Fox Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Fox Corporation second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would like to emphasize that the functionality for the question and answer queue has recently changed. 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'll 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. Good morning and welcome to our fiscal 2021 second quarter earnings call. Joining me on the call today are Lachlan Murdoch, Executive Chairman and Chief Executive Officer, John Nallen, Chief Operating Officer, and Steve Tomczyk, 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 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 morning, and thank you all for joining us to discuss our second quarter results. Financially and operationally, we continued our impressive results and strong momentum in the quarter, with EBITDA growing by 17%, driven by revenue growth of 8%. These financial results were led by exceptional gains in advertising revenues, which grew by 14%, spurred by a record political cycle in which we generated more than $420 million of net political revenue company-wide, during calendar 2020. The overall advertising strength was propelled by our Fox television stations, gains at Fox News Media, and the dramatic growth of Tubi. Beyond advertising and because of the substantial pricing power of our brands, affiliate revenues grew by 6% despite a reserve taken for potential distribution credits. While we experienced a decline in subscriber volume, the trend improved for the third consecutive quarter. This quarter, we saw industry subscribers decline just above 5%, which is more than a 50 basis point improvement from what we experienced in Q1. The financial performance of Fox is illustrative of the strength of the core brands that anchor our company and of the contributions of new assets that lay the groundwork for continued growth and rapid evolution. As you know, the news cycle of the last year has been quite active, and it has led directly to gains across our local stations, as well as all the networks and all the extensions of Fox News Media. For example, Fox's ability to provide the best in local news was on full display at Fox 5 Atlanta during the Georgia Senate runoffs. Not only did our colleagues at Fox 5 report on the national significance of the Georgia election, they also expanded news coverage in response to viewer demand, held a candidate debate, and produced special runoff programming focused on the issues impacting Georgia voters. During the entire runoff period, Fox 5 was the number one station in Atlanta for a six and a half hour morning news block. Hard work begets just awards, and so it's no surprise we led the market in political revenues generated. This success was replicated across the Fox television station's footprint. Net political revenue approximated $190 million in the quarter, bringing our total for the stations in the first half of the fiscal year to approximately $260 million, an amount more than three times greater than the last presidential cycle. The news cycle also continued to connect engaged audiences to the various Fox News media platforms, linear, digital, radio, and streaming for news analysis and opinion. In fact, the Fox News Channel finished the quarter with the highest average prime time ratings in the history of cable news. The Fox News Channel closed the calendar year as the number one television network in weekday primetime, continuously topping all broadcast networks and total viewers since the very early months of 2020. Fox News was number one in election night coverage during primetime, beating all television networks and averaging 25% share of total viewers. While calendar 2020 ratings were record-breaking, we are now seeing the expected post-election audience pullback that we anticipated on this call last quarter. and which is consistent with prior election cycles. We fully expect that the overall news audience will normalize and our share of ratings will dominate. In fact, this trend is already beginning as we have seen substantial share gains versus our competition since the inauguration. As in the past, we are confident that the strength and breadth of the Fox News media businesses positions us for sustained long-term growth. I'm pleased to announce that Fox News Media CEO Suzanne Scott has extended her term with the company. Under her leadership, Fox News has expanded its reach with consumers and has diversified significantly to become a multi-platform media brand. I've been fortunate to work closely with Suzanne over the last several years, and I've seen in action her ability to seamlessly guide the newsroom a story's break, her openness to new ideas, and her ability to innovate new opportunities to grow our business. I am also happy with the programming changes that Suzanne is implementing, including Larry Kudlow's show on Fox Business Network that will premiere next week. We all welcome Larry to Fox. Turning to other areas of the company, are a mix of assets our viewers flock in even greater numbers to Fox Sports and Tubi post-election. Fox Sports' leadership in live events demonstrates why it proudly and correctly claims to own the fall. Even with an atypical fall sports schedule that was crowded with out-of-season events that had been postponed earlier in the year and included unexpected and sudden cancellations, Fox clocked nearly 170 billion minutes of live sports viewing in the fall, more than 50% above the next competing network. Our 27th season of the NFL demonstrated that Fox continues to be the preeminent broadcaster of America's most popular sport. With nearly 45 million viewers tuning in to Fox for the NFC Championship game, we eclipsed last year's NFC Championships audience that was broadcast during the later window. I want to congratulate the NFL for completing its season last Sunday. I know many of you on this call worried about the risks associated to Fox if the NFL season fell short. It's a testament to the leadership of Commissioner Goodell and the professionalism of both the NFL and the incredible team at Fox Sports that we were able to deliver and broadcast such a historic season. is not my favorite word or concept, but I am very proud of our team for this achievement. Elsewhere, the return of live sports boosted our sports wage and partnership, Fox Bet. After adding nearly 3 million players during the NFL season, Fox Bet Super 6 now has a user base in excess of 4.3 million players. and continues to be the biggest free-to-play game of its kind in the country. We also continued our successful track record with non-sports Super 6 contests. For example, the Super 6 game covering the Georgia Senate runoff and the recently launched stock market challenge game and weekly quiz show as promoted on Fox and Friends enable us to fully engage non-sports fans who generally wouldn't interact with a wagering brand. A key differentiator for Fox Bet has been the cross-promotional power of all of Fox's assets to ignite the Fox Bet brand. In a similar fashion, we have mobilized the entire Fox portfolio to support and supercharge Tubi, which we acquired less than a year ago. This strategic acquisition, which is already a core asset for Fox Corporation, clearly merits some focused commentary. Tubi is an exciting growth engine for the company and a key strategic platform for not only our digital expansion, but also our broader reimagining of Fox's broadcast model for the future. In fact, I believe Tubi is an investment in what we internally call the broadening of broadcast. meaning the Fox network and Tubi combining seamlessly to create a modern network-inspired business. With Tubi as part of our portfolio, Fox broadens from being the leader in broadcast network television into a leader in linear and streaming ecosystems. Both Fox and Tubi deliver distinct value to our viewers, partners, and advertisers already. And we believe Tubi's technology and market approach, coupled with Fox's unique positioning, as a focused network-first business make them even more impactful when operated and offered together. You know the broadcast network well and our marketplace differentiation, so I'll focus on the already meaningful momentum and results at Tubi and the significant sustainable growth that we envision ahead. Tubi has seen dramatic year-over-year increases across every key metric, and it continues to grow beyond even our best acquisition expectations. Over the first half of the year, we have seen yearly unique viewers more than triple, total view time grow by nearly 70%, and revenue more than double. In fact, Tubi's revenue for this past quarter alone broadly approximated Tubi's revenue for the entire fiscal year before we acquired the company. While some streaming services focus attention on metrics like sign-ups or monthly active users, we think the most meaningful metric when measuring the performance of any AVOD service is total view time, or TVT, as it is viewership that has direct and proportional relationship to advertising inventory and revenue opportunities. It is this profile of Tubi that is driving digital advertising partners to engage with our audience. Looking ahead to our plans to continue to boost Tubi, let me give you a bit more color on our content, technology, and synergy strategies. Tubi's vast content library, by design, caters to a broad audience. We continue to strategically add to its offerings with marquee titles from Fox and nearly every other programmer of note. The addition of the Masked Singer of Tutubi provides a perfect example of the power of these assets combined. The show was a sensation when it launched on Fox. When we added the Masked Singer Tutubi, it added reach for advertisers, delivered significant view time on the platform, and brought in advertisers seeking to be associated with a young, diverse, and complimentary audience that Tubi adds to the Fox offering. Another important differentiator for Tubi is its technology. Tubi is constantly enhancing its ad technology to provide better data and results to digital advertisers. For example, Tubi recently introduced its advanced frequency management tool, which reduces ad repetition. In an early study with a major insurance brand, this tool reduced over-frequency to the same viewers by more than 360%. Simply stated, rather than continuing to show the same ad to the same viewers, as is often the case across other Aval platforms, Tubi's tool enabled this insurance company to advertise to nearly 100,000 more households within the same ad buy. These compelling results led the insurance brand to make a multi-million dollar ad commitment to Tubi throughout 2021 and the brand is also a fox advertiser now as well expect more technology advancements and offerings in the months ahead tubi's tech stack in general will separate tubi from lesser avon options for years to come tubi has also rapidly become a synergistic acquisition we've had incredible success with advertisers who find their way to Tubi through existing relationships with other Fox brands. For instance, 50 advertisers who had not previously worked with Tubi chose to buy Tubi during the recent upfront season. By combining Tubi into our portfolio of advertisers, we reach brands that may have been unfamiliar with Tubi's unique and additive audience, nearly 50% of which doesn't have a pay TV subscription. we have a laser focus on growth and monetization at Tubi. And as we continue to invest in Tubi, we believe it will become the platform of choice for viewers and digital advertisers alike and become a larger piece of the broader Fox Corporation business. Translating this financially, we expect Tubi revenues to more than double in the current fiscal year to exceed $300 million. And as we look out a few years, we envision Tubi becoming a billion-dollar business and a core pillar of Fox. Tubi is a tremendous addition to our pre-existing portfolio of growing digital businesses, which we have built over time in a fiscally responsible manner. Over the first half of our fiscal year, our Fox news, sports, entertainment, and television stations digital businesses have attracted more than 330 million average monthly users, over a 30% increase from the comparable period in the prior year. These users spent more than 160 billion minutes consuming our digital content during this time, an increase of more than 70% from the first half of fiscal 2020. Through these digital destinations, coupled with Tubi and Credible, We have generated well over $650 million of digital revenue through the first half of our fiscal year, with approximately two-thirds representing digital advertising revenues. These rapidly-grown platforms, along with our must-have linear television brands and market-expanding partnerships, are exceeding expectations. As a united portfolio, they are even stronger, with wide runways for the businesses to collaborate. retaining existing viewers, harnessing new audiences, engaging consumers in new ways, and broadening the touch points users have with Fox. And now, Steve will take us through the details of the quarter.