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AMC Networks Inc. (AMCX) Q3 2024 Earnings Call Transcript

AMC Networks Inc. (AMCX)

Q3 2024 Earnings Conference Call

Corporate Participants

Nick Seibert - VP, Corporate Development and IR

Kristin Dolan - Chief Executive Officer

Patrick O'Connell - Chief Financial Officer

Kim Kelleher - Chief Commercial Officer

Dan McDermott - President Entertainment and AMC Studios

Conference Call Participants

David Joyce - Seaport Research Partners

David Karnofsky - JPMorgan

Thomas Yeh - Morgan Stanley

Steve Cahall - Wells Fargo

Charles Wilber - Guggenheim Securities

Presentation

Operator

Good day, and thank you for standing by. Welcome to the AMC Networks Fourth Quarter and Full Year 2023 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

And I would now like to hand the conference over to your speaker today, Nick Seibert, Vice President of Corporate Development and Investor Relations. Please go ahead.

Nick Seibert

Thank you. Good morning, and welcome to the AMC Networks fourth quarter and full year 2023 earnings conference call.

Joining us this morning are Kristin Dolan, Chief Executive Officer; Patrick O’Connell, Chief Financial Officer; Kim Kelleher, Chief Commercial Officer; and Dan McDermott, President of Entertainment and AMC Studios. Today's press release is available on our website at amcnetworks.com. We will begin with prepared remarks, and then, we'll open the call for questions.

Today's call may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to AMC Network's SEC filings for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements made on this call. Today, we will discuss certain non-GAAP financial measures.

The required definitions and reconciliations can be found in today's press release.

With that, I'd like to turn the call over to Kristin.

Kristin Dolan

Thanks, Nick, and good morning, everyone.

It's been nearly a year since I joined AMC Networks as CEO, and I'm proud of the progress we've made in a fast changing and challenging environment, both internally and in the way we engage with viewers and our commercial and creative partners.

In the fourth quarter and across 2023, we continue to see success in the areas that will drive this company forward, programming, partnerships and profitability. I'm encouraged that we were able to grow streaming revenue, strengthen our subscriber base and expand our consolidated AOI margin to 25%, while meaningfully growing our free cash flow.

In a moment, Patrick will provide a detailed look at our financial results for the most recent quarter and the full year, including our enthusiasm for the free cash flow potential of this business going forward. There has long been a saying in this industry that content is king. We believe that if content is king, cash is queen, and we are on a path that prioritizes both.

In discussions around media and content companies these days, it's hard to miss the fascination with scale. From our perspective, we see strength in being nimble and independent and value the flexibility this provides us in the marketplace. We have opportunities that are frankly not possible for non-vertically integrated programmers who are tied to broadcast networks, or large distribution businesses. We truly can dance with anyone and are enthusiastic about using the structural advantage that comes with this independence to better serve viewers and our commercial partners.

With the introduction late last year of an ad supported version of AMC+, we now have a fully ad supported distribution ecosystem that includes our five linear networks, several targeted streaming services and programming carriage of approximately 100 channel feeds on partner fast and CTV platforms. Our presence in all of these places is important for several reasons.

Number one, we're able to reach viewers and make our content available wherever and however they might choose to watch. Secondly, and very much in line with that first objective, we use viewership insights and library management to Window our shows and films across these brands and unique audiences to expand viewership and engagement in a cost effective and responsible way. And third, we seamlessly work with our commercial partners across all of these platforms, which delivers value and functional benefits that wouldn't be possible if our presence was limited, either to just linear or just streaming.

We continue to be very bullish on new offerings like Xumo from Comcast and Charter that converge linear and streaming consumption at scale, with dedicated customer service and technical support for viewers. The companies behind this new offering are some of our most important and long-standing commercial partners. We're pleased to [indiscernible] them on Xumo from the beginning and see great opportunity as they continue to roll out this new offering.

In other affiliate news, we recently completed an agreement with Philo that will launch early this year. It will make the ad supported version of AMC+ part of Philo's based video offering. Just another example of how the ad supported tier gives customers additional flexibility but also boosts our commercial revenue partnerships and potential for bundling, while getting our shows and films in front of more viewers.

It's early days, but we are very pleased with the response to the ad supported version of AMC+, and we have an established runway for growth as more partners add the option this year. We still put high-quality original shows on AMC every Sunday night of the year and increasingly rare approach that drives value for our traditional affiliate partners. But importantly, this is not the only place we put these shows are the only way we work with our partners.

Yes, we ended the year with five of the top 20 dramas on cable, and three of the top six new cable dramas. But just as importantly, the cable companies that are seeing the benefits of that linear performance also carry AMC+ on their own systems as an integrated offering to their customers. We drive viewership in both places.

We were happy with results of our content partnership with Max late last year. Our shows performed well on their platform, and we saw associated viewership increases on AMC+ as well. We remain in discussions with a wide variety of potential partners and believe we will see additional bundling activity in the future. Across the industry, we really do need to make things easier and more cost effective for our customers. The current environment is confusing, expensive, and essentially forces consumers to recreate the cable bundle on their own at twice the price.

We saw an example of new thinking on bundling and partnerships just this week with the announcement from major industry players on a new sports bundle. I believe this industry will continue to find new approaches that will better serve consumers, distributors and content companies.

Turning to advertising, we've been very focused on driving new technology and capabilities that both benefit us and change how the industry does business. In the fourth quarter, we became the first programmer to enable programmatic ad buying on linear networks. This fall at our first of its kind deployment of fully addressable spots in our national linear programming feeds. These advances make our linear and digital inventory much more valuable and effective.

Going to market with a programmatic first approach, and a fully converged linear and digital offering lets us enter into broader and more meaningful advertising partnerships. Some of the early advertisers using our programmatic linear capabilities are seeing conversion rates that are four or five times that of linear traditional campaigns, with significant boost in incremental unduplicated reach from their conventional ad buys.

For the first time on linear television, advertisers can buy audience segments instead of broad demos tied to time slots with custom attribution results delivered post campaign. This is real differentiation we can bring to this year's up front and beyond. Another area of focus for us is a technological overhaul and consolidation of our backend systems and shift to one platform supporting all of our streaming services. This development work will carry forward in 2024 and will improve our service to customers and maximize efficiencies.

Leading this effort is Stephanie Michko, who recently joined the company as our Head of Global Media Operations and Technology. Stephanie and I worked together at Cablevision where she did award winning work around content discovery and helped develop and deploy the industry's first cloud-based DVR. She then went on to become CTO and CEO of Kayden where she was immersed in the world of ad tech, and most recently served as CTO of Charter. We're thrilled she's here with us and leading this important evolution. As always at AMC Networks, everything we do ties back to the shows and films we're able to make and put in front of viewers.

I want to close my remarks today with some results from 2023 that demonstrate our strong audience momentum and also provide a look ahead at 2024. The fourth quarter of last year was our most watched quarter ever across our streaming portfolio, which as you know is designed to super serve fans of specific genres and content categories. AMC+ and HIDIVE achieved their number one quarters ever in terms of viewership and Shudder and Acorn TV also showed significant strength close the year.

Programming achievements included first season of The Walking Dead: Daryl Dixon, which is now the most watched season in the history of AMC+, and that includes the final season of The Walking Dead itself. VHS 85 is Shudder's most watch film ever. THE EMINENCE IN SHADOW Season 2 is HIDIVE's the most watched season ever, and Toya & Reginae is All Blacks number one new series of all time in both viewership and customer acquisition.

We had a lot of success with our shows and films last year, and the year ahead looks just says exciting. Earlier this week we brought a slate of new shows to the twice Annual Meeting of the Television Critics Association or TCA. Even in the wake of two strikes that shut down production for six months, I don't believe we've ever presented a more compelling and eclectic collection of shows than we did this week. These shows included monster speed, a critically acclaimed series starring Clive Owen as the immortal detective Sam Spade. Parrish, which is premiering at the end of March with Breaking Bad and Better Call Saul, Giancarlo Esposito in a leading role, and the second season of the popular Anne Rice's Interview with the Vampire, which returns to AMC and AMC+ on May 12....

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