AMC Networks(AMCX) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for AMC Networks Inc. as of September 30, 2019, including Balance Sheets, Statements of Income, Comprehensive Income, Stockholders' Equity, and Cash Flows, with accompanying notes detailing accounting policies, business combinations, segment information, debt, and legal contingencies Condensed Consolidated Balance Sheets As of September 30, 2019, total assets were $5.62 billion, an increase from $5.28 billion at December 31, 2018, driven by higher cash and cash equivalents and operating lease right-of-use assets, while total liabilities remained stable at $4.66 billion, and total stockholders' equity increased to $654.8 million from $345.2 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $773,386 | $554,886 | | Total current assets | $2,224,910 | $1,963,411 | | Program rights, net (non-current) | $1,051,068 | $1,214,051 | | Goodwill | $782,234 | $798,037 | | Operating lease right-of-use asset | $172,575 | $— | | Total assets | $5,618,209 | $5,278,563 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $820,412 | $797,421 | | Long-term debt | $3,056,692 | $3,088,221 | | Lease obligations (non-current) | $215,251 | $21,427 | | Total liabilities | $4,658,804 | $4,633,797 | | Total stockholders' equity | $654,799 | $345,208 | Condensed Consolidated Statements of Income For Q3 2019, revenues increased 3.1% year-over-year to $718.6 million, operating income grew slightly to $168.4 million, and net income attributable to stockholders was $116.9 million, or $2.07 per diluted share, up from $111.3 million, or $1.93 per diluted share, in the prior-year period, while nine-month revenues increased to $2.28 billion and operating income slightly decreased to $583.6 million Q3 2019 vs Q3 2018 Income Statement (in thousands, except per share) | Metric | Q3 2019 | Q3 2018 | | :--- | :--- | :--- | | Revenues, net | $718,597 | $696,875 | | Operating income | $168,438 | $164,599 | | Net income attributable to AMC Networks' stockholders | $116,923 | $111,257 | | Diluted EPS | $2.07 | $1.93 | Nine Months 2019 vs 2018 Income Statement (in thousands, except per share) | Metric | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | | Revenues, net | $2,275,117 | $2,199,083 | | Operating income | $583,558 | $589,785 | | Net income attributable to AMC Networks' stockholders | $389,063 | $374,308 | | Diluted EPS | $6.80 | $6.31 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2019, net cash provided by operating activities was $400.4 million, a decrease from $471.8 million in the prior-year period, primarily due to changes in program rights and obligations, while net cash used in investing activities decreased to $59.9 million from $185.9 million, and net cash used in financing activities was $117.7 million, significantly lower than the $292.0 million used in 2018 due to reduced treasury stock purchases Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $400,397 | $471,812 | | Net cash used in investing activities | ($59,864) | ($185,885) | | Net cash used in financing activities | ($117,683) | ($292,028) | | Net increase (decrease) in cash | $222,850 | ($6,101) | Notes to Condensed Consolidated Financial Statements The notes detail the company's business structure, accounting policies, and key financial events, including its two segments (National Networks and International and Other), adoption of a new lease standard, ongoing stock repurchases, restructuring charges, business combinations, debt structure, legal proceedings, and segment performance - The company operates through two segments: National Networks (including AMC, WE tv, BBC AMERICA, IFC, SundanceTV, and AMC Studios) and International and Other (including international channels, streaming services like Acorn TV and Shudder, Levity Entertainment, and IFC Films)[14] - On January 1, 2019, the company adopted the new lease standard (Topic 842), resulting in the recognition of net lease assets of $180.0 million and lease liabilities of $237.0 million[19] - The company repurchased 1.3 million shares for approximately $70.6 million in the first nine months of 2019. As of September 30, 2019, $488.8 million remained authorized for repurchase[13][26] - Restructuring charges of $30.0 million were recorded in the first nine months of 2019, related to management reorganization, consolidation of subscription streaming services, and a change in strategy for the direct-to-consumer business, which included a $13.0 million write-off of programming[27] - The company is involved in significant litigation with former producers of 'The Walking Dead', including Frank Darabont and Robert Kirkman, over profit participation. The company denies the claims and is defending the cases vigorously. The outcome cannot be determined at this time[75] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results, highlighting a 3.1% consolidated revenue increase in Q3 2019, driven by the International and Other segment, which benefited from the acquisition of RLJE, while the National Networks segment saw a slight revenue decline due to lower advertising at AMC, and Adjusted Operating Income (AOI) grew 3.9% in Q3, with details on segment performance, liquidity, capital resources, and the impact of recent acquisitions and restructuring efforts, as cash from operations remains strong, supporting investments in original programming and stock repurchases Consolidated Results of Operations For Q3 2019, consolidated revenues rose 3.1% to $718.6 million, and AOI increased 3.9% to $219.3 million, while for the nine-month period, revenues grew 3.5% to $2.28 billion, and AOI rose 4.3% to $744.0 million, with growth primarily driven by the International and Other segment, boosted by acquisitions (RLJE, Levity) and growth in subscription streaming services, offsetting a slight decline in the National Networks segment Consolidated AOI Reconciliation (in thousands) | | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Operating income | $168,438 | $164,599 | $583,558 | $589,785 | | Share-based compensation | $13,841 | $16,934 | $50,465 | $52,006 | | Restructuring charges | $10,191 | $3,139 | $29,995 | $3,139 | | Impairment charges | $— | $4,486 | $— | $4,486 | | Depreciation & amortization | $25,619 | $22,011 | $75,568 | $64,034 | | Majority-owned equity investees AOI | $1,246 | $— | $4,434 | $— | | AOI | $219,335 | $211,169 | $744,020 | $713,450 | National Networks Segment Results In Q3 2019, National Networks revenue decreased 0.2% to $559.0 million, and AOI decreased 1.0% to $208.4 million, with the revenue decline due to a 2.6% drop in advertising, primarily from lower ratings at the AMC network, mostly offset by a 1.1% increase in distribution revenue from content licensing, while for the nine-month period, revenues fell 2.2%, and AOI saw a slight increase of 0.8% due to lower operating expenses National Networks Performance (Q3 2019 vs Q3 2018, in thousands) | Metric | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenues, net | $558,992 | $560,321 | (0.2)% | | - Advertising | $194,452 | $199,714 | (2.6)% | | - Distribution | $364,540 | $360,607 | 1.1% | | AOI | $208,410 | $210,417 | (1.0)% | - The decrease in advertising revenue was primarily due to lower ratings at the AMC network, partially mitigated by pricing[136] - Distribution revenue increased due to a $15.9 million rise in content licensing, which was partially offset by a $9.0 million decrease in subscription revenues from lower subscriber counts and a contractual interpretation[136] International and Other Segment Results In Q3 2019, the International and Other segment saw significant growth, with revenues increasing 20.5% to $182.8 million and AOI rising 79.3% to $13.5 million, largely driven by the acquisition of RLJE and growth in subscription streaming services like Shudder and Sundance Now, while for the nine-month period, revenues surged 30.2% and AOI grew 227.5%, reflecting the impact of both the RLJE and Levity acquisitions International and Other Performance (Q3 2019 vs Q3 2018, in thousands) | Metric | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenues, net | $182,839 | $151,772 | 20.5% | | - Distribution | $163,967 | $131,644 | 24.6% | | AOI | $13,465 | $7,511 | 79.3% | - Q3 distribution revenue growth was primarily due to a $31.1 million impact from the acquisition of RLJE and a $7.1 million increase from Shudder and Sundance Now subscription streaming services[137] - For the nine months ended Sep 30, 2019, revenue growth was driven by a $134.9 million impact from the acquisitions of Levity and RLJE[160] Liquidity and Capital Resources The company maintains a strong liquidity position with primary sources of cash from operations, an undrawn $500 million revolving credit facility, and access to capital markets, with principal uses of cash including programming production, acquisitions, debt service, and stock repurchases, and for the nine months ended September 30, 2019, cash from operations was $400.4 million, with $70.6 million of stock repurchased and $488.8 million remaining under its repurchase authorization, which management believes is sufficient for requirements over the next twelve months - Primary sources of cash are cash flow from operations and an undrawn $500 million revolving credit facility[178] - Principal uses of cash include programming acquisition/production, investments, debt service, and stock repurchases[178] - As of September 30, 2019, the company had $488.8 million of authorization remaining under its $1.5 billion Stock Repurchase Program[26][178] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates and foreign currency exchange rates, with approximately 80% of its $3.1 billion debt effectively at a fixed rate as of September 30, 2019, mitigating interest rate risk through fixed-rate notes and interest rate swaps, and uses foreign currency contracts to manage exposure from transactions in non-functional currencies, while fluctuations in the U.S. dollar against foreign currencies also create translation risk, impacting comprehensive income - The company manages interest rate risk using interest rate swaps. As of September 30, 2019, approximately 80% of the company's debt was effectively fixed-rate[189] - The company is exposed to foreign currency risk from transactions in non-functional currencies and from translating foreign subsidiary financial statements into U.S. dollars[190][191] - The fair value of the company's fixed-rate debt ($2.46 billion) was approximately $88.7 million higher than its carrying value ($2.37 billion) as of September 30, 2019[188] Controls and Procedures Based on an evaluation as of September 30, 2019, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective, with no material changes in the company's internal control over financial reporting during the third quarter of 2019 - Management, including the CEO and CFO, concluded that as of September 30, 2019, the company's disclosure controls and procedures are effective[192] - No changes occurred in the company's internal control over financial reporting during Q3 2019 that have materially affected, or are reasonably likely to materially affect, these controls[193] PART II. OTHER INFORMATION Legal Proceedings There have been no material developments in the company's legal proceedings since the 2018 Form 10-K, with further details provided in Note 14 of the financial statements, which discusses ongoing litigation related to 'The Walking Dead' - No material developments have occurred in legal proceedings since the 2018 Form 10-K. The company refers to Note 14 for details on ongoing litigation[195] Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2019, the company repurchased 231,310 shares of its Class A Common Stock for a total of approximately $12.16 million, at an average price of $52.56 per share, under its publicly announced stock repurchase program Share Repurchases (Q3 2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2019 | 172,265 | $52.39 | | August 2019 | 59,045 | $53.06 | | September 2019 | — | $— | | Total | 231,310 | $52.56 | - The company has a $1.5 billion stock repurchase program authorized by the Board of Directors, with no pre-established closing date[196] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act (Sections 302 and 906) and XBRL data files - Filed exhibits include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL Interactive Data Files[199]