Fox Corporation Form 10-Q Summary
Business context and reporting period. Fox is a news, sports and entertainment company with Cable Network Programming, Television, and Other, Corporate and Eliminations segments. This fiscal second-quarter report covers the three months ended December 31, 2022, and year-to-date results for the six months ended that date; comparisons are to the corresponding 2021 periods. Amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2022 | Six months ended Dec. 31, 2021 |
|---|---|---|---|---|
| Revenue | $4,605 | $4,441 | $7,797 | $7,486 |
| Net income attributable to Fox shareholders | $313 | $(85) | $918 | $616 |
| Diluted earnings per share | $0.58 | $(0.15) | $1.68 | $1.07 |
| Adjusted EBITDA | $531 | $310 | $1,623 | $1,374 |
| Adjusted EBITDA margin | About 11.5% | About 7.0% | About 20.8% | About 18.4% |
| Net cash used in operating activities | Not presented separately | Not presented separately | $(261) | $(656) |
Quarterly revenue grew 4%; Television revenue rose 6% to $2,934, while Cable Network Programming revenue was nearly flat at $1,632. Quarterly Television Segment EBITDA was $256 versus a loss of $273 a year earlier; Cable Network Programming Segment EBITDA declined 47% to $353. For the six-month period, Television Segment EBITDA increased to $665 from $86, while Cable Network Programming Segment EBITDA fell 24% to $1,095.
At December 31, cash and cash equivalents were $4,058, borrowings were $7,208, and cash less borrowings was approximately $(3,150). The company also had an unused $1.0 billion revolving credit facility, maturing in March 2024. Current assets were $8,571 and current liabilities $2,543. Total assets were $23,126 and total equity was $11,676.
Material changes and drivers
- Revenue growth reflected World Cup broadcasts, higher political advertising during the U.S. midterm election period, additional NFL regular-season games, higher NFL ratings, TUBI growth, and increased affiliate fees. These gains were partly offset by the absence of Thursday Night Football and lower average traditional pay-TV subscribers.
- Operating expenses fell 4% in the quarter, principally due to the absence of Thursday Night Football, partly offset by higher sports-rights amortization, production costs, and digital investment. Selling, general and administrative costs rose 18% in the quarter, mainly from legal and employee-related costs.
- Net income improvement also reflected a $114 million quarterly gain on equity investments, primarily Flutter, compared with a $165 million loss in the prior-year quarter. For the six months, investment gains were $135 million versus losses of $102 million.
- Six-month operating cash use improved to $261 million from $656 million, primarily because of higher Segment EBITDA and lower sports-rights payments. Cash declined by $1,142 million during the six months, to $4,058, including $500 million of share repurchases and $155 million of dividends and distributions.
Outlook, risks and unusual items
- The filing gives no specific earnings or revenue guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Management identified risks including changing viewing and distribution patterns, continued pay-TV subscriber declines, advertising-market variability, competition, sports-rights costs and renewals, and litigation, regulatory, technology and cybersecurity exposures.
- Fox disclosed approximately $39 billion of firm commitments and future debt payments at December 31, 2022, down from approximately $42 billion at June 30, 2022, primarily due to sports-programming-rights payments. A renewed headquarters lease through fiscal 2042 added approximately $540 million of lease assets and liabilities.
- Dominion defamation litigation was scheduled for trial in April 2023; Smartmatic and Dominion claims were described as matters Fox intends to defend. The company said potential additional losses could not be estimated and did not expect the pending matters to have a material adverse effect. It also recorded a $115 million liability for the U.K. Newspaper Matters Indemnity, up from $65 million at June 30, 2022.
- In January 2023, the board dissolved its special committee after Rupert Murdoch withdrew a proposal to explore a combination with News Corporation. A court confirmed Fox Sports’ 10-year option to acquire an 18.6% FanDuel interest for $3.72 billion, subject to a 5% annual escalator; Fox has no obligation to invest unless it exercises the option.
- After quarter-end, Fox announced an additional $3 billion share-repurchase authorization, bringing total authorization to $7 billion, and stated plans for an accelerated $1 billion Class A repurchase and another $450 million of repurchases during the remainder of fiscal 2023. The Inflation Reduction Act’s corporate alternative minimum tax may affect the timing of cash tax benefits beginning in fiscal 2024; the company expects to be subject to it and said the cash impact could be material.
Investor verification priorities
- Assess how much earnings growth reflects recurring segment performance versus Flutter fair-value changes and election- and sports-driven advertising.
- Track Cable Network Programming margins, subscriber trends, sports-rights costs, and Television performance after the World Cup and midterm-election period.
- Reconcile continued negative operating cash flow with share repurchases, dividends, and the expanded buyback authorization.
- Monitor outcomes and potential exposure from Dominion, Smartmatic, and U.K. Newspaper Matters, noting that some potential losses cannot currently be estimated.
- Review the FanDuel option’s exercise economics and the potential cash-tax effects of the new minimum tax.