AMC Networks Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparative period is Q1 2018. The filing identifies the registrant as AMC Networks Inc. (NASDAQ: AMCX), an entertainment company operating National Networks and International and Other businesses. This differs from the request metadata’s company name.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $784.2 million | $740.8 million | +5.9% |
| Operating income | $244.9 million | $233.7 million | +4.8% |
| Operating margin | 31.2% | 31.5% | -0.3 percentage points |
| Adjusted operating income (AOI, non-GAAP) | $293.0 million | $269.3 million | +8.8% |
| Net income attributable to AMC Networks shareholders | $143.4 million | $156.9 million | -8.6% |
| Diluted EPS | $2.48 | $2.54 | -2.4% |
| Cash from operating activities | $171.7 million | $117.0 million | +$54.7 million |
- Net margin attributable to AMC Networks shareholders was 18.3%, versus 21.2% a year earlier.
- Cash and cash equivalents were $683.7 million at March 31, 2019, up from $554.9 million at year-end 2018. Current assets were $2.105 billion and current liabilities $792.0 million.
- Debt, net of discounts and financing costs, was $3.111 billion, including $30.1 million current. Cash less debt was approximately negative $2.43 billion. The $500 million revolving credit facility was undrawn; the company reported compliance with debt covenants.
- Investing activities used $18.1 million, including $22.1 million of capital expenditures. Financing activities used $27.0 million. Cash increased by $126.6 million during the quarter.
- Reported revenue and operating margins are GAAP measures. AOI is non-GAAP and should not be treated as a substitute for GAAP results or cash flow.
Changes versus prior year
- National Networks revenue fell 2.7% to $616.1 million: advertising rose 5.9%, while distribution declined 7.4%, mainly because foreign content-licensing revenue was lower. Operating income was nearly flat at $251.5 million.
- International and Other revenue grew 53.6% to $171.1 million, substantially reflecting the acquisitions of Levity (2018) and RLJ Entertainment (2018). The segment’s operating loss narrowed to $13.7 million from $16.8 million; AOI improved to $9.9 million from a $2.2 million loss.
- Despite higher operating income, shareholder net income declined. Miscellaneous expense swung to $12.8 million from $16.9 million of income, principally reflecting a $17.7 million impairment/write-down of non-marketable equity securities and a note receivable, and the absence of prior-year gains related to the RLJ investment.
- Effective income tax rate was 24%, compared with 26% in Q1 2018. Interest expense, net, increased $2.3 million, partly due to a higher variable rate on the term loan.
- Q1 2019 included $2.6 million of restructuring expense. The company adopted the new lease standard on January 1, 2019, recognizing lease right-of-use assets and liabilities; management said adoption did not materially affect net income or cash flows.
Outlook, risks, and contingencies
- No specific full-year revenue, earnings, or EPS guidance is provided. Management expects higher investment in original programming to continue in 2019 and cautions that revenue and AOI can vary quarter to quarter with programming schedules, ratings, licensing timing, and subscriber trends.
- Management believes cash on hand, operating cash flow, and revolver availability should meet needs over the next 12 months and longer term. It does not expect operating cash flow alone to repay all debt at maturity and expects to rely on capital-market access to refinance or repay obligations.
- Risks cited include competition and changing viewing habits; advertising demand and ratings; distributor renewals and subscriber levels; programming costs and performance; leverage and capital-market access; foreign exchange and interest rates; acquisitions and integration; and litigation.
- Foreign-currency transaction losses were $5.8 million in Q1. A $100 million interest-rate swap portfolio was outstanding; about 79% of debt excluding finance leases was effectively fixed. The company said a 100-basis-point rate increase would not materially affect annual interest expense.
- Several disputes concern compensation and accounting for The Walking Dead and related series. In one action, plaintiffs claimed damages of at least $280 million; a separate action sought at least $20 million. The company disputes the claims, says outcomes and potential liability cannot be determined, and reported a joint trial scheduled for May 4, 2020. Management did not believe resolution of legal matters would materially adversely affect financial position, while acknowledging period results could be materially affected.
- The board’s $1.5 billion share-repurchase authorization had $558.4 million remaining at quarter-end. The table reports 18,411 shares repurchased in Q1 at an average $53.82 per share; a separate MD&A passage says “18.4 million,” which appears inconsistent and warrants verification.
Investor verification priorities
- Confirm the registrant identity and reconcile the metadata name with AMC Networks Inc.
- Verify the reported Q1 repurchase count: 18,411 shares in the detailed table versus “18.4 million” in MD&A.
- Review the debt maturity and refinancing profile, covenant terms, and availability of capital markets given management’s stated reliance on refinancing at maturity.
- Assess whether revenue growth and improved AOI are sustainable apart from the contributions of Levity and RLJ, and monitor National Networks distribution, licensing, and subscriber trends.
- Track the $17.7 million investment impairment, remaining investment exposures, and developments in the Walking Dead litigation.