Fox [FOX] Conference call transcript for 2022 q1
2022-05-10 13:13:06
Fiscal: 2022 q3
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Fox Corporation Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we’ll conduct a question and answer session. I would like to emphasize that that functionality for the question and answer queue will be given at that time. [Operator Instructions] And as a reminder, this conference is being recorded. I will now turn the conference over to our Chief Investor Relations Officer, Mr. Joe Dorrego. Please go ahead, sir.
Joe Dorrego: Thank you, Operator. Good morning and welcome to our Fiscal 2022 Third 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: Thanks, Joe and good morning, everyone. Thank you for joining us on this call. I don’t know about everyone else but I often find early mornings after a coffee or two or three to be good time to reflect on the progress we are making and to plan the days or weeks ahead. Sitting here on the FOX lot with my colleagues, I can recall our investors that when we saw all of you or most of you in person and kicked off the new FOX, now already a few years ago, some of you’ve asked then correctly, could the new streamlined FOX aggressively grow its top-line revenues? And what we committed to you then that we would add $1 billion of television distribution revenue by calendar of 2022, we all knew that proof would be in the pudding. So what’s pleasing that this quarter, we again delivered healthy distribution and advertising revenue growth across our brands and complemented by further stellar growth at Tubi. Overall, we delivered 7% revenue growth led by 9% advertising growth and 5% growth in our distribution revenues. As a reminder, this 5% growth in distribution revenues does not include the benefit of any material renewals this fiscal year. Those renewals start next year and our advertising growth was notably broad based. Cable Advertising grew by 20% in the quarter. This growth was driven by FOX News as its pricing and ratings trends more than offset the elevated level of preemptions due to the coverage of the war of in Ukraine. Television advertising grew by 6% in the quarter. This increase was led by Tubi, which saw its advertising growth accelerate from approximately 40% in the December quarter to 50% on the back of increased engagement. In addition, continued strong demand for sports drove overall growth at the FOX network and at the local level, advertising revenues increased, despite continued supply chain and other economic headwinds. As we look to our upfront next Monday, we are encouraged by the early momentum in the market and we believe that our focus on lives including the must have events of the coming year such as the Super Bowl, the World Cup and even the mid-term political cycle puts us firmly in the lead with our advertising partners as upfront deals are made. And, as we established last year, Tubi will continue to play a leading integrated role in our upfront efforts. We are in this enviable position due to the execution of our strategy by our core business units. It’s hard work, but it pays off. FOX News channel finished the first quarter of calendar 2022 as Cable’s most watched network in prime time and total day viewers. In fact, FOX News was the only Cable News network to post gains versus the prior year quarter in total viewers and the key demographic are adults 25 to 54. FOX News now beat CNN and MSN we see combined in total day and with both total viewers and the key demo for nine consecutive months and with a total base share of 54% across both demos. These achievements reflect the growing breadth and depth of our programming slide. Notably, The Five was the most watched program in Cable News for the second consecutive quarter. Meanwhile, Gutfeld delivered its highest graded quarter while Jesse Watters Primetime, which launched in late January is averaging over 3 million viewers in the 7 PM time slot. Broadcasting 97 of the top 100 most watched cable news telecast this past quarter FOX News continues to attract the most politically diverse audience in its peer group watched by more democrats and independents than MSNBC and CNN in total day and primetime. Meanwhile, our sustained and disciplined investment continues to drive subscriber growth and engagement at FOX Nation. The FOX Nation subscriber base has more than tripled in less than 18 months, driving engagement levels to new heights in each quarter. The average FOX News fans have clearly embraced the FOX Nation platform as demonstrated by its consistently high conversion rate or trial us to paid subscribers and retention rates well above in industry averages. Momentum also continued at FOX Weather, which benefited from expanded distribution on Roku, YouTube TV, and Amazon resulting in sequential growth in total view time across each month of the quarter. At FOX Sports, the USFL is off to an encouraging start. Through its first three weeks, nearly 20 million people have watched the USFL on TV and games on FOX and NBC are averaging 1.5 million viewers. That compares favorably to well-established spring sports properties like, The NHL, Formula 1, The EPL and MLS, all properties which either earn sizable rights increases or expected to do so soon. We are clearly establishing that USFL belongs in this competitive set, which is our primary goal in this first season. At the NFL, we are pleased to announce that we have reached agreement that carry an incremental game this coming year on Christmas Day. As a reminder, last year’s Christmas Day game on FOX delivered over 28 million viewers. We look forward to the release of the full NFL schedule expected later this week. Elsewhere, our NASCAR season is off to a strong start. Though we are early, the low -teens gains we are seeing in viewership would represent one of the more meaningful single season improvements across the 22 year history of NASCAR on FOX. And we couldn’t be more excited about the upcoming 2022 FIFA World Cup on FOX Sports with the qualifications of the U.S. men’s team and its blockbuster match against England on Friday, November the 25th. This match will contribute to an unprecedented Thanksgiving weekend of Sports on FOX, book ended by the Dallas Cowboys on Thanksgiving Day and the Michigan, Ohio State rivalry on Saturday. That’s likely to add up to most watched NFL game over the regular season, the most watched U.S. men’s national soccer team match as ever and the most watched College Football Game in the season, all during the busiest consumer shopping weekend of the year. This speaks to the power of our platforms and the prudence of our strategy. Of course, our linear businesses are complemented by Tubi, where total view time increased 50% propelled by record quarterly viewership. In fact, Tubi delivered 18 of its top-20 Tubi key days in its history this past quarter, a period where there is traditionally some softer seasonality in the AVOD market. Meanwhile, Tubi expanded its industry-leading library and now accounts more than 42,000 titles in its portfolio. Importantly, Tubi also renewed key distribution deals including its Amazon partnership, and signed its first custom deal for Samsung’s smart TVs. In the third quarter, we continued to invest in the future of Tubi, which we believe will be a strong growth engine for the company for years to come. We have also invested in FOX Weather, which is now available ubiquitously in every broadband home across the country and provides our clients with a new, very broad advertising platform. And finally, FOX Nation goes from strength-to-strength as it builds upon the engagement between FOX News and our most ardent fans. These initiatives illustrate the entrepreneurial nature of FOX endowed with America’s strongest media brands and most enviable balance sheet. Before handing over to Steve, I'd just like to acknowledge the incredible bravery, sacrifice and professionalism of the entire FOX News reporting team in covering the war in Ukraine. Journalism is rarely easy, and often, it is very hard. Bearing light on the horrors of this war and the resulting refugee and humanitarian crisis, it is born. It's probably the hardest assignment we can give. I am, we all are, deeply grateful for the tremendous work and extraordinary journalism that Trey Yingst, Jennifer Griffin, Steve Harrigan, Jeff Palcott, Ben Hall and many more excellent reporters have provided our audience. Tragically, two of our journalists were killed in Kyiv and Ben Hall remains in treatment for his serious injuries. Our thoughts and the thoughts of the whole FOX family are with them and their families. With that, I’ll hand over to Steve.
Steve Tomsic: Thank you, Lachlan, and good morning, everyone. Our third quarter results once again reflect the strength of our leadership brands and the continued growth of our digital businesses. We achieved total company revenue growth of 7% year-over-year delivering top-line growth across all of our operating for the fourth consecutive quarter. Total company affiliate revenues increased 5% despite the fact that only 5% of our total company distribution revenues have been up for renewal this fiscal year. Meanwhile, the rate of industry subscriber declines remained steady in the quarter with trailing 12-month sub losses running below 5%. Total company advertising revenues grew 9% as our leadership brands once again delivered premium pricing, coupled with continued strong momentum at Tubi. Quarterly adjusted EBITDA was $811 million, down 10% over the comparative period last year as the revenue growth was more than offset by higher expenses. As we’ve foreshadowed on prior calls, the increase in expenses was mainly driven by the anticipated increase in digital investments including FOX News Media and Tubi. Additionally, we saw high programming rights amortization and production cost at FOX Sports and we’re impacted by an approximately $30 million write-down of certain scripted programming at FOX Entertainment. Net Income attributable to stockholders was $283 million or $0.50 per share compared to the $567 million or $0.96 per share we reported in the prior year quarter. As we have seen in recent quarters, this below the line variance was primarily due to the change in fair value of the company’s investment in Flutter which we recognized in Other net. Excluding this impact and other non-core items, adjusted EPS was $0.81 per share, compared to last year's $0.88, primarily reflecting the movement in EBITDA. Now let's turn to our business segment results starting with Cable Networks, which reported an 8% in revenues. The strong revenue delivery was underpinned by significant gains in cable advertising revenues which grew 20% in the quarter. Notwithstanding slightly higher levels of preemptions associated with our breaking news coverage of the war in Ukraine, FOX News was the engine of this advertising revenue growth with strong gains in both audience and pricing. Cable affiliate revenues increased 3% over the prior year period, a result of healthy pricing gains across all of our networks. Cable other revenues increased 23%, led by the timing of sports sub-licensing revenues which were impacted by COVID last year, as well as continued subscription momentum at FOX Nation. This growth was partially offset by the disposition of our sports marketing businesses, which was sold in March of last year. EBITDA at our Cable segment increased by $14 million over the prior year period as these revenue increases were partially offset by higher expenses related to the digital investments of FOX News Media and the timing of programming amortization and production costs at the Cable Sports Networks following the COVID-related disruptions of the prior year Almost matching the strong revenue growth in cable, our Television segment delivered a 7% increase in revenue. This was led by an 8% increase in television affiliate revenues over the prior year quarter, reflecting increases for both our direct retransmission revenues at our owned and operated stations and for our programming fees from non-owned station affiliates. This runrate orbit assures achievement of our target of $1 billion of incremental television affiliate revenue this calendar year that we announced at our Investor Day back in 2019. Our Television segment also delivered 6% advertising revenue growth, reflecting strong linear pricing at the FOX Network and continued growth at Tubi, partially offset by lower impressions of FOX Entertainment. At FOX Sports, the impact of the additional week to the NFL regular season was offset by the absence of the rotating NFL divisional playoff game this year. And at the FOX Television stations, notwithstanding the ongoing supply chain-related challenges to the auto category, we continued to grow advertising revenues supported by gains from our digital sales efforts and continued demand from the sports betting category. Other revenues at our Television segment increased 17%, primarily due to the impact of the acquisitions of MarVista Entertainment and TMZ and the consolidation of our stake in Studio Ramsay Global. Television EBITDA was lower by $100 million against the prior year period, as its healthy revenue growth was more than offset by the planned digital investment at Tubi, higher sports programming amortization and production costs at FOX Sports and an approximately $30 million write-down of certain scripted programming at FOX Entertainment. Turning now to cash flow, we generated strong free cash flow of $1.54 billion in the quarter, reflecting our normal seasonal cycle of collecting advertising revenues from our old programming and the result of our sports rights payments being concentrated in the first half of our fiscal year. Our share repurchases since the commencement of the quarter have totaled $300 million and fiscal year-to-date, we have now returned over $1 billion of capital to shareholders. This is comprised of approximately $275 million in the form of our semi-annual dividend payments and a further $800 million in share buybacks. We remain committed to utilizing our full buyback authorization of $4 billion and have now cumulatively repurchased approximately $2.4 billion, representing over 11% of our total shares outstanding since the launch of the buyback program in November 2019. We continue to maintain a very strong balance sheet, ending the quarter with $4.6 billion in cash and $7.2 billion in debt. So as we look forward, the setup for fiscal 2023 remains incredibly strong with the financial tailwinds from Super Bowl 57, the early exit of Thursday Night Football, November's mid-term elections and the start of our next major distribution renewal cycle. So with that, I'll now turn the call back to Lachlan.
Lachlan Murdoch : Thank you very much, Steve. As you know, we usually, after Steve's comments, we go straight to Joe and start the questions. But we have a breaking news, which I am in the spirit of being always open and giving our investors and our shareholders the latest news in the company. I'll go straight to this. I mean, literally, this is happening in real-time. We are pleased to announce that immediately following his playing career, whenever that may be, seven-time Super Bowl winner Tom Brady will be joining us at FOX Sports as our lead analyst. Over the course of this long-term agreement, Tom will not only call our biggest NFL games with Kevin Burkhart, but will also serve as an ambassador for us, particularly with the client and promotional initiatives. We are delighted that Tom has committed to joining the FOX team, and we wish him all the best during this upcoming season. I am sure everyone joins me in warmly welcoming Tom Brady on board. Thank you very much. And with that, I'll hand over to Joe
Joe Dorrego : Thanks, Lachlan. And now we'd be happy to take questions from the investment community. .
Operator: [Operator Instructions] We have a question from the line of Ben Swinburne. Please go ahead.
Operator: We have a question from Jessica Reif Ehrlich, Bank of America. Please go ahead.
Operator: We have a question from Robert Fishman of MoffettNathanson. Please go ahead.
Operator: We have a question from Doug Mitchelson of Credit Suisse. Please go ahead.
Operator: Our last question will come from the line of Steven Cahall of Wells Fargo. Please go ahead.
Operator: Ladies and gentlemen, that does conclude your conference call for today. Thank you for using AT&T Executive Teleconference. You may now disconnect.
