Q1 2024 Fox Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Fox Corporation's first quarter fiscal year.
'twenty 'twenty earnings conference call.
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I'll now turn the conference over to Chief Investor Relations Officer, Mr. Gabriel Brown. Please go ahead Ms Brown.
Thank you operator, good morning, and welcome to our fiscal 'twenty 'twenty four first quarter earnings call. Joining me on the call today are Lachlan Murdoch Executive Chair and Chief Executive Officer, John Nolan, Chief operating officer, and our Chief financial.
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.
With that I'm pleased to turn the call over to Lachlan.
Okay.
Thank you Debbie and thanks, everyone for joining us this morning.
I just wanted to start with a comment and a note of thanks.
We are living through tumultuous time.
And at the outset I want to acknowledge the work our journalists are given covering the horrific October seven terrorist attack and the subsequent ongoing war in the Middle East.
They're reporting your trading Greg.
Greg Palikar, Mike Hogan and Lucas Tomlinson in Israel, and see Paragon and Brut to the deep analysis and insightful commentary by our reporters in house, including John Roberts and trace Gallagher to.
So the essential and brave work of our on the ground producers and camera crews Fox is fulfilling its mission.
Find report and analyze the news of the day.
Without fear or favor.
Use reporting is hard.
And we're reporting is perhaps the hardest.
And while the horror central to this new cycle and we're heavily on those we ask to expose them there.
Their exposure is necessary.
And so our team deserves our admiration and our gratitude as they continue to work tirelessly 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 the backdrop of an active news cycle and a robust sports schedule fiscal 'twenty 'twenty four has started off on a solid operational and financial footing.
Fox is focused portfolio of assets continues to distinguish itself and deliver exceptional results.
Financially we are now comparing against the fiscal 'twenty three 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 at the television segment in the quarter.
Importantly, we have continued to secure a constructive renewals, which 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 our comparative quarter last year. There was much heavier in political AD revenues at our local television 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 <unk>.
Underpinning, our revenue or 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 when the U S versus the Netherlands on Fox was the most watched women's World Cup game.
Match ever on U S English language TV.
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 through week eight based.
Based on the strength of our remaining schedule, especially from Thanksgiving through Christmas, we expect that engagement to improve significantly.
And college football interest is reaching new highs boxes Big noon Saturday is progressing through a third straight year as the number one game window in all of college football, averaging almost 6 million viewers.
At <unk>, we had another enviable quarter, delivering 30% revenue growth driven by an impressive 65% lift in total of Utah.
To be surpassed 70 million monthly active users in September.
Nearly 4 billion streaming hours in the first half of calendar year and remains the number one Eva player and most washed free AD supported TV streaming service in the United States.
Additionally, <unk> has been Pluto, Max Paramount, plus and Peacock and view time for five consecutive months.
One reason for the high engagement levels of <unk> is its extensive content library that now exceeds 60000 titles, which translates into more than 225000 movies and television episodes.
In addition to approximately 300 fast channels.
And during the quarter to be introduced rabbit AI chat GBT for powered recommendation engine to help users navigate this incredible range of titles.
To be also offers a unique and compelling proposition to advertisers. Our recent MRI study of streaming peers included that two we saw the fastest growth amongst young and diverse populations.
And then <unk> is able to deliver high value net new audiences with 33% are to be streamers unreachable on other top Avon services.
I'll now turn it back to Fox news the strength of our overall news coverage and the reach of our linear audio and digital content is unmatched.
It is a conflict in the middle east the upcoming 2020 for election cycle or volatility in the financial markets Fox News is increasingly the viewers first choice.
The launch of our new expanded primetime lineup in mid July further solidified Fox news is 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 prime time.
Fox News has maintained its lead as the most watched cable news network, beating CNN and MSNBC and total viewers and in the demo for both Prime and total day, we have seen as they continue and expand in the current quarter with October viewership, increasing over 20% from the first quarter.
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 <unk>, plus and the top seven programs within the demo and.
<unk> plus.
The five led the way in terms of viewers, followed by Jessie waters Primetime and Hannity, while the five gutfeld Hannity Andreski waters, five time, where top four programs in the demo.
And Fox business news ended the quarter at the most wash business cable network, beating CNBC and 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 channels highest rated telecasts since election day 2020, and the highest rated non sports telecasts 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 2020 for broadcast season as the number one network in the key adult 18 to 49 demo and Fox ranks as the top network an entertainment program.
And at least 10 years.
Fox has three of the top four highest rated premieres of the 'twenty to 'twenty three 'twenty four season to date and <unk>, the Simpson and the masked singer and the season's number one new game show with Snake oil.
Across the company fiscal 'twenty four is shaping up nicely, we look forward to great enthusiasm across the fall sports season underpinned by the NFL College football and now the completed World series.
Continued growth viewing growth of <unk> 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.
Is enduring legacy can be felt in both of these companies and I can assure you that he is still very much involved and we 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.
Thanks, a lot and good morning, everyone flux.
<unk> reported total first quarter company revenues of $3 two 1 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 decline.
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 with Fox News.
More than offset the benefits we saw from the broadcast of the FIFA Women's World Cup, the 30% revenue growth generated in GB and continued support of national pricing for live content.
Taken 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 one one points.
<unk> 9 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 step up from our NFL rights renewal and increased expenses in our digital businesses.
Net income attributable to stockholders of $407 million or <unk> 82 per share compares to the $605 million.
<unk> 10 per share reported in the prior year period.
This moved largely reflects the EBITDA impact I just mentioned along with the change in fair value of the Companys investment in flood recognized in other net.
Excluding this impact and other noncore items adjusted EPS was $1 nine versus last year's $1 21.
Turning to our operating segment results, starting with TV, 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 television affiliate revenues as healthy growth in fees across all Fox affiliated stations more than offset the impact from industry subscriber declines.
Advertising revenues at our television segment grew 1% led by the benefits from the broadcast of the Women's World Cup continued growth at <unk> and the timing of college football broadcasts.
Offset by the absence of last year's midterm political revenues and lower ratings at the Fox network.
TV and other revenues increased 6% in the quarter, primarily a result of the timing of statistic patients types of 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.
<unk> step up associated with the renewal of our NFL rights and continued investment in television.
Together these revenue and expense impacts lifted quarterly adjusted EBITDA of $351 million of that TV segment compared to the 409 million reported in the prior year quarter.
Yeah.
Our cable segment reported total quarterly revenues of $1 $390 million.
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 the broadcast of the women's World Cup and the men's CONCACAF gold cut were more than offset by the continued impact of the 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 a Fox news media.
Cable other revenues increased by $6 million in the quarter due to the timing of sports sub licensing revenues.
Meanwhile, expenses at our cable segment increased 13% led by higher programming rights amortization and production costs to the women's World Cup and Gold Cup the <unk>.
Timing of college football broadcasts Fox sports, one and contractual rights increases across our sports portfolio.
All in all this resulted in adjusted EBITDAR at table segment of $607 million.
Compared to the $742 million reported in the prior year period.
Turning to cash flow with free cash flow, which we define as net cash provided by operating activities less capex was negative $70 million in the quarter.
We intend to use to pay down the corresponding maturity coming to you in January 2024.
And with that I'll turn the call back of it again thank.
And now we will be happy to take questions from named ethnic community.
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And one moment for our first question.
And that have come from Robert Fishman from up at Anderson. Please go ahead.
Yeah I'm 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 contact the driving higher advertising and affiliate the 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 impact the industry right of course cutting or affiliate for your growth going forward. Thank you.
Hey, good morning, Rob.
There's a lot in there so I'll, let me, let me unpack it if I didn't know if I.
Hope I don't Miss anything so you know how how we.
Talking about this before but how how we analyze the W. W E renewal.
And and and you know, we we look at.
All of our sports portfolio you in the same way in on on all new rights options require new rights in the same way we.
<unk>.
Analysts analyst.
Analysis, sorry, we you know.
On both of advertising point of view, we were not hitting the advertising numbers due to the audience of the W. W E to make Ah Ah Ah.
To return.
Return on investment to be above the levels that we would accept but also we didn't attribute enough significant Ah Ah retransmission revenue to the WWE either so it made sense for us to move on from there have been a great partner for for many years, but.
Quite simply were very disciplined in the <unk>.
Meet our our.
You're pretty disciplined.
So so we wished him luck and we moved on from them.
You know we're currently in I think the final stages.
<unk> of a very constructive negotiation for our NASCAR renewal.
We look forward to continuing that that partnership with NASCAR has been a great partnership.
For many years and and phonology.
NASCAR.
Exceeds our expectations into from a from a wrong point of view.
In terms of Disney and charter and how that.
How about affects our our view going forward I think it's a it's a net positive for US you know I think that we want our distributors to do well, we want them to to continue to invest in in high quality programming and high quality brands and obviously between.
Fox News and Fox Sports are station group in our network, we have a very focused.
Very valuable set of core brands.
The distributors such as charter value. So so net net the Disney Charter gives me.
Positive for us and and positive for our strategy.
Next question please.
The next question is.
<unk> Morgan Stanley. Please go ahead.
Thanks. Good morning. My one question is on unlocking value. Although it does admittedly has two pieces that they might be connected.
[laughter], that's a confession.
I wanted to ask about sports and to be so arguably the popularity of sports, particularly football and and even more particularly college football.
Probably never been higher I mean, your your your college rights are probably more valuable today that effort 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 with you know advertising on the on the live rights and retreads fees.
And then kind of related maybe is is leveraging to be both in terms of sports, but also just broadly like your stock doesn't have I think probably objectively credit for what to be is worth.
And it continues to grow are you guys thinking about ways to try to highlight that value more or or scale. It up maybe through some strategic activated any thoughts on.
Hoping to unlock some value around an asset that's that's obviously doing quite well and probably will be worth a lot more of the public company, then and what it what it is currently priced at inside of Fox, though I know, that's a lot, but with us your thoughts.
That's fine been good morning so.
I I think I think the best way I can answer both questions.
With one answer I, suppose which is the you know the the value your 1000% right College football has never been more popular it's it's writing extremely well in one of the things we haven't talked about this frankly advertisers have found it average there's advertisers are pouring in to to college football.
Tremendous rates and and with tremendous.
Appetite for volume because they can see the value in this audience.
It's been <unk>.
Underpriced in past years, and I'm not sure, but but certainly advertisers are recognizing the opportunity in college football and and see where the leader.
But ultimately we build value through our brands and threw them through.
Fox Sports brand and Fox Sports and station distribution and so we'll continue to build value through college football.
The Fox sports brand and monetizing it that way at the same thing with to be you know first of all we don't envisage any kind of significant live sports on to be in the near or Franklin medium, perhaps even long term future, but you know to be is very focused on.
On on your primarily entertainment.
Particularly in video on demand independent, which makes that content.
And then engage in with their users all the more valuable and I think it will be a long time before we see so.
Significant life sports on to be in terms of how we how we.
Unlock of the value and should be to you know to be will be the way.
Our audiences engage.
Primarily engaged with entertainment.
In the future, it's a core part of our business and a core part of our our our strategy and so we're building valley there organically through through driving its growth I couldn't be more pleased with the arrival.
Of our new CEO honestly sued she doing a tremendous job and has a very clear and strategic sort of attention and view for how we continue to to drive <unk> success. So thank you've been.
Upgrade it will take the next question and that's I'm Jessica Thanks, Sam Bank of America Securities. Please go ahead.
Thank you Uhm first of all can I wanted to say I really appreciate your introductory comments.
Regarding his reporting and of course that your father, who was.
Is definitely one of our clients.
But it's my question I guess to court two as usual.
From all of US first on advertising can you give us your outlook for political advertising and what the current ton of sports advertising is we know the general marketing still seems pretty tepid and.
Then maybe a kind of a nuance than just ask but the longterm vision for to be like like it's clear.
This growth near term, but is this the vehicle as you think about possibly transitioning to two streaming given the decline in the universe are how are you thinking about it.
Thank you Jessica and then thanks for.
Thanks for your for your Thanks for my my comment.
So let me, let me start with with with advertising so.
You know the we also hear and understand that the advertising market.
Appears to be.
Mixed right.
Unsettled.
However, we are not.
Not seeing that to the same extent due to our focus on sports and news.
So let me, let me start with with with sports what we're seeing high demand around our NFL and we just discussed are in college football schedule and 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 at a premium to our upfront. It's a modest premium but we are we are pricing above our upfronts, which shows certainly in in in the sports category.
The market remains.
Healthy this will be somewhat tempered by post season baseball, including their conclusion of the World series last night, you know I think.
Sometimes you get Lucky and you'll get you'll get 77 series seven game series, you know with them with a match ups that are inside.
The imagination of a national audience, and sometimes Ah sometimes you are you're less lucky. So that's that's how the cookie crumbles and so I think you know we would like to have seen more games and we'd like to see in a bit more sort of national excitement around these games, but.
But it is is what it is having said that we should congratulate the Texas Rangers for.
A great a great season, and and and.
Winning the World series.
Fox News media.
A national advertising, a solid with growing pricing and it's important that we have over 80, new national advertisers in primetime specifically are ATM hour in the first quarter. So the the refreshing of of our of our schedule in our lineup.
His work on both a ratings perspective, but also from an advertising perspective, really really very well direct response continues to face some headwinds.
Headwinds are really from last year from the from the previous.
Upfront, where there was a witch.
Technically it created a sort of an oversupply in the market for direct response.
And put downward pressure on pricing.
We would expect as we go forward for.
For that that pressure to to.
Be relieved.
It will be some and we've got increased audiences.
The new cycle, which is a positive from a from a ratings point of view, but that's partially offset by an increased level of preemption.
Due to our kind of them really indepth incredible reported.
So at overall I should just overall sports and news, we're very happy with the with the overall performance of both of those verticals in our business. We're also very happy to be pronounced <unk>, 30% revenue gains.
Which is new real driven off the 65%.
Broken in total view time, I think going forward you will see continued growth in due time honestly is very focused on that.
And what.
There is softness in in the entertainment advertising market and to be not immune from that softness.
But <unk> is focused on how we.
Better monetize.
Reading this incredible growth in audience viewership and now it's time to really focus on how we more effectively and efficiently monetize that a huge audience.
We've earned the right because of the audience growth they 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 and the base market. If you exclude political you have to remember this.
Or.
Quarter last year October, particularly you know I think I had over $125 million worth of political revenue in the month of October alone.
So it's a huge a year on year comparison and X political we're very pleased with the base market is strong.
But then that's really led by the auto and recently a retail categories are very strong also financial services, that's offset with our with betting wagering and also entertainment right. It's there's not alone due to the the strike in Hollywood, There's no movie launch it so that's.
Offsetting some of the growth in auto retail financial services.
Now I should go on to some of your the other part of your question in the so I'm, taking too long Jessica that's what happens when he asked the question.
So there are a lot of the longer term.
Strachan Fatuity look I think we have a multipronged strategy I think to be is in a enviable position as a leading Eva player. It's free it's focused it's entirely advertising driven that's appreciated by all of our clients.
And obviously bought by our audiences and I couldn't be happier with with our transition from.
<unk>, who is an incredible entrepreneur, who who deserves all the credit for founding and build and drive in to be to date, it's always a difficult transition when you move to them from a from a founder to to a a new to new leadership. So far it's early days, but I'm.
But.
Honestly is very focused on on all the issues and all the opportunities that you'll be has in front of it to continue to grow at an.
Unimpressive impressive levels.
But to be as our our free streaming.
Streaming service.
That that does not it's not our only strategy.
In the streaming space.
Direct to consumer.
Obviously something that we look at closely we have a small director consumer Estrade service in Fox Nation.
We have optionality expanding those services you further into news and potentially sports.
I hope I answered most of your questions Jessica.
I simply.
The next question is.
Had like some UBS. Please go ahead.
Okay great.
Good morning, everyone first can we just get an update on the affiliate renewal process. I think you guys. It said that it would be more waited on the television side, but I think a lot of the new agreement to kick in in January So just any color on the trends, we should see there and then getting back to the.
The charter Disney renewal.
You guys seem to be somewhat unique in that.
Really have any longfield that works or or I would say a major <expletive> spot plot for a while cause you talked about about Fox nation, but it's obviously very different than what we're saying the rest of the industry just any thoughts on the implications for Fox is model that we've seen out of this renewal.
Be broadly adopted over time for the a district. Thanks.
Extra on an affiliate renewal.
Let me start with a Christian and Steve can talk to any of them.
Numbers are going for it but.
Or not depending on.
[laughter], but.
Okay.
[noise] on an affiliate renewal is we really.
Really do to our our focus strategy are are focused on our core.
Our core brands also I think I think our focus on.
Being good partners.
Our distributors and wanting their businesses.
To succeed because frankly from a Fox perspective.
The cable.
Bundle cable distribution or pay TB distribution remains.
Our our our largest.
And really the most important register and then we believe that it will remain our largest.
Three years to come so we are.
We feel the success of our distribution partners as our success as well, we want them to succeed and we want them to do dwell, which is one reason why.
We've kept.
Our premium content within.
The cable bundle.
We are not.
Interested in at this stage I'm moving premium content away from from from our cable distribution partners that would be that would be I think I'm, a mistake for us and for them.
So due to that.
Since our last call or a quarter ago, we have renewed a number of.
Distribution contracts and and in every case, we've been rewarded by that focus rewarded by our our our partnerships with our affiliate partners or distribution partners.
With a rate increases and and distribution agreements that are absolutely in line with our plan and that's because they value our brands they value Fox news their value Foxsports and obviously, our our local stations and networks. So.
We are very pleased with our pace of.
Renewals and we haven't seen any.
Any changes to them.
The way, we are able to work constructively with with our partners.
And that goes to the second part of your question with with with a charter and Disney.
It's hard for me to say, how I I don't Wanna talk about other people on a lot of people are have their own calls.
Next week I think I think we're early in the media cycle. They can talk about how that renewal effects them and particularly their entertainment channels for us because we're not in that space I think it's a net positive.
We like to see our our our partners focus on the core brands or brands, where all the audience is and frankly with it with a leverages in terms of retransmission and.
So on all channels might not be as popular so stupid.
Just just.
Reinforce luck rooms point, we had just.
Just over a third of that distribution renewals G. This fiscal year and with virtually through all of that.
And is Luckily mentioned, we've achieved that pricing objectives.
Against those renewals, which goes to the fact that we haven't gone dark with any distributors and the fact that we've been able to achieve the objectives.
And shooting the distributors of a heavy touch renews. It goes to the constructive relationship we have with those distributors since this is <unk>.
We negotiate F full portfolio as a bundle.
I think it should expect to see that.
Coming into the calendar you, you'll see the impact of those renewals and I suspect that.
The benefit of those will be skewed towards the TV statements that you should also expect to see some progress on the cable side and the and the new calendar or I should say.
Operator, we have time for one more question.
Thank you and that question will come from the line can.
K P. Mike and please go ahead.
Alright, Thanks, a lot 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 to be 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 a secular not just.
Cyclical decline thank you.
Thank you so.
The short answer is you you Gotta you have to I think break it up by category right and so if we look at sports and news the.
The there's there's there's no sign of.
Ah slowdown and sort of demand for.
Really incredible and unique reach that those are platforms are deliver our advertising clients.
I think.
You know the the D R.
Issue is a specific issue they're really relates to.
Upfront before last.
There.
There was a do to them.
The negotiating strategy of some of our competitors. There was an oversupply of of of direct response in the market and that's driven pricing down.
See we didn't see the same activity in this past upfront and so we expect the pricing pressure on dear to ameliorate or or you know to wash out in the in the coming quarter, So where do you see that as a as a shorter term problem and not a not a structural problem.
At all and so it comes back to you know, particularly in the news and sports there is no other.
Content or platform that offers the reach there were those categories offer and so we are you know.
Optimistic is not a strong enough word and when we are very confident.
In the future linear advertising when you can deliver on the audience is that we deliver with the brands and the branch safety that we also can offer our clients.
At this point you at a time, but if you have any further questions. Please give me a <unk>.
Area cough.
You once again for joining today.
Thank you everyone.
Ladies and gentlemen that does conclude you have happened cough for today. Thank you for you as an AT&T executive teleconference. You may not disconnect.
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