Fox Corporation - Class A (FOXA) — Q3 2026 Earnings Call Transcript

Thank you, operator. Good morning, and welcome to our fiscal 2026 third 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 Steve 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. It's a busy day for us here at Fox. This morning, we reported our fiscal third quarter results. And later today, we will host our annual upfront presentation where our advertising partners will experience firsthand the power of our programming and the platform we provide for them across our family of Fox Corporation brands. And as you will hear today, all signs point to a healthy upfront for Fox. From global news and live sports to high-quality free entertainment and essential local news coverage, Fox turns audience engagement and passion into performance for our advertising and distribution partners alike. This performance was demonstrated again in our fiscal third quarter, where our financial results continue to reflect the unabated momentum across the business. We reported $4 billion of revenue and EBITDA growth of 11% to just over $950 million, reflecting strong core top line delivery from ongoing advertising trends and distribution revenue growth. Distribution revenue grew 3% during the quarter, benefiting from the continued early success of Fox One, where both new subscriber additions, which we are confident are additive to the ecosystem, and subscriber retention outperformed our expectations. Advertising revenue, as expected, declined due to the absence of last year's Super Bowl broadcast. However, excluding the Super Bowl impact, advertising revenue would have grown double digits, driven by strength across the company, and that momentum continues into our fiscal fourth quarter. The strength of these trends is most evident at FOX News, which achieved its highest third quarter advertising revenue ever. In rapidly changing and consequential news cycles, audiences turn to FOX News for compelling, accurate and timely reporting. This is clearly reflected through the FOX News channel, finishing the quarter as the most watched cable network in both total day and Prime. And the sequential momentum is growing. For example, FOX News finished April with year-on-year total audience growth, which contributed to FOX News being the second most watched network in Monday through Friday Prime in all of television, surpassing all but one broadcast network. FOX News Digital also delivered strong results in the quarter with both YouTube and social media views up double digits over the prior year. FOX Sports delivered major wins during a slightly less hectic time of the year for our sports calendar. The World Baseball Classic across Fox was a resounding success with average ratings across the series up over 150% versus the 2023 tournament and more than 10 million viewers tuned in for the final. That trend continued as Major League Baseball's opening weekend on Fox scored ratings 45% over last year, and IndyCar raced to its best start in years, growing ratings 37% as of quarter end. Earlier in the quarter, we concluded a strong NFL season, highlighted by over 170 million viewers tuning into regular season NFL games on Fox during the 2025-26 season, culminating with the NFC Championship game, which averaged more than 46 million viewers. The NFL has been a key partner with Fox for more than 30 years in what is a mutually beneficial relationship. To underscore this relationship with the NFL, yesterday, FOX acquired rights to two additional NFL games in national windows for this coming season. Looking ahead, FOX will shortly be home to the world's biggest sporting event of the year, the FIFA Men's World Cup. We are proud to bring the first World Cup to the United States in over 30 years to our audience this summer. This year's tournament, with an expanded schedule encompassing 104 matches over five weeks, will see Fox deliver the most matches ever on U.S. broadcast television. Tubi will also be part of our coverage as a simulcast of the opening matches, including the first USA match, and will be home to a FIFA World Cup hub, where Tubi's nearly 100 million monthly active users can engage with a broad assortment of soccer content. This added exposure from the World Cup builds on Tubi's strong third quarter, where revenue grew 23%. Engagement was also solid with a 19% increase in total view time, maintaining strong momentum from library content, Tubi originals and creator-led titles. Tubi now features more than 220 creators with over 17,000 episodes with plans to further expand its creator universe as this content attracts younger audiences and drives higher retention. Just like we have seen at the start of each sporting season, we also expect the World Cup on FOX to be positive for Fox One. Trends across Fox One continue to be encouraging with strong consumption across both our news and sports offerings. From an entertainment perspective, our refreshed mid-season slate introduced several great new shows led by Fear Factor, Memory of a Killer and Best Medicine. These attracted robust audiences consuming live on the network and were amplified with meaningful levels of delayed digital streaming. In addition, at today's upfront, we'll be announcing the launch of several new shows for the upcoming year, including Baywatch and The Interrogator. Fox's third quarter results once again underscore the strength of our brands and our leadership in live programming, positioning us to deliver record EBITDA this fiscal year. As we look ahead, this strength will be showcased through the upcoming Men's World Cup and the looming midterm election cycle. These events will supplement our outstanding core sports and entertainment schedules, our continued rapid growth at Tubi and our leading national and local news coverage, where we continue to make significant investments in the work of our dedicated journalists. We have solid momentum and our financial position is strong, supported by a robust balance sheet. 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. And with that, I will turn the call over to Steve to take you through the details of the quarter.

Thanks, Lachlan, and good morning, everyone. Fox delivered another strong quarter financially, highlighted by our fiscal third quarter total company revenue of $4 billion and adjusted EBITDA growth of 11% to $954 million, a record third quarter for Fox. Distribution revenue grew 3% over the prior year, driven by 5% growth at our Cable segment. As expected, advertising revenue on a headline basis was down 24% as we lapped last year's broadcast of Super Bowl LIX. As Lachlan mentioned, excluding the impact of the Super Bowl and other NFL post-season schedule changes, our total company advertising revenue would have grown double digits over the prior year quarter. Content and other revenue was up 12%, primarily due to higher sports sublicensing revenue at our Cable segment. Meanwhile, total expenses fell 14%, mainly a result of the NFL post-season schedule differences I just mentioned. Net income attributable to Fox stockholders was $166 million or $0.38 per share as compared to the $346 million or $0.75 per share reported in the prior year period. Excluding noncore items, adjusted net income was $570 million and adjusted EPS was $1.32, up 20% compared to the $1.10 per share recorded in the prior year. Now let's turn to our operating segments, starting with the Cable segment, which delivered 6% revenue growth and 1% adjusted EBITDA growth to $884 million. Cable distribution revenue grew 5% over the prior year quarter as pricing gains outpaced the impact from net subscriber declines, which remained stable at under 6.5% across our third-party distributors before taking into account a meaningful positive contribution from Fox One. Cable advertising revenue was up 5% versus the prior year, driven by strength in national pricing at News and the benefit of the World Baseball Classic at sports. Cable content and other revenue increased 24%, driven by higher sports sublicensing revenue. Revenue growth at our Cable segment was partially offset by a 13% increase in expenses, primarily attributable to higher sports rights amortization. Turning to our Television segment, which reported $2.2 billion in quarterly revenue. As anticipated, advertising revenue at our Television segment declined 30% as underlying growth led by Tubi, along with the benefit from this year's additional NFL Wild Card game, was more than offset by the absence of Super Bowl LIX, which generated over $800 million in gross advertising revenue in the prior year quarter. Television distribution revenue was down 1%, which continues to be in line with our expectation for TV distribution revenue to be about flat for the full year before returning to growth in fiscal '27. Television content and other revenue was up 2% year-over-year, primarily due to higher content revenue tied to our entertainment production studios. Meanwhile, expenses at the Television segment fell 24%, led by lower sports programming rights amortization and production costs due to the absence of last year's Super Bowl. As a result, EBITDA at our Television segment was $191 million, more than three times the level posted in the prior year quarter. Turning to cash flow, we generated quarterly free cash flow of $1.77 billion. This strong quarterly free cash flow delivery is 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 buildup of advertising-related receivables, both of which reversed in the second half of our fiscal year. In terms of capital allocation, fiscal year-to-date, we have repurchased an additional $1.95 billion through our share buyback program. This brings the total cumulative amount repurchased to over $8.5 billion or approximately 36% of our total shares outstanding since the launch of the buyback program in 2019. This includes the $1.5 billion accelerated share repurchase transaction, which is now complete. These capital returns are supported by the strength of our balance sheet, where we ended the quarter with approximately $3.6 billion in cash and $6.6 billion in debt. And with that, I'll turn the call back over to Gaby.

Great. Thanks, Steve. And now we'd be happy to take questions from the investment community.

I'll try to keep it to one topic, if I could. So first, congratulations on the agreement that you just announced with the NFL for the additional games. Can you share any more detail on those games, when they're going to air and where they're coming from? And then more broadly on the topic, there was an article recently in the Journal saying that Rupert Murdoch expressed concern to the administration about games moving to streaming services. Does this new agreement mitigate that concern at all? And more broadly, can you just share any update on negotiations to extend the agreement? The article did raise some concern about elevated tension between Fox and the league. So it would be great to get your perspective on that.

Thanks, Mike. It's Lachlan. Let me start in the order of how you asked the question. Yes, we're announcing this morning that we've acquired the rights to two additional regular season games. Both are national games. The first will appear in Week 10; it is the overseas game from Munich and will give us a triple header that Sunday, which will be the first triple header on broadcast TV in history. The second game will be a Saturday game in Week 15. Those are the two games we've acquired. On your second question, there is no real tension with the NFL. We're partners for 30 years and look forward to being partners for the next 30 years. As we've noted before, we have four years left on our current deal. We've read the speculation that the NFL would like to renegotiate and extend the current deals in the marketplace, but we've had no substantive discussions with the NFL about that, so it's hard to comment beyond press speculation. We would like to broaden and deepen our relationship with the NFL, but we'll only do so in a disciplined way that creates long-term shareholder value.

I wanted to ask about Cable Network distribution revenue growth. The 5% growth — many investors wonder if Cable Network distribution can grow sustainably above 0. So could you talk a little about the Fox One contributions? Has the success of Fox One given you confidence that cable distribution could grow mid-single digits perhaps on a multiyear basis? And maybe anything on seasonality that you would call out?

Thanks, Mike. From a cable distribution perspective, we feel we're in the best place we've been for some time. That's based on two things. First, we're seeing a stabilization of subscriber declines now for a few quarters in a row, below 6.5% in subscriber erosion. We think that's a very positive trend. It's important to note that does not include our Fox One subscriber additions. We've taken a conservative approach and not included Fox One subscribers in that 6.5% because it's still early days for Fox One. We want to see at least a full cycle flow through it so we understand any seasonality that could be in the Fox One subscriber base. That said, we are not seeing a tremendous amount of churn within Fox One to date, and we're very pleased with that. The other side is the strength of our brands. Our brands continue to be the most coveted and valuable in the cable universe — whether that's FOX Sports or FOX News. Our skinny bundles are helping the ecosystem; those were launched 12 to 18 months ago, and we're watching that with interest. All the signs are very positive about the evolving ecosystem.

Thanks, Lachlan. Mike, in terms of trajectory, you're going to find more heterogeneity in the performance of cable networks going forward. In the old days, it was cable and satellite, then virtual MVPDs emerged. Now we have Fox One as our owned and operated service and the emergence of genre bundles. We think that augurs well for our networks, which are must-have from both broadcast and mainline cable perspectives. Fox One was a significant contributor to our subscriber trends, and that's fed into our revenues in terms of both cable affiliate and TV. We'll shy away from predicting precise mid-single-digit growth, but we're seeing pricing growth we enacted about a year ago coming through. This coming year, we're lighter on cable versus TV pricing. We have just north of one-third of our distribution income up for renewal in fiscal '27, and that's skewed toward TV. We feel very good about where we are in terms of both cable distribution revenue growth and TV distribution growth in fiscal '27.

Advertising trends sound very strong, up double digits ex Super Bowl. I was hoping you could parse out national versus local trends and any category call-outs? And then as it relates to the World Cup, how should we think about the financial impact across the company and how you plan to harness the event across the portfolio, including Tubi and Fox One?

Advertising trends remain strong across the entire portfolio — sports, news, entertainment, Tubi and strengthening trends in the local stations. Going into this upfront, we're seeing a healthy market similar to what we saw around this time last year, which bodes well for the upfront. We're seeing low options being taken up, very low options, few cancellations, and healthy scatter prices. Most categories are growing. Category call-outs include pharmaceuticals, tech and finance. Adding political revenue later in the year will further supplement that; some market estimates put political ad spend this midterm at about $11 billion, which would be a midterm record. We'll do well out of that with our stations in key battleground states like Florida and Georgia, and also benefit from issue money in states like California. We're already seeing record political revenue for an off year. Regarding the World Cup, there's great anticipation and excitement among our audiences and advertising partners. It's going to be successful competition and should be additive to Fox One as sports content on Fox One will help drive new subscribers. Tubi's simulcasts of opening matches won't directly impact Tubi's revenue; that revenue will be recognized by FOX Sports, but it will help Tubi's brand and audience metrics.

Sean, in terms of how the World Cup shakes out, we'll activate it across all company assets. Financially, think of the tournament spreading about 50-50 across quarters — Q4 of this fiscal year into Q1 of the next fiscal year. From a revenue and EBITDA perspective, you should expect broadcast to be revenue-generating and EBITDA accretive. On the cable net side, expect less revenue and likely not EBITDA accretive. On an overall company basis, it will be EBITDA accretive.

I have one on Fox One, and then one on your sports betting investments. On Fox One, you commented a bit on churn. Could you talk about what you've seen in terms of sign-ups related to the spring sports, say Major League Baseball and NASCAR and some of the other stuff like Indy? Do you have any line of sight to Fox One potentially fully offsetting traditional pay TV declines at some point? And then on the sports betting side, could you provide an update on your strategy and plans regarding investments in FanDuel and Flutter and how you plan to leverage those longer-term?

On Fox One, we are very pleased with the service. In the quieter spring and summer periods, we've seen very little churn, much lower than we expected, which speaks to the strength of the content and platform. In the third quarter we reported, over half of Fox One viewership was news, which highlights the strength of that content and user base. Adding sports to Fox One has helped attract new subscribers. On sports betting, we remain bullish on FanDuel. We retain a 2.5% equity stake in Flutter and an 18.6% option in FanDuel. We have over four years to exercise that option and are going through the licensing process so we can exercise, but we remain bullish on the FanDuel business.

Operator, we have time for one more question.

First, on FOX News: as we think about the reach you've built over the last few years, is there any way to think about how much your pricing has come up structurally over that time? And how do we think about the general cycle of viewership for FOX News over the next 12 months? Is it down and then up as you get to the midterms, or is it more stable? Second, on net digital investments: how are you thinking about net digital investments for fiscal '26 and fiscal '27? With the balance sheet capacity to invest, are these things like marketing around Fox One or Tubi, and how are you thinking about that for the medium term?

On FOX News, with strong ratings, particularly in April, our share was about 57% for the period referenced. Ratings were down earlier as we were comping against last year's presidential inauguration, but we're seeing positive year-on-year growth in April. In fiscal year '26, we added 200 new premium advertising clients on top of 350 new advertising clients in fiscal '25 — over 500 new clients total. That has driven our CPMs up; our CPMs and national pricing for FOX News are up over 45%. There's still a gap between FOX News CPMs and broadcast networks, so we think there's upside to narrow that gap. Regarding net digital investments, Tubi continues to grow and remains a core digital investment alongside Fox One. Investment in Tubi is moderating as growth continues. Tubi's investment consists of launch and marketing costs and tech costs, and those are moderating as the business scales. Broader digital investments across the company are modest.

We've been thoughtful on deploying capital. Year-to-date, we're pacing better on investments than this time last year. We've had better-than-anticipated success at Fox One and Tubi. Tubi was again a little better than breakeven for Q3, which is a fantastic achievement — three quarters in a row of being breakeven or better. At the start of the year, we guided around $350 million for investments; last year we did about $290 million. I'd expect the full year to be comfortably inside last year's $290 million. We are not anticipating surprises for fiscal '27 in terms of the investment envelope. If opportunities arise, we will invest, but we're happy with where the investments are right now.

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.