Business context and reporting period
This is AMC Networks Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. The filing describes two segments: National Networks, including AMC, WE tv, BBC AMERICA, IFC and SundanceTV; and International and Other, including international channels and IFC Films. The requested company name, “AMC Global Media Inc.,” does not match the registrant named in the filing.
Key financial results
Dollar amounts below are in millions unless otherwise noted. Comparisons are with the corresponding 2014 period.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $632.2 | $519.6 | $1,902.0 | $1,566.2 |
| Operating income | $159.3 | $110.2 | $548.8 | $387.3 |
| Operating margin | 25.2% | 21.2% | 28.9% | 24.7% |
| Adjusted operating cash flow (AOCF, non-GAAP) | $190.6 | $141.9 | $641.1 | $465.9 |
| Net income attributable to AMC Networks stockholders | $72.8 | $53.2 | $276.7 | $183.2 |
| Diluted earnings per share | $0.99 | $0.73 | $3.78 | $2.52 |
For the nine months, National Networks revenue was $1,573.1 million and AOCF was $622.4 million. International and Other revenue was $333.3 million and AOCF was $21.0 million; that segment reported operating losses of $30.0 million.
Cash flow, debt and liquidity
- Operating cash flow for the first nine months was $301.0 million, versus $261.8 million in 2014. Capital expenditures were $48.8 million, versus $24.3 million. Cash increased $112.7 million from continuing operations; ending cash was $307.6 million.
- Cash paid for program rights and related obligations was a significant operating cash use; the cash-flow statement reports a net $616.0 million use for program rights and obligations.
- Debt, net of discount, was $2,705.9 million, excluding capital leases; cash was $307.6 million. A $500 million revolving facility was undrawn. The company reported compliance with debt covenants at quarter-end.
- Scheduled principal payments on the Term Loan A Facility over the next 12 months were $129.5 million. Long-term debt included $700 million of 7.75% notes due 2021 and $600 million of 4.75% notes due 2022.
- Management said cash on hand, operating cash flow and revolver availability should cover the next 12 months and longer-term operating and funding needs, but stated 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 it.
Material changes versus the prior period
- Q3 revenue increased 21.7%; nine-month revenue increased 21.4%. Growth was concentrated in National Networks, whose nine-month revenue rose 26.4%.
- Management attributed National Networks growth to higher advertising pricing and demand, increased affiliation rates, digital and licensing revenue, and BBC AMERICA, consolidated after its October 2014 acquisition. BBC AMERICA contributed $115.0 million of the nine-month National Networks revenue increase, according to the filing.
- Q3 International and Other revenue fell 7.0%, with distribution revenue pressured by foreign exchange and lower IFC Films revenue following the 2014 release of Boyhood. Nine-month segment revenue rose 2.9%, but currency translation and a prior-year contract termination benefit affected comparisons.
- Operating margin expanded as revenue growth exceeded operating expense growth. Programming costs and marketing expenses nevertheless increased; technical and operating expense rose 16.1% for both the quarter and nine-month period.
- Q3 effective tax rate was 36%, versus 20% in 2014; the nine-month rate was 35%, versus 32%. The filing attributes much of the difference to prior-year tax benefits and current-period valuation allowance and other tax items.
- 2014 cash flows included the approximately $1.0 billion Chellomedia acquisition; 2015 investing outflows were substantially lower. AMC paid the $40 million BBC AMERICA promissory note in April 2015 and made $55.5 million of debt principal payments during the nine months.
Outlook, risks and unusual items
- No specific revenue, earnings or AOCF guidance was provided. Management expected 2015 investment in original programming to continue increasing and expected capital expenditures to exceed historical levels, mainly for broadcasting and technology facilities.
- Management cautioned that advertising and distribution revenue and AOCF can vary by quarter, reflecting program timing, ratings, affiliation renewals and licensing availability. It also noted that competition may raise programming costs and that unsuccessful programming can require write-offs.
- Program-rights write-offs were $26.8 million for the nine months, compared with $16.5 million in 2014, reflecting management’s assessments of programming usefulness. Restructuring charges were $5.9 million; the company expected the restructuring to be substantially completed during 2015.
- Key disclosed risks include high leverage and refinancing access, distributor bargaining power and contract renewals, advertising demand, programming costs and performance, foreign exchange and interest-rate movements, international operating conditions, acquisitions and litigation. Foreign currency translation reduced nine-month other comprehensive income by $39.8 million; the company also reported $9.0 million of net foreign-currency transaction losses.
- BBC AMERICA acquisition accounting remained preliminary. BBC Worldwide Americas holds a 50.1% noncontrolling interest with put rights exercisable on the 15th and 25th anniversaries; redeemable noncontrolling interests were $210.4 million at quarter-end.
Important facts for investors to verify
- Confirm the intended issuer: the supplied company name differs from the filing registrant, AMC Networks Inc.
- Assess whether National Networks’ revenue and margin growth can be sustained, separating organic performance from BBC AMERICA consolidation and program-driven advertising volatility.
- Review debt maturities, covenant terms, refinancing requirements and the availability of capital markets, alongside the company’s reliance on its undrawn revolver.
- Monitor programming investment, program-rights write-offs and cash requirements, as well as International and Other segment profitability and currency exposure.
- Evaluate the BBC AMERICA put provisions and final purchase-accounting adjustments, and consider the impact of tax-rate variability and foreign earnings repatriation.