Fox Corporation (FOX/FOXA) — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended December 31, 2023; comparisons are to the periods ended December 31, 2022. FOX operates Cable Network Programming, Television, and Other, Corporate and Eliminations. Dollar amounts are in millions unless noted.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $4,234, down 8% | $7,441, down 5% |
| Income before tax | $131, down 70% | $692, down 46% |
| Net income attributable to FOX stockholders | $109; diluted EPS $0.23, versus $313 and $0.58 | $516; diluted EPS $1.06, versus $918 and $1.68 |
| Adjusted EBITDA (non-GAAP) | $350, down 34%; approx. 8.3% revenue margin versus 11.5% | $1,219, down 25%; approx. 16.4% revenue margin versus 20.8% |
| Cash flow from operations | Not presented separately for the quarter | $(535), versus $(261) |
Quarterly revenue fell mainly because advertising was lower, partly offset by affiliate fees and other revenue. Advertising was down 20% for the quarter, reflecting the absence of the 2022 Men’s World Cup and midterm-election advertising, as well as weaker direct-response pricing and FOX News ratings. Tubi growth provided a partial offset. The quarterly adjusted EBITDA decline was driven by Television, which reported a $138 loss versus $256 of EBITDA a year earlier. Cable Network Programming EBITDA rose 60% to $564. For the six months, Television EBITDA fell 68% to $213, while Cable Network Programming EBITDA rose 7% to $1,171.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $4,122 at December 31, 2023, compared with $4,272 at June 30, 2023. Current assets were $8,501 and current liabilities $3,707.
- Total borrowings were $8,445, including $1,250 current and $7,195 non-current. FOX issued $1.25 billion of 6.500% senior notes due 2033 in October 2023. A $1.25 billion issue due January 2024 was repaid in full after quarter-end.
- An unused $1.0 billion revolving credit facility matures in June 2028; FOX reported compliance with its covenants. Senior debt ratings were Baa2/Stable from Moody’s and BBB/Stable from S&P.
- Six-month investing cash outflow was $143. Financing provided $528, principally reflecting the note issuance; FOX also repurchased approximately $500 of shares and paid $142 in dividends and distributions.
- Firm commitments and future debt payments totaled approximately $38 billion at December 31, 2023. FOX reported approximately $5.8 billion of revenue expected to be recognized, primarily over the next one to three years, from remaining performance obligations.
Drivers, outlook and risks
- Management attributed lower operating cash flow to lower Segment EBITDA, higher sports-rights payments, particularly under the renewed NFL contract, and lower political advertising receipts. The filing gives no specific earnings or revenue guidance; management cautions interim results may not indicate full-year results.
- Operating expenses declined 4% in the quarter, partly due to lower sports and entertainment programming costs, while six-month expenses increased 1%, reflecting sports costs including the NFL contract and Women’s World Cup, partly offset by less scripted programming amid industry labor disputes.
- Other, net was a $46 loss for the quarter versus a $73 gain, and a $212 loss for six months versus a $3 loss. The change mainly reflected investment valuation losses, including a write-down of a live-streaming investment; six-month results also included U.K. Newspaper Matters Indemnity costs.
- FOX launched the United Football League on January 12, 2024, contributing USFL assets to a joint venture with XFL. This occurred after the reporting period.
- FOX paid approximately $800 in April 2023 to settle the Dominion litigation. Smartmatic’s lawsuit seeks $2.7 billion; FOX says it cannot predict the outcome and has determined a loss is neither probable nor reasonably estimable. Trial is not expected before 2025. The filing also discusses derivative litigation and other legal matters.
- FOX identifies advertising volatility, subscriber declines, carriage negotiations, sports-rights costs and renewals, competition, labor disputes, litigation, and potential impairments as important risks. It added that weaker advertising or programming popularity could reduce asset values and lead to material non-cash impairment charges. Management reported no material changes in market risks and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether Tubi growth and affiliate-fee gains can offset advertising pressure and subscriber declines.
- Television segment profitability and the cost and performance of sports programming rights, particularly the renewed NFL contract.
- Operating cash flow, working-capital swings, and the funding needs associated with approximately $38 billion of commitments and future debt payments.
- Developments in the Smartmatic and derivative lawsuits, as well as any potential legal or impairment charges.
- Post-quarter debt repayment, share repurchases, and the declared $0.26-per-share semiannual dividend payable March 26, 2024.