Ladies and gentlemen, thank you for standing by. Welcome to the Fox Corporation Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we’ll conduct a question and answer session. I would like to emphasize that that functionality for the question and answer queue will be given at that time. [Operator Instructions] And as a reminder, this conference is being recorded. I will now turn the conference over to our Chief Investor Relations Officer, Mr. Joe Dorrego. Please go ahead, sir.

Thank you, Operator. Good morning and welcome to our Fiscal 2022 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.

Thanks, Joe and good morning, everyone. Thank you for joining us on this call. I don’t know about everyone else but I often find early mornings after a coffee or two or three to be good time to reflect on the progress we are making and to plan the days or weeks ahead. Sitting here on the FOX lot with my colleagues, I can recall our investors that when we saw all of you or most of you in person and kicked off the new FOX, now already a few years ago, some of you’ve asked then correctly, could the new streamlined FOX aggressively grow its top-line revenues? And what we committed to you then that we would add $1 billion of television distribution revenue by calendar of 2022, we all knew that proof would be in the pudding. So what’s pleasing that this quarter, we again delivered healthy distribution and advertising revenue growth across our brands and complemented by further stellar growth at Tubi. Overall, we delivered 7% revenue growth led by 9% advertising growth and 5% growth in our distribution revenues. As a reminder, this 5% growth in distribution revenues does not include the benefit of any material renewals this fiscal year. Those renewals start next year and our advertising growth was notably broad based. Cable Advertising grew by 20% in the quarter. This growth was driven by FOX News as its pricing and ratings trends more than offset the elevated level of preemptions due to the coverage of the war of in Ukraine. Television advertising grew by 6% in the quarter. This increase was led by Tubi, which saw its advertising growth accelerate from approximately 40% in the December quarter to 50% on the back of increased engagement. In addition, continued strong demand for sports drove overall…

Thank you, Lachlan, and good morning, everyone. Our third quarter results once again reflect the strength of our leadership brands and the continued growth of our digital businesses. We achieved total company revenue growth of 7% year-over-year delivering top-line growth across all of our operating for the fourth consecutive quarter. Total company affiliate revenues increased 5% despite the fact that only 5% of our total company distribution revenues have been up for renewal this fiscal year. Meanwhile, the rate of industry subscriber declines remained steady in the quarter with trailing 12-month sub losses running below 5%. Total company advertising revenues grew 9% as our leadership brands once again delivered premium pricing, coupled with continued strong momentum at Tubi. Quarterly adjusted EBITDA was $811 million, down 10% over the comparative period last year as the revenue growth was more than offset by higher expenses. As we’ve foreshadowed on prior calls, the increase in expenses was mainly driven by the anticipated increase in digital investments including FOX News Media and Tubi. Additionally, we saw high programming rights amortization and production cost at FOX Sports and we’re impacted by an approximately $30 million write-down of certain scripted programming at FOX Entertainment. Net Income attributable to stockholders was $283 million or $0.50 per share compared to the $567 million or $0.96 per share we reported in the prior year quarter. As we have seen in recent quarters, this below the line variance was primarily due to the change in fair value of the company’s investment in Flutter which we recognized in Other net. Excluding this impact and other non-core items, adjusted EPS was $0.81 per share, compared to last year's $0.88, primarily reflecting the movement in EBITDA. Now let's turn to our business segment results starting with Cable Networks, which reported an 8% in…

Thank you very much, Steve. As you know, we usually, after Steve's comments, we go straight to Joe and start the questions. But we have a breaking news, which I am in the spirit of being always open and giving our investors and our shareholders the latest news in the company. I'll go straight to this. I mean, literally, this is happening in real-time. We are pleased to announce that immediately following his playing career, whenever that may be, seven-time Super Bowl winner Tom Brady will be joining us at FOX Sports as our lead analyst. Over the course of this long-term agreement, Tom will not only call our biggest NFL games with Kevin Burkhart, but will also serve as an ambassador for us, particularly with the client and promotional initiatives. We are delighted that Tom has committed to joining the FOX team, and we wish him all the best during this upcoming season. I am sure everyone joins me in warmly welcoming Tom Brady on board. Thank you very much. And with that, I'll hand over to Joe

Thanks, Lachlan. And now we'd be happy to take questions from the investment community. .

[Operator Instructions] We have a question from the line of Ben Swinburne. Please go ahead.

Well, I want to ask when Tom Brady is actually going to stop playing, but I'll save that for an off-line conversation. Congrats on that deal. I wanted to ask you guys about Tubi heading into fiscal 2023. Could you talk a little bit, Lachlan, about how you plan to position that business in the upfront to the extent you can share any goals in terms of how much of that business may actually be sold in the upfront? And how are you guys thinking about investments relative to letting that business start to generate some profits next year as you continue to obviously see a lot of top-line growth? Thanks.

Thank you, very much, Ben. Look, I can tell you on the first part of your question that, like I said, we're incredibly excited to have Tom joining us. It's entirely up to him for when he chooses to retire and move into his, what will be exciting and stellar sort of television career, but that's up to him to make that choice when he sees fit. In regards to Tubi and the upfronts and how that plays into sort of how we position the Tubi business going forward and to when it returns to profitability, it's important to note that on Monday, when we are engaged in our upfront presentations, we've already spent several weeks engaging with clients and advertisers on upfront negotiations and Tubi has been at the forefront of all of those conversations. I think our clients can see both the shift to AVOD and the streaming advertising. At the same time, they see the strength of where Tubi is positioned as a leader in that market. And then we're constantly on a regular sort of daily basis, balancing carefully the ad load in Tubi and the fill rate of that – of those advertising slots. And as you know, Tubi has an incredibly intelligent ad tech that can do that dynamically viewer-to-viewer, customer-to-customer. We can dial that up or dial it down really as we see fit, but we think it's important that this early life cycle of advertising video-on-demand services to maintain the highest sort of quality viewer experience and kind of consumer experience on the service. So we're pleased with where that is. But really, it would be up to us to be able to increase that ad load and drive revenue and bring it back to profitability, which, as you know, Tubi has been profitable in past quarters. But as of today, the right strategy and the right way forward is to continue to carefully and deliberately invest in the growth of Tubi, which I am – which we think is going to really be the leader in advertising video-on-demand certainly in this country.

Operator, we can go to the next question. .

We have a question from Jessica Reif Ehrlich, Bank of America. Please go ahead.

Thank you. Trying to think of how I make this one question. So your two key drivers are obviously advertising and distribution revenue. And in the advertising, you're incredibly well positioned going into the upfront, given as you highlighted your incredible array of marquee sports. You'll also have USFL coming in and news couldn't be more dominant. So just, can you give us color on expectations for, I mean, your positioning is great, but expectations for your performance in the upfront market and the health of the overall industry? And on the Pay TV side, while your - again, outperformance in news and other areas is very strong, Pay TV market has been shrinking. You seem pretty confident about the affiliate renewal cycles coming up. So, can you give us color on that and how you offset the shrinking universe?

Sure. Thank you, Jessica. I am not sure if there was two questions or seven, but they are always good questions. So, thank you very much.

Thank you.

On the outlook, so I think I'll remember to advertise – to answer most of them as I go through this answer, but from a advertising perspective and particularly heading into these upfront negotiations, we're already in the upfront season, but as we get to the pointy end of that that season, we're seeing really solid demand across our businesses. In pricing, entertainments seeing pricing in the sort of high-single-digit, mid to high-single-digit sort of range above last year. But in Sports News, as you said, we are very well positioned. We are seeing sort of our pricing in sort of mid-double digits. So sort of the mid- to high teens pricing increase is driven by demand across some live sports and live news. So, as we – that gives us a great deal of confidence as we move into these upfront negotiations. You add to that, obviously, the inclusion of Tubi with 50% growth in DVT time and engagement. It's a really strong position to be in. Our sports properties are driving and that our must-have sports tent poles this year are really driving a lot of interest from our clients. If I could give one word of advice, which I wouldn't do, but if I can give one word of advice to our clients and advertising partners, it's getting in early because these – some of these key events are selling extremely well already. So, we fully expect to see sort of continued advertising strength. That's without even talking about the mid-term election cycle, which by all estimates will be a record mid-term cycle for us. We keep a close eye on the races in all of our markets and it's pretty amazing to see where we have not only tight races, but also contested primaries pretty much…

Operator, we can go to the next question.

We have a question from Robert Fishman of MoffettNathanson. Please go ahead.

Good morning. A question on television profitability. Given the $30 million write-down of the scripted programming at FOX Entertainment in the quarter and then as we get closer to fiscal 2023 when Thursday night football losses go away, can you just help frame the other swing factors that could impact a big increase in television EBITDA next year? And maybe any early look into incremental digital investments and how you are thinking about the general entertainment programming spend to help fill that Thursday Night programming gap? Thank you.

So, hey, Robert, how are you? The – one of the pieces of work that the entertainment network has sort of undertook over last year, but it's our – it’s earlier than that is really the ability to kind of transform that business to where it can tightly control its programming costs in a way that really has them at a level that really hasn't been achievable before. This goes to the acquisition a few years ago of Bento Box, so we can control more of our animation costs. It goes to the acquisition of TMZ, so we can really control, sort of high-quality factual content and specials that we put on the network and other things such as MarVista. MarVista is focused a bit more on Tubi. So the work in the background of being able to own and control, I should also mention, by the way, I apologize for not, very importantly, the joint venture with Gordon Ramsay Productions, that's incredibly exciting. Gordon has been a key partner of ours for many, many years and his plans for the growth of that business, not just in the U.S., but what we can do with the IP, Gordon Ramsay's IP around the world is really exciting to see. So we have high expectations for that partnership. So all of that really feeds into the network's really ability to control its programming across multiple lots. As you know, the FOX network is only two hours a night in primetime, and so it's an easier volume of hours to digest and the program towards. What was the last part of the question?

Yes. So, Robert, just in terms of the swing factors, listen, there's a ton of tailwind behind the TV segment going into next year. So you called out Tuesday night football dropping off. So that, I think we've said in the past, that release is around $350 million to $400 million to the bottom-line for us, net-net-net. But then you've got all the other things that play into next year for us. So you've got Super Bowl, political, and you've got the FIFA World Cup, and then you've got Tubi with the momentum that's showing top-line. So, we couldn't be better positioned for fiscal 2023 from a Television segment perspective.

You can stay more pleased. Steve is very careful.

Thank you.

Operator, we can go to the next question.

We have a question from Doug Mitchelson of Credit Suisse. Please go ahead.

Hi, Lachlan and team. Thank you for taking the question. Should investors expect fiscal 2023 to see operating leverage against your digital investments, revenue growing faster than OpEx with those? And Lachlan, I am not sure if you're prepared to give any sort of update on ambitions for Tubi, but it's been growing rapidly, you're investing a lot in it. And FOX has been in kind of the interesting investment in that not making a strong pivot to streaming to some of your peers, but yet Tubi is an interesting investment opportunity that's impacting margins this year. So just kind of understand where you think that asset could go and what the investment cycle looks like would be helpful I think? Thanks so much.

Thank you very much, Doug. So look, we see the level of investment this year in our digital properties, and that's Tubi, but it also includes FOX Weather and FOX Nation and some other smaller – small elements. We see the current level of investment at the appropriate level, going forward. So that's in that that we've guided the market between $200 million and $300 million that we're putting back into investing, into growing those businesses. And we would not expect any kind of significant level above that on sort of our current plans. And we think that level is a right amount, particularly with an asset like Tubi that there really is really going to be the future of how people watch television in this country. We think, when you look at Tubi, it's interesting, I looked this up the other day. But Farhad really began Tubi or the early version of what ultimately became Tubi with an ad tech business over 11 or 12 years ago. And that ultimately evolved into Tubi as he understood the value of taking his intelligent ad tech business and then – and actually licensing programming along with that to monetize that programming most efficiently. And as I said before, it's great to have the Tubi team as a company really focused on the technology side of this business and understand how they drive engagement and drive viewing, which is very different from what an older sort of media model or viewer of it would be. So, because of that and because of the long track record, the lead time they have, the fact that they've been doing this a long time, we think it's really poised to continue to win in the market and that level of investment is the right level to help it as you've been.

Operator, we have time for one more question.

Our last question will come from the line of Steven Cahall of Wells Fargo. Please go ahead.

Yes. Thanks very much. Good morning. Maybe first, I am sorry if I missed this, but I think you maybe indicated that you could be at an end of arbitration by June. So I just wanted to see if that timing is still correct? And would love to know if you have any metrics to update us on for FOX Bet and how that's continued to grow? And how you kind of feel about the relationship with Flutter and some of your strategic opportunities there? And then also, as we think about long-term sports rights, you've got a lot of rights, especially digital rights. Do you see those as largely staying inside the linear ecosystem? Or do you think there is an opportunity to sub-license some of those to some of your peers who are spending a lot on their a la carte streaming products? Thank you.

Thanks very much Steven. So, in terms of our sports wagering strategy and business, we are – we remain in arbitration. And we expect in the summer that that arbitration to be resolved if not sooner and there is not much more we can say about it. But it's been, as you know, a long and sometimes arduous process. But the most important thing to remember, I suppose is the value of the business that we've created and the value of that sort of top of the funnel with FOX Bet. Super 6 in particular, a free game with $6.6 million, I believe, now and we're in a traditionally, a quiet period for sports rate and particularly around, obviously, with no football. And so, the FOX Bet businesses continue to do incredibly well and continues to be able to drive wagering customers into paying games. So, we're incredibly pleased with how we've delivered operationally on our side of the partnership. So we look forward to the end of arbitration and moving forward with our wagering strategy. In terms of sports rights and whether we would – whether they remain on linear, our own sort of owned sort of linear platforms, absolutely. We think that our key rights deserve the right, the ability to stay on our broadcast and cable networks exclusively. This is very important to us. It both gives our league partners the most breadth and reach that they can achieve in viewership for their fans, but also it's really key to our distribution strategy. It's how we will deliver industry-leading distribution revenue gains by keeping the highest quality exclusive content within our platforms, as I said, exclusively. And sub-licensing those to others or to put behind a struggling payroll would not be the right strategy.

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.

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