AMC Networks Inc. (AMCX) on Q2 2021 Results - Earnings Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the AMC Networks' Second Quarter 2021 Earnings Conference Call. At this point, I would like now to hand the conference over to your speaker today, Mr. Nick Seibert. Please go ahead, sir. Nick Seibert: Thank you. Good morning, and welcome to the AMC Networks' Second Quarter 2021 Earnings Conference Call. Joining us this morning are Josh Sapan, President and Chief Executive Officer; Ed Carroll, Chief Operating Officer; and Chris Spade, Chief Financial Officer. Today, we will begin with prepared remarks, and then we will open the call for questions. If you do not have a copy of today's release, it is available on our website at amcnetworks.com. Before we begin, I would like to remind everyone that this 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. On today's call, we will discuss certain non-GAAP financial measures. The required definitions and reconciliations can be found at the end of the earnings press release issued today. With that, I would like to turn the call over to Josh. Josh Sapan : Good morning, and thank you for joining us. On today's call, I'll discuss our continued business transformation and strong performance before I turn the call over to Ed and Chris, who will provide additional operational and financial details before we open the call to questions. We're pleased to report a second quarter with very strong financial results and continued streaming subscriber growth, supported by our popular and acclaimed content. We continue to maintain a strong financial profile with a healthy balance sheet and solid cash position. These results reflect the significant progress we are making against our 4 key financial and strategic priorities, which I will restate, if I may. They are: one, growing subscribers for our targeted streaming services and significantly expanding distribution of those services. Two, increasing our content ownership with a focus on new franchise opportunities. Three, growing our digital and advanced ad revenue business. And four, doing all this while maintaining the high value of our linear networks. Our successful execution in these areas is enabling us to continue to meaningfully reconstitute the revenue mix of our company, most notably with increasing revenue from our targeted streaming services and our digital and advanced advertising efforts. We are very pleased today to reaffirm the full year 2021 guidance for our streaming subscriber targets, which we shared with you at the beginning of the year. We remain on track to end 2021 with, at least, 9 million paid streaming subs in aggregate across our services. And we're well on our way to our earlier stated goal of having between 20 million and 25 million paid subs by the year 2025, a subscriber range that is very meaningful to AMC Networks. As we advance our position as the worldwide leader in targeted streaming, I will say that we are nothing short of thrilled with our momentum. Subscriber satisfaction with our services continues to be very high, and streaming consumption is strong. Our unique approach to streaming is to target audiences who are highly interested, and often, passionate about very specific content areas; and to offer those audiences, a depth of content that they really just can't get anywhere else. This is obviously in stark contrast to the general entertainment services, which offer everything from kids programming to reality TV, to news and sports. For our subscribers, our targeted services represent reliable destinations for the kind of content that they identify with, whether that's character-driven dramas that define the AMC brand on AMC+, black TV and film on ALLBLK or British and internationally focused mysteries on Acorn TV. Very importantly, across all these, we are not competing with the big something-for-everyone offerings, rather we are complements to them. Unlike those, if I might call them mainstream services, we don't need to spend tens of billions of dollars creating content across multiple categories in order to satisfy every member of the household and grow to enormous scale. This is, in turn, providing us with a very attractive economic model that is enabling us to significantly reorient our company toward a unique streaming future. Our AMC+ offering, which bundles, if you'll recall, our high-quality, character-driven AMC dramas, along with our Shudder and Sundance Now services, continues to perform very well and is resonating with subscribers, creating high engagement and retention. We launched AMC+ last fall, and in less than a year, it's quickly become our fastest-growing service driven by increasing availability and distribution and the power of our strong dramatic content, which often has outsized cultural impact despite the wide availability of dramatic material and a competitive environment. One recent example of this is our new original and owned series called Kevin Can F**k Himself that debuted in June on AMC+ as well as our linear channel. It stars Emmy Award winner, Annie Murphy, who some of you may know from Schitt's Creek. The show has been one of the more talked-about dramas during the last quarter, receiving wide critical praise and much acclaim for its innovative format that mixes a multi-camera sitcom with a single camera drama. It's quickly become one of the top 3 most streamed series on AMC+, and it's also performed well on our AMC linear channel, demonstrating how we are able to use our various platforms synergistically, serving audiences and creating value with our high-quality content across multiple platforms, in this case, streaming and linear. In terms of distribution, we are very well positioned. We've made our incumbent distributors key partners in our streaming transition while maintaining the most cost-effective wholesale rate for our cable channels. This is an approach that has been highly successful for us in the marketplace. We are allied with conventional MVPDs in an ongoing and consistent way, with the breadth and depth of our partnerships ranging from working with Comcast on the very creation of AMC+, where it was essentially incubated, to co-producing what we think is a wonderful new dramatic series with Charter spectrum, titled Beacon 23. It stars Lena Headey, who you may know from Game of Thrones. We believe this activity when coupled with the successful renewals we've had with major MVPDs over the last 12 to 18 months in the U.S. and abroad is a demonstration of our long-standing, mutually beneficial, and now, newly enhanced partnerships with those MVPDs. As we continue to expand distribution of our streaming offerings, we're pleased to have recently completed an agreement for a promotional partnership with Verizon for AMC+. That will significantly expand the reach of our premium streaming bundle. We'll have more specifics when the partnership launches, but this is a very meaningful deal across Verizon Fios and wireless that demonstrates the growth and momentum of AMC+, the strength of our content and the depth of our brand resonance in a very competitive marketplace. In addition, we are expanding our digital distribution by launching AMC+ in Canada later this month on both Apple TV channels and Amazon Prime channels. This expansion joins the overseas opportunities we're just beginning to tap into with our targeted services, particularly Acorn and Shudder, which are expanding into markets in Europe as well as Australia and New Zealand and more countries to come. Moving to advertising. We had a very strong quarter, with double-digit growth of 13% driven primarily by higher pricing. In addition, our ad sales group just completed one of the most successful upfronts in our company's history. This performance speaks to the continued strength of our world-class content and underscores our position as one of the few offerings on basic cable with the kind of high-quality scripted content that advertisers and audiences find very desirable and particularly valuable. Our strong advertising results in the quarter were also driven by increasing digital revenue coming from our expanding ad-supported streaming efforts, an area which we've been particularly active in. By deploying our own library content increasingly across free ad-supported video on-demand and free ad-supported streaming platforms like Pluto TV, Amazon's IMDb TV and Samsung TV Plus among others, we're reaching new viewers and passionate superfans and tapping into what is an entirely new and growing revenue stream for us that is reflected in our results. And importantly, we are utilizing the strong marketplace to advantage AMC Networks' ad revenue mix, including shifting more dollars into our digital and advanced products, thereby ensuring our momentum continues and is sustained well beyond this immediate time and into the future when there may well be market fluctuations that, of course, occur over time. I'll touch just a bit more on International, if I may. Our global business performed exceptionally well in the quarter. We saw a surge in ad revenues driven by higher pricing as well as ratings increases, an indication of the continued appeal and demand for our strong portfolio of channels across Europe and Latin America. As I mentioned earlier in these remarks, we're very focused on the opportunities we see overseas for our streaming services, and we see high growth potential before us to broaden our streaming subscriber base internationally as well as domestically. I'll close out my comments by saying that AMC Networks continues to stand out due to the strength and quality of our content, our ability to forge strong relationships with subscribers, viewers, distribution partners and advertisers and a spectacular team of people who work here. The progress we are making against our strategic priorities that I outlined, our momentum, particularly in streaming, and our clear and differentiated approach that has not only given us momentum but has sustainable cost benefits, reaffirms our confidence in the strength of our business and in our position to continue to deliver value over the short, mid- and long term. Before I turn the call over to Ed Carroll, we do want to acknowledge a recent event related to someone who's very close to us in our company. We have been lucky enough to know and work with Bob Odenkirk for a long time through Better Call Saul, and before that, Breaking Bad. It's close to impossible to spend any time around Bob without developing great affection and appreciation for his talents, his spirit and who he is as a person. We are so glad he's on the mend and just wanted to pause and wish him all the best in his recovery, which is now underway. Now if I may, I'll turn the call over to Ed to review our operational highlights. Thank you. Ed Carroll: Thanks, Josh. In the second quarter, we continued to see strong growth across our portfolio of targeted streaming services. We have an excellent lineup of content filling out the second half of the year with all 3 series in The Walking Dead Universe on the schedule. We also have an expanding slate of newly greenlit original series that will drive our business forward into 2022 and beyond. As Josh mentioned, our streaming strategy is built around a collection of targeted services that are designed to go deep and broad in specific content areas. This allows us to serve our viewers' interests and programming preferences in ways that larger mass market providers simply cannot. Any of our targeted services may be one of a handful of streaming subscriptions in the home, but we believe they also are very likely to be their favorite based on our ability to deliver a rich and curated experience. Just as an example, our Acorn TV service features about 3,000 hours of British drama and mysteries for people who love those shows, while a much larger service that is trying to offer something for everyone in a household may only have a few hundred hours in this category. Acorn TV was deliberately built and is being programmed, so if a subscriber likes one Acorn TV show, they will very likely enjoy many other shows on the service as well. And because we are focused on highly specific content areas, we are able to deliver that experience at a very reasonable and disciplined cost with higher margins than larger streaming services. In June, the top 5 titles across each of our 4 most established targeted streaming services, Acorn, Shudder, Sundance Now and ALLBLK, were all produced, coproduced or acquired at a cost in the 6 figures per episode. So out of the top 20 titles across that broad range of services, all 20 had a cost to us of less than $1 million per episode. That is a strong indication of our continuing ability to attract and retain subscribers without spending wildly on content. Moving to the individual series. Later this month on AMC+ and our AMC linear network is the premier of the 11th and final season of The Walking Dead with episodes available 1 week early on AMC+. Later this year, we will have the return of Fear the Walking Dead and The Walking Dead: World Beyond to help close out 2021 on a very strong note. A reminder that the final season of The Walking Dead includes 24 new episodes that will run through the end of 2022 and move directly into a highly anticipated spin-off focused on the fan-favorite Daryl and Carol characters. Later this year, on AMC+, we also have a new series called Ragdoll, a gripping murder mystery, starring Lucy Hale, produced with our partners on Killing Eve, Sid Gentle Films. I want to call out something we recently experienced under the heading of how streaming and linear can effectively work together. We have a series called Gangs of London, which premiered on AMC+ last October, to help launch the service, and it quickly became a top title. We put Gangs of London on the AMC linear network this spring, and that exposure sparked a second wave of strong interest in the series on AMC+, where the title's viewership and the ability to attract new customers, both doubled. This ability to use multiple platforms to expand audiences and expose our content to more viewers is something we're excited to explore in new ways in the days ahead. Our horror service, Shudder, markets annual halfway to Halloween month in April with the return of Creepshow, the biggest series in the history of the platform; and a new season of The Last Drive-In with Joe Bob Briggs. Both shows delivered beyond our expectations. Next week, Shudder will premiere the widely anticipated fourth season of the horror anthology series, Slasher, starring David Cronenberg, which was previously on Netflix, and is produced by our partner, Shaftesbury. Shudder also won a Peabody Award for its original film, La Llorona, receiving recognition in the entertainment category alongside other titles like Ted Lasso and I May Destroy You, excellent company for the Shudder film. Looking ahead to the rest of the year, Shudder is planning the biggest October in its history on its own, and also, in cooperation with AMC's Annual FearFest programming event. ALLBLK recently received 3 Daytime Emmy nominations for writing, acting and series. It is so gratifying to see the programming on our targeted streaming services reaching this level of awards recognition. Acorn TV had a number of significant releases that continue to drive usage and acquisitions, series like Whitstable Pearl, Keeping Faith and Miss Fisher's Modern Murder Mysteries. We have Acorn series in front of subscribers or in production featuring such recognizable talent as Jane Seymour, Bryan Brown, Greta Scacchi, Guy Pearce and Lucy Lawless. Acorn TV also launched on Amazon channels in Spain during the quarter. Turning briefly to advertising. As Josh mentioned, we just completed an extremely successful advertising upfront. We saw a high degree of interest in our original content across our linear networks. We were also very pleased to see significant year-over-year growth in digital ad sales, which include our own digital platforms and AVOD and FAST platforms that feature our bespoke channels. Our digital ad sales more than doubled from the previous year. A year ago, we set out to grow this piece of our ad sales business by putting our content channels on a wide variety of AVOD and FAST platforms in addition to our own digital platforms. So advertisers could reach viewers anywhere they engage with our content. Just a year into this strategy, it is paying off for viewers, the company, our affiliated platforms and our advertising partners beyond our expectations. And a lot of this buying is happening very efficiently through programmatic channels and our direct relationships. We have also seen significant growth in advertiser interest and investment in our digital original programming. A good example of this is the series Bottomless Brunch at Colman's with Colman Domingo of Fear The Walking Dead. This show started as a digital-only series produced in the early days of the pandemic. It caught on, and now, has Diageo as an ongoing sponsor heading into its fourth season of new episodes. This upfront also saw a truly remarkable growth in data-driven linear and advanced advertising, including addressable advertising. We nearly tripled our billings in this category from last year. These addressable deals allow advertisers to target viewers at the household level and reach defined segments paying higher CPMs because the advertising is more effective. AMCN is a leader in addressable advertising, running the first national campaigns in the industry's history late last year, and into early 2021, we plan on continued innovation in the space. Just a quick note on content as we look ahead to 2022. We recently greenlit 3 new series for AMC+ and AMC that are all expected to premiere next year. Moonhaven comes from Peter Ocko, a talented writer and show runner we worked with on Lodge 49. This series is set 100 years in the future in a Utopian colony on the moon that may hold the keys to preserving life on Earth. Next is Dark Winds, a psychological thriller and murder mystery based on an iconic book series by Tony Hillerman. This series will be filmed on native American lands with the support of the Navajo Nation. And our executive producers include Robert Redford, George R.R. Martin and Zahn McClarnon, who will also star. And finally, we have Anne Rice's Interview with the Vampire, the first series we greenlit following our purchase of a significant portion of the Ann Rice Literary Catalog last year. Rolin Jones, a talented writer and show runner with a terrific body of work, is leading this project, working with the acclaimed producer, Mark Johnson, who is overseeing the entire Ann Rice Catalog as a potential new franchise and universe for AMC+ and AMC. Mark is someone we know well and have collaborated with on such iconic series as Breaking Bad, Better Call Saul, Rectify and Halt and Catch Fire. We're thrilled to have him in this role leading our development and management of this coveted IP. Alan Taylor, who directed the pilot for Mad Men and has done some really extraordinary work across series like The Sopranos and Game of Thrones and many others will direct the first 2 episodes of Interview with the Vampire when we go into production later this year. And now I'd like to turn the call over to our Chief Financial Officer, Chris Spade, for some financial highlights. Chris Spade : Thank you, Ed and Josh, and good morning, everyone. Before I review and discuss our financial performance for Q2 2021, I would like to first summarize 2 nonrecurring items reflected in our quarterly results. First, we recently entered into a settlement agreement that resolved the New York litigation related to The Walking Dead, as disclosed in the Form 8-K, which we filed on July 16. The settlement agreement provides for a onetime cash payment of $200 million, which was paid in July. We recorded the unaccrued portion of the settlement payment in the amount of $143 million in our second quarter financial statements in impairment and other charges. Second, in the quarter, domestic operations' subscription revenues reflect the onetime beneficial impact of a distribution agreement renewal. Excluding this onetime benefit, year-over-year growth rates were as follows: domestic operations' distribution revenues increased 10% and domestic operations' subscription revenues increased 17%. Moving to our second quarter 2021 financial performance. Total company revenues were $771 million, representing a 19% increase from the prior year. Adjusted operating income was $251 million, representing an 11% growth from the prior year. Adjusted EPS was $3.45. We continue to track very well toward the goals we outlined earlier in the year. We experienced strong growth in the second quarter from all of our streaming services. Paid subscriber growth in the quarter was consistent with our expectations. Second quarter streaming subscribers and normalized streaming revenues increased 89% and 92%, respectively, versus the prior year second quarter. We are extremely pleased with the continued growth trends following on the substantial streaming growth we saw in 2020. Additionally, in the quarter, retention rates improved across our portfolio, both sequentially and on a year-over-year basis. For the second half of 2021, we expect net new streaming subscriber additions to be supported by our strong programming slate, which includes 3 series in The Walking Dead Universe, The Beast Must Die, The North Water and more in addition to strategic marketing investments, both of which will be more heavily weighted toward the back half of this year. We continued to expand distribution of our streaming services in the second quarter, which included the launch of AMC+ on YouTube TV and the launch of Acorn TV in Spain. Our 2Q launches, paired with the expanded distribution efforts that Josh outlined, serve as meaningful proof points that there remains significant untapped subscriber potential in our expanded distribution road map. Distribution revenue increase has primarily reflected strong streaming growth and included the previously mentioned onetime subscription revenue benefit. We saw advertising strength in the second quarter supported by unprecedented pricing and the strong growth of ad-supported streaming despite lower ratings and despite COVID-related timing impacts, which included the absence of Killing Eve and Better Call Saul. As Josh and Ed have already noted, the ad market is the best we've seen in years. Consolidated AOI improvement was driven by top line strength attributable to streaming growth and robust advertising performance, partly offset by increased strategic streaming investments, particularly in programming and subscriber acquisition marketing. These are crucial growth investments for us, and we will continue to invest opportunistically to fuel future streaming growth while we optimize the performance of our linear business. Regarding our operating segments. Domestic operations' revenue of $639 million increased 14% from the prior year. Adjusted operating income was $250 million for the quarter, representing 6% growth as compared to the prior year. Domestic operations' advertising revenue of $212 million, increased 13% from last year, reflecting very strong scatter and direct response pricing as well as continued growth and monetization of our digital audience. In addition to our strong operating performance, the market has significantly improved from last year's COVID-impacted environment. Domestic operations' distribution revenue increased 14% to $427 million. The increase was primarily the result of subscription revenue growth of 21% driven by an increase in paid streaming subscribers, and it also included the previously mentioned onetime subscription revenue benefit. Second quarter normalized affiliate revenues declined in the low single digits, primarily attributable to subscriber universe declines. Strong subscription revenue was partly offset by a 10% decrease in content licensing revenue. This decrease was due to pandemic-related production delays, which impacted the availability of certain scripted programming, most notably, Killing Eve. Domestic operations' adjusted operating income performance for the quarter reflects higher subscription and advertising revenues as well as the balance of disciplined expense management, in particular, the strategic reallocation of linear marketing investments and increased investments in programming and subscriber acquisition marketing. Moving to the International and Other segment. Revenues increased by 53% to $138 million. International and Other's second quarter revenue trends demonstrate the outstanding recovery at AMC Networks International and 25/7 Media. Advertising revenues increased 75% to $26 million, largely related to higher pricing and an increase in ratings as a result of strong performance across our AMCNI channel portfolio, with particularly strong performance in the U.K. Distribution and other revenues increased 48% to $112 million, primarily due to the resumption of production at 25/7 Media. Both advertising and distribution and other revenues benefited from the favorable impact of foreign currency fluctuations at AMCNI. Adjusted operating income increased 61% to $25 million, reflecting an increase in revenues and continued expense management, partly offset by an increase in production-related expenses at 25/7 Media and an increase in selling expenses at AMCNI. Now turning to free cash flow and the balance sheet. Free cash flow for the second quarter of 2021 was $4 million, primarily reflecting increased programming investment as we begin to lap COVID-related production delays. Our net debt and finance leases at the end of the second quarter were approximately $1.9 billion as compared to $2.1 billion in the prior year period. Our consolidated net leverage ratio was 2.4x at the end of the quarter. Pro forma for the July settlement payment, our consolidated net leverage ratio was 2.6x. We remain comfortable with our balance sheet and current leverage ratio. There were no repurchases of AMC Networks' common stock in the quarter. We will continue to evaluate share buybacks on an opportunistic basis. Our capital allocation policy continues to remain unchanged. First, we will look to invest organically on projects that provide attractive returns to our shareholders. This includes return-based investment in the growth of our shipping services. 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. As we look ahead to the second half of 2021 and based on our streaming subscriber growth trends to date and our continued investments in streaming, we see ongoing momentum in the growth of our streaming services. We remain confident in our plan for growth to at least 9 million aggregate streaming subscribers by the end of this year. It is important to reiterate that the subscriber growth will be driven by our strong programming slate supported by strategic marketing investments, which, as I stated earlier, this will be more heavily weighted toward the back half of the year. We are reiterating our outlook of total company revenue growth in the low single digits for the full year, driven by streaming and advertising revenue growth and offset by linear market dynamics. We continue to expect adjusted operating income to decrease by mid-single digits in 2021 as we accelerate investments in programming, marketing and platform enhancements for AMC+ and our targeted streaming services. For the full year 2021, we expect free cash flow to be approximately breakeven as a result of the onetime cash payment associated with the July settlement. Absent this onetime payment, our prior free cash flow outlook would have remained unchanged. As we continue to advance our streaming growth strategy and with our strong programming offerings still to come in the back half of 2021, we are extremely well positioned to achieve our 2021 goals, and more importantly, to set a strong base going into 2022 and beyond for future long-term growth and for stakeholder value creation. With that, operator, please open the line for questions. Operator: Our first question comes from Tim Nollen with Macquarie. Tim Nollen: I wonder if you could maybe hopefully, quantitatively, or at least, qualitatively, talk about the streaming subscriber additions you may have had in the quarter as compared with the linear sub declines that, I'm assuming, underlying are ongoing. And how much that may have been offset by these new bundles and apps that you're offering by various distributors? Josh Sapan: Tim, this is Josh. I'll give you a broad portrait of it, if I might. The linear side of our world in the United States in terms of subscribers is subject to macro impacts. So we're seeing some erosion. But with that said, we are very, very happy with our progress because our streaming subscribers are growing. And so taken together, those 2 things really, frankly, are excellent for our company, and put us on a good path when one looks at our entire footprint, and if you will, template of what we are up to with our streaming targeted services and our relationships with the MVPDs who are both the carriers of our linear channels, and now also, in addition to all the other digital distributors, the carriers of our streaming services. So we really like the harmony that we have, and we like the aggregate trajectory of what we're doing between linear and streaming. Tim Nollen: Great. Can I ask another question about advertising, please? I've been admiring the transitions you've been making both on the linear side in terms of doing more targeted addressable ads, and then, of course, on the streaming side. My question is about how much kind of control over pricing you're willing to give up to the machines, if you see what I mean, using real-time bidding in terms of programmatic placements versus how much do you want to maintain control over pricing in prenegotiated deals? Does that make sense? Ed Carroll: Okay. It does make perfect sense, Tim. This is Ed. And so your question goes to the key of it. It’s critical to us to manage the load and to manage the pricing. So we – even if we’re accepting advertising on a programmatic basis, we are putting out their minimums. And as you would imagine right now in a marketplace that has high demand and high pricing, that bar goes up and up. I think one of the things that we’ve done that perhaps sets us apart from other linear programmers is on our AVOD. We have maintained more control of programming with our FAST channels, more control of the selling process and more control of pricing. So I think all of that accrues to our benefit. Operator: Our next question comes from Michael Nathanson with Moffett. Michael Nathanson : Josh, I have a couple for you. Following on Tim's question, I'm interested in understanding maybe where the AMC+ subs are coming from, now that you're more broadly distributed on traditional platforms plus Apple, Amazon and Roku. Anything about kind of where they're coming from? Are they cord-cutters? Are they just super AMC fans? That's one. And then two, can you give us a sense of what percentage of your -- maybe your footprint is now covered by AMC+ agreements? And are you seeing now maybe a more accelerated pace of renewals because people are -- see the model and they want access to this new product? Josh Sapan: Sure. So I'd say on the second part of your question first, Michael, the coverage, if you want to call it, that is, of course, in the case of the United States, ubiquitous when it comes to those services of ours that are on -- apps on smart TVs, on Roku, wherever those accounts are -- on Apple and Amazon, wherever those accounts are. They're not geographically restricted by franchise areas. They're geographically defined, if you will, by where those points of access are for those digital distributors. So I'm sort of bifurcating my answer, I hope it's helpful. That's point one. Point two, we are seeing increasingly MVPDs distribute and deploy our streaming services, and they like our product. So they are electing and choosing, and actually, coming forward with a desire to carry that, which we're, of course, tremendously heartened by. And that's occurring really in a sequence that's not necessarily related to affiliation agreements. They want to carry our streaming services. And I think their business is changing, too. So our availability continues to increase and increase both in what I can call the digital distributors that are native, if you will, smart TVs and our incumbent MVPD partners. In terms of source of subs, what we're seeing, I'll just kind of give you a simple answer, is fans of our shows. And we're seeing probably the biggest -- I believe, this probably varies a bit by service, too. So for the Acorn, ALLBLK, Shudder, which Ed talked about for some length, those people are fans of the material, and frankly, less fans by degree of any one individual show. And so they like the depth of what they get on Shudder. They're Shudder fans. So while it's good, if we have Creepshow or if we have Joe Bob Briggs or we win a Peabody for La Llorona, et cetera, they are there for the depth of what's on Shudder. The same is true for ALLBLK. The same is particularly true for Acorn, where while we have good shows, and I can name them, and your eyes may blur if I say Line of Duty, Foyle's War, et cetera, et cetera, it is the depth of content. There's the biggest depth you can find of that type of material. And on AMC, AMC+, just to remember a couple of things, you get 2 services along with AMC+. So if you're a fan of the material on Sundance Now and our name shows at the risk of dizzying your mind, if you like the restaurant or you like the bureau, those 2 channels' services, if you will, Shudder and Sundance Now come along with AMC+. And then there's a sequence of shows that flow through AMC+, and they vary from Kend, which is an Irish -- wonderful Irish sort of mob drama to Gangs of New York, which broke out for us, to Kevin. So the sources are all those different sources. So I -- forgive me for not giving you a highly specific easy answer to your question, but all those sources contribute. Michael Nathanson : Okay. And Josh, can I just ask one follow-up. One of the questions we've been struggling with is just content discovery and -- do you have the ability and do you have the data to basically go back and retarget your subscription base and send them e-mails and content updates? Or does that exist at the distributor level and they control that -- the ability to kind of retarget and reupdate customers on what's coming? Josh Sapan: Yes. It’s a great question, Michael. It’s – the answer is that we do have the ability. The ability is more advanced when we have a subscriber who subscribes directly versus through a digital distributor or an MVPD distributor. So there’s sort of 2 flavors of the specificity of our data. And flavor 1 is it’s through a distributor. And flavor 2, where we have all the data, is that they subscribe directly. But in any case, yes, it’s part of our daily fabric of business. Operator: Our next question comes from Thomas Yeh with Morgan Stanley. Thomas Yeh: Josh, following up a bit on Michael's first question about sources of subscriber growth. I think you've spoken in the past about a smoother path on growth for the targeted OTT services given the nature of the product is less focused on new original launches. Is that still true? Or are you seeing incrementally the engagement or gross acquisition activity on the platform skew more towards the original releases than before? Any color on what you see driving the cadence of gross acquisition activity would be helpful. And for Ed or Chris, given the mix of different OTT services in your portfolio, can you help us think about the broader trend or outlook on streaming ARPU? Is that an area where we expect variability on a quarter-to-quarter basis? And how do you think about the impact from mix going forward? Josh Sapan: Sure. Thomas, I'm actually glad you asked this because it really is central to what makes us different. We don't have, as you know, news, sports, kids, reality. We do have on each of these services, essentially a definable editorial genre. And that is -- and we said what they were, so I won't bore you again with the recitation. But even AMC+, which one can think of a slightly more general interest, is really dramas, dramas, dramas. And therefore, the people who come to these services come to them for the nature of the material more than they do for any one show. With that said, it's undeniable that when a particularly appealing show drops or returns, it can elevate the bump, and it can elevate acquisitions because someone might be a particular fan of The Walking Dead, for instance, or when it comes later, of Better Call Saul or Killing Eve or other shows, or even, Kevin. People can have their favorites. But what is in our genetics and what is in what we've developed from the start and will continue is a depth of material around a genre that provides, I think it's fair to say, more than they can get anywhere else on the planet of that material. And therefore, our subscribers are more likely to be looking for the genre than the one show and to retire after the one show finishes. Ed Carroll: And Thomas, it's Ed. On the broader trend lines on our SVOD businesses, I would say we feel very good about the progress against our plan. The engagement levels are high -- at an all-time high when we look at total number of streams and completion rates. The targeted SVODs, we've mentioned this before, they are run rate profitable, and the model continues to grow more efficient as we scale. And the services are not only a destination, but they tend to form community around the content, which Josh was alluding to. And that's helpful because it keeps both our subscriber acquisition cost in a healthy range, and it helps us to manage churn. I want to point out something specific about AMC+ and its content model. We right now are feeling great about our development pipeline. But what is evolving a bit in the world, there are so many really skilled television writers that have worked in our writers' rooms or have worked in other writers' rooms coming to us with their story ideas. Some of them are now finding less opportunity on other platforms that are pursuing big movie stars, big movie directors and writers with an emphasis on limited series at a high cost per episode. That is not the AMC or AMC+ model. We are -- we think pretty adept at finding new talent and telling stories in different ways. So when Josh says, in his remarks, the word character-driven, we mean the arc of our kind of storytelling. One obvious example in Breaking Bad, Walter White starts out as one kind of a person, and he ends up a very different dude. But that's a common thread in the stories we tell, and we like to show character development over multiple seasons, and obviously, TV writers like that, too. And our audience research says that memorable characters are a hallmark of AMC storytelling. So there is an element to this that controls cost for us because if you find those stories and you tell them well rather than chase the star-studded shiny object, that's our model. It's also a reason we're enthusiastic about the pipeline, but we think that our subscribers understand that. They understand the way we tell a story. They understand the way we develop arcs of a multiple season, and that adds to the stickiness of our subscribers. Chris Spade: Thomas, this is Chris. Thanks for the question. Your question about the ARPU, I think, is an important one. I think when you look at our OTT services, we really like the economic model that our targeted mix of services brings – and all – it is very important to look at the ARPU, and we feel strongly that we’re in a good position. But we also focus very heavily on the lifetime value of the subscriber, and we also like our positioning for that. Operator: Our next question comes from Michael Morris with Guggenheim. Michael Morris: I have two. First, maybe for Josh or Ed. Can you share any more detail on the international growth road map for the streaming services? You started talking specifically about the opportunity in Canada, but indicated that there is more geographic market. So I know things become more complicated, whether it's with distribution partners, rights, language, translation, things like that. I'd just love to hear how you see that sort of playing out over the next year? And then second, maybe for Chris, the decision to not adjust guidance given first half ran well ahead of your full year guide. It sounds like business trends are very strong. So maybe could you share some more detail on the top line headwinds that you're sort of expecting in the second half that would get you down from mid- to high single-digit revenue to low single digit? And also the timing of the costs that will pressure AOI relative to the first half? Ed Carroll: Michael, it's Ed. On the International piece, you are correct. We are focusing on International, and that means we have been into it on rights, on expanding our basket of rights for quite some time, but also working with local distributors. We mentioned that we'll be launching Acorn in Spain, and we have local distributors there carrying the content. So we think those relationships will be an advantage to us internationally as they have been domestically. Acorn and Sundance Now have been available outside the U.S. for a little more than a year. Shudder a bit longer than that. That's been mainly in the U.K., Canada and Australia. It represents about 10% of their subscribers, and Acorn is now rolling out not only in Spain but parts of Latin America. So we will continue to emphasize that going forward, and we will continue to work closely with our local distributors around the world to do that. Chris Spade: Mike -- go ahead. Michael Morris: Sorry, I just -- if I could ask a quick follow-up on that, Ed? Is there a situation where a lot of this has been self-distribution, and these partnerships offer sort of like incremental opportunity as you push? Or are you -- is it sort of steady state that the opportunity for partnership with those local partners has already been out there, if that makes sense? Ed Carroll: I think we look at it not dissimilar to the U.S., where it will be a mix of our own D2C and working closely with partners, and they'll probably vary a bit territory to territory depending on the lay of the land. Chris Spade: Mike, it's Chris, also for your second question about our guidance positioning for this quarter. We like where we are. We like our financial results to date. We feel very confident in terms of where we are with reinforcing our guidance. As you know, with cash flow, we did adjust for The Walking Dead settlement. But we're at a place where we started our guidance in the beginning of the year, we felt we had visibility to it, and we still feel very confident about that today. Michael Morris: Is it -- if I look at the top line going from kind of 6% in the first half of the year to a low single in the back half, it sounds like streaming is strong. Can you share any more detail on whether it's sort of on the licensing side or the ad side or the core -- like the linear stream -- sorry, linear affiliate side that you think is going to be more pressured than any of the other revenue streams? Chris Spade: Yes. No, it’s a good question. I can’t really get into details about what we’re seeing individually. But relative to where we are, as we know on the expense side, we are heavily weighted on the expense side. Relative to the rest of the year, we haven’t really seen any experience with COVID, with the Delta variant. But relative to where things go from here, we don’t really know what that looks like. So from the standpoint of just being conservative, we’re considering everything. And I’ll leave it at that. Operator: Our next question comes from Steven Cahall with Wells Fargo. Steven Cahall: Maybe one kind of a housekeeping one and then a bigger picture question. Maybe first, Chris, you talked about the SAC expense running much heavier in the second half of the year. How do you all just think about sizing the SAC budget? How do you think about like the profitability of a future subscriber? You've talked a lot about content efficiency. So just wondering how you feel about sort of SAC efficiency as well? And how big that expense could be? And then a bigger picture question. You are cycling through the end of some pretty big series with The Walking Dead and Better Call Saul. So I think over the next 12 or 18 months, we'll start to see those sunset, which probably frees up a lot of programming budget, but it just kind of throws the whole economic model into a period of transition. So how do you think about reprogramming? How do you think about reengaging with advertisers? And also, what do you expect in terms of long-term licensing for those shows? Do you want to pull those back to AMC+ at one point? Ed Carroll: Steve, it's Ed. On the first question relating to SAC costs, I would say it's all about subscriber lifetime value. That's the key component when we look at the size and the timing of our marketing investments. It's worth -- I mean, again, I will say our model is different. It's just different -- our approach to the marketplace is different than the other folks. So we are targeting what I would call controlled growth from subscribers that stick. We're not spending wildly to cast too wide a net because we have a profile of the subscribers that we are trying to attract, those who, as Josh was talking about before, are inclined towards the content on Acorn, inclined with the content on ALLBLK on Shudder. That's important to us. So think of us more as a specialty realtor, if you will, than Walmart. And our cost structure reflects that when it comes to our content spend and our marketing spend. And we think the reward for that, and we're seeing it, is favorable churn rates on our targeted services. Josh Sapan: Yes. Steve, on the sort of bigger picture question, I hope these comments will be helpful. I'd first point out, if I might, that, that question, of course, applies to AMC. It doesn't apply to Shudder, ALLBLK or Acorn. And those things are not a substantial part of our growth trajectory. So I just wanted to just differentiate where the -- where what you've mentioned applies and doesn't apply. And the same is true, of course, for our linear channels. They apply essentially to basically one channel. Within that arena, a few things that might be helpful to note because, of course, as you might imagine, we think about this an awful lot. As Ed mentioned in his prepared remarks, at our hand, we are ending The Walking Dead flagship series. And we are continuing 3 other series in The Walking Dead Universe. That's not accidental, and it's not happening to us. We are doing it. And we're doing it for reasons of vitality, freshness, new ideas, longevity and cost. You'll note in TV, and forgive me, I don't mean to make this a lecture, that when someone has a franchise like Law & Order, they may retire the mothership, and as per you, may become ascendant. And that's about, I believe, vitality. It's about freshness. It's about intrigue. And it's also about there, I say, cost, cost. And so just take that into account. But The Walking Dead franchise is, this is going to sound silly, alive and well while it's dying. Meaning, the walkers are dying, but it's extremely alive and well. And we are making determinations about which shows will continue. And we're incredibly enthusiastic about World Beyond, about Fear and about Daryl and Carol, who are two -- this is inside baseball, two of the most cherished characters that people flip out for. So we feel like the best time is before us for The Walking Dead, not to mention movies that will be in our future. As it relates to other shows that we are choosing to end, Killing Eve, we have every opportunity should we choose it to determine that there's a future for it in franchise manner. And so we have creative discussions underway about whether the nasty agencies that are controlling assassins are good throughlines or the assassins themselves are good throughlines. But if -- in the world of franchises, we are in control of the franchise. And on Breaking Bad and Better Call Saul, we have a partner who have -- will have a studio, who will have a lot to say about that. I will just say that we have very, very strong relationships with Vince Gilligan, the writer and creator of the material and the key actors. That's a specific response to your question about shows that are on each of which have their performance trajectory. The new shows that Ed mentioned -- and you never know until it's there, but we have an interest in no fewer than 15 Anne Rice novels. And we have a writer's room open. First of those, they have huge constituencies. Apart from their popularity, we think it's a spectacular rich world, The Vampire Chronicles, which is why we went deep in it. So we are very enthusiastic about it. And as Ed mentioned, and then I'll stop the long speech, we really do think that AMC has a history of discovering new writing talent, of nurturing them and of bringing new stories to people that they love. And when we retired Mad Men, initially, and Breaking Bad, we had similar considerations. And I think we found ourselves then in a strong position, and I think we're in an extremely strong position now. Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to our hosts for any closing remarks. Nick Seibert: Thank you. This concludes the call. Have a good day. Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
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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.