Ladies and gentlemen, thank you for standing by, and welcome to the Fox Corporation Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I'll now turn the conference over to Chief Investor Relations Officer and Executive Vice President of Corporate Initiatives, Mr. Joe Dorrego. Please go ahead, sir.

Thank you very much, operator. Hello, everyone, and welcome to our fourth quarter fiscal 2019 earnings conference call. Joining me on the call today are Lachlan Murdoch, Executive Chairman and Chief Executive Officer; John Nallen, Chief Operating Officer; and Steve Tomsic, our CFO. First, Lachlan and Steve will give some prepared remarks on the most recent quarter and fiscal year, and then we'll be happy to take questions from the investment community. Please note that this call may include forward-looking statements regarding Fox' financial performance, operating results, strategy, among other things. These statements are based on management's current expectations, and actual results could differ materially from what is stated as a result of certain factors identified on today's call in the company's SEC filings, including the company's registration statement on Form 10 and subsequent quarterly reports on Form 10-Q. Additionally, this call will include certain non-GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and our SEC filings, which are available in the Investor Relations section of our website. With that, I'll turn the call over to Lachlan.

Thanks, Joe. Good afternoon, and thank you all for joining us today on Fox Corporation's year-end earnings call. While we are ending a fiscal year, we're also just starting our growth trajectory and are hitting key milestones at a good pace. Specifically, we just reported strong financial results. We recently concluded a very successful advertising upfront, very successful. We're making good progress on our distribution renewals. And we are having a compelling content lineup across our linear and digital channels, all of which positions us well as we commence our first full fiscal year 2020. For fiscal 2019, we delivered exceptional financial results, achieving 12% revenue growth and 8% EBITDA growth. Our revenue growth was led by double-digit gains in both affiliate and advertising revenues. As you all know, about half of our annual revenue comes from affiliate revenue. And despite continued subscriber declines, we achieved 12% affiliate revenue growth in fiscal 2019. Renewing distribution arrangements with our partners is a normal course activity for us, and we have accomplished these renewals without much clamor over many cycles. This past fiscal year was no exception. We were able to reset affiliate rates, particularly in the Television segment, successfully renewing numerous distribution agreements. Today, the remainder of our annual revenue principally comes from advertising. In fiscal 2019, we achieved 10% growth, led by the addition of Thursday Night Football and record gross political revenues of more than $185 million at the FOX Stations Group, surpassing by almost 50% the previous record set in fiscal 2013 during the Obama-Romney election. A particularly noteworthy facet of this year's growth was a 24% increase in digital advertising revenues, led by 46% growth at FoxNews.com alone. Our advertising partners are clearly supportive of our ongoing programming strategy. This year's advertising upfront was one of the…

Thanks, Lachlan. Good afternoon. We are pleased with our first full fiscal quarter as a stand-alone company. As Lachlan mentioned, we delivered both healthy top line and EBITDA growth, with this financial momentum setting us up very well for fiscal 2020. Let me now take you through our financial results for the fiscal year as well as the fourth quarter, along with providing some financial markers for the future. Our full year results saw total revenues grow 12% to $11.4 billion. Our revenue growth was broad-based, with affiliate revenues increasing 12%, led by retransmission revenue growth of the Television segment. Advertising revenue was up 10% on the back of our inaugural season of Thursday Night Football, which added 5 percentage points of advertising revenue growth, coupled with the record year of political advertising at our Television Stations. Within this advertising revenue growth, we were also encouraged with our digital progress, with digital advertising representing close to $500 million or 10% of total company advertising revenue. Finally, we delivered strong growth in content revenue, which we record as part of our other revenue line, supported by the digital licensing of network entertainment programming. Total full year segment EBITDA was $2.7 billion, an increase of 8% from last year, reflecting 8% growth at the Cable segment and 24% growth at the Television segment. At this point, it is worth remembering that when looking at our full year fiscal 2018 numbers as well as the first 3 quarters of our fiscal 2019 results, that these results have been prepared on a so-called carve-out basis. As such, they include allocations of 21st Century Fox overhead and shared service costs in accordance with SEC guidance, which as we have said in the past, understate the costs required to support Fox as a stand-alone business. We…

Thanks, Steve. Now operator, we'd be happy to take questions from the investment community.

[Operator Instructions] We first turn to the line of Michael Nathanson with MoffettNathanson.

I'll ask one to John or Steve. So the first question, when you look at the cadence of affiliate fee growth at Cable, it decelerated from 13 to 11 to 4 to 3. And the question people have with new companies, what drove that deceleration, and when you look ahead to the new fiscal year, what's the cadence of the 38% of the new deals coming due to maybe reaccelerate that growth? So that's one. And then, Lachlan, for you, is I get the Bento Box acquisition, but why is Credible a good fit for you? Like what expertise do you bring to it that perhaps we're missing from the outside?

Right. I'll even answer it now -- we'll start with Steve on the deceleration of cadence.

Yes. So Michael, on Cable, I think, as we mentioned at the Investor Day, the way we see affiliate, we see it in the [ rounds ]. So the split between Cable and Television, the -- is less relevant to us because we negotiate all the contracts in one bulk group. And so we would -- we finished Q4 versus Q4 with a plus 7% growth rate across the whole estate, and so we would anticipate that sort of growth rate at that level or above into fiscal 2020. The reason why Cable had sort of reduced sequentially over the quarter through the fiscal year is just comps just lapping deal maturities. And so as we go into new deals, the focus obviously will be in getting a greater share of fair value on our retrans. So you'll see a disproportionate level of the forward growth still being with -- in the Television segment as opposed to the Cable segment.

Great. And then on Credible, and I'm happy to talk about it, we, as a management team, are very excited, extraordinarily excited about the opportunity that Credible affords us. We look at it, and I think we've talked about this at the Investor Day and since, our key asset is not a skill set necessarily in selling advertising or selling affiliate revenue, although our teams are extraordinarily good at that and those are businesses that, as you've seen in these results, are performing extraordinarily well. But really, our key asset, our key resource is the deep engagement that we have in news and in sport and in entertainment with our audiences. And as we grow our digital platforms out, we are seeing that engagement really importantly and critically extend from a linear, analog environment, to a direct digital environment, which affords us the ability to demonetize that engagement in new models. So that really led us earlier this year to the Stars Group, where we decided with sports obviously entering the sports gaming market was a tremendous -- we see as a huge long-term opportunity for us, and the correlation between, obviously, the sports audience and this is -- should be obvious to most people between the sports audience and the sports-betting audience, is extraordinarily high correlation. And so you could say getting into the sports betting arena is a no-brainer. Well, it's equally a no-brainer with Credible in the news category. If you look, and we've done a huge amount of research and due diligence on this over the last couple of months, if you look at our news audience, and I'm not just talking cable news, but importantly, the nearly 1,000 hours of local news that we produce each week, if you look at that audience, it correlates incredibly highly with Credible's target audience for their financial marketplace. Our audience in news, which is natural, skews slightly older. It skews towards homeowners, and it skews towards an educated audience. And these are all factors that people searching for mortgages, in particular, and refinancing loans skew heavily towards. And so when we saw Credible, and we could see that by combining their service with our audience and our digital platforms, first, with FOX Business and then later through our other news platforms, we see a tremendous opportunity for it going forward.

Your next question comes from the line of Ben Swinburne with Morgan Stanley.

Lachlan, I wanted to come back to the comment you made around digital advertising at $500 million growing healthily. Can you give us a little more color on what is that business? How much of it may be video versus display? How sustainable do you see that growth rate being, especially as you head into what will be a political -- an elevated political year next year because, obviously, that helps sort of insulate the overall ad business to grow across the company? And I just wanted to ask if you had any update for us on the process in evaluating the buyback plans. And as you know, that's a big focus for investors, particularly on the back of some of the acquisitions you've announced.

On the digital advertising front, we're very pleased with its growth. We think we can aggressively push it even further. If you look at -- that's over 200 million unique users of our digital products and as I mentioned, sort of 10 billion views. If I take, for instance, just at FoxNews.com, we are now offering -- doing over 100 million page views per day. I mean yesterday, we did 90 million page views in a day, which was a slow day for us, Ben. But we certainly think we can monetize those page views. We built out the sites and the content more aggressively and faster than we built out our monetization of those views. So we expect to push them further.

And Ben, just to pick up on that, it's a pretty good spread where we get our digital advertising revenue from across FOX News, the entertainment side of things, both directly, and by Hulu digital video views as well as FSGO. So it's a good spread from where we get it from, but we think that sort of the tip of the spear in terms of growth will continue to be FOX News going forward.

And Ben, it's John. On the question on the buyback, the -- as we said at the Investor Day, the independents are spending time with their advisers. We expect, as we did then, that there will be a conclusion and an announcement around the buyback framework just around the time of our Annual General Meeting. There's been no change to that timetable.

Next, we turn to the line of Jessica Reif Ehrlich with Bank of America.

So on advertising, Lachlan, it was very helpful to get that color on how you did in the upfront. It's so strong. What are the drivers besides lack of ratings in the industry in general? And can you talk a little bit about how you're selling differently with everything under Marianne's umbrella? Is everything cross-platform now? And then on the gaming, can you give us some color or factors to consider on how this will ramp? Is it all dependent on state-by-state legislation? What else will drive it? How quickly can you ramp?

Thank you, Jessica. So on advertising, look, we estimate this is the strongest advertising upfront in 17 years. So it's extraordinarily robust, our result we've had, certainly in both pricing and in volume. Pleasingly, the scatter market, since the upfront, has been even stronger, and we are in scatter doing double-digits pricing premiums to what we sold in the upfront. So -- which means, if you do the math, we are in the low 20s pricing in scatter over last year. So -- and this is driven really across categories, so it's not one category that's driving it. We're seeing obviously the streaming platforms, where it started to take their advertising digital platforms. Pharmaceutical continues to be strong. They had a short pause as they worked out some regulatory demands around their advertising so that they weren't initially -- they were slow in the upfront and then came back in and strong, and they're particularly strong in scatter now, pharmaceutical. Finance has been strong. And even now, locally, and this goes partially to your second question, on a state-by-state basis in a couple of our local stations, notably New York and Philadelphia, we're seeing some of this gaming revenue begin to appear in a fairly significant way. So we think, from a gaming point of view, as more states legalize online gambling, that we have a tremendous revenue stream to us outside of the TSG partnership from just a local advertising point of view. Also, obviously, in the Super Bowl, we started to sell the Super Bowl, and we're very pleased with the Super Bowl, both from a pricing point of view in terms of where we are versus our last Super Bowl a few years ago. Then your second question, Jessica, was on gaming and the TSG partnership? Steve, do you wanted to...

Yes. And just I think that the ramp of it, Jessica, really is dependent on the state-by-state legislation and having that open up or liberalize. And so that really drives the actual sort of operationalization of that within the joint venture in terms of opening up that state access. But in the meantime, we obviously have a partnership with brand royalty and all the rest, that will have a modest positive impact on our P&L through the course of this year.

I should say, one of the things we're going to do is, as mentioned before, the football season begins, we'll be launching a national free-to-play game and which is legal across the country in every state. But certainly, we hope to put the brand out there and to begin to establish the business.

And next, we turn to the line of Doug Mitchelson with Crédit Suisse.

Steve, you mentioned very robust free cash flow and you also mentioned 85% conversion for the full year last year. Should we take that 85% to be consistent with very robust? And then, Lachlan or John, Fox Nation has come up a few times on this call, and I think it was mentioned that growth in subscriptions was a driver. Any context you can give us around sort of size and scale of that business, where you think you can get it to? And then subscription subscribers, is that the right metrics we should be looking at?

Thanks, Doug. So on free cash flow is, I think, 85%, probably a bit toppy from what we expect to convert this -- in the current fiscal year we're in. And the thing that will be a bit of a drag versus where we have been over the last quarter has been essentially the buildout of the Phoenix broadcast center, which I think I've said at the Investor Day, we expect CapEx to be sort of low to mid-single-digits of the revenue, and this will put us at sort of the higher end of that.

On the -- on Fox Nation, Fox Nation is performing really very, very well. It is still early days, having launched only this past November. But as a subscription video-on-demand service, certainly subscription is the first part of that name, and then so it's clearly a metric, subscribers, that we are watching closely. We haven't really spent any external marketing dollars on it. And the assumption that we will spend an appropriate amount of external marketing is within the EBITDA investment that Steve has spoken about earlier, and that will begin in the fall. The pleasing thing is, is that the conversion rate to trialist to paid subscribers is extraordinarily high, and if we can maintain that conversion rate while widening the funnel of our trialists in the fall, it will be an extremely successful business.

And next, we turn to the line of Marci Ryvicker with Wolfe Research.

I have 2 questions. Lachlan, you brought up Locast, so I just want to ask you, can you walk us through the time line? Now that this is filed, what's next? And then I understand a permanent injunction was requested, not a temporary one. So just curious as to why that was. And then, second, for Steve, with your capital allocation policy, is there a certain percent of free cash flow that you're sort of setting aside each year to specifically allocate to M&A? Or is what you are investing in truly just opportunistic as things come up?

Thank you very much, Marci, and I'll turn over to Steve for the -- for your second question. On Locast, I am -- I fleshed out as much as I could do what I could say in my kind of prepared comments, and I hope I was punchy enough. I tried to be. But on legal advice and seeing if this case is now sort of before the courts, I'm better off not to add anything to those comments. But, Steve?

And Marci, just on capital allocation. We're going to stay flexible. We will be balanced, but we're not going to have a strict percentage of free cash flow that's dedicated to M&A. We'll be looking at, let's say, just opportunities across organic M&A and also best use of capital in terms of returning an amount to shareholders and sort of review that periodically. The notion that we would dedicate x percent of our free cash flow is not the way we'd operate.

And our final question comes from the line of Alexia Quadrani with JPMorgan.

Lachlan, if you could maybe talk generally about the soft ratings that we've seen in the news network business really in the last couple of months, not just obviously Fox, but just across the industry, what you attribute it to. Is it news fatigue, and I guess how quickly do you think it can turn around? And then on the subscriber side, I'm sorry if I missed it, but could you give us the sub decline number and maybe a little color on how different these negotiations are now that you don't have the RSNs?

I'll answer the last part first, which is they're easier. But let me just -- but starting from the beginning. News ratings are softer when can you compare them year-on-year. Historically, though, I think they are still incredibly high. We are in an extraordinary news cycle. And so FOX News has lost less ratings or less audience relative to our competitors. And so we continue to be obviously #1 and expect to continue that run for quite some time. I do think, though, there probably is some news fatigue, but you ought to remember, this time last year, we were also in an extraordinary news cycle. We are incredibly pleased that the hard work of the people at FOX News has continued to keep their -- not only their prime time lineup, but their all-day ratings in the position that they are, even despite having some talent shakeup. So we are really pleased with the performance of FOX News. In terms of sub declines, overall, we're seeing about a 1% aggregate sub decline. So that includes our kind of growing sort of smaller networks, such as Fox Sports 2 and BTN. So we're down in aggregate numbers of subscribers just about 1%. But if we look at the market and we have to sort of make estimates, if we look at the subscriber universe inclusive of the growth of the digital MVPDs, we think the market is down around closer to 3%.

At this point, we're out of time. I thank everybody for joining today's call. If you have any further questions, please give Dan Carey or me a call. Thank you.

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