AMC Networks Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. The filing is for AMC Networks Inc. and subsidiaries. The company operates Domestic Operations and International and Other; streaming services and IFC Films were moved into Domestic Operations, with prior-period segment results recast.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $691.7 million | $734.4 million | Down 5.8% |
| Operating income / margin | $169.7 million / 24.5% | $173.0 million / 23.6% | Income down 1.9% |
| Adjusted operating income (AOI, non-GAAP) | $238.0 million | $222.5 million | Up 7.0% |
| Net income attributable to AMC Networks stockholders | $87.0 million | $68.7 million | Up 26.7% |
| Diluted EPS | $2.02 | $1.22 | Up |
| Operating cash flow | $107.6 million | $198.4 million | Down 45.8% |
Net margin was 12.6%, versus 9.4% a year earlier. Revenue declined in both segments: Domestic Operations fell 6.2% to $574.0 million, while International and Other fell 2.9% to $121.2 million. Domestic advertising revenue decreased 6.6% and distribution and other revenue decreased 6.0%; streaming subscription revenue increased 14%, partly offsetting a 54% decline in content licensing revenue. International advertising revenue rose 11.4%, while distribution and other revenue fell 5.6%.
Technical and operating expense fell 18.5% to $280.6 million, largely reflecting lower program amortization and programming mix. Selling, general and administrative expense rose 3.7% to $191.5 million, including higher streaming advertising and subscriber-acquisition costs. AOI increased despite lower revenue; it is a non-GAAP measure and should be considered alongside GAAP results.
Cash, debt and liquidity
- Cash and cash equivalents were $993.1 million at quarter-end, up from $888.5 million at December 31, 2020. Cash included approximately $231 million held by foreign subsidiaries.
- Debt principal was $2.875 billion; reported debt net of unamortized discounts and financing costs was $2.834 billion. Cash less reported debt implies net debt of approximately $1.84 billion, excluding lease obligations.
- The $500 million revolving credit facility was undrawn. The company reported compliance with all debt covenants. Its $675 million Term Loan A and $500 million revolver maturities were extended to February 2026.
- The company issued $1.0 billion of 4.25% notes due 2029 and used the proceeds to redeem $400 million of 4.75% notes due 2022 and $600 million of 5.00% notes due 2024. The refinancing generated a $22.1 million debt-extinguishment loss.
- Operating cash flow was reduced by program-rights cash outflows and a decrease in accounts payable, accrued expenses and other liabilities. Investing cash flow was positive $56.0 million, including $95.4 million of investment-sale proceeds. Financing cash flow was negative $53.9 million.
- Contractual obligations not reflected on the balance sheet were $1.043 billion, up $30.6 million from year-end, primarily due to program-rights and marketing commitments.
Management said cash on hand, operating cash generation and revolver availability should fund obligations and investment needs over the next 12 months and longer term. It also stated operating cash flow is not expected to be sufficient to repay all debt at maturity, making access to capital markets or refinancing important.
Material changes, outlook and risks
- The company spun off its live comedy venue and talent management businesses in March 2021, effectively exchanging its interests for release from obligations, principally leases. It recorded a $16.1 million disposal loss and retained the production-services business, renamed 25/7 Media.
- Restructuring and related charges were $8.6 million, including severance and costs to end distribution in certain international territories. The company also invested $25.5 million in a Toronto-based production company and studio.
- COVID-19 continued to affect advertising sales and programming creation and availability. Management said the pandemic’s ultimate effects were not reasonably predictable, but did not expect it to impair liquidity or covenant compliance. It expects advertising, distribution revenue and AOI to vary from quarter to quarter; no specific financial guidance was provided.
- Key risks include competition for viewers and content, advertising demand and ratings guarantees, subscriber and affiliation trends, programming costs and performance, substantial debt and refinancing needs, foreign exchange and interest-rate movements, and continuing pandemic effects.
- Litigation includes disputes relating to The Walking Dead. Darabont plaintiffs sought at least $280 million in one action and at least $20 million in a related action; the company disputes the claims and said the outcome and potential liability could not be determined. The joint trial was adjourned to April 2022. In a separate California action, a first-phase contract-interpretation decision favored the company; remaining claims were pending, with trial then scheduled for September 2021. The filing states ordinary-course litigation outcomes are uncertain.
- Management concluded disclosure controls and procedures were effective as of March 31, 2021, and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether streaming subscriber growth and revenue can offset weaker content licensing and linear advertising trends, and the associated marketing costs.
- Whether operating cash flow recovers from the year-over-year decline while the company sustains programming investment and meets program-rights commitments.
- Debt maturities, refinancing access, interest costs and covenant headroom; the filing notes that full repayment at maturity will require refinancing or other actions.
- Progress and potential financial exposure in the Darabont and California litigation, including developments after the March 31 reporting date.
- The effects of COVID-19 on advertising, production schedules and content availability, and the comparability of segment results following the reporting-structure change.