Fox Corporation — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended March 31, 2020 (Fox fiscal Q3 2020), not 2019 Q3. The filing compares the three and nine months ended March 31, 2020 with the corresponding 2019 periods. Amounts below are in millions of dollars unless stated otherwise.
Business context and reporting period
Fox is a news, sports and entertainment company reporting Cable Network Programming, Television, and Other, Corporate and Eliminations segments. It became a standalone public company on March 19, 2019; therefore, the 2019 comparison includes pre-distribution results and allocated costs from its former parent, and may not be fully comparable with 2020.
Key financial results
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | 2020: $3,440; 2019: $2,752; up 25% | 2020: $9,885; 2019: $8,876; up 11% |
| Net income attributable to Fox stockholders | 2020: $78; 2019: $529 | 2020: $877; 2019: $1,141 |
| Diluted earnings per share | 2020: $0.13; 2019: $0.85 | 2020: $1.42; 2019: $1.84 |
| Adjusted EBITDA, non-GAAP | 2020: $920; 2019: $766; up 20% | 2020: $2,037; 2019: $1,972; up 3% |
| Operating cash flow | Not presented by quarter in the supplied filing text | 2020: $1,345; 2019: $1,624 |
Quarterly Adjusted EBITDA margin was approximately 26.7% in 2020 versus 27.8% in 2019; nine-month margin was approximately 20.6% versus 22.2% (calculated as Adjusted EBITDA divided by revenue). The filing attributes the sharp net-income decline principally to Roku investment fair-value losses: Other, net was a $632 loss in the quarter, including a $470 million Roku fair-value loss, versus $84 of income in the prior-year quarter. Nine-month Other, net was a $345 loss versus a $116 loss.
Segment highlights: quarterly Cable Network Programming revenue rose 6% and Segment EBITDA rose 7%; Television revenue rose 41% and Segment EBITDA was $224 versus $99, helped by approximately $500 million of Super Bowl LIV advertising revenue. For the nine months, Cable revenue and Segment EBITDA rose 3% and 7%, respectively; Television revenue rose 16% while Segment EBITDA increased 2%.
Financial position, cash flow and capital allocation
- At March 31, 2020, cash and cash equivalents were $3,196; current assets were $6,744 and current liabilities $1,780. The resulting current ratio was approximately 3.8.
- Borrowings were $6,754, essentially unchanged from June 30, 2019; cash less borrowings implies net debt of approximately $3,558. Borrowings’ disclosed fair value was $7,568. The company had no borrowings under its $1.0 billion revolving facility.
- Nine-month cash flow: operating activities provided $1,345; investing activities used $397; financing activities used $986. Cash declined by $38 to $3,196. Operating cash flow fell from $1,624, primarily due to higher interest and income-tax payments, partly offset by higher Cable Network Programming Segment EBITDA.
- Investing included $611 of acquisitions, partly offset by $349 of investment-sale proceeds. Financing included $600 of share repurchases and $321 of dividends and distributions.
- Fox repurchased approximately 17 million shares for $600 during the nine months; about $1.4 billion remained under its $2 billion authorization. The semi-annual $0.23-per-share dividend declared for the quarter was paid in April.
- Firm commitments and future debt payments totaled approximately $37 billion at March 31, 2020, down from $41 billion at June 30, 2019, primarily due to sports-programming-rights payments.
Material changes, outlook and risks
- COVID-19: The filing cites postponed or cancelled sports, suspended production of some acquired entertainment content, and declining local advertising demand. Management said the pandemic’s duration and financial effects were highly uncertain and could materially adversely affect results, cash flows and financial condition.
- Near-term advertising outlook: If then-current trends continued through fiscal Q4 2020, Fox estimated advertising revenue at FOX Television Stations, FOX News Media and FOX Entertainment would decline approximately $200–$240 million, or 25%–30%, versus the prior-year quarter. The estimate excluded sports-related advertising because event scheduling was uncertain; lower programming and production costs could partly offset the revenue decline.
- In April 2020, Fox implemented short-term cost reductions, including reduced executive compensation and suspended compensation increases. Management reported approximately $3.2 billion of cash at quarter-end, an unused $1.0 billion revolver, and access to capital markets subject to conditions.
- Subsequent to quarter-end, Fox issued $1.2 billion of senior notes: $600 million at 3.05% due 2025 and $600 million at 3.50% due 2030. It also acquired Tubi for approximately $445 million net cash, with up to approximately $45 million of additional consideration possible. These are post-quarter events, not March 31 balances.
- Fox acquired three TV stations for approximately $350 million and sold two stations for approximately $45 million in March. It acquired 67% of Credible for approximately $260 million and committed up to $75 million of additional capital over about two years.
- No impairment was recorded at March 31, but management warned weaker advertising or programming popularity could trigger material non-cash impairment charges. A decline in sports-rights-related revenue estimates could accelerate rights amortization.
- Contingencies include approximately $20 million of Fox’s share of an additional profits-participant settlement, a $65 million recorded liability for the U.K. Newspaper Matters indemnity, and ongoing FOX News-related claims and inquiries. The company said it could not estimate potential losses for certain matters; it did not expect the described FOX News matters to have a material adverse effect.
Most important facts for investors to verify
- Whether advertising weakness, sports scheduling disruptions and production suspensions persist, and how actual fiscal Q4 results compare with the stated $200–$240 million estimate.
- Whether cash generation remains adequate amid lower advertising, sports-rights obligations, debt service, acquisitions and shareholder returns.
- The effect of Roku’s investment losses on reported earnings and the performance and valuation of Fox’s remaining investments.
- Whether acquisitions, including Tubi, Credible and the television stations, deliver expected strategic and financial benefits; confirm the final Tubi consideration and financing.
- Potential impairment charges, sports-rights amortization changes, and developments in litigation, regulatory matters and the FCC cross-ownership rule.
- Comparability of 2019 results, which include pre-separation allocations, and the distinction between GAAP earnings/cash flow and non-GAAP Adjusted EBITDA.