Ladies and gentlemen, thank you for standing by, and welcome to the Fox Corporation Second Quarter 2022 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to Chief Investor Relations Officer, Mr. Joe Dorrego. Please go ahead, sir.

Thank you, Operator. Good morning and welcome to our fiscal 2022 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 referred 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 Web site. And with that, I'm pleased to turn the call over to Lachlan.

Thanks, Joe. Good afternoon, and good morning, everyone. We are pleased to be with you today to discuss another really, truly remarkable quarter for Fox Corporation. In our fiscal second quarter, we delivered 9% revenue growth and 2% EBITDA growth, even while continuing to invest in our digital initiatives. These results demonstrate our ability to expand our emerging digital businesses, while focusing on delivering overall growth for our shareholders. This strategy has been unwavering and disciplined, and we have not been convinced to deviate into areas where we cannot be a leader. Our financial results in the quarter benefited from healthy affiliate revenue growth, and what continues to be, at least for FOX, a robust advertising marketplace. Our advertising revenue grew 6% versus the prior year quarter, which is notable when you consider that last year included a record net political advertising revenue of nearly $250 million. From a national advertising sales perspective, we have seen robust CPM growth and broad-based demand across most advertiser categories. This is clear evidence that our portfolio of leadership brands, which over index in sports and news continues to deliver the live audiences at scale that our advertising partners seek. To understand the scale of our reach across the U.S., you only need to look to our NFC Championship game a week ago where at peak, we had 55 million viewers tuned into the game. The overall market trends and local advertising also remain positive for us, as we achieved double-digit base advertising revenue growth in the quarter when excluding political revenue. Perhaps even more important to note, our local advertising revenues have now fully recovered from the impact of COVID and are up over pre-pandemic levels. While we continue to see softness in the local automotive category caused by the ongoing supply chain…

Thanks, Lachlan, and good morning, everyone. We delivered another strong quarter with total company revenues growing 9% year-over-year, once again highlighted by revenue growth across all of our operating segments. Total company affiliate revenues grew 11% against the prior quarter, reflecting healthy increases with the FOX Cable Networks and Television segments. The rate of subscriber declines held steady in the quarter with trailing 12-month industry sub losses continuing to run below 5%. Notwithstanding the tough comparison against our record political advertising revenues in the prior quarter, our total company advertising revenues grew by 6%. As Lachlan mentioned, we've benefited from the premium pricing our core brands were able to extract from a healthy marketplace, continued growth at Tubi and a full season of College Football following the disruptions caused by COVID in the prior year. Taking a step back from the comparability challenges versus fiscal '21, FOX's total advertising revenues are now running a healthy 12% ahead of Q2 fiscal '20, which was pre-COVID and unaffected by political advertising revenues. This is before taking into account the contribution of Tubi to our current day advertising revenues, which take the reported growth rate up to 20%. Meanwhile, total company other revenues increased 20% supported by full College Football season that drove higher sports sublicensing revenues at the Cable segment, following the disruptions caused by COVID last year. Adjusted EBITDA increased 2% to $310 million, as the revenue increases were partially offset by higher operating expenses associated with normalized sports and entertainment programming schedules, contractual sports rights escalators, and the digital investments we quote out on previous calls at FOX News Media and Tubi. The net loss attributable to stockholders of $85 million or $0.15 per share varies from the net income attributable to stockholders of $224 million or $0.37 per share…

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

[Operator Instructions] And our first question comes from the line of Robert Fishman with MoffettNathanson. Please go ahead.

Hi. Good morning. I've one or two quick ones on sports betting, if I can. As sports betting continues to be legalized across more states, can you just discuss how you're thinking about growing FOX Bet from here, while balancing the Flutter and FanDuel relationship? And then maybe if you can just expand on your prepared comments about the local advertising benefits as these states continue to be legalized, including maybe any early data after the January launch in New York. That'd be very helpful. Thank you.

Thanks, Robert. So, obviously we're still -- engagements of our arbitration with -- really based around the structure of our option into FanDuel. So that -- and we expect that, that arbitration to sort of conclude through the middle of the calendar year, sort of in the summer, late summer. And we can't really say much more about that. But, overall, the operations of FOX Bet starting with -- as I talked a little bit about in my prepared comments, starting with FOX Bet Super 6, we've been incredibly pleased with our ability to drive our engagement with our sports viewers in FOX Sports, into FOX Bet Super 6 then ultimately into FOX Bet, where it's operational, it has been sort of proven as we continue to execute on that strategy. Our only frustration is that we've only been launched in four betting markets or four states, and obviously, we'd like to see that increase significantly as we roll out FOX Bet. Having said that on the other side -- on the other side of the ledger, in the traditional business in the local television stations, FOX Sports wagering revenue is our leading category of growth, and really is significantly driving the revenue increases across our station group, where wagering is legal. I think for the -- we're pacing up over 100% in the sports wagering category today. So, we're very pleased both on the FOX Bet side where we have operating betting businesses, but also on the advertising revenue side.

Thank you. Operator, we can go to the next question.

We have a question from John Hodulik with UBS. Please go ahead.

Great. Great, thank you. Two quick ones. First on the -- could you give us a sense of where we are in the 200 million to 300 million in digital dilution for the year? I think you guys had said it would be more in the back end of the year. If you could give us a sense for where we are thus far would be great. And then any color you can give us on the recent licensing extension you guys did with Hulu, either magnitude or impact on the financials, or is there any more to come from that -- from [indiscernible] [2436] to expect?

We're at the lower end of the range in the 200 million to 300 million, I'm going to let Steve answer that.

Yes. So, John, we said so far this halfway sort of approaching nine digits on that investment. So, we'd expect to have a little bit more back waded in the second half. But as I've sort of pointed out in the prepared remarks, I think, likely to be closer to 200 million and 300 million for the full year from a pricing perspective on those digital investments. Probably the most sort of the focus of that investment in the back half of the year will generally be around 2 weeks. So that's what you should expect to see that in the TV segment in the second half. And then in terms of Hulu Output deal, it's a good one, but it's relatively small. It's an Output deal for Hulu to stream out of season episodes of FOX unscripted and animated series. So, it's things like, I Can See Your Voice, The Masked Singer, The Masked Dancer, in case you missed that, and animated comedy from Bento Box HouseBroken. So, I think it's something we're very happy with and happy to continue our really positive relationship with Hulu.

Operator, we can go to the next question.

Thank you. Our next question comes from Doug Mitchelson with Credit Suisse. Please go ahead.

Thanks so much. Pretty healthy results this quarter. If I could ask a follow-up to the first question, it's going on 2 years since you started investing in sports wagering and Lachlan you mentioned optionality in sports betting in your prepared remarks. Under what circumstances would FOX increase its investment in sports betting? I mean, with $4.3 billion of cash in the balance sheet, right, I'm talking about increasing your investment by billions. So just as a follow-up to that first one, and then my question is regarding the upfront just curious, on your thoughts going into the upfront, I know you just said the ad market is strong. So, I'm sure you're feeling good. I'm curious, like how formerly integrated into ad sales is to be relative to FOX? And on the NFL, it was a good season for everybody. Others I think might have had a little bit better ratings growth than you do -- you had. Is that going to impact relative share when it comes to NFL advertising? So, anything on the up front would be helpful. Thanks so much.

Thanks very much, Doug. So, on the first question, the way we look at sports betting is less about what always starts from a place and less about sort of investing in sports betting. And wagering and more about the value of our existing investment in sports broadcasting, right. When you have a business, which is the leading sports broadcasting business in this country, when you look at our new, 12-year agreement and deal with the NFL and the viewership that we know, we expect to be sort of guaranteed to engage with those fans for the next 12 years. We really think about what's the future monetization of that engagement with our viewers and sports fans. So that's where we begin. We already have a multibillion-dollar investment in engagement with sports fans. What will sports fans be doing with their time? What will they be doing with second screens? What will they be doing leading into a big sports weekend? Clearly as states open up to sports wagering, wagering is going to be a major part of that journey. And it's a part that we want to -- a journey, we want to embark with them, because we think it's a win-win, it'll make them more engaged, with us more engaged with their favorite teams, and ultimately watch more of FOX Sports. So, we see it as a win-win. So, when we think about that and when we look at the sports some sort of the wagering ecosystem, what we have already with our small ownership, but valuable ownership stakes in Flutter. When we look at our option into FanDuel and our joint venture in FOX Bet, and also critically, the top of the funnel, our very successful strategy with FOX Bet Super 6, we see ourselves continuing to improve and operate those and when the right opportunities emerge and come up to continue to invest in the space. On the -- Steve, do you want to add anything to that [multiple speakers]?

I think that in terms of deploying capital the optionality we have with the option structures gives us time to see how the markets develop their relationship with Flutter develops before we actually need to deploy that capital.

Yes. Yes. And we are limited in structure to some extent because of the licensing rules. And I think I said in the last call, we're actively exploring, getting licensed, not to operate a book, but actually to potentially sort of maximize the value that we can capture in this space. So, it's something that we continue to explore. In terms of the upfront, as a -- as an overall comment, what you're seeing, I think across the marketplace is a softness in entertainment and scripted entertainment ratings, not just for us, but for all of the broadcasters. And you're seeing -- due to that softness, you're seeing major advertisers and marketers start to look at where they can capture their consumers in other places, and the -- where they're flowing to, where their dollars and marketing focus is moving towards, quite strongly is live news and live sport, and to a large extent digital, which we're utilizing to be extraordinarily well. So, when we think about the [indiscernible], when we think about that -- sort of selling season, it's early May, we leave the upfront. But between now and then we're having a majority of our conversations and with our partners will be selling as I think others will our entire portfolio of asset. So, we'll be selling the entertainment network, news, sports and Tubi in a very integrated fashion, really designed to capture our marketing partner serve money and the advertising dollars in the most efficient way. And I think we are uniquely positioned because of our leadership across new sports and digital with Tubi.

Operator, we can go to the next question.

Our next question comes from Jessica Reif Ehrlich with BofA Securities. Please go ahead.

Hi, everybody. I have two questions. First on USFL. Can you give us some color on your rollout the cost, your partners like what will it look like over the next couple of years? And the second question is as great as the second quarter is or was, fiscal '23 looks even better. I mean, you've got clearly strong advertising with the Super Bowl political, Tubi is growing. You said you're going to renew affiliate cycle beginning next year, sports betting is growing and hopefully there'll be more states coming on. So, as the offset like digital investment peak this year or just peak next year? Are there other things we should be thinking about? Thanks.

I don't know if I can -- hi, Jessica. I don't know if I can answer the second question as well as you did in your -- in the question. So, let me start with that. I think we are looking forward to fiscal '23. We have, I think over the 2 years, we have two-thirds of our affiliate renewals up obviously with the lesser or -- the smaller renewals we've had this year are setting a tremendous benchmark for what we expect coming in renewables over the next couple of years. So, we advertising revenue with the political cycle, we expect to hit new records. I think 4 years ago we did $180 million worth of political advertising. I think we will easily number on it, but I think we can't -- it would be a guess, but I think we'll easily exceed that and break new records in this mid-term election. So, we are well-positioned I think for a tremendous victory. I don't -- can't remember if you also mentioned it in your question, but obviously Thursday Night Football was a -- an investment for us and with releasing Thursday Night Football for Amazon, I think they'll do a great job with it. But obviously there's a savings -- a significant savings there for us not having Thursday Night Football. So, we are -- we had a great quarter, great year this year. I think next year will be even better. On the USFL, we are very much looking forward to the new league. I've got actually compliment the NFL for being great partners and for helping us think through how we structure the USFL. The rules of the play is closer to NFL than the College Football where we've changed the rules slightly, it really been for Television, and for -- and so to make the game as exciting and as close the matches as possible. So, we're very excited for launching the USFL. It's always something of a league that we will control. We control the digital rights, we control every part of the game. With us and NBC as broadcasters, we think it has the best opportunity for a broad platform and the most viewers at launch. We've -- by bringing in outside investors into the league, we've effectively underwritten the investment in the USFL I think for the next 2 or 3 years at least. So, from a risk perspective, I know I think we've done it in a ambitious, but disciplined way. So, anything else?

So, Jessica, as I've mentioned in the remarks, within the $200 million to $300 million that we called out the year, USFL will be part of that and it'll be a sort of low to mid tens of millions of dollars EBITDA negative for us this year.

Thank you.

Operator, we have time for one more question.

Thank you. That question will come from the line of Michael Morris with Guggenheim. Please go ahead.

Thank you. Good morning. Two questions for me. First, a bit more strategic, Lachlan. Do you see a path to perhaps a superfan streaming sports business that could complement the linear service that you have that features your Marquee games? Maybe something similar to ESPN with ESPN Plus, is that an approach that you would consider taking? Or do you feel it's already sort of an overdeveloped, or another reason not to do something like that? And then my second question, a bit more tactical, maybe looking at the TV segment, I believe last spring, you guys size the EBITDA drag from Thursday Night Football in the range of sort of $350 million to $400 million. Curious any updated thoughts on that estimate? How that savings may be redeployed versus falling to the bottom line in the near-term? And I guess bigger picture, I know that will go into the reup Sunday contract going forward. But you also have the renewal cycle coming. So, I guess maybe just thinking long-term, how do you expect that savings to impact the business? Thanks.

Thank you, Michael. So, I'll let Steve answer the second question on the savings. But as regards to first question, we are today, this morning focused very much on broadcast television, and how we monetize our investment in sports and our sports partnerships, is really fundamentally through our partnerships with cable operators, satellite TV operators, and our local affiliates. And so, from a live sports broadcasting perspective, and it's different with some obviously, pinion [ph] and sort of shoulder programming, but from a live sports perspective, we see -- we continue to see the best way to monetize our investment in sports is clearly through our partnerships with our affiliates and our distributors. So that's our focus today. I'll let Steve answer the savings question.

Yes, Mike, so the $350 million to $400 million still a good number for us for next year in terms of net EBITA impact of losing Thursday Night Football, that includes the reinvestment in the slot. So, whatever we decide to put into that time, time slot in the schedule is in that $350 million to $400 million. So, it's a net to us, a net good guide to us next year. Obviously, part of that gets absorbed the following year with the increased [indiscernible], the new NFL contract. But all other things being equal, you should see that $350 million to $400 million flow to the bottom-line next year.

At this point, we're 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.

Thanks, everyone.

Thank you.

Take care. Bye.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.