Business context and reporting period
This is AMC Networks Inc.’s unaudited Form 10-Q for the three months ended March 31, 2020. The filing names AMC Networks Inc. as the registrant; it does not identify the filer as AMC Global Media Inc. The company operates National Networks (including AMC, WE tv, BBC America, IFC and SundanceTV) and International and Other (including AMC Networks International and targeted streaming services).
Key financial results
Amounts are in millions of dollars except per-share data. Comparisons are with the three months ended March 31, 2019.
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $734.4 | $784.2 | Down 6.4% |
| Operating income | $173.0 | $244.9 | Down 29.4% |
| Operating margin | 23.6% | 31.2% | Down 7.6 percentage points |
| Adjusted operating income (AOI, non-GAAP) | $222.5 | $293.0 | Down 24.1% |
| Net income attributable to AMC Networks stockholders | $68.7 | $143.4 | Down 52.1% |
| Diluted earnings per share | $1.22 | $2.48 | Down 50.8% |
| Cash from operating activities | $198.4 | $171.7 | Up $26.7 |
| Capital expenditures | $12.9 | $22.1 | Down $9.1 |
Cash from operations less capital expenditures was approximately $185.5 million, versus $149.6 million in Q1 2019; this simple calculation is not a company-defined free-cash-flow measure. Q1 2020 cash and cash equivalents were $704.1 million, down from $816.2 million at year-end 2019. The cash decline principally reflected $209.4 million of debt principal payments and $86.0 million of share repurchases.
Liquidity, debt and material changes
At March 31, 2020, debt net of discounts and financing costs was $2.895 billion, including $70.6 million current and $2.824 billion long-term. The $500 million revolving credit facility was undrawn, and the company reported compliance with debt covenants. Cash less reported debt was approximately $1.74 billion of net debt, excluding lease obligations. Lease liabilities totaled $253.6 million.
In March, the company redeemed $200 million principal amount of its 4.75% notes due 2022 and recorded a $2.9 million extinguishment loss. It repurchased 3.3 million Class A shares during the quarter for $86.0 million, at an average price of about $26.09; $402.9 million remained authorized. From April 1 through April 24, it repurchased an additional 688,000 shares for $17.0 million.
National Networks revenue fell 8.0%, with advertising down 10.8% and distribution down 6.2%; management cited lower AMC ratings and fewer subscribers. International and Other revenue was nearly flat, while AOI declined 22.8%. Streaming subscription revenue increased, partly offset by weaker IFC Films and AMCNI distribution revenue. Consolidated AOI fell 24.1%, and operating margin contracted as operating costs and SG&A rose relative to revenue. Miscellaneous expense increased to $29.9 million, principally reflecting unfavorable foreign-currency remeasurement and a $20.0 million impairment charge on non-marketable securities and a note receivable.
Outlook, risks and unusual items
Management said COVID-19 had adversely affected advertising sales beginning in mid-March and had caused content production suspensions and programming delays. It expected the pandemic’s adverse effect on results of operations to be material, while stating it did not expect the pandemic to affect liquidity or ongoing covenant compliance. The duration and scale of effects remained uncertain. The company expected increased investment in original programming to continue in 2020 and noted that results and AOI may vary by quarter. No specific revenue or earnings guidance was provided.
Management determined COVID-19 had not triggered an interim goodwill impairment test as of quarter-end, but warned that changed assumptions could lead to impairment charges. Other key risks include substantial leverage and the need to refinance debt at maturity, advertising and subscriber demand, programming costs and performance, foreign exchange exposure, and litigation. The company disclosed unresolved Walking Dead-related litigation, including a claim seeking at least $280 million and a separate claim seeking at least $20 million; it said outcomes and potential liability could not be determined. A California contract-interpretation trial phase had concluded, with a decision expected around June 2020.
Most important facts for investors to verify
- Confirm the registrant identity: this filing is for AMC Networks Inc., notwithstanding the request metadata naming AMC Global Media Inc.
- Track COVID-19’s subsequent effects on advertising, production schedules, programming availability, cash generation and impairment assessments.
- Review debt maturities, refinancing access and covenant headroom; management said it would depend on capital and credit markets to refinance debt at maturity.
- Assess whether continued share repurchases and programming investment remain consistent with liquidity and leverage priorities.
- Monitor developments and potential exposure in the Walking Dead-related litigation, for which the filing provides no determinable ultimate liability.