AMC Networks Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; compared with Q1 2016. The filing identifies the registrant as AMC Networks Inc., not AMC Global Media Inc. The company operates National Networks and International and Other segments, including U.S. and Canadian programming networks, international channels, AMC Studios and IFC Films.
Financial performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $720.2 million | $706.6 million |
| Operating income | $231.7 million | $258.8 million |
| Operating margin | 32.2% | 36.6% |
| Adjusted operating income (AOI, non-GAAP) | $270.3 million | $286.6 million |
| Net income attributable to AMC Networks stockholders | $136.2 million | $113.4 million |
| Diluted EPS | $1.98 | $1.55 |
| Cash from operating activities | $144.9 million | $167.4 million |
| Capital expenditures | $20.2 million | $12.4 million |
- Revenue grew 1.9%; higher National Networks distribution revenue was partly offset by lower advertising revenue and a decline in International and Other revenue.
- National Networks revenue rose 2.8% to $615.1 million, while segment AOI fell 4.6% to $268.0 million. International and Other revenue decreased 2.1% to $106.8 million; AOI decreased to $1.1 million from $5.1 million.
- National Networks advertising revenue declined 6.2%, primarily due to lower AMC ratings and programming timing. Distribution revenue increased 9.8%, helped by digital licensing and higher affiliation fees.
- Operating expenses rose 9.1%, faster than revenue, and operating margin contracted to 32.2%. Increased program-rights amortization was a principal cost driver.
- Net income rose 20.1%, despite lower operating income, as Q1 2016 included a $48.3 million debt-extinguishment loss and Q1 2017 included derivative gains. Q1 2017 miscellaneous income included an $11.1 million gain related to RLJ Entertainment instruments.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $403.6 million at March 31, 2017, down from $481.4 million at year-end. Current assets were $1.654 billion and current liabilities $965.6 million.
- Debt principal was $2.803 billion, comprising a $1.203 billion Term Loan A and $1.6 billion of senior notes. Debt reported net of discounts and financing costs was $2.766 billion. The $500 million revolving facility was undrawn; the company reported compliance with debt covenants.
- Term Loan A principal payments due over the next 12 months were $240.5 million. The company stated that cash, operating cash generation and revolver availability should cover near-term obligations, but that it would need capital-market access to refinance debt at maturity.
- Q1 financing cash outflow was $172.8 million, including $91.4 million of share repurchases and $55.5 million of debt principal payments. Cash declined by $76.2 million overall.
- Contractual obligations not reflected on the balance sheet increased $35.1 million to $1.4 billion, primarily due to production-cost payment guarantees.
Outlook, risks and unusual items
- No specific full-year revenue or earnings guidance is provided. Management expects increased investment in original programming to continue in 2017, with funding generally occurring six to nine months before programs air; it also expects revenue and AOI to vary by quarter.
- Management cited programming and content costs, competition and changing distribution technologies, advertising demand and ratings, distributor negotiations, foreign exchange and interest rates, and substantial leverage as key risks.
- The company repurchased 1.62 million Class A shares during Q1 at an average $56.60 per share. At quarter-end, $185.3 million remained under its $500 million authorization. It reported purchasing approximately 642,000 additional shares for $37.9 million from April 1 through April 28.
- A lawsuit concerning compensation related to The Walking Dead includes plaintiffs’ claimed damages of $280 million or more. The company disputes the claims; it stated that the outcome and potential liability could not be determined.
- Q1 2017 restructuring expense was $2.7 million, primarily related to corporate severance. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether National Networks advertising and ratings trends stabilize, and whether distribution growth offsets continued programming investment.
- The trajectory of International and Other profitability, including investment in online initiatives and AMCNI-DMC depreciation.
- Cash conversion and program-rights spending, given lower operating cash flow year over year and the high level of programming investment.
- Debt repayment and refinancing capacity, including the $240.5 million of scheduled Term Loan A payments over the next 12 months and future capital-market access.
- Developments in the The Walking Dead litigation and the valuation volatility of RLJ-related derivatives.