AMC Networks Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited results; comparisons are with the corresponding 2022 periods. The filing identifies the registrant as AMC Networks Inc.
Business context and financial results
The company operates Domestic Operations, including its U.S. networks, streaming services, studios and film distribution, and International and Other, including AMC Networks International and production-services business 25/7 Media. Unless indicated otherwise, amounts below are in millions of U.S. dollars.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $678.6 | $738.0 | $1,396.1 | $1,450.2 |
| Operating income | $105.7 | $153.2 | $279.0 | $327.9 |
| Net income attributable to AMC Networks stockholders | $70.2 | $83.4 | $173.8 | $187.6 |
| Diluted EPS | $1.60 | $1.91 | $3.97 | $4.29 |
| Adjusted operating income (non-GAAP) | $176.8 | $195.5 | $392.5 | $406.7 |
| Cash provided by operating activities | Not stated for quarter | Not stated for quarter | $25.0 | $17.2 |
Q2 operating margin was approximately 15.6%, down from 20.8%; six-month operating margin was approximately 20.0%, down from 22.6%. Q2 attributable net margin was approximately 10.3%, versus 11.3% a year earlier. These are simple calculations from reported figures.
For the first half, subscription revenue was $795.3 million, down 1.6%; advertising revenue was $367.1 million, down 17.7%; and content licensing and other revenue rose 19.3% to $233.7 million. Domestic streaming revenue grew: paid streaming subscribers reached 11.0 million, up 6% year over year at June 30. Streaming revenue was $137.4 million in Q2 and $278.3 million for the half.
Liquidity, cash flow and debt
- Cash and cash equivalents were $893.4 million at June 30, 2023, down from $930.0 million at December 31, 2022. Current assets were $1.84 billion and current liabilities $1.37 billion.
- First-half operating cash flow of $25.0 million compared with $17.2 million in 2022. The company used $13.0 million in investing activities and $54.8 million in financing activities; cash decreased $42.8 million before a $6.1 million favorable exchange-rate effect.
- Debt totaled $2.824 billion before unamortized discounts and financing costs; reported net debt was $2.800 billion. Cash was $893.4 million. The revolving facility was undrawn, with $400 million of commitments after an April amendment. The company repaid $16.9 million of Term Loan A principal in the first half.
- Debt includes $400 million of 5.00% notes due April 2024, $800 million of 4.75% notes due August 2025, and $1.0 billion of 4.25% notes due February 2029. The filing says operating cash flow is not expected to be sufficient to repay debt at maturity and that refinancing or other financing access will be needed. Management said available liquidity sources are expected to meet requirements over the next 12 months and longer term; it cautioned that capital-market access is not assured.
- The company reported compliance with debt covenants at June 30. Approximately 78% of debt was fixed-rate; a 100-basis-point rate increase was estimated to raise annual interest expense by about $6.2 million.
Material changes and notable items
- Q2 revenue declined 8.0% and operating income declined 31.0% year over year. Advertising fell 16.1%, reflecting linear ratings declines, a soft advertising market and fewer original episodes. Subscription revenue fell 3.1%, with streaming growth partly offsetting affiliate declines.
- First-half revenue declined 3.7% and operating income 14.9%. Lower advertising and affiliate revenue, higher technical and operating costs, and new impairment and restructuring charges weighed on results. Lower SG&A partly offset these pressures.
- Q2 included $24.9 million of impairment charges: $23.0 million for 25/7 Media intangible assets and $1.9 million for goodwill. Management cited lower expected cash flows amid reduced demand for new content and third-party series cancellations.
- The restructuring plan, launched in November 2022 in response to cord-cutting and industry conditions, generated charges of $6.0 million in Q2 and $12.0 million for the first half, primarily severance and personnel costs. The accrued restructuring balance was $36.0 million at June 30.
- Content licensing benefited from timing-related items: Q2 included $20.3 million of revenue accelerated from 2024 after an output agreement ended. First-half domestic content licensing also included $56.1 million for delivery of remaining episodes of a series. Related program-rights amortization was also accelerated.
- Contractual obligations not reflected on the balance sheet were $917.4 million, up $5.2 million from year-end, primarily due to a renewed service contract and additional program-rights commitments.
Outlook, risks and contingencies
The filing provides no numerical revenue, earnings or cash-flow guidance. Management cited demand for programming and streaming, advertising conditions, affiliate renewals and subscriber trends, content costs, competition, inflation, interest rates, leverage and access to financing as factors that could affect results. The company also identified potential effects from industry labor strikes among its forward-looking risks.
AMC Networks faces Walking Dead-related proceedings, including arbitration of remaining profit-participation claims expected to commence October 16, 2023, and an appeal. A separate MFN lawsuit seeks more than $200 million in claimed damages; a motion to dismiss was pending, with trial scheduled for September 2024. The company disputes the claims and says outcomes and potential liability cannot currently be determined. It also faces putative class actions and arbitration claims alleging privacy-law violations relating to use of a Meta pixel on certain streaming-service websites. Management said these matters could affect results in a particular period, but does not expect their resolution to materially harm financial position or ability to meet obligations.
Investor verification priorities
- Track the 2024 and 2025 notes, refinancing plans, market access and the availability and terms of revolving-credit commitments.
- Assess whether streaming growth can offset ongoing affiliate subscriber declines and weaker advertising demand, and whether content licensing gains are repeatable or timing-driven.
- Monitor 25/7 Media demand, impairment assumptions and further restructuring or content-related charges.
- Review cash conversion and funding needs, including program-rights spending, contractual commitments and payments to noncontrolling interests.
- Follow developments in the Walking Dead claims and privacy litigation, including potential exposure and timing.