AMC Networks Earnings Rise Despite 11 Percent U.S. Ad Revenue Drop

Ryan Green/AMC
'Fear the Walking Dead'

The cable networks company, led by CEO Josh Sapan, beat Wall Street earnings expectations, but fell short of revenue estimates.

AMC Networks, the cable networks company that operates AMC, IFC, WE tv, BBC America and SundanceTV, on Wednesday reported higher second-quarter earnings that exceeded Wall Street estimates, but its U.S. advertising revenue fell about 11 percent.

The company, led by CEO Josh Sapan, posted a second-quarter profit of $129 million, or $2.25 per share, compared with $106 million in the year-ago quarter and earnings per share of $1.82. Adjusted earnings hit $149 million, or $2.60 per share, compared with $113 million, or $1.93 per share. Wall Street had been looking for earnings of $1.96 per share. 

The company said the improved bottom line "reflected a decrease in income tax expense, as well as a decrease in miscellaneous net expense, partially offset by an increase in restructuring and other related charges." The company in the quarter included operating expenses related to the acquisition of RLJ Entertainment and $17.2 million in restructuring and other related charges, compared with $9.7 million in the year-ago period, mainly due to the reorganization of its direct-to-consumer businesses.

Second-quarter revenue increased 1.4 percent to $772 million as higher international results offset lower U.S. figures. For its latest quarter, AMC Networks posted a 3.6 percent U.S. revenue drop to $605 as advertising revenue fell 11.1 percent to $219 million, partially offset by an increase of 1.3 percent in distribution revenue due to higher content licensing revenue.

During an analyst call Sapan addressed AMC Networks' advertising revenue dropping 11 percent by pointing to evolving data analytic products, and especially the proprietary Aurora Video Targeting Solutions platform, to help advertisers better target audiences.

"In what has been a multiyear effort for us, we've been building tools and staffing up as we develop data and analytics for our proprietary tool and we're now beginning to see results.... Our products can enhance our value for advertisers as they target and take measurements and we believe they will improve our overall business in the mid to long term," Sapan argued.

AMC Networks' original series in the latest period included flagship channel AMC's Fear the Walking Dead and Into the Badlands, as well as BBC America's Killing Eve.

Sapan, as on earlier analyst calls, reiterated Wednesday his faith in the long-term strength of The Walking Dead franchise, even as ratings for the flagship TV series post their lowest levels ever. He pointed to upcoming The Walking Dead movies landing an exclusive theatrical distribution deal with Universal Pictures after previously eyeing play on AMC.

While not disclosing the economics of the Universal Pictures deal, Sapan said the studio distribution agreement underscored "the high level of interest that the universe commands and the undeniable strength and vitality of this growing franchise."

International and other revenue for the second quarter increased 22.4 percent to $180 million, including $26 million related to the acquisition of RLJ Entertainment.

AMC Networks last year acquired Robert Johnson's RLJ Entertainment, adding its subscription video services Acorn TV and UMC (Urban Movie Channel).

On the streaming front, Sapan told analysts his genre-focused SVODs — Acorn TV, Shudder, Sundance Now and UMC — were seeing "healthy rates of growth" and he anticipated the four streamers achieving scale and "managed churn" as they offered original content to drive momentum.

AMC Networks added 400,000 subscribers for all four special interest streaming services as of mid-2019, and the company is targeting 2 million in aggregate subscribers by the end of 2019. Sapan forecasts crossing the 3.5 million to 4 million subscriber base by 2022, and by 2024 he anticipates 5 million to 7 million subscribers and around $500 million in revenue from all four genre streamers.

July 31, 7 a.m.: Updated with comments by AMC Networks CEO Josh Sapan to analysts on a conference call.