AMC NETWORKS INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains statements that constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. In this Management's Discussion and Analysis of Financial Condition and Results of Operations there are statements concerning our future operating results and future financial performance. Words such as "expects," "anticipates," "believes," "estimates," "may," "will," "should," "could," "potential," "continue," "intends," "plans" and similar words and terms used in the discussion of future operating results and future financial performance identify forward-looking statements. You are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:
•the level of our revenues;
•market demand, including changes in viewer consumption patterns, for our programming networks, our subscription streaming services, our programming, and our production services;
•demand for advertising inventory and our ability to deliver guaranteed viewer ratings;
•the highly competitive nature of the cable, telecommunications, streaming and programming industries;
•the cost of, and our ability to obtain or produce, desirable content for our programming services, other forms of distribution, including digital and licensing in international markets, as well as our film distribution businesses;
•market demand for our owned original programming and our film content;
•our ability to successfully launch our streaming services in countries outside
of
•the loss of any of our key personnel and artistic talent;
•the security of our program rights and other electronic data;
•our ability to maintain and renew distribution or affiliation agreements with distributors;
•the impact of COVID-19 on the economy and our business, including the measures taken by governmental authorities to address the pandemic, which may precipitate or exacerbate other risks and/or uncertainties;
•changes in domestic and foreign laws or regulations under which we operate;
•economic and business conditions and industry trends in the countries in which we operate, including increases in inflation rates;
•fluctuations in currency exchange rates and interest rates;
•changes in laws or treaties relating to taxation, or the interpretation
thereof, in
•the impact of existing and proposed federal, state and international laws and regulations relating to data protection, privacy and security, including theEuropean Union's General Data Protection Regulation ("GDPR");
•our substantial debt and high leverage;
•reduced access to capital markets or significant increases in costs to borrow;
•the level of our expenses;
•future acquisitions and dispositions of assets;
•our ability to successfully acquire new businesses and, if acquired, to integrate, and implement our plan with respect to businesses we acquire;
•problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire;
•uncertainties regarding the financial results of equity method investees, issuers of our investments in marketable equity securities and non-marketable equity securities and changes in the nature of key strategic relationships with partners and joint ventures;
•the outcome of litigation and other proceedings;
•whether pending uncompleted transactions, if any, are completed on the terms and at the times set forth (if at all);
•other risks and uncertainties inherent in our programming and streaming businesses;
•financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate;
•events that are outside our control, such as political unrest in international markets, terrorist attacks, natural disasters and other similar events; and
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•the factors described under Item 1A, "Risk Factors" in our 2021 Annual Report
on Form 10-K (the "2021 Form 10-K"), as filed with the Securities and Exchange
Commission ("SEC").
We disclaim any obligation to update or revise the forward-looking statements
contained herein, except as otherwise required by applicable federal securities
laws.
Introduction
Management's discussion and analysis of financial condition and results of
operations, or MD&A, is a supplement to and should be read in conjunction with
the unaudited condensed consolidated financial statements and notes thereto
included elsewhere herein and our 2021 Form 10-K to enhance the understanding of
our financial condition, changes in financial condition and results of our
operations. Unless the context otherwise requires, all references to "we," "us,"
"our," "AMC Networks" or the "Company" refer to AMC Networks Inc. , together with
its subsidiaries. MD&A is organized as follows:
Business Overview. This section provides a general description of our business
and our operating segments, as well as other matters that we believe are
important in understanding our results of operations and financial condition and
in anticipating future trends.
Consolidated Results of Operations. This section provides an analysis of our
results of operations for the three months ended March 31, 2022 compared to the
three months ended March 31, 2021 . Our discussion is presented on both a
consolidated and segment basis. Our two segments are: (i) Domestic Operations
and (ii) International and Other.
Liquidity and Capital Resources. This section provides a discussion of our
financial condition as of March 31, 2022 , as well as an analysis of our cash
flows for the three months ended March 31, 2022 and 2021. The discussion of our
financial condition and liquidity includes summaries of (i) our primary sources
of liquidity and (ii) our contractual obligations that existed at March 31, 2022
as compared to December 31, 2021 .
Critical Accounting Policies and Estimates. This section provides an update, if
any, to our significant accounting policies or critical accounting estimates
since December 31, 2021 .
Business Overview
Financial Highlights
The tables presented below set forth our consolidated revenues, net, operating
income (loss) and adjusted operating income (loss) ("AOI")1, for the periods
indicated.
Three Months Ended March 31,
(In thousands) 2022 2021
Revenues, net
Domestic Operations $ 605,543 $ 573,969
International and Other 109,851 121,167
Inter-segment Eliminations (3,237) (3,395)
$ 712,157 $ 691,741
Operating Income (Loss)
Domestic Operations $ 198,522 $ 216,459
International and Other 17,355 (3,162)
Corporate / Inter-segment Eliminations (41,200) (43,589)
$ 174,677 $ 169,708 Adjusted Operating Income (Loss) Domestic Operations$ 219,219 $ 242,533 International and Other 23,012 23,563 Corporate / Inter-segment Eliminations (31,047) (28,117)$ 211,184 $ 237,979 1 Adjusted Operating Income (Loss), is a non-GAAP financial measure. See the "Non-GAAP Financial Measures" section on page 30 for additional information, including our definition and our use of this non-GAAP financial measure, and for a reconciliation to its most comparable GAAP financial measure. 22 --------------------------------------------------------------------------------
Segment Reporting
We manage our business through the following two operating segments:
•Domestic Operations: Includes our programming services andAMC Broadcasting & Technology. Our programming services consist of our five national programming networks, our streaming services, ourAMC Studios operation andIFC Films . Our national programming networks are AMC, WE tv, BBC AMERICA, IFC, and SundanceTV. Our streaming services consist of our targeted subscription streaming services (Acorn TV, Shudder, Sundance Now, ALLBLK, and HIDIVE), AMC+ and other streaming initiatives. OurAMC Studios operation produces original programming for our programming networks and also licenses such programming worldwide andIFC Films is our film distribution business.AMC Networks Broadcasting & Technology , our technical services business, primarily services most of the national programming networks.
•International and Other:
Domestic Operations
In our Domestic Operations segment, we earn revenue principally from: (i) the distribution of our programming through our programming networks and streaming services, (ii) the sale of advertising, and (iii) the licensing of our original programming to distributors, including the distribution of programming ofIFC Films . Subscription revenue includes fees paid by distributors and consumers for our programming networks and streaming services. Subscription fees paid by distributors represent the largest component of distribution revenue. Our subscription fee revenues for our programming networks are based on a per subscriber fee, and, to a lesser extent, fixed fees under multi-year contracts, commonly referred to as "affiliation agreements," which generally provide for annual rate increases. The specific subscription fee revenues we earn vary from period to period, distributor to distributor and also vary among our programming services, but are generally based upon the number of each distributor's subscribers who receive our programming, referred to as viewing subscribers. Subscription fees for our streaming services are generally paid by consumers on a monthly basis. Content licensing revenue is earned from the licensing of original programming for digital, foreign and home video distribution and is recognized upon availability or distribution by the licensee. Under affiliation agreements with our distributors, we have the right to sell a specified amount of national advertising time on our programming networks. Our advertising revenues are more variable than subscription fee revenues because the majority of our advertising is sold on a short-term basis, not under long-term contracts. Our arrangements with advertisers provide for a set number of advertising units to air over a specific period of time at a negotiated price per unit. Additionally, in these advertising sales arrangements, our programming networks generally guarantee specified viewer ratings for their programming. Programming expenses, included in technical and operating expenses, represent the largest expenses of the Domestic Operations segment and primarily consists of amortization of programming rights, such as those for original programming, feature films and licensed series, as well as participation and residual costs. The other components of technical and operating expenses primarily include distribution and production related costs and program operating costs including cost of delivery, such as origination, transmission, uplinking and encryption. The success of our business depends on original programming, both scripted and unscripted, across all of our programming services. These original series generally result in higher ratings for our networks. Among other things, higher audience ratings drive increased revenues through higher advertising revenues. The timing of exhibition and distribution of original programming varies from period to period, which results in greater variability in our revenues, earnings and cash flows from operating activities. We will continue to increase our investment in original programming. There may be significant changes in the level of our technical and operating expenses due to the amortization of content acquisition and/or original programming costs and/or the impact of management's periodic assessment of programming usefulness. Such costs will also fluctuate with the level of revenues derived from owned original programming in each period as program rights that are monetized individually are amortized based on the individual-film-forecast-computation method, while program rights that are monetized as a group are amortized based on projected usage, typically resulting in an accelerated amortization pattern.
Most original series require us to make up-front investments, which are often significant amounts. Not all of our programming efforts are commercially successful, which could result in a write-off of program rights. If it is determined that programming rights have limited, or no, future programming usefulness based on actual demand or market conditions, a write-off of the unamortized cost is recorded in technical and operating expenses.
International and Other
Our International and Other segment primarily includes the operations of AMCNI and 25/7 Media.
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In our International and Other segment, we earn revenue principally from the
international distribution of programming and, to a lesser extent, the sale of
advertising from our AMCNI programming networks. We also earn revenue through
production services from 25/7 Media. For the three months ended March 31, 2022 ,
distribution revenues represented 80% of the revenues of the International and
Other segment. Distribution revenue primarily includes subscription fees paid by
distributors or consumers to carry our programming networks and production
services revenue generated from 25/7 Media. Our subscription revenues are
generally based on either a per-subscriber fee or a fixed contractual annual
fee, under multi-year affiliation agreements, which may provide for annual rate
increases. Our production services revenues are based on master production
agreements whereby a third-party engages us to produce content on its behalf.
Production services revenues are recognized based on the percentage of cost
incurred to total estimated cost of the contract. Distribution revenues are
derived from the distribution of our programming networks primarily in Europe
and to a lesser extent, Latin America .
Programming expenses, program operating costs and production costs incurred to
produce content for third parties are included in technical and operating
expenses, and represent the largest expense of the International and Other
segment. Programming expenses primarily consist of amortization of acquired
content, costs of dubbing and sub-titling of programs, production costs, and
participation and residual costs. Program operating costs include costs such as
origination, transmission, uplinking and encryption of our linear AMCNI channels
as well as content hosting and delivery costs at our various on-line content
distribution initiatives. Not all of our programming efforts are commercially
successful, which could result in a write-off of program rights. If it is
determined that programming rights have limited, or no, future programming
usefulness based on actual demand or market conditions, a write-off of the
unamortized cost is recorded in technical and operating expenses.
Corporate / Inter-segment Eliminations
Corporate operations primarily consist of executive management and administrative support services, such as executive salaries and benefits costs, costs of maintaining corporate headquarters, facilities and common support functions (such as human resources, legal, finance, strategic planning and information technology). The segment financial information set forth below, including the discussion related to individual line items, does not reflect inter-segment eliminations unless specifically indicated.
Impact of COVID-19 on Our Business
The Company continues to monitor the ongoing impact of the COVID-19 pandemic on all aspects of its business. The Company cannot reasonably predict the ultimate impact of the COVID-19 pandemic, including the extent of any adverse impact on our business, results of operations and financial condition, which will depend on, among other things, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak, the acceptance, safety and efficacy of vaccines, and global economic conditions. The Company does not expect the COVID-19 pandemic and its related economic impact to affect its liquidity position or its ongoing ability to meet the covenants in its debt instruments.
Impact of Economic Conditions
Our future performance is dependent, to a large extent, on general economic conditions including the impact of direct competition, our ability to manage our businesses effectively, and our relative strength and leverage in the marketplace, both with suppliers and customers.
Capital and credit market disruptions, as well as other events such as the
COVID-19 pandemic, inflation, international conflict and recession, could cause
economic downturns, which may lead to lower demand for our products, such as
lower demand for television advertising and a decrease in the number of
subscribers receiving our programming services from our distributors. Events
such as these may adversely impact our results of operations, cash flows and
financial position.
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--------------------------------------------------------------------------------Consolidated Results of Operations
The amounts presented and discussed below represent 100% of each operating segment's revenues, net and expenses. Where we have management control of an entity, we consolidate 100% of such entity in our consolidated statements of operations notwithstanding that a third-party owns an interest, which may be significant, in such entity. The noncontrolling owner's interest in the operating results of consolidated subsidiaries are reflected in net income attributable to noncontrolling interests in our consolidated statements of operations.
Three Months Ended
The following table sets forth our consolidated results of operations for the
periods indicated.
Three Months Ended March
31,
(In thousands) 2022 2021 Change
Revenues, net:
Subscription $ 404,160 $ 381,860 5.8 %
Content licensing and other 85,071 89,168 (4.6) %
Distribution and other 489,231 471,028 3.9 %
Advertising 222,926 220,713 1.0 %
Total revenues, net 712,157 691,741 3.0 %Operating expenses: Technical and operating (excluding depreciation and amortization)
284,237 280,572 1.3 %
Selling, general and administrative 230,653 191,535 20.4 %
Depreciation and amortization 22,590 25,246 (10.5) %
Impairment and other charges - 16,055 (100.0) %
Restructuring and other related charges - 8,625 (100.0) %
Total operating expenses 537,480 522,033 3.0 %
Operating income 174,677 169,708 2.9 %
Other income (expense):
Interest expense, net (28,337) (32,400) (12.5) %
Loss on extinguishment of debt - (22,074) (100.0) %
Miscellaneous, net 5,828 5,406 7.8 %
Total other expense (22,509) (49,068) (54.1) %
Income from operations before income taxes 152,168 120,640 26.1 %
Income tax expense (41,634) (25,915) 60.7 %
Net income including noncontrolling interests 110,534 94,725 16.7 %
Net income attributable to noncontrolling interests (6,346) (7,704) (17.6) %
Net income attributable to AMC Networks' stockholders $ 104,188 $ 87,021 19.7 %
Revenues
Subscription revenues increased 7.8% in our Domestic Operations segment primarily due to an increase in streaming revenues. Subscription revenues decreased 4.2% in our International and Other segment primarily due to the unfavorable impact of foreign currency translation at AMCNI.
Content licensing and other revenues increased 9.4% in our Domestic Operations
segment primarily related to a higher number of original programs distributed as
compared to the prior comparable period. Content licensing and other revenues
decreased 26.0% in our International and Other segment primarily due to the
timing of productions at 25/7 Media.
Subscription revenues may vary based on the impact of renewals of affiliation
agreements and content licensing revenues vary based on the timing of
availability of our programming to distributors. Because of these factors, we
expect distribution revenues to vary from quarter to quarter.
Advertising revenues increased 0.7% and 3.8% in our Domestic Operations segment
and our International and Other segment, respectively, primarily due to higher
pricing and ad-supported streaming growth, partially offset by lower linear
ratings and unfavorable foreign currency translation.
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Most of our advertising revenues vary based on the timing of our original
programming series and the popularity of our programming as measured by Nielsen.
Due to these factors, we expect advertising revenues to vary from quarter to
quarter.
Technical and operating expenses (excluding depreciation and amortization)
The components of technical and operating expenses primarily include the amortization of program rights, such as those for original programming, feature films and licensed series, participation and residual costs, distribution and production related costs and program delivery costs, such as transmission, encryption, hosting, and formatting.
Technical and operating expenses (excluding depreciation and amortization) increased 7.6% in our Domestic Operations segment primarily due to an increase in program rights amortization attributable to an increase in the number of original programs as compared to the prior comparable period. Technical and operating expenses decreased 21.8% in our International and Other segment primarily due to the timing of productions at 25/7 Media and lower program rights amortization at AMCNI.
There may be significant changes in the level of our technical and operating expenses from quarter to quarter and year to year due to original programming costs and/or content acquisition costs and/or the impact of management's periodic assessment of programming usefulness. As additional competition for programming increases and alternate distribution technologies continue to develop in the industry, costs for content acquisition and original programming may increase.
Selling, general and administrative expenses
The components of selling, general and administrative expenses primarily include sales, marketing and advertising expenses, administrative costs and costs of non-production facilities. Selling, general and administrative expenses (including share-based compensation expenses) increased 28.5% in our Domestic Operations segment primarily due to higher advertising and subscriber acquisition expenses related to our streaming services, and 23.8% in our International and other segment primarily related to increased selling expenses at AMCNI, partially offset by a decrease in administrative expenses at 25/7 Media.
Depreciation and amortization
Depreciation and amortization expenses include depreciation of fixed assets and amortization of finite-lived intangible assets. Depreciation and amortization decreased primarily in our Domestic Operations segment due to lower depreciation of equipment at ourAMC Networks Broadcasting and Technology facilities.
Impairment and other charges
There were no impairment and other charges for the three months ended
InMarch 2021 , the Company completed a spin-off of the live comedy venue and talent management businesses ("LiveCo") ofLevity Entertainment Group, LLC . In connection with the transaction, the Company effectively exchanged all of its rights and interests inLiveCo for the release of our obligations, principally related to leases. As a result of this divestiture, the Company recognized a loss on the disposal of$16.1 million reflecting the net assets transferred (consisting of property and equipment, lease right-of-use assets and intangibles, partially offset by lease and other obligations), which is included in Impairment and other charges. The Company retained its interest in the production services business ofLevity Entertainment Group, LLC , which was renamed 25/7Media Holdings LLC following the spin-off.
Restructuring and other related charges
There were no restructuring and other related charges for the three months ended
Restructuring and other related charges of$8.6 million for the three months endedMarch 31, 2021 consisted of$4.1 million of severance costs associated with the restructuring plan announced inNovember 2020 and$4.5 million at AMCNI related to the termination of distribution in certain international territories.
Operating income
The increase in operating income was primarily attributable to an increase in revenues of$20.4 million and decreases in impairment and other charges and restructuring and related charges of$16.1 million and$8.6 million , respectively, partially offset by increases in selling, general and administrative expenses of$39.1 million and in technical and operating expenses of$3.7 million . Interest expense, net
The decrease in interest expense, net was primarily due to lower average daily balances and interest rates on our outstanding long-term debt.
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--------------------------------------------------------------------------------Loss on extinguishment of debt
InFebruary 2021 , we redeemed (i) the remaining$400 million principal amount of our 4.75% senior notes dueDecember 2022 and (ii)$600 million principal amount of our 5.00% senior notes dueApril 2024 . In connection with the redemptions, we incurred a loss on extinguishment of debt for the quarter endedMarch 31, 2021 of$22.1 million representing a redemption premium on the 5.00% senior notes due 2024, and the write-off of a portion of the unamortized discount and deferred financing costs related to both issuances.
Miscellaneous, net
The increase in miscellaneous, net was primarily related to an increase in net realized and unrealized gains from certain marketable equity securities, partially offset by an unfavorable variance in the foreign currency remeasurement of monetary assets and liabilities (principally intercompany loans) that are denominated in currencies other than the underlying functional currency of the applicable entity.
Income tax expense
For the three months endedMarch 31, 2022 , income tax expense was$41.6 million representing an effective tax rate of 27%. The effective tax rate differs from the federal statutory rate of 21% primarily due to state and local income tax expense, tax expense related to non-deductible compensation and tax expense for an increase in the valuation allowance for foreign taxes. For the three months endedMarch 31, 2021 , income tax expense was$25.9 million , representing an effective tax rate of 21%, which was equal to the federal statutory rate. The effective tax rate was impacted by state and local income tax expense, tax expense from nondeductible compensation and tax expense from foreign operations partially offset by a tax benefit from foreign derived intangible income and excess tax benefits related to stock compensation.
Segment Results of Operations
Our segment operating results are presented based on how we assess operating performance and internally report financial information. We use segment adjusted operating income as the measure of profit or loss for our operating segments. See Non-GAAP Financial Measures section below for our definition of Adjusted Operating Income and a reconciliation from Operating Income to Adjusted Operating Income on a segment and consolidated basis.
Domestic Operations
The following table sets forth our Domestic Operations segment results for the
periods indicated.
Three Months Ended March
31,
(In thousands) 2022 2021 Change
Revenues, net:
Subscription $ 343,748 $ 318,832 7.8 %
Content licensing and other 61,254 55,995 9.4
Distribution and other 405,002 374,827 8.1
Advertising 200,541 199,142 0.7
Total revenues, net 605,543 573,969 5.5Technical and operating (excluding depreciation and amortization)(1)
(228,107) (211,961) 7.6
Selling, general and administrative(2) (163,098) (124,110) 31.4
Majority-owned equity investees AOI 4,881 4,635 5.3
Segment adjusted operating income $ 219,219 $ 242,533 (9.6) %(1) Technical and operating excludes cloud computing amortization (2) Selling, general and administrative excludes share-based compensation expenses
Revenues Subscription revenues increased primarily due to a 42.5% increase in streaming revenues driven by an increase in subscribers to our streaming services, partially offset by a low single-digit decline in affiliate revenue. Aggregate paid subscribers2 to our streaming services increased 37% to 9.5 million atMarch 31, 2022 compared toMarch 31, 2021 . 2 A paid subscription is defined as a subscription to a direct-to-consumer service or a subscription received through distributor arrangements, in which we receive a fee for the distribution of our streaming services, and includes an estimate of subscribers that converted to paying status in the subsequent period based on historical conversion percentages. 27 --------------------------------------------------------------------------------
Content licensing and other revenues increased primarily related to a higher number of distributed original programs as compared to the prior comparable period.
Advertising revenues increased due to higher pricing and ad-supported streaming growth, partially offset by lower linear ratings.
Technical and operating expenses (excluding depreciation and amortization)
Technical and operating expenses (excluding depreciation and amortization) increased primarily due to an increase in program rights amortization primarily attributable to an increase in the number of original programs as compared to the prior comparable period.
Selling, general and administrative expenses
Selling, general and administrative expenses (excluding share-based compensation expenses) increased primarily due to higher advertising and subscriber acquisition expenses related to our streaming services, as well as higher employee related costs.
Segment adjusted operating income
The decrease in segment adjusted operating income was primarily attributable to an increase in selling, general and administrative expenses of$39.0 million and in technical and operating expenses of$16.1 million , partially offset by an increase in revenues, net of$31.6 million .
International and Other
The following table sets forth our International and Other segment results for
the periods indicated.
Three Months Ended March
31,
(In thousands) 2022 2021 Change
Revenues, net:
Subscription $ 60,412 $ 63,028 (4.2) %
Content licensing and other 27,054 36,568 (26.0)
Distribution and other 87,466 99,596 (12.2)
Advertising 22,385 21,571 3.8
Total revenues, net 109,851 121,167 (9.3)Technical and operating (excluding depreciation and amortization)
(59,695) (76,309) (21.8)
Selling, general and administrative(1) (27,144) (21,295) 27.5
Segment adjusted operating income $ 23,012 $ 23,563 (2.3) %(1) Selling, general and administrative excludes share-based compensation expenses
Revenues
Subscription revenues decreased primarily due to the unfavorable impact of foreign currency translation at AMCNI.
Content licensing and other revenues decreased primarily due to timing of productions at 25/7 Media.
Advertising revenues increased primarily due to higher pricing, partially offset by the unfavorable impact of foreign currency translation at AMCNI.
Technical and operating expenses (excluding depreciation and amortization)
Technical and operating expenses (excluding depreciation and amortization) decreased due to the timing of productions at 25/7 Media and lower program rights amortization at AMCNI.
Selling, general and administrative expenses
Selling, general and administrative expenses increased primarily related to
increased selling expenses at AMCNI, partially offset by a decrease in
administrative expenses at 25/7 Media related to the
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--------------------------------------------------------------------------------Segment adjusted operating income
The decrease in segment adjusted operating income was primarily attributable to a decrease in revenues, net of$11.3 million and an increase in selling, general and administrative expenses of$5.8 million , partially offset by a decrease in technical and operating expenses of$16.6 million .
Corporate and Inter-segment Elimination
The following table sets forth our Corporate and Inter-segment Eliminations segment results for the periods indicated.
Three Months Ended March
31,
(In thousands) 2022 2021 Change
Revenues, net: (3,237) (3,395) (4.7) %Technical and operating (excluding depreciation and amortization)
3,572 7,698 (53.6)
Selling, general and administrative(1) (31,382) (32,420) (3.2)
Segment adjusted operating income $ (31,047) $ (28,117) 10.4 %
(1) Selling, general and administrative excludes share-based compensation expenses and cloud computing amortization
Revenues, net
Revenue eliminations are primarily related to inter-segment licensing revenues recognized between the Domestic Operations and International and Other segments.
Technical and operating expenses (excluding depreciation and amortization)
Technical and operating eliminations are primarily related to inter-segment programming amortization recognized between the Domestic Operations and International and Other segments.
Selling, general and administrative expenses
Corporate overhead costs not allocated to the segments include such costs as executive salaries and benefits, costs of maintaining corporate headquarters, facilities and common support functions (such as human resources, legal, finance, strategic planning and information technology).
Selling, general and administrative expenses decreased primarily due to lower employee related costs.
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--------------------------------------------------------------------------------Non-GAAP Financial Measures
We evaluate segment performance based on several factors, of which the primary
financial measure is operating segment AOI. We define AOI, which is a financial
measure that is not calculated in accordance with generally accepted accounting
principles ("GAAP"), as operating income (loss) before share-based compensation
expenses or benefit, depreciation and amortization, impairment and other charges
(including gains or losses on sales or dispositions of businesses),
restructuring and other related charges, cloud computing amortization and
including the Company's proportionate share of adjusted operating income (loss)
from majority-owned equity method investees. From time to time, we exclude the
impact of certain events, gains, losses or other charges (such as significant
legal settlements) from AOI that affect our operating performance.
We believe that AOI is an appropriate measure for evaluating the operating
performance on both an operating segment and consolidated basis. AOI and similar
measures with similar titles are common performance measures used by investors,
analysts and peers to compare performance in the industry.
Internally, we use revenues, net and AOI measures as the most important
indicators of our business performance, and evaluate management's effectiveness
with specific reference to these indicators. AOI should be viewed as a
supplement to and not a substitute for operating income (loss), net income
(loss), cash flows from operating activities and other measures of performance
and/or liquidity presented in accordance with GAAP. Since AOI is not a measure
of performance calculated in accordance with GAAP, this measure may not be
comparable to similar measures with similar titles used by other companies.
The following is a reconciliation of operating income (loss) to AOI for the
periods indicated:
Three Months Ended March 31, 2022
Corporate /
Domestic International and Inter-segment
(In thousands) Operations Other Eliminations Consolidated
Operating income (loss) $ 198,522 $
17,355 $ (41,200)
3,673 754 3,702 8,129
Depreciation and amortization 12,136 4,903 5,551 22,590
Cloud computing amortization 7 - 900 907
Majority owned equity investees AOI 4,881 - - 4,881
Adjusted operating income (loss) $ 219,219 $ 23,012 $ (31,047) $ 211,184
Three Months Ended March 31, 2021
Corporate /
Domestic International and Inter-segment
(In thousands) Operations Other Eliminations Consolidated
Operating income (loss) $ 216,459 $
(3,162) $ (43,589)
5,639 1,231 6,576 13,446
Depreciation and amortization 13,373 4,949 6,924 25,246
Restructuring and other related charges 2,427 4,490 1,708 8,625
Impairment and other charges - 16,055 - 16,055
Cloud computing amortization - - 264 264
Majority owned equity investees AOI 4,635 - - 4,635
Adjusted operating income (loss)
Liquidity and Capital Resources
Our operations have historically generated positive net cash flow from operating activities. However, each of our programming businesses has substantial programming acquisition and production expenditure requirements.
Our primary source of cash typically includes cash flow from operations. Sources
of cash also include amounts available under our revolving credit facility and
access to capital markets. Although we currently believe that amounts available
under our revolving credit facility will be available when and if needed, we can
provide no assurance that access to such funds will not be impacted by adverse
conditions in the financial markets. The obligations of the financial
institutions under our revolving credit facility are several and not joint and,
as a result, a funding default by one or more institutions does not need to be
made up by the others. As a public company, we may have access to capital and
credit markets.
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Our Board of Directors has authorized a program to repurchase up to $1.5 billion
of our outstanding shares of common stock (the "Stock Repurchase Program"). The
Stock Repurchase Program has no pre-established closing date and may be
suspended or discontinued at any time. For the three months ended March 31,
2022 , we did not repurchase any of our Class A common stock. As of March 31,
2022 , we had $135.3 million of authorization remaining for repurchase under the
Stock Repurchase Program.
Our principal uses of cash include the acquisition and production of
programming, investments and acquisitions, repurchases of outstanding debt and
common stock, debt service, and payments for income taxes. Although impacted by
the COVID-19 pandemic, we continue to increase our investment in original
programming, the funding of which generally occurs six to nine months in advance
of a program's airing.
As of March 31, 2022 , our consolidated cash and cash equivalents balance of
$821.6 million includes approximately $286.4 million held by foreign
subsidiaries. Most or all of the earnings of our foreign subsidiaries will
continue to be permanently reinvested in foreign operations and we do not expect
to incur any significant, additional taxes related to such amounts, nor have any
been provided for in the current period.
We believe that a combination of cash-on-hand, cash generated from operating
activities and availability under our revolving credit facility will provide
sufficient liquidity to service the principal and interest payments on our
indebtedness, along with our other funding and investment requirements over the
next twelve months and over the longer term. However, we do not expect to
generate sufficient cash from operations to repay at maturity the entirety of
the then outstanding balances of our debt. As a result, we will then be
dependent upon our ability to access the capital and credit markets in order to
repay or refinance the outstanding balances of our indebtedness. Failure to
raise significant amounts of funding to repay these obligations at maturity
would adversely affect our business. In such a circumstance, we would need to
take other actions including selling assets, seeking strategic investments from
third parties or reducing other discretionary uses of cash.
Our level of debt could have important consequences on our business including,
but not limited to, increasing our vulnerability to general adverse economic and
industry conditions, limiting the availability of our cash flow to fund future
programming investments, capital expenditures, working capital, business
activities and other general corporate requirements and limiting our flexibility
in planning for, or reacting to, changes in our business and the industry in
which we operate. For information relating to our outstanding debt obligations,
refer to Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Debt Financing Agreements" of our 2021 Form 10-K.
In addition, economic or market disruptions could lead to lower demand for our services, such as lower levels of advertising. These events would adversely impact our results of operations, cash flows and financial position.
The revolving credit facility was not drawn upon atMarch 31, 2022 . The total undrawn revolver commitment is available to be drawn for our general corporate purposes.
Cash Flow Discussion
The following table is a summary of cash flows provided by (used in) operating, investing and financing activities for the periods indicated:
Three Months Ended March 31,
(In thousands) 2022 2021
Cash (used in) provided by operating activities $ (23,555) $ 107,563
Cash (used in) provided by investing activities (9,757) 55,962
Cash used in financing activities (31,011) (53,890)
Net (decrease) increase in cash and cash equivalents from
operations $ (64,323) $ 109,635
Operating Activities
Net cash used in operating activities amounted to $23.6 million for the three
months ended March 31, 2022 as compared to net cash provided by operating
activities of $107.6 million for the three months ended March 31, 2021 . Net cash
used in operating activities for the three months ended March 31, 2022 primarily
resulted from payments for program rights of $340.3 million and a decrease in
accounts payable, accrued liabilities and other liabilities of $84.9 million
primarily related to lower employee related, interest, and participations and
residuals liabilities, partially offset by $361.2 million of net income before
amortization of program rights, depreciation and amortization, and other
non-cash items, as well as a decrease in accounts receivable, trade of $37.5
million . Changes in all other assets and liabilities resulted in a net cash
inflow of $2.9 million .
Net cash provided by operating activities for the three months ended
31
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million of net income before amortization of program rights, depreciation and
amortization, and other non-cash items, which was partially offset by payments
for program rights of $238.0 million and a decrease in accounts payable, accrued
expenses and other liabilities of $67.7 million primarily related to lower
employee related and participations and residuals liabilities. In addition, net
cash provided by operating activities increased as a result of a decrease in
accounts receivable of $37.0 million , a decrease in prepaid expenses and other
assets of $29.4 million primarily related to a decrease in long-term receivables
and an increase of $11.1 million in income taxes payable. Changes in all other
assets and liabilities resulted in a increase of $5.7 million .
Investing Activities
Net cash (used in) provided by investing activities for the three months endedMarch 31, 2022 and 2021 was$(9.8) million and$56.0 million , respectively. For the three months endedMarch 31, 2022 , net cash used in investing activities included capital expenditures of$11.5 million , partially offset by a return of capital from investees of$1.7 million . For the three months endedMarch 31, 2021 , cash provided by investing activities included proceeds received from the sale of an investment of$95.4 million , partially offset by the acquisition of equity securities of$25.7 million and capital expenditures of$8.5 million . All other changes in investing activities resulted in an decrease of$5.2 million .
Financing Activities
Net cash used in financing activities amounted to$31.0 million for the three months endedMarch 31, 2022 and consisted of taxes paid in lieu of shares issued for equity-based compensation of$20.3 million , principal payments on long-term debt of$8.4 million , distributions to noncontrolling interests of$1.6 million , and payments on finance leases of$0.7 million . Net cash used in financing activities amounted to$53.9 million for the three months endedMarch 31, 2021 and primarily consisted of principal payments, net of proceeds, on long-term debt (including the redemption of$400 million of 4.75% Notes dueDecember 2022 and$600 million of 5.00% Notes dueApril 2024 ) of$30.5 million , taxes paid in lieu of shares issued for equity-based compensation of$32.3 million , distributions to noncontrolling interests of$2.5 million , and payments on finance leases of$1.1 million , partially offset by proceeds from the exercise of stock options of$9.8 million and contributions from noncontrolling interests of$2.7 million .
Contractual Obligations
As ofMarch 31, 2022 , our contractual obligations not reflected on the condensed consolidated balance sheet decreased$53.3 million , as compared toDecember 31, 2021 , to$1,010.1 million . The decrease primarily relates to payments for program rights.
Supplemental Guarantor Financial Information
The following is a description of the terms and conditions of the guarantees
with respect to the outstanding notes for which
Note Guarantees
Debt ofAMC Networks as ofMarch 31, 2022 included$400.0 million of 5.00% Notes dueApril 2024 ,$800.0 million of 4.75% Notes dueAugust 2025 , and$1.0 billion of 4.25% Notes dueFebruary 2029 (collectively, the "notes"). The notes were issued byAMC Networks and are unconditionally guaranteed, jointly and severally, on an unsecured basis, by each ofAMC Networks' existing and future domestic restricted subsidiaries, subject to certain exceptions (each, a "Guarantor Subsidiary," and collectively, the "Guarantor Subsidiaries"). The obligations of each Guarantor Subsidiary under its note guarantee are limited as necessary to prevent such note guarantee from constituting a fraudulent conveyance under applicable law. A guarantee of the notes by a Guarantor Subsidiary is subject to release in the following circumstances: (i) any sale or other disposition of all of the capital stock of a Guarantor Subsidiary to a person that is not (either before or after giving effect to such transaction) a restricted subsidiary, in compliance with the terms of the applicable indenture? (ii) the designation of a restricted subsidiary as an "Unrestricted Subsidiary" under the applicable indenture? or (iii) the release or discharge of the guarantee (including the guarantee under theAMC Networks' credit agreement) which resulted in the creation of the note guarantee (provided that such Guarantor Subsidiary does not have any preferred stock outstanding at such time that is not held byAMC Networks or another Guarantor Subsidiary).
Foreign subsidiaries of
The following tables present the summarized financial information specified in Rule 1-02(bb)(1) of Regulation S-X forAMC Networks and each Guarantor Subsidiary. The summarized financial information has been prepared in accordance with Rule 13-01 of Regulation S-X. 32 --------------------------------------------------------------------------------
Summarized Financial Information
Income Statement
Three Months Ended March 31, 2022 Three Months Ended March 31, 2021
Guarantor Guarantor
(In thousands) Parent Company Subsidiaries Parent Company Subsidiaries
Revenues $ - $ 515,603 $ - $ 481,516
Operating expenses - 362,605 - 316,637
Operating income $ - $ 152,998 $ - $ 164,879
Income before income taxes $ 141,667 $ 174,080 $ 108,267 $ 167,422
Net income 104,188 171,903 87,021 165,212
Balance Sheet March 31, 2022 December 31, 2021
Guarantor Guarantor
(In thousands) Parent Company Subsidiaries Parent Company Subsidiaries
Assets
Amounts due from subsidiaries $ 139 $ 14,812 $ - $ -
Current assets 4,553 1,270,494 9,991 1,242,724
Non-current assets 4,109,433 3,732,605 4,010,028 3,633,383
Liabilities and equity:
Amounts due to subsidiaries $ 28,076 $ 2,842 $ 12,797 $ 5,324
Current liabilities 110,211 728,881 100,969 671,041
Non-current liabilities 3,078,422 298,891 3,067,962 331,860
33--------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 2 to the Company's
Consolidated Financial Statements included in our 2021 Form 10-K. There have
been no significant changes in our significant accounting policies since
We discuss our critical accounting estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our 2021 Form 10-K. There have been no significant changes in our critical accounting estimates sinceDecember 31, 2021 .
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