elevated. Obviously, we've been deep in the depositions and pretrial preparation for Dominion. So I'd expect that to subside over the next couple of quarters. And then to just pick up on Lachlan's point, listen, we -- the leverage is the debt we have, $7.2 billion, we've got a maturity in January, which we'll make a call on as to whether to repay or refinance. But the leverage feels about right where we are at the moment. And our cash position is strong. And so we would anticipate whatever happens with future litigation, we can continue to continue to go with our buyback pacing as it has been over the last couple of years now or a few years now as well as leaving us flexibility to invest in the business or take advantage of any inorganic opportunities, but we'll be balanced about it as we've been saying since the formation of the company.

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

Great. Maybe getting back to the sports theme, where viewership remains strong, I'd say, across the board. I mean First of all, how would you gauge the success of the USFL? Second, anything you could tell us about your appetite for additional sports rights, especially to fill in the summer months? And then how does the sort of relative weighting on sports versus entertainment programming position you guys given what could be a protracted writer strike?

Thanks, John. Look, USFL, it's still -- it's just the start of the second season. We're very pleased with it. We're pleased with both its ratings, the quality of the games, its performance on television and ratings. And also, frankly, it's a performance on the ground with ticket sales and engagement with football fans. So early days, but we couldn't be more happy with it -- with how it's tracking today. In terms of additional sports rights, we look across our portfolio of sports rights. We're constantly managing them. We look at sports rights as they come up. And we also look at them as they get renewed just to make sure that they are efficient for us and that we're paying a responsible and appropriate amount for those rights. So we're constantly adjusting, but we do it with, I think, a real commitment to discipline in terms of what rights we would acquire or dispose of. So it's a moving -- it's always a moving feast, but I wouldn't expect anything dramatic at all in that area. What was the last question? The writer strike. So thank you. On the writer strike, look, I think for us, we are well positioned for the writer strike. We think that with our strategic priorities and sort of strengths in sports but also in news, these are 2 areas that are not affected by the writer strike. And the audience will pivot on a -- when they're watching television to those categories. In entertainment, you have to remember as well, we only program 2 hours of entertainment at night. That's a mixture of both scripted and unscripted content. So we feel very well positioned there with that not to be affected by the writer strike really at all. There'll be some scheduling changes with some of this descriptive content, but it's not something that'll have a significant financial impact on us.

And that last question will come from the line of Jessica Reif Ehrlich with Bank of America.

I just wanted to maybe follow-up on Lachlan's last point that you're not overly dependent on live and unscripted -- I mean, given you're live and unscripted, you're not overly dependent on the writers for entertainment. So given that, like, can you talk about your outlook for the upfront, also given macro, I mean, you seem to be in a very different position than most people, but the market is, most people say choppy, and then also given the decline in the paid TV universe. Can you just talk about how you see FOX News and sports transitioning over time?

So look, I agree with you on the writer strike. I think for us, our focus on sort of live, live news, live sports, and frankly, the network a healthy balance of scripted and unscripted content on the network puts us in a tremendous position. I think what it -- the timing of the strike, obviously with the upfronts next week creates some what's the word I'm hesitancy of? It's hard to present an exact schedule, right? I you're only in entertainment, it's not if you're in news and sport. So I think it positions us very well in the upfront. And that's, of course, as I mentioned before not including the strength of Tubi going to this upfront as well. And Tubi will certainly be front and center in all of our upfront presentations, but also in our negotiations going forward. So, we feel very well positioned. It's early with the upfront, these negotiations will take time, but I think we're in a best position as we could, you know, possibly, hope for. In terms of the, you know, so the cable universe and what we plan to do with news and sport, you know, going forward in terms of any sort of a direct-to-consumer or alternative kind of distribution strategy. You know, as I think we've said before, you know, we are ready to go. We have the technology in place. I think we have the, you know, the teams and the people in place to go D2C when we deem that necessary or prudent. But, you know, for the moment we continue to drive industry leading pricing out of the MVPD and DMVPD universes. Steve mentioned this before, our pricing has been, it's not theoretical. Our pricing has now been set in contracts, going forward. So for the -- we have a third of our distribution deals by third volume this year, this fiscal year, and another third, the next fiscal year. And we're very pleased with where we sit and where we've established a market price for our brands. The, -- and when you, just speaking of the brands, when you have, when you have the best sports business brand and the best news business and brand, these are products that ultimately right, will be part of any scaled platform, regardless of what technology is used to deliver that content and that platform. And so we see D2C in the future, and it will come eventually, as just one component of a broader distribution strategy. But it's certainly across any of those platforms or technologies, it's hard to see not having our sports and our news on those platforms. So, we feel pretty well positioned, Jessica,

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.

And ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation and for using ATT Executive teleconference. You may now disconnect.