AMC Networks Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. The registrant is AMC Networks Inc. (not “AMC Global Media Inc.”). It operates Domestic Operations and International and Other, spanning television networks, streaming services, studios, film distribution, and international programming.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $717.4 million | $712.2 million | +0.7% |
| Operating income | $173.3 million | $174.7 million | -0.8% |
| Operating margin | 24.2% | 24.5% | -0.3 percentage points |
| Net income attributable to AMC Networks stockholders | $103.6 million | $104.2 million | -0.6% |
| Diluted EPS | $2.36 | $2.38 | -0.8% |
| Adjusted operating income (non-GAAP) | $215.8 million | $211.2 million | +2.2% |
| Cash used in operating activities | $132.5 million | $23.6 million | Use increased $109.0 million |
Revenue mix and segments: Subscription revenue was essentially flat at $404.2 million. Content licensing and other rose 57.1% to $133.6 million, while advertising fell 19.4% to $179.6 million. Domestic Operations revenue increased 1.0% to $611.9 million and adjusted operating income was nearly flat at $219.4 million. International and Other revenue declined 1.6% to $108.1 million; adjusted operating income fell 8.1% to $21.1 million.
Domestic streaming revenue increased 28.6% to $140.9 million, and paid streaming subscriptions rose 22% year over year to 11.5 million. Domestic affiliate revenue declined 11.7%, reflecting subscriber losses and a strategic non-renewal. One customer accounted for approximately 13% of consolidated revenue, versus no customer at 10% or more in Q1 2022.
Margins and costs: Operating margin narrowed slightly. Technical and operating expenses rose 14.9% to $326.7 million, including costs tied to delivery of the remaining episodes of an AMC Studios series to a third party. Selling, general and administrative expense declined 19.5% to $185.6 million, primarily reflecting lower streaming marketing and subscriber-acquisition costs and lower corporate employee-related costs. Q1 2023 included $5.9 million of restructuring and related charges.
Cash, liquidity, and debt: Cash and equivalents were $763.9 million at March 31, down from $930.0 million at year-end. Operating cash outflow reflected $370.3 million of net program-rights cash payments and $56.9 million of restructuring payments. Investing cash outflow was $7.0 million; financing cash outflow was $28.3 million. Current assets were $1.707 billion and current liabilities $981.7 million. Debt principal was $2.833 billion, with net carrying value of $2.806 billion; the revolving facility was undrawn. Cash less debt carrying value was approximately $2.042 billion, before lease obligations. The company repaid $8.4 million of term-loan principal and reported compliance with debt covenants.
In April 2023, the company amended its credit agreement: revolver commitments fell from $500 million to $400 million, the benchmark changed from LIBOR to SOFR, and incremental borrowing capacity provisions were expanded. Management said cash, operating cash flow, revolver availability, and potential financing were expected to cover obligations and needs over the next 12 months and longer term, but said operating cash flow would not be sufficient to repay debt at maturity; refinancing or other capital-market access is therefore important. The company may seek to refinance its 5.00% notes due 2024 and 4.75% notes due 2025. Approximately 78% of debt was fixed-rate; a 100-basis-point increase in rates was estimated to add about $6.3 million to annual interest expense.
Material changes, outlook, and risks
- Revenue growth was modest and driven by licensing; advertising weakness offset gains in streaming and licensing. Management attributed advertising declines to linear ratings pressure, a soft market, fewer original episodes, and, internationally, channel wind-downs and U.K. market declines.
- The restructuring plan, begun in November 2022 in response to cord-cutting and industry conditions, includes role reductions, centralization, and programming assessments. Accrued restructuring and related costs were $61.5 million at quarter-end. No specific full-year financial guidance was provided in the supplied filing text.
- Contractual obligations not reflected on the balance sheet totaled $939.4 million, up $27.2 million from year-end, mainly due to renewal of a third-party service contract.
- In the MFN litigation, plaintiffs allege breach of contract related to the Darabont settlement and seek more than $200 million; the company disputes the claims. A dismissal motion was awaiting decision and trial was scheduled for September 2024. Separate remaining Walking Dead contract claims are proceeding to confidential binding arbitration expected to begin October 2023. The company said outcomes and potential liability could not be determined.
- Key disclosed risks include cord-cutting and subscriber losses, advertising demand and ratings, competition and content costs, substantial leverage and refinancing access, interest and currency fluctuations, economic conditions, and litigation. Management reported disclosure controls were effective and no material changes in internal control during the quarter.
Important facts for investors to verify
- Streaming subscriber growth, revenue trends, and whether they continue to offset linear affiliate subscriber declines.
- Advertising recovery, content licensing delivery timing, and the sustainability of cost reductions and adjusted operating income.
- Cash generation and program-rights spending, along with progress refinancing the 2024 and 2025 notes and the terms and availability of credit facilities.
- Developments in the MFN and Walking Dead disputes, including potential exposure and timing; the filing does not quantify a probable loss.
- How restructuring costs, content assessments, and the $939.4 million of off-balance-sheet contractual obligations affect future liquidity.