Fox Corporation — Form 10-Q Summary
Business context and reporting period: This filing covers Fox’s fiscal first quarter, the three months ended September 30, 2021, compared with the three months ended September 30, 2020. Fox operates Cable Network Programming, Television, and Other, Corporate and Eliminations businesses spanning news, sports, entertainment, broadcast stations, and Tubi. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $3,045 | $2,717 |
| Adjusted EBITDA | $1,064 | $1,166 |
| Net income | $708 | $1,117 |
| Net income attributable to Fox stockholders | $701 | $1,106 |
| Diluted EPS | $1.21 | $1.83 |
| Operating cash flow | $29 | $267 |
Revenue grew 12%, while Adjusted EBITDA declined 9% and net income attributable to Fox stockholders fell 37%. Derived net margin was approximately 23.0%, versus 40.7% in the prior-year quarter; the comparison was affected by prior-year non-operating gains. Advertising revenue rose 17% to $1,130 and affiliate fees increased 9% to $1,667.
- Segments: Cable Network Programming revenue increased 7% to $1,416, while Segment EBITDA declined 1% to $774. Television revenue increased 17% to $1,581, but Segment EBITDA fell 21% to $359. Other, Corporate and Eliminations reported a $69 Segment EBITDA loss, versus $72.
- Cash flow: Operating activities generated $29; investing activities used $75; financing activities used $429. Cash declined $475 during the quarter to $5,411. Management attributed lower operating cash flow primarily to lower Segment EBITDA and higher sports and entertainment programming payments.
- Liquidity and debt: Cash and cash equivalents were $5,411. Borrowings totaled $7,953 carrying value ($750 current and $7,203 non-current); disclosed fair value was $9,460. The $750 million of senior notes at 3.666% are due January 2022. Fox had no borrowings under its $1.0 billion revolving credit facility, which matures in March 2024, and reported compliance with its covenants. Derived net debt based on carrying-value borrowings less cash was approximately $2,542.
- Balance sheet and capital returns: Current assets were $8,875 and current liabilities $2,869. Fox repurchased approximately 7 million shares for $250 and paid $138 in dividends; $2.15 billion remained under its $4 billion repurchase authorization. It declared a $0.24-per-share semi-annual dividend.
Material changes and explanations
- Revenue growth reflected higher affiliate fees, advertising, and other revenue. Management cited rate increases and renewals, Tubi growth, a fuller live-sports schedule, and more original scripted programming compared with a COVID-affected prior-year quarter. Lower traditional MVPD subscribers partly offset affiliate-fee growth.
- Operating expenses rose 35%, mainly from higher sports and entertainment programming amortization and production costs, more live events and scripted programming, and increased digital investment at Tubi. These costs contributed to lower segment EBITDA despite revenue growth.
- Other, net was $69 versus $519 in the prior-year quarter. The prior period included a substantially resolved $462 million Disney reimbursement relating to Fox’s Divestiture Tax prepayment; net gains on equity investments were also lower ($63 versus $121). Fox identified this difference as the primary reason net income declined.
- Investing cash use was lower than a year earlier, partly due to $82 of disposition proceeds and the absence of prior-year spending on broadcast technical facilities. Financing cash flow was lower year over year, primarily reflecting the absence of the prior-year Disney reimbursement and dividend timing.
Outlook, risks, and contingencies
- The filing provides no specific earnings or revenue guidance. Management cautioned that interim results are not necessarily indicative of full-year results, including because of COVID-19’s potential effects.
- Fox reported approximately $46 billion of firm commitments and future debt payments, primarily associated with operating commitments including programming rights. Approximately $4.5 billion of revenue was expected to be recognized primarily over the next one to three years from remaining performance obligations.
- Material risk areas identified include changes in viewing and distribution behavior, traditional pay-TV subscriber declines, advertising-market volatility, competition, sports-rights costs and renewals, COVID-19-related programming disruption, content piracy, and litigation or regulatory outcomes.
- Fox is defending Smartmatic and Dominion defamation and disparagement lawsuits and says it believes them to be without merit. It could not estimate any additional potential loss; it does not currently anticipate a material adverse effect from the pending matters. The filing also discusses FOX News-related harassment and discrimination claims and inquiries, with additional liability likewise not estimable.
- Management reported effective disclosure controls. Fox implemented new general-ledger and procure-to-pay systems during the quarter and updated related processes and controls; it reported no material adverse impact on internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth translates into improved profitability as higher sports, programming, production, and digital-investment costs continue.
- The timing and funding of the $750 million senior-note maturity due January 2022, and the company’s ongoing liquidity and capital-return plans.
- Developments in the Smartmatic and Dominion cases and other contingencies for which Fox says potential losses cannot currently be estimated.
- Subscriber trends, advertising conditions, sports-rights commitments, and the effects of COVID-19 and content piracy on future results.
- The sustainability and comparability of earnings given the prior-year Disney reimbursement and changes in investment gains.