Fox Corporation — Form 10-Q Summary
Reporting period: Three months ended September 30, 2020, Fox’s first quarter of fiscal 2021. The request labels this “2020 Q1,” but the filing covers the quarter ended September 30, 2020, not calendar-year Q1. Comparative period: three months ended September 30, 2019. Amounts are U.S. dollars.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Revenue | $2.717 billion | $2.667 billion | +2% |
| Net income | $1.117 billion | $513 million | +$604 million |
| Net income attributable to Fox stockholders | $1.106 billion | $499 million | +$607 million |
| Diluted EPS | $1.83 | $0.80 | +$1.03 |
| Adjusted EBITDA (non-GAAP) | $1.166 billion | $856 million | +36% |
| Cash provided by operating activities | $267 million | $202 million | +$65 million |
Revenue growth reflected affiliate fees of $1.533 billion (+10%), partly offset by advertising revenue of $969 million (-7%). Adjusted EBITDA margin was approximately 42.9%, compared with 32.1%; this measure excludes, among other items, interest, taxes, depreciation and amortization, impairment and restructuring, and other non-operating items. Net income was boosted by unusual items, so the reported earnings increase should not be read as solely operating growth.
- Cable Network Programming: Revenue $1.325 billion (+3%); Segment EBITDA $781 million (+14%). Affiliate fees rose 4% and advertising rose 18%, including election-related advertising; other revenue fell 42%.
- Television: Revenue $1.350 billion, essentially flat; Segment EBITDA $457 million (+82%). Advertising fell 15%, partly offset by 23% growth in affiliate fees.
Cash and debt: Cash and cash equivalents were $5.061 billion at September 30, up from $4.645 billion at June 30, 2020. Borrowings were $7.947 billion, essentially unchanged; reported net debt was approximately $2.886 billion. The $1.0 billion revolving credit facility was undrawn, and the company reported compliance with its covenants. Current assets were $8.463 billion and current liabilities $2.012 billion.
Investing activities used $149 million, including $117 million for property, plant and equipment. Financing activities provided $298 million, including a $462 million Disney reimbursement, offset in part by share repurchases. The $267 million of operating cash flow less $117 million of property, plant and equipment purchases equates to approximately $150 million; this is a simple calculation, not a company-reported free-cash-flow measure.
Material changes and unusual items
- Other, net was income of $519 million versus expense of $15 million a year earlier. It included a $462 million reimbursement from Disney for Fox’s prior Divestiture Tax prepayment and $121 million of net gains on equity investments, including Flutter.
- Fox’s prior-year prepayment was approximately $700 million. The majority was settled and reimbursed; the remaining balance is subject to adjustment, which the company did not expect to be material.
- Operating expenses declined 20%, primarily reflecting lower sports programming costs and fewer hours of original scripted programming. Management estimated approximately $280 million of lower sports and entertainment programming rights amortization and production costs due to schedule changes; it expected the majority of these costs to be recognized in fiscal 2021.
- SG&A increased 10%, mainly reflecting fiscal 2020 acquisitions. Depreciation and amortization increased 36%; impairment and restructuring charges rose to $35 million from $9 million, primarily due to severance.
- Fox repurchased approximately 10 million shares for $270 million in the quarter. Approximately $1.1 billion remained under its authorization at September 30; the company also reported about $35 million of additional repurchases afterward.
Outlook, risks and contingencies
The filing provides no specific financial guidance. Management said results are uncertain given COVID-19 and are not necessarily indicative of the fiscal year. Pandemic-related cancellations or postponements of sports, suspended or reduced entertainment production, economic weakness and advertising cuts could pressure advertising revenue; continued MVPD subscriber declines could affect affiliate fees. Fox noted that NFL and college sports disruptions could have a significantly greater adverse effect, and that future assessments could result in material financial-statement impacts, although no COVID-related impact was recorded in the statements as of September 30.
Management said most employees continued to work remotely but reported no material pandemic impact on internal financial controls. The filing reported no material change to previously disclosed risk factors or legal proceedings. FOX News-related harassment and discrimination matters remain subject to litigation and inquiries; the company said settlements and reserves were not material to date, but it could not estimate any additional liability. A sports-network minority shareholder exercised a put right in October 2020 for approximately $135 million.
Important facts for investors to verify
- How much of the quarter’s earnings uplift came from the Disney reimbursement and investment gains, versus recurring operating performance.
- Whether sports schedules and production normalize, and when the estimated $280 million of deferred programming costs are recognized.
- Whether COVID-19, advertising-market conditions and subscriber trends affect future advertising and affiliate-fee revenue.
- Debt repayment needs, share repurchases and the cash impact of the exercised $135 million put right.
- Future outcomes of disclosed legal, tax and indemnification matters; some potential losses cannot currently be estimated.