Good morning. My name is Sherrill, 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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to your host Mr. Seth Zaslow, Senior Vice President of Investor Relations. You may begin your conference.

Thank you. Good morning. And welcome to the AMC Networks first quarter 2019 earnings conference call. Joining us this morning our 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.

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 fourth, 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 and habits are 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 of content. This dynamic model is 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'd…

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 continue 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 segments, at the National Networks revenues decreased 3% to $616 million, AOI was $277 million, an increase 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 and AMC. We saw a very healthy trends in ratings for Season 9B of the show. In particular, week-to-week stability and an uptick for the finale as the season story are 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 BBC A, IFC and Sundance each reporting double-digit growth. With respect to distribution as anticipated distribution revenues decreased in the first quarter. The main driver in the decline was content licensing revenues. Content licensing decline 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…

[Operator Instructions] And you have a question from Ben Swinburne.

Hey, good morning, guys. How are you? Josh, maybe coming back to your comment on your streaming strategy and these networks you're building, I wanted to ask you about two 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 the general entertainment networks because it's sort of a 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 don’t know, 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 a 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?

Sure. So Ben, I think just to restate, we have been focused since we initiated our activity in commercial free direct to consumer on very special interest genres, and horror, British dramas are two 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 subscribe 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, and 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, super specialized. 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 set costs by the minute, we have disconnect and churn cost 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…

Hey Ben, let me add on -- Ben to add 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 does -- 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 where would be users. So for example, we can identify with them and hyper target folks whose auto leases is nearing its end, or people who like to go to a movie on opening weekends. And so we're using that as a tool to both increase our volume from blue-chip advertisers and raise pricing. I can mention too specifically that we're working with now in the auto category, we're working with General Motors and in the pharmaceutical category, working with Johnson & Johnson, using our Ad Tech platforms.

Got it. Thank you, both.

Your next question comes from Michael Morris.

Thank you. Good morning guys. I have a couple of 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 earn 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, it'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 it 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. Thank you.

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, term, 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 the 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 happened 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.

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 subscription revenue, just given the proportion of the dollars. But as I said in the script here, the macro trends are affecting our distribution partners is really what's causing us to moderate our expectation for the year.

Great. Thank you, both.

Your next question comes from [indiscernible].

Hi. Thank you very much. Any more time give us on the New Walking Dead series will it come out sort of on the same night two 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 you does it vary sort of market-by-market?

Right, it’s Ed, Alesta. So, a 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 on to 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 a 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 action stone.

Thank you very much.

Your next question comes from David Joyce.

Thank you. 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? Thanks.

Sure. I think, in truth, it is – there is 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 the same time where we don't have channels that would go to other outlets and distributors. So it might go to an SVOD entity where AMC Networks doesn't have channels. As this will continue to evolve, we might have a simultaneous non-exclusive. I know that sounds unlikely from what we've been seeing in some of the newspapers. But we might have a non-exclusive exhibition on a general interest SVOD service and also play it on one of our special interest services. And that general intra 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 -- it's not a direct answer to…

And David it might be worth just adding, again, the first quarter is the timing and the reduction. But just as it relates to 2019, we do return to growth, we do accelerate the rate. So we do feel very good about the content licensing revenue stream and the full year revenue guidance as we’ve talked about.

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

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 marketplace. They -- we've been working very closely and I credit this to our advertising team, a 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 that 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 has been the key.

Great, thank you very much.

Your next question comes from Todd Juenger.

Hi, thanks. 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 did the CPM gap in 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 the other dare I call the nichier [ph] program offerings or even some of the license stuff. Is that still true? And how wide and just sort of trying to make sense as we see rating state of how we can try and correlate that to add 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 2.6 times. I think that's the lowest it’s been in a while, just wondering 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? Thanks.

Hi, Todd, it’s Ed. So to your first question. Look, there is 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 are 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 parody on CPM. 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 it’s 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.

And then Todd, you know, on your leverage question, thanks for noticing and certainly, the company has maintained at or around or slightly below 3 times probably for last three 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 discipline fashion that really advanced our position in the marketplace, and will 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 2.6 times positions us quite well.

Fair enough.

Operator, we'd like to take one last question, please.

Okay, we have a question from Vasily.

Hi, good morning. 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 on the remainder of the year? And if yes, what would be the drivers of that that we should keep an eye on? Thank you.

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 care less. 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 interests. And then there are other media. And they range -- and I'm going to be non-specific, if you don't mind, I'm sorry. They were 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.

And to your second question on the other networks and our portfolio. They have been strong performers of late. As you would imagine, timing is much less a factor on those networks than in 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 Brockmeyer, 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.

Thank you. Have a great day.

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.

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