AMC Networks Third-Quarter Earnings Rise, Fall Short of Expectations
UPDATED: CEO Josh Sapan discusses the performance of the final episodes of AMC's "Breaking Bad" and the recent deal to acquire Liberty Global's content arm Chellomedia.
AMC Networks on Thursday reported improved third-quarter financials, which included advertising revenue and strong ratings for the final episodes of Breaking Bad. But the results came in below Wall Street expectations, sending the stock lower in pre-market trading.
The cable networks company, led by CEO Josh Sapan, posted a profit of $58.1 million for the latest quarter, up 58.6 percent compared with $36.6 million in the year-ago period. Quarterly revenue rose 19.1 percent to $395 million. The firm didn't immediately address the financial contribution from Breaking Bad, which analysts say is difficult to calculate.
Wall Street analysts had on average expected earnings of $62.5 million on revenue of $396 million.
The year-ago period had been affected by a carriage dispute with Dish Network. "The company's financial results for the third quarter reflect the impact of the litigation and associated carriage dispute with Dish Network in the third quarter of 2012," AMC Networks said.
Third-quarter revenue growth was driven by a 20.2 percent gain at the company's U.S. networks and a 6.9 percent increase at its international and other businesses.
AMC Networks has had ratings successes with such hit shows as Breaking Bad and The Walking Dead on flagship network AMC.
At the company's U.S. networks, quarterly advertising revenue rose 36.3 percent driven by demand for original programming, the firm said. Third-quarter adjusted operating cash flow at the unit increased 24.5 percent to $145 million reflecting a 20.2 percent increase in revenue "partially offset by an increase in expenses" that was primarily attributable to higher programming and marketing expenses, according to the company.
Stifel, Nicolaus analyst Benjamin Mogil said the company's bottom line was "impacted by higher than expected operating costs at [the] national networks."
"Our solid financial results in the third quarter were driven by a return on our investment in original programming," said Sapan. "Our shows are performing well on IFC, Sundance Channel and WE tv."
He added: "At AMC, our acclaimed series Breaking Bad came to a close with record viewership and the Emmy Award for oustanding drama series, and The Walking Dead kicked off its fourth season with record ratings that extended its reign as the number one show on television among adults 18-49."
Sapan also addressed a $1 billion deal announced recently that will see AMC acquire the content business of John Malone's Liberty Global. "With our Chellomedia acquisition, we believe we will over time further capitalize on demand for our content by growing internationally, a key strategy to ensuring our long-term success."
Sapan on Thursday's earnings conference call mentioned such in-development shows as Breaking Bad spin-off Better Call Saul. Asked about latest details of that show, Sapan said it remains in the "early stages of development" and has no launch date yet.
Asked about the ad revenue performance of the final episodes of Breaking Bad, he said it was a unique situation and he felt his team did "a pretty good job of balancing aggressive expectations with some degree of sanity" as it decided when to sell or hold back ad inventory. Sapan said he felt AMC did "pretty well" in terms of maximizing revenue.
Discussing the previously announced move of the Sundance Channel to an ad-supported business model, Sapan said the network is "already seeing significant demand" from marketers.
He also said AMC Networks was "very excited" about the long-term growth opportunities of Chellomedia.
About half of the company's channels have a movie or entertainment focus, providing logical opportunities to leverage AMC Networks content. He wouldn't predict first steps after the deal closes, saying his team would discuss strategy in more detail later. "It's a bit of a puzzle," Sapan said about possible programming plans. "But we think that it creates very nice options."