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AMC Networks Expects 30% Drop in Ad Revenues in 2Q

AMC Networks reported that the Coronavirus pandemic pushed first quarter profits lower, though the company said it’s liquidity remains solid.

For the second quarter the company said it expected advertising revenue to be down 30%.

Ratings are up, CFO Sean Sullivan noted but "monetizing those ratings is proving to be a challenge." He said that ad revenue is also affected by delays in getting the next season of The Walking Dead and the new The Walking Dead: The World Beyond on the air.

The 30% ad revenue decline was on the high end of Wall Street expectations.

COO Ed Carroll said that most of the money clients are not spending in the second quarter has been kept on the networks in the second half of the year.

Some upfront conversation are gong on, but Carroll said he expected the upfront market to take place on a "staggered basis."

The company still expects cash flow for 2020 to be higher than in 2019, partly because of lower production expenses and lower taxes.

Sullivan said the company could not make projections beyond the second quarter.

First quarter net income dropped 52% to $69 million, or $1.22 per share, from $143 million, or 2.48 per share, a year ago.

Revenue fell 6.4% to $734 million.

Operating income for AMC’s national network segment was down 22.4% to $195.2 million, as revenue dropped 8% to $566.9 million. Ad revenue was down 10.8% to $213 million. Distribution revenue were down 6.2% to $354 million, with both subscription and content licensing revenue lower. The company said legal and marketing expenses were up.

The company said it expects it targeted SVOD services to have between 3.5 million and 4 million subscribers by the end of the year. The company originally expected to reach that level of subscribers by 2022.

AMC Networks said that it has access to $1.2 billion in cash and cash equivalents and reported cash flow of $182 million in the quarter. It said it didn’t expect the pandemic to affect its ability to cover its debt payments.

But the company warned that the adverse impact of the COVID-19 pandemic will be material to its results of operations going forward.

“The ultimate impact of the COVID-19 pandemic, including the extent of any adverse impact on our business, results of operations and financial condition, will depend on, among other things, the duration and spread of the pandemic, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak, and global economic conditions,” it said.

“In what has been a unique operating environment, AMC Networks continues to generate significant levels of free cash flow and remains well capitalized with a strong balance sheet and strong liquidity,” said CEO Josh Sapan.

“We continue to make significant progress on our digital initiatives, including strong subscriber growth across our Acorn TV, Shudder, Sundance Now and UMC (Urban Movie Channel) SVOD services, as well as Acorn TV launching in the UK. Our portfolio of networks is delivering increased viewership in recent weeks, including a strong debut of the third season of Killing Eve and strong performance for the most recent and exceptional season of Better Call Saul,” Sapan said. "Our continued investment in key areas – creating strong content and valuable IP; growing our targeted SVOD services; and maximizing the value of our linear channels – is enabling us to navigate this challenging time and will continue to serve us well when this environment stabilizes and as we look beyond this immediate period to the remainder of 2020 and ahead to 2021.”