Fox Corporation

for the question and answer queue will be given at that time. If you should require assistance during the call, please press star, then zero on your touch-tone keypad. As a reminder, this conference is being recorded. I'll now turn the conference over to Chief Investor Relations Officer, Ms. Gabrielle Brown. Please go ahead, Ms. Brown.

Thank you, Operator. Good morning and welcome to our fiscal 2025 second 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 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 available in the investor relations section of our website. And with that, I'm pleased to turn the call over to Lachlan.

Thank you, Gabby, and thank you all for joining us this morning. Just to start, I want to comment on the devastating impact of the Los Angeles wildfires over the past few weeks. At Fox, our top priority has been to support our staff who have been profoundly affected in many ways, including losing their homes, and much, if not all, of their belongings. We are one family and we are truly with you. And to aid the broader community, Fox has donated and raised over $5 million across our platforms, thanks to the generosity of our audiences and employees. But sadly, as we have learned from past fires, the impact on the community is measured not in days or weeks, but in years. Our focus has now shifted to the longer-term recovery for those most affected and to the rebuilding of the community around them. I want to thank our colleagues at KTTV and Fox News who kept viewers comprehensively informed with their coverage of the tragedy as it unfolded. We are deeply grateful for their work and also for the efforts of firefighters and many other first responders. Thank you. Now onto our earnings. As you will have seen in the release this morning, our fiscal second quarter results again demonstrates the continued operating momentum and strong financial performance of Fox. Financially, Fox EBITDA more than doubled year over year to a second quarter record of $781 million, driven by revenue growth of 20% to just over $5 billion. These results are underpinned by industry-leading affiliate and advertising revenue growth and reflect strong on-screen delivery through our coverage of the presidential election, both at Fox News and across our local stations, strong NFL, college football, and Major League Baseball post-season viewership, and continued audience expansion at Tubi. We are firing on all cylinders. Total affiliate revenue grew by 6% on the back of higher rates, with subscriber declines improving for the second consecutive quarter. Notably, we have now successfully completed all affiliate renewals that will impact fiscal 2025. Total company advertising growth of 21% in the quarter was driven in part by record political revenue, led by our local stations. Looked at more holistically across this year's presidential cycle, our first half fiscal 2025 political revenue of over $400 million was also a record. Tubi was a strong contributor to advertising revenue growth in the quarter, achieving a 31% increase in ad revenues, showing acceleration even when excluding political revenue. And that advertising strength has continued into our fiscal third quarter, where we are seeing very healthy trends across our portfolio. Sports remains remarkably robust. Our NFL postseason broadcast of the Wild Card Divisional and NFC Championship saw our highest ever unit pricing at demand for these matches. We are sold out with record pricing for this Sunday's Super Bowl 59. We can't wait for the big game. Advertising trends at Fox News are also strong across the direct response and national advertising categories, where there is increased demand from existing blue chip advertisers as well as new clients coming to the network due to its record share of audience. At entertainment, scatter pricing is currently tracking at high single digits above upfront levels, and cancellation options are at historical lows, with Fox delivering its best series debut in five years with the launch of the medical drama Doc. And Tubi continues to monetize its hard-to-reach differentiated audience. Now, everyone on this call will know that Tubi's audience is diverse and it's young. And it is over 65% cordless, made up of cord nevers and cord cutters, not currently in the traditional cable universe. While in past years, we have always unlocked the Super Bowl for viewers across our digital platform, this year, we will focus these cordless viewers on Tubi, with Tubi's first-ever Super Bowl livestream and related shoulder programming. This will provide viewers a great service, broaden the reach of the game, and deliver Tubi an opportunity to engage a large cohort of new users. After the game, Tubi's viewers will have access to our library of over 275,000 movies and TV episodes, including the recently premiered The Z Suite, the hit original sidelined the QB and me, and much more. The game, the content, and the experience on Tubi will further support its stellar growth. The mission for all of our platforms is delivering unique content to large audiences. Nowhere is that more evident than at Fox News, where 4.5 billion hours of content was consumed across its platform during the second quarter. On election night, more viewers turned to Fox News Media than any other network, with over 13.5 million viewers tuning in during primetime. Fox News Channel once again ended the quarter as the most watched cable network in total day and primetime, growing total day audience by nearly 40% and primetime audience by 45% year over year. Fox News meaningfully outperformed its peers, more than doubling the viewing of its closest competitor and posting its highest quarterly share of primetime cable news audience in its history at over 60%, which includes a 70% share in December. Momentum in share and ratings has continued through and after the inauguration. On the day, Fox News Media's coverage of the inauguration drew close to 12 million viewers, making it the most watched coverage in all of television. This viewership has contributed to Fox News' third quarter-to-date ratings up over 50%, primetime ratings up over 40%, delivering Fox News a commanding share of the primetime cable news audience at 69%. And Fox News' share of the audience was not limited to the cable network. For example, on YouTube, Fox News generated nearly 410 million views in the month of January, beating our closest competitor, NBC, by nearly two and a half times. The continued growth of Fox News Digital underscores that audiences are consuming their news in different ways. We clearly saw this during the past election cycle, where there was an uptick in consumers who either supplemented or solely accessed their news and information from non-traditional media sources. We view these new media markets opportunistically and as essential to our growth strategy. Fox News outstanding achievements underscore our unwavering commitment to outstanding journalism, to our insightful coverage of politics and breaking news, and to our strong prime time lineup. Of course, our content leadership also extends to sport. Autumn is traditionally the strongest time of year for Fox Sports, and 2024 was no exception. With a thrilling Major League Baseball World Series, college football expanding to Friday nights, and the NFL remaining the most watched content in all of television, Fox was the leader in consumption of live sports events in the second quarter. Our only disappointment in sports is that we will not be moving forward with venues, our sports streaming joint venture with Warner Brothers Discovery and Disney. While the Venue team has done a tremendous amount of truly genius work preparing the digital platform for launch, in the end, the legal distractions around the business became increasingly difficult to bear. Venue was to be another distribution outlet for our brands to access consumers in the market wherever they are. And that is what we continue to be focused on, maximum distribution of our content, whether that be traditional, digital streaming, or our own D2C offering in the near future. Encouragingly, the distribution market has made some major strides recently. In the 12 months since we announced Venu, we have seen key distributors announce the launch of smaller, lower-cost bundles of sports, news, and broadcast networks. Three distributors have announced new skinny packages in recent months and we expect this trend to continue. We see this as a positive initiative by both our distribution partners and other content owners. The inclusion of our suite of channels, sports and news, in each of these offerings is a real economic benefit to us, even more so than the sports-specific venue, and so gives us greater confidence for Fox over the long term. We have had a very solid first half of our fiscal year, and we are excited for what is to come. Consistent with our track record, we remain committed to delivering value for our shareholders in a thoughtful and disciplined manner. And we will continue to explore every opportunity to maximize that value over the long term. Let me now turn it over to Steve for his comments on the quarter's financial results.

Thanks, Lachlan, and good morning, everyone. Underscoring the strong momentum we've seen since the start of the year, Fox delivered standout results in the second quarter, highlighted by a 20% increase in revenues and a 123% increase in EBITDA to $781 million, a record fiscal second quarter for Fox. Our overall revenue growth was led by a 21% increase in advertising revenues, with broad-based strength across our portfolio, including significant political ad spend collected at our local stations, strong MLB ratings and robust pricing across our key sports properties, continued growth at Tubi and strong engagement at News. Total company affiliate fee revenues grew a healthy 6% over the prior year quarter, once again demonstrating the strength of our brand and focused portfolio of channels. As Lachlan mentioned, we've now successfully completed all affiliate renewals that impact our fiscal 2025. Other revenues grew 70% year-over-year, driven by higher sports sub-licensing revenues at our cable segment. Similar to last quarter, this growth in revenue was largely offset by a corresponding increase in rights cost, with no material impact on year-over-year overall EBITDA growth. Net income attributable to stockholders of $373 million, or $0.81 per share, was up versus the $109 million or $0.23 per share reported in the prior year period. Excluding non-core items, adjusted net income was $442 million and adjusted EPS was $0.96. This represents a more than 180% increase over the $0.34 per share recorded in the prior year. Now let's turn to our operating segments, starting with the cable network programming segment. which delivered 31% revenue growth and 16% EBITDA growth. Cable advertising revenues grew 32% over the prior year, driven by the strength in Fox News linear ratings and digital engagement, and supported by healthy pricing in both national and direct response. Additionally, our sports advertising revenues benefited from higher MLB postseason ratings. Cable affiliate fee revenues grew 4% over the prior year quarter, as pricing gains from our affiliate renewals outpaced the impact from net subscriber declines of approximately 7%, improving from just under 8% last quarter. Cable other revenues grew $350 million due to the higher sports sub-licensing revenues I mentioned earlier. Revenue growth at the cable segment was partially offset by a 38% increase in expenses, primarily attributable to the increase in sports amortization that correspond to the incremental sports sub-licensing revenues, along with modest increases in news and sports production costs. Now turning to our television segment, which delivered 16% revenue growth. Advertising revenues at our television segment grew 19% over the prior year, boosted by political advertising revenues, strong MLB ratings and pricing strength across our sports schedule, and continued growth at Tubi. Television affiliate fee revenues increased 9% in the quarter, as healthy growth in fees across Fox-owned and affiliated stations more than offset the impact from industry subscriber declines. Television other revenues were up 33% year-over-year, primarily due to higher content revenues tied to our entertainment production studios. Partially offsetting the revenue growth of our television segment was a modest 3% increase in expenses, which were driven by our continued investment at Tubi. All in, EBITDA at our television segment grew by $343 million year over year to reach $205 million. Turning to free cash flow, where we recorded a deficit of $436 million this quarter. This is entirely consistent with the seasonality of our working capital cycle, where the first half of our fiscal year reflects the concentration of payments for sports rights and build-up of advertising-related receivables. both of which reverse in the second half of our fiscal year. In terms of capital allocation, fiscal year to date, we have repurchased an additional $550 million through our share buyback program, bringing the total cumulative amount repurchased to $6.15 billion for approximately 29% of our total shares outstanding since the launch of the buyback program in 2019. we remain committed to utilizing our full buyback authorization of $7 billion. In addition, today we announced a 27% per share semiannual dividend. With this dividend payout of approximately $120 million, our total cumulative cash return to shareholders in the form of both dividends and share buybacks will have reached approximately $7.9 billion since the establishment of Foxcorp. These capital return measures are supported by the strength of our balance sheet, where we ended the quarter with approximately $3.3 billion in cash and $7.2 billion in debt. And with that, I'll turn the call back over to Gabby.

Thank you, Steve. And now we would be happy to take questions from the investment community.

Ladies and gentlemen, I would like to emphasize the new functionality for the question and answer queue. If you wish to ask a question, please press star then one on your touch tone keypad. You will hear a tone indicating that you have been placed in queue. You may remove yourself from queue at any time by once again pressing star then one. If you are using a speakerphone, please pick up the handset before pressing the numbers. It has been requested that you limit yourself to one question. Once again, if you have a question, please press star then one at this time and one moment please for the first question. We have a question from John Hodlick from UBS. Please go ahead.

Okay, great. Thanks, guys. Lachlan, I got a follow-up on the D2C comment that you talked about launching in the near future. Any additional details you could provide in terms of timing, what's included, and, you know, whether you need additional rights or any costs associated with launching the D2C service? And then on affiliate, you saw some nice acceleration there, and it sounds like you guys got all the renewals done. Any color in terms of pricing or what you're seeing in terms of volumes that have been driving that acceleration? Thanks.

Thanks, John, and good morning. So on D2C, I should just start by sort of explaining the strategy and going back to making it very clear that we see the traditional cable bundle as still the most value for our consumers and, frankly, the most value for the company. So we're huge supporters of the traditional cable bundle, and we will always be. But having said that, we do want to reach consumers wherever they are, and there's a large population, obviously, that are now outside of the traditional cable bundle, either cord cutters or cord nevers. And we are designing, and we'll be able to say more about it shortly, but we are designing an offering to really target those cord cutters and cord neighbors that are not traditionally in the cable bundle. We don't want, we have no intention of churning a traditional distribution customer into our D2C customer. And so our subscriber expectations will be modest and we're going to price the service accordingly. And it's also important to note with those modest modest expectations, we do not expect any exclusive rights costs or additional incremental rights costs. This service will be a package of our existing content on existing brands targeted at consumers that are not currently in the bundle. So the incremental cost will be relatively low, certainly relative to what our peers have spent in this space. And we're excited to be able to talk about it more in the coming weeks and months. In terms of timing and launch, we're certainly targeting a launch by the end of this calendar year. On affiliates, Steve, do you want to talk to affiliates?

Hey John, it's Steve here. So in terms of affiliate, I think we've seen obviously from a volume perspective, the rate of attrition ease off a little bit over the last couple of quarters, which is encouraging for us, and hopefully these skinny bundles continue to see that trend continue. In terms of pricing, I think it's reflective of strategy. It's reflective of the fact that we've got a very focused portfolio of channels that distributors really want, and you're seeing them because of their inclusion in those skinny bundles. And it's also a reflection of the fact that our distribution strategy prioritizes the bundle. And so obviously these are tough negotiations, but as we've said for the last five years, we think that strategy of both content and distribution should lead us to take share of wallet. And I think we're starting to see that.

Operator, next question, please.

We have a question from Michael Morris at Guggenheim. Please go ahead.

Thank you. Good morning. I wanted to ask about the strength that you're seeing at Fox News advertising. maybe you can expand on that a bit. It sounds like you're seeing incremental and arguably sustainable demand from advertising buyers. And I'm curious if you think I'm interpreting that right and just sort of what the dynamic and what the sustainability is of the changes that you're seeing there. I also want to ask about the 2B Super Bowl live stream. Seems like a big deal. Can you talk a little bit about what you hope to achieve by doing that? And then Are there any incremental costs related with that? Are there concerns about service quality? Because I know that streaming big live events can be complicated. Appreciate it.

Thank you very much, Mike, and good morning as well. So on Fox News advertising, there's two elements here. You're 1,000% right. We are seeing really a tremendous amount of new advertisers, clients coming on to the platform. And that's due to two reasons. I think the first reason is the strength in our ratings, which are really tremendous. And as I mentioned in my prepared comments, it's very pleasing to see that that strength and momentum continue post the election and post the inauguration. With that strength, We've seen over 100 new clients who have not been Fox News advertisers, major national clients come onto the platform. And so that's driving demand and driving pricing as well. And we see that continuing. In fact, we see in the third quarter, you know, ratings and revenue accelerating off the second quarter. So on to Tubi Super Bowl, it's a different question. We're excited to have Tubi on the Super Bowl. As I mentioned, it's not a change in strategy. We have always unlocked our digital platform for the Super Bowl. But this year, obviously, it's a unique opportunity, and we're going to focus that audience on Tubi. Obviously, there's some technology streaming costs, obviously, but it's tiny compared to the opportunity in front of us. So very low incremental costs. The benefit for Tubi, obviously, you get a tremendous exposure and sort of marketing platform, but also critically, we hope to capture a lot of first-party data. We'll be driving people to... To register on to be on many of them for the first time and that first party data obviously is really critically important to our programmatic and other advertisers and partners and will help us drive our CPM's as we go into the future. So we're excited by the opportunity. It's not a. Necessarily a big change in strategy, but it's a huge opportunity for Tubi, and it's something we were very keen to focus very intensely on. And what was the third question? I think that was it.

Thank you, Mike. Operator, next question, please.

We have a question from Ben Swinburne of Morgan Stanley. Please go ahead.

Hi, this is Thomas Yee on for Ben. I just wanted to double tap on the 2B growth. Can you dimensionalize the investment needs that you see ahead? Should we think about the incremental investment as largely content related? And when do we think the business kind of begins to benefit on an EBITDA front for Fox? And then as a follow up, any update on the progress you've made on the various states requiring sports betting licensing? Just a timeline coming into shape and how you might get approval over time would be helpful. Thank you so much.

Great. Thank you very much, Thomas, and say good day to Ben for us all. On Tubi profitability, our investment in Tubi has reduced this year as the business continues to scale and really generate revenue. you know, very positive advertising growth. We see that we'll continue to invest in Tubi throughout this year and next before it reaches profitability, but it's on track and on schedule to meet break even profitability as per our kind of business plans and expectations for the business. So we are really excited about Tubi's future and its positive impact for our overall revenue base and EBITDA going into the future. On sports betting, we are talking to, I think, 26 states for licensing. That process is obviously a relatively complicated one, but it's moving forward. And, you know, we expect there to be sort of no significant hurdles with that process, but it will take time. Of course, we've given ourselves plenty of time because our option is not due for another... The end of 2030. 2030, end of 2030. So we've given ourselves another sort of five years to get through the process, but we would expect to be licensed you know, very significantly before that. And we're happy, you know, the option today, the 18.6% of FanDuel is in the money on current consensus valuations by over $2.8 billion, and our 2.5% holding in Flutter, the parent company, is worth over $1.1 billion. So, our sports betting strategy has really been very positive for the company, for our register.

Operating next question, please.

We have a question from Michael Ng from Goldman Sachs. Please go ahead.

Hey, good morning. Thank you for the question. I wanted to ask about the subscriber trends, declines of 7%, improving Are you seeing any impact from the benefits of skinny bundle inclusion yet? Do you expect to outperform the market on sub-declines over time because of inclusion there? And then just a quick follow-up to Steve. You had said that you expect digital losses to go from, I think, mid-$300 million last year to high $200 million. Any updates there, just given the comments around uh, investing as well as the, uh, you know, to be outperforming state. Thank you.

Uh, thanks Mike. Uh, so I'll let Steve talk to the, um, losses. I'll talk to her again. We see them as, as good investments, but, uh, on, on sub trends, lucky you're right. Look, 7%, um, uh, subscriber declines, uh, in this quarter. is the second consecutive quarter where subtrends have, sub-declines have reduced. We see that as a very positive trend. I think it's too early, really, for these sort of skinny bundles, if you want to call them skinny bundles. I'll call them something a little bit different. But it's too early to say that that's having a major impact. Although I think there probably is some seasonality in subscriber trends, with obviously being in the middle of an energized and exciting sports season. So there probably is some seasonality in that. But we are very heartened by the trends moving in the right direction. With these skinny bundles, If you look at the bundles from a Fox perspective on DirecTV with MySports or on Comcast with Xfinity Sports and News TV, pretty much the entirety of our portfolio, our bouquet of channels, with a couple small exceptions, are in those bundles. So in both those I mentioned, the Fox Network, Fox News, Fox Business, Fox Sports 1, Fox Sports 2, and the Big Ten network. And so from a Fox perspective, this is not a skinny bundle. This is a lean and mean bundle. So it's jacked, this bundle. And from us, from a financial perspective, we do as well in the jacked bundle as we do in our normal traditional bundle. So we are very pleased with this trend of the bundle. It's financially, economically positive for us. We would hope that this bundle will be attractive to, you know, the cordless customers, the cord cutters and cord nevers. But to the extent that it does churn a traditional cable subscriber, I hope it doesn't. But if it does, we are certainly whole and, if not, in some instances, better off. So we're pleased with the emergence of the bundle. We think it's bodes well for the business going forward. Steve, do you want to talk to the customer? Yes, sure. I'll try to follow that.

So in terms of digital, Mike, we're bang on track in terms of the improvement in digital investment that you alluded to for the full fiscal year. In fact, just this quarter, we are probably close to $40 million to the good in terms of lower digital investment. Half of that comes from better EBITDA to be. I would say just with Tubi, as you look to the outlook for the sort of balance of the year, obviously with the Super Bowl, Tubi is going to take max advantage of the marketing and user acquisition that comes with that. So you should expect them to step on the gas a little bit in terms of investing around that in Q3. But no, we're spot on track in terms of bringing that digital investment down. But to the extent that we see more and more opportunities, then we'll remain opportunistic. But at the moment, we're bang on track.

Great. Operator, we have time for one more question.

Your final question is from Robert Fishman at Moffitt Nathanson. Please go ahead. Hi, good morning, everyone.

Just following up on the sports strategy, after Netflix won the rights for Women's World Cup, can you just talk about how you feel Fox is positioned to continue to compete with Netflix and the other digital bidders for future sports rights? And then just to clarify on the DTC offering, coming back to that, Will that plan include Fox News or Fox Nation content, or is that just a sports-only offering? Thanks so much.

Thank you very much, Robert. So on the sports strategy overall, we continue to believe that reach is the number one, two, and three priority for leagues and certainly for our business. And what we will continue through, and it actually ties into the direct-to-consumer strategy, because to put our content in front of every consumer that wants it on any platform and every platform. And so by really driving our engagement with consumer viewers across traditional linear platforms, across cable distribution, across the digital MVPDs, and across our own D2C services targeting these cord cutters and cord nevers, that will put us in absolutely the best position with the broadest reach to continue to serve both our viewers but also sports fans. That package, the D2C package, we'll announce more in the coming future. But we would see that package as a package that's holistic of all of our content of sports and news.

Great. At this point, we are out of time. But if you have any further questions, please give me or Charlie Costanzo a call. Thanks so much for joining our call today.

Thank you.

Thanks, everyone. Thank you.

Ladies and gentlemen, that does conclude the Fox Corporation second quarter fiscal year 2025 earnings conference call. Thank you.