Q2 2021 AMC Networks Inc Earnings Call

August 6, 2021

[music].

Good day, and takeaway standing by and welcome to the AMC networks second quarter 'twenty, China on earnings conference call at the spine I would like now to add a car price over J speaker today.

Keybanc. Please go ahead Sir.

Thank you good morning, and welcome to the AMC networks second quarter 2021 earnings Conference call. Joining us. This morning are Josh <unk>, President and Chief Executive Officer, Ed Carroll, Chief Operating Officer, and Chris Spade, Chief Financial Officer.

Today, we will begin with prepared remarks, and then we'll open the call for questions.

You do not have a copy of today's release. It is available on our website at AMC networks Dot com before we begin I would like to remind everyone that this call may include certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

Such forward looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ.

Please refer to AMC networks S E SEC filings for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward looking statements made on this call on.

On today's call, we will discuss certain non-GAAP financial measures the required definitions and reconciliations can be found at the end of the earnings press release issued today with that I would like to turn the call over to Josh.

Well good morning, and thank you for joining us on.

On today's call I'll discuss our continued business transformation and strong performance before turning the call over to Ed and Chris who will provide additional operational and financial details.

Before we open the call to questions.

We're pleased to report our second quarter with very strong financial results and continued screaming subscriber growth.

<unk> by our popular and declaimed content.

We continue to maintain a strong financial profile.

With a healthy balance sheet and solid cash position.

These results reflect the significant progress, we're making against our 4 key financial and strategic priorities.

Which I will restate if I may they are.

1 <unk>.

Growing subscribers for our targeted streaming services and significantly expanding distribution of those services to incur.

Increasing our content ownership.

With a focus on new franchise opportunities free.

Growing our digital and advanced AD revenue business and for doing all of this while maintaining the high value of our linear networks.

Our successful execution in these areas is enabling us to continue to meaningfully reconstitute.

The revenue mix of our company, most notably with increasing revenue from our targeted streaming services and our digital and advanced advertising efforts.

We are very pleased today to reaffirm the full year 2021 guidance for our screaming subscriber targets, which we shared with you at the beginning of the year.

We remain on track to end 2021 with at least 9 billion paid streaming subs in aggregate across our services and we're well on our way to our earlier stated goal of having between 20 and 25 million paid subs by the year 2025 a.

Scriber range that is very meaningful to AMC networks.

As we advance our position as the worldwide leader in targeted spending.

I will say that we are nothing short of thrilled with our momentum.

Subscriber satisfaction with our services continues to be very high in streaming consumption is strong.

Our unique approach to screening is to target audiences, who are highly interested in often passionate about very specific content areas and to offer those audiences or depth of content that they really just can't get anywhere else.

This is obviously in Stark contrast to the general Entertainment services, which offer everything kids programming to reality TV to news and sports.

For our subscribers are targeted services represent reliable destinations for the kind of content that they identify with weather.

Whether thats character driven dramas that define the AMC brand on AMC plus black.

Black.

Television and film on all Black.

For British an internationally focused histories on Acorn TV.

Very importantly.

Across all of these we are not competing with the big something for everyone offerings, rather we are complements to them.

Unlike those if on my call them mainstream services, we don't need to spend tens of billions of dollars creating content.

Across multiple categories in order to satisfy every member of our household and grow to enormous scale.

This is in turn providing us with a very attractive economic model.

That is enabling us to significantly reorient, our company toward a unique screaming future.

Our AMC, plus offering which bundles if youll recall, our high quality character, driven AMC dramas, along with other shudder and Sundance now services continues to perform very well and is resonating with subscribers, creating high engagement and retention.

We launched AMC, plus last fall and in less than a year. It has quickly become our fastest growing service driven by increasing availability and distribution and the power of our strong dramatic content.

Which often has outsized cultural impact despite the wider availability of dramatic material and a competitive environment..1. Recent example of this is our new original and own series called Kevin can add from cells that debuted in June on AMC, plus as well as our linear channel.

Stars Emmy Award winner, Andy Murphy, who some of you may know from Shits Creek. The show has been 1 of the more talked about dramas during the last quarter receiving wide critical praise and much of claim for its innovative format that mixes of multi camera sitcom with a single camera trauma.

It has quickly become 1 of the top 3 most streamed series on AMC plus and it's also performed well on our AMC linear channel demonstrating how we are able to use our various platforms synergistically serving audiences in creating value with our high quality content across multiple platforms.

In this case screaming and linear.

In terms of distribution, we are very well positioned.

We've made our incumbent distributors key partners in our screaming transition, while maintaining the most cost effective wholesale rate for our cable channels.

This is an approach that has been highly successful for us in the marketplace.

We are allied with conventional mvpds, and an ongoing and consistent way with the breadth and depth of our partnerships ranging from working with Comcast on the very creation of AMC plus where it was.

Essentially incubated too.

Co producing what we think is a wonderful new dramatic series that charter's spectrum titled Beacon 'twenty 3 it stars Lena.

Who you may know from game of Thrones.

We believe this activity when coupled with the successful renewals we've had with major mvpds over the last 12 to 18 months in the U S and abroad.

As a demonstration of our long standing mutually beneficial and now newly enhanced partnerships with those mvpds.

As we continue to expand distribution of our screening offerings. We were pleased to have recently completed an agreement for a promotional partnership with Verizon for AMC, plus that will significantly expand the reach of our premium streaming bundle.

We'll have more specifics when the partnership launches, but this is a very meaningful deal across Verizon <unk> and wireless that demonstrates the growth and momentum of AMC plus the strength of our content.

And the depth of our brand residents.

In a very competitive marketplace.

In addition, we are expanding our digital distribution by launching AMC plus in Canada. Later this month on both Apple TV channels and Amazon Prime channels.

This expansion joins the overseas opportunities, we're just beginning to tap into with our targeted services, particularly Acorn shudder, which are expanding into markets in Europe, as well as Australia, and New Zealand, New Zealand excuse me and more countries to come.

Moving to advertising, we had a very strong quarter with double digit growth of 13% driven primarily by higher prices.

In addition, our AD sales group just completed 1 of the most successful upfronts in our company's history.

This performance speaks to the continued strength of our world class content and underscores our position as 1 of the few offerings on basic cable with the kind of high quality scripted content that advertisers and audiences find very desirable.

And particularly valuable.

Our strong advertising results in the quarter were also driven by increasing digital revenue coming from our expanding AD supported streaming efforts in.

An area, which we've been particularly accurate.

By deploying our own library content increasingly.

Across free AD supported video on demand and free AD supported streaming platforms like Pluto TV, Amazon's Imdb TV, Samsung TV plus among others.

<unk>, new viewers and passionate super fans and.

And tapping into what is an entirely new and growing revenue stream for us that is reflected in our results.

And then importantly, we are utilizing the strong marketplace to advantage AMC networks AD revenue mix <unk>.

Including shifting more dollars into our digital and advanced products, thereby ensuring our momentum continues and is sustained well Vietnam. This immediate time and into the future. When there may well be market fluctuations that of course occur over time.

I'll touch just a bit more on international if I may.

Our global business performed exceptionally well in the quarter.

We saw a surge net revenue was driven by higher pricing as well as ratings increases an indication of the continued appeal and demand for our strong portfolio of channels across Europe, and Latin America.

As I mentioned earlier. These remarks, we're very focused on the opportunities we see overseas for our streaming services and we see high growth potential before us to broaden our screaming subscriber base internationally as well as domestically.

I'll close out my comments by saying that AMC networks continues to stand out due to the strength and quality of our content.

Our ability to forge strong relationships with subscribers viewers distribution partners and advertisers.

On the spectacular team of people who work here.

On the progress we are making against our strategic priorities that I outlined our momentum, particularly in screening and are cleaner and differentiated approach that has not only given us momentum, but has sustainable cost benefits reaffirms our confidence in the strength of our business and in our.

<unk> to continue to deliver value.

Over the short mid and long term.

Before I turn the call over to Ed Carroll, we do want to acknowledge on recent events related to someone who is very close to us in our company.

We have been lucky enough to know and work with Bob Oden Kirk for a long time to better call Saul and before that breaking bad.

It's close to impossible to spend any time around Bob without developing great affection and appreciation Crist is spirit and who he is as a person.

So glad he is on the mend and just wanted to pause and wish him all the best in his recovery, which is now underway.

Now if I may I will turn the call over to Ed to review our operational highlights.

Thanks, Josh in the second quarter, we continued to see strong growth across our portfolio of targeted streaming services. We have an excellent lineup of content filling out the second half of the year with all 3 series on the walking dead universe on the schedule. We also have an expanding slate of newly Greenland original.

Series that will drive our business forward into 2022 and beyond.

As Josh mentioned, our streaming strategy is built around a collection of targeted services that are designed to go deep and broad in specific content areas. This allows us to serve our viewers interest in programming preferences in ways that larger mass market providers simply cannot.

Any of our targeted services may be 1 of a handful of streaming subscriptions in the home, but we believe they also are very likely to be the favorite based on our ability to deliver a rich and curated experience.

Just as an example on Acorn TV service features about 3000 hours of British drama and mysteries for people, who love those shows while on much larger service that is trying to offer something for everyone. In the household may only have a few hundred hours in this category.

Acorn TV was deliberately built and is being programmed so if a subscriber likes 1 equal on television show they will very likely enjoy many other shows on the service as well.

And because we are focused on highly specific content areas, we are able to deliver that experience at a very reasonable and disciplined cost with higher margins and largest streaming services in June the top 5 titles across each of our 4 most established targeted streaming services Acorn shudder Sundance now in all black.

We're all produced co produced or acquired at a cost in the 6 figures per episode.

So out of the top 20 titles across a broad range of services. All 20 had a cost to us of less than $1 million per episode that is a strong indication of our continuing ability to attract and retain subscribers without spending wildly on content.

Moving to the individual series later this month on AMC, plus and our AMC linear network is the premier of the 11th and final season of the walking dead with episodes available 1 week early on AMC plus later this year, we will have the return of fear the walking dead and the walking dead will be on day.

<unk> closed out 2021 on a very strong note.

A reminder, that the final season of the walking dead includes 24, new episodes that will run through the end of 2022 and move directly into a highly anticipated spin off focused on the fan favorite Daryl and Carol characters.

Later this year on AMC plus we also have a new series called Rag doll gripping murder mystery, starring Lucy Haile produced with our partners on killing Eve <unk> films.

I wanted to call out something we recently experienced under the heading of how streaming and linear can effectively work together, we have a series called gangs of London, which premiered on AMC plus last October to help launch this service and it quickly became a top title we put gangs of London on the AMC linear network. This spring and then exposure.

Spark a second wave of strong interest in the series on AMC, plus where the titles viewership and the ability to attract new customers both doubled this.

This ability to use multiple platforms to expand audiences and expose our content to more viewers is something we're excited to explore new ways in the days ahead.

Our horror service Shudder markets annual halfway to Halloween month in April with the return of <unk>. The biggest series in the history of the platform and a new season of the last driving with Joe Bob Briggs, both chose delivered beyond our expectations next week share. It will premiere the widely anticipated fourth season of the <unk>.

Horror anthology series last year, starring David Cronenberg, which was previously on Netflix and is produced by our partner <unk> Barry.

Shutter also want a Peabody award for its original film La you Rhona receiving recognition in the entertainment category alongside other titles like Ted Lasso and I may destroy your excellent company for the shutter film.

Looking ahead to the rest of the year Shudder is planning the biggest October in its history on it zone and also in cooperation with Amc's annual fear fast programming event.

All Black recently received 3 daytime Emmy nominations for writing acting and series. It is so gratifying to see the programming on our targeted streaming services, reaching this level of awards recognition.

Acorn TV had a number of significant releases that continue to drive usage on acquisitions series like <unk> apparel, keeping faith and Mrs. Fischer's modern murder Mysteries, we have Acorn series in front of subscribers or in production featuring such recognizable talent as Jane Seymour, Brian Brown <unk>.

Scott sheet Guy Pearce, and Lucy Lawless Acorn TV also launched on Amazon channels in Spain during the quarter.

Turning briefly to advertising as Josh mentioned, we just completed an extremely successful advertising upfront we saw a high degree of interest in our original content across our linear networks. We were also very pleased to see significant year over year growth in digital AD sales, which include our own digital platforms and Eva.

And fast platforms that feature our bespoke channels, our digital AD sales more than doubled from the previous year.

A year ago, we set out to grow this piece of our AD sales business by putting our content channels on a wide variety of Avon and fast platforms. In addition to our own digital platforms. So advertisers could reach viewers anywhere they engage with our content.

Just a year into this strategy is paying off reviewers the company our affiliated platforms and our advertising partners beyond our expectations and a lot of this buying is happening very efficiently through programmatic channels and our direct relationships.

We have also seen significant growth in advertiser interest and investment in our digital original programming. A good example of this is the series Bottomless branch had coleman's with Coleman Domingo of fear the walking dead. This show started as a digital only series produced in the early days of the pandemic it caught on in net.

How has the ico as an ongoing sponsor heading into its fourth season of new episodes.

This upfront also saw a truly remarkable growth in data driven linear and advanced advertising, including addressable advertising, we nearly tripled our billings in this category from last year. These addressable deals allow advertisers to target viewers at the household level and reached defined segments paying higher cpm's because the.

Advertising is more effective AMC on as a leader in addressable advertising running the first national campaigns on the industry's history late last year and into early 2021, we plan on continued innovation in this space.

A quick note on content as we look ahead to 2022, we recently green lit 3 new series for AMC, plus and AMC that are all expected to premiere next year moving Haven comes from Peter <unk>, a talented writer and show runner, we work with on Lodge 49.

Series is set 100 years in the future in a utopian colony on the Moon that may hold the key to preserving life on Earth next.

Next is dark when the psychological thriller and murder mystery based on an iconic book series by Tony Hillerman. This series will be filmed on native American lands with the support of the Navajo Nation and our executive producers include Robert Redford, George RR, Martin and John Mclaren and who will also stop.

<unk>.

And finally, we have an <unk> interview with the vampire. The first series, we green lit following our purchase of a significant portion of the Anne Rice literary catalog last year.

Robin Jones, a talented writer and show runner with a terrific body of work is leading this project working with the acclaimed producer Mark Johnson, who is overseeing the entire NYSE catalog as a potential new franchise in universe for AMC, plus and AMC Mark is someone we know well and have collaborated with on such iconic series.

As breaking bad better call, Saul rectify and holding cash buyer, we're thrilled to have him in this role leading our development and management of this covenant IP.

Alan Taylor, who directed the pilot for Mad men and has done some really extraordinary work across series like the Sopranos and game of Thrones and many others will direct the first 2 episodes of interview with the Vampire when we go into production later this year.

And now I'd like to turn the call over to our Chief Financial Officer, Chris Spade for some financial highlights.

Okay.

Thank you, Ed and Josh and good morning, everyone before I review and discuss our financial performance for Q2, 2021, I would like to first summarize 2 nonrecurring items reflected in our quarterly results.

First we recently entered into a settlement agreement that resolved in New York litigation related to the walking dead as disclosed in our form 8-K, which we filed on July 16.

The settlement agreement provides for a onetime cash payment of $200 million, which was paid in July.

We recorded on accrued portion of the settlement payment in the amount of $143 million in our second quarter financial statements and impairment and other charges.

Second in the quarter domestic operations subscription revenues reflect the onetime beneficial impact of a distribution agreement renewal exclude.

Excluding this onetime benefit year over year growth rates, whereas follows domestic operations distribution revenues increased 10% and domestic operations subscription revenues increased 17%.

Moving to our second quarter 2021 financial performance total company revenues were $771 million, representing a 19% increase from the prior year.

Adjusted operating income was $251 million, representing an 11% growth from the prior year adjusted EPS was $3.45.

We continue to track very well toward the goals, we outlined earlier in the year, we experienced strong growth in the second quarter from all of our streaming services.

Subscriber growth in the quarter with consistent with our expectations.

Second quarter streaming subscribers and normalized streaming revenues increased 89% and 92% respectively versus the prior year second quarter.

We are extremely pleased with the continued growth trends following on this substantial streaming growth we saw on 2020.

Additionally, in the quarter retention rates improved across our portfolio, both sequentially and on a year over year basis.

For the second half of 2021, we expect net new streaming subscriber additions to be supported by a strong programming slate, which includes 3 theories on the walking dead universe.

Ms di the north water and more in addition to strategic marketing investments.

Both of which will be more heavily weighted towards the back half of this year.

We continue to expand distribution of our streaming services in the second quarter, which included the launch of AMC plus on Youtube TV and the launch of Acorn TV in Spain are <unk> launches paired with the expanded distribution efforts that Josh outlined service meaningful proof points that there remains significant untapped subscribe.

Our potential and our expanded distribution roadmap.

Distribution revenue increases primarily reflected strong streaming growth and included the previously mentioned 1 time subscription revenue benefit.

We saw advertising strength in the second quarter supported by unprecedented pricing and the strong growth of AD supported streaming despite lower ratings and despite COVID-19 related timing impacts, which included the absence of killing Eve and better call Saul.

As Josh and Ed have already noted the AD market is the best we've seen in years.

Consolidated NOI improvement was driven by top line strength attributable to streaming growth and robust advertising performance.

Partly offset by increased strategic streaming investments, particularly in programming and subscriber acquisition marketing.

These are crucial growth investments for us and we will continue to invest opportunistically.

Fuel future streaming growth, while we optimize the performance of our linear business.

Regarding our operating segments domestic operations revenue of $639 million increased 14% from the prior year adjust.

Adjusted operating income was $250 million for the quarter, representing 6% growth as compared to the prior year domestic operations advertising revenue of $212 million increased 13% from last year.

Collecting very strong scatter in direct response to pricing as well as continued growth and monetization of our digital audience.

In addition to our strong operating performance the market has significantly improved from last year's Covid impacted environment.

Domestic operations distribution revenue increased 14% to $427 million.

The increase was primarily the result of subscription revenue growth of 21% driven by an increase in paid streaming subscribers and it also included the previously mentioned 1 time subscription revenue benefit.

Second quarter normalized affiliate revenues declined in the low single digits, primarily attributable to subscriber universe declines.

Strong subscription revenue was partly offset by a 10% decrease in content licensing revenue.

This decrease was due to pandemic related production delays, which impacted the availability of certain scripted programming, most notably killing Eve.

Domestic operations adjusted operating income performance for the quarter reflects higher subscription and advertising revenues as well as the balance of disciplined expense management in particular, the strategic reallocation of linear marketing investments and increased investments in programming and subscriber acquisition marketing.

Moving to the international and other segment revenues increased by 53% to $138 million.

International on other second quarter revenue trends demonstrate the outstanding recovery at AMC networks International and $25.7 media.

Advertising revenues increased 75% to $26 million largely related to higher pricing and an increase in ratings as a result of strong performance across our AMC ni channel portfolio.

Particularly strong performance in the UK.

Distribution and other revenues increased 48% to $112 million, primarily due to the resumption of production at $25.7 media.

Both advertising and distribution and other revenues benefited from the favorable impact of foreign currency fluctuations at AMC ni.

Adjusted operating income increased 61% to $25 million, reflecting an increase in revenues and continued expense management, partly offset by an increase in production related expenses at $25.7 media and an increase in selling expenses at AMC ni.

Now turning to free cash flow and the balance sheet free.

Free cash flow for the second quarter of 2021 with $4 million, primarily reflecting increased programming investment as we begin to lap COVID-19 related production delays.

Our net debt and finance leases at the end of the second quarter were approximately $1.9 billion as compared to $2.1 billion in the prior year period.

Our consolidated net leverage ratio was 2.4 times at the end of the quarter.

Pro forma for the July settlement payments, our consolidated net leverage ratio was 2.6 times.

We remain comfortable with our balance sheet and current leverage ratio.

There were no repurchases of AMC networks common stock in the quarter, we will continue to evaluate share buybacks on an opportunistic basis.

Our capital allocation policy continues to remain unchanged first we will look to invest organically on projects that provide attractive returns to our shareholders. This includes return based investment in the growth of our streaming services second we will maintain leverage that is appropriate for our business outlook.

Third disciplined and opportunistic strategic M&A.

And fourth opportunistic return of capital to our shareholders.

We remain confident in our plan for growth to at least 9 million aggregate streaming subscribers by the end of this year.

It is important to reiterate that the subscriber growth will be driven by a strong programming slate supported by strategic marketing investments, which as I stated earlier this will be more heavily weighted towards the back half of the year.

We are reiterating our outlook of total company revenue growth in the low single digits for the full year, driven by streaming and advertising revenue growth and offset by linear market dynamics.

We continue to expect adjusted operating income to decrease by mid single digits in 2021, as we accelerate investments in programming marketing and platform enhancements for AMC, plus and our targeted streaming services.

For the full year 2021, we expect free cash flow to be approximately breakeven as a result of the 1 time cash payment associated with the July settlement.

Absent this onetime payment or prior free cash flow outlook would have remained unchanged.

As we continue to advance our streaming growth strategy and with our strong programming offerings still to come in the back half of 2021, we are extremely well positioned to achieve our 2021 goals and more importantly to set a strong base going into 2022 and beyond for future long term growth.

And for stakeholder value creation with that operator, please open the line for questions.

Hello, Ladies and gentlemen, thank you I have a question or a comment at this time. Please press. The Star then the 1 key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the balance sheet.

Our first question comes from Tim Nolan with Macquarie.

Alright, Thanks, a lot.

I Wonder if you could maybe hopefully quantitatively or at least qualitatively talk about the.

The streaming subscriber additions you may have had in the quarter as compared with the linear sub declines, but I'm, assuming underlying our ongoing on how much that may have been offset by.

These new bundles on apps that you're offering by various distributors.

Tim This is Josh I'll give you a.

Broad portrait of it if I might.

The linear side of our world in the United States.

In terms of subscribers.

Is subject to macro.

Impacts so we're seeing some erosion.

But with that said, we are very very happy with our progress because our streaming subscribers are growing.

And so taken together those 2 things really frankly are excellent for our company and put us on a good path.

1 looks at our entire footprint and if you will template of what we're up to with our streaming targeted services and our relationships with the Mvpds.

Who are both the carriers of our linear channels and now also in addition to all the other day.

The carriers of our streaming services. So we really like the harmony that we have and we like the aggregate trajectory of what we're doing between linear and streamed.

Great to ask another question about advertising placements.

Miring the transitions you've been making both on the linear side in terms of doing more targeted addressable ads and then of course on the streaming side.

My question is about how much kind of control over pricing youre willing to give up to the machines. If you see what I mean, using real time bidding in terms of <unk>.

<unk> placements versus how much do you.

Want to maintain control over pricing and pre negotiated deals.

That makes sense.

Does make perfect sense, Tim This is Ed and so your question goes to the key event, it's critical to us to manage the load and to manage the pricing. So so we even if we are accepting advertising on a programmatic basis, we are putting out there are minimums.

And as you would imagine right now in a marketplace that has high demand and high pricing that far it goes up and up I think 1 of the things that we've done that perhaps sets us apart from other linear programmers is on our <unk>. We have maintained more control of programming with our <unk>.

Fast channels more control of the selling process and more control of pricing. So I think all of that accrues to our benefit.

Great. Thanks sense. Thank you.

Our next question comes from Michael Nathanson with Moffett.

Thanks, Good morning, Josh a couple for you following on Tim's question I'm interested in understanding.

Maybe where the AMC plus subs are coming from now that you're more broadly distributed on traditional platforms, plus Apple Amazon and Roku anything about kind of where they're coming from are they are cord cutters or are they just super AMC fans. That's 1 and then 2 can you give us a sense of what percentage.

Drove your linear footprint is now covered by AMC plus agreements on are you seeing now maybe a more accelerated pace of renewals because people are.

See the model they want access to listing product.

Sure so.

I would say.

On the second part of your question first Michael.

The coverage if you want to call. It that is of course.

In the case of the United States ubiquitous.

When it comes to.

Those services of ours that are on <unk>.

<unk> on smart Tvs on.

Brochu wherever those accounts are on Apple and Amazon wherever those accounts are theyre not geographically.

Restricted by franchise areas. There geographically defined if you will by where those points of access or for those digital distributors. So short bifurcated My answer I hope. It's helpful. On that 0.1.0.2, we are seeing increasingly mvpds distribute and deploy.

Our streaming services and they like our product. So they are electing in choosing and actually coming forward with a desire to carry them, which were of course tremendously heartened by and Thats occurring.

<unk>.

In a sequence that not necessarily related to affiliation agreements they want to carry our streaming services and I think their business is changing too. So our availability continues to increase and increase both in what I can call. The digital distributors that are native if you will smart.

Tvs and our incumbent.

Mvpds partners in terms of source of subs.

What we're seeing I'll, just kind of give you a simple answer as fabs.

<unk>.

Our shows and we were seeing probably the biggest attract I believe there's probably varies a bit by service too so for the Acorn.

Corn oil black shutter, which had talked about for some length. Those people are fans of the material.

And frankly less fans by degree of any 1 individual show.

And so they like the depth of what they get on shuttered their sugar fans. So while it's good if we have creep show or if we have dual BOP rigs, where we win a peabody for like ammonia et cetera. They are therefore the depth.

What's on Shudder at the same is true for all Black the same is particularly true for Acorn where.

While we have good shows and I can name them and Youll sort of your eyes may blur.

I say line of 50, foils more et cetera et cetera.

It is the depth of content. There is the biggest steps you can find that type of material and on AMC.

AMC plus.

Just to remember a couple of things you get 2 services along with AMC plus so if you're a fan of the.

Material on Sundance now and on name shows at the risk of disease in your mind.

Seems like the restaurant or your life.

Euro.

Those 2 channels services, if you will shudder and Sundance now come along with AMC, plus and then there's a sequence of shows that flow through.

AMC plus and they vary from.

Ken which is on Irish wonderful Irish sort of mob drama to gangs of New York, which broke out for us to Kevin. So the sources are all of those different sources. So I.

Forgive me for not giving you a highly specific easy answer to your question, but all of those sources contributed.

And Josh let me ask 1 follow up 1 other question we've been struggling with is yes.

Content discovery.

Do you have the ability and we have the the data to basically go back on re target your subscription base.

And then email and content.

Or where does that exist at the distributor level on and on a day in day.

Troll that.

Really kind of re targeting and we update customers on what's coming.

It's a great question Michael.

The answer is that we do have the ability the ability is more advanced when we have a subscriber who subscribed to directly versus through a digital distributor or an mvpds distributors. So there's sort of 2 flavors of the specificity of our data.

And flavor 1 is from a distributor and flavor to where we have all the data is that the subscriber directly but in any case, yes, it's part of our daily fabric of business.

Okay. Thanks, Josh.

Our next question comes from Thomas yet with Morgan Stanley.

Hi, Thanks for taking my questions.

Just following up a bit on Michael's first question about sources of subscriber growth at <unk>.

Spoken in the past about is familiar with their past on growth for the targeted OTT services given the nature of the product is less focused on new original launches is that still true or are you seeing incrementally the engagement on a growth acquisition activity on the platform skew more towards new original releases and before any color.

On what you see driving the cadence of growth acquisition activity would be helpful.

And for other credit given the mix of different OTT services and your portfolio can you help us think about the broader trend or outlook on streaming <unk> is that an area, where we expect variability on a quarter to quarter basis, and how do you think about the impact from mix going forward. Thank you.

Sure Hey, Thomas.

I'm actually glad you asked it because it really is central to what makes us different.

<unk>.

Yes.

We don't have as you know news sports Kids reality.

We do have on each of these services essentially a day.

Final editorial Jonathan.

And and <unk>.

That is and we said what they were so I won't bore you again with the recitation but.

Even AMC plus which 1 can think of a slightly more general interest is really dramas dramas dramas drops.

And therefore, the people who come to the services come to them for the nature of the material more than they do for any 1 show with that said with that said, it's undeniable that when a particularly appealing show drops.

Our returns it can elevate the bump and it can elevate acquisitions because someone might be a particular fan.

Of the walking dead for instance, or when it comes later, a better call Saul or killing eve or other shows or even Kevin people can have their favorites, but what is in our genetics and what is and what we developed from the start.

And we will continue is a depth of material around or genre.

That provides.

I think it's fair to say more than they can get anywhere else on the planet.

That material.

And therefore, our subscribers are more likely to be looking for.

Sean Russ Bendel 1 show.

To retire after the 1 show finishes.

And Thomas it's add on on the broader trend lines on.

<unk> business is I would say, we feel very good about the progress against our plan B. The engagement levels are high at an all time high when we look at total number of streams and completion rates the targeted at slides. We've mentioned this before they are run rate profitable.

And the model continues to grow more efficient as we scale and the services are not only a destination, but they tend to form community around the content, which Josh was alluding to and that is helpful. Because it keeps both our subscriber acquisition costs on a healthy range and it helps us to manage churn I want to point out something.

Vic about AMC, plus and its content model.

We right now are feeling great about our development pipeline, but what what is evolving a bit in the world. There are so many really skill TV riders that have worked on our writers rooms or have worked in other writers rooms coming to us with their story ideas. Some of them are now finding less opportunity on other platforms that are pursued.

Big movie stars Big moving directors and writers with an emphasis on the limited series at a high cost per episode that is not the AMC or AMC plus model. We are we think pretty adept at finding new talent and telling stories in different ways. So when Josh says in his remarks, the word character driven we mean.

Part of our kind of storytelling, 1 obvious example, and breaking bad Walter White starts out as 1 kind of person and he.

He ended up very different dude.

But thats a common thread in the stories, we tell and we like to show character development over multiple seasons, and obviously television writers like that too and our audience research says that memorable characters are a hallmark of AMC storytelling. So there is an element to this that controls cost per us because if you find those stories.

And you tell them well rather than chase the star studded shiny object. That's on model. It's also a reason we're enthusiastic about the pipeline, but we think that our subscribers understand that they understand the way we tell a story.

I understand the way, we develop a box or a multiple season and that adds to the stickiness of our subscribers.

Thomas This is Chris Thanks for the question. Your question about the <unk> I think it is.

An important 1 I think when you look at our OTT services, we really like the economic model that our targeted mix of services brings.

And it is very important to look at the <unk> and we feel strongly that we're in a good position, but we also focus very heavily on the lifetime value of the subscriber and we also like our positioning for that.

Thank you so much.

Our next question comes from Michael Morris with Guggenheim.

Thanks, guys. Good morning, I have 2 first.

Joshua Ad.

Can you share any more detail on the international growth roadmap for the streaming services you started talking.

Specifically about the opportunity in Canada, but but indicated that theres more geographic market. So I know if things become more complicated whether it's with distribution partners right.

Language translation and things like that I, just love to hear how you see that.

Sort of playing out over the next year.

And then second maybe for Chris the decision to not adjust guidance given first half ran well ahead of your full year guide it.

It sounds like business trends are very strong so maybe could you share some more detail on the topline headwinds that you're sort of expecting in the second half that would get you down from.

Mid to high single digit revenue to low single digit and also the timing of the costs, but that'll pressure.

Relative to the first half.

Hey, Michael It's Ed on the International piece you are correct, we are focusing on international and that means we have been into it on rights on expanding our our basket of rights for quite some time, but also working with local distributors. We mentioned that we will be launching a coin in Spain, and we have local distributors their cash.

The content. So we think those relationships will be an advantage to us internationally as they have been domestically.

<unk> and Sundance now have been available outside the U S for a little more than a year.

That are a bit longer than that that's been mainly in the U K, Canada and Australia. It represents about 10% of their subscribers.

On Acorn is now rolling out not only in Spain, but parts of Latin America. So.

We will continue to emphasize that going forward and we will continue to work closely with our local distributors around the world to do that.

Is it.

Alright.

I, just if I could ask a quick follow up on that Ed.

Is it a situation where a lot of this has been self distribution and these partnerships offer sort of like incremental opportunity as you push or or or.

Is it sort of steady state that the opportunity for partnership with those.

Those local partners has already been out there if that makes sense.

I think we look at it not dissimilar to the U S, where it'll be a mix of our own DTC and working closely with partners and it will probably vary a bit territory to territory, depending on the lay of the land.

Thanks.

Mike It's Chris also for your second question about our guidance positioning for this quarter.

Like where we are we like our financial results to date, we feel.

Very confident in terms of where we are with reinforcing our guidance as you know with cash flow, we did adjust for the walking dead settlement.

We're at a place where we started our guidance at the beginning of the year. We felt we had visibility to it and we feel we still feel very confident about that today.

Is it if I look at the top line going from kind of 6% in the first half of the year to low single in the back half it sounds like streaming is strong.

Can you can you share any more detail on whether it's sort of on the licensing side of the AD side of the court they like the linear strength.

Sorry linear affiliate side that you think is going to.

Be more pressured than than any of the other revenue streams.

Yes, no. It's a good question I can't really get into the details about what we're seeing individually, but relative to where we are as we know on the expense side.

We are heavily weighted on the expense side relative to the rest of the year, we haven't really seen any experience with COVID-19 with the delta variant, but relative to where things go from here, we don't really know what that looks like so from the standpoint of just being conservative or considering everything.

I'll leave it at that.

Okay. Thank you both.

Again, ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the 1 key on your Touchtone telephone.

Our next question comes from Steven Cahall with Wells Fargo.

Thanks, maybe 1 kind of housekeeping 1 and then a bigger picture question, maybe for Chris you know you've talked about the Sac expense running much heavier in the second half of the year. How do you. All just think about sizing. The fact budget. How do you think about like the profitability of future subscriber you've talked a lot.

Content deficiency. So just wondering how you feel about sort of sac efficiency as well on and how big that expense could be and then a bigger picture question. You are cycling through the end of some pretty big series with the walking dead and better call. Saul. So I think over the next 12 or 18 months.

You will start to see those sunset, which probably frees up a lot of programming budget, but it just kind of throws the whole economic model into a period of transition. So how do you think about re programming. How do you think about re engaging with advertisers and also what do you expect in terms of long term licensing for those shows do you want to pull those back to AMC plus at 1 point. Thank you.

Hey, Steve it's add on on the first question relating to Sac costs I would say, it's all about subscriber lifetime value. That's the key component when we look at the size and the timing of our marketing investments.

It's worth I mean, again I will say our model is different it's just different our approach to the marketplace is different than any other folks. So we are targeting what I would call controlled growth from subscribers that stick, we're not spending wildly to cast too wide a net because we have a profile of the subscribers that we are trying to attract.

Those who Josh was talking about before.

Our inclined towards the content on Acorn, Inc, and clients on the content on all black on Shadow that's important to us So think of us more as a specialty realtor, if you will than Walmart Walmart and our cost structure reflects that when it comes to our content spend on marketing spend and we think the reward for that and we're seeing.

It is favorable churn rates on our on our targeted services.

Yeah, Hey, Steve on feet on the sort of bigger picture question I Hope these comments will be helpful.

I first pointed out if I might add.

That question of course applies to AMC.

To play too.

Yes.

Shutter all black.

Our acorn.

And those things are not in substantial part of our growth trajectory.

I just wanted to just differentiate.

Where the where what you mentioned applies and it doesn't apply and the same is true of course for our linear channels. They apply essentially basically on channel.

Within that arena.

Few things that might be helpful to note.

Because of course as you might imagine we think about this an awful lot.

Ed mentioned in his prepared remarks at our hand.

We are ending the walking dead flagship series.

And we are continuing.

3 other series in the walking dead universe.

That's not accidental and its not happening to us we are doing it and we're doing it.

For reasons of vitality.

Freshness, new ideas longevity and cost.

You'll note in television it forgive me I don't mean to make this lecture.

Debt.

When someone has a franchise like law and order they may retire at the mother ship.

And SBU may become ascendant.

And Thats about I believe vitality its about freshness about intrigue and it's also about there I say it cost cost and so just take that into accounts, but the walking dead franchise.

This is going to sound silly alive, and well, while it's while it's dying, meaning the what the brokers are dying, but it's extremely alive alive and well.

We're making determinations about which shows will continue.

And we're incredibly enthusiastic about world beyond about fear and about Daryl and Carroll who are tour. This is inside baseball toured the most cherished characters that people flip out for so we feel like the best time is before us for the walking dead not to mention.

Movies that will be in our future as it relates to other shows that we are choosing to end.

Killing Eve.

We have every opportunity should we choose to do.

Determined that there is a future for it.

In franchise manner and.

So we have creative discussions underway about weather.

The nasty agencies that are controlling assassins are good through loans or the assassins themselves are going through lines.

But in the world of franchise, because we are in control of the franchise and on.

On breaking bad better call Saul we have a partner who have we will have a studio who will have a lot to say about that I would just say that we have very very strong relationships with its gilligan.

The writer and creator of the material and the key actors.

That's specific response to your question about shows better on each of which have their performance trajectory.

The new shows that Ed mentioned.

And you never know until it's there, but we have an interest in no fewer than 15 and rice novels.

And we have a writer's room open.

The first of those they have huge constituencies apart from their popularity, we think it's a spectacular rich world. The Vampire chronicles, which is why we went deep in it.

So we are very enthusiastic about it and as Ed mentioned, and then I'll stop the long speech.

We really do think that AMC.

Has a history of discovering new writing talent of nurturing them and are bringing new stories too.

People that love and.

We retired a mad men initially had breaking bad we had similar considerations and I think we find ourselves in a strong position and I think we're in an extremely strong position now.

Great. Thank you.

I'm not showing any further questions at this time I'd like to turn the call back over to our host for any closing remarks.

Thank you. This does concludes the call on a a good day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

[music].

Good day, and thank for standing by and welcome to the AMC networks second quarter point, you're trying to on the earnings conference call. At this point I would like now to add to gold price over the speaker today.

Please go ahead Sir.

Thank you good morning, and welcome to the AMC networks second quarter 2021 earnings Conference call.

US this morning are Josh <unk>, President and Chief Executive Officer, Ed Carroll, Chief operating Officer, and Chris Spade, Chief Financial Officer.

Today, we will begin with prepared remarks, and then we'll open the call for questions.

You do not have a copy of today's release. It is available on our website on AMC networks Dot com before we begin I would like to remind everyone. On this call may include certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

Any such forward looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ.

Please refer to AMC networks SEC filings for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward looking statements made on this call.

Well good morning, and thank you for joining us on.

On today's call I'll discuss our continued business transformation and strong performance before turning the call over to Ed and Chris who will provide additional operational and financial details.

Before we open the call to questions.

We're pleased to report our second quarter with very strong financial results and continued screaming subscriber growth.

Ported by our popular and declaimed content.

We continue to maintain a strong financial profile.

With a healthy balance sheet and solid cash position.

These results reflect the significant progress, we're making against our 4 key financial and strategic priorities.

Which I will restate if I may they are.

1 growth.

Growing subscribers for our targeted streaming services and significantly expanding distribution of those services to incur.

Increasing our content ownership.

With a focus on new franchise opportunities free.

Growing our digital and advanced AD revenue business and for doing all of this while maintaining the high value of our linear networks.

Our successful execution in these areas is enabling us to continue to meaningfully reconstitute the revenue mix of our company, most notably with increasing revenue from our targeted streaming services and our digital and advanced advertising efforts.

We are very pleased today to reaffirm the full year 2021 guidance for our streaming subscriber targets, which we shared with you at the beginning of the year.

The year 2025.

Our subscriber range that is very meaningful to AMC networks.

As we advance our position as the worldwide leader in targeted screening.

I will say that we are nothing short of thrilled with our momentum.

Subscriber satisfaction with our services continues to be very high in streaming consumption is strong.

Our unique approach to streaming is to target audiences, who are highly interested in often passionate.

Very specific content areas and to offer those audiences or depth of content that they really just can't get anywhere else.

This is obviously in Stark contrast to the general Entertainment services, which offer everything from kids programming reality TV to news and sports.

For our subscribers are targeted services represent reliable destinations for the kind of content that they identify with weather.

Whether thats character driven dramas that define the AMC brand on AMC plus black.

Black.

Television and film on all Black.

For British an internationally focused industries on Acorn TV.

Very importantly.

Across all of these we are not competing with the big something for everyone offerings, rather we are complements to them.

Unlike those if I might call them mainstream services, we don't need to spend tens of billions of dollars creating content.

Across multiple categories in order to satisfy every member of our household and grow to enormous scale.

This is in turn providing us with a very attractive economic model.

It is enabling us to significantly reorient, our company toward a unique streaming future.

Which often has outsized cultural impact despite the wider availability of dramatic material and a competitive environment..1. Recent example of this is our new original and owned series called Kevin can F himself that debuted in June on AMC, plus as well as our linear channel.

Stars Emmy Award winner, Andy Murphy, who some of you may know from Shits Creek. The show has been 1 of the more talked about dramas during the last quarter receiving wide critical praise and much of claim for its innovative format that mixed with some multi camera sitcom with a single camera trauma.

It has quickly become 1 of the top 3 most screamed series on AMC plus and it's also performed well on our AMC linear channel demonstrating how we are able to use our various platform synergistically serving audiences in creating value with our high quality content across multiple platforms.

In this case streaming and linear.

In terms of distribution, we are very well positioned.

We've made our incumbent distributors TV partners in our streaming transition while maintaining the most cost effective wholesale rate for our cable channels.

This is an approach that has been highly successful for us in the marketplace.

Co producing what we think is a wonderful new dramatic series with charter spectrum titled Beacon 23 at Starz Lean a heady, who you may know from game of Thrones.

We believe this activity when coupled with the successful renewals we've had with major mvpds over the last 12 to 18 months in the U S and abroad.

Is a demonstration of our long standing mutually beneficial and now newly enhanced partnerships with those mvpds.

As we continue to expand distribution of our screening offerings. We are pleased to have recently completed an agreement for a promotional partnership with Verizon for AMC, plus that will significantly expand the reach of our premium streaming bundle.

We will have more specifics when the partnership launches, but this is a very meaningful deal across Verizon <unk> and wireless that demonstrates the growth and momentum of AMC plus the strength of our content and the depth of our brand residents in a very competitive marketplace.

In addition, we are expanding our digital distribution by launching AMC plus in Canada. Later this month on both Apple TV channels and Amazon Prime channels.

Moving to.

Advertising, we had a very strong quarter with double digit growth of 13% driven primarily by higher pricing.

In addition, our AD sales group just completed 1 of the most successful upfronts in our company's history.

This performance speaks to the continued strength of our world class content.

And underscores our position as 1 of the few offerings on basic cable with the kind of high quality scripted content.

Advertisers and audiences find very desirable.

Particularly valuable.

Our strong advertising results in the quarter were also driven by increasing digital revenue coming from our expanding AD supported streaming efforts.

An area, which we've been particularly accurate.

By deploying our own library content increasingly.

Across free AD supported video on demand and free AD supported streaming platforms like Pluto TV, Amazon's Imdb TV, Samsung TV plus among others.

<unk>, new viewers and passionate super fans and.

And tapping into what is an entirely new and growing revenue stream for us that is reflected in our results.

And then importantly, we are utilizing the strong marketplace to advantage AMC networks AD revenue mix <unk>.

Including shifting more dollars into our digital and advanced products, thereby ensuring our momentum continues and is sustained wellbeing. This immediate time and into the future. When there may well be market fluctuations that of course occur overtime.

I'll touch just a bit more on international if I may.

Our global business performed exceptionally well in the quarter.

We saw a surge in AD revenue was driven by higher pricing as well as ratings increases an indication of the continued appeal and demand for our strong portfolio of channels across Europe, and Latin America.

As well as domestically.

I'll close out my comments by saying that AMC networks continues to stand out due to the strength and quality of our content.

Our ability to forge strong relationships with subscribers viewers distribution partners and advertisers.

On the spectacular team of people who work here.

The progress we are making against our strategic priorities that I outlined.

Our momentum, particularly in screening and our clear and differentiated approach.

It has not only given us momentum, but has sustainable cost benefits reaffirms our confidence in the strength of our business on and are positioned to continue to deliver value.

Over the short mid and long term.

Before I turn the call over to Ed Carroll, we do want to acknowledge the recent events related to someone who is very close to us in our company.

We have been lucky enough to know and work with Bob <unk> Kirk for a long time to better call Saul and before that breaking bad.

It's close to impossible to spend any time around Bob without developing great affection and appreciation Crist is spirit and who he is as a person.

So glad he is on the mend and just wanted to pause and wish him all the best in his recovery, which is now underway.

Now if I may I'll turn the call over to Ed to review our operational highlights.

Thanks, Josh in the second quarter, we continued to see strong growth across our portfolio of targeted streaming services. We have an excellent lineup of content filling out the second half of the year with all 3 series in the walking dead universe on the schedule. We also have an expanding slate of newly Greenlit originals.

Series that will drive our business forward into 2022 and beyond.

As Josh mentioned on streaming strategy is built around a collection of targeted services that are designed to go deep and broad in specific content areas. This allows us to serve our viewers interest in programming preferences in ways that larger mass market providers simply cannot.

Acorn TV was deliberately built and is being programmed so if a subscriber likes 1 equal on television show they will very likely enjoy many other shows on the service as well.

We're all produced co produced or acquired at a cost in the 6 figures per episode.

Out of the top 20 titles across a broad range of services. All 20 had a cost to us of less than $1 million per episode that is a strong indication of our continuing ability to attract and retain subscribers without spending wildly on content.

Closeout 2021 on a very strong note.

Later this year on AMC plus we also have a new series called Rag doll, a gripping murder mystery starring Lucy Hal produced with our partners on killing Eve <unk> films.

I want to call out something we recently experienced under the heading of how streaming and linear can effectively work together, we havent series called gangs of London, which premiered on AMC plus last October to help launch this service and it quickly became a top title we put gangs of London on the AMC linear network. This spring and then exposure.

Spark a second wave of strong interest in the series on AMC, plus where the titles viewership and ability to attract new customers both doubled this.

This ability to use multiple platforms to expand audiences and expose our content to more viewers is something we're excited to explore new ways in the days ahead.

Our horror service Shudder market's annual halfway to Halloween month in April with the return of <unk>. The biggest series in the history of the platform and a new season of the last driving with Joe Bob Briggs, both chose delivered beyond our expectations next week share. It will premiere the widely anticipated fourth season of the <unk>.

Horror anthology series last year, starting David Cronenberg, which was previously on Netflix and is produced by our partner share Barry.

Shutter also won a Peabody award for its original film La Ya Rona receiving recognition in the entertainment category alongside other titles like Ted last though and I may destroy your excellent company for the shutter film.

Looking ahead to the rest of the year Shudder is planning the biggest October in its history on it zone and also in cooperation with Amc's annual fear fast programming event.

All Black recently received 3 daytime Emmy nominations were writing acting and series. It is so gratifying to see the programming on our targeted streaming services, reaching this level of awards recognition.

Acorn TV had a number of significant releases that continue to drive usage on acquisitions series like <unk> apparel, keeping faith and Ms. Fisher's modern murder Mysteries, we have Acorn series in front of subscribers or in production featuring such recognizable talent as Jane Seymour, Brian Brown bread.

Scotty Guy Pearce and Lucy Lawless Acorn TV also launched on Amazon channels in Spain during the quarter.

On and fast platforms that feature our bespoke channels, our digital AD sales more than doubled from the previous year.

We have also seen significant growth in advertiser interest and investment.

Digital original programming a good example of this is the series Bottomless branch had coleman's with Coleman Domingo of fear the walking dead. This show started as a digital only series produced in the early days of the pandemic. It quote on and now has the ico as an ongoing sponsor heading into its fourth season of new.

<unk>.

Advertising is more effective AMC on is a leader in addressable advertising running the first national campaigns in the industry's history late last year and into early 2021, we plan on continued innovation in this space.

Just a quick note on content as we look ahead to 2022, we recently Greenlit 3 new series for AMC, plus and AMC that are all expected to premiere next year moving Haven comes from Peter <unk>, a talented writer and show runner. We work with on large 49. The series is set 100 years in the future in a utopian colony on.

The Moon that may hold the key to preserving life on Earth net.

<unk> dark when the psychological thriller and murder mystery based on an iconic book series by Tony Hillerman. This series will be filmed on native American land with the support of the Navajo Nation and our executive producers include Robert Redford, George R&R, Martin and John Mclaren and who will also star.

And finally, we have an <unk> interview with the vampire. The first series, we green lit following our purchase of a significant portion of the Anne Rice literary catalog last year.

While in Jones, a talented writer and show runner with a terrific body of work is leading this project working with the acclaim producer Mark Johnson, who is overseeing the entire and rice catalog as a potential new franchise and universe, where AMC plus and AMC Mark is someone we know well and have collaborated with on such iconic series is.

Breaking bad better call, Saul rectify and holding cash buyer, we're thrilled to have him in this role leading our development and management of this covenant IP Alan.

Ellen Taylor, who directed to pilot for Mad men and has done some really extraordinary work across series like the Sopranos and game of Thrones and many others will direct the first 2 episodes of interview with the Vampire when we go into production later this year.

And now I'd like to turn the call over to our Chief Financial Officer, Chris Spade for some financial highlights.

Okay.

First we recently entered into a settlement agreement that resolved in New York litigation related to the walking dead as disclosed in our form 8-K, which we filed on July 16.

The settlement agreement provides for a onetime cash payment of $200 million, which was paid in July.

We recorded the <unk> portion of the settlement payment in the amount of $143 million.

Our second quarter financial statements and impairment and other charges.

Second in the quarter domestic operations subscription revenues reflect the onetime beneficial impact of a distribution agreement renewal.

Excluding this onetime benefit year over year growth rates, whereas follows.

Mystic operations distribution revenues increased 10% and domestic operations subscription revenues increased 17%.

Moving to our second quarter 2021 financial performance total company revenues were $771 million, representing a 19% increase from the prior year.

Adjusted operating income was $251 million, representing an 11% growth from the prior year.

Adjusted EPS was $3.45.

We continue to track very well toward the goals, we outlined earlier in the year, we experienced strong growth in the second quarter from all of our streaming services.

Paid subscriber growth in the quarter with consistent with our expectations.

Second quarter streaming subscribers and normalized streaming revenues increased 89% and 92% respectively versus the prior year second quarter.

We are extremely pleased with the continued growth trends following on the substantial streaming growth we saw on 2020.

Additionally, in the quarter retention rates improved across our portfolio, both sequentially and on a year over year basis.

For the second half of 2021, we expect net new streaming subscriber additions to be supported by a strong programming slate, which includes 3 series on the walking dead universe, the beef must die the north water and more in addition to strategic marketing investments.

Both of which will be more heavily weighted towards the back half of this year.

We continue to expand distribution of our streaming services in the second quarter, which included the launch of AMC plus on Youtube TV and the launch of Acorn TV in Spain, our <unk> launches paired with the expanded distribution efforts that Josh outlined.

A as meaningful proof points that there remains significant untapped subscriber potential and our expanded distribution roadmap.

Distribution revenue increases primarily reflected strong streaming growth and included the previously mentioned 1 time subscription revenue benefit.

As Josh and Ed have already noted the AD market is the best we've seen in years.

Holidayed improvement was driven by top line strength attributable to streaming growth and robust advertising performance.

We offset by increased strategic streaming investments, particularly in programming and subscriber acquisition marketing.

These are crucial growth investments for us and we will continue to invest opportunistically.

Fuel future streaming growth, while we optimize the performance of our linear business.

Regarding our operating segments domestic operations revenue of $639 million increased 14% from the prior year.

Adjusted operating income was $250 million for the quarter, representing 6% growth as compared to the prior year domestic operations advertising revenue of $212 million increased 13% from last year.

Collecting very strong scatter in direct response to pricing as well as continued growth and monetization of our digital audience.

In addition to our strong operating performance the market has significantly improved from last year's Covid impacted environment.

Domestic operations distribution revenue increased 14% to $427 million.

Second quarter normalized affiliate revenues declined in the low single digits, primarily attributable to subscriber universe declines.

Strong subscription revenue was partly offset by a 10% decrease in content licensing revenue.

This decrease was due to pandemic related production delays, which impacted the availability of certain scripted programming, most notably killing Eve.

Moving to the international and other segment revenues increased by 53% to $138 million into.

International on other second quarter revenue trends demonstrate the outstanding recovery at AMC networks International and $25.7 media.

Advertising revenues increased 75% to $26 million largely related to higher pricing and an increase in ratings as a result of strong performance across our AMC ni channel portfolio with particularly strong performance in the UK.

Distribution and other revenues increased 48% to $112 million, primarily due to the resumption of production at $25.7 media.

Both advertising and distribution and other revenues benefited from the favorable impact of foreign currency fluctuations at AMC ni.

Now turning to free cash flow and the balance sheet.

Free cash flow for the second quarter of 2021 with $4 million, primarily reflecting increased programming investment as we begin to lap COVID-19 related production delays.

Our net debt and finance leases at the end of the second quarter were approximately $1.9 billion as compared to $2.1 billion in the prior year period.

Our consolidated net leverage ratio was 2.4 times at the end of the quarter.

Pro forma for the July settlement payments, our consolidated net leverage ratio was 2.6 times.

We remain comfortable with our balance sheet and current leverage ratio.

There were no repurchases of AMC networks common stock in the quarter, we will continue to evaluate share buybacks on an opportunistic basis.

We will maintain leverage that is appropriate for our business outlook third disciplined and opportunistic strategic M&A.

And fourth opportunistic return of capital to our shareholders.

As we look ahead to the second half of 2021 and based on our streaming subscriber growth trends to date and our continued investments in streaming we see ongoing momentum in the growth of our streaming services. We remain confident in our plan for growth to at least 9 million aggregate streaming subscribers by the end of this year.

It is important to reiterate that the subscriber growth will be driven by our strong programming slate supported by strategic marketing investments, which as I stated earlier this will be more heavily weighted towards the back half of the year.

We are reiterating our outlook of total company revenue growth in the low single digits for the full year, driven by streaming and advertising revenue growth and offset by linear market dynamics.

For the full year 2021, we expect free cash flow to be approximately breakeven as a result of the 1 time cash payment associated with the July settlement.

Absent this onetime payment or prior free cash flow outlook would have remained unchanged.

Yeah.

Value creation with that operator, please open the line for questions.

Yes.

Hello, Ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the 1 key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.

Our first question comes from $10 with Macquarie.

Alright, Thanks, a lot.

I Wonder if you could maybe hopefully quantitatively or at least qualitatively talk about the.

The streaming subscriber additions you may have had in the quarter as compared with the linear sub declines, but I am assuming underlying our ongoing on how much that may have been offset by.

These new bundles and apps that youre offering by various distributors.

Tim This is Josh I'll give you a.

Broad portrait of it if I might.

The linear side of our world in the United States.

In terms of subscribers.

Is subject to macro.

Impacts so we're seeing some growth.

But with that said, we are very very happy with our progress because our streaming subscribers are growing.

And so taken together those 2 things really frankly are excellent for our company and put us on a good path when 1 looks at our entire footprint and if you will template of what we're up to with our streaming targeted services.

And our relationships with the Mvpds.

Who are both the carriers of our linear channels and now also in addition to all the other digital.

The carriers of our streaming services. So we really like the harmony that we have and we like the aggregate trajectory of what we're doing between linear and streamed.

Great to ask another question about advertising placements.

<unk> the transitions you've been making both on the linear side in terms of doing more targeted addressable ads and then of course on the streaming side.

My question is about how much kind of control over pricing youre willing to give up to the machines. If you see what I mean, using real time bidding in terms of <unk>.

Gramatica placements versus how much do you.

Want to maintain control over pricing and pre negotiated deals.

That makes sense.

Does make perfect sense, Tim This is Ed and so your question goes to the key of it it's critical to us to manage the load and to manage the pricing. So so we even if we're accepting advertising on a programmatic basis, we are putting out there are minimums.

And as you would imagine right now in a in a marketplace that has high demand and high pricing. Thus far it goes up and up I think 1 of the things that we've done that perhaps sets us apart from other linear programmers is on our <unk>. We have maintained more control of programming with our fast.

<unk> more control of the selling process and more control of pricing. So I think all of that accrues to our benefit.

Great. Thanks sense. Thank you.

Our next question comes from Michael Nathanson with Moffett.

Hey, Thanks, Good morning, Josh a couple for you following on Tim's question mentioned on.

Understanding.

Maybe where the AMC plus subs are coming from now that you're more broadly distributed on traditional platforms, plus Apple Amazon and Roku anything about kind of where theyre coming from or the cord cutters or are they just super AMC fans. That's 1 and then 2 can you give us a sense of what percentage.

Drove your linear footprint is now covered by AMC plus agreements on are you seeing now maybe a more accelerated pace of renewals because people are.

See the model they want access to listing product.

Sure so.

I would say.

On the second part of your question first Michael.

On the.

Coverage, if you want to call it that is of course.

In the case of the United States ubiquitous.

When it comes to.

Those services of ours that are on <unk>.

Apps on smart Tvs on.

Roku wherever those accounts are on an apple on Amazon wherever those accounts are theyre not geographically.

Restricted by franchise areas geographically defined if you will by where those points of access or for those digital distributors. So excellent bifurcate my answer I hope. It's helpful. On that 0.1.0.2, we are seeing increasingly mvpds distribute and deploy.

Our streaming services and they like our products. So they are electing in choosing and actually coming forward with a desire to carry them, which were of course tremendously heartened by and that's occurring.

Really.

In a sequence that not necessarily related to affiliation agreements they want to carry our streaming services and I think their business is changing too so.

Our availability continues to increase and increase.

And what I can call the digital distributors that are native if you will smart Tvs and our incumbent.

Mvpds partners in terms of source of subs.

What we're seeing I'll, just kind of give you a simple answer is fabs.

Of.

Our shows and we were seeing probably the biggest I believe there's probably varies a bit by service too. So for the Acorn all black shutter, which had talked about for some length. Those people are fans of the material.

And frankly less fans by degree of any 1 individual shelf.

And so they like the depth of what they get on shutter their sugar fans. So while it's good if we have creep show or if we have dual BOP rigs, where we've been a peabody for like ammonia et cetera. They are therefore, the depth of what.

What's on shuttered. The same is true for all black the same is particularly true for Acorn, where while we have good shows and I can name them and Youll start your eyes may blur.

I say line of 50, foils or et cetera et cetera.

Is the depth of content. There is the biggest steps you can find that type of material.

And on AMC.

AMC plus.

Just to remember a couple of things you get to services, along with AMC plus so if you're a fan of the.

Material on Sundance now and I'll name shows at the risk of Disney in your mind.

It seems like the restaurant or you are like.

Pro.

Those 2 channels services, if you will shudder and Sundance now come along with AMC, plus and then there's a sequence of shows that flow through AMC.

AMC plus and they vary from.

Ken which is on Irish 1.

Full Irish sort of mob drama to gangs of New York, which broke out for us to Kevin. So the sources are all of those different sources. So forgive.

Forgive me for not giving you a highly specific easy answer to your question, but all of those sources contributed.

Okay, and Joshua we wish to ask 1 follow up 1 other question we've been struggling with is just content discovery.

And do you have the ability and do you have the data to basically go back on re target your subscription base and send an email and content updates or where does that exists at the distributor level on and on a day in day control that.

The only kind of re targeting on re update customers on what's coming.

It's a great question Michael.

The answer is that we do have the ability the ability is more advanced when we have a subscriber who subscribes directly.

Vs through a digital distributor or an mvpds distributors. So there's sort of 2 flavors of the specificity of our data.

Flavor, 1 is through a distributor and flavor to where we have all the data is that the subscriber directly but in any case, yes, it's part of our daily fabric of business.

Okay. Thanks, Josh.

Our next question comes from Thomas yet with Morgan Stanley.

Hi, Thanks for taking my questions.

Just following up a bit on Michael's first question about sources of subscriber growth.

You've spoken in the past about moving their past on growth for the targeted OTT services given the nature of the product is less focused on new original launch is that still true or are you seeing incrementally the engagement on a growth acquisition activity on the platform skew more towards new original releases and before any color.

On what you see driving the cadence of growth acquisition activity would be helpful and for other credit given the mix of different OTT services and your portfolio can you help us think about the broader trend or outlook on streaming <unk> is that an area, where we expect variability on a quarter to quarter basis, and how do you think about at the.

<unk> from mix going forward. Thank you.

Hey, Thomas.

I'm actually glad you asked it because it really is central to what makes us different.

We don't have as you know.

Sports Kids reality, we do have on each of these services essentially.

Definable editorial genre.

And.

On.

And.

That is and we said what they were so I won't bore you again with the recitation.

But.

Even AMC plus which 1 can think of a slightly more general interest is really dramas dramas dramas drops.

And therefore, the people who come to the services come to them for the nature of the material more than they do for any 1 show.

That said with that said, it's undeniable that when a particularly appealing show drops or returns.

And elevate the bump and it can elevate acquisitions, because someone might be a particular fan.

The walking dead for instance, or when it comes later, a better call Saul or killing eve or other shows or even Kevin.

Can have their favorites, but what is in our genetics and what is and what we've developed from the start.

And we will continue.

As a depth of material around or genre that provides I think it's fair to say more than they can get anywhere else on the planet.

That material.

And therefore, our subscribers are more likely to be looking for.

Sean rather than the 1 show and to retire after the 1 show finishes.

Thomas It's Ed on the on the.

Broader trend lines on our <unk> business is I would say, we feel very good about the progress against our plan.

Engagement levels are high at an all time high and when we look at total number of streams and completion rates. The targeted thats funds. We've mentioned this before they are run rate profitable.

Vic about AMC, plus and its content model.

Part of our kind of storytelling, 1 obvious example, and breaking bad Walter White starts out as 1 kind of person and he.

He ended up very different dude.

I understand the way, we develop a box or a multiple season and that adds to the stickiness of our subscribers.

Thomas This is Chris Thanks for the question. Your question about the <unk> I think it is.

An important 1 I think when you look at our OTT services, we really like the economic model that our targeted mix of services brings.

Thank you so much.

Our next question comes from Michael Morris with Guggenheim.

Thanks, guys. Good morning, I have 2 first for.

Joshua Ed.

Can you share any more detail on the international growth roadmap for the streaming services you started talking.

Specifically about the opportunity in Canada, but but.

Weighted that Theres more geographic markets. So I know if things become more complicated whether it's with distribution partners right.

Language translation and things like that I, just love to hear how you see that sort.

Sort of playing out over the next year.

And then second maybe for Chris the decision to not adjust guidance given first half ran well ahead of your full year guide.

It sounds like business trends are very strong so maybe.

Could you share some more detail on the topline headwinds that youre sort of expecting in the second half.

Gets you down from mid.

Mid to high single digit revenue to low single digit and also the timing of the costs that will pressure.

Relative to the first half.

Hey, Michael It's Ed on the International piece you are correct, we are focusing on international and that means we have been intuit on rights on expanding our our basket of rights for quite some time, but also working with local distributors. We mentioned that we will be launching a coin in Spain, and we have local distributors there.

The content. So we think those relationships will be an advantage to us internationally as they have been domestically.

Core net Sundance now have been available outside the U S for a little more than a year.

That are a bit longer than that that's been mainly in the UK, Canada and Australia. It represents about 10% of their subscribers.

An acorn is now rolling out not only in Spain, but parts of Latin America. So.

We will continue to emphasize that going forward and we will continue to work closely with our local distributors around the world to do that.

Is it.

Okay.

I, just if I could ask a quick follow up on that Ed.

Is it a situation where a lot of this has been self distribution and these partnerships offer sort of like incremental opportunity as you push or or or.

Is it sort of steady state that the opportunity for partnership with those.

Those local partners has already been on out there if that makes sense.

Thanks.

Mike It's Chris also for your second question about our guidance positioning for this quarter.

Like where we are we like our financial results to date, we feel.

Very confident in terms of where we are with reinforcing our guidance as you know with cash flow, we did adjust for the walking dead settlement.

We're at a place where we started our guidance at the beginning of the year. We felt we had visibility to it and we feel we still feel very confident about that today.

Is it if I look at the top line go on from just kind of 6% in the first half of the year to low single in the back half it sounds like streaming is strong.

Can you can you share any more detail on whether it's sort of on the licensing side of the outside of the core like the linear strength.

Sorry linear affiliate side that you think is going to.

Be more pressured than than any of the other revenue streams.

Yes, no. It's a good question I can't really get into the details about what we're seeing individually, but relative to where we are as we know on the expense side.

And I'll leave it at that.

Okay. Thank you Bob.

Again, ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the 1 key on your Touchtone telephone.

Our next question comes from Steven Cahall with Wells Fargo.

Thanks.

1 kind of housekeeping, 1 and then a bigger picture question, maybe for Chris you talked about the Sac expense running much heavier in the second half of the year. How do you. All just think about sizing. The fact budget. How do you think about like the profitability of future subscriber you've talked a lot about content deficiency. So just.

Wondering how you feel about sort of sac efficiency as well on and how big that expense can be.

Then a bigger picture question you are cycling through the end of some pretty big series with the walking dead and better call. Saul. So I think over the next 12 or 18 months.

You will start to see those sunset, which probably frees up a lot of programming budget, but it just kind of throws the whole economic model into a period of transition. So how do you think about reprogramming. How do you think about re engaging with advertisers and also on what do you expect in terms of long term licensing for those shows do you want to pull those back to AMC plus at 1 point. Thank you.

It's worth I mean, again I will say our model is different it's just if in our approach to the marketplace is different than any other folks. So we are targeting what I would call controlled growth from subscribers that stick, we're not spending wildly to cast too wide a net because we have a profile of the subscribers that we are trying to attract.

Those who it's Joshua is talking about before.

Our inclined towards the content on Acorn and income.

Lines of other content on all black on Shudder, that's important to us. So you can think of us more as a specialty real share if you will than Walmart Walmart and our cost structure reflects that when it comes to our content spend on marketing spend and we think the reward for that and we're seeing it is favorable churn rates on our on our target.

On services.

Yeah, Hey, Steve on there.

Sort of bigger picture question I Hope these comments will be helpful.

I would first point out if I might.

Net.

That question of course applies to AMC it doesn't apply to.

Hands Shudder.

Shutter all black.

Acorn.

And those things are not in substantial part of our growth trajectory. So I just wanted to just differentiate.

Where what you've mentioned applies and it doesn't.

And the same is true of course for our linear channels. They apply essentially basically on channel.

<unk>.

Within that arena.

A few things that might be helpful to note.

Because of course as you might imagine we think about this an awful lot as Ed mentioned in his prepared remarks at our hand.

We are ending the walking dead flagship series.

And we are continuing through.

Net other series in the walking dead universe.

Thats not accidental and its not happening to us we are doing it and we're doing it for.

For reasons of vitality.

Freshness.

Ideas longevity and cost.

You'll note in television it forgive me I don't need to make this lecture.

<unk>.

When someone has a franchise like we are on order they may retire the mothership.

And SBU may become ascendant.

And Thats about I believe vitality its about freshness about intrigued and it's also about their I'd say it cost cost and so just take that into accounts, but the walking dead franchise.

This is going to sound silly alive, and well, while it's while it's dying.

The Boston Bookers are dying, but it's extremely alive alive and well.

We're making determinations about which shows will continue and we're incredibly enthusiastic about world beyond about fear and about Daryl and Carroll who are tour. This is inside baseball toured the most cherished characters that people flip out for so we feel like the best time.

<unk> is before us for the walking dead not to mention of movies.

Moving is that will be in our future as it relates to other shows that we are choosing to end.

Killing Eve.

We have every opportunity should we choose to.

Determined that there is a future for it.

In franchise manner.

So we have creative discussions underway about weather.

The nasty agencies that are controlling assassins are good through loans or the SaaS themselves are put through lines.

But in the world of franchise, because we are in control of the franchise and on.

On breaking bad better call Saul we have a partner who have will have a studio who will have a lot to say about that I would just say that we have.

Very very strong relationships with skill again.

The writer and creator of the material and the key actors.

That's specific response to your question about shows better on each of which have their performance trajectory.

The new shows that Ed mentioned.

And you never know until it's there, but we have an interest in no fewer than 15, Ed Rice novels.

And we have a writer's room open.

First of those they have huge constituencies apart from their popularity, we think it's a spectacular rich world. The Vampire chronicles, which is why we went deep in it.

So we are very enthusiastic about it.

And as Ed mentioned, and then I'll stop the long speech.

We really do think that AMC.

Has a history of.

Discovering new writing talent of nurturing them.

And are bringing new stories to people that they love and.

When we retired a bad band initially had breaking bad we had similar considerations and I think we find ourselves in a strong position and I think we're in an extremely strong position now.

Great. Thank you.

I'm not showing any further questions at this time I'd like to turn the call back over to our host for any closing remarks.

Thank you. This concludes the call have a good day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Q2 2021 AMC Networks Inc Earnings Call

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