Fox Corporation (NASDAQ:FOX) Q1 2024 Earnings Call Transcript

Fox Corporation (NASDAQ:FOX) Q1 2024 Earnings Call Transcript November 2, 2023

Operator: Ladies and gentlemen, thank you for standing by. And welcome to the Fox Corporation’s First Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I’ll now turn the conference over to Chief Investor Relations Officer, Ms. Gabriele Brown. Please go ahead Ms. Brown.

Gabrielle Brown: Thank you, operator. Good morning and welcome to our fiscal 2024 first 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.

Lachlan Murdoch: Thank you, Gabby, and thanks everyone for joining us this morning. I just want to start with a comment and a note of thanks. We are living through tumultuous times. And at the outset I want to acknowledge the work our journalists are doing covering the horrific October 7, terrorist attack and the subsequent ongoing war in the Middle East. From the reporting of Trey Yingst, Greg Palkot, Mike Tobin and Lucas Tomlinson in Israel; and Steve Harrigan in Beirut to the deep analysis and insightful commentary by our reporters and hosts including John Roberts and Trace Gallagher to the essential and brave work of our on-the-ground producers and camera crews, Fox’s fulfilling its mission, defined report and analyze the news of the day without fear or favor.

News reporting is hard and word reporting is perhaps the hardest. And while the horror Central to this new cycle and were heavily on those we ask to expose them their exposure is necessary. And so our team deserves our admiration and our gratitude as they continue to work tirelessly and under demanding conditions to keep us up to date on events far away and on their impact closer to home. My sincere thanks to them all. Now turning to today’s first quarter earnings release. Against a backdrop of an active news cycle and a robust sports schedule, fiscal 2024 has started off on a solid operational and financial footing. Fox’s focused portfolio of assets continues to distinguish itself and deliver exceptional results. Financially, we are now comparing against the fiscal 2023 cycle of events that delivered then record revenues and EBITDA.

Despite this comparison, we posted total revenues this year slightly ahead of last year’s record. On the affiliate side, we reported 2% total affiliate growth led by 8% growth of the TV segment in the quarter. Importantly, we have continued to secure constructive renewals, which deliver for our partners and reinforce the value of our brands and program. Advertising revenues in the quarter decreased by around 2%, principally due to a comparative quarter last year that was much heavier in political ad revenues at our local TV stations. We understand there is inconsistency around the broader advertising market, particularly in entertainment but our focus on live sports and news continues to deliver with healthy national pricing and demand in addition to continued momentum at Tubi.

Underpinning revenue are our core brands, which consistently resonate with viewers and the consumption data clearly shows this. With total viewing of FOX brands, up 2% in the quarter. FOX Sports was a big driver of that consumption especially, with its broadcast of the Women’s World Cup where the US versus the Netherlands on FOX was the most watched Women’s World Cup game match, ever on US English language television. From summer to fall, our lineup is bolstered by our football packages led by the NFL on FOX we are averaging over 17 million viewers Tubi gained. Based on the strength of our remaining schedule, especially from Thanksgiving to Christmas, we expect that engagement to improve significantly. In College Football, interest is reaching new highs Fox’s big new Saturday is progressing to a third straight year as the number one game window in all of college football averaging almost six million viewers.

At Tubi, we had another enviable quarter delivering 30% revenue growth driven by an impressive 65% lift in total view time. Tubi surpassed 70 million monthly active users in September, logged nearly four billion streaming hours in the first half of the calendar year and remains the number one AVOD player and most watched free ad-supported TV streaming service in the United States. Additionally, Tubi has beaten Pluto Max Paramount+ and Peacock in view time for five consecutive months. One reason for the high engagement level that Tubi is its extensive content library that now exceeds 60,000 titles which translates into more than 225,000 movies and TV episodes in addition to approximately 300 fast channels. And during the quarter, Tubi introduced Rabbit AI a Chat GPT four powered recommendation engine, to help users navigate this incredible range of titles.

Tubi also offers a unique and compelling proposition to advertisers. Our recent MRI study of streaming peers concluded that Tubi saw the fastest growth amongst young and diverse populations. And that Tubi is able to deliver high-value, net new audiences with 33% of Tubi streamers unreachable on other top AVOD services. Now turning back to Fox News, the strength of our overall news coverage and the reach of our linear audio and digital content is unmatched. Whether it is the conflict in the Middle East, the upcoming 2024 election cycle or volatility in the financial markets, FOX News is increasingly their viewers first choice. The launch of our new expanded Primetime lineup in mid-July, further solidified Fox News’ leadership position not only in cable news but in all of cable, finishing the quarter as the most watched cable network in both total day and Primetime.

FOX News maintained its lead as the most watched cable news network, beating CNN and MSNBC in and total viewers and in the demo for both prime and total day. We have seen that they continue and expand in the current quarter with October viewership increasing over 20% from the first quarter, with over 30% growth in the key demo. Ratings leadership during the quarter, was achieved across the platform. The Fox News channel had the top six cable news programs with P2+ And the top seven programs within the demo. In P2+, the five led the way in terms of viewers followed by Jesse Watters Primetime and Hannity of the five, Gutfeld, Hannity and Jesse Watters Primetime were a top four programs in the demo. And Fox Business News ended the quarter as the most watched business cable network beating CNBC in total viewers during the business day, for the sixth consecutive quarter.

The election cycle started off with the successful Republican presidential primary debate, which is Fox News channel’s highest-rated telecasts since election day 2020, and the highest-rated non-sports telecast of the year across cable. While the debate kicked off the election cycle, once we get deeper into it our local station group will benefit greatly from increased political spend in the coming quarters. Over at FOX Entertainment, we started the 2023 to 2024 broadcast season as the number one network in the key adult 18 to 49 demo and Fox ranks as the top network and entertainment program. First, in at least 10 years. FOX has three of the top four highest-rated premieres of the 2023/’24 season to date in Krapopolis, the Simpson and The Masked Singer.

And the season’s number one new game show with Snake Oil. Across the company fiscal 2024 is shaping up nicely. We look forward to a great enthusiasm across the fall sports season underpinned by the NFL, college football and now the completed World Series, continued viewing growth at Tubi and renewed momentum at Fox News and our local stations as the election cycle heats up. Our balance sheet remains a core asset for FOX and we will continue to deploy it in a disciplined and thoughtful manner that delivers value for our shareholders. Finally, I would like to congratulate my father on a 70-year career at News Corp and Fox. His enduring legacy can be felt in both of these companies. And I can assure you that he is still very much involved and will continue to be for years to come.

With that, I’ll turn it over to Steve to take you through the operating details of the quarter.

Steve Tomsic: Thanks, Lachlan, and good morning, everyone. FOX reported total first quarter company revenues of $3.21 billion, which is slightly above the prior year quarter. This was led by a 2% increase in affiliate fee revenues as the pricing gains from recent distribution renewals more than offset the impact from industry subscriber declines. From an advertising perspective, we of course faced the tough comparison to last year’s record midterm political revenues at our local stations. This coupled with continued softness in the direct response marketplace at FOX News more than offset the benefits we saw from the broadcast of the FIFA Women’s World Cup, the 30% revenue growth generated at Tubi and continued support of national pricing for live content.

Taking as a whole, our advertising revenues declined 2%. Meanwhile total company other revenues increased 2% or $6 million. Quarterly adjusted EBITDA was $869 million as compared to the $1.09 billion reported in the prior year quarter. Expenses increased this quarter driven by higher rights amortization and production costs associated with the Women’s World Cup, the first year step-up from our NFL rights renewal and increased expenses at our digital businesses. Net income attributable to stockholders of $407 million or $0.82 per share, compared to the $605 million or $1.10 per share reported in the prior year period. This move largely reflects the EBITDA impact I just mentioned along with the change in fair value of the company’s investment in flat to up recognized in other net.

Excluding this impact and other non-core items, adjusted EPS was $1.09 versus last year’s $1.21. Turning to our operating segment results starting with television where we delivered total quarterly revenues of $1.78 billion or a 4% increase year-over-year. This was driven by an 8% increase in TV affiliate revenues with healthy growth in fees across all FOX-affiliated stations more than offset the impact from industry subscriber declines. Advertising revenues at our TV segment grew 1% led by the benefits from the broadcast of the Women’s World Cup continued growth at Tubi and the timing of college football broadcast, partially offset by the absence of last year’s midterm political revenues and lower ratings of the FOX network. Television other revenues increased 6% in the quarter, primarily a result of the timing of participations tied to our entertainment production initiatives.

The growth in revenue at our television segment was more than offset by a 10% increase in expenses, including costs associated with the Women’s World Cup, the first year step-up associated with the renewal of our NFL rights and continued investment at Tubi. Together these revenue and expense impacts led to quarterly adjusted EBITDA of $351 million in our Television segment compared to the $409 million reported in the prior year quarter. Our cable segment reported total quarterly revenues of $1.39 billion, a 3% decrease year-over-year. Cable affiliate revenues were down 2% in the quarter, largely a result of industry subscriber declines, which continue to run in the 8% range. Cable advertising revenues were down 8% as a broadcast of the Women’s World Cup and the Men’s CONCACAF Gold Cup were more than offset by the continued impact of a softer direct response marketplace and lower ratings at FOX News Media.

Notably though, we continue to see healthy national linear and digital demand from advertisers of Fox News Media. Cable other revenues increased by $6 million in the quarter due to the timing of sports sublicensing revenues. Meanwhile expenses at our cable segment increased 13% led by higher programming rights amortization and production costs for the Women’s World Cup and Gold Cup, the timing of college football broadcast at FOX Sports 1 and contractual rights increases across our sports portfolio. All-in-all, this resulted in adjusted EBITDA at our cable segment of $607 million compared to the $742 million reported in the prior year period. Turning to cash flow, where free cash flow which we define as net cash provided by operating activities less CapEx was negative $70 million in the quarter.

This is consistent with the seasonality of our working capital cycle, with the first half of our fiscal year is characterized by a concentration of payments for sports rights and the buildup of advertising-related receivables, both of which reversed in the second half of our fiscal year. From a capital deployment perspective, fiscal year-to-date we have repurchased a further $300 million through our share buyback program. We have now cumulatively repurchased $4.9 billion representing approximately 24% of our total shares outstanding since the launch of the buyback program in 2019 and we remain committed to utilizing our full buyback authorization of $7 billion. This is supported by the strength of our balance sheet, where we ended the quarter with approximately $3.8 billion in cash and $7.2 billion in debt.

This excludes the $1.25 billion of senior notes that we issued in early October. The proceeds from which we intend to use to pay down the corresponding maturity coming due in January 2024. And with that, I’ll turn the call back over to Gabby.

Gabrielle Brown: Thank you, Steve. And now we will be happy to take questions from the investment community.

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Q&A Session

Operator: [Operator Instructions] One moment for first question. And that will come from Robert Fishman from MoffettNathanson. Please go ahead.

Robert Fishman: Good morning everyone. After deciding on passing on the WWE renewal can you share anything specific on how you evaluated the ROI of the deal in the context of driving higher advertising and affiliate fee revenue? And then, maybe just more broadly can you discuss whether you expect to see any impact on future sports right negotiation if the Disney Charter renewal impacts the industry rate of cord cutting or affiliate fee growth going forward? Thank you.

Lachlan Murdoch: Hey. Good morning, Rob. There’s a lot in there. So let me unpack it bit by bit and if I hope I don’t miss anything. So how we — I think we’ve talked about this before, but how we analyze the WWE renewal, and we look at all of our sports portfolio in the same way and on all new rights, opportunities are for new rights in the same way. We — on the base of analyst — analysis sorry. We on both an advertising point of view, we were not hitting the advertising numbers due to the audience of the WWE to make return for our return on investment to be above the levels that we would accept. But also, we didn’t attribute enough significant retransmission revenue to WWE either so it made sense for us to move on from them.

They’ve been a great partner for many years. But just quite simply we’re very disciplined and the RR didn’t meet our pretty disciplined parameters. So we wish them luck and we’ve moved on from them. We’re currently in I think the final status of a very constructive negotiation for our NASCAR renewal. We look forward to continuing that partnership with NASCAR. It’s been a great partnership for many years. And obviously, NASCAR exceeds our expectations from an ROI point of view. In terms of Disney and Charter and how that affects our view going forward. I think it’s a net positive for us. I think that we want our distributors to do well. We want them to continue to invest in high-quality programming and high-quality brands. And obviously, between FOX News and Fox Sports our station group and our network we have a very focused very valuable set of core brands that distributors such as Charter value.

So net-net the Disney Charter deal has been positive for us and positive for our strategy.

Operator: The next question is from Ben Swinburne from Morgan Stanley. Please go ahead.

Ben Swinburne: Thanks. Good morning. My one question is on sort of unlocking value although it does immediately have to spend two pieces that might be connected I guess first — it’s a confession. I wanted to ask about sports and Tubi. So arguably, the popularity of sports particularly football and even more particularly college football has probably never been higher. I mean, your college rights are probably more valuable today than ever. I’m just wondering, if you guys have ideas on capitalizing and maximizing the return on those rights. Beyond the kind of stuff, we always think about was advertising on the live rights and retrans fees. And then kind of related maybe is leveraging, Tubi both in terms of sports, but also just broadly like your stock doesn’t have I think probably objectively credit for what Tubi is worth, and it continues to grow.

Are you guys thinking about ways to try to highlight that value more or scale it up maybe through for some strategic activity? And any thoughts on helping to unlock some value around an asset that’s obviously doing quite well, and probably it will be worth a lot more in the public company than what it is currently priced at inside of Fox. So I know that’s a lot but would love your thoughts.

Lachlan Murdoch: No, that’s fine. Hi. Good morning. So I think the best way I can answer both questions sort of with one answer, I suppose which is the value — you’re 1000% right college football has never been more popular. It’s rating extremely well. And one of the things we haven’t talked about is frankly advertisers have found it. Advertisers are pouring in to call triple with tremendous rates and with tremendous appetite for volume, because they can see the value in this audience. And perhaps, it’s been underpriced in past years, I’m not sure. But certainly, advertisers are recognizing the opportunity in college football and obviously, we’re the leader. But ultimately, we build value through our brands and through the Fox Sports brand and Fox Sports and station distribution.

And so we’ll continue to build value through college football through, the Fox Sports brand and monetizing it that way. The same thing with Tubi. First of all, we don’t envisage any kind of significant live sports on Tubi in the near or frankly median perhaps even long-term future. But Tubi is very focused on primarily entertainment and particularly in video-on-demand entertainment, which makes that content and then engagement with their users all the more valuable. And I think, it will be a long time before we see significant live sports on Tubi. In terms of how we unlock the value in Tubi. Tubi will be the way our audiences engage primarily engage with entertainment in the future. It’s a core part of our business and a core part of our strategy and so we’re building value there organically through driving its growth.

I couldn’t be more pleased with the arrival of our new CEO Anjali Sud. She’s doing a tremendous job and has very clear and strategic sort of retention and view for how we continue to drive Tubi’s success. So, thank you Ben.

Gabrielle Brown: Operator, we will take the next question.

Operator: And that’s from Jessica Reif Ehrlich from Bank of America Securities. Please go ahead.

Jessica Reif Ehrlich: Thank you. First of all I want to say, I really appreciate your introductory comments regarding news reporting and of course about your father who was is definitely one of a kind. But my question, I guess, two-part two as usual from all of us. First on advertising. Can you give us your outlook for political advertising and what the current tone of sports advertising is. We know the general marketing still seems pretty tepid? And then maybe, kind of, a nuance on what Ben just asked but the longer-term vision for Tubi like it’s clear there’s tremendous growth near-term but is this the vehicle as you think about possibly transitioning to streaming given the decline in the universe? Or how are you thinking about it?

Lachlan Murdoch: Thanks, Jessica. And then thanks for – thanks for – my comments. So let me start with advertising. So the — we also hear and understand that the advertising market appears to be I use the word mixed right or sort of unsettled. However, we are not seeing that to the same extent due to our focus on sports and news. So let me start with sports where we’re seeing high demand around our NFL and we just discussed our cost football schedule particularly in the national, sort of, market pharmaceuticals, auto, quick service restaurants and CPG categories have all been quite active and I think importantly our pricing has been added premium to our modest premium, but we are pricing above our upfronts, which certainly in a sports category the market remains healthy.

This will be somewhat tampered by post season baseball including their conclusion of their world series last night. I think sometimes you get lucky and you get seven series — 7-game series with a matchups that are in sight the imagination of a national audience and sometimes you’re less lucky. So that’s how that could be combos. And so, I think, we would like to have seen more games and we’d like to have seen a bit more, sort of, national excitement around these games, but it is what it is. Having said that we should congratulate the Texas Rangers for a great season and winning the world series. At FOX News Media, our national advertising is solid with growing pricing. And it’s important to note that we have over 80 new national advertisers in Primetime, specifically, in our 8 P.M. hour in the first quarter.

So the refreshing of our schedule and our lineup has worked from both a ratings perspective, but also from an advertising perspective really, really very well. Direct Response continues to face some headwinds really from last year from the previous upfront where there was which technically created sort of an oversupply in the market for direct response and put downward pressure on pricing. So we would expect as we go forward for that pressure to be relieved. There will be some — and we’ve got increased audiences due to the new cycle which is a positive from a ratings point of view, but that’s partially offset by an increased level of preemptions due to our kind of really in-depth and incredible reported. So overall, I should just overall sports and news we are very happy with the overall performance of both of those verticals in our business.

We’re also very happy with Tubi. We announced we had 30% revenue gains, which is well-driven off the 65% growth in total view time. I think going forward, we’ll see continued growth in view time. Anjali is very focused on that. And what there is softness in the entertainment advertising market and Tubi is not immune from that softness. But Anjali is focused on how we better monetize. We’ve written this incredible growth in audience and viewership and now it’s time we really focus on how we more effectively and efficiently monetize that huge audience. We’ve earned the right because of the audience growth to really start to take a greater share of wallet from our advertising partners. Finally, the local stations. We are pacing slightly ahead of last year in the base market if you exclude political.

You have to remember this quarter last year of October particularly I think it had over $125 million worth of political revenue in the month of October alone. So, it’s a huge year-on-year comparison. But ex-political we’re very pleased with the base market is strong. And that’s really led by the auto and recently the retail categories are very strong also financial services. That’s offset with bedding wager and also entertainment right? It’s — there’s not a lot of opportunity, the strike in Hollywood. There’s no movie launches. So that’s offsetting some of the growth in auto retail and financial services. Now, I should go on to some of your — the other part of your question in the — sort of taking too long Jessica. That’s what happens when you ask three questions in one.

But so the longer-term strategy for Tubi. Look I think we have a multipronged strategy. I think Tubi is in an enviable position. It’s the leading AVOD player. It’s free. It’s focused. It’s entirely advertising-driven. That’s appreciated by all of our clients and obviously by our audiences. And I couldn’t be happier with our transition from Farid who is an incredible entrepreneur who deserves all the credit for founding and building and driving Tubi to-date. It’s always a difficult transition when you move to — from a founder to new leadership. So far it’s early days but Anjali’s very focused on all the issues and all the opportunities that Tubi has in front of it to continue it to grow at impressive levels. But Tubi is our free AVOD streaming service that does not — it’s not our only strategy in the streaming space.

Direct-to-consumer is obviously something that we look at closely. We have a small direct-to-consumer SVOD service in Fox Nation and we have optionality of expanding those services further into news and potentially sports. I hope I answered most of your questions Jessica.

Gabrielle Brown: Operator, next question please.

Operator: The next question is from John Hodulik from UBS. Please go ahead.

John Hodulik: Great. Morning everyone. First can we just get an update on the affiliate renewal process? I think you guys had said that it would be more weighted on the TV side but I think a lot of the new agreements kick in in January. So, just any color on the trends we should see there. And then getting back to the Charter Disney renewal, you guys seem to be somewhat unique in that you don’t really have any long-tail networks or I would say a major SVOD platform. Lockwood you talked about Fox Nation but it’s obviously very different than what we’re seeing in the rest of the industry. Just any thoughts on the implications for Fox is this model that we’ve seen out of this renewal and it would be broadly adopted over time for the industry?

Lachlan Murdoch: Thanks John. On affiliate renewal, let me start with the big picture and Steve can talk to any of the numbers going forward or not depending on — but look the main thing on affiliate renewal is we — really due to our focus strategy our focus on our core brands. Also I think our focus on being good partners with our distributors and wanting their businesses to succeed because frankly from a FOX perspective the Cable bundle Cable distribution or Pay TV distribution remains our largest and really the most important revenue stream. And that we believe that it will remain our largest for years to come. So, we are — we feel the success of our distribution partners is our success as well. We want them to succeed and we want them to do well which is one reason why we’ve kept our premium content within the cable bundle.

We are not interested in at this stage moving premium content away from our cable distribution partners. That would be I think a mistake for us and for them. And so due to that, since our last call a quarter ago, we have renewed a number of distribution contracts. And in every case, we’ve been rewarded by that focus, rewarded by our partnerships, with our affiliate partners, our distribution partners, with our rate increases and distribution agreements that are — that fit absolutely in line with our plan. And that’s because they value our brands. They value Fox News. They value Fox Sports. And obviously our local stations and networks. So we are very pleased with our pace of renewals. And we haven’t seen any changes to the way we’re able to work constructively with our partners.

And that goes to the second part of your question with Charter and Disney. It’s hard for me to say how — I don’t want to talk about other people — a lot of people are — have their earnings calls next week. I think we’re early in the media cycle. They can talk about how that renewal affects them and particularly the entertainment channels for us, because we’re not in that space. I think it’s a net positive. We like to see our partners focus on the core brands the core brands where all the audiences and frankly where the leverage is in terms of retransmission and less so on channels that might not be as popular. So Steve, do you want to…

Steve Tomsic: Yeah. So John just to reinforce Lachlan’s point, we had — just over third of our distribution renewals due this fiscal year and we’re virtually through all of that. So that’s — and as Lachlan mentioned, we’ve achieved our pricing objectives against those renewals which goes to a, the fact that we haven’t gone back with any distributors and the fact that we’ve been able to achieve objectives. And assuming the distributors are also happy those renewals. It goes to a constructive relationship. We have with those distributors. And so listen, we negotiate our full portfolio as a bundle. And I think you should expect to see that coming into the new calendar year you’ll see the impact of those renewals and I suspect that the benefit of those will be skewed towards the Television segment but you should also expect to see some progress on the cable side in the new calendar year, I should say.

Gabrielle Brown: Operator, we have time for one more question.

Operator: Thank you. The next question will come from the line of Phil Cusick from JPMorgan. Please go ahead.

Phil Cusick: Hi. Thanks. A lot has been asked, but Lachlan, thinking about your comments on DR and recognizing that some of those upfront issues hopefully fade. But it makes me curious about your view on the future of the linear video ad landscape you have Tubi which allows you to benefit from the shift to digital. But do you think we’ve reached a tipping point where linear video advertising is it secular not just cyclical decline? Thank you.

Steve Tomsic: Thank you, Phil. The short answer is we got to you have to I think break it up by category, right? And so if we look at Sports and News there’s no sign of a slowdown in sort of demand for the really incredible and unique reach that those platforms deliver our advertising clients. I think on the DR issue is a specific issue that really relates to upfront before last we’re — there was a — due to the negotiating strategy of some of our competitors there was an oversupply of direct response in the market and that’s driven pricing down. And we see — we didn’t see the same activity in this past upfront. And so we expect the pricing pressure on DR to ameliorate or wash out in the coming quarters. So we do see that as a shorter-term problem and not a structural problem at all.

And so it comes back to particularly in News and Sports, there is no other content or platform that offers the reach that those categories offer. And so we are optimistic is not a strong enough word. We are very confident in the future of linear advertising when you can deliver and the audiences that we deliver with the brands and the brand safety that we also can offer our clients.

Gabrielle Brown: 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.

Steve Tomsic: Thank you everyone. Thank you.

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