Ladies and gentlemen, thank you for standing by. Welcome to the Fox Corporation's Second Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to 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 2024 second 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 thank you, all for joining us this morning. Against the backdrop of an active news cycle and another robust fall sports schedule, our fiscal second quarter again illustrated the strength of Fox. The growth we delivered in affiliate fee revenues was the standout this quarter, with the Television segment growing by 10% and the Cable segment returning to growth, once again demonstrating the power of our brands and our programming. We now largely completed our fiscal 2024 affiliate renewal cycle, having achieved our commercial goals without disruption and setting a solid foundation for renewals in fiscal 2025 and beyond. As expected, advertising revenues in the quarter were down, primarily due to comparisons to last year's major cyclical events, including the mid-term elections at the TV stations and the broadcast of the Men's World Cup in the Cable and Television segments. Parsing through the cyclical comparisons, our concentration in News and Sports coupled with the outstanding performance at Tubi is clearly an advantage in a mixed advertising environment. More specifically, sports advertising was very healthy during the quarter and we saw particularly strong demand for the NFL and College Football, which continued into the NFL playoffs. At News, the second quarter was more nuanced, while preemptions and the direct response market adversely impacted quarterly growth, we sequentially narrowed the gap between the current and prior year in ratings and in pricing. We were also able to increase our viewing share over the previous quarter, and the positive trends in share ratings and pricing have carried over into the current quarter. Last week, I visited our bureau in Jerusalem, met with our talented and dedicated staff there, and saw firsthand the devastation wrought by Hamas on October 7. Our hearts, our thoughts and our prayers go out to…

Thanks, Lachlan, and good morning, everyone. With the vast majority of our fiscal 2024 affiliate renewals now successfully completed, Fox delivered 4% growth in total company affiliate fee revenues, led by 10% growth at Television and a return to growth at Cable. This growth reflects the must have nature of our content and the value that our distribution partners place on it. Consistent with our expectations regarding event cycles, advertising revenues this quarter were impacted by the absence of the FIFA Men's World Cup at FOX Sports and mid-term political revenues at the local television stations, along with lower advertising revenue at FOX News Media. Collectively, these factors contributed to a 20% decline in total company advertising revenues. Total company other revenues grew by 14%, driven by higher sports sublicensing revenues. All in Fox reported total company revenues of $4.23 billion, down 8% from the prior year. Total company expenses decreased 5% over the prior year, primarily due to the absence of the Men's World Cup at FOX Sports and fewer hours of original scripted programming at FOX Entertainment due to the strikes. However, this was partially offset by the first year step up under our new NFL rights agreement. Quarterly adjusted EBITDA was $350 million as compared to the $531 million reported in the prior year quarter. Net income attributable to stockholders of $109 million or $0.23 per share, compared to the $313 million or $0.58 per share reported in the prior year period, largely due to the EBITDA impact I just mentioned, along with the net changes in the fair value of the company's investments recognized in other net. Our effective tax rate for the quarter came in at 12%, reflecting a one-off remeasurement of our deferred tax assets as a result of changes in state tax laws.…

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

[Operator Instructions]. We have a question from Ben Swinburne with Morgan Stanley. Please go ahead.

Good morning. Lachlan, obviously, big news in the news, sports joint ventures. I'd love to get your thoughts, really around that product and opportunity in kind of two areas. First is, what is the opportunity that you guys see in the United States for a product like that? Obviously, we're all focused on the cord cutter sort of TAM, but how many people do you think are interested in a product like this? And then do you see any risk to particularly Fox News, this is the first time you guys have offered a product with just Fox broadcast. So how'd you balance that when you thought about putting this business together? Thanks so much.

Hey, thank you very much, Ben, and good morning. So the opportunity is huge. And that's really because this sports focused platform is focused entirely on cord -- not cord cutters, but cord nevers. So if you look at the American market, roughly, say, 125 million households in America, and roughly half of those are not within the traditional bundled cable ecosystem. And so the target for this product, which is going to be, I think, incredibly innovative when you see it roll out is really that universe of, call it, 60 million odd households that currently don't participate in the bundled cable and pay television ecosystem. So we think it's a tremendous opportunity. We've been working on it for; I think it's been reported this morning fairly accurately for several months now. I've been lucky enough to -- I have seen some of the prototypes for this service. And again, it will be unique. And I think very innovative when you see it rollout. In terms of the risks, and particularly for Fox News, I think the risks are very low, and that's because of the focus of the sports product being on the cord nevers. Fox News continues to be the top rating cable network. And our distributors, our partners, really value that channel and that brand as it really drives tremendous viewership and audience and engagement for them and we think we'll continue to do so within the traditional cable and pay television bundle. Thank you, Ben.

Operator, next question, please.

We go to Robert Fishman with MoffettNathanson. Please go ahead.

Good morning, everyone. Sticking with the sports news, so we've long discussed with you the benefits of Fox to a sports led skinny bundle. So I'm just wondering, any additional background you can share on what pushed this deal forward now, including maybe any flexibility you built into your recent affiliate fee renewals? And then on a related note, should we expect to see any changes in your approach to negotiate future sports rights and any comments you want to share about the Netflix, WWE deal that might impact these negotiations going forward. Thank you.

Well, let me start back to front, Robert. So there's no impact on the Netflix, WWE deal at all. So I don't think that plays a factor in this. And in fact, in how we approach our portfolio of sports rights, we will be aggressively competing in the sports market for sports rights that nothing has changed there. The primary business and value in Fox Sports is competing both for every subscriber in the traditional cable -- Pay TV bundle and advertiser viewer and ultimately advertiser. So sports remains a competitive business, which, we -- frankly, we thrive in, and we don't see any difference to that. What led to this? Now, I think we've answered many questions on these quarterly calls over many years about that when we are ready to launch a streaming service such as this, and we will do it. And we've been monitoring the space, obviously, for years, past few years in particular. And as we developed with our partners the concept around very unique and innovative products, we felt now was the right time to launch such a product really into a new market, right? It's a new market where there's no product serving the sports fans that are not within the cable or TV bundle. So it accesses -- for us, it accesses a whole new market and really drives tremendous amount of new reach that we weren't servicing before.

Operator, next question, please.

Next is John Hodulik with UBS. Please go ahead.

Great. Thank you. First, just quickly on the sports TV, just any cash contribution or can you size any cash contribution required from Fox? And then turning to advertising, obviously, a number of things affecting the numbers this quarter. You guys have some positive color as we look into next quarter. Just any color, one, I'd say, on the TV side, what you're seeing at this point in terms of political, and then with the improvement in the ratings and the year-over-year, the gap that you're seeing closing, can we assume that the 23% on the cable outside is sort of the worst number and any color on the sort of slope of the improvement we should see as we head through the year? Thanks.

I've lost track forgive me. Okay, so [indiscernible] advertising and cable --

Cable advertising.

Cable advertising.

Gabrielle, you got it.

After this, we won't need any more questions. We'll cover the whole gamut. Thanks, John. On the cash side, I'll let Steve fill in. But it's some -- obviously this business has both the marketing and other costs associated with running the business in the partnership. But there's also the revenue that we garner through affiliate fees for our networks that come out as the business grows. But I'll let Steve on the details.

Yes. So John, I think it's a touch early for us to be giving some forecasts around sort of the contribution or deficit from the JV, but sort of as we look at it, it'll be accretive to us from a net-net perspective when you take into account the affiliate fees that we'll collect as revenue versus whatever funding we need to make to the JV. We think from a net-net to Fox perspective, it'll be accretive pretty quickly.

And then, on advertising, I think the advertising outlook is, as I -- as mentioned with news, but you could apply this term to the overall market. It's nuanced as we look at it. If I start with sports, we had a very solid regular NFL season from an advertising perspective, and I think a stronger NFL post-season, which we were very pleased by, but also that was a smaller revenue line. But we had a fantastic College Football season, really, I think the story of this past autumn was really the strength of College Football, and particularly as advertisers, you sort of founded and appreciated the quality of the audience watching College Football. Coming up, if we look forward, obviously we have the DAYTONA 500 and then the start of the regular Major League Baseball season in March. And there's a lot of positive momentum with advertisers with those. Fox News, you have positive trends of VR pricing. Direct response pricing is still down, but as you start to lap the comparisons from last year, it's certainly improving quite a lot. We have an impact from preemptions with election and unfortunately with war coverage. So the preemptions are affecting and ratings are continuing to improve. So we're happy with where we are at Fox News as all those trends are improving steadily. Local stations is probably the most mixed. But you have a bad comparison, particularly in the current pacings with Super Bowl comps this time last year. It's probably about $50 million in Super Bowl revenue, just in the station group this time last year. So the comparisons are quite tough as we go forward, but we remain confident that we'll see a record political cycle. This is slightly ameliorated, I think in the current quarter with the…

Next question, please, operator.

It is from Jessica Reif Ehrlich with Bank of America Securities. Please go ahead.

Thank you. Back to the sports platform, Lachlan, you seem really confident that it won't affect the Pay TV bundle, which is, I just want to get some color on that, given that sports has been really the glue that's kept it together. So why do you feel so confident that it will not impact that? And then what is the openness to ad partners, and will this have a separate advertising organization? How will the ads work in your content?

So, hi, Jessica, by the way, so the -- first on how it affects the overall Pay TV bundle, again, the key market, the market that we will be driving towards is the market that sits outside the sports fan who sits currently outside of the traditional Pay TV bundle today, and there's tens of millions of them. So we are very confident that this is a large market and a large opportunity that we can address without undermining the traditional bundle. We -- obviously, we've been working on this for several months. We've done lots of sensitivity analysis, and we would not be launching this product if we thought it was going to significantly affect our Pay TV affiliate partners, and that's very important to us. We remain, I think, the biggest supporters of the traditional Pay TV bundle. We think there's tremendous value in the Pay TV bundle for the consumer who wants to get it all at an affordable price. The big bundle is still the best way to get that programming and those brands. So we are confident that this product will be additive and will give us incremental subscribers and not affect significantly the traditional bundle. And the openness to add partners, that's not something that we're considering at this stage. We think that the 14 linear networks that this service offers gives people a tremendous amount of content between ABC affiliates, Fox affiliates, ESPN, ESPN2, ESPN News, the SEC Network, Fox affiliates, Fox Sports 1 and 2, the Big Ten Network, TNT, TBS and others. It's a tremendous offering that covers the majority of the key sports in this country: NFL, NBA, WNBA, Major League Baseball, NHL, et cetera, college, obviously NASCAR and so on. So we think it's an incredibly strong offering and at this stage, we're not contemplating adding partners to it. I think the third question, Jessica was on advertising revenues. And so advertising revenues will flow through this, so that the advertising that we have on our linear networks will flow into this service and will just give us increased reach to market that hasn't seen those that advertiser engage with those clients before. So we think it's a net positive. Thank you, Jessica.

Operator, we have time for one more question.

Very good. That will come from Michael Morris with Guggenheim. Please go ahead.

Hi, good morning. Thank you, guys. So I wanted to ask about two areas of strength in the quarter. The first one on the sports sublicensing. Can you share a little more detail on what that was, how it impacted profitability, and how to think about whether or not that's a recurring revenue and profit source? And then my second question is on the affiliate acceleration, which is great to see. We know that the rate of cord cutting is going to be impactful on that number. It's very hard to predict. But on pricing alone and the precedent that you just set, should we look at this as the first quarter of a sustained stronger pricing dynamic? And how long do you think we should anticipate that you can continue to see this type of growth being fueled by those new contractual relationships? Thank you.

I thought it was unfair that Steve would get the easy question and then you asked the second question. So anyway, good morning, Michael. I'll let Steve address the sports sublicensing first.

Hey, Mike. So our sports sublicensing revenue we have in the Cable segment. So we have -- we earn sports sublicensing income in relation to various sort of college sports properties and international soccer rights. Some of these rights come with some variable based economics to them, which we saw in the quarter. I think you should see this as somewhat a one-off. It's not going to repeat like this in future quarters, future years. And if you want to try and dimensionalize it, then the size of the increase in cable other revenues between this quarter and previous quarter last year is a pretty good guide to the net benefit to us from those sublicensing arrangements.

So on the affiliate revenue acceleration, I think the -- if you look at it in two, can we sustain that? We've now completed all of our distributions or renewals in this cycle that will affect the remainder of this fiscal year. So there's no more renewals negotiated that will affect this fiscal year. And obviously then we're rolling into renewals that will take effect after this fiscal. If you look at the underlying rate of decline around 8%, and this goes back to a little bit of what John's question, if we look at that 8%, actually in September and October, it was better than 8%. It was a little bit better. And then -- and this, we believe was the impact of football and sports viewing in the fall. But then after October, sort of as you get into November and December, the rate returned, decline returned to its sort of baseline at 8%. So for the immediate future, we don't see that changing. There's some cyclicality within that. But I think the 8%, yes, number that we're sort of baking into our assumptions. With that, we believe as we've achieved in over the last year, where we've renewed over a third of our distribution, we've been able to achieve rate increases that have made up for those declines. And that is because of the strength of our brands, the strength of our programming, and really where they sit, having sort of a focused strategy on a key number of very core brands that are essential for the -- for distributors and for their customers that will be able to maintain similar rates of change going forward. Thanks, Mike.

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 again for joining today's call.

Thank you.

Thanks, everyone. Have a good day.

Ladies and gentlemen, that does conclude your conference call for today. Thank you for using AT&T executive teleconference. You may now disconnect.