AMC Networks Inc. (AMCX) on Q2 2022 Results - Earnings Call Transcript

Operator: Good day ladies and gentlemen. Thank you for standing by and welcome to AMC Networks’ Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference may be recorded. I would now like to hand the conference over to your speaker host, Nick Seibert, Vice President of Corporate Development and Investor Relations. Nick Seibert: President, Commercial Revenue: Today’s call may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to AMC Networks SEC filings for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements made on this call. Today, we will discuss certain non-GAAP financial measures. The required definitions and reconciliations can be found at the end of today’s press release. With that, I’d like to turn the call over to Matt. Matt? Partnerships: Today’s call may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to AMC Networks SEC filings for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements made on this call. Today, we will discuss certain non-GAAP financial measures. The required definitions and reconciliations can be found at the end of today’s press release. With that, I’d like to turn the call over to Matt. Matt? Matt Blank: Thank you, Nick. Good morning, everyone and thanks for joining us. Before we discuss our second quarter results, I'm delighted to share the news we announced earlier this morning. Our COO and CFO, Chris Spade has been named AMC Networks CEO effective next month, at which point as planned I'll step down from my interim role as CEO, which I've held for the past year. I've known and worked closely with Chris for more than 20 years and I had the pleasure of working with her again when I arrived here last September. She has done a tremendous job leading the company's transformation in every respect, driving our strong streaming subscriber growth, jump starting our global expansion efforts, optimizing our performance marketing, and ensuring we're leveraging our strong linear business. Her focus, her drive, and her passion for this company can’t be overstated and with her leadership skills and strong financial background, I know she'll make even more significant contributions to our success as she leads AMC into its next chapter. For my part, it's been a pleasure to lead this company for the past 12 months, helping guide the strong pipeline of great programming and building on its IP and helping to develop and refine our differentiated streaming strategy. With this company's unique collection of assets, content strengths, powerful brands, and financial discipline, as well as its talented people and strong culture, I know there's an incredibly bright future ahead. This is a wonderful moment for AMC and for my longtime friend and colleague Chris. So congratulations, Chris. And now let's get to our second quarter results. While operating what is a challenging and uncertain macroeconomic environment, AMC Networks delivered a solid second quarter with a consolidated adjusted operating income margin of 26%. In the face of inflation and other economic headwinds, we’re performing very well, benefiting from strong subscriber growth for our differentiated and targeted streaming services, which in Q2 included expansion into Spain with several distributors. We're seeing positive indicators for our upfront around pricing and volume and demand for our innovative advanced advertising offerings, with our linear business providing a powerful platform to launch, promote and monetize our content and brands. Our content creation strengths were on full display in the quarter with viewership records and widespread critical acclaim for new and returning series alike. We remain committed to the full year of financial targets we shared at the beginning of the year, including total company revenue growth of low single digits and free cash flow of approximately $100 million in 2022. In the second quarter, we added nearly 1.3 million net subscribers in aggregate across our streaming portfolio ahead of our forecast. The growth was driven by global expansion, as well as strong audience demand for our AMC+ offering and our targeted services; Acorn, ALLBLK, HIDIVE, Shudder, and Sundance Now. Launching our services globally has been a priority for us and with our efforts now taking shape, we're taking advantage of packaging and other opportunities across various markets, including in Spain, where we launched with several leading distribution platforms, representing a major contributor to our subscriber growth for the quarter. We ended the quarter with $10.8 million total paying streaming subscribers and were well on our way to our longer range goal, which we've previously shared of 20 million to 25 million subscribers in 2025. In the second quarter, we grew our streaming revenues 20% year-over-year with normalized growth of 36%, driven by our focus on improving our performance marketing outcomes, acquiring and retaining high value subscribers with a disciplined data-driven and cost conscious approach in addition to refocusing our efforts on branding and promotion for our strong content. With high viewer engagement across our services, we're maintaining advantageous churn levels, and we remain focused on operating our services profitably. We had a very strong quarter with respect to content, and I'd like to spend a few minutes highlighting some of the great programming that's driving our performance and demand from subscribers and viewers, as well as advertisers and our distribution partners. We said before that 2020 is the biggest year of original programming for our company and the second quarter saw the return of key shows while simultaneously launching exciting new series for the next chapter of AMC. Our strong streaming performance underscores our ability to not just make the kind of high quality content that’s always been a key pillar for our brand, but to make true hips that breakthrough and make a mark in the popular culture. Bryan: Last month's Emmy nominations saw the show end coveted nominations in major award categories, including Outstanding Drama, Outstanding Lead Actor for Bob Odenkirk and a long overdue Outstanding Supporting Actress nomination for Rhea Seehorn. And we couldn't be prouder of this incredible show that’s become a landmark piece of TV history. And how exciting is it that AMC’s favorite, Bob Odenkirk will be joining us again in a fabulous new series, Straight Man that starts filming this fall, and our own Giancarlo Esposito will star in our upcoming series Parish, which goes into production this month. So lots of new ways to keep that Better Call Saul audience engaged in the future. Back to the quarter, the second eight episodes of the final season of The Walking Dead finished in the quarter as the most watch season on AMC+ to date. And as I just mentioned, even at its 11th season, The Walking Dead ranks as the second most watched cable show of the broadcast season. The series concludes this fall with the final eight episodes, bringing to a close one of the most successful and groundbreaking shows in television history. But there's a lot more ahead for The Dead franchise. We have a number of spinoffs featuring popular and fan favorite characters coming next year. More on that in a moment. Sandra: Our Western noir crime thriller, Dark Winds produced by AMC Studios and from Executive Producers, Robert Redford and George R. R. Martin, ranks as the number two new cable drama of the season, having averaged nearly 2 million linear viewers per week. And it's the number one new series launch in AMC+ history in terms of both subscriber acquisition and viewership. The series was met with glowing reviews and has maintained a 100 point score in Rotten Tomatoes, demonstrating critical as well as commercial success and we recently renewed it for season two. Two other standing, two other standouts, new AMC+ plus exclusive series, This Is Going to Hurt, starring Emmy winner, Ben Whishaw and Moonhaven with Joe Manganiello and Dominic Monaghan are among the best reviewed new shows of the year and both are driving meaningful subscriber acquisition and audience engagement for AMC+. And we’ve already renewed Moonhaven for a second season. The performance of these freshman series reinforces AMC's reputation as a hit maker and is a testament to our ability to continue to bring audience content that ignites the pop culture conversation and commands attention in a very crowded and competitive landscape. We're also seeing great success with the launch of our AMC+ film slate, which includes a new movie each week from our film labels, direct from theaters and allows us to further maximize the value of our film content. Our Friday Night Exclusive movies are driving acquisition, engagement, and retention, and many already have become among our top film titles for the year. Rick and Michonne: Dar Dixon: Monsieur Spade: The combination of our high quality content and strong brands continues to be a very potent calling card with advertisers, enabling us to maintain high value for our linear business. Beyond linear pricing gains we’re seeing demand for our advanced advertising initiatives, as well as our expanding portfolio of AVOD and FAST channels. We're pleased to be joined today by Kim Kelleher, who leads our commercial revenue and partnership team and who will talk in greater detail about our digital innovations, how the momentum we're seeing in the upfront is reflecting our strong position in the marketplace. International expansion of our streaming portfolio remains a top priority for us, and we're encouraged by the demand we're seeing for our differentiated offerings from consumers, as well as distributors. We've talked about the progress we're making in terms of beginning to scale our services overseas. We have plans to expand with new partners and into new territories through the end of the year. This is an opportunity we're just beginning to mine and represent an exciting area of growth for us going forward. Before handing the call over to Chris, I did want to mention we're thrilled that we've added Len Fogge as our new President of Marketing, someone Chris and I worked with for many years at Showtime. Len is a great executive and is already beginning to evolve our efforts to accelerate subscriber acquisition and boost retention while focusing on maximizing and elevating our distinct brands and content. So looking ahead to the second half of the year, we recognize there are great opportunities and we remain excited about where our business is today and where we're headed. We're building our differentiated streaming businesses and optimizing our strong linear business in a steady, disciplined, and sustainable fashion as we position ourselves for future growth and shareholder value creation. With that, I'll turn the call over to Chris for more details on our results. Chris Spade: Thank you, Matt and good morning everyone. I am so honored by my appointment to CEO. I am truly passionate about all things AMC Networks. As a consumer I just love our content and brands, professionally the people and the culture here are second to none I have experienced during my career. In every department, people care greatly about our content, distribution and promotional success. We all work hard and we have fun working together to deliver a great entertainment experience for our fans. I'd like to thank Jim Dolan and our Board of Directors for their support and vision as we drive long-term growth for our streaming and digital offerings with premium content curation. I want to sincerely thank Matt for his leadership and support over this past year and throughout my entire career. His knowledge of the business and his good council have benefited us greatly and Matt, we appreciate your expert leadership this past year. I'm also thrilled to welcome Patrick O'Connell as our new CFO starting on Monday. Patrick and I worked closely together to support the financial success at CBS Corporation a few years ago. He is a proven, highly skilled finance leader and I look forward to his partnership as we grow and evolve our businesses. AMC Networks occupies a unique space in the media landscape. We are carving out a very specific strategy that plays to our content curation strengths and is enabling us to transform and grow in this dynamic environment, not to just survive, but to flourish. Now turning to our second quarter financial results. Amidst macroeconomic uncertainties in the first half of the year, we are successfully continuing to reconstitute our revenue mix towards streaming and digital platforms to pave the way for ongoing long-term revenue growth and profitability. As such, we are reiterating our 2022 and long-term financial outlook as we continue to execute our strategy successfully. Our investments in our people, content, brands and platforms, combined with our focus on profitability while prudently investing for growth in evolving consumer behaviors, all of this positions us well for long-term success and growth in this dynamic and evolving environment. The foundational elements of our value maximization strategy are the strength of our owned content and the engagement of our passionate audiences. Thoughtful curation allows us to identify and satisfy our subscriber communities with compelling and must watch content. This drives our multiplatform monetization strategy, growing global streaming and digital businesses, while strongly optimizing the performance of a linear business, which is supported by our strong distribution relationships and industry leading advanced advertising initiatives. Equally significant disciplined and efficient premium content investments drive our continued and future profitability. We believe that a holistic approach, one that focuses not only on the subscriber or revenue aspects, but also the investment cadence and expense management is critical to value creation. As we continue to reconstitute our revenue mix toward greater streaming and digital platforms distribution, we are confident in our continued ability to effectively manage our content investments and expand our targeted streaming model, all being driven by engaged audiences and communities. Altogether, we expect to generate long-term consolidated adjusted operating income margins in the mid to high 20% area. The success of our model is evident as we ended the second quarter with 10.8 million paid streaming subscribers across our portfolio of services. We remain firmly on track to achieve our goal of 20 million to 25 million paid streaming subscribers by the end of 2025 and we are pleased with our progress to date. As Matt highlighted, some of our strongest programming is still to come in the second half of the year. Our programming, combined with optimized and tactical marketing investments and the high value we offer to subscribers, resonates and breaks through in the crowded streaming marketplace. This gives us more confidence than ever that we are on the right path. We are still in the early stages of the deployment of our streaming roadmap and our targeted streaming model continues to scale and efficiently evolve, even amid the current market challenges. We recently effected a $1 price increase on both Acorn and ALLBLK and both services continue to grow, giving us confidence that our services continue to represent a tremendous value to the communities we serve and that there additional future pricing opportunities to come. We are executing against our global growth opportunities in a disciplined and thoughtful manner. Our global product roadmaps include launches of AMC+ in New Zealand, Latin America, and several European countries, as well as the continued expansion of Acorn across Latin America over the balance of 2022 and into 2023. While every new international launch will be different, we will carefully balance the cost of entry against each return opportunity. For our initial launch in a new market, we will generally partner with a local distributor during the initial launch phase to accelerate and promote brand awareness, while optimizing customer acquisition investments to scale more efficiently. This strategy allows us to activate local markets quickly while leveraging our local partners scale and decreasing our investment risk. In June we launched AMC+ in Spain, led by our partnerships with Orange, Vodafone and Amazon Prime Video channels. We approached the market with a multi-pronged strategy launching not only ALA carte, but also on a packaged basis. With our multi-year packaged offering, we rapidly established the foothold in the streaming services market while simultaneously improving awareness of our brands. It's an attractive distribution mix for us and demonstrates our ability to enter new markets thoughtfully with minimal investment and the importance of distribution, innovation and flexibility. Now let's discuss our second quarter 2022 financial performance. Consolidated revenue decreased 4% to $738 million. Reported streaming revenue grew 20% from the prior year quarter. Excluding the one-time beneficial impact of a distribution agreement renewal in the prior year quarter, streaming revenue grew 36%. Strong streaming revenue growth was offset by several timing impacts in the quarter, including expected lower affiliate content licensing, advertising revenue, and unfavorable foreign exchange translation, the result of the unprecedented strength of the dollar. Consolidated adjusted operating income was 196 million with a margin of 26% reflecting our planned content and marketing investments to drive subscriber and revenue growth. Corporate expenses increased in the quarter driven primarily by technology investments. Adjusted earnings per share were $2.6 and free cash flow was $7 million for the quarter. Domestic operations revenue decreased by 3% to $621 million as compared to the prior year. Strong streaming revenue growth drove subscription revenue growth of 1%. Excluding the impact of a distribution agreement renewal in the prior year quarter, subscription revenue grew 5.5%. Subscription revenue growth was offset by the anticipated timing of lower content licensing and advertising revenues. Paid streaming subscribers grew 46% to $10.8 million compared to the prior year quarter. Second quarter net subscriber editions were 1.3 million. Excluding the multi-year package subscribers associated with the launch of AMC+ in Spain at the end of June second quarter net streaming subscriber editions surpassed 400,000 and were in line with the second quarter outlook we provided on our last earnings call. On both a reported and normalized basis, domestic operations affiliate revenue declined in the mid-single digits driven by subscriber universe declines and partly offset by contractual rate increases. Domestic operations content licensing revenue of $72 million decreased by 13% due to the expected timing of deliveries in the second quarter, as the timing of full year content licensing revenue in 2022 is weighted more to the fourth quarter. In regard to second quarter content licensing performance with our owned series, Dark Winds, we are starting to see the realization of less content licensing revenue, partly due to the strategic decision, not to license owned original series to other third parties, and to only make the series available on AMC+. Domestic operations advertising revenue of $202 million decreased 5% due to lower linear ratings, partly offset by higher pricing and digital growth. AMC Originals impressions grew year-over-year and advanced advertising revenue growth helped to offset the anticipated decline in linear ratings. Domestic operations adjusted operating income of $209 million was a 34% margin, decreased 16% for the second quarter of 2022. Adjusted operating income performance was driven by revenue performance and investments in future top line revenue growth, including content investments and subscriber acquisition and retention, marketing. International and other revenue for the second quarter of 2022 decreased 9% to $126 million, primarily due to unfavorable foreign exchange translation. Excluding the impact of FX, revenue decreased 3%. International and other distribution revenue decreased 7% to $104 million, primarily again, due to unfavorable FX. On a constant currency basis, distribution revenue decreased by 2%. International and other advertising revenue decreased 16% on a reported basis and 7% excluding FX. The decrease in advertising revenue was primarily driven by FX in the quarter. International and other adjusted operating income of $19 million decreased 24% driven by revenue performance and FX in the quarter, partly offset by continued and proactive expense management. On a constant currency basis, international and other adjusted operating income decreased by 21%. Moving to cash flow and the balance sheet, free cash flow for the second quarter of 2022 was $7 million. We ended the second quarter with net debt and finance leases of approximately $2.1 billion. Our consolidated net leverage ratio was 2.8 times, and we remained comfortable with our balance sheet and current leverage ratio. Our capital allocation policy remains unchanged. First, we will look to invest organically in projects that provide attractive returns to our shareholders. This includes return based investments and the profitable growth of our streaming services and digital businesses. Second, we will maintain leverage that is appropriate for our business outlook. Third, disciplined and opportunistic strategic M&A and fourth opportunistic return of capital to our shareholders. There were no repurchases of AMC Networks common stock in the second quarter of 2022. We will continue to evaluate share repurchases on an opportunistic basis. Moving to our subscriber outlook for 2022, we expect that our year-end total subscribers will be approximately 12 million, given the current growth pacing we are experiencing year-to-date and the expected cadence of content premieres and strategic marketing initiatives through the rest of 2022. This growth will come from strong content offerings, including the finales of Better Call Saul, The Walking Dead and from the highly anticipated debut of Ann Rice's Interview with the Vampire. It will also be supported by continuing strategic investments in targeted marketing and technology for our streaming platforms. AMC+ is still relatively new having launched in October 2020 and has been experiencing strong and consistent growth. We believe AMC+, along with all of our services are on a strong path for further expansion in the U.S. and globally. Regarding our financial outlook for the full year of 2022, we continue to anticipate total company revenue growth in the low single digits. Continued streaming subscriber growth is expected to drive subscription revenue growth, partly offset by ongoing affiliate revenue trends from basic universe declines. We continue to expect some full year growth in content licensing revenue with most of that revenue occurring in the fourth quarter of the year, due to timing considerations for content deliveries. As a result of macroeconomic factors and the soft scatter market, we now expect total full year 2022 advertising revenue to be slightly lower than the full year 2021. We continue to invest in our streaming platforms and future growth by investing in owned content, efficient marketing and technology. Additionally, we are investing in our international expansion as we launch streaming services in new markets around the world. We have included certain initial startup costs associated with entering these new markets into our outlook. As previously communicated, we expect the full year 2022 adjusted operating income to be in the neighborhood of approximately 10% lower than 2021. Moving to our cash flow outlook, we expect to deliver free cash flow of approximately $100 million for the full year 2022. We do not see the need to increase future content investments above current levels in 2022 dramatically. Over time as our streaming revenue becomes more meaningful, we will expect free cash flow to return closer to pre-pandemic levels. In summary, with the strength of our premium content slate and development pipeline, continued efficiencies from awareness and performance marketing, and ongoing global streaming expansion, we are well positioned for the remainder of 2022 and beyond to drive meaningful streaming and digital revenue growth. Our multiplatform monetization strategy and targeted streaming model are succeeding as we continue to drive streaming growth while optimizing our linear business, which will drive meaningful value creation over time. With that, I am pleased to turn the call over to Kim Kelleher to discuss our innovation and leadership in advertising in much more detail. Kim Kelleher: Thank you, Chris and congratulations on a very meaningful day. Good morning, everyone. It's a pleasure to be on the call. Let me start by first discussing our own commercial revenue performance relative to the macro environment. Broadly, our ad supported networks and digital platforms are experiencing the same environment as others in our space. The scatter market has been soft the first half of the year as a climate of economic uncertainty has resulted in our marketing partners being more conservative with their spend. And while the prevailing conditions are subject to outside factors, our commercial revenue team is leading the industry in many critical ways that maximize the strength and potential of our existing linear television business, and at the same time, building out the tools and technologies necessary for a very successful digital business now and into the future. While we have been focused as a company on growing and developing our portfolio of targeted streaming platforms like AMC+, our ad supported television networks continue to leverage our strong linear presence. Our offerings have become even more compelling as other programmers have moved away from the cable television platform. We are optimizing the delivery of premium content in a linear environment while offering traditional and advanced ad placements in shows Better Call Saul, The Walking Dead, Dark Winds, and Anne Rice’s Interview with the Vampire, just to name a few. So we have a beachhead in the linear world that we're not only holding, but expanding, a competitive advantage as other programmers fall away and shift their best content to ad-free or ad-lite streaming services. Working with partners like Canoe , FreeWheel, The Trade Desk, 605 and others, we continue to combine the best and most coveted content in the high-end scripted space with the most advanced ad tech and software in the industry, tools that didn't exist just a year or two ago. We have made our inventory even more valuable by leading the way in adopting advanced advertising products, most notably, addressability. We ran the industry's first national addressable campaigns and continue to expand our linear addressable audience footprint, which now spans more than $40 million homes. We offer addressable ad slots in every hour of original programming and run-of-network inventory on AMC and WE tv. Amazon was the first partner to embrace our ability to offer the most targeted and relevant ads on television this year, and they have been followed by many as our leadership in this evolutionary space continues. And even as we have focused on maximizing linear, we have also been expanding the potential of our own digital distribution and importantly, partnerships with third-party AVOD and free ad-supported streaming or SaaS platforms, that carry our channels and select library content very intentionally for the emerging and rapidly growing connected television environment. Our initial SaaS partnership launch happened in the spring of 2020. We are executing on a viewer’s first philosophy. We want to make our popular and critically acclaimed programming available wherever a viewer might want to consume it. With the freedom to make our shows available across the best and most watched platforms in this very active space, we have fully embraced this compelling opportunity. Now in 2022, we broadly distribute programming on several AVOD platforms and operate 10 program channels in the fast environment, which are available across six leading distribution partners. We are developing several new channels that will debut in the second half of this year in exciting new categories, including anime, two new Spanish language channels, and a channel featuring popular library programming from our ALLBLK streaming service and WE tv called ALLBLK gems. As I said, we program channels with intention for this environment to super serve and entertain the viewers wherever they are. And we are committed to giving our ad partners the ability to shine alongside our premium content as we reach these audiences. We don't see connected TV as a one-dimensional strategy. It is fully integrated with everything else we're doing. Our strong presence on both partner and our own digital platforms has allowed us to finally move from the idea of selling linear inventory and digital inventory separately to selling all of the possible expressions of our content together, seamlessly across our commercial relationships. This unique strength serves us well in every conversation we're having with existing or prospective ad partners. As we look forward to the final episodes of The Walking Dead this fall, we're not just selling spots. We're using this coveted moment of high demand to sell partnerships that go far beyond 30s or 60s. And as a result, we're seeing some of the highest CPMs in the history of the series, truly remarkable for a television drama in its 11th season. And as Matt mentioned earlier, as the original series concludes this fall, we will directly into a number of spin-offs in the expanding universe around The Walking Dead that feature many of the most popular and iconic characters from the series. These new shows are already garnering strong advertiser demand in the current upfront. So we're not missing a beat in terms of continuing to leverage the strength of this beloved IP, even while we build new franchises in universes around Ann Rice, Orphan Black, and continue to serve the Breaking Bad and Better Call Saul fans with two new series from Bob Odenkirk and Giancarlo Esposito. I talked about how linear and digital can work together from a sales perspective. And I'd like to spend a moment on how our streaming services, notably AMC+ and ALLBLK, are working with our linear networks to deliver stronger audiences and build their brands. The combined power of streaming and linear networks enables us to strategically move programming around the different places viewers watch. And this is a huge advantage in this fragmented environment and one that we're fully leveraging. AMC+ is using a multi-platform windowing approach to expand viewership of our original content and benefit viewers. This can take a variety of forms depending on the individual title. For example, we've used our linear networks as a catch-up promotional vehicle for a previous season that premiered on streaming, as we did in the case of Gangs of London and the Discovery of Witches. We have also used AMC+ to give viewers the opportunity to watch the next episode of a series that is appearing on linear a week ahead of its next linear airing, a strong acquisition driver. We did this with Dark Winds and The Walking Dead. And in both cases, we saw very healthy Sunday night acquisition activity as viewers who watched an episode on linear immediately followed prompts to watch the next episode on AMC+ without having to wait. Our WE tv linear network and ALLBLK targeted streaming service share leadership positions in serving black viewers. We have recently turned Thursday Nights on WE tv into a branded block of ALLBLK programming, which is helping to grow viewership for its original programming in both places and driving ALLBLK subscriptions. WE tv's Love after Lockup franchise has similarly benefited from exposure on the ALLBLK service and has become one of the most popular titles on the platform. We see our linear networks, our owned and operated digital distributions and the platforms of our fast and AVOD partners as a complete distribution ecosystem, that we can thoughtfully use in a dynamic way to elevate our content and in keeping with our viewers first philosophy, meet viewers wherever they are. This is the time of year when many in the industry are focused on the upfront for our part; I can say that we are very pleased with the volume and pricing registered for AMC Networks. We'll be working through plans over the next few months and we'll have much more to say down the line. In closing, the power of our content, combined with the technological foundation we have laid for innovation in advanced advertising, is differentiating AMC's position in the marketplace and positioning us for accelerated and meaningful success into the future. With that, operator, please open the line for questions. Operator: Our first question is coming from the line of Thomas Yeh with Morgan Stanley. Your line is open. Thomas Yeh: Thanks so much and Congrats Chris, on the new role. The subscriber net ads came in really nicely for the quarter. Can you maybe help us frame how to think about the international component and how that fits within the long-term $20 million to $25 million guidance given the lower ARPU, the lower cost to achieve that you talked about, how does that kind of net out in terms of return relative to your U.S. net ads? And then thank you for all the additional details on the linear advertising evolution. That was really insightful. AMC has been a big supporter of providing content to the fast channels, which contrasts a little bit, I think, with pulling back on the traditional syndication and content licensing. Why is the philosophy on supplying AVOD different than SVOD peers? Is it viewed as less cannibalistic? Maybe you can flesh that out a little bit. And then maybe just to squeeze in the last one. Matt, you referred to some programming that will keep the Better Call Saul audience around personally watch anything, Bob Odenkirk in. But wondering if you can talk about the churn behavior for joiners that are coming in on flagship content compared to the efficient programming you've been leveraging on targeted services AMC+ can naturally a higher churn product? How should we think about that? Thank you so much all. Chris Spade: Thanks, Thomas. I appreciate your kind words. I'm excited to take over as CEO. Relative to your first question about international expansion, we're rated with the foothold that we've now secured in Spain. We already have a strong brand presence there with our linear presence, but our ability to partner with Orange, Vodafone and Amazon video channels has paved the way. I mean, especially the Orange skinny bundle offering, how that works, it's packaged with as the Orange – as part of the Orange skinny bundle which is offered to their pay TV broadband customers and certain mobile customers. So again, this is a great example for Spain that we're looking to build our streaming business with certain partners. And then as we see it grow, also have our card offerings as well, if it makes sense. Kim, do you want to take the FAST channel question? Kim Kelleher: Sure. The AVOD fast environment, it's really key to driving our digital growth overall. The core of it is our quality content. And it's our quality library content, and these curated examples of channels that we are building that are reaching these new younger audiences through these platforms, and we're really using that as a closed loop, especially on the OEMs to drive awareness for subscriber service -- our subscription services. And really kind of a pipeline across the six partners we have now to drive awareness for the AMC properties and brands. So it's really that closed loop piece that is our focus in this environment while also being able to monetize this with advertisers as a brand-safe environment for their messaging. Chris Spade: The other thing I would add to that, Thomas, because it is an important question is the windowing. So we look at the windowing of our content and AVOD Fast is another unique window. And as we think about owning our series and owning original movies as we look at premiering the content and then how it moves through the windowing cycle, we want to make sure we're monetizing and maximizing the revenue output as much as possible, and there's a lot of power for us also to have exclusivity with the ownership of that content. Matt Blank: On your question, it's a good question. And the way we look at this is, first of all, as we mentioned and we've talked about before, this is the biggest original programming here in our history, both in terms of returning and some great finalities and new things. But as we look at our content going forward, we focus on genre, we focus on specific talent. And strategically, we want to make sure we are always bridging audiences for various genres of programming and always have something to give them. And that's key to maintaining subscribers and giving them what they want in the future. And when you see things like Interview with a Vampire, we have reason to believe that that will really be attractive to a lot of the audiences that we've seen for much of our content in recent years. So that's a good example. We're all dealing with a constantly increasing refresh rate in this business. And for us, it's all about making sure that refresh rate is consistent with our financial goals for the company. So we feel pretty confident that we can deliver for our audiences going forward. Thanks. Thomas Yeh: Thank you. Operator: Thank you. And our next question is coming from the line of Michael Morris with Guggenheim. Your line is open. Michael Morris: Hi, thank you. Good morning and congratulations Chris, on the new role. I want to ask one about international, one about margins. On international, you gave us more details about Spain, which is great and helpful. You named a few new markets you're looking at this year as well. Maybe you could talk about how to think about the success that you had in Spain and the template that you used in Spain for what that might look like in other markets. for us to try to forecast how robust this international expansion can be it's helpful to know if there are a number of other markets that you can follow the same sort of game plan in or if we should be thinking of each one differently that would be great to hear about. And then on margin, I appreciate the view of the long-term kind of high 20s – mid- to high 20s AOI margin. Can you talk about the margin on the streaming product in particular? I feel like what we're hearing across the industry is more like a low 20s sort of level of resistance or even 20s. When you think about that long-term margin, how much of that is mix of sort of linear and the streaming business or how much of it is the opportunity that you see on the streaming side where you can be a higher-margin product just by nature of the sort of structure you have there? Thank you. Chris Spade: Thanks, Mike. Relative to the first question on international, the Spain example is actually a good bellwether and a template for how we are approaching everything on a country-by-country basis. Amazon continues to be a strong partner and Apple internationally for us. So those are our two primary partners when we look to each market. But then as you probably already know, we do have strong footholds in our linear business globally. So the Orange opportunity in Vodafone, et cetera, really came out of our relationships we've already established in Spain. So in the countries where we are fully established on a linear basis, we will continue to pursue our strong partnerships there. So, that we really are starting from the standpoint of maximizing the results from our distribution partnerships. And then we have the tech stack in place that we can, we can pretty quickly and rapidly copy it and obviously, certain rights requirements, et cetera, have to be unique to each country. But the tech stack is transferable so that for our a la carte direct-to-consumer offering. We can also pretty quickly get that up and running. So we're excited about the future. It is going to be important for us to look at it country by country with the value proposition and what the profitability can be. All countries are not created equal. And -- but we do think, having said that, that we can have significant meaningful global growth long-term. On the margin front, we really do look at it holistically. When we look at a show and we look at what we're going to do with it, we -- again, what I said earlier, we look at the content production process, the development process what titles can we make that we feel our super premium content that will work along all windowing lines to maximize the result and monetization of our revenue impact. So as things progress though, the other thing I can say about that is as we learn more and as AMC+ for example, scales and grows even more and gets to be a much more meaningful subscriber number. Our strategy there will evolve also. We're already talking about, how we now window things where we would just have it exclusively on AMC+ first. And then as a second window, it would be on linear. Moonhaven is actually a good example of that, where for Moonhaven, which had a strong freshman showing for its first season. It's only available exclusively on AMC+. But then we're looking to put it on linear next year right before the second season would come out. So we've had early success with doing things like that on a one-off basis with The Walking Dead and Dark Winds where we made the next available episode that night. And that, as Kim had mentioned, had healthy success with what we were seeing as subscriber additions. Michael Morris: Great. Thank you, Chris. I appreciate it. Chris Spade: Thank you. Operator: Thank you. And our next question is coming from the line of Michael Nathanson with MaffettNathanson. Your line is open. Michael Nathanson: Thanks, Chris, again, congrats on the move. And Matt I'll miss your quotes because I don't know how we'll use for headline going forward so I’m sorry, and for good coffee Matt. You’re welcome. I have three for you. You talk – I appreciate the color on Spain this quarter. Can you talk a bit about the effective ARPU that you're getting in Spain and maybe your expectations for the first tranche of launches on the ARPU side? And then more generally, if you look at how others have launched internationally, they've all picked these wealthier English language fluent, broadband and rich countries to after? Like why aren't you following that path versus going the path now and more Latin and South America. And then yesterday, Paramount, your former company, made some mention of trading the economics of linear distribution to get a foothold in digital outside the U.S., so there looks like they're basically trading linear economics to get on carriage for the digital here. Are you seeing any of that? Is that something that you've come up against then? And how prevalent do you think that will be going forward? Or if you can make some trade-offs to get faster adoption of these digital services? Thanks. Chris Spade: Thanks, Michael. I appreciate the kind words. And we will still get some one-liners for Matt. Have no fear. He calls me all the time. I'm sure, I'll have to give him attribution than when we come up with the one liners. Relative to your first question about our ARPU, so I think as we think about the evolution of our mix of subscribers and where the distribution comes from, we had a healthy strong start with AMC+ with Amazon and Apple as our key partners in the U.S. and our direct-to-consumer offering is performing strongly and continues to grow significantly. So as we think about the future, it's going to come from then further global expansion, further growth in the U.S. And our ARPU strategy, depending on, obviously, if it's an a la carte offering, whether it's through our direct-to-consumer service or Amazon or Apple partnerships, it's still a customer decision on a daily basis, am I going to stay subscribed to AMC+, for example, or Acorn or ALLBLK. And so we manage those dynamics very closely and that ARPU structure obviously is different than a package structure. And we think that both are going to have to work very closely in combination. We're not going to put our – put subs out on a package basis where we don't feel strongly that we're not going to have a strong market foothold and have strong value proposition for the future of profitability. Your second question about why not be on the path of the English-speaking language countries more so. We actually are on that path. But again, it's tied to where our partners are going to launch, and then we ride that wave. We don't want to be out there on our own just offering our a la carte service and not have a strong partner to kind of see how the market takes shape. And then the last question about trading linear for digital. It really goes back to how we think about the windowing of our content and how we monetize for the future. So as I think about our margin for our company as we evolve, when we're targeting mid- to high 20% margin, there is going to be some trade-off that happens as things evolve, that the linear, as we know, is going to continue to decline. We're going to try to optimize that and advanced advertising is a good example that, if we didn't have our advanced advertising initiatives that Kim Kelleher and her team have been leading and if we didn't have the strong digital partnerships that we've been launching with AVOD Fast, for example, that Josh Reader and his team are also have a part in, we would have lower ad revenue than what we have. And so, one of the key things that is for us to really continue to think about, how do we grow ad revenue for the future and continue to untether a bit from the decline of the linear business because we know that's inevitable, but we have powerful initiatives that are just getting started, really. So we feel good about our ability to influence and grow our ad revenue for the long-term and more to come on that. Michael Nathanson: Thanks. Chris Spade: Thank you. Operator: And our next question is coming from the line of David Karnovsky with JPMorgan. Your line is open. David Karnovsky: Question and I'll add on to the congratulations for Chris. You noted price increases at some of your services recently and an opportunity to do more going forward. So I would be interested to know about any impact to churn and then how you think about economic risk as a potentially limiting factor to price raises at least for the near term? And then I was hoping to get your updated thoughts on the potential for advertising across your streaming services. We're seeing real momentum now from some of the larger streamers in this direction. And as the industry reaches critical mass on this, just wondering if that changes your view on introducing ad tiers? Thank you. Chris Spade: Thank you, David. On the price increase question, it's an interesting question because when we raise the price by $1 for Acorn and ALLBLK, we had minimal churn. It was almost like a nonevent and almost made me wonder if we should raise it $2, but we don't want to do that to consumers. So the value proposition there is real. And the other thing we're seeing is that when you super serve fans and it's a targeted base, obviously, it's a smaller subscriber base, but there's much more stickiness because you're super serving the fan. So the refresh rate that Matt talked about is critical to make sure that continues. But I think from a pricing standpoint, having seen that the dollar increase had minimal effect. We will continue to price test going forward because it's also not just about trying to see where the ceiling is. We have to manage all the dynamics. But again, the targeted services specificity helps with some price resilience there. And then I'll turn it over to Kim for the ad supported question. Kim Kelleher: Thanks Chris. We have significant existing infrastructure when it comes to advertising. I see that because when you look at the -- we really like the types of varied streaming offerings we have today. So AVOD Fast in the CTV space, our innovations and advanced advertising and addressable I think as our offerings continue to evolve, we're going to continue to be very thoughtful about considering all types of offerings, including ad-supported ones on our SVOD services. But that's going to be something we watch and make measured decisions around. David Karnovsky: Thank you. Operator: Thank you. And our next question is coming from the line of Steven Cahall with Wells Fargo. Your line is open. Steven Cahall: Yes, thanks. I'll maybe start by asking a prior question in a slightly different way. The Walking Dead and Better Call Saul are great shows. What we've seen with a lot of your peers is sometimes those great shows when they get to their finales they have kind of big churn sign-ups. So I'm just wondering, as we think about the journey from here to $20 million to $25 million subs, is it reasonable to think that you could have kind of this mini peak this year driven by these big finales? And then as you cycle into new content, it sort of flattens out and then it grows again, or with a lot of the international launches, is it going to be more of kind of a linear progression to that target? And then, Chris, so congratulations, you've taken over the role, I think the big question that investors are going to wonder about is, how do you kind of get the company back to AOI growth. Costs have to run hot for content. There's pressures going on as you make the pivot on the revenue side. So how do you kind of see that trajectory of getting AMC back to the nice compounding of AOI that it was at when maybe media was a bit more stable place? Thank you. Matt Blank: I'll start and let Chris answer some on this specifically. But again, back to these big shows. The way I think of them strategically is their beginnings not ends. And that has been true consistently with The Walking Dead season to season as we look for ways to bring that audiences into various new shows in that franchise, and we continue to do that and we'll continue to do that for the next couple of years. We can also do that with talent, as I said before, and we're doing that with the Saul franchise. As well, is the fact that we have a few shows that are coming that we believe can continue this tradition of really being shows that are in the culture, changed the culture and play off of the type of audience that we've been successful in the past. So there's no other option than to think of what we're doing in the content areas and continuation of what we've done in the past and even enhancing our ability to serve those audiences in the streaming universe. Chris Spade: To your second question, Steven, how do we get back to AOI growth? I mean right now, we're in an important period of investment. AMC Networks is at a crossroads from the standpoint of driving and growing meaningful new revenue platform growth in our streaming services, in our digital initiatives, global expansion. So from the standpoint of as you think about our AOI trajectory of growth. We're in an important building moment right now, and we'll continue to monitor the cadence of that. The other thing is we're not going to re havoc with our margin in general. So we're going to do it in a thoughtful way, where our margin will still start with a two. And from that standpoint, we're looking to thoughtfully and deliberately invest as we need to, to make sure our tech stack is in the right place to make sure we have the refresh rate of the content that we need to succeed and that our marketing strategy is done in a way that is targeted, but also focused on both retention and acquisition and then global expansion. Steven Cahall: Great, thank you. Chris Spade: Thank you. Matt Blank: Thanks. Operator: Thank you. And I'm showing no further questions at this time. I would now like to turn the call back over to Nick Seibert for any closing remarks. Nick Seibert: Thank you for the time today. This concludes the call. Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.
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AMC Networks Inc. Faces Financial Challenges Despite Strong Brand Presence

  • AMC Networks Inc. (NASDAQ:AMCX) was downgraded by Morgan Stanley to "Underweight" due to concerns about its future financial performance.
  • The company reported an EPS of $0.91 for Q3 2024, surpassing estimates but showing a significant decline from the previous year.
  • Despite a slight increase in stock price, analysts predict a decline in future earnings, reflecting challenges in sustaining growth.

AMC Networks Inc. (NASDAQ:AMCX) is a prominent player in the entertainment industry, known for its popular television channels and original programming. Despite its strong brand presence, the company faces challenges in maintaining its financial performance. On November 11, 2024, Morgan Stanley downgraded AMCX to "Underweight," with the stock priced at $8.45, indicating concerns about its future prospects.

During AMC Networks' Q3 2024 earnings call on November 8, 2024, key executives, including CEO Kristin Dolan and CFO Patrick O'Connell, discussed the company's financial results. The earnings per share (EPS) for the quarter were $0.91, surpassing the Zacks Consensus Estimate of $0.86. However, this figure represents a significant decline from the $1.85 EPS reported in the same quarter the previous year.

The earnings call, attended by analysts from firms like Morgan Stanley and Wells Fargo, highlighted concerns about AMC Networks' future earnings. Analysts predict a decline in earnings in upcoming reports, suggesting that the company may not meet expectations. This outlook aligns with Morgan Stanley's decision to downgrade the stock to "Underweight."

Despite the downgrade, AMCX's stock price has seen a slight increase, currently trading at $8.65, up by approximately 1.05%. The stock has fluctuated between $8.55 and $8.75 today, with a market capitalization of around $381.4 million. Over the past year, AMCX has experienced significant volatility, with a high of $20.97 and a low of $7.08.

AMC Networks' trading volume on the NASDAQ exchange is 133,774 shares, reflecting investor interest amid the company's financial challenges. As the company navigates these difficulties, stakeholders remain cautious about its ability to improve earnings and sustain growth in the competitive entertainment industry.

AMC Networks Plunge 28% After Announcing $125 Million Convertible Notes Offering

Shares of AMC Networks (NASDAQ:AMCX) fell over 28% intra-day today after the company announced plans to offer $125 million in convertible senior notes due 2029 through a private placement.

The company mentioned that it might grant the initial buyers an option to purchase up to an additional $18.75 million in notes. The proceeds from this offering are expected to be used for general corporate purposes, which could include debt repayment.

In May, Morgan Stanley analysts maintained an Underweight rating on both Paramount Global and AMC Networks, citing ongoing challenges in traditional media. They highlighted concerns such as declining linear network revenues, the migration of sports rights to streaming platforms, and diminishing pricing power with multi-channel video programming distributors (MVPDs).

AMC Networks Inc. (NASDAQ:AMCX) Faces Challenges in Q1 2024

  • AMC Networks Inc. (NASDAQ:AMCX) reported earnings per share (EPS) of $1.16, missing the anticipated $1.79, and revenue of approximately $596.46 million, slightly below the forecast of $602.6 million.
  • The company highlighted its commitment to maintaining healthy free cash flow and producing compelling content despite lower-than-expected financial results.

AMC Networks Inc. (NASDAQ:AMCX), a prominent player in the entertainment industry, faced a challenging first quarter in 2024. The company, known for producing and distributing content across various media platforms, reported earnings per share (EPS) of $1.16, falling short of the anticipated $1.79. Additionally, its revenue for the quarter was approximately $596.46 million, slightly missing the forecast of $602.6 million. This performance indicates a notable deviation from expectations set by analysts and investors alike.

During the earnings call, as highlighted by Seeking Alpha, AMC Networks' executives, including CEO Kristin Dolan and CFO Patrick O'Connell, discussed the company's strategic initiatives and financial outcomes. Despite the lower-than-expected financial results, the company emphasized its commitment to maintaining healthy free cash flow and producing compelling content. This approach is crucial as AMC Networks navigates the evolving media consumption landscape, aiming to adapt to consumer-driven changes in the industry.

The company's operational highlights included the debut of "The Walking Dead: The Ones Who Live" on AMC and AMC+, which has become one of AMC’s best-performing series. This success underscores AMC Networks' ability to continue delivering popular content that resonates with its audience, a key factor in its strategy to strengthen its financial position and enhance flexibility.

However, the financial metrics reveal a significant decline compared to the previous year, with a 16.9% decrease in revenue and a sharp decrease in EPS from $2.62 a year ago. These figures, reported by Zacks Investment Research, indicate that AMC Networks underperformed compared to Wall Street expectations, delivering an EPS surprise of -35.20% and missing the Zacks Consensus Estimate for revenue.

Despite these challenges, AMC Networks is focusing on strategic priorities, including the completion of financing transactions that extend debt maturities. This move is part of the company's efforts to adapt to the industry's consumer-driven changes, highlighting its proactive approach to navigating the competitive entertainment landscape.