Q1 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Fox Corporation's First Quarter Fiscal Year 2026 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, Charlie. Good morning, and welcome to our fiscal 2026 first quarter earnings call. Joining me on the call today are Lachlan Murdoch, Executive Chair and Chief Executive Officer; John Nallen, President and Chief Operating Officer; and Steven 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 EPS and 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.

We also refer to free cash flow, which we define as net cash provided by operating activities less capital expenditures. And with that, I'm pleased to turn the call over to Lachlan.

Thank you, Gaby, and thank you all for joining us this morning to discuss our fiscal first quarter earnings. Fiscal 2026 started strong across our businesses with revenue growth of 5% and EBITDA growth of 2%. Advertising revenue grew 6% during the quarter despite not having last year's political revenue with robust trends at news, sports, entertainment and Tubi. This is supported by a gain in engagement across the portfolio, which distinguishes us from our peers and again underscores the strength of our brands and the leading positions they hold in our ecosystem.

Distribution revenue grew by 3%, with subscriber declines remaining below 7% for the third consecutive quarter. The momentum in Q1 is continuing into Q2, led by a very healthy advertising market for us, stemming from both the upfront and from a strong scatter market. In fact, we are enjoying the most robust advertising market we have seen for some time. Also in this quarter, we launched FOX One.

Though it's only been 2 months, we are encouraged by the enthusiastic response to the product. Subscriber trends have exceeded our expectations with those subscribers coming through direct acquisition and partnerships. We continue to believe that our content is best served as part of a bundle, whether it's in the pay-TV bundle or a direct-to-consumer bundle as it provides value and choice to the consumer. At FOX, we are distribution agnostic.

We are committed to ensuring our networks and content reach as many households as possible. With that in mind, we launched 2 FOX One bundled partners earlier this month, ESPN and Verizon. These will build upon the strong momentum we have achieved with our groundbreaking Amazon Prime channels partnership. Kudos to everyone at Amazon from Andrew Jassy down for their tremendous and brilliant support of the service.

You all have done just a tremendous job. Unsurprisingly, in terms of engagement, we have a balanced mix on FOX One with news driving audience and reach during the week and sports events doing the same over the weekend. Across all forms of distribution, interest and engagement in FOX's portfolio of live sports is increasing. FOX Sports kicked off the fall season with solid momentum.

The NFL on FOX is off to a great start, averaging almost 22 million viewers in September, a 12% increase over last season and FOX's best start to an NFL season ever. And FOX's America's Game of the Week ranked as TV's #1 show through the end of September with an average of 30 million viewers. And our schedule only looks better from here right through to the NFC championship at the end of the season. Interest in college football continues to reach new heights as well.

Through the end of September, FOX's Big Noon Saturday window averaged over 6 million viewers, up 22% over last season. The strong start was punctuated by nearly 17 million viewers trading into watch Ohio State versus Texas, the most watched week 1 college football game ever on any network. Like with the NFL, we head back -- we head into the back half of the college season with a strong roster of Big Ten and Big 12 matchups, highlighted by the Michigan, Ohio State game and capped off by both the Big Ten and Mountain West Conference championship games. And while we thought last year's Dodgers-Yankees World Series would be a tough act to follow, Major League Baseball has once again performed well for us.

Regular season ratings were up 3%. And as we go into game 6 of a spectacular World Series, our total post-season advertising revenues will likely surpass last year's. Speaking of revenue, Tubi achieved 27% revenue growth in the first quarter, driven by an 18% increase in total view time. This overall engagement trend has continued into Q2. Our expansive content library and our differentiated user base have solidified Tubi's position as the top premium AVOD platform in the U.S.

And I'm happy to say Tubi reached profitability this past quarter. It's a great milestone, a credit to the Tubi brand to our viewer experience and to the revenue momentum we are seeing. This will likely lead to a partial moderation in the overall net investment we expected to deploy across our digital initiatives this year. FOX News sustained its strong ratings and audience momentum throughout the quarter.

FOX News, once again, cemented its status as the most watched cable network in total day and in Primetime. Even more impressive, FOX News is the most viewed network in all television in weekday prime calendar year-to-date. This engagement and share led to the highest first quarter ad revenue in FOX News Media history with higher pricing across both direct response and national advertising during the quarter. Breaking news coverage throughout the quarter also drove strong engagement at FOX News Digital, fueling growth in page views and minutes versus last year.

FOX News Digital closed the quarter with over 6.5 billion social media video views, its highest total ever. The strong Q1 results we have just reported, coupled with the ongoing trends we are seeing across the company, give me great confidence in the positive outlook for FOX. This is particularly underpinned by the strength of the advertising market, our leadership position across news and sports and by Tubi reaching quarterly profitability earlier than expected. Coming off a record fiscal 2025, fiscal 2026 will again highlight the uniqueness of our strategy, the quality of our assets, our ability to deliver on screen and financially and the overall strength of our financial position.

This confidence is clearly demonstrated by this morning's announcement of a $1.5 billion accelerated share repurchase transaction. Consistent with our track record, we remain committed to delivering value for our shareholders in a thoughtful and disciplined manner. And now let me turn it over to Steve for more on the results.

Thanks, Lachlan, and good morning, everyone. FOX has made a strong start to fiscal 2026, highlighted by robust total company revenue growth of 5%. Advertising revenues were up 6% over the prior year, even with the tough comparison to the start of last year's record political cycle, driven by continued momentum at Tubi, strength in pricing at news and pricing and ratings growth at sports. Distribution revenues, which now include both affiliate fees for our linear channels as well as subscription fees for our direct-to-consumer streaming services grew 3% over the prior year.

Content and other revenues grew 12%, primarily due to higher entertainment content deliveries in the quarter. Total company expenses were up 6% year-over-year, largely due to investments in our digital-led growth initiatives and higher entertainment programming costs. This was partially offset by lower sports programming costs. As a result, quarterly EBITDA grew 2% to $1.07 billion.

Net income attributable to stockholders of $599 million or $1.32 per share compares to the $827 million or $1.78 per share reported in the prior year period. Excluding noncore items, adjusted net income was $686 million and adjusted EPS was $1.51, equating to a year-over-year increase of 4%. Now turning to our operating segments, where at our Cable Networks, revenue grew 4% over the prior year. Cable advertising revenues were up 7%, driven by robust pricing at FOX News, which more than offset the advertising impact from the absence of Copa America at our cable sports networks.

Cable distribution revenues grew 3% in the quarter as pricing growth from our affiliate renewals outpaced the impact from industry subscriber declines, which continue to run at under 7%. Cable content and other revenues increased $13 million, led by higher sports sublicensing revenues. Cable expenses grew 2%, primarily due to higher sports programming rights and production costs led by international soccer rights. This was partially offset by lower news gathering costs relating to our coverage of last year's presidential election cycle.

All in, EBITDA at our Cable segment was $800 million, an increase of 7% over the prior year quarter. Turning to our Television segment, where we delivered 5% growth in revenues. Television advertising revenues were up 6%, driven by continued growth at Tubi and strong sports pricing and engagement led by the NFL. This was partially offset by the absence of last year's political advertising revenues.

Television distribution revenues grew 2% over the prior year quarter as healthy growth in fees across FOX owned and affiliated stations more than offset the impact from industry subscriber declines. Looking forward, with stable to improving subscriber erosion trends, we expect continued total company distribution revenue growth for the full year. Reflecting the flow of our commercial terms with distributors in fiscal 2026, we would expect this growth to be driven by our Cable segment. Television content and other revenues increased 17%, primarily a result of higher content revenues tied to our entertainment production studios.

Expenses at the Television segment grew 4% year-over-year, driven by higher entertainment programming costs and higher content costs at Tubi. This growth was partially offset by lower sports programming costs, primarily from the absence of WWE and last year's broadcast of the UEFA Euros. All in, quarterly EBITDA at our Television segment grew 7% to $399 million. Now turning to cash flow.

Free cash flow was negative $234 million in the quarter. This is consistent with the seasonality of our working capital cycle, where the first half of our fiscal year is characterized by a concentration of payments for sports rights and the buildup of advertising-related receivables, both of which reversed in the second half of our fiscal year. We remain active with our share buyback program, where we have repurchased a further $300 million so far this fiscal year. In addition, as you will have seen in this morning's release, underscoring our confidence in the outlook for the business and our commitment to create value for shareholders, we will enter into a $1.5 billion accelerated share repurchase transaction, consisting of $700 million of Class A common stock and $800 million of Class B common stock.

This transaction will commence tomorrow, and we anticipate it being completed during the second half of fiscal 2026. This is all supported by the strength of our balance sheet, where we ended the quarter with approximately $4.4 billion in cash and $6.6 billion in debt. And with that, I'll turn the call back over to Gaby.

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

[Operator Instructions] We have a question from John Hodulik of UBS.

Maybe just a couple of questions on the digital efforts. First, any other color you could provide on FOX One in terms of -- I know you don't want to give sub numbers, but just sort of sub uptake, the engagement you're seeing? What are people watching on the platform? And did you guys see an acceleration in growth when you launched the ESPN bundle?

And then on Tubi, congrats on turning positive there from a margin standpoint. How should we think of the long-term margin trajectory on that platform?

Thanks, John. So starting on FOX One, look, it's early days. The launch was only a couple of months ago. But the uptake has, as I mentioned before, absolutely exceeded expectations.

Perhaps it shouldn't have exceeded expectations because it's a great platform. The team has done a brilliant job in developing a tremendous service. And obviously, the content and the brands are absolutely a premium. So -- but having said that, we are incredibly pleased with its -- with the early days and its progress from a subscriber and from an engagement point of view.

You see a healthy mix between sports and news viewing, also obviously, some entertainment viewing, but really, the engagement is driven by sports over the weekend and news viewing during the week. And we would see no deceleration of that as we go through the busy autumn sports season. We're seeing subscriber acquisitions flowing very effectively and efficiently through both football, be it NFL or college football and also with post-season baseball. So it's very pleasing and then it's pleasing to see those subscribers and viewers also engaging with our other content on the platform, primarily news.

As for -- I think the other question was on Tubi. Look, we've said it before, we expect margins to -- we're pleased with hitting profitability in this past quarter. I think you've got to expect some seasonality with that, but certainly growing profitability where we expect Tubi to be a meaningful contributor to EBITDA in the medium term. And we would expect those margins to be in the 20% to 25% range ultimately.

We have a question from Michael Morris of Guggenheim.

I wanted to ask you first about the stronger pricing on FOX News and really trying to understand where you see this pricing relative to your potential and what's driving the strength in pricing there. I think at the end of last year, you discussed some -- a pretty large number of incremental advertisers coming in with interest. And so trying to understand where we are in the cycle on pricing and what you think the potential is? And then second, you did mention a moderation in the investment level given the success that you're seeing at Tubi, which is great.

Would you be willing to give us some parameter of where you think that may come in, perhaps relative to the investment levels last year or something else that can help us size what you're thinking at this point?

Thank you very much, Michael. I'll handle both questions. On FOX News pricing, the strength of FOX News pricing really obviously comes from the share that we're achieving in the marketplace, consistent with the past quarters, I think in total day for the -- for Q1 and sort of in P2+, we're up 63% share versus our news competitors. And I think for Primetime, we're up 65% -- we're at 65% share versus our news competitors.

But equally important is we are the #1 channel in all of television year-to-date. Obviously, as you go into fall and you have fall entertainment programming and football, they're tough comps coming. But #1 year-to-date in all of television is a tremendous achievement. And you have to remember that our CPMs are effectively half of what broadcasts are.

So advertisers and clients -- we're still on?

Yes, you're still connected.

I thought I heard a goodbye. So I was on a roll. So look, our advertising is about half of what the networks are able to achieve from a CPM point of view. So it's a very efficient buy for our clients who are experimenting on the channel and are coming back and continue to spend more.

I think we've had about 350 new national clients on FOX News this year, and they continue to spend and in most cases, increase their spend. So pricing that's driving pricing up, both from a direct perspective with partnerships, but also indirect, direct response where we're seeing very, very healthy, very strong pricing. And we don't see that -- there's no reason for that to change -- that momentum to change. In terms of a moderation of our investment level in our new businesses, to be hitting profitability earlier than expected will absolutely moderate the conservative number that Steve gave last quarter.

We're very pleased by that. But we will continue to invest in these businesses as we see fit. It's a modest investment for us in our future, and we will continue to invest where we think it's important strategically to build those businesses.

Your next question is from the line of Michael Ng of Goldman Sachs.

I just have one and a quick follow-up. Just on the comment around distribution growth for the company for this year. I was wondering if you could just expand a little bit on what you think the key drivers of the stable to improving subscriber erosion trends are? And how important is FOX One to your outlook on distribution growth?

And then just as a follow-up, I was just wondering if you could explain a little bit more about the ASR, why now and also why the composition between Class As and Bs just given the more limited float on Bs?

Great. Thanks, Mike. On distribution growth, I think what we're seeing is we're seeing the early days of a benefit flowing through from skinny bundles, which we are participating in all of them. I think we're beginning to see -- and this is the third quarter now of sort of reduced subscriber erosion, which is pleasing as we see sort of subscriber erosion ameliorate to some degree.

And it's a combination of the consumer having more flexibility and getting the ability to -- where they don't want to be in an overall bundle to participate in these skinny bundles. And again, what really drives the skinny bundles are bundles that are based around entertainment and news and sports. So we're -- I think it's pleasing to see. And also, obviously, the digital distributors continue to do well.

FOX One really won't have a material impact on that. It is additive to our subscriber numbers because we are targeting subscribers that are outside of the bundle that are cord-cutters or cord-nevers. But as we've said before, our aspirations in FOX One remain in the low to mid-single-digit millions of subscribers. So overall, it's not -- certainly in the short term, going to have a material impact.

Steve, do you want to?

Yes. And just to elaborate, Mike, in terms of that distribution growth, as I -- just to reiterate in what I said, we absolutely -- given where subscriber trends are growing and to Lachlan's point, FOX One, we expect to be totally additive to where we're at. we're expecting total company distribution revenue to grow this year. At the TV segment, given the timing or given the timing of our rate increases, we'd expect that our full year FY '26 TV affiliate revenue to be at or about where we were in '25. But given those timing of those rate increases, we'd expect overall TV -- overall total company distribution revenue growth to be up in '27 coming from both segments.

So we feel pretty good about where the book is there. And then to capture your question on ASR. Listen, in terms of the splits -- the way the ASR will work is related to the entry into the transaction tomorrow. We'll get 80% of the shares back on settlement, so straight away.

And then it will take the better part of the current fiscal year to work through that. The split between the As and the Bs, I think it talks to the fact that the Bs are currently trading at a 10% or 11% discount to the As. So there's just an outright efficiency of buying with respect to the Bs versus the As. And then if you look at the balance of our ASR -- not our ASR, our buyback activity since then, right now, at about $6.9 billion cumulatively bought back of which $5.9 billion has been the As and only $1 billion has been the Bs.

So we think that's the appropriate mix for the balance of the fiscal year.

We have a question from Jessica Reif Ehrlich of Bank of America.

So I guess the first question is, even with the accelerated share buyback, you have tons of balance sheet flexibility. Can you just talk about how you may use that? Do you think your asset mix will change in coming years? And it seems pretty clear there will be M&A in the industry.

How would you participate or not like just the impact on FOX? And then on advertising, Lachlan, you talked about strength in both upfront and scatter. Can you give us some color -- you gave some color on FOX on the news side, just on the broader advertising, sports and entertainment and Tubi, that would be great.

Sure. Jessica, Steve can speak specifically to the balance sheet, but you're 1,000% correct. As usual, it's an industry-leading balance sheet. We're very proud of it, and we work hard to maintain its strength.

But having said that, ultimately, have to be utilized and utilized with M&A. We continue to look at all opportunities that come to us and that we identify internally as well. And we would expect to be doing more M&A over the coming period. Having said that, there's nothing on the table now.

And so -- but we think M&A is going to be an important part of our growth going forward. We'll continue to be very disciplined with it. We're looking at areas where we believe there are tailwinds rather than headwinds. So you won't see us investing in things that have like high exposure, for instance, to the cable industry or certainly anything in sort of entertainment sort of cable assets.

So that's broadly how we're viewing it and how we're filtering the opportunities that we assess. And from an advertising point of view, Jessica, as I mentioned, this is the -- since 2019, since new FOX was created, this is the strongest advertising market we have seen in our kind of verticals. And the reason I make that sort of especially related to what we're seeing is because I think our verticals in live news and live sports, in particular, are really the beneficiaries of sort of the broad reach that we have and money flowing from linear entertainment, particularly linear cable entertainment revenue into the broad reach of live sports and live news supplies.

Having said that, we also -- Tubi has had incredibly strong revenue growth. And so it's really sort of across the board. If I look specifically national advertising, very strong in pharma in the quarter, financial services and in tech driven by AI companies advertising. In sports, NFL is strong.

And even this World Series will -- we believe, if it didn't last night, will in Game 6, likely surpass our revenue for post season last year. So sports and college football is also going very well. FOX News has seen strong price increases in their direct response advertising as well as for the big premium sort of branded advertising on the platform. Local stations, if anything, has improved from -- as a trend, where we said the market for local stations was mixed in the past.

It's less mixed now. And that's a really positive thing we've seen. We saw very strong pharma advertising in the quarter for local stations. And then where the weakness is the stations are sort of restaurants, I think some telecom is slightly weaker and in auto is sort of flattish.

So we're very pleased with the outlook of the stations. Tubi -- this time last year, Tubi had a lot of political revenue, which we called out because of its targeting and because of its audience, which is very hard to reach for advertisers. It attracted a significant amount of political advertising. But despite that, we're still seeing tremendous growth in Tubi.

So we're pleased with the advertising outlook and particularly where we sit within that ecosystem.

Operator, we have time for one more question.

We have a question from Ben Swinburne of Morgan Stanley.

Maybe taking another stab just at the investment levels this year. I think Steve's conservative estimate last quarter was $350 million, I believe, for '26. I don't know if maybe you'd give us an update based on how you guys are trending so far? And then Lachlan, kind of back to FOX One, just anything you called out and thanked Prime Video for their contribution. But just anything interesting or surprising to you in how, I guess, sort of you're acquiring FOX One customers when you look at all the different options and channels?

I know it's early, but I would be interested.

So let me start with FOX One. Thanks, Ben. So the -- I don't think it's that surprise. Partnerships are very important.

And obviously, partnerships we launched with ESPN and Verizon, we think they're going to be a big part of FOX One's growth. But I have to say, and I should just say again, Amazon has just been a brilliant partner as the launch has done a tremendous job in distributing the product and acquiring subscribers. So we give them a huge amount of credit and appreciate their partnership. And from a content perspective or a broad perspective, it's probably not surprising that sports and all sports are tremendous attraction on the product and really drive some -- a lot of uptake over the weekends.

And then that flows into sort of those people once they're on the platform, accessing news and entertainment content during the week. So this -- the sports season and then the busy autumn sports season for us is a really important period to drive subscriber acquisitions. So look, it's early days, but we couldn't be more pleased with how well FOX One is doing. That's a real credit to the team.

I guess I have to hand this over to Steve, [indiscernible].

Yes. So Ben, you're spot on. We did call it $350 million on the Q4 call for what we expected to see in fiscal '26. I think as we sit here today, we think that as we sort of qualified, we think we thought that was a conservative estimate. We still think it's a conservative estimate. But I think too early in the year to sort of put you on to a different number.

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 us today.

Thanks, everyone.

Ladies and gentlemen, that does conclude the Fox Corporation First Quarter Fiscal Year 2026 Earnings Conference Call. Thank you.