Business context and reporting period
This is AMC Networks Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. The filing identifies the registrant as AMC Networks Inc., not “AMC Global Media Inc.” Its businesses comprise Domestic Operations—including television networks, streaming services, studios and film distribution—and International and Other, including AMC Networks International and 25/7 Media.
Financial performance and condition
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $637.0 million | $681.8 million | $2,033.0 million | $2,132.0 million |
| Operating income | $120.9 million | $150.7 million | $399.9 million | $478.6 million |
| Net income attributable to AMC Networks stockholders | $63.4 million | $84.7 million | $237.3 million | $272.3 million |
| Diluted EPS | $1.44 | $1.94 | $5.40 | $6.23 |
| Adjusted operating income (non-GAAP) | $177.3 million | $194.3 million | $569.8 million | $601.0 million |
- Q3 revenue declined 6.6%; advertising fell 15.8% and subscription revenue fell 3.4%. Nine-month revenue declined 4.6%, including a 17.1% decline in advertising.
- Q3 operating income decreased 19.8% and attributable net income decreased 25.1%. Nine-month operating income decreased 16.4% and attributable net income decreased 12.9%.
- Nine-month operating cash flow was $131.1 million, versus $36.6 million in 2022. Investing used $19.2 million and financing used $84.9 million; cash increased by $27.0 million before foreign-exchange effects and ended at $955.2 million.
- At September 30, cash was $955.2 million. Debt carrying value was $2.793 billion, including $459.1 million classified as current; the $400 million 5.00% notes due April 2024 were included in current debt. The $400 million revolver was undrawn, and the company reported compliance with debt covenants.
- Current assets were $1.901 billion and current liabilities $1.300 billion. Contractual obligations not reflected on the balance sheet were $932.8 million, up $20.6 million from December 31, 2022.
- Domestic streaming subscription revenue rose 8.6% in Q3 and paid streaming subscriptions reached 11.1 million, up from 10.7 million a year earlier. Streaming revenue for the first nine months was $420.8 million versus $362.9 million.
Material changes and unusual items
- Cost reductions lowered selling, general and administrative expense, but did not offset weaker revenue and higher content-related costs over the nine-month period. Technical and operating expense increased 3.3% for the period.
- The company recorded $30.3 million of impairment and other charges in the first nine months, including $23.0 million of 25/7 Media intangible-asset impairment and $1.9 million of goodwill impairment following reduced production demand and series cancellations. Q3 included a separate $5.4 million other charge.
- The 2022 restructuring plan was substantially completed during Q3. Nine-month restructuring and related charges were $22.5 million. In connection with office-space exits, the company separately recorded $11.6 million of impairment charges for lease assets and leasehold improvements.
- Nine-month content licensing revenue benefited from a $56.1 million delivery of series episodes and a $20.3 million acceleration of revenue after termination of an output agreement; the company said Domestic content licensing revenue may face pressure in 2024 due to reduced original-programming availability.
- In October 2023, the company entered a receivables-sale program with a $125 million limit; no receivables had been sold as of the filing date.
Outlook, risks and contingencies
- Management expects linear subscriber declines to continue and advertising revenue to continue declining as advertising shifts to other platforms. It cited pressure on 2024 Domestic content licensing revenue. The filing provides no numerical earnings or revenue guidance.
- Management believes cash on hand, operating cash flow, the revolver, the new receivables program and potential financing will provide liquidity for the next 12 months and longer term. However, it does not expect operating cash flow alone to repay debt at maturity and says refinancing or other capital-market access will be necessary. Failure to obtain funding could require asset sales, strategic investment or spending reductions.
- After quarter-end, on November 3, the company gave notice that it intended to redeem the remaining $400 million of 5.00% notes on December 12, 2023, at par plus accrued interest. Management also noted it may seek to refinance the $800 million of 4.75% notes due in 2025.
- Key risks include cord-cutting, competition, advertising weakness, content costs and demand, production cancellations, strikes, high leverage, interest rates, refinancing access, foreign exchange and litigation.
- The Walking Dead profit-participation arbitration concluded in October 2023; a final decision was not expected until 2024, and management expected no material financial impact. In separate “most favored nations” litigation, plaintiffs seek more than $200 million; the company says it believes the claims are without merit, but the outcome and potential liability cannot currently be determined.
- The company reached a settlement in principle, subject to court approval, in certain video-privacy class actions. Related arbitration outcomes remain uncertain; management expects insurance reimbursement for any potential liability and does not believe resolution will materially harm its financial position.
Important facts for investors to verify
- Whether the planned $400 million 2024-note redemption was completed and how it was funded, and the company’s refinancing plan for the 2025 notes.
- Subsequent trends in advertising, affiliate subscribers, streaming subscribers and revenue, and Domestic content licensing after the disclosed delivery-related revenue boost.
- Whether 25/7 Media’s demand and cash-flow outlook stabilizes, and whether further impairments or restructuring charges arise.
- The outcome and potential financial exposure from the Walking Dead arbitration, the MFN litigation and the video-privacy matters, including settlement approval and insurance coverage.
- Cash generation relative to program-rights spending, debt service, and the $932.8 million of off-balance-sheet contractual obligations.