AMC Networks Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparison is with the corresponding 2020 periods. The filing is for AMC Networks Inc. (not “AMC Global Media Inc.”). Its two reportable segments are Domestic Operations and International and Other.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $810.8 million | $654.0 million | $2,273.9 million | $2,034.7 million |
| Operating income | $188.3 million | $139.5 million | $426.3 million | $361.2 million |
| Operating margin | 23.2% | 21.3% | 18.7% | 17.8% |
| Net income attributable to AMC Networks shareholders | $110.7 million | $61.6 million | $233.6 million | $145.3 million |
| Diluted EPS | $2.55 | $1.17 | $5.39 | $2.69 |
| Adjusted operating income (AOI, non-GAAP) | $224.7 million | $185.5 million | $713.3 million | $633.2 million |
- Revenue drivers: Q3 revenue increased 24.0%. Domestic Operations revenue rose 24.8%, with advertising up 21.8% and distribution and other up 26.2%. Management cited streaming subscriber growth, higher advertising pricing and ad-supported streaming, and increased content licensing. International and Other revenue grew 16.6%.
- Costs and margins: Q3 operating expenses rose 21.0%, slower than revenue growth. SG&A increased 47.9%, principally from streaming subscriber acquisition and advertising costs; technical and operating costs increased 13.3%. For the first nine months, SG&A rose 24.9%.
- Cash flow: Operating cash flow for the nine months was $44.0 million, down from $644.1 million. Management attributed the decline primarily to program-rights payments of $967.2 million, compared with $565.3 million in the prior period. Investing activities provided $30.9 million, including $95.4 million of investment-sale proceeds; financing activities used $66.6 million.
- Liquidity: Cash and equivalents were $871.0 million at September 30, versus $888.5 million at year-end 2020. Current assets were $1.869 billion and current liabilities $835.8 million. The $500 million revolving credit facility was undrawn.
- Debt: Long-term debt carrying value was $2.838 billion, including $2.811 billion noncurrent and $26.8 million current. The company issued $1.0 billion of 4.25% notes due 2029 and used proceeds to redeem $1.0 billion of notes due 2022 and 2024; it also extended its $675 million term loan and $500 million revolver to February 2026. The company reported compliance with debt covenants.
Material changes and unusual items
- Nine-month net income increased 60.8%, while revenue increased 11.8%. Nine-month AOI rose 12.6%. Comparisons include significant nonrecurring charges and other items.
- A $143.0 million charge was recorded in the first half for a $200 million settlement with Frank Darabont and related parties over The Walking Dead; the charge was net of $57 million in accrued participations. The settlement also provides for future revenue sharing from certain streaming exhibitions. The litigation was dismissed with prejudice.
- Impairment and other charges also included a $16.1 million loss on the March 2021 spin-off of the LiveCo comedy venue and talent-management businesses. The prior-year period included $130.4 million of impairment charges, mainly related to AMCNI assets and goodwill.
- The company recorded a $22.1 million loss on extinguishment of debt in 2021 in connection with the refinancing. Nine-month miscellaneous income was $19.6 million, compared with a $10.1 million expense in 2020, partly reflecting foreign-currency remeasurement and investment results.
- Basic weighted-average shares declined to 42.3 million for the nine months from 53.4 million, contributing to higher per-share results. No Class A shares were repurchased during the first nine months of 2021; $135.3 million remained under the repurchase authorization.
Outlook, risks and contingencies
- The filing provides no specific quantitative revenue, earnings or cash-flow guidance. Management expects revenue and AOI to vary by quarter, citing programming schedules, advertising demand and ratings, distribution renewals, streaming trends, and content-licensing timing. It expects continued investment in original programming.
- Management said cash on hand, operating cash flow and revolver availability should cover liquidity needs and debt service over the next 12 months and longer term. However, it does not expect operating cash flow alone to repay all debt at maturity and will depend on capital-market access to refinance or repay obligations.
- Risks include substantial debt and leverage, competition across television and streaming, programming costs and performance, advertising and subscriber demand, distribution renewals, foreign exchange and interest rates, and the uncertain effects of COVID-19. Management said it did not expect COVID-19 to impair liquidity or covenant compliance, but could not predict the pandemic’s ultimate effects.
- A separate California Walking Dead-related lawsuit remained unresolved, with trial reset for May 2022. The company said it would defend the claims; the ultimate outcome and potential liability were not determinable.
- Contractual obligations not reflected on the balance sheet were $1.043 billion, up $31.1 million from year-end, primarily due to additional program-rights commitments.
Investor verification points
- Review the drivers and sustainability of streaming growth and higher advertising revenue against elevated subscriber-acquisition and marketing costs.
- Track operating cash conversion and program-rights payment levels; reported nine-month operating cash flow fell sharply year over year.
- Assess debt maturities, refinancing-market dependence, covenant headroom and the undrawn revolver, alongside management’s liquidity assessment.
- Confirm the cash timing and accounting of the Darabont settlement, including future streaming revenue-sharing obligations, and monitor the remaining California litigation.
- Separate recurring operating performance from the settlement, spin-off loss, refinancing charge, and prior-year impairment when comparing results and AOI.