AMC Networks Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; unaudited. The filing is for AMC Networks Inc. (NASDAQ: AMCX), the registrant named in the report.
Business context
AMC Networks operates domestic programming networks and streaming services, studios and film distribution, alongside international programming and production services. In Q1 2021, it reorganized reporting: streaming services and IFC Films moved into Domestic Operations, and prior segment data was recast.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $771.4m | $646.3m | $1,463.1m | $1,380.7m |
| Operating income | $68.3m | $48.8m | $238.0m | $221.8m |
| Operating margin | 8.8% | 7.6% | 16.3% | 16.1% |
| Net income attributable to AMC Networks stockholders | $35.9m | $15.0m | $122.9m | $83.6m |
| Diluted EPS | $0.83 | $0.28 | $2.84 | $1.54 |
| Adjusted operating income (non-GAAP) | $250.6m | $225.3m | $488.6m | $447.7m |
Q2 net margin was 4.7%, versus 2.3% a year earlier; six-month net margin was 8.4%, versus 6.1%. Q2 revenue rose 19.4%, with Domestic Operations up 13.5% and International and Other up 52.5%. For the six months, revenue increased 6.0%: Domestic Operations rose 3.2% and International and Other rose 20.4%.
Cash flow: Cash from operations was $131.2m for the first six months, down from $424.9m. The company cited $583.5m of net cash use for program rights and obligations, compared with $387.0m in the prior-year period. Investing activities provided $42.0m, including $95.4m proceeds from investment sales and a $20.0m loan collection; financing activities used $64.2m. Cash increased by $108.9m to $980.7m, including foreign-exchange effects.
Debt and liquidity: Debt principal was $2.875bn, with a net carrying amount of $2.835bn; cash was $980.7m. The $500m revolving credit facility was undrawn, and the company reported compliance with debt covenants at June 30. The $675m term loan A and revolver maturities were extended to February 2026. The company issued $1.0bn of 4.25% notes due 2029 and used proceeds to redeem $1.0bn of notes due 2022 and 2024. It reported $1,103.9m of contractual obligations not reflected on the balance sheet, up $92.0m since year-end, primarily from program-rights commitments.
Material changes and notable items
- Q2 revenue growth reflected higher advertising revenue and distribution revenue. Domestic subscription revenue increased 21%, including a one-time benefit from a distribution agreement renewal; excluding that benefit, it increased 17%. Streaming subscriber growth contributed, while content licensing revenue declined 10% in Q2 and 34% for the first half, with pandemic-related production delays cited.
- Q2 operating income included a $143.0m charge associated with a $200m settlement with Frank Darabont and other plaintiffs over The Walking Dead, net of $57m of ordinary-course accrued participations. The July 16, 2021 settlement also provides for future revenue sharing from certain streaming exhibitions of The Walking Dead and Fear the Walking Dead.
- Six-month impairment and other charges were $159.0m, including the settlement charge and a $16.1m loss on the March spin-off of Levity’s live comedy venue and talent management businesses. The prior-year period included $130.4m of impairment charges related to AMCNI assets and goodwill.
- Higher streaming marketing and subscriber-acquisition spending contributed to higher selling, general and administrative expense: up 28.0% in Q2 and 14.8% for the first half. Adjusted operating income, a non-GAAP measure, increased 11.3% in Q2 and 9.1% for the first half.
- The company recognized a $22.1m loss on extinguishment of debt in the first half from the note redemptions. Miscellaneous income also improved year over year, partly from foreign-currency effects and investment gains.
Outlook, risks and contingencies
No quantified revenue, earnings or cash-flow guidance is provided. Management expects revenue and adjusted operating income to vary by quarter, citing programming schedules, audience ratings, advertising demand, affiliation-agreement renewals, streaming trends and content-licensing timing. The company said it expects to continue increasing investment in programming, generally funded six to nine months before airing.
Management said it did not expect COVID-19’s economic impact to affect liquidity or ongoing covenant compliance, but could not predict the pandemic’s ultimate effects. It believes cash, operating cash flow and revolver availability will cover near-term and longer-term funding needs; however, it does not expect operating cash flow alone to repay all debt at maturity and will depend on capital-market access to refinance or repay obligations. Other identified risks include substantial leverage, competition, content costs, advertising and subscriber trends, foreign-exchange and interest-rate exposure, and litigation.
The Darabont settlement resolved the consolidated actions with prejudice. Separate claims by other Walking Dead creators remained pending; the company said it would vigorously defend them and that their ultimate outcome and potential liability could not be determined. Management stated that ordinary-course legal matters could materially affect results in a particular period, but did not expect their resolution to materially adversely affect financial position or ability to meet obligations.
Most important facts for investors to verify
- The settlement’s $200m cash payment, the $143m charge recorded in Q2, and the scope and financial effect of future streaming revenue sharing.
- Whether operating cash flow recovers as program-rights spending remains substantial, and how programming commitments affect liquidity.
- Debt maturities, refinancing access, covenant headroom and the company’s stated reliance on capital markets to address debt at maturity.
- Underlying streaming subscriber and subscription-revenue trends, separating recurring growth from the one-time distribution-renewal benefit, and the timing of content-licensing recovery.
- Progress and potential exposure in the remaining Walking Dead-related litigation, as well as the effects of the segment reporting reorganization on comparisons.