AMC Networks Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2020; comparisons are with the quarter ended September 30, 2019. The filing is for AMC Networks Inc., notwithstanding the request metadata naming AMC Global Media Inc. Financial statements are unaudited.
Business context
AMC Networks operates National Networks, including AMC, WE tv, BBC AMERICA, IFC, SundanceTV and AMC Studios, and International and Other, which includes AMC Networks International, targeted streaming services such as Acorn TV, Shudder, Sundance Now and AMC+, Levity, and IFC Films.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $654.0m | $718.6m | $2,034.7m | $2,275.1m |
| Operating income | $139.5m | $168.4m | $361.2m | $583.6m |
| Operating margin | 21.3% | 23.4% | 17.8% | 25.6% |
| Adjusted operating income (AOI, non-GAAP) | $185.5m | $219.3m | $633.2m | $744.0m |
| Net income attributable to AMC Networks | $61.6m | $116.9m | $145.3m | $389.1m |
| Diluted earnings per share | $1.17 | $2.07 | $2.69 | $6.80 |
Q3 revenue declined 9.0% year over year; attributable net income fell 47.3%. National Networks revenue decreased 17.3%, reflecting lower advertising and distribution revenue. International and Other revenue increased 9.0%, principally from streaming growth, partly offset by pandemic-related weakness at Levity and AMCNI. Consolidated Q3 AOI declined 15.4%; National Networks AOI fell 23.6%, while International and Other AOI rose to $27.9m from $13.5m.
For the first nine months, revenue declined 10.6% and attributable net income declined 62.7%. Operating income included $130.4m of impairment charges, all in International and Other: $105.3m for long-lived assets and $25.1m for AMCNI goodwill. Excluding these items through the company’s non-GAAP AOI measure, nine-month AOI declined 14.9%. Q3 technical and operating costs and SG&A decreased, but did not offset lower revenue.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $644.1m, up from $400.4m; investing cash outflow was $24.4m and financing cash outflow was $364.7m. Cash increased $254.9m to $1,071.9m.
- At September 30, cash and cash equivalents were $1,071.9m; current assets were $2,033.0m and current liabilities were $835.1m. The $500m revolving credit facility was undrawn. The company reported compliance with debt covenants.
- Debt carrying value, net, was $2,867.1m, including $76.0m current and $2,791.1m noncurrent. Gross principal debt was $2,894.8m. The company redeemed $200m of 4.75% notes due 2022 in March, paying down debt by $242.5m net of issuance proceeds during the nine-month period.
- Management said cash, operating cash generation and revolver availability should provide liquidity for the next twelve months and longer term. It also cautioned that operating cash flow will not be sufficient to repay all debt at maturity, making refinancing or other capital-market access necessary.
- Nine-month capital expenditures were $35.0m, versus $69.1m a year earlier. Share repurchases used $102.9m during the period.
Material changes, outlook and risks
- COVID-19 materially affected operations: advertising demand weakened, content production was suspended and programming availability delayed, and comedy venues temporarily closed. Production resumed on most programming in Q3, but employees largely remained remote and business travel was restricted. Management could not predict the pandemic’s ultimate impact.
- Management cited lower National Networks advertising from fewer original-program episodes and lower ratings, and lower subscription revenue from fewer subscribers. Streaming-service distribution revenue grew, while Levity and AMCNI faced pandemic-related pressure. The company expects advertising, distribution revenue and AOI to vary from quarter to quarter; the filing provides no specific earnings or revenue guidance.
- The company recorded $31.2m of National Networks program-rights write-offs in the first nine months, compared with $14.7m in 2019. Estimates of content value and impairment depend on projected revenues, usage and market conditions; further impairment could result if assumptions worsen.
- The nine-month effective tax rate was 38%, versus 12% in 2019, primarily reflecting increased valuation allowances for foreign taxes and U.S. foreign tax credits, among other items.
- Contractual obligations not reflected on the balance sheet totaled $1,063.0m, up $129.1m from December 2019, primarily due to program-rights and marketing commitments.
- Contingencies include litigation concerning compensation for creators and producers of The Walking Dead. The filing says outcomes and potential liability cannot be determined. The joint Darabont trial was scheduled for April 2021; a separate California action had a tentative September 2021 trial date.
- After quarter end, the company accepted 10.8m Class A shares in a tender offer at $23.20 per share, for $250.6m, reducing remaining repurchase authorization to $135.3m.
Important facts for investors to verify
- Whether advertising demand, subscriber counts and original-content availability recover, and how these trends affect National Networks revenue and margins.
- Streaming subscriber and revenue growth, including whether it offsets declines in traditional distribution and pandemic impacts on Levity and AMCNI.
- Debt maturities, refinancing access, covenant headroom and cash available after the tender offer and continued programming investment.
- Potential further impairment of AMCNI assets or goodwill and the assumptions supporting content-rights valuations.
- Developments and possible financial exposure in the Walking Dead litigation, which the filing does not quantify.
- Reported GAAP results versus non-GAAP AOI, which excludes impairment, restructuring and other specified items and is not directly comparable across companies.