Fox Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Fox Corporation second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press star, then zero. As a reminder, this conference is being recorded. I now turn the conference over to Chief Investor Relations Officer and Executive Vice President of Corporate Initiatives, Mr. Joe DiRego. Please go ahead, sir.

Thank you, Operator. Hello, and welcome to our second quarter fiscal 2020 earnings conference call. Joining me on the call today are Lachlan Murdoch, Executive Chairman and Chief Executive Officer, John Nowlin, Chief Operating Officer, and Steve Tomczyk, 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. Excuse me. Please note that this call may include forward-looking statements regarding Fox Corporation's financial performance in 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 both available in the investor relations section of our website. And with that, I'm pleased to turn the call over to Lachlan.

Thanks, Joe. Good afternoon. And thanks, everyone, for joining us for our fiscal 2020 second quarter earnings call. We just reported an exceptional quarter, which really underscores the strength of Fox and our unique position in the market. Nowhere was that strength and uniqueness on greater display than this past weekend, culminating with our groundbreaking broadcast of Super Bowl 54. Let me say at the outset how pleased I am of the efforts of our entire company, our people delivered a flawless broadcast of Sunday's game to more than 150 million unique viewers across the country, virtually guaranteeing its place as the most watched live television event of 2020. We surrounded the Super Bowl with an immersive and innovative programming lineup from Miami across Fox Sports, Fox News, Fox Sports 1, and our local stations. And we used this enormous platform to launch season three of The Masked Singer right after the game, which became TV's highest-rated reality telecast in eight years. On Sunday, Fox did the largest revenue day in TV history, generating around $600 million of gross revenue and providing an unmatched platform for over 100 advertisers from the pregame through The Masked Singer. And we delivered extraordinary ratings for our advertising distribution, and NFL partners. And while there's a massive amount of planning and activity that goes with broadcasting the Super Bowl, it has not been at the expense of delivering other imperatives for our business. During the first six months of the fiscal year, we have already achieved a substantial number of key operating milestones in support of Fox's growth and momentum. Among them were attaining number one status for the Fox network in broadcast and maintaining the number one position of Fox News in all of cable, delivering a strong sports calendar to viewers and advertisers, particularly across baseball and football, launching the WWE, acquiring Credible, and activating Fox Bet. We announced the expansion of our local station footprint, with the acquisition of two key local market stations. We completed a substantial number of major distribution deals in line with our expectations, including gaining carriage for Fox News and Fox Business on Sling. And we have delivered impressive financial results led by revenue growth. This quarter, we really knocked it out of the park. Steve will provide further color around the financial results shortly. But our first half results illustrate the power and importance of our brands to our partners and audiences, validating our strategy to build Fox around live sports, live news, and event programming. Overall, our top line revenue is trending nicely. Total affiliate revenue increased by nearly 6% in the first six months of the fiscal year. And our advertising markets, both national and local, are buoyant, as illustrated by the current scatter market, where we see pricing well over 20% higher than upfront levels. The strength of the television advertising market for us is at a level that we have not seen for some time. Across all of Fox, we are seeing growing demand because we are delivering sizable audiences for brands. At our national networks, categories that are leading this intensity include financial, insurance, the streamers, technology, and foreign auto. At the local level, most of these same categories are prominent, except domestic autos are currently running ahead of foreign. On the national news side of our business, Fox News and Fox Business are seeing a significant advertising client expansion across both our linear and digital advertising business, led by the financial and technology categories. The Fox News audience is increasingly sought after by more and more advertisers as they look to reach a large engaged audience, particularly across middle America. This advertising strength is based in large part from delivering on the promise made last May at our upfront that Fox would own the fall across the entire Fox network. Overall, the Fox network took the top rating spot for the fall broadcast season, marking its first number one finish in the 18 to 49 demographic in 10 years. Additionally, Fox was the only network to achieve year-over-year gains in both total viewers and in the 18 to 49 demo. Fox also ranked as the number one entertainment network in the fall in all viewers for the first time in our history, fueled by the success of The Masked Singer, 911, and the top new series, Prodigal Son. We're focused on sustaining this momentum in the second half of the year with the addition of the Deputy and 911 Lone Star and non-scripted content like Gordon Ramsay's 24 Hours to Hell and Back, the third season of The Masked Singer, and our newest show, Lego Masters, which debuts tonight on Fox. I suggest watching with your whole family. It's truly great. On the sports side of our business, we continue to drive unparalleled audiences to our signature programming. So far this fiscal year, Fox Sports has been home to the U.S. Women's National Soccer Team, a riveting seven-game World Series, the inaugural broadcast presentation of WWE SmackDown, an ambitious new college football strategy, and the launch of our partnership with TSG and Fox Bet. And clearly, it was a great year for NFL football on Fox, which culminated Sunday with the broadcast of Super Bowl 54. For the second year in a row, Fox was able to expand its audience for Thursday night football, college football Saturdays, and NFL Sundays. In aggregate, total regular season football viewing on Fox, NFL, and college football combined was up 14% over 2018. It's worth noting that no other network was up more than half this level. While the momentum we've seen at the broadcast network has been strong, equally as impressive is the performance of Fox News. Fox News finished calendar 2019 as a top-rated basic cable network across all cable networks for a fourth year in a row, beating its nearest competitors by over 40% and achieving its highest-rated prime time in history. Given the well-documented headwinds facing the broader cable industry, Fox News' ability to grow its audience over last year is a testament to the enduring power of the brand. The current news cycle continues to drive passionate viewers to Fox News, and it's hard to see that trend subsiding. All of these achievements point to a simple fact. Fox is the home to both a top-rated broadcast network and the most viewed cable network, and that is an exciting position to be in. Equally exciting is to be the home of the two events that command the attention of the entire country in the same year. We started calendar 2020 with the first event, the broadcast of Super Bowl 54 on Fox. We now set our focus on the second event, the news equivalent of the Super Bowl, the presidential election. Fox News' branded Democracy 2020 election coverage is already in full swing. If history is any guide, audience levels and engagement will build significantly as the cycle progresses through the upcoming primaries and caucuses, the conventions, and the presidential debates, all culminating in our election-like coverage across Fox News media on Tuesday, November 3rd. As we build towards November, The financial benefits are not limited to Fox News. We'll see a sizable ad revenue uplift at our local television stations. As referenced, in calendar 2018, during the last midterm election, our stations collectively generated record gross political revenues in excess of $200 million, shattering the previous record set during the 2012 Obama-Romney election by 40%. Although we are very early in the political season, we are already seeing signs of further increased political spending, with a vast majority of the spend dedicated to the unmatched reach of television. We saw it on Sunday with spending in the Super Bowl on a national level, and we've already been seeing it at our local stations, which positions us to deliver a new record for political revenues in calendar 2020. Our confidence is further strengthened by the fact that we will soon be expanding our station footprint, which already includes stations in Florida, Michigan, Minnesota, Pennsylvania, and Virginia, into another perennial swing state, Wisconsin, with the previously announced acquisition of the Fox affiliate in Milwaukee. As you can tell, I'm thrilled with the rapid progress that we have made and the recognition of the great value of our networks by our distribution partners. As indicated earlier, we have achieved our goals in all the distribution renewals we have completed, which reflects the importance of our content to the market. But, of course, we recognize that the trends in the paid subscriber universe has an impact on our business. As you know, we are dependent on our traditional and digital distribution partners and their business plans for our inclusion in their paid television retail offerings. And while I'm not going to predict where a normalized pay TV subscriber base ends up in the near to medium term, I know that this ecosystem will still be the largest component of our revenues for some time. Nevertheless, we have begun allocating capital to expand our revenue base while preserving our subscriber fee relationships into direct-to-consumer initiatives, which will grow in importance over time. Fox Nation, Fox Bet, and Credible are three recent examples of this. but we continue to evaluate opportunities where Fox can bring unique value directly to consumers while sustaining existing business models. Nonetheless, there is solid growth and momentum at the company's existing digital businesses, with total engagement increasing last quarter by over 40% versus the previous quarter. Fox News Digital had a record calendar 2019 beating CNN.com in both total views and minutes consumed. And for the first time, Fox News Digital averaged over 100 million unique com score monthly visitors. Fox Sports also had a record digital year in calendar 2019, growing both total video views across streaming and social platforms and total minutes consumed by over 20%. It was also our highest streamed regular season for the NFL on Fox, with growth of 57% over last year. And to refer to the Super Bowl one more time, the game was the most streamed ever. 11.7 million users streamed all or part of the Super Bowl, and 70% of their consumption was on Fox-owned platforms. While we have remained focused on executing against our operational plans and hitting our financial targets, we have also demonstrated how we look to deploy our capital to an appropriate balance of organic investment, strategic M&A, and return of capital to our shareholders. On the organic investment side, the previously announced $200 to $250 million EBITDA investment began to ramp up this past quarter with the broadcast of WWE SmackDown and our investments in greater originality and co-production rights at the Fox Network, along with investment in our digital initiatives led by Fox Nation and the refresh of Fox Business. In terms of strategic M&A, in October, we deployed approximately $260 million for the previously mentioned acquisition of Credible Labs. In the short time we've owned Credible Labs, we have seen the signs of the exceptional growth the business is capable of. For example, during calendar year 2019, credible more than double this cumulative registered user base and experienced record closed loan volume, both of which drove substantial top-line revenue growth. We have also committed around $300 million to acquire the Nexstar television stations in Seattle and Milwaukee in exchange for our stations in Charlotte. We expect this deal to close in the next month or so. And our commitment to return capital to our shareholders remains an integral element of our capital allocation strategy. In addition to the just announced semiannual dividend, we have now finished the initial $500 million of share repurchases that we committed to when we announced the $2 billion authorization three months ago. As we have consistently noted, we remain committed to deploying capital in a disciplined manner to maximize shareholder value through this balanced approach. Now I will turn the call over to Steve to provide more detail on our financial results.