Q3 2019 Earnings Call
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Thank you good morning, and welcome to the AMC Networks' third quarter 2019 earnings conference call. Joining us. This morning are members of our executive team, Josh Sapin, President and Chief Executive Officer, Ed Carroll, Chief Operating Officer, and Sean Sullivan, Chief Financial Officer, following a discussion of the company's third quarter 2000.
The 19 results, we'll open the call for questions. If you don't have a copy of today's earnings release. It is available on our web site at AMC networks Dot com.
Please take note of the following today's discussion may contain statements that constitute forward looking statements within the meeting of the private Securities Litigation Reform Act of 1995.
Masters or caution that any such forward looking statements are not guarantees or the future performance or results and involve risks and uncertainties that could cause actual results to differ.
Please refer to the company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties. The company disclaims any obligation to update the forward looking statements that may be discussed during this call.
Further we will discuss non-GAAP financial information, we believe the presentation of non-GAAP results provide you with useful supplemental information concerning the company's ongoing operations and is appropriate in your evaluation of the company's performance.
For further details please refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information, which will refer to on this call.
With that I would now like to turn the call Buddy Josh.
Good morning, and thank you for joining us.
I'm see networks delivered solid results in the third quarter and we remain on track to meet our financial targets for the full year.
We continue to deliver on our key financial objectives, including growing adjusted operating income generating strong free cash flow and using our capital to position the business for the long term.
[noise] AMC networks is well on its way to strategically transforming itself from a cable channels company into a premier content company with a suite of focused and targeted video entertainment products that are delivered to viewers on an ever expanding array of platforms.
These include our linear TV channels carried by traditional and new virtual Mvpds are targeted direct to consumer streaming services, our digital platforms on social media and anywhere else that viewers consume content today and will in the future.
As we said previously the underlying strategic priorities fueling this transformation.
We have and continue to be creating owning and producing great content and valuable intellectual property.
And maximizing monetization of that content.
Developing and growing new targeted direct to consumer content offering and brands.
Maximizing the long term value of our core networks and brands by partnering with distributors and advertisers by growing and extending our loyal audiences and diversifying our revenue by developing new avenues of content monetization.
These are the key pillars on our roadmap to continued success.
And we are executing on each of them in a very dynamic and obviously competitive environment.
There are two prevailing unrelated media trends that are captivating our attention today.
The first relates to pressures around the cable ecosystem as a result of what many refer to as cord cutting and associated changing consumer behavior.
The second relates to the so called screaming wars as large companies with access to significant resources and IP bulk up to attract consumers for their general interest streaming services that are frequently package with other non video products.
[noise] AMC networks is executing on a plan that will enable us to thrive alongside these major changes that are occurring in our industry as we capitalize on unique opportunities around both of these trends.
We have a few competitive advantages that are clear and simple and are driving our transformation and will drive our future success in this changing environment.
First our company continues to fundamentally be defined by a strong content.
Today through our AMC studios operation, we own and control roughly 90% of the original scripted series that we delivered to viewers on our linear networks and on our streaming platforms more than we ever have before.
Representing a major change from when we enter the original content business, a little more than a decade ago.
Today, we're in a position to OPSM optimize our content by using it in different ways without a one size fits all approach to each piece of content for each series.
We are developing new monetization patterns and strategically windowing each series across our various networks and streaming platforms. While building a strong library of acclaimed an award winning shows.
For instance, the monetization plan for the new upcoming third series and the walking dead Universe is this.
We did a deal earlier this month with Amazon to distribute that series internationally outside of territories, where our AMC global channels will air it.
However in the U.S., we are holding back rights that we've traditionally sold to third parties. So domestically, we will not sell the Svod rights to this third walking dead series, but rather the series will be used to fuel our own platforms, both streaming as well as linear.
As we when do it and take full advantage of the opportunities that it presents for us.
However on a different show.
Yes, he's recent successful genre series called no struck to.
We premiered that first on our linear linear AMC channel in the US then it went to two of our streaming platforms are horror suspense service called shutter and our AD free AMC premier offering driving new subscribers to both of those platforms.
A third variation.
We had a great series called this discovery of witches. It's debuted earlier this year on our streaming platform shuttering Sundance now where it drove for us record usage and subscriber acquisition before making its way to our linear AMC channel were delivered strong ratings.
These examples illustrate how our multiple platforms are creating increasingly varied pass to monetization and significant and different opportunities for our intellectual property.
Content engine.
This all allows us to build and expanding library of owned content.
To give that a little dimension by year end among our studio assets will be nearly 500 episodes from owned series, including the walking dead fear the walking dead halt and catch fire turn terror dose for our two and many others. That's in addition to the 1000 or so films in our fill.
On library that we've gained through our I FC films operation over the last 20 years.
And as our TV series come off their exhibition windows on mainstream streaming services, such as Netflix Amazon in Hulu.
He will then come back to us AMC networks for the first time.
Representing a new business opportunity.
As we make determinations around the optimal utilization of that content.
In terms of future global licensing expressions within our own ecosystem of asphalt services as well as our use on linear and global channel.
Another competitive advantage of our company has to do with the very nature.
Of our own direct to consumer efforts, some of which I just mentioned.
These targeted hyper focused as FID services are thriving and we believe we'll continue to thrive alongside what some may call. The something for everyone as spot category that is becoming more crowded and competitive by the day among the major players in would have.
Appears to be a pretty big share battle that may put downward pressure on the retail price for their services.
The economic fundamentals around these targeted services have great attributes and order in some cases, particularly for a company like our.
Superior to the General Entertainment as pod category as there is not the same pressure on retail price and there is not the same share Battle for example, our Acorn TV British streaming service took a one dollar price increase several months ago and our growth pattern continue.
In addition to Acorn TV the largest of our service largest of our services, we have shutter or her and suspense service Sundance now with the claim series and films and the urban focused you MC urban movie channel.
As we grow subscribers to these targeted series, we see that the deep fans.
Other sciandra will sign up and stick with the service stay identify with and feel strongly about.
While aggressively priced and package general entertainment offerings from Netflix Apple Apple Disney HBIO, Max and others proliferate and become very successful.
Our approach in this area building specific targeted as faade offerings that appeal to fans of specific genres and content categories. Now has led us to invest and produce original material as we've developed sufficient scale for that to be economically rational for those targeted services.
And that activity. This original programming is yielding strong growth as well as stable user base and favorable economics for us.
Acorn TV recently passed the 1 billion subscriber threshold, an important milestone that underscores the vitality of the special interest as spot market.
Our suspense in her service shutter is also growing at a very strong rate driven most recently by its exclusive and growing content slate, including our newest original series called creep show.
Which is right in the sweet spot for this Sean.
The series is based on the iconic 1982 movie from Stephen King and George Ramiro and the show has been breakout for this targeted service driving more subscriber acquisition than we've ever seen and setting records in terms of viewership and total minutes streamed so we just renewed.
Thats series for a second season.
If I may I'll point out that we are not by accident in the areas of British centric dramas Harper and suspense.
Presti series in films and urban program programming.
Our interest in developing service services focused on these specific areas was quite premeditated and long in planning.
These are John was the travel well and have broad appeal in the us and across many parts of the globe.
We assess the total addressable market.
In the us alone to be an excess of 10 million subs for each of these services.
That represents a tremendous growth opportunity for us in the us not to mention abroad as broadband penetration continues to grow everywhere.
You may remember that our last call. We indicated that we're on target to end the year above a cumulative 2 million subscribers in aggregate for these services and we are in fact now pacing to be ahead of that stated target.
As we have also previously mentioned, we anticipate crossing three and a half to 4 million cumulative subs by 2022.
And by 2024, we anticipate being in the five 7 billion subscriber range with over half a billion dollars in run rate revenue from those for targeted services.
I will note again that our overall as spot approach represents a different another side of the streaming landscape.
While it does not dominated the headlines it represents a very healthy future margin business for us and a very meaningful opportunity for a company of the size scope and genetics of AMC networks.
And something that will be a true contributor to the fabric of our company and our economics as we go forward.
Okay.
As we continue to diversify and shift away from being solely a us cable channels company.
Core network linear group.
Has the ability to continue to have an outsize presence in the world of traditional and virtual envy pdcs.
Hi consequence of are manageable portfolio size five channels are relatively very low wholesale price.
To these distributors and our proven ability to deliver popular and critically acclaimed shows that get noticed and by almost everyone is agreement occupy an outsize cultural presence in the scripted drama Arena.
And the growing direct to consumer business I, just mentioned is becoming increasingly attractive to these very MPPD partners as their business models evolve.
An example of this is our recent agreement with charter communications.
In addition to renewing our long term affiliate agreement at rates that we are pleased with for continued carriage of our linear channels charter will be launching our targeted svod services Acorn TV shutter Sundance now and you MC as well as AMC premiere.
The scope of disagreement represents a larger shift in our relationships with traditional and emerging distributors, who are finding our growing EPS Vod services to be of significant appeal, especially as they focus on catering to broadband only subscribers.
Our ability to offer attractive linear as well as subscription AD free services create some more expanded and advantageous relationship with these distributors.
Value to both our traditional and emerging MB PD partners as they are landscape continues to evolve.
On our international businesses, we're continuing with the strategy of using our franchise shows for May and studio AMC Studios on our global AMC channels with shows like the terror and fear the walking dead continuing to perform extremely well overseas.
Ill also note that our international assets in many territories are a mix of these big franchise shows that of global appeal. In addition to locally produced lifestyle content. Just one example canal Cortina in Spain, and Portugal is the leading food channel in that region.
And our channel called spectrum is the leading factual channel in Hungary, giving us a good strong mix of assets across our international.
With respect to advertising.
This space evolves, we are focused on embracing all the new opportunities it presents.
From working with our MPPD partners in new and strategic ways to mapping AMC network strategy around the potential of Avon.
We are seeing good growth in vivo de advertising, which is up 20% year over year with increases in spending coming particularly from the entertainment and financial categories.
We're also creating new opportunities for brands to leverage the strength of our content and our large and passionate fan communities on social platforms as well as through on the ground live events, including premieres for the walking dead. Another fan events, which has helped grow our social revenue by 25% year over year.
As always these opportunities are rooted in our strong content and proven ability to build build vibrant large and engage fan communities around our shows.
On the subject of content will offer a few just a few highlights if I may.
We recently Greenlit two new series for AMC that will be AMC studios owned and produce shows.
The first is called 61st Street.
I think it's a compelling examination of race in America.
Set against gripping legal cop backdrop in Chicago from the people, who did the wonderful series and HBIO called the night of.
The second series titled Kevin Can FMC Health show that is we think a thoroughly breakthrough format.
It blends single camera realism, and traditional multi cameras sidcup comedy in a way that has never been done on TV before.
It's in a resting format and a great narrative.
The walking dead just return for its 10th season.
It continues to attract a very large and very loyal core core audience.
And even in season 10 continues to be the number one show on AD supported cable TV by a two to one margin ahead of American horror story.
A ranking the walking dead as held for 10 years in a row among adults 25 to 54.
Actress Jody Colm refresh offer best actress Emmy win for her breakout role in our hit show, killing Eve is back in production with Costar Sandro for an upcoming third season.
And then just a few days BBC America will debut something called Wonder struck.
A weekly network takeover that will be the exclusive us television, whom to the planet Earth collection and other iconic series from our partners at the BBC.
Wonder struck will transform BBC America every Saturday for 24 hours.
Our freund viewers and advertisers landmark natural history content, including the upcoming Sir David Attenborough fronted series seven worlds one planet debuting early next year as well as new installments of frozen planet and planet Earth franchises.
Natural history programming has seen a surge in popularity and interest in recent years and we're happy to have the leadership position in this space through our long term agreement with the BBC.
Which is we believe simply the best producer of this content on the planet.
And we look forward to creating a new franchise and a weekly viewing family ritual through wonder struck.
And our reality focused we TV network continues to manufacture hit after hit including two of the most successful franchise series love after lockup and growing up hip hop.
Which has helped contribute to a very strong third quarter.
So I'll close out.
By saying that as we continue to transition from being a cable channels based company to a contract content centric company, we remain particularly focused on increasingly owning and controlling our content.
Allowing us to do with it what we choose and distributing that content on multiple platforms to maximize its value.
Including our linear channels selling it to third parties, where it makes sense to do so and now increasingly putting it on our own subscription video on demand channels.
In short we make the shows that people want to watch and we have a structured and strategic approach to delivering them to viewers that is purpose built for where the world is today in terms of video consumption and we will move with it to where it goes tomorrow.
Now I'd like to turn the call over to Sean for more detail on our financial results.
There are three fundamental elements that will drive success in this new phase first element is that our success is rooted in our content quality and the strength of our owned IP or quality content as our greatest asset and we will prudently scale or investments with a continued focus on total returns.
Additional investments will yield increase IP that we will continue to expand our brands.
We will increasingly invest in owned original content that serves both our core networks and our portfolio of Escalade services. We're excited that are as follows services have grown to a scale. We're increasingly first window content makes economic sense.
As evidenced by recent library deals in the market in the value of high quality content libraries continues to grow and we will be prudently and selectively reserving rides for our own services and libraries.
Number two we will drive continued affiliate and advertising opportunities, while maximizing the operating efficiency of our linear cable networks business through prudent content investment and operating expense management.
Where those models are challenged we will continue to innovate we believe that our core linear business will remain quite profitable and continue to generate significant cash flow for many years to comp.
In areas of success, we plan to increase our investments in our portfolio of D to C services as Josh mentioned, the new ecosystem is today dominated by a few players with massive scale. We believe our strategy of focus on services for passionate audiences that a roadmap for success in an increasingly crowded marketplace.
We intend to expand on this strategy through organic investments and where appropriate through M&A. We have successfully executed on this in the past and we'll continue to employ it where it makes sense.
Well so while some companies are focused on total volume content investments, we believe content that resonate and aggregate passionate audiences is the key to winning on linear or the new evolving distribution models, whether that be spot or a vod.
In the year of massive media shifts we again reaffirm the 2019 guidance. We provided you at the beginning of this year. We believe that AMC networks is unique in that we have a business model that allows us to react quickly to the ever changing marketplace.
And we believe we have the management experience in the tools to continue to successfully navigate the changing environment.
So with that let's review our financial results for the third quarter.
We're pleased with our results in the quarter as total company revenues were $719 million AOL I was 219 million and adjusted EPS was $2.33.
The company continues to generate very healthy free cash flow $88 million in the quarter and 318 million for the nine months ended September 2019.
Well I was 208 million a decrease of 1% as compared to the prior year period.
Advertising revenue in the quarter decreased 3% at AMC. The channel results were influenced by lower delivery as well as the timing of originals in particular, the absence of better call Saul in 2019.
However growth at each of our other for networks BBC America, I have see Sundance and lead TV as well as increased pricing across our pulp portfolio of networks helped to offset the unfavorable comparisons.
With respect to distribution distribution revenue increased 1%.
In addition to the quarterly fluctuation based on the timing of various agreements renewals and adjustments we continue to see a moderation mainly due to macro factors.
As we mentioned our last call. Our results continue to also be impacted by the interpretation of a contractual provision with one of our distribution partners.
Absent this item year to date subscription revenue would be up year over year.
We remain discussions with this partner and we're hopeful that will resolve our differences in the near future.
As for the content licensing component of distribution revenue. This line item drove the growth in the quarter results, primarily reflected the availability of the walking dead fear the walking dead the sun in the terror, and ansley windows, which more than offset the absence of revenues from diet land in the prior year period.
Moving to expenses total expenses were essentially flat versus the prior year period.
Technical and operating expenses increased 1% to 260 million.
The variance principally reflected an increase in program amortization related to the timing and mix of original across our portfolio of networks. This increase was partially offset by favorable investment tax credits related to our production activities.
In the quarter, we recorded $1 million and charges related to write offs of various programming assets. This compares to write offs of 11 million in the third quarter of 2018.
SGN expenses were $102 million in the third quarter, a decrease of 5% versus the prior year period.
This variance primarily it into a decrease in marketing costs due to the timing and mix of originals, most notably the absence of better call Saul.
Moving to our international and other segment third quarter International and other revenues grew 20% to 183 million increase primarily reflected revenue from the acquisition of RLJ.
Oh, I was $13 million, an increase of 6 million versus the prior year. The increase was primarily attributable to an increase our international networks as well as RLJ.
Moving to EPS for the third quarter EPS on a GAAP basis was $2.07 compared to $1.93 cents in the prior year period.
On an adjusted basis, EPS was $2.33 compared to 2015 cents in the prior year.
The year over year increase principally reflects the increase in ally.
And a reduction in outstanding shares as result of our stock repurchase program.
Through nine months tax payments were 121 million cash interest was 105 million capital expenditures were 69 million and distributions to Noncontrolling interest were 14 million.
Program rights amortization for the nine month period was 696 million and program rights payments were 677 million, resulting in a source of cash of $20 million.
This compares to a source of cash from programming of 13 million for the prior year period.
Turning to the balance sheet, we have on the back of our success to date, a very strong balance sheet in the financial wherewithal to carry out the strategy Josh discussed.
First invest organically, our core business as well as new businesses on projects that will produce returns for our shareholders.
We believe at the highest return for our capital is to fund the content that is quarter driving our platforms to drive holistic value out of our distribution relationships and to build the assets necessary to best position us in the evolving market.
Second maintain leverage that is appropriate for the business outlook.
As of September Thirtyth, AMC networks had net debt and financial the net finance leases of 2.4 billion, our leverage ratio based on LTM AOCF of 963 million was 2.45 times.
Third make disciplined and opportunistic acquisitions and investments to advance our strategic plan such as our international networks, BBC America and oncology.
And fourth return capital to shareholders over the past three and a half years, we've returned over $1 billion through our share repurchase program.
During the third quarter, the company repurchased $12 million the stock representing approximately 231000 shares as of last Friday, The company had $489 million available under its existing authorization program.
Program to date, we've repurchased approximately 26% of are outstanding shares.
Return of capital remains a priority to date, we've returned significant capital to shareholders and we expect to continue to be opportunistic with pacing that we'll continue to vary from quarter to quarter and year to year.
So looking ahead there are no changes to the full year outlook as we remain confident in our ability to achieve the targets that we communicated at the beginning of the year. We continue to expect to grow total company full year revenue in the low to mid single digits.
Total company full year adjusted operating income in the low single digits.
With respect to the fourth quarter, we expect total company revenue to be down modestly versus the prior year period.
At the National networks, we expect advertising revenue to be subject to the performance and mix or our original shows as well as the current advertising market, including scatter.
As for expenses at the National networks, we intend anticipate a modest year over year increased due mainly to the timing and continued investment in owned originals at AMC.
At International and other segment, we've now lapped the acquisitions of both RLJ in levity. So our reported results reflect the organic activity of these businesses.
We expect the businesses in the segment to deliver in aggregate healthy growth in both revenue and ally in the fourth quarter.
So in conclusion overall, we feel good about our performance for through the first nine months of the year and how the businesses positions the remainder of 2019.
We also recognized the media landscape is changing rapidly and we're refining our strategy to respond to market conditions and position the business for long term sustainable growth.
So the outlook for 2020, we look forward to updating you as we normally do on the fourth quarter call early next year.
Ladies and gentlemen at this time I would like to remind everyone in order to ask question. Please press star one on your telephone keypad again, it's far one on your telephone keypad. Your first question comes from the line as Michael Morris with more with Guggenheim Securities You May.
Thank you good morning, guys couple from me.
First when you distribute your EPS FID services through these.
MPPD partnerships that you are talking about is there is there a revenue share in there or can you talk at all about sort of the economics of what those agreements look like versus.
Somebody just directly taking the service.
Also can you share what the decline rate was for your domestic mbps subscribers during the quarter and how that trended and then finally on intercompany eliminations. They grew in the quarter was that related to sales of content from the national networks to the other segment and how do you expect that to trend for the balance the year. Thanks.
Hey, Mike It's Josh.
Yes, the we.
Our direct to consumer services are sold through conventionally do we do it directly.
Where we take all of the money and do it through.
Third parties and they are they take a piece of the action and so we as we engage with MVP. These to become distributors. They will have a financial reward.
In their success in deploying those services I'll take a moment, Mike just to point out if I might.
The benefits to us apart from broader distribution of those services meeting more touch points in more places for people to get them because it actually does touch on the second part of your question, which is it expands to state the obvious our relationship with envy PD partners, they're carrying.
Our linear basic channels, we get rate increases from them on that and then they essentially have if you want to call. It a reward or an opportunity to make money as they sell what is essentially called all a card services and so their net out or.
Net money out to AMC networks from their point of view starts to decline our relationship broadens with them and we become on a net basis less expensive in addition to that.
As they on the cable side have more broadband only subs they have.
Targeted assets and services to deploy to broadband only subs, putting them in that position of being video providers to broadband only so if you're a wireline MPPD AMC networks now becomes a multi dimensional supplier of content you actually pay less money if.
You succeed in achieving rates of penetration on these espod services and you have something to offer to broadband only subscribers that actually can cement or basically and economically benefit.
Your relationship so it's really a better holistic approach. It is dare I say it is somewhat challenged environment between programmers and distributors. It is a win win in terms of.
We are of course subject to all those things were carried by every major distributor in the United States of America and other places so.
If they experienced declines we generally experienced declines that are by degree and they vary of course by company, depending upon our positioning but we are subject to those effects, which is part of our relationship in this ecosystem.
And Mike Your last question the intersegment eliminations as you see from the release consistent through the nine months in terms of revenue an ally and I'd expect that trend to continue.
For the full year 19 versus 80.
Thanks, Good morning.
If you had described this is a new strategy, but certainly sort of the evolving strategy. How do we think about the level of programming investment into the business in totality.
Sort it sounded like you guys are leaning into your asphalt opportunity, which makes sense, but maybe put that in context and the overall.
Sort of expense space, and TNL and sort of the same question on the licensing side.
No you guys don't want to talk about the Hulu arrangement or.
Detailed if anyone deal, but it sort of sounds like youre going to be moving more things on platforms.
How do we think about sort of the puts and takes around licensing revenue against the spot opportunities. If you can help us sort of put all that into a sort of a high level view of how the business trends in your mind over the next couple of years.
Sure sure been.
I think we are balancing.
It used to be just going back in history.
And then it was good affiliate fees sell ads sell to third parties and sell frankly to ourselves just want to call. It that internationally with a global footprint of linear channels and now we've added a additional opportunity which is sell to our own as spot services. In addition to all those other.
Places so.
The the what we described in our prepared remarks, I hope was cogent because what it said and what I'm, saying now is that there is not a one play pattern for all and I will get to the specifics of sort of quantity, but and it if it does become.
Simply an evaluation of where our their returns where is there a return on investment so.
It's simple example is creep show.
It's it's a show we might not have done before we did it because we have the shutters service and.
Our spectrum of rights were specific we think smart wise and specific to what our today in future opportunity is with creep show.
So that's just one example, the aggregate if you want to sort of just go a little bit higher in your view, which is what you suggested is that will.
Increase our overall investment by you degree where Theres a return.
And the return will be calibrated against all those immediate opportunities and it will lead us and guide us to make content that monetizes well against those multiple opportunities in the prepared remarks. The reason I went through I hope it was not excruciating detail on the three different examples is that.
And.
We need to be nimble flexible smart strategic and disciplined and financial to make sure that we're doing the smart and right thing.
I believe we are we take each piece of activity under with great care and making certain that it works in the macro I think that will lead us to have more opportunities for monetization.
And to be able to build the business because we have more platforms in more places to sell and we will admittedly you have sort of more complicated if you will monetization in play headwinds.
I hope that's responsive to what you said what your question. Please.
Yes, no definitely.
Going back to this charter agreement lastly.
Can you help us think about.
How charter distribute this and these are best Vod services. So I imagine there delivered in an IP stream over over the top so.
Not all their video customers could get these any sense for how how that how they distribute and who sets the pricing for these services are they going to be sold at the same retail price that you sell the matter anymore color as you guys push this model forward with what seems like a pretty interesting new relationship.
Side of the relationship with charter.
Yes, I really im going to I'm going to hesitate to speak for charter because all of misstep in an explanation of exactly what they'll do so what I will say is that.
I believe and hope that they entered into this with vigor and with enthusiasm and that that the pricing will be essentially the same as it is available everywhere else and that charter will deploy I think theyre experts at it still deployed wisely and with acumen. If you look at.
Spectrum.
Platform today, you'll see that they seem to know what theyre doing with video quite well and so I think we'll see chartered deploy and they may actually undergo a series of different deployments as time goes on its up to them, but I do think theres no one wiser about what to do with video opportunities.
And margin opportunities through their multiple products than them and I'd like to think we enjoy a very good and harmonious relationship with them and that will work together to make sure that those deployments that they execute our rich and opportune and I mean, it that's not that's not just the words I think there'll be incredibly smart.
Can you tell what more can you tell us.
In terms of the current state of the businesses other than just subs would you be willing to share ARPU sac churn net profitability or net cash flow any of those things would be remarkably helpful and interesting and then if we extend that to your five year view.
Your 500 million revenue I think you said 7 million subs I can do that math I think thats a $6 ARPU.
Can you please tell us what sort of margin profile, you think that business would have it that state. That's the big one quick Sean just one other quick one if you don't mind feel like I always have to ask about the balance sheet, you're you've got I think 700 million cash sitting there.
Growing.
I just wondered what that.
He is sitting there for and your thoughts on why you would have that they're in what we could expect to see happened to that over the nearer term. Thanks.
Hey, Scott, it's Ed on the on as five we're always anxious to talk about it. So yes. Thanks for the question.
As Josh mentioned in his remarks, where we're pleased with the progress in those services and in fact, we're renting a bit of had a bit ahead of the targets that we set out in our last earnings call I guess I would guide you too.
We statement, we've made previously that will achieve run rate profitability in the aggregate by year end 2020.
And also.
The significant growth Acorn passed the 1 million subscriber Mark and whats interesting as as all of the EPS Vod services evolve is it program mix and with the way, we're managing churn, we believe that Acorn, while I won't get more specific is among the lowest churn rates in the industry and we think thats the key.
With these with these services because we are we're serving passionate audience groups and we can manage churn and we can produce original content and acquire content that makes the services invaluable to those subscribers and so we're sort of playing on a on a different playing field. If you will then than.
The bigger mainstream there's two series all all site on Acorn that have just been workforce is one is dock Martin which is a mystery series, which is now in its and its ninth season and Murdoch mysteries is in its 13th season and those are among the highest achieving acorn among viewership and loyalty and.
Completion rates that gives us the ability then to Coproduce original content as just mentioned with creep show and shutter has experienced its fastest growing quarter to date, largely because of the investment to creep show some mixing the acquired in the co production with the with the new original content, managing churn and Super serving our audiences.
We think is the key to our healthy growth rates.
And Todd just to tackle the balance sheet question again, I think we have a great capital structure, we have a great interest rate profile maturity profile for our debt.
As we said our leverage is a two and a half times down sequentially from the second quarter and the cash is obviously a reserve for incremental organic investments M&A to the extent, we find something sound a disciplined and obviously return of capital as I said continues to be a priority.
Okay. Good enough thank you but.
Thank you.
Your next question comes from the line of Stephen call with Wells Fargo, Let me ask your question.
Thank you maybe just first one on a corn to follow up are you contemplating doing any sort of exclusive originals or maybe you can just talk a little bit about what you think the incremental investment is in content today corn and I think 18 T. This we talked about having exclusive rights to the Doctor who so maybe you could you.
Just comment on what you need to fill out a corn to kind of get to your longer term subscriber objectives, and then maybe just to keep on this theme that we all seem to be asking about direct to consumer it seems like the move into that third walking dead series to your own platform is maybe one of the first time as you've pulled back on.
One of your 10 Pauls owned content. So can you just talk a little bit about what the long term direct to consumer strategy is domestically how would you see yourself pulling back more of your sort of flagship shows like the walking dead from domestic licensing rights. Thanks.
Right as Steven I think it's a mix out there the last part of your question I'll address first with the walking dead series three.
We have done.
A very lucrative and important deal with Amazon to exploit the international rights. We also exploit the walking dead series three will on some of our AMC services around the World then when we look to the US we have a different strategy we.
I have two platforms, which would likely be strong vessels for series three they are AMC premier and shutter and of course, the big premiere on linear so all of those things. We think are the best ways. The strongest ways to monetize that series, we may come to a different conclusion on other series, we like the idea of approaching them.
Marketplace on on a series by series approach.
It will continue to be a mix of acquired content co produced content and original content and as decides the footprint has continued to grow the investment budget for regional series has grown as well and we think that.
Thanks.
Your next question comes from the line as a Marci Ryvicker with Wolfe Research you May ask your question.
Thanks, Sean when he talked about this fourth quarter and advertising you mentioned the tough comps we get it.
Also mentioned the overall AD environment and scatter. So anything you can stay about how you're feeling about scatter what you're seeing and then secondly, Wendy you anniversary. This contract dispute with your distribution partner and how is this impacting your financials have you been dropped from this or is it just.
Haven't gotten a rate increase yet.
Thanks, Marci so to your first question I think the the AD market continues to be strong scatter market strong pricing strong continues to be strong demand for our shows. So that's a that's how I would characterize the the advertising marketplace as it relates to the dispute we do.
As we said enjoy a continuing relationship we enjoy a continuing carriage I believe we first time we.
Mentioned this was on the second quarter conference call. So I think that would probably inform when the impact.
Began and I think in my proactive remarks absent that I tried to give you a little bit of the contours of what subscription revenue would have been if not for this contractual dispute.
Okay, and then one follow up on a corn is this just domestic at this point or is there a mix of internationally.
It's overwhelmingly domestic at this point, we have begun expansion opportunities in some places in Latin America, and Europe , but those are early days very early days.
Okay and can you have an ashland's sub number.
Just because being over 1 million, if you're closer to $1 million into started have to double in the next couple of months to hit your over 2 million.
Well the 2 million subscriber number that we gave is the aggregate of the for Svod services. So that Acorn you MC shutter and Sundance now with the target that we spoke about on our previous earnings call.
Thank you.
Thank you.
Your next question comes from the line Ilecs shock, what Toumani with JP Morgan you May ask your question.
Hi, Thank you just two quick questions. If I may 1st because anymore color you give us on the third walking dead serious specifically, how you balance leveraging the success of that franchise without potentially adding to the key and then just following up on your comments if not selling.
Domestically going forward, if the economic concerns nationally now becoming more favorable to help ease of financial burden.
Limited sounds great.
So the.
International streaming services, the economics are meaningful they always have been meaningful.
A and that continues to be Amazon is an important partner we have other.
Places that we sold our content and again AMC International is also an important place our content to be exploited. So I'd say continues to be meaningful revenue for us say international.
On the walking dead So series three.
Using a new cast and this this story pivots because this is really the first generation that came of age during the zombie Apocalypse. So they are now young adults. They are asking different questions. They are challenging the way the world has been organized and they are as the story will unfold there.
In pursued perhaps of the underlying mystery as to what created the Apocalypse and the first place and how might it be eventually resolved and I think thats as thats, probably off say about that led by debt.
And that's the call from our show runner, but were.
That series is scheduled to premier in the second quarter and the other thing I would say about it when an exciting things for the network is.
When you combine the walking dead and fear the walking dead and now what we anticipate to be 10 episodes of the walking dead series. Three we will have 40 Sundays of original zombie related zombie world premieres on on AMC.
In 2020, which gives us a mark of consistency there has not happened before and we think our fans and we know advertisers will be excited about.
Thank you.
Operator, why don't we take one last question. Please.
All right. Your last question comes from the line as David joints with Evercore ISI you May ask your question.
Thanks, just a couple things falling on one of the other questions could you help us understand what.
What the different windows are between some of the BBC programming that you're sharing with discovery and Warner Media Doctor, who was mentioned, but also if you could mentioned the nature programming.
Secondly.
Just wanted to see where we are on the addressable advertising evolution here what is what order is doing to your gross thank you.
Right as so David on Doctor, who all the new Dr. Who's come to BBC America, I think what year, what you may be hearing about on other streaming services. Our is library content, we have the exclusive domestic premiers. So we will have that new Dr.
True coming to us.
I believe in the first quarter and this is the second season that features the new Dr. Jody Whitaker and all that is exclusively available on on BBC America.
The question about.
Natural history.
BBC America also is the home for the overwhelming majority of the natural history sort of planet Earth premiers. There are a number of individual ones that may premiere in other places, but for the for the overwhelming majority we are the exclusive home.
On linear television and.
And Bob.
And on the Aurora contribution to add revenue growth.
Oh.
Continues to be.
A major growth area for us.
Again, as Rory gives us the ability to target advertisers to target audience segments. So for example.
We are able to price on heavy consumers of soft drinks or people, who suffer from certain kinds of allergies. So we work with the pharmaceuticals.
And we're working with financial services and were able to target those audiences that had double we experienced double digit growth in that area in 19, and it not only helps us to drive pricing, we obviously charge a premium for that but it enables us to drive volume among blue chip advertisers and we think our platform, which we referred to.
As agility is among the most capable among our peers in the.
The AD sales industry.
And so it continues to be an area of robust growth for us.
Great. Thank you very much.
All right at this point I'd like to thank everyone for joining us on today's call and for your interest in AMC networks. Operator, you can now conclude the call.
Thank you and that concludes AMC Networks' third quarter 2019 earnings Conference call you may all disconnect.