Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AMC Networks Inc (AMCX, Financial) reported strong free cash flow of $239 million halfway through the year, on track to meet full-year guidance.
- The company entered a new branded distribution partnership with Netflix, featuring prior seasons of 15 AMC shows, expected to boost audience reach.
- AMC Networks Inc (AMCX) expanded its partnership with Philo, launching the ad-supported version of AMC+ in their core package, resulting in consistent subscriber gains.
- The company saw significant growth in viewership for its branded channels in the FAST and AVOD categories, with 18 FAST channels live on 11 platforms.
- AMC Networks Inc (AMCX) reported strong performances from key series like 'The Walking Dead: The Ones Who Live' and 'Anne Rice’s Interview with the Vampire,' driving AMC+ to all-time high viewership.
Negative Points
- Consolidated revenue decreased by 8% to $626 million in the quarter, with a 4% decrease excluding certain adjustments.
- Domestic Operations revenue decreased by 7%, driven by a 12% decline in affiliate revenue due to a decrease in linear subscribers.
- Advertising revenue declined by 11% year-over-year, primarily due to lower linear ratings.
- International revenue decreased by 4% on an apples-to-apples basis, despite new streaming offerings.
- The company anticipates a year-over-year increase in programming amortization expense for 2025, which could impact future financials.
Q & A Highlights
Q: Kristin, can you elaborate on the Netflix deal and its expected impact compared to past experiments like AMC+ Picks on HBO?
A: Kristin Dolan, CEO: We're excited about this deal. It mirrors the "Breaking Bad effect" where exposure on Netflix significantly boosted the show's popularity. This non-exclusive deal will put our content on a big stage, reaching 125 million Netflix subscribers in the US. We believe it will drive viewers back to AMC and AMC+ for new seasons premiering in 2025 and 2026.
Q: Patrick, you mentioned an expected increase in programming amortization next year. Can you explain what's driving this and if the $1 billion cash spend on programming will continue?
A: Patrick O’Connell, CFO: The $1 billion is a cash number for this year. The increase in amortization is due to higher pre-2023 investments flowing through the system over 3-4 years. Despite this, our cash programming investment remains around $1 billion, and we have clear visibility on generating approximately $0.5 billion in free cash flow between this year and next.
Q: How will the move to Comcast Technology Solutions for backend streaming services impact AOI?
A: Patrick O’Connell, CFO: This deal will provide cost and capital efficiency, with savings across both operating and capital expenditures. While there will be no impact in 2024 and some onboarding costs in 2025, we expect clear paybacks over 12-24 months.
Q: Regarding the Netflix deal, how will revenue be recognized? Will all episodes be available at once?
A: Kristin Dolan, CEO: 13 of the 15 series will be available on August 19, with the remaining two premiering in Q1 2025. Patrick O’Connell, CFO: The full revenue will be recognized in 2024 as the availability date is at the end of Q4.
Q: Can you clarify the shifting revenue composition within your guidance for the year?
A: Patrick O’Connell, CFO: We're seeing strength in the licensing market, which offsets some weaknesses elsewhere. Despite the dynamic environment, our guidance for $2.4 billion in revenue, $550-$575 million in AOI, and year-over-year free cash flow growth remains intact.
Q: What is the expected impact of the increased programming amortization on free cash flow and AOI?
A: Patrick O’Connell, CFO: Amortization this year is roughly in line with the $1 billion cash content spend. We expect some growth in amortization next year, but we will provide more details when we give guidance for 2025.
Q: Will the strong licensing revenue in 2024 create a tough comp for 2025?
A: Patrick O’Connell, CFO: It's tough to say definitively, but given our current production levels and market strength, we feel good about 2025 and expect it to be strong as well.
Q: How does the Netflix deal benefit your distribution partners?
A: Kristin Dolan, CEO: The deal benefits our distribution partners who have Netflix partnerships, like Roku and Comcast. The exposure on Netflix will drive viewers back to AMC and AMC+ for new seasons, benefiting all parties involved.
Q: Can you discuss the impact of the Comcast Technology Solutions deal on your capital structure?
A: Patrick O’Connell, CFO: The deal is both cost and capital efficient, providing cost certainty and savings across operating and capital expenditures. This will positively impact our operating free cash flow.
Q: How are you managing the balance between quality and cost in your programming?
A: Kristin Dolan, CEO: Despite reducing expenses, we've maintained and even enhanced the quality of our content. Shows like "Interview with the Vampire" and "Daryl Dixon" continue to receive critical acclaim, demonstrating our ability to produce high-quality content cost-effectively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
