Fox Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2023; comparison is with the three months ended September 30, 2022. Amounts are in U.S. dollars. FOX operates Cable Network Programming, Television, and Other, Corporate and Eliminations businesses in news, sports and entertainment.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Revenue | $3.207 billion | $3.192 billion | Up $15 million; essentially flat |
| Adjusted EBITDA (non-GAAP) | $869 million | $1.092 billion | Down 20% |
| Net income | $415 million | $613 million | Down 32% |
| Net income attributable to FOX stockholders | $407 million | $605 million | Down 33% |
| Diluted EPS | $0.82 | $1.10 | Down $0.28 |
| Cash from operating activities | $1 million | $270 million | Down $269 million |
Operating expenses rose 12% to $1.862 billion, chiefly from sports rights amortization and production costs, including the FIFA Women’s World Cup and renewed NFL contract, and increased digital investment costs. SG&A rose 7% to $480 million, partly reflecting executive transition costs. Net interest expense fell to $42 million from $68 million, mainly because of higher interest income. Other, net was a $166 million expense, including $171 million of investment losses, primarily from the fair-value change in FOX’s Flutter investment.
Segments
- Cable Network Programming: Revenue decreased 3% to $1.387 billion; Segment EBITDA fell 18% to $607 million. Lower subscribers and advertising were partly offset by higher affiliate rates and sports sublicensing revenue; sports costs increased.
- Television: Revenue increased 4% to $1.780 billion; Segment EBITDA fell 14% to $351 million. Tubi growth, the Women’s World Cup and higher affiliate fees supported revenue, while higher sports and digital costs weighed on EBITDA.
- Other, Corporate and Eliminations: Segment EBITDA loss widened to $89 million from $59 million, mainly due to higher employee-related costs.
Cash, debt and liquidity
- Cash and cash equivalents were $3.829 billion at September 30, down from $4.272 billion at June 30. Operating cash flow was nearly zero, primarily due to higher sports-rights payments, including the renewed NFL contract, restructuring payments and lower political-ad receipts.
- Cash used in investing was $58 million; cash used in financing was $386 million, including $250 million of share repurchases and $135 million of dividends and distributions. The quarter-end cash decrease was $443 million.
- Borrowings totaled $7.212 billion carrying value ($1.250 billion current and $5.962 billion noncurrent). The company had no revolver borrowings and had an unused $1.0 billion credit facility maturing in June 2028. FOX reported compliance with its covenants.
- In October 2023, after quarter-end, FOX issued $1.25 billion of 6.5% senior notes due 2033. A $1.25 billion tranche of 4.03% notes was due in January 2024. Credit ratings at quarter-end were Baa2/BBB, both with stable outlooks.
- Firm commitments and future debt payments totaled approximately $38 billion at quarter-end; this is not equivalent to balance-sheet debt. FOX also disclosed approximately $5.6 billion of remaining performance obligations, expected to be recognized primarily over one to three years.
Material changes, outlook and risks
- Revenue was broadly unchanged: higher affiliate fees were offset by lower advertising. Advertising was affected by the absence of spending ahead of the 2022 midterm elections, lower FOX News direct-response pricing and lower FOX Network ratings; the Women’s World Cup and Tubi growth provided offsets.
- FOX provided no specific financial guidance in the supplied filing. Management cautioned that interim results are not necessarily indicative of full-year results.
- FOX paid approximately $800 million in April 2023 to settle Dominion-related litigation. Smartmatic litigation remains pending; FOX said it could not predict the outcome or estimate a loss, and a trial was not expected before 2025. The filing also describes shareholder derivative litigation.
- FOX disclosed approximately $100 million of liability for the U.K. Newspaper Matters Indemnity at September 30. It stated that additional liability from FOX News harassment and discrimination matters could not be estimated, but did not anticipate a material adverse effect from pending matters.
- The filing identifies risks including declining pay-TV subscribers, advertising-market and audience shifts, renewing carriage and sports-rights agreements, competition, labor disruptions, litigation, technology and cybersecurity risks, and retaining key talent. It specifically notes 2023 WGA and SAG-AFTRA strikes and potential production delays or higher costs.
- FOX reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether lower Segment EBITDA and near-zero quarterly operating cash flow persist as sports-rights costs and programming schedules evolve.
- How affiliate-fee growth, subscriber losses, advertising conditions and Tubi performance affect subsequent results.
- The cash-flow, interest-cost and maturity implications of the October 2023 notes issuance and January 2024 debt maturity.
- Developments, potential exposure and timing in the Smartmatic and derivative cases, and any changes to related legal reserves.
- Cash use for sports rights, dividends and repurchases; the filing reported approximately $2.15 billion of remaining repurchase authorization at September 30.