AMC Networks(AMCX) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Q1 2023, including balance sheets, income statements, and cash flows, highlighting stable revenues and increased cash usage from operations Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets and liabilities, primarily driven by changes in cash and current liabilities, while stockholders' equity increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $5,463,238 | $5,633,836 | | Cash and cash equivalents | $763,932 | $930,002 | | Program rights, net | $1,869,182 | $1,762,939 | | Total Liabilities | $4,244,277 | $4,526,354 | | Long-term debt, net | $2,763,767 | $2,778,703 | | Total Stockholders' Equity | $969,042 | $853,813 | Condensed Consolidated Statements of Income For Q1 2023, total revenues remained stable, while operating income and net income slightly decreased, with diluted EPS also seeing a minor reduction Q1 2023 vs Q1 2022 Income Statement (in thousands, except per share) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenues, net | $717,447 | $712,157 | | Operating income | $173,304 | $174,677 | | Net income attributable to stockholders | $103,610 | $104,188 | | Diluted EPS | $2.36 | $2.38 | - The company recorded restructuring and other related charges of $5.9 million in Q1 2023, which were not present in the same period of 2022[7] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased in Q1 2023, primarily due to higher payments for program rights, while investing and financing cash flows remained stable Q1 2023 vs Q1 2022 Cash Flows (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(132,519) | $(23,555) | | Net cash used in investing activities | $(7,005) | $(9,757) | | Net cash used in financing activities | $(28,310) | $(31,011) | | Net decrease in cash | $(167,834) | $(64,323) | Notes to Condensed Consolidated Financial Statements These notes detail the company's business segments, restructuring charges, program rights, debt, legal proceedings, and segment performance, including ongoing litigation and a 2022 restructuring plan - The company operates through two segments: Domestic Operations (including national networks like AMC, streaming services, and AMC Studios) and International and Other (including international channels and production services)[18] - A restructuring plan initiated in November 2022 resulted in charges of $5.9 million for Q1 2023, primarily for severance costs. The accrued liability for this plan was $61.5 million as of March 31, 2023[26][29][30] - The company is involved in ongoing litigation with producers of 'The Walking Dead' regarding profit participation and a separate complaint related to a settlement with Frank Darabont, with plaintiffs seeking damages in excess of $200 million in the latter case[72][73] Segment Revenues, Net (in thousands) | Segment | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Domestic Operations | $611,854 | $605,543 | | International and Other | $108,072 | $109,851 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, highlighting flat consolidated revenues, segment performance, the restructuring plan, liquidity, and compliance with debt covenants Consolidated Results of Operations Consolidated revenues for Q1 2023 increased slightly, driven by content licensing growth offsetting advertising declines, while operating income saw a minor decrease due to expenses and restructuring charges Consolidated Revenue Breakdown (in thousands) | Revenue Stream | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Subscription | $404,220 | $404,160 | 0.0% | | Content licensing and other | $133,644 | $85,071 | 57.1% | | Advertising | $179,583 | $222,926 | -19.4% | | Total revenues, net | $717,447 | $712,157 | 0.7% | - The increase in Content licensing revenue was primarily due to the timing of deliveries, including $56.1 million for the remaining episodes of an AMC Studios series to a third party[111] - The decrease in Advertising revenue was driven by linear ratings declines, softness in the advertising market, and fewer original programming episodes[111] - Selling, general and administrative (SG&A) expenses decreased by 19.5%, primarily due to lower marketing and subscriber acquisition costs for streaming services[110][114] Segment Results of Operations Domestic Operations saw a slight increase in adjusted operating income due to lower SG&A, despite declining affiliate revenue, while International and Other segment's AOI decreased due to unfavorable foreign currency rates - In Domestic Operations, streaming revenues grew to $140.9 million, a 28.6% increase YoY, driven by subscriber growth to 11.5 million[89][121] - Domestic affiliate revenue declined 11.7% due to basic subscriber declines and a strategic non-renewal of a distribution agreement[121] Segment Adjusted Operating Income (AOI) (in thousands) | Segment | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Domestic Operations | $219,388 | $219,219 | 0.1% | | International and Other | $21,137 | $23,012 | -8.1% | | Consolidated AOI | $215,763 | $211,184 | 2.2% | Liquidity and Capital Resources The company's liquidity position as of March 31, 2023, includes $763.9 million in cash and an undrawn revolving credit facility, with no stock repurchases in Q1 2023 and a recent amendment to its credit agreement - As of March 31, 2023, the company held $763.9 million in cash and cash equivalents, with $344.5 million held by foreign subsidiaries[139] - The company did not repurchase any shares in Q1 2023. The remaining authorization under the Stock Repurchase Program is $135.3 million[139] - In April 2023, the company amended its credit agreement, reducing the revolving loan commitment from $500 million to $400 million and replacing LIBOR with SOFR as the benchmark interest rate[140] - The company was in compliance with all debt covenants as of March 31, 2023[140] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations, with 78% of debt fixed-rate, and foreign currency exchange rate exposures from international operations - As of March 31, 2023, 78% of the company's debt is fixed-rate. A hypothetical 100 basis point increase in interest rates would increase annual interest expense by approximately $6.3 million on the variable-rate portion[156] - The company is exposed to foreign currency risk from translating the financial statements of its international subsidiaries into U.S. dollars and from transactions denominated in foreign currencies[157] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[158] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[159] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section details ongoing legal proceedings, including disputes with 'The Walking Dead' producers over profit participation and a separate lawsuit seeking over $200 million in damages - The company is engaged in confidential binding arbitration for remaining claims in the 'Walking Dead Litigation' concerning profit participation[72] - A separate 'MFN Litigation' was filed by 'The Walking Dead' producers, alleging they are owed over $200 million as a result of the company's 2021 settlement with Frank Darabont. The company believes the claims are without merit[73] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any Class A common stock in Q1 2023, with $135.3 million remaining under its stock repurchase authorization - No shares of Class A common stock were repurchased in the three months ended March 31, 2023[162] - As of March 31, 2023, the company had $135.3 million of authorization remaining under its Stock Repurchase Program[162] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the CEO's employment agreement and required Sarbanes-Oxley certifications - The exhibits include the employment agreement for CEO Kristin Dolan, dated February 15, 2023, and required Sarbanes-Oxley certifications[163]