Business context and reporting period
Fox Corporation’s Form 10-Q covers the quarter and six months ended December 31, 2020—the second quarter of fiscal 2021. Fox operates Cable Network Programming, Television (including 29 broadcast stations and Tubi), and Other, Corporate and Eliminations. Amounts are in U.S. dollars; financial figures below are in millions unless otherwise noted.
Financial performance and liquidity
- Quarter: Revenue was $4,087, up 8% year over year. Net income attributable to Fox stockholders was $224, down 25%; diluted EPS was $0.37, versus $0.48.
- Six months: Revenue was $6,804, up 6%. Net income attributable to Fox stockholders was $1,330, up 66%; diluted EPS was $2.21, versus $1.28.
- Operating measure: Adjusted EBITDA was $305 for the quarter, up from $261, and $1,471 for the six months, up from $1,117. Calculated Adjusted EBITDA margins were approximately 7.5% versus 6.9% for the quarter and 21.6% versus 17.3% for the six months. This is a non-GAAP measure and is not a substitute for GAAP results.
- Cash flow: Six-month operating cash flow was $237, compared with cash used of $256 a year earlier. Investing activities used $329; financing activities used $51. Cash and cash equivalents declined $143 from June 30 to $4,502.
- Liquidity and debt: Current assets were $8,440 and current liabilities were $2,213. Borrowings had a carrying value of $7,949 (fair value $9,905); the company had no revolver borrowings and had an unused $1.0 billion facility due March 2024. Cash less carrying-value borrowings was approximately negative $3,447.
- Capital returns: Fox repurchased approximately 15 million shares for $419 during the six months and had about $980 remaining under its $2 billion authorization. It paid $176 in dividends and distributions in the cash-flow period and declared a subsequent $0.23-per-share dividend.
Material changes versus the prior comparable period
- Quarterly revenue growth reflected higher political advertising, affiliate fees and Tubi advertising, partly offset by lower other revenue. Advertising revenue increased 14% for the quarter; political advertising contributed approximately $230 to the year-over-year increase.
- Television revenue rose 13% for the quarter and 8% for the six months. Cable Network Programming revenue rose 1% and 2%, respectively. Six-month Segment EBITDA increased to $1,352 from $1,240 for Cable Network Programming and to $272 from $37 for Television.
- Quarterly stockholder net income fell despite higher segment operating results, primarily because unrealized investment gains in Other, net were lower than in the prior-year quarter. For the six months, net income benefited from the $462 Disney reimbursement related to the Divestiture Tax, higher Segment EBITDA and investment gains.
- Six-month Other, net was $691, including $341 of net gains on equity investments and the $462 Disney reimbursement, partly offset by transaction costs and other items. These unusual items make reported earnings less representative of underlying operating performance.
- Programming costs and production expenses rose in the quarter, including sports-rights costs and contractual rate increases. College football schedules were shortened and shifted; fewer games reduced some costs but also triggered estimated affiliate-fee credits.
Outlook, commentary, risks and contingencies
- The filing provides no specific earnings or revenue guidance. Management cautions that interim results may not indicate full-year results and that COVID-19’s effects remain uncertain.
- Management cited continuing risks from the pandemic, including weak advertising demand, potential MVPD subscriber losses, sports and entertainment production disruptions, and effects on viewership and affiliate fees. Fox said further disruption could materially adversely affect results.
- Approximately $5.4 billion of revenue was expected to be recognized primarily over the next one to three years, largely from affiliate, sports advertising and fixed-fee content licensing contracts. This is a disclosed performance-obligation amount, not revenue guidance.
- Firm contractual commitments and future debt payments totaled approximately $34 billion at December 31, 2020, down from $37 billion at June 30, primarily due to sports programming-rights payments.
- Fox reported ongoing or potential legal and tax matters, including FOX News-related claims and the U.K. Newspaper Matters indemnity. The company said it could not estimate certain possible losses; it did not expect the disclosed matters to have a material adverse effect, but outcomes remain uncertain.
- Fox stated that it was in compliance with revolver covenants and did not anticipate noncompliance. Credit ratings were Baa2/Stable from Moody’s and BBB/Stable from S&P.
Important facts for investors to verify
- Separate recurring operating trends from political advertising, investment remeasurement gains and the Disney tax reimbursement when assessing earnings quality.
- Track sports-rights costs, the impact of college football under-delivery, affiliate-fee credits and any further COVID-related schedule or production disruption.
- Monitor advertising recovery, traditional MVPD subscriber trends, digital distribution and Tubi’s contribution to revenue and profitability.
- Review cash conversion, programming-rights commitments, debt maturities and the company’s continued share repurchases and dividends.
- Check subsequent disclosures for the final amount of affiliate-fee credits, the remaining Divestiture Tax settlement adjustment, and developments in legal and tax contingencies.