Q1 2020 Earnings Call
As part of this initiative Fox business Dotcom, and the Fox business App for re launch with new content and editorial tools to drive engagement. The initial performance of the relaunch digital properties has been encouraging.
As we have seen substantial increases in page views and in unique users.
A core part of our strategy for Fox business Dot Com is our acquisition of credible labs, which closed a few weeks ago.
We are now beginning the process of integrating it service with our core businesses, starting with Fox business.
While we remain focused on executing against our operational operational plans. We also continue to make progress towards other strategic initiatives.
While maintaining a balanced approach to capital allocation.
To further strengthen our portfolio of assets yesterday, we announced an agreement with nexstar to acquire their local television stations in the Seattle and Milwaukee markets.
In return, we have agreed to sell them our stations in the Charlotte market, which geographically aligns with nexstars existing operations in the Carolinas and in Virginia.
It's a great deal for both companies and their rare win win.
This acquisition expands the reached a one or foxs core assets, our television stations portfolio.
And further strengthens what is already a highly profitable and cash generative business.
This transaction will expand our market presence to 14 of the top 15, Dms and importantly adds two major markets with NFL Major League Baseball Pac 12, and Big 10 teams.
Finally, consistent with the timing we laid out at our Investor day to day, we have today announced that our board of directors has authorized a $2 billion stock repurchase program.
We are pleased to have the buyback authorization, formerly in place as part of our capital tool kit.
The company also announced its intent to complete $500 million of stock repurchases in the near term.
In light of all the positive momentum I have just touched upon in light of our success of the network esports at news and in our growing station group in light of our market, leading investments in sports gaming and in the credible marketplace and in light of the unique cash benefits of our tax.
Structure, we believe we are undervalued in respect to our peers and to other investment opportunities available to us at this time.
This buyback reflects both our confidence in the long term strength of our business.
And our commitment to finding the most efficient use of our capital.
We remain committed to deploying capital in a disciplined manner to maximize shareholder value through a balanced approach of organic investment accretive and may and return of capital to our stockholders.
We will not follower prescribed formula deployment, instead, we will be opportunistic and invest capital where we feel the company can achieve the greatest return on investment.
Now Steve will provide more detail on our financial results.
Thanks, Laughlin and good afternoon.
We've made a solid start to fiscal 2020.
And notwithstanding the subscribed the headwinds Loveland just mentioned overall, we are exceeding our internal plans that we commenced the EU is.
We delivered healthy topline and double digit EBITDA growth in the first quarter, which sets us up well for the remainder of fiscal 2020.
Let me now take you through our results and along the way I remind you of some key factors of its shape the rest of this fiscal year.
In the first quarter. The company reported total revenues of $2.7 billion up 5% over the comparative period in fiscal 2090, reflecting revenue growth across all operating segments.
EBITDA was $856 million, a 12% increase over the $761 million generated in the prior year led by high contributions from the television in cable segment.
This growth was partially offset by higher corporate expenses reported in the other segment, which reflect the costs of Fox operating as a standalone public company in the current yield quarter. This is the presentation of caught up financial statements in the prior year.
From a bottom line perspective, net income attributable to stockholders of $499 million or 80 cents per share was lower than the not within the $604 million or 97 cents per share in the prior year quarter.
This decrease was primarily attributable to a 115 million dollar reduction in the unrealized gain recognized in other net related to the change in fair value of the company's investment in rocket.
Excluding this impact and other onetime items adjusted EPS of 83 cents was up slightly over the last year's 82 cents per share as our strong operating performance was largely offset by below the line items, such as interest and tax expense, which as we have flagged in the past now reflect the full amounts associated.
Operating as a Standalone company.
So now turning to the performance of our operating segments, Florida with cable network EBITDA of $684 million was up 8% on revenue growth of 2%.
The revenue increase was led by other revenue growth of $30 million.
This increase was driven by Paytv boxing revenues, including the pack SM investors that took place on July Twentyth, along with increased sports Sublicensing revenues in subscription revenues from Fox nation.
Cable affiliate revenues were in line with those in the prior year quarter as the impact of higher average rights across essentially all of our brands was offset by the net decrease in pay TV subscribers that Lachlan mentioned earlier.
Barring material changes in current subscriber trends, we anticipate a return to growth in cable affiliate revenue in the second half of the fiscal year as rate resets from recent renegotiations begin to take effect.
Cable advertising revenues decreased 4% for.
Reflecting lower contributions from the women's FIFA World Cup in the current year as compared to the men's tournament in the prior year, along with the absence of view of see programming at the National Sports networks.
EBITDA cable segment increased 8% over the prior year, reflecting the higher revenues and a 5% reduction in costs.
The decrease in expenses was attributable to lower rights in production costs related to the men's FIFA World Cup in the prior year quarter and the absence of view of state programming in the current year quarter, partially offset by contractual increases on existing sports rights agreements.
At the television segment, EBITDA was $251 million, an increase of $18 million or 47% from the prior year quarter on the back of revenue growth of 6%.
The revenue growth was led by 14% increase in television affiliate revenues, reflecting double digit programming fee growth from non owned station affiliates and double digit direct retransmission revenue growth and our owned and operated stations.
This growth is consistent with the overall TV affiliate revenue trajectory trajectory, we laid out at our Investor day in May where we announced our expectation to deliver revenues of approximately $2.65 billion by calendar year 2022.
Other revenues in the television segment grew by $34 million driven by higher digital content licensing revenues and revenues from our recently acquired animation studio Bento books.
As expected advertising revenues in the quarter decreased by $12 million or 2%.
As higher entertainment advertising revenues, which include the impact of the broadcast of the Emmy Awards on focusing will more than offset by the several ics by several expected cyclical factors versus the quarter a year ago.
These include the impacts of political advertising revenues at the local stations related to the 2018 midterm elections and more people World Cup matches in the prior year quarter.
Okay.
One segment expenses were in line with prior year amounts is the contractual increases on existing sports rights agreements and expenses associated with the broadcast of the Emmy Awards were offset by the absence of the rights expense associated with the broadcast of the men's FIFA World Cup in the prior year quarter.
Well most of you are already aware at this point it is worth remembering that seasonal and cyclical factors have a particularly pronounced impact on a quarterly results in our television segment.
This will be most visible in our Q2 results with the impact of high sports rights and production expenses, the Fox network, reflecting the contractual annual escalators on the NFL Major League Baseball and college football contracts and the addition of WWD rights as well as lower political advertising revenue at local telling.
Vision stations when compared to the prior year.
Finally from a PNM perspective, the net EBITDA loss in our other segment amounted to $79 million, which reflects a full quarter of standalone costs as opposed to carve out basis with presentation in the corresponding quarter last year.
The strong overall PNR results generated free cash flow, which we calculate as net cash provided by offer operating activities less cash invested in property plant and equipment of just over $160 million in this quarter.
The modest rate of conversion of EBITDA free cash flow of approximately 20% reflects the typical seasonality you should expect to see in the business.
He asked first and second quarter cash flows are impacted by the working capital deficit from sports rights payments and the timing of cash cash collections on out and advertising revenue, which both reverse in the second half of fiscal year.
On a full year basis, we continue to expect to benefit from natural low working capital usage, along with our cash tax benefit.
From an overall balance sheet perspective, we ended the quarter with $3.3 billion in cash and $6.8 billion in debt.
As Laughlin mentioned earlier in the very near term, we will be deploying $500 million of cash on hand to the buyback of both a and B class shares.
To do this we have entered into an accelerated stock repurchase transaction to buyback $350 million as the company's class a common stock and intend to promptly repurchase approximately $150 million of class B common stock.
Additionally, as part of our balanced capital allocation approach and as we announced yesterday approximately $300 million of capital will be directed to the mixed television stations transaction, which we expect to close in the second half of this fiscal year.
And in October we closed the acquisition of the 67% stake incredible labs for approximately $260 million.
And with that I'd now like to return it back to John .
Thanks, Steve.
Now operator, we'd be happy to take questions from the investment community.
Thank you, Sir ladies and gentlemen, if you wish to ask a question. Please press Star then one on your Touchtone phone.
You will hear any toned, indicating you have been placed in Q you may remove yourself from Q at anytime by pressing the pound key and if you are using a speakerphone. Please pick up the handset to defer pressing the numbers. It has been requested that you limit yourself to one question. Once again as you have a question. Please press Star then.
One at this time one moment please for our first question.
And we'll go to the line of Doug Mitchelson with credit Suisse.
Oh. Thanks, so much good afternoon, one question I guess for Laughlin and John I'm, just curious support update on the progress on investment spending how much.
What was the September quarter proportionate to the year in terms of the investment spending that you laid out the analyst day in and how are each of those investments doing lock line are you already touched on.
WWD, but in terms of the programming investment and in terms of vaccination would love to get an update thank you.
Doug ill, let I'll, let Steve Tag alone.
Doug listen in terms of the amount of in investment spending actually deployed in the quarter is actually relatively modest we co depth at the Investor day.
Somewhere between two and 250 million of net EBITDA investment occur over the course of that year, and I'd say less than 10% of that was deployed over the quarter you'll see.
A significant amount of that come through in the quarter wearing now because we've obviously got WWD that launched on October the fourth floors. We now right in the middle of the full schedule and entertainment programming and Fox Nice from when we continue to build intensive the programming in the marketing.
We can go to the next question please.
And we'll go to the line of Jessica Reif Ehrlich with Bank of America. Please go ahead. Thank you know as one question at the top line. So maybe a multi partner on can you give us color on.
As we said the advertising numbers for this quarter as you look out to the second quarter in the third quarter. The Super Bowl given your ratings and the upfront can you just give us some color on what's going on and you have a new advertising structure, which seems to be booking wall and then anything you can say on any movement and discussions on the NFL.
Negotiations will be great any color there.
Great Jessica those those aren't top questions, Tom I'm happy to take on so thank you.
Flip them from an advertising point of view.
Talk a little bit of UBS to Voba servo and a second but.
Yeah.
In the quarter despite some of.
The comparisons that Steve.
I mentioned in his in his.
Earlier comments.
Your advertising has been.
Quite strong, particularly across the entertainment and sports category.
We.
We had a very successful upfront with entertainment pricing up double digits and with sports pricing up.
High single digits.
Which which which we've been very pleased to achieve in addition to that one of the on one of the critical goals of our upfront was also to set the W. W E pricing.
Broadcast pricing not cable pricing and we did that very successfully.
No categories in the market are are you number categories are incredibly strong the streaming services with Disney Netflix an Apple our recently have been spending spending good money the tech sector with Google and Microsoft Amazon as of very strong clients.
Pharmaceutical has been strong they've been moving some of the money between.
Our.
Demographics, so from some money so out of news, but but onto our auto sports and entertainment.
And of course, the financial services sector clients like Ico Progressive State farm have also been been spending and good morning, and supporting us very well.
So.
We're happy with where we are haven't mentioned news news pricing in the upfront was up.
Mid single digits.
The news market as as a advertising market.
Is softer than in entertainment and in sport, we think thats because of some of the ratings deficiencies at our competitors that are that.
Some some volume has been given way more cheaply them than we would agree too. So we were finding the news market softer than than sports and news are pacing in the sorry in the quarter.
Our.
Scatter pricing was up about 25% now there's very little scatter so it's a better sub.
Good statistic and going forward, it's lower than that but still but still up.
Well above the upfront, which leads us to the Super Bowl worst where we're well ahead of.
Last year's ourselves.
We rugs, we don't know last year, our competitor, but we're well ahead of our last Super Bowl, where we were selling at this stage in the year, we're sold out of all of our eight positions and we really good momentum.
As we continue to on too.
To sell the Super Bowl. So we know we're very confident about the pricing will be.
I want to give the number but they're crack the pricing will certainly be the highest.
Cost per 32nd AD in a Super Bowl today, So we're very pleased with that.
On the NFL, if we don't have an update for you in terms of where we are with the negotiations.
Obviously, we're engaged with the NFL.
Everyday as rebroadcast.
There are there fixtures.
And but negotiations with with the NFL in terms of renewal of any of the packages has not started yet.
And next we'll go to the line of Michael Nathanson with Moffett Nathanson. Please go ahead.
Thanks, I'm going to ask a couple around nexstar. So if you talk a bit about the accretion mask behind the station swaps and GE move to Foxs Retrans Ray car right away and is that higher than Nexstar very cards, and lastly, beside from rage Retrans step ups. If there are any is there any of benefits you derive from from getting in those markets you called out to you.
Geographic footprint I want to know a quick what does that derive was that benefit you from changing the location these markets.
Hey, Michael its state here in terms of the the Retrans benefits it pretty much as of a straight.
Moved from taking what was what they were paying us from those stations from of programming fee perspective, and then.
And then assuming them into our Retrans rights as pretty immediate impact and synergy benefit of.
The TEGNA stations onto our balance sheet. So.
Virtually hits at PNM through from day, one remember, though this won't close until later in the fiscal year. So you probably won't see much of that.
In fiscal 20, and Michael John just adding those key markets, which were.
Pretty will Miss the only one is missing when you look at our footprint.
Particularly for the NFL and the oldest boards were in is just to.
Revenue upside for us.
It helps on both national and local level, and we achieved cost synergies to given the size of the station group.
We have we just would naturally to achieve.
Cost synergies than.
Grand go to the next question, Yes, Sir next we'll go to the line have been Swinburn with Morgan Stanley .
Thank you.
Good afternoon, just on the on the buyback entered the balance sheet you guys talked about it.
At billion and a half minimum cash balance at the Investor day.
As you noted you guys are over three and I think even after the ANSR the acquisitions you've announced dividend.
You are still not even spending your free cash flow this year at least on our numbers. So I'm. Just wondering if you have any timeline in mind or sense of urgency about.
Optimizing the balance sheet from a cash debt perspective.
It's it's a not sort of way of may try to figure out how fast are going to buyback your stock obviousness initiated.
And you've never been settling thanks [laughter].
Look the buyback.
Is it is just one element of our overall.
Discipline balanced allocation of our capital.
So today, we're pleased to announce announced that authorization as deployment of the 500 million.
I'd remind you is this announcements right in line with the timetable that we had established.
It's been well developed by our board.
Established in the best interests of all our shareholders.
And with its adoption ongoing authorizations will be determined as an ordinary course matter with the board.
Netted to deal with your question, specifically, while we fully expect to complete the authorization, we won't follow a formulaic approach.
To any current or future buyback deployment that just doesn't make any sense to us.
So we'll invest our capital where we feel we can generate the greatest long term return and our investment.
For our shareholders.
And amongst the various legs of disciplined and balanced capital allocation.
I think we can go to the next question.
And we'll go to the line of rich Greenfield with like Chad.
Hey, guys, it's Brandon Ross.
It's more amex.
Thank you.
First on Fs, one so Disney took you have seen from you guys and recently took boon to sleek and I'm pretty sure. They renewed with Formula. One. So just can you help us with how you plan to fill the programming hole.
There and then.
But thinking about this super six mobile game that you guys launched which looks like in the on ramped to legalize betting. If for you guys can you give us any takeaways that you've learned so far there.
Thanks.
So.
I don't want me to start with Fox Sports one.
What I would.
Yeah.
Politely respectfully.
Disagree with you in terms of sort of any kind of programming hall the the.
The Fox sports one.
Yeah.
Programming lineup is pretty impressive you know who's going to cost for such a huge amount.
NASCAR for answers the primary home of our of our of our NASCAR programming.
Boxing and so and we're very pleased with.
With the programming on Fox Sports, one, while obviously look at continuing to strengthen that as opportunities some that are.
Fit with our program strategy emerge so.
We are.
We are we're pleased with where Fox sports one I'll sit today and I think our distributors are if you look at the renewals across all of our affiliate renewals on Fox Sports one continues to drive increases in.
In in affiliate.
Fees and rate so our affiliates I agree with us as arbitrage the question obviously on Supertex.
So super six has been.
Now incredibly successful if you look at the strategy.
Of any of these are Fox spending to look at what the strategy Watson and Sky in Britain.
And and other countries, where where are our legalized sports digital sports wagering has occurred and having.
A free to play.
Game as shown on the top of the fallen through to attract users is critically important to having with to reset six and that the success. The Andover early and rapid success of Supertex, I think bodes very well to dropping those those users down into in Andrew.
Fox Bad for pay.
Game. So we're we're pleased with Supertex and we're pleased with Fox about I should mention on it and I Didnt.
I was remiss not to mention as to.
Sponsored Jessica's question and you already if you look just in the and New York, New Jersey market not only for than New Jersey sports betting that are already.
18 active.
Gaming advertisers and so one of the reasons, we were quite pleased about this.
Liberalization of sports wagering.
Rules state by state is not not only do it do we think we'll gain in tremendous long term value through Fox Pat.
But also just from an advertising point of view and we're now seeing several million dollars.
Year to date already start to flow through and only the young the very limited number of states, where we're sportswear apparently loss.
Operator, we have time for one more question.
Okay and that will be from the line of John Hodulik with UBI. Yes. Please go ahead.
Okay. Thanks, guys.
On the affiliate side I guess at 4.3% growth this quarter I think during the last year you guys said.
7% is sort of in the mix, obviously, a lot of moving parts, maybe talk about a little bit about.
The renewals you guys talked about when that you should see that hit.
In fact, the piano and and yes at 7% still is still at the guide for the year. Thanks.
Hey, John It's Dave I think that's if thats around the Mark.
I should say the patent here and it's a similar patent to what we saw last year, which is.
September quarter end December quarter. Please.
Pretty flat for us than you should see it. So you should expect December this year to be simulate.
Kind of.
Performance scores that then with the renegotiations that we've just done which lucquin outlined in his opening remarks the rate resets that we get out of those renegotiations really begin to kick in at the start of the calendar in next year. So when you look at the first half second half growth right. The growth rate will absolutely be skewed to that that second half.
In particular asked the quarterly you'll see.
We see the benefit of those rights resets really kicking in again it will be skew towards retransmission growth is against cable affiliate, but.
We feel pretty comfortable wailea for the full year renewals and all stood at $2.65 billion, how difficult to 22.
At this point, we are out of time.
Thank you everybody for joining today's call. If you have any further questions. Please give dan Carey or me a call.
It's being taught you next quarter.
And ladies and gentleman that does conclude our conference call for today again. Thank you very much for your participation in for using the ATM T. executive teleconference. You may now disconnect.