Business context and reporting period
Fox Corporation is a U.S. news, sports and entertainment company with Cable Network Programming, Television, and Other/Corporate segments. The supplied filing is its Form 10-Q for the quarter ended March 31, 2023—fiscal Q3 2023, not 2022 Q3 as stated in the request. Figures below are in U.S. dollars; financial statements are unaudited.
Key financial results
| Metric | Three months ended Mar. 31, 2023 | Prior-year quarter | Nine months ended Mar. 31, 2023 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $4.084 billion | $3.455 billion | $11.881 billion | $10.941 billion |
| Adjusted EBITDA | $833 million | $811 million | $2.456 billion | $2.185 billion |
| Net income (loss) | $(50) million | $290 million | $884 million | $925 million |
| Net income (loss) attributable to Fox stockholders | $(54) million | $283 million | $864 million | $899 million |
| Diluted EPS | $(0.10) | $0.50 | $1.60 | $1.57 |
| Operating cash flow | Not presented for the quarter | $1.307 billion | $951 million |
Quarterly revenue rose 18%, while Adjusted EBITDA increased 3%. Adjusted EBITDA margin was approximately 20.4%, versus 23.5% a year earlier. For the nine months, revenue rose 9% and Adjusted EBITDA rose 12%; margin was approximately 20.7%, versus 20.0%.
At March 31, cash and cash equivalents were $4.146 billion, versus $5.200 billion at June 30, 2022. Borrowings totaled $7.210 billion ($1.249 billion current and $5.961 billion non-current), compared with $7.206 billion at fiscal year-end. Cash less borrowings was approximately $3.064 billion. Current assets were $7.723 billion and current liabilities $4.402 billion. The company also had an unused $1.0 billion revolving credit facility, due March 2024, and reported compliance with its covenants.
Material changes and drivers
- Quarterly Television revenue rose 36% to $2.475 billion, principally reflecting Super Bowl LVII advertising, a higher volume of NFL games, Tubi growth and higher affiliate fees. Television Segment EBITDA was $117 million, versus $35 million.
- Cable Network Programming revenue was approximately flat at $1.570 billion, but Segment EBITDA fell 8% to $792 million; for the nine months, segment EBITDA declined 18% to $1.887 billion. Higher sports-rights costs and production expenses, digital investment and FOX News Media legal costs weighed on results.
- Quarterly operating cash flow increased to $1.307 billion for the nine-month period, primarily due to higher Segment EBITDA and lower sports-rights payments and entertainment programming costs. Investing cash outflow was $318 million; financing cash outflow was $2.043 billion, including $1.750 billion of share repurchases and $291 million of dividends and distributions.
- Quarterly net loss reflected $850 million of legal settlement costs recorded in “Other, net,” partly offset by a $182 million gain on investments in equity securities. The filing also reports $24 million of quarterly expense related to the U.K. Newspaper Matters Indemnity.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- In April 2023, Fox and Fox News Network agreed to settle the Dominion litigation and a related lawsuit; the company paid approximately $800 million. The settlement was recorded as an $850 million expense and accrued at March 31. The Smartmatic case remains ongoing; a trial was not expected before 2025, and the company could not estimate a potential loss. The filing states there can be no assurance pending matters will not materially affect the company.
- Fox Sports holds a 10-year option, expiring in December 2030, to acquire an 18.6% interest in FanDuel for $3.72 billion, with a 5% annual escalator. Fox has no obligation to invest unless it exercises the option.
- Firm commitments and future debt payments totaled approximately $39 billion, primarily reflecting programming and other operating commitments. The company renewed its New York headquarters lease through fiscal 2042 and recorded approximately $540 million of additional lease assets and liabilities.
- Management expects the 15% corporate alternative minimum tax, applicable to Fox starting in fiscal 2024, could materially increase annual cash tax liability timing; the company expects to be subject to it. The 1% stock-repurchase excise tax impact was described as not material.
- Key stated risks include advertising-market weakness, continued pay-TV subscriber declines, competition and changing distribution, renewal costs for sports rights, content popularity, litigation and regulatory outcomes, and technology, privacy and cybersecurity risks. The company said there were no material changes to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Confirm the intended period: the provided filing covers fiscal Q3 2023, not 2022 Q3.
- Review the Dominion settlement accounting: $850 million recorded expense versus approximately $800 million paid, including the related lawsuit, and the accrued liability at March 31.
- Assess ongoing Smartmatic and other legal exposure, which the filing says cannot currently be reasonably estimated.
- Evaluate whether sports-event-driven advertising growth and Tubi expansion can offset subscriber losses, lower ratings and higher programming costs.
- Track cash, debt maturities and the $1.0 billion revolving facility, alongside substantial programming and other firm commitments.
- Consider the FanDuel option’s potential $3.72 billion exercise cost and the future cash-tax effects of the corporate alternative minimum tax.