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Edited Transcript of AMCX earnings conference call or presentation 1-May-19 12:30pm GMT

Q1 2019 AMC Networks Inc Earnings Call

NEW YORK May 20, 2019 (Thomson StreetEvents) -- Edited Transcript of AMC Networks Inc earnings conference call or presentation Wednesday, May 1, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Edward A. Carroll

AMC Networks Inc. - COO

* Joshua W. Sapan

AMC Networks Inc. - President & CEO

* Sean S. Sullivan

AMC Networks Inc. - Executive VP & CFO

* Seth Zaslow

AMC Networks Inc. - SVP of IR

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Conference Call Participants

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* Alexia Skouras Quadrani

JP Morgan Chase & Co, Research Division - MD and Senior Analyst

* Benjamin Daniel Swinburne

Morgan Stanley, Research Division - MD

* David Carl Joyce

Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst

* Michael C. Morris

Guggenheim Securities, LLC, Research Division - MD and Senior Analyst

* Todd Michael Juenger

Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst

* Vasily Karasyov

Cannonball Research, LLC - Founder

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Presentation

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Operator [1]

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Good morning. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the AMC Networks' First Quarter 2019 Earnings Conference Call. (Operator Instructions)

I would now turn the call over to your host, Mr. Seth Zaslow, Senior Vice President of Investor Relations. You may begin your conference.

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Seth Zaslow, AMC Networks Inc. - SVP of IR [2]

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Thank you. Good morning, and welcome to the AMC Networks' First Quarter 2019 Earnings Conference Call. Joining us this morning are members of our executive team, Josh Sapan, President and Chief Executive Officer; Ed Carroll, Chief Operating Officer; and Sean Sullivan, Chief Financial Officer. Following a discussion of the company's first quarter 2019 results, we will open the call for questions. If you don't have a copy of today's earnings release, it is available on our website at amcnetworks.com.

Please take note of the following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of the future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to the company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties. The company disclaims any obligation to update the forward-looking statements that may be discussed during this call.

Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides you with useful supplemental information concerning the company's ongoing operations and is appropriate in your evaluation of the company's performance. For further details, please refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information, which we'll refer to on this call.

With that, I would now like to turn the call over to Josh.

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Joshua W. Sapan, AMC Networks Inc. - President & CEO [3]

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Thank you for joining us this morning. AMC Networks had a strong start to the year, both financially and operationally. We grew total company revenue, adjusted operating income, advertising as well as free cash flow, and our results have put us on track to achieve our targets for the full year.

In the first quarter, we made important progress against our key priorities. As a reminder, they are: first, a focus on creating distinctive content that appeals to a wide variety of audiences and ignites what we might call broad cultural conversation; second, increasing distribution of our content and brands; third, a disciplined approach to revenue diversification, in particular, expanding our content studio ownership and our genre-specific direct-to-consumer efforts; and forth, maintaining a strong balance sheet that provides us with the financial flexibility to selectively and opportunistically pursue a prudent capital allocation strategy.

These priorities are designed to support a business model that can work with and coexist alongside the larger tech and media companies. It all begins with the great content that we produce and increasingly owned by our studio. This owned and desirable content inhabits our well-priced channels in the U.S. and overseas, driving our distribution and enabling us to take advantage of rich advertising sales opportunities.

We license our content domestically and internationally to third parties. And we are selectively using it to fuel our special interest subscription video-on-demand offerings. And as our shows begin to come back to us from this cycle of distribution, they will populate our expanding owned library content. This dynamic model has very attractive economics and strategic benefits that will continue to enable us to grow and generate strong financial performance over time.

Now if I may, I think it's worth your time, I'll like to walk you through some of the highlights from what was a very active start to our year. Let's start with Killing Eve. It just launched its second season to great acclaim, and it's been one of the most highly anticipated premieres of the year.

Killing Eve was developed in-house by our small creative program development team here at BBC AMERICA and illustrates how compelling content that we develop and air on our own platforms can break through and command disproportionate attention in the world.

Just recently, Killing Eve was awarded a prestigious Peabody Award and lead actress Sandra Oh was named Time Magazine's list of the 100 most influential people of 2019. This comes on top of her Golden Globe win earlier this year, one of many accolades for her performance and for the show.

Because of its unique qualities, we are airing Killing Eve Season 2 on its original home on BBC AMERICA as well as on AMC. It came out of the gate very strong with a rating surge over last year, and we recently renewed it for a third season.

In the first quarter, The Walking Dead returned and remains the #1 show on basic cable for the ninth consecutive year. Led by our talented new showrunner, Angela Kang, the series has hit a new stride creatively, and critics and fans are heralding this past season as the best it's been in years. This revitalization was underscored by its strong and stable ratings performance, which contributed to our better-than-anticipated ad sales in the quarter, something that we'll talk about a bit more later in the call.

Last month, we green lit a third television season from The Walking Dead universe, signaling the rich opportunity around it. With its focus on the next generation of survivors, led by 2 young female protagonists, we think this third series is really a spectacular story and a perfect gateway to advance the narrative of this universe in ways that are multigenerational, fresh and unexpected, and that will add vitality to the franchise for 5, 10, 20 years and more to come.

The third series will join our companion series, Fear the Walking Dead, which is the fourth-highest rated show on basic cable and returns in June for its fifth season. We believe The Walking Dead is some of today's most enduring intellectual property on any screen anywhere. When we modeled The Walking Dead universe, we looked to other IP that has great durability, everything from Star Trek to Law & Order, to CSI. 9 years in, we believe we are really just starting to tap its full economic potential, and we're extending the franchise as any media company would.

As we actively pursue different incarnations of The Walking Dead universe in multiple formats, I can report that we have vigorous interest from several potential partners across the globe who are eager to be part of this expanding and valuable franchise and who share our view that we are only in the early stages of its life cycle. We look forward to sharing more details about our future plans soon.

Turning back to our content highlights. After kicking off the year with a simulcast across our networks of the BBC nature series, Dynasties, we renewed our BBC's partnership to include coproducing the next installments of the BBC's most iconic natural history series, Planet Earth and Frozen Planet, part of a broader deal that cements BBC AMERICA as the definitive first window in the U.S. for the biggest and best nature programming for the next 5 years. In other words, as soon as these landmark series are ready for air, BBC AMERICA will be the first and only place viewers in the U.S. can watch them.

When we had the opportunity several years ago to cement our relationship with the BBC through equity ownership of BBC AMERICA, the channel, and through cooperative production, we seized on it. We recognized the deep appeal of the BBC's dramatic and comedic content as well as these epic sweeping nature series that we like to think of as communal content, event programming that people often prefer to watch together, often with friends and family and sometimes along with what seems like a good portion of the rest of the world.

If I may, I'll move on to distribution. AMC Networks has excellent content, priced right for our distributors, a very compelling differentiator for us compared to some of our peers. We just recently renewed and extended a few of our distribution agreements. Overseas, as some of you know, we have a proprietary channel in the U.K. that bears the name AMC and is carried on British Telecom. We just extended that deal for several years.

Here in the U.S., we've similarly extended deals with virtual MVPDs. And notably, we've reached an agreement with one of the largest MVPDs in the U.S. So as we look at our horizon, we're pleased with the stability and the opportunities that our distribution profile brings to us.

As we work to position AMC Networks for the future, we continue to advance against our third key priority, which is to diversify beyond our core business, in particular, with our growing specialty direct-to-consumer offerings and our studio business.

For the past 5 years, we've been focused on specialty subscription video-on-demand, and we think we've met with success inhabiting genre-specific offerings with our 4 highly targeted DTC services. To remind us all, they are Acorn TV, which has British mysteries and dramas; Shudder for horror fans; Sundance Now, which has prestigious documentary and series; and Urban Movie Channel for urban audiences. Each of these services are growing nicely, and we continue to see increasing demand as evidenced by our recent agreement with Apple, which will be launching all of them on their new TV channels platform.

Our plan in this area has always been to attract highly dedicated audiences who strongly identify with services that span very specific genres and then to grow these services systematically. First, create libraries and expand them domestically; second, when they achieve reasonable size, launch them overseas; and finally, get to the stage where, against their cost base which is, of course, much lower than many of the larger SVOD services out there, we have enough scale that it makes sense for us to selectively produce or license content for them, which we're now starting to do.

A recent example of this is a series called Discovery of Witches. We screened it across the Shudder and Sundance Now services, where it performed extremely well and helped drive subscriber growth. We then began airing it on some of our linear channels, bringing it to the attention of new audiences, where it's also performing quite well.

Since these services are not meant to be what I might call a whole house offerings with something for everyone, we have attractive characteristics in terms of churn rates, in terms of subscriber acquisition costs and in terms of programming efficiencies. And we believe we can achieve scale relatively early in the life cycle of these services more so than perhaps general interest SVOD services, which seem to be entering a state of advanced competition.

A central part of diversifying beyond our core business is our studio operation. We're now producing a dozen-plus shows a year that we own and that we air in our linear channels in the U.S. and overseas, that we sell domestically and internationally to third-parties and that we stream on our own specialized subscription video-on-demand services. In the near future, we'll begin to see our shows come back to us. And as they return to us, they will represent yet additional complementary revenue opportunities, and we will make a determination of where we can get the best return from them.

Finally, if I may, I'd like to talk a bit about advertising. Our strong advertising performance for the quarter was in large part due to our better-than-expected ratings for The Walking Dead at AMC as well as pricing and rating increases at our other networks. As we head into the upfront, we are in a very attractive position, given the inherent strength of our content and our brands.

When one looks at the shows we have across our networks, they are really quite unlike anything else on basic ad-supported cable, from Killing Eve to Better Call Saul, from Doctor Who to The Walking Dead, from Planet Earth to Documentary Now! and many, many, many more. They are highly immersive, high-end mostly scripted content, and there are fewer and fewer places where one can advertise within this type of content. It's stating the obvious to say that can't be done on Netflix, on Amazon Prime, on HBO, et cetera, making AMC Networks stand out as one of the few and best ad-supported premium TV environments.

Something we remain focused on is how to best monetize the delayed viewing that occurs for this premium content, an area that represents large untapped pool of revenue for us. And we are working with our MVPD partners and the ad community to develop innovative solutions to realize this value.

Looking ahead to the upfront, an integral element will be offering marketers our proprietary data-driven advanced advertising tools to help them increase the efficiency of their media buys and to reach increasingly targeted audience segments.

Our planning tool, Aurora, is now being used by more than a dozen blue-chip advertisers across several categories, including auto, retail, pharmaceutical and others to optimize their media buys. And our ad targeting tool, called Mediator, helps advertisers more directly target very specific consumers across our 5 networks. As we price a portion of our inventory against those specific segments, we'll be able to increase pricing and also get a higher volume of dollars from desirable advertisers.

In closing, we're off to a strong start for the year. We continue to make great progress on our key strategic priorities, with our strong desirable content supporting a wide range of platforms and advancing our distribution and evolving ad models, creating an increasingly healthy and increasingly diversified business.

With that, I'd like to turn the call over to Sean Sullivan for greater detail on our results.

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Sean S. Sullivan, AMC Networks Inc. - Executive VP & CFO [4]

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Thanks, and good morning. As Josh highlighted, 2019 is off to a strong start. In the first quarter, total company revenue increased 6% to $784 million and AOI increased 9% to $293 million. The company also continued to generate very healthy levels of free cash flow, $144 million in the quarter, an increase of 39% over the prior year. Our performance for the first quarter, which came in ahead of our expectations mainly due to better-than-anticipated domestic advertising revenue and lower-than-expected expenses, place us firmly on track to meet our targets for the full year. I'll touch on the outlook for the rest of the year in more detail later on in my remarks.

Moving to the performance of our operating segment, at the National Networks, revenues decreased 3% to $616 million. AOI was $277 million, an increase of 2%. Advertising revenue in the quarter grew 6%. Results were in part influenced by additional episodes of The Walking Dead and its related programming, Talking Dead at AMC. We saw very healthy trends and ratings for Season 9B of the show. In particular, week-to-week stability and an uptick for the finale as the season's story arc came to a conclusion. We also benefited from strong pricing and ratings across our portfolio of networks. Advertising increased nicely at each of WE tv, BBC AMERICA, IFC and Sundance, with BBCA, IFC and Sundance each reporting double-digit growth.

In respect to distribution, as anticipated, distribution revenues decreased in the first quarter. The main driver of the decline was content licensing revenues. Content licensing declined in the quarter due mainly to the timing of the licensing of our scripted original programs in various windows. Most notably, results in the quarter reflected the shift in the timing of the international distribution of Fear the Walking Dead as well as the SVOD availability of the Sun in the prior year period, which was partially offset by the international distribution of the most recent season of The Walking Dead in the current year.

As for the subscription revenue component of distribution revenues, this line item over the long term continues to provide us with a reliable and stable source of growth. However, in a particular quarter, results can move somewhat based on the timing of various renewals and adjustments. Growth in the first quarter was in the low single digits. As Josh discussed, we continue to benefit from the strong price-value relationship that we offer our distribution partners.

Moving to expenses, in the first quarter total expenses decreased 6% versus the prior year period. Technical and operating expenses decreased 3% to $241 million, the variance primarily related to the timing and mix of originals across our portfolio of networks. In the quarter, we recorded $3 million in charges related to the write-off of various programming assets. This amount compares to write-offs of $5 million in the first quarter of 2018. SG&A expenses were $114 million in the first quarter, a decrease of 8% versus the prior year period, the variance primarily related to a decrease in marketing costs due to the timing and mix of originals.

Moving to the international and other segment. In the first quarter, international and other revenues grew 54% to $171 million. The growth primarily reflected revenue from Levity and RLJE, partially offset by a decline in our international networks, principally related to the unfavorable impact of foreign currency translation. AOI was $10 million, an increase of $12 million versus the prior year. The increase was primarily attributable to an increase in our international networks as well as the acquisition of Levity.

Moving to EPS, for the first quarter, EPS on a GAAP basis was $2.48 compared to $2.54 from the prior year period. On an adjusted basis, EPS was $2.64 compared to $2.65 in the prior year. The year-over-year variance in both GAAP and adjusted EPS primarily related to the increase in AOI offset by a decrease in miscellaneous net of $30 million, as the current period reflected the partial write-down of certain minority investments, while the prior year period reflected gains related to our investment in RLJE. EPS also reflected a reduction in outstanding shares as a result of our stock repurchase program.

In terms of free cash flow, the company had a strong quarter and continues to deliver very healthy amounts of cash. We generated $144 million in free cash flow for the 3 months ended March 2019. For the quarter, cash interest was $28 million, tax payments were $6 million, capital expenditures were $22 million and distributions to noncontrolling interests were $6 million. Program rights amortization for the 3-month period was $205 million, and program rights payments were $191 million, resulting in a source of cash of $15 million. This compares to the use of cash for programming of $30 million in the prior year period.

Turning to the balance sheet. As of March 31, AMC Networks had net debt and finance leases of $2.5 billion. Our leverage ratio, based on LTM AOI of $956 million, was 2.6x. In terms of capital allocation, our primary focus remains investment in our core business. We'll continue to be disciplined and opportunistic in our use of capital for both repurchases and nonorganic investments. With respect to share repurchases, year-to-date, the company has had nominal activity.

As of last Friday, we had $558 million available under our existing authorization program. Program to date, we've repurchased approximately 25 -- 24% of our outstanding shares, and we will continue to be opportunistic with our share repurchase activity. Looking ahead, there are no changes to the full year outlook for the total company. We continue to expect to grow total company full year revenue in the low- to mid-single digits and total company full year adjusted operating income in the low single digits.

Based on our performance in the first quarter, we have increased confidence in our ability to achieve our full year revenue target. As you would expect, we're consistently evaluating the various drivers on our lines of business. Given what we've seen year-to-date, we're trending modestly ahead of our expectations for domestic advertising, and we've moderated our expectations for domestic subscription revenue growth slightly due to macro factors.

With respect to domestic content licensing revenue, we continue to expect an acceleration in growth. So overall, the revenue streams have shifted a little bit, but our expectations in aggregate have not changed. As for the cadence of our performance during the year, we anticipate continued variability quarterly as a consequence of the specific timing of our investments in content and the airing of our shows. In the second quarter, at the National Networks, we expect revenue to be down modestly versus the prior year period, as distribution revenue growth is anticipated to be more than offset by a decline in advertising.

As we mentioned on our last call, we anticipate that the second quarter will be our most challenging quarter of the year in terms of advertising revenue due to the timing of our programming lineup, most notably, the shift forward in The Walking Dead as well as the shift backwards in the timing of Fear the Walking Dead. With respect to National Networks distribution revenue, we anticipate healthy growth in the quarter. Within distribution revenue, we expect content licensing revenue to be the more significant driver of growth due to the timing of the availability of our content and ancillary windows, most notably, the international availability of Fear the Walking Dead.

As for expenses of the National Networks, we expect them to be relatively consistent with the prior year period due to the mix of owned versus original licensed originals scheduled to air in the quarter as well as our ongoing focus on cost management. At our International and Other segment, in the second quarter, we will lap the Levity acquisition, so the results for this business will be reflected in both periods and, therefore, isn't expected to have a material impact on our reported growth rates. Our reported results will, however, continue to reflect the impact of RLJE, and we expect that business will contribute approximately $25 million of revenue and $2 million of AOI in the quarter. Excluding RLJE, we expect the other businesses in this segment to deliver an aggregate healthy growth in both revenue and AOI.

So in conclusion, overall, we feel very good about the start of the year and how the business is positioned for the remainder of 2019. So with that, we'd like to move to the question-and-answer portion of the call.

Operator, if you would please open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And you do have a question from Ben Swinburne.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [2]

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Josh, maybe coming back to your comments on your streaming strategy and these "networks" you're building, I wanted to ask you about 2 aspects. One is, how you think about scaling up production and volume in those businesses? You mentioned you can get to scale. I think you used the word either faster or easier than some of these general entertainment networks because it's sort of dedicated set of services. But at the same time, if you've got an opportunity to really own a vertical, I would assume there's a temptation to sort of ramp volumes faster, spend more earlier to achieve a greater long-term scale. So I wondered if you could talk about that.

And then secondly, you mentioned a bunch of ad technology and planning tools. I think you said Aurora and Mediator. Are those things you are using both in the linear and in the digital world? There's a lot of focus on AVOD in the marketplace. So I wanted to get your thoughts on how the advertising opportunity evolves from linear into streaming as you think about growing those businesses.

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Joshua W. Sapan, AMC Networks Inc. - President & CEO [3]

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Sure. So Ben, I think, just to restate, we have been focused since we initiated our activity in commercial-free direct-to-consumer on various special interest genres, and horror/British dramas are 2 examples. We've not, just to say it simply, taken the opportunity to be in what I would call whole house or general interest direct-to-consumer, because we felt that we could equip ourselves very well in the specialized area, and we thought that it could have different economics because it would live alongside the adoption of broad direct-to-consumer services, and that the people, who bought and subscribed to them, would come to them with a different set of motivations, which are less about "oh, I want that show now. I'll switch to the other thing for the other show" and more closely perhaps described as "I am a horror fan, I like horror material. I really identify with that one. I'll buy it."

And so that's been our thesis, and I think it's worked reasonably well. I'll amplify, if I may, on a couple of things you asked in your question because I may not have communicated adequately or clearly. We -- they obviously live with a thoroughly different set of economics and cost base than general interest, because they're, in a certain sense, superspecialized. And you're quite right about attractive verticals and seizing the opportunity. And we have data to inform us about how we're doing in that regard. So we have SAT costs by the minute. We have disconnect and churn costs by the minute, of course.

And so we're seeing how we're doing with our current activity and performance. And we're balancing investment against return. So a tension, of course, is by degree always the one you asked: can we advance more quickly, and can we be more stable, and can we be more dominant in the world if we go do this piece of content that has predominance and advances our cause, our subscriber growth, platform, footprint and subscribers? The path we've taken is, I think, the smartest one, which is not to gun the boat to 100 miles an hour from sitting in the water, but rather to learn as we go and develop the scale and make sure that all of the relatively microscopic information that we're getting about what works is put to use. That does allow us to moderate our level of expense as we -- as subscribers grow and then to selectively choose to make shows that apply to those services.

Sorry for the length of this answer, but there's one key other thing, which I think I referenced in the prepared remarks, which is that when we make a show or license a show like Discovery of Witches, it can happily overlap between a horror service, because it has those qualities, and linear exhibition on AMC. And so that is a perfectly happy marriage, where we're getting the economic benefits of the, excuse the word, exploitation of it on our subscription video-on-demand specialized service, first window, which is exactly what we did a few weeks ago, and then second window, on linear services. And frankly, it played, in this case, rather perfectly, which is it drove subs. People liked it. It had good utilization. And then it had actually good linear ratings. So not everything will work necessarily as perfectly as Discovery of Witches, but we'll find a lot that does.

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Edward A. Carroll, AMC Networks Inc. - COO [4]

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Ben, it's Ed. On the second part of your question regarding our tech platforms. So Aurora is a planning tool, and so we use that with advertisers, and we're able to help them to make their buys more efficient, not just on our networks, but their buys across all of their television networks. That said, to get to your question, that does include digital components such as video-on-demand and online video. Mediator is our name for our targeting tool, and there we work very closely with advertisers, and we get at their specific profile of their would-be users.

So for example, we can identify with them and hypertarget folks whose auto leases is nearing its end or people who like to go to a movie on opening weekend. And so we're using that as a tool to both increase our volume from blue-chip advertisers and raise pricing. I can mention 2 specifically that we're working with now. In the auto category, we're working with General Motors; and in the pharmaceutical category, we're working with Johnson & Johnson using our ad tech platforms.

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Operator [5]

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Your next question comes from Michael Morris.

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Michael C. Morris, Guggenheim Securities, LLC, Research Division - MD and Senior Analyst [6]

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I have a couple questions about distribution and the trend in distribution, subscription revenue in particular. First, the adjustment in your outlook and results from sort of a mid-single-digit growth trajectory that you saw last year and the low single-digits you had in the first quarter. Sean, you mentioned there can be some timing issues in a number like that. So my question is, were the first quarter results more of a timing issue relative to the pace you had last year? Or do the results reflect the slowdown that we've seen or the decline that we've seen in the traditional pay-TV subscribers that's been pretty well reported, and that's maybe a little more -- having a bit more of an impact than we expected?

And then second, Josh, you mentioned an agreement with a large MVPD. I assume that this is a new agreement as of the beginning of the year. Can you share any information about the timing, the size of the base perhaps that was covered by this agreement, whether the agreements are starting to have any new additional kind of components to them in terms of ad sharing or content? Anything like that would be helpful.

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Joshua W. Sapan, AMC Networks Inc. - President & CEO [7]

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Sure. So we signed a few deals in the last -- or reached agreement, I should say, in the last period of time with a number of different distributors here and abroad. And when we go into the room, your question is sort of spot on because we have the normal considerations of rate, turn, positioning, ad avails, and we do have some new considerations come into play that are actually very desirable from our point of view. And that is that these specialty subscription services that we mentioned, which will soon be carried by Apple and are carried by Amazon will soon be carried by, you can call them conventional MVPDs. So they'll be offered directly via our apps, if you will, and they're already offered to the so-called channel stores, if you want to call them that, of digital and tech companies, and they'll be increasingly offered by MVPDs so the consumer touch points will increase.

So we're very pleased with the deals that we've reached agreement on across the board, providing stability, term, constancy, rate, and of course they're all negotiations, as you know, and packaging stability. And we're particularly interested in growth opportunities that are new to us. And these new products, which we think have application to now MVPDs and they think have application to them, are a relatively new growth opportunity for us. And we'll have to see how all that goes, Mike, because -- and some of it's not yet determined, but the carriage is determined in some of these deals. Whether we see -- and this is a to-be-determined, the increasing number of broadband-only subscribers in the U.S. that are part of the footprint of MVPDs starting to be packaged with subscription services is a to-be-determined. I personally happen to have affection for that. And I think it -- personally, I think it creates a more solidified relationship with the consumer, but we haven't yet necessarily seen that phenomenon occur. But just to get back to what is happening with us, we're pleased with reaching agreement on the deals, and we have new term -- elements coming into them, which give us more opportunity as time goes forward.

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Sean S. Sullivan, AMC Networks Inc. - Executive VP & CFO [8]

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And then, Mike, on your first question, again, as we've said historically, quarter-to-quarter there will be variability in the rate of growth in terms of our subscription revenue, just given proportion of the dollars. But as I said in the script here, the macro trends affecting that are our distribution partners is really what's causing us to moderate our expectation for the year.

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Operator [9]

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Your next question comes from the line of Alexia Quadrani.

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Alexia Skouras Quadrani, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [10]

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Any more color you can give us on the new Walking Dead series? Will it come out the same -- sort of on the same nights or different season or will it run concurrent to the existing Walking Dead? And then secondly, any detail you can give us on how the original Walking Dead series is doing into the international markets? Do they follow sort of the U.S. pattern in foreign markets or does it vary sort of market-by-market?

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Edward A. Carroll, AMC Networks Inc. - COO [11]

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Right. It's Ed, Alexia. So couple things on The Walking Dead. The original series is carried overseas by Fox International channels. We really launched it in advance of acquiring some of our major holdings, which we now own throughout the world. They tend to carry it day and date launch with The Walking Dead. Fear the Walking Dead is carried on AMC Networks across the world, and continues to be a very strong performer.

So then we're onto your original question about the new series, The Walking Dead 3, we have a pilot script that we're very, very pleased with. We have a writers' room that's hard at work. And we have announced the pickup of the series. We have not announced a premier air date, so I won't get into specifics of scheduling. I will say we anticipate it appearing on our networks sometime in 2020, although that's not etched in stone.

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Operator [12]

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Your next question comes from David Joyce.

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David Carl Joyce, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [13]

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Just wanted to ask you some more about the strategy of content licensing and how you're deciding what would be flowing through. As you mentioned, you've got Fear the Walking Dead coming up this quarter, but what would be flowing through in your traditional channels versus what you would be putting on some of your direct-to-consumer services?

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Joshua W. Sapan, AMC Networks Inc. - President & CEO [14]

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Sure. I think in truth, it is -- there's a conventional pattern that we have that could perhaps be considered somewhat standard. And by the way, as we go through these, the pattern is not fixed. And so if I confuse you, I'll say apologies in advance. But a conventional pattern is that we would air a show on our linear channels and that would be the premier. And then that show would domestically go to a third-party SVOD service, third party in the U.S. So you may note that we've done deals with Netflix, Hulu and others. And it would either go internationally to the channels that we own. Ed just mentioned that Fear the Walking Dead went to the channels that we own around the globe at the same time.

Where we don't have channels, it would go to other outlets and distributors. So it might go to an SVOD entity where AMC Networks doesn't have channels. As this world continues to evolve, we might have a simultaneous nonexclusive. I know that sounds unlikely from what we've been seeing in some of the newspapers, but we might have a nonexclusive exhibition on a general interest SVOD service and also play it on one of our special interest services. And that general interest service might say okay to that because we're really not in direct competition with them, and they're getting what they consider to be full utilization of it.

So that's the general play pattern that will cycle through. And then for a few years after life of series, I mentioned it in our prepared remarks and something that we haven't yet seen counted the money for, the series come back into our library. That is, by the way, not to -- it's not a direct answer to your question, but I wanted to mention that that's a day that I hungrily and happily await because we have some very notable shows that as the world has changed and access and subscription video-on-demand services have proliferated, we've all seen the phenomenon of a new generation of customers saying, "Oh, Gee, I never heard of that show or saw it when it was originally out, but now it's my favorite." So we're hoping that we've got a few of those favorites and that when these shows start to come back, we're going to see a big punch up in the attractiveness of that content, and we readily await that day.

In further answer to your question, if I haven't made you dislike me with this degree of complications [and exceptions], we sometimes violate that standard pattern. And I say it only because I mentioned it in our prepared remarks. We violated the pattern with Discovery of Witches, and we actually played it on SVOD first. And we thought it was wise to do because it would benefit our SVOD services, it would increase appetite and interest on linear, and then we played it on linear second. And in that instance, it worked actually rather perfectly. So there are -- there's the rule or play pattern, and then there are exceptions. And I hope -- forgive me, I hope I haven't confused you...

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Sean S. Sullivan, AMC Networks Inc. - Executive VP & CFO [15]

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And Dave, it might be worth just adding. Again, the first quarter is timing and reduction. But just as it relates to 2019, we do return to growth, we do accelerate the rates, so we do feel very good about the content licensing revenue stream and the full year revenue guidance as we've talked about.

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David Carl Joyce, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [16]

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And if I could follow up on the Aurora topic, I've been hearing from the advertiser community that that's probably their favorite planning tool out there. Could you kind of toot your own horn and compare and contrast what you think it is that is really resonating with your ad clients there?

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Edward A. Carroll, AMC Networks Inc. - COO [17]

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Well, thank you for that. I would say, we got at it early, we've been at it for several years. We hired some data scientists. We have a strong team. They understand the market place. They -- we've been working very closely, and I credit this to our advertising team group that we call Agility, working very closely with advertisers to identify what they need in the marketplace, what tools they feel are missing in the marketplace. And certainly, this is not the case at all ad agencies, but it is the case in some, and it's a tough time for them to be making a technical investment on the scale and the commitment that we have. So I think getting out early, hiring the right people and working in partnership have been the key.

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Operator [18]

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Your next question comes from Todd Juenger.

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Todd Michael Juenger, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [19]

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One for Ed and one for Sean. Ed, I'm partly reluctant to do this to you, but I really want to ask again. I know you get sick of this question sometimes. Those of us on the outside still have this notion in our head that big -- the CPM gap, and that big mass audience shows like The Walking Dead we still think must surely command a big reach premium that is probably significantly bigger in price than maybe some of your other, dare I call it the niche-ier program offerings or even some of the licensed stuff. Is that still true? And yes, how wide and -- so we're trying to make sense as we see ratings data of how we can try and correlate that to ad data. So any update on that would be super helpful.

And then Sean, just super quick, I noticed the leverage ticked down, I think, like 2.6x. I think that's the lowest it's been in a while. Just wondered if that was just a function of just growing into it. Or any thoughts -- updated thoughts on where you'd like to see that number?

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Edward A. Carroll, AMC Networks Inc. - COO [20]

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Todd, it's Ed. So to your first question, look, there's a real supply and demand curve here. And AMC, at the present moment, has about 30% of the dramatic impressions on basic cable. And as you're aware, many of the shows that we would be competing with in the area of high-quality scripted dramas happen to be on ad-free platforms right now. That means advertisers are really seeking what we're offering. And so that is a powerful input in terms of our pricing. I think AMC, by virtue of some of its legacy shows and current shows, was one of the first basic cable networks to really get broadcast parity on CPMs. And so we've enjoyed that. And when you take a show like Killing Eve, which does not have the reach that The Walking Dead has, but it has a level of buzz and prestige that is hard to find on ad-supported television, then you enjoy pricing premiums. And you can see it in our ad sales quarterly results that pricing is a major factor in our performance right now.

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Sean S. Sullivan, AMC Networks Inc. - Executive VP & CFO [21]

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And then, Todd, on your leverage question, thanks for noticing. Certainly, the company has maintained at or around or slightly below 3x probably for the last 3 years. We haven't really established a stated leverage target. But again, we think that we've got a great balance sheet. We, obviously, have a very attractive free cash flow profile. We think we're making the appropriate internal organic investments for the company. I think we've done what we believe are very smart strategic M&A in a disciplined fashion that really have advanced our position in the marketplace. And we'll continue to evaluate how we allocate capital and how we do organic, inorganic share repurchase activities. But again, I think we're very comfortable with where we're at. We think that the flexibility in light of the macro environment at 2.6x positions us quite well.

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Operator [22]

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We have a question from Vasily.

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Vasily Karasyov, Cannonball Research, LLC - Founder [23]

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It's Vasily Karasyov. Couple of questions. First, Josh, you were talking about discussions about monetizing The Walking Dead franchise or properties with international potential partners. If we were to assume that it's about making a motion picture, do you have all the necessary rights for a hypothetical event of making a movie of that and you just would need to figure out your financing and distribution strategy? Would that be correct to say?

And then my second one is you guys have been calling out the positive impact from the non-AMC Networks in the past couple of quarters and beyond BBC AMERICA too, including WE tv and so on. So I was wondering if it's just a timing thing. Or do you expect the remainder of the year also see the impact, positive impact in the remainder of the year? And if yes, what would be the drivers of that, that we should keep an eye on?

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Joshua W. Sapan, AMC Networks Inc. - President & CEO [24]

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Sure. So I'll try and comment, if I may, broadly because we're actually not at liberty to talk about the specifics. I'm sorry about that. But I just -- it was a careful statement, it was not careless. So the partnerships actually span different media. They weren't a veiled reference to one. And so we can and have participated in television across the globe, of course, and now as Ed detailed, we have a third show in active development being written, and there are entities that might want to participate in that show because they have worldwide interest.

And then there are other media. And they range -- and I'm going to be nonspecific, if you don't mind, I'm sorry. They -- everything from -- almost everything that goes on every screen. These days, if there's interest in the characters, in the legacy, in the history, in where they go and what happens in the future, there's an opportunity for that sort of exploitation or incarnation. I really mean it. And so I would just leave it at, I don't mean to frustrate you, really, every screen and every incarnation.

As it relates to rights, we have a broad spectrum of rights. I won't walk you through the detail of who's in and who's out in everything and who has agreements or lack of agreements because you'd have to have a little bit of a book to write the notes. But we have a path to get to essentially every place that we'd like to get, with the necessary agreements in some circumstances.

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Edward A. Carroll, AMC Networks Inc. - COO [25]

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And to your second question, on the other networks in our portfolio, they have been strong performers of late. As you would imagine, timing is much less a factor on those networks than on AMC because of the absolute size of the shows. So it's much more about pricing and delivery and then demand for certain shows -- breakout shows like the nature documentaries on BBC AMERICA and Brockmire, which is a comedy on IFC, and we have a number of reality shows on WE tv that are really performing very well now, Love After Lockup and Growing Up Hip Hop, to name just a couple.

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Seth Zaslow, AMC Networks Inc. - SVP of IR [26]

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Great. Well, at this point, we'd like to thank everyone for their interest in AMC Networks. And operator, you can now conclude the call.

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Operator [27]

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Thank you all. This does conclude today's conference call. You may all disconnect.