二十一世紀福斯 (FOX) 2024 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Fox Corporation fourth quarter fiscal year 2024 earnings conference call.

(Operator Instructions) 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 2024 fourth 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 will 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 to celebrate our fiscal fourth quarter results.

Fiscal 2024 was another successful year for Fox in which we delivered nearly $14 billion of revenue and $2.88 billion of EBITDA.

The year that just ended and the momentum from the start of our new fiscal year underscore that the soundness of our strategy, the consistency of our delivery, and the strength of our financial position has never been more clear.

Looking back, there were clear achievements across our businesses in fiscal '24, including delivering strong total company affiliate revenue growth each quarter from our ongoing renewals, cementing Tubi's position as the most watched free TV and movie streaming service in the United States, and generating a reinvigorated ratings and share growth at Fox News.

The power of our brands and our ability to deliver engaged audiences at scale across our platforms remains remarkably strong.

Total time spent viewing all Fox brands increased in fiscal '24 despite the absence of the Super Bowl and FIFA Men's World Cup.

Tubi's viewing time as measured by Nielsen grew 57% in fiscal '24 for the absolute growth in minutes viewing easily surpassing the growth of leading subscription video-on-demand services.

Fox Sports Big Noon Saturday was the number one ranked window and college football for third straight year.

While Americas game of the week hit an eight-year viewership high this fiscal year.

And Fox News was again the most watched network in cable news in fiscal '24 with 52% more minutes of viewing than its closest competitor.

Our foundation for this coming fiscal year is solid as we carry the momentum from fiscal '24 into another year of major events, particularly for our news and sports businesses.

The recent news cycle has been nothing short of extraordinary.

And when news breaks, people turn to the news brand they trust.

The strength of our news coverage is unmatched, and Fox News remains the clear first choice for viewers during the most pivotal moment.

The fourth quarter saw audience levels return to growth of the Fox News Channel, driven by our political coverage and strong prime time lineup.

Fox News exited the fiscal year as the most watched network in all of cable in total day and in prime time and gained share amongst cable news networks in both prime and total day versus last year.

Furthermore, the rating story at Fox News continue to improve into this fiscal year when, in July, total viewers grew nearly 80% and the 25-54 Demo grew 120% over last year.

Fox News had its highest rated we can ever in prime time in July with other -- with over 5.7 million viewers tuning in to its extended coverage of the Trump rally in Butler, Pennsylvania.

In fact, Fox News had its highest share of the cable news audience across the board in prime time since August 2015.

And the Fox News Channel rated number one across all linear television in July for total viewers in weekday prime, beating the nearest broadcast competitor by nearly 10%.

These positive trends bode well for news as we continue to this extraordinary news cycle.

But news is not our only business with great momentum.

Tubi is also enjoying impressive viewership metrics and revenue growth.

Tubi improved upon its status as the most-watched free TV and movie streaming service in the US, finishing the fiscal year at a record high of 2% of total TV viewing.

Tubi saw continued momentum in viewership during the fourth quarter, reaching an all-time high of 81 million monthly active users and growing total view time by 17% driven by expansive library that offers something for every consumer.

Not only is the Tubi library the largest in the US, but it also has unique content that audiences can only find on Tubi.

Notwithstanding a complex digital advertising marketplace and a tough year-on-year comparison, this viewership grow 7% revenue growth during the quarter.

Importantly, however, we ended the month of June with revenue growth in the teens, and that pace has continued into this quarter with steady pricing despite increased inventory in the overall market.

Over at Fox Sports, the fourth quarter was very active, thanks to Fox's Summer of Soccer, which exceeded all expectations and set viewership records.

The UEFA European Championship averaged 1.7 million viewers across the Fox broadcast network and FS1, a 34% gain over 2021 tournament.

And Copa America averaged 1.4 million viewers over 3 times increase above the 2021 tournament.

The two final also broke records and now rank of the most of our soccer matches ever on Fox other than World Cup matches.

But it's not just soccer that our audiences are watching this summer.

The regular season of Major League Baseball is also trending positively.

And our special broadcast of the record game and the Major League Baseball All-Star Game each performed well above expectations.

And in just a few short weeks, we welcome back the NFL and College Football on Fox.

Our 2024 NFL schedule will start strong.

Fox's first four America's game of the week windows includes three Dallas Cowboys' games and a rematch of last year's Chiefs versus (Niners) Super Bowl.

And of course, our schedule end strong queue culminating in Super Bowl LIX this February on Fox.

Also debuting this fall will be a new lineup from Fox Entertainment with the return of popular shows like Hell's Kitchen and The Masked Singer and the debut of new dramas like Hi-Surf and Murder in a Small Town, which many of you saw a preview of our successful upfront presentation in May.

Speaking of the upfront, we see a much healthier market than the nuanced one I referred to six months ago.

As evidence, our upfront commitments were strong.

Our focused portfolio of market-leading properties in sports, news, entertainment and streaming delivered year-over-year growth in both linear and digital advertising commitments as well as growth in the overall portfolio pricing in this year's upfront.

Notably, we saw double digit volume growth and stable pricing activity, which is testament to its incredible momentum in the streaming marketplace.

At the local level, we are expecting a very robust election advertising cycle that will be weighted to our second quarter.

If anything, at the [price] as the polling tightens the election map may be extended to more of the markets in which we operate.

As we enter a very exciting fiscal 2025, we will continue to focus on execution with events such as the US election cycle at our local stations and Fox News Super Bowl LIX on Fox, the renewal of a one-quarter of our distribution revenue and the launch of the Venu Sports streaming service in the fall.

Our strong differentiated position, coupled with the strength of our balance sheet underpin our confidence on continuing to deliver meaningful shareholder returns.

And with that, I'll hand over to Steve.

Thanks, Lachlan, and good morning, everyone.

Fox once again delivered financially in fiscal 2024 with total company revenues of almost $14 billion and adjusted EBITDA of $2.88 billion.

We successfully completed approximately one-third of our affiliate renewals this year.

With the financial benefits of these renewals driving 4% growth in total company affiliate fee revenues led by 9% growth at the television segment.

As fiscal 2024 results compare against the prior year of marquee events, including the record pricing Super Bowl LVII, the FIFA Men's World Cup in the midterm election cycle.

As anticipated, the comparison to these cyclical events contributed to an 18% decline in total company advertising revenues.

Total company other revenues were down 4% year over year, with higher sports sub-licensing revenues more than offset by lower content revenues impacted by the SAG and WGA labor disputes.

Total company expenses decreased 5%, largely due to the absence of costs associated with the Super Bowl and Men's World Cup in the prior year.

However, this was partially offset by the first year step up under our new NFL rights agreement.

Also contributing to this overall decrease in expenses were lower entertainment programming costs due to the strikes.

Net income attributable to stockholders was $1.5 billion or $3.13 per share, up versus the $1.24 billion or $2.33 per share reported in fiscal 2023.

Restructuring impairment and other corporate matters was impacted by charges associated with the FOX News Media litigation last year.

And non-operating other net was impacted by the change in fair value of the company's investment in Flutter.

Partially offset by the book gain on USFL [assets] contributed to the United Football League joint venture.

Excluding non-core items, full year adjusted net income was $1.65 billion and adjusted EPS was $3.43 a share.

Turning to our fiscal fourth quarter, Fox delivered total revenues of $3.09 billion, up 2% from the prior year quarter and quarterly adjusted EBITDA of $773 million, up 5% from the prior year quarter.

Total company affiliate fee revenues grew 5% over the prior year, with growth at both our television and cable segments supported by our recent cycle as affiliate renewals.

Total company advertising revenues were flat as the revenue generated from our Summer of Soccer and growth of Tubi was offset by lower ratings and pricing at the Fox Network.

Total company other revenues were down 11%, primarily due to a lower volume of third-party content sales in the current year quarter.

Growth in total company expenses was held to 1%.

Here, costs associated with the broadcast of the [UEFA Euros] and Copa America, along with digital investments at Tubi were partially offset by the deconsolidation of the USFL and lower programming and production costs at FOX Entertainment from the higher mix of unscripted versus scripted content.

Net income attributable to stockholders of $319 million or $0.68 per share was down versus the $375 million or $0.74 per share reported in the prior year quarter.

Excluding non-core items, adjusted net income in the quarter increased to $423 million, while adjusted EPS grew 2% to $0.90 a share.

Now turning to the quarterly results of our main operating segments.

At Cable Networks, fourth quarter revenue grew 2% year over year.

Cable affiliate fee revenues increased 2%, with growth in pricing from our affiliate renewals outpacing the impact from industry subscriber declines running in the mid 8% range.

Cable advertising revenues grew 3% at the national sports networks, advertising benefited from the broadcast of CONMEBOL Copa America and the UEFA European Championship.

At FOX News, ad revenues benefited from higher pricing, improved ratings and slightly lower preemptions.

Had other revenues were essentially unchanged from the prior year quarter.

Total expenses were 11% lower than the prior year quarter, primarily due to the deconsolidation of the USFL and lower programming costs at FOX News partially offset by the UEFA Euros and Copa America.

All in quarterly adjusted EBITDA at the Cable segment grew 20% over the prior year quarter to reach $703 million.

Turning to our television segment, where we delivered 2% growth in quarterly revenues.

This was led by 9% growth in television affiliate fee revenues as price increases across Fox owned and operated and Fox affiliated stations continued to outpace the impact from subscriber declines.

Television advertising revenues fell 1% as the broadcast of the UEFA Euros and Copa America and growth at Tubi were offset by lower ratings and pricing at the Fox Network.

Television other revenues fell 19% in the quarter, primarily a result of a lower volume of third-party content sales.

Expenses at the television segment grew 8% over the prior year quarter, primarily due to costs associated with UEFA Euros and Copa America and digital investment in Tubi, partially offset by lower programming and production costs at FOX Entertainment.

Taking all these factors into account, quarterly adjusted EBITDA at the television segment declined 35% against the prior year quarter to $148 million.

During the full year, we generated free cash flow, which we define as net cash provided by operating activities less CapEx to $1.5 billion.

Before we get to capital allocation and balance sheet, it is worth noting some key guidance for this coming fiscal year.

Most notably, we returned to another major event cycle in fiscal 2025, led by Super Bowl LIX, which we expect will drive significant growth in both advertising revenues and free cash flow.

However, this is the first Super Bowl under our new NFL contract and accordingly will have elevated rights amortization.

We continue to expect strong political advertising in the first half of the fiscal year from the election cycle, which will particularly benefit our stations group.

From an affiliate revenue perspective, we have a relatively light year of renewals with approximately one quarter of our total company distribution revenues up for renewal, which are more weighted to our cable segment.

We expect to continue to invest in our digitgal lead growth initiatives.

Here, Tubi will continue to be the focus of investment spend with the collective digital portfolio expected to deliver improved EBITDA relative to 2024.

We also look forward to the expected launch of Venu Sports this fall.

As a reminder, our share of ownership results from Venu will be recorded below EBITDA in equity earnings.

Returning to capital allocation.

Over the course of the fiscal year, we returned $1 billion of capital through the repurchase of 40 million Class A shares and a further $250 million in dividend payments, underlining our continued commitment to shareholder returns.

Today, we announced an increase in our semiannual dividend to $0.27 per share.

With the payment of this dividend and taking into account share repurchase activity since year end, we will accumulatively returned over $7.25 billion dollars of capital to our shareholders since the spin in 2019.

This includes $5.65 billion of share repurchases, representing over 27% of our total shares outstanding since the launch of the buyback program in November 2019.

This is all supported by the strength of our balance sheet, where we ended the quarter with $4.3 billion in cash and approximately $7.2 billion in debt.

And with that, I'll turn the call back to Gabby to get started with Q&A.

Great.

Thanks, Steve.

And now we will be happy to take questions from the investment community.

(Operator Instructions) Ben Swinburne, Morgan Stanley.

Thank you.

Good morning.

I want to ask about Venu, which is launching quite soon.

You guys have announced, or they've announced the price point.

I guess, Lachlan, how are you thinking about this product now that it's about to launch and pricings out?

You've given us some sense of longer-term subscriber potential, but I didn't know if you wanted to revisit that or to share your thoughts on how you think that product fits and who the audience is.

And Steve, is there anything we should be thinking about in terms of the impact of the financials in fiscal '25 from Venu.

Sort of across the income statement or cash flow statement that we should be keeping our eyes on.

I know you guys are obviously equity partners and also will benefit from any revenue generation product.

Thanks so much.

Hey, Ben, thank you very much for your question and good morning.

Obviously, a number of our milestones have been achieved on the development of Venu as we've gone through the beta and as it leads towards the launch later this month.

This new beta releases, we are practically every day and the product is looking both excellent, really good, but also in a quite revolutionary in the way Americans are going to view sport, so, we remain incredibly excited about it.

Venu announced their pricing and $42.99 as an initial launch price.

We think that really hits the right mark and the target for where we want to be as a business, but also as a consumer proposition.

And there's no update really on our expectations of 5 million subscribers over five years.

That's what's in the business plan, and that's what we're in to achieve.

Obviously, it's very important that those subscribers are focused on cord cutters and cord nevers.

We feel that and all the partners in Venu feel very strongly that we can target our marketing and our subscriber acquisition to sports fans that are not currently in the cable television bundle, that's important to us.

And that really is what leads us to subscriber level in the mid single digit millions.

Steve?

Yeah.

Thanks, Ben.

So in terms of impact in financial statements, obviously, we had a two sided relationship with Venu Sports.

So -- as a shareholder, the business is going to take some time to sort of get the cash flow breakeven.

So from a shareholder perspective, you'll see that investment come through.

We'll take the deficit through equity earnings in the P&L and investment through the cash flow that obviously we're a key supplier to the JV being a content supplier of our sports networks.

And so, the benefit that you'll see come through from their affiliate fee revenues, both in cable and TV.

So it's a touch early.

I think we've assumed 100% locked down in terms of launch date to give you any sort of guide on quantum in terms of fiscal '25 impact.

But as I said, I think a couple of earnings calls ago, on a net-net basis, it should be accretive to us from a pretty quick basis.

Operator, next question, please.

John Hodulik, UBS.

Maybe a couple of quick questions on the ad market.

First of all, on the TV side, you had mentioned lower pricing that you're seeing.

Can you delineate what you're seeing on the sports side versus entertainment.

And on cable, just any outlook you can provide on the cable ads outlook, just given the strong ratings we've seen thus far in 3Q?

And then lastly, on political, as we head into this, what I would call unprecedented political situation, I mean, just any way to size what you expect from political spending versus other previous presidential elections would be great.

Thanks

Thanks very much, John.

So overall, our pricing is very strong, and we had both pricing and volume increases are coming out of our upfront.

We've now closed or upfront.

We've -- 99% of the businesses in house.

So the upfront processes is now completed.

I'm happy to report it very successfully.

Going into the upfront to be totally honest, there was internationals.

There were some headwinds that you can see and we still remain cautiously optimistic about what could be achieved, but we actually came through the upfront above our expectations.

And again, I'm pretty pleased with the momentum that we saw in our businesses.

Of course, this was led by sport in both the sport inventory that we have and marquee events that we have are culminating in Super Bowl LIX this year.

Sport was incredibly strong, not just in football, but also in Major League Baseball.

So we're very pleased with that.

In cable, Fox News also saw volume increases in the upfront most pleasingly.

I think -- obviously, that's coupled with really remarkable ratings increases, but most important, and we've talked about this a number of times on previous calls, the strength in the direct response marketplace in the high teens, in terms of pricing is a great return to growth in pricing for our direct response and really bodes well for that line of our business.

When we then look at on political, we expect probably [X] the Georgia runoff.

So, if you look at -- so the apples to apples of political cycles, we would expect a record political cycle this year.

And in particular as the race heats up, we're seeing more money flow into the marketplace and a new marketplace is emerging as I mentioned in my prepared comments, as the races tightens.

For instance, Atlanta and Phoenix, where there's a significant amount of money now being placed only in the last couple of weeks.

So we do expect a very robust political cycle.

And we think a record political cycle (inaudible) the Georgia runoff four years ago.

Next question, please.

Operator.

Robert Fishman, MoffettNathanson.

Hi, good morning, everyone.

Can you share your latest expectations to keep growing affiliate fees than fiscal '25 after the pricing increases roll through from your recent renewals?

And how much more room is there to drive retrans price, given the importance of Fox's exclusive sports content in the pay TV ecosystem?

And then just separately, if I can, how should investors think about the level of content spend across the company?

Maybe just help us with the right balance between sport and scripted entertainment, unscripted and even Tubi?

Thanks so much.

Thank you very much, Robert.

I think, on growing affiliate fees, we expect to continue to modestly grow our affiliate fees in light of, obviously, the declining volume of subscribers.

I think from -- we called out in the past quarter or last quarter, sort of a reduction in subscribers of around 8%, mid 8%.

And as that continues, we'll be able to grow our pricing above that, but it's going to be modestly above that number.

And that's really based on the focus of our core brands.

The fact that we're not carrying the baggage of any entertainment cable channels or legacy channels which would you have to use or the leverage of FOX News or Fox Sports to support.

We can be entirely focused on driving the appropriate value for our core cable brands and also for our television stations re-transmission.

Yeah.

And Robert, in terms of content standards, if I just go through the key verticals we have.

At sports, we got regular amortization increases obviously, the NFL is the single largest piece of that.

In fiscal '25, that's partially offset by the fact that in October, we move away from WWE in program with College Sports rights.

Tubi, I think you should expect us to continue to grow content.

Some of that is active in terms of license content in originals.

And some of that is passive because so much of the revenues come from revenue share deals.

And so, that just grows with the amount of usership and advertising growth.

News is pretty modest growth, a lot of that to do with talent and breaking news coverage, and that's very predictable.

And then the final one I think you were alluding to with entertainment and the shift from scripted to unscripted.

With that, it's probably worth noting that fiscal '24 obviously was very impacted by the strikes.

And so, you had a very significant shift from scripted to unscripted programming.

And that is what has partially dramatic fiscal '24 was -- that trend was particularly amplified and it basically saved north of $100 million in terms of entertainment programming costs.

Don't expect that to continue to have an impact.

It will swing back a little bit the other way as we sort of rebalance the portfolio the slight next year with a little bit more scripted fair.

I think when we look at entertainment, we look at it from the perspective of how do we get our cost per hour down when I compare what I think fiscal '25 will look like versus fiscal '23 that cost per hour is probably down 10% to 15%.

But we obviously want to have a balanced broadcast network that serves our cross promotional needs, serves that capacity monetize from an advertising perspective and serves our capacity to monetize our content in downstream windows and in ownerships of the content.

So we're going to be balanced about it.

Operator, we can go to the next question.

Jessica Reif Ehrlich, Bank of America.

Thanks.

One follow-up and one questions.

So on the follow-up, it sounds like you had a great upfront.

I'm wondering this is the first year of your new ad sales team.

Is there anything that they're doing that's like anything different in their approach?

You've obviously had a great result, but you also have like great events.

And then secondly, one of the key assets of the company is your balance sheet front.

And just wondering since you're already in like live news and sports, like couple of areas of the traditional media industry that are still growing, where do you see your next opportunity, like where do you expect to deploy capital?

Thanks very much, Jessica, good morning.

First on the ad sales team up, thank you for calling them out.

They've done a tremendous job and we're very happy with their performance.

Jeff Collins has stepped into the role very, very well and is leading the team effectively.

And obviously, monetizing all the impressions that we're able to generate.

So we're very pleased with that.

Going into the upfront, we're structured I think a little bit differently some other media companies.

I'm not aware of the structure of advertising sales organizations across the entire industry, but we retain expertise across the verticals.

So we have a very focused sports team.

We have a very focused news team, entertainment and importantly, more our digital team, which is obviously the great part is Tubi.

So what we have is expertise in those teams.

In the upfront, we are able to sell across the entire portfolio under one Fox portfolio, and that proved to be very successful and very effective in this upfront.

So I'm not sure of that very different from what everyone else is doing.

But it's a structure that we think works for us and has certainly proven its value in the marketplace this year.

In terms of what we're doing with our balance sheet and how we deploy capital, I think we are careful and prudent deployers of capital.

That's going to continue.

We have the right mix of investment -- capital investment in the business of organic investment in our businesses in return to shareholders and then increasingly our focus on M&A.

We have nothing to update you in the latter category, other than to say, we're going to be prudent and careful, but we are aware that M&A remains one of the important levers that we have and how we deploy our capital.

Next question, please.

Michael Ng, Goldman Sachs.

Hey, good morning.

Thank you very much for the question.

I'll ask one on Tubi, mid teens revenue growth, which is great in the quarter despite some heightened competition on the connected TV side.

I was wondering if you could just talk a little bit more about that strength and then give us an update on what are the digital investment losses ended up this year in fiscal '24 and your outlook for fiscal '25.

Thank you.

Great.

Let me start with Tubi, then I'll hand over to Steve.

Tubi continues to go from strength to strength.

I think importantly, exiting the fourth quarter with revenue growth in the mid to upper teens.

I think was very good to see that momentum as we moved into July.

We've seen that momentum continue into this quarter in July.

You have to put that in context of tremendous supply of advertising entering into the streaming market with Amazon Prime entering the advertising supported streaming business, that caused a lot of other streamers to really fight hard for their revenue and drop pricing.

Tubi did not have to, Tubi has stable pricing in this market.

And really our robust growth on the strength of the brand and the tremendous reach and quality of its audience.

So we're very pleased with that and we're expecting further growth in Tubi as the year progresses.

Thanks, Lachlan.

Good to hear from you, Mike.

So just in terms of investment, if I look at where we landed for fiscal '24, Tubi was the single largest driver of the investment across our growth portfolio.

So its level of investment was it a consistent clip to where we were in fiscal '23.

[So to the mid $200 million range].

If I look across all the other growth businesses, whether it be nation, where the credible, the entertainment studios that we're building out, that collectively sum to about another $100 million rough -- in rough numbers.

Looking forward to fiscal '25, I think most of the improvement comes from a little less investment at Tubi, which should put us in the high-twos, I think from a net investment perspective across those businesses.

Okay.

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 us today.

Ladies and gentlemen, that does conclude your conference call for today.

Thank you for using AT&T Executive Teleconference.

You may now disconnect.