AMC Networks Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; unaudited. The filing is for AMC Networks Inc., notwithstanding the request metadata naming AMC Global Media Inc. The company operates National Networks and International and Other segments. Unless stated otherwise, amounts below are in millions of dollars.
Financial performance
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $684.8 | $601.1 | $1,391.4 | $1,269.8 |
| Operating income | $178.0 | $158.8 | $436.7 | $389.6 |
| Operating margin | 26.0% | 26.4% | 31.4% | 30.7% |
| Net income attributable to AMC Networks stockholders | $77.2 | $83.0 | $190.6 | $203.9 |
| Diluted earnings per share | $1.05 | $1.14 | $2.60 | $2.81 |
| Adjusted operating cash flow (AOCF) | $211.3 | $191.3 | $497.7 | $450.5 |
Q2 revenue rose 13.9%, while operating income increased 12.1%; attributable net income fell 7.0%, principally reflecting weaker non-operating results. AOCF, a non-GAAP measure defined by the company, increased 10.4% in Q2 and 10.5% for the six-month period. Six-month attributable net income declined 6.5%, including a $48.3 million loss on extinguishment of debt and substantial foreign-currency transaction losses.
- Revenue drivers: Q2 National Networks revenue rose 17.2% to $572.6 million, led by advertising growth of 28.9% and distribution growth of 10.0%. International and Other revenue increased 4.8% to $118.3 million. For the first half, National Networks revenue grew 11.4%; International and Other grew 3.7%.
- Margins and costs: Q2 operating margin eased to 26.0% from 26.4%, as technical and operating expense rose 17.6%, faster than revenue. Higher original-programming investment and related participation, residual, and development costs were key contributors. First-half operating margin improved to 31.4% from 30.7%.
- Cash flow: First-half operating cash flow was $229.6 million versus $190.2 million; capital expenditures were $24.2 million versus $33.1 million. Cash and cash equivalents ended June at $643.5 million, up from $316.3 million at year-end.
- Liquidity: Current assets were $1,878.1 million and current liabilities $944.0 million at June 30. The $500 million revolving credit facility was undrawn, and the company reported compliance with debt covenants.
- Debt: Debt carrying value, excluding capital leases, was $2,933.6 million, compared with $2,667.8 million at December 31, 2015; cash less this debt was approximately negative $2,290 million. The company issued $1.0 billion of 5.00% notes due 2024 and used part of the proceeds to tender for approximately $654 million of 7.75% notes due 2021. The remaining $45.6 million of 7.75% notes was classified as current and redeemed July 15, 2016.
Material changes and unusual items
- Q2 miscellaneous expense was $24.9 million, versus $11.4 million of miscellaneous income in Q2 2015. The company attributed the change primarily to unrealized foreign-currency transaction losses of $39.7 million, partly offset by derivative gains.
- First-half foreign-currency transaction losses, net, were $29.2 million. Foreign-exchange movements also affected comprehensive income and equity.
- The first-half debt extinguishment loss of $48.3 million reflected tender premiums, fees, and write-offs of unamortized debt discount and financing costs. Interest expense for the first half declined to $63.8 million from $65.6 million.
- The company repurchased 811,385 Class A shares for approximately $48.2 million in the first half under a $500 million repurchase authorization; $451.8 million remained available at June 30. Through July 29, it reported repurchases of 1,282,273 shares for $75.0 million.
Outlook, risks, and contingencies
- No numerical earnings or revenue guidance was provided. Management expected increased investment in original programming to continue during 2016 and noted that advertising, distribution revenue, expenses, and AOCF can vary significantly by quarter with programming schedules, ratings, and contract renewals.
- Management stated that cash on hand, operating cash flow, and the undrawn revolver should be sufficient for debt service and other requirements over the next 12 months and longer term. It also said operating cash flow alone is not expected to repay all debt at maturity, leaving the company dependent on capital-market access or refinancing; failure to secure funding could require asset sales, strategic investment, or reduced discretionary spending.
- Key stated risks include substantial leverage, advertising demand and subscriber trends, competition for programming and rising content costs, distribution-agreement renewals, foreign-exchange and interest-rate movements, international-market conditions, and litigation. The company reported no material legal-proceeding developments and said resolution of ordinary-course claims was not expected to materially harm its financial position or ability to meet obligations.
- The company reported effective disclosure controls and no material changes in internal control over financial reporting during the first half.
Important facts for investors to verify
- Whether advertising growth and original-programming performance can be sustained, and how programming costs affect margins and cash generation.
- Debt maturities, refinancing access, covenant terms, and the effect of the 2024 notes and July 2016 redemption on future interest and liquidity.
- The source, persistence, and cash impact of foreign-currency losses, especially those associated with intercompany balances.
- Cash availability, including approximately $96.0 million held by foreign subsidiaries and the tax implications of repatriating certain earnings.
- Share-repurchase pace and remaining authorization, alongside programming investment and debt-reduction priorities.