Fox Corporation — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022, Fox’s first quarter of fiscal 2023 (not calendar 2022 Q1). Comparative period: three months ended September 30, 2021. Amounts are in millions unless stated otherwise.
Business context and results
Fox operates Cable Network Programming, Television, and Other, Corporate and Eliminations. Its businesses include news, sports, broadcast television, Tubi, production services, and Credible.
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $3,192 | $3,045 | +5% |
| Operating expenses | $1,656 | $1,571 | +5% |
| Selling, general and administrative | $448 | $415 | +8% |
| Adjusted EBITDA | $1,092 | $1,064 | +3% |
| Income before tax | $845 | $952 | −11% |
| Net income attributable to Fox stockholders | $605 | $701 | −14% |
| Diluted EPS | $1.10 | $1.21 | −9% |
| Operating cash flow | $270 | $29 | +$241 |
Adjusted EBITDA margin was approximately 34.2%, compared with 34.9% a year earlier. The filing defines Adjusted EBITDA as a non-GAAP measure and cautions that it is not a substitute for GAAP results or cash flow.
Segment performance and material changes
- Cable Network Programming: Revenue of $1,431, up 1%; Segment EBITDA of $742, down 4%. Higher affiliate rates were offset by subscriber declines; expenses increased with digital investment and breaking-news coverage.
- Television: Revenue of $1,714, up 8%; Segment EBITDA of $409, up 14%. Advertising growth reflected political spending ahead of the November 2022 midterm elections, Tubi growth, sports pricing, and additional MLB games. Lower FOX Network ratings partly offset those gains.
- Consolidated revenue growth reflected higher affiliate fees (+3%), advertising (+8%), and other revenue (+5%). Operating expenses and SG&A increased, while depreciation and amortization rose 25% to $99.
- Net income declined despite higher revenue and Adjusted EBITDA, primarily because of the absence of prior-year asset-disposition gains, a larger U.K. Newspaper Matters indemnity charge, lower gains on the Flutter investment, and lower Cable Segment EBITDA. “Other, net” was a $76 expense versus $69 of income in the prior-year quarter.
Cash, debt, and liquidity
- Cash and cash equivalents were $4,950 at September 30, 2022, down from $5,200 at June 30, 2022. Borrowings were $7,207, approximately unchanged from quarter-end June; cash less borrowings implies net debt of about $2,257.
- The company had no borrowings under its $1.0 billion unsecured revolving credit facility, which matures in March 2024, and reported compliance with its covenants. Moody’s rated senior debt Baa2 and S&P rated it BBB, both with stable outlooks.
- Operating cash flow was $270; investing cash outflow was $118, including $74 of capital expenditures; financing cash outflow was $402. Financing uses included $250 of share repurchases and $147 of dividends and distributions. The company attributed the operating cash-flow improvement mainly to lower sports-rights and income-tax payments.
- Current assets were $8,495 and current liabilities were $2,362. Inventory increased to $1,666 from $1,312, mainly reflecting licensed programming and sports rights.
Outlook, risks, contingencies, and unusual items
- No specific earnings or revenue guidance was provided. Management stated interim results are not necessarily indicative of full-year results.
- On October 14, 2022, Fox announced an independent special committee to explore a potential combination with News Corporation. The committee had made no determination, and no transaction was assured.
- Fox reported approximately $41 billion of firm commitments and future debt payments, down from approximately $42 billion at June 30, primarily due to sports programming-rights payments. The filing does not provide a more detailed breakdown of this combined total in the supplied text. About $4.0 billion of revenue was expected to be recognized primarily over the next one to three years from remaining performance obligations.
- Fox is defending defamation and disparagement lawsuits, including Smartmatic and Dominion matters; it said additional potential liability could not be estimated and did not expect the pending matters to have a material adverse effect. The recorded U.K. Newspaper Matters indemnity liability rose to $115 from $65, with the increase tied to claims submitted ahead of a litigation cutoff. The filing states the potential additional liability for disclosed matters cannot be estimated.
- The company expects to be subject to the 15% corporate alternative minimum tax beginning in fiscal 2024; the timing of cash tax benefits could change and the resulting increase in annual cash taxes could be material. It also expects the 1% stock-repurchase excise tax to apply after December 31, 2022, but does not expect that impact to be material.
- Other cited risks include declining pay-TV subscribers, advertising and audience-measurement trends, sports-rights costs and renewals, competition, technology and distribution changes, litigation, regulation, and cybersecurity. Fox reported no material changes to its previously disclosed risk factors or market risks.
Important facts for investors to verify
- Whether political-advertising strength and Tubi growth persist, and how lower ratings and pay-TV subscriber declines affect revenue.
- Sports-rights spending, programming commitments, and the relationship between reported operating cash flow and working-capital timing.
- Developments and possible financial exposure in Dominion, Smartmatic, and U.K. Newspaper Matters litigation.
- Any developments from the News Corporation combination review; the filing provides no assurance of a transaction.
- Future cash-tax effects of the corporate alternative minimum tax and the stock-repurchase excise tax.
- Repurchase pace and remaining authorization: approximately $1.15 billion remained at September 30; Fox also reported $50 million of repurchases after quarter-end.