Ladies and gentlemen, thank you for standing by, and welcome to the AMC Networks Third Quarter Conference Call. My name is Charles and I will be your conference operator today. As a reminder, all lines will be placed on mute to prevent any background noise. [Operator Instructions] I will now hand over the call to our host for today, Mr. Seth Zaslow. Sir, the floor is yours.

Thank you. Good morning, and welcome to the AMC Networks third quarter 2020 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 Donna Coleman, Interim Chief Financial Officer. Following a discussion of the Company's third quarter 2020 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.

Good morning and thank you for joining us. I'll take a few minutes to touch on several of our operational highlights, before turning the call over to our Interim CFO, Donna Coleman. I've known Donna for many years through her work at Madison Square Garden and Cablevision, and we feel very fortunate to have her with us and have the benefit of her considerable wisdom and expertise until we name a permanent CFO. AMC Networks delivered solid results in the third quarter with better than expected performance against several key metrics. We continued to maintain a strong financial profile and increase our financial flexibility with a solid balance sheet, very good liquidity and healthy levels of free cash flow. Our financial flexibility allowed us to recently complete a modified Dutch auction tender offer, which took a significant number of shares out of the market at a very attractive price, something that Donna will provide more detail on in her remarks. We continued to make very good progress. And in many respects, we are accelerating around the four key priorities we've outlined on prior calls. They are, one, expanding distribution of growing subscribers for our subscription video on demand services. Two, growing our digital ad revenue business. Three, increasing content ownership and optimizing our content franchises. And four, maintaining the high value our linear networks. Our successful execution in these areas is powering our ability to begin to fundamentally reconstitute the revenue mix of our most company most notably with increasing revenue from our subscription streaming services becoming our fastest areas of growth. I'll touch briefly on these areas, starting with SVOD. Our SVOD business continues to outperform our expectations with AMC Networks fast becoming the global leader in subscription video on demand services for targeted audiences. To recap for you…

Thank you and good morning. For the third quarter, total company revenue was $654 million. And total company AOI was $185 million. Both revenue and AOI were ahead of our expectations this quarter, primarily due to favorable top line performance, particularly at our international and other segments. With respect to the performance of our operating segments. At the National Networks, revenue was $462 million and AOI was $159 million. Advertising revenue in the quarter declined 16% to $164 million. As expected, we saw an improvement in the overall health of the advertising market in the third quarter as compared to the second quarter. However, our advertising performance was impacted by the timing of our originals, in particular, the airing of Fear the Walking Dead, which aired in the third quarter of 2019, but was moved to the fourth quarter of this year, as well as the pandemic and lower delivery. With respect to distribution. As anticipated, distribution revenues decreased in the quarter. The main driver of the decline was the content licensing component of distribution revenues. This line item declined due mainly to the timing of the licensing of our scripted original programs in various windows. Most notably, results in the prior year period reflect the SVOD availability of The Walking Dead as Low Winter Sun [ph] and the international distribution of Fear the Walking Dead and The Terror. As for subscription revenues, consistent with our expectations, subscription revenues were down in the low double digits as compared to the prior year period. As we continue to see a moderation mainly due to declines in total Pay TV subscribers. As Josh discussed, we believe the strength of our content and our attractive wholesale pricing continues to make us a valuable service for our distribution partners. Moving to expenses. Total expenses…

Thank you. [Operator Instructions] And our first question comes from the line of Michael Nathanson. Your line is open.

Thanks. Hey Josh, I have a question for you. Can you talk a bit about those four targeted services, maybe the need to – the balance of what is bringing in those subscribers? Is there enough healthy, original programming, is it library, a little bit about churn? So I'm just trying to get like a picture of how much you need to invest in originals, keep driving this and what the churn dynamics look like? Thanks so much.

Sure Michael. I think the answer is a little bit different for each one, because they have such discrete targeted audiences. I will share with you that the largest of them Acorn, which is British-oriented has a vast and deep library, and a wide range of material that we can license. At the same time, Acorn has been a bigger vigorous co-producer of material in the UK and actually around the world. So an Acorn is a combination of very significant library, and co-productions. And by the way, asterisk Acorn through that business we own significant participation in Agatha Christie intellectual property. It happens to have, Michael, interestingly, among the lowest churn of any subscription service in America, that includes the biggest part of this. And that's a function of, I think, two things: one is the sort of dedication and affinity that people feel with the material, part of its demographics it's used somewhat, older. And although it is somewhat programmed-dependent, and significant part, the steady stream availability and opportunity for put people to watch the type of material they like, gives it this very low turn. So it has frankly, extraordinarily attractive, characteristics in terms of churn and therefore lifetime value. Shudder – I'm sorry, I'm giving you a, such a long answer, torment you, but Shudder…

It’s okay.

[Indiscernible] it gets very interesting. But Shudder is interesting because we do have also library of good movies, but we've been able to produce, and co-produce in a few different areas and your illustrative and worth the moment. First, with our own AMC service, or regular linear business, we co-produced a series called Creepshow, which in that demo and on that service is sort of a monster hit. And then this is illustrative, Michael, I thought you might appreciate it, we did a movie during the pandemic called Host, which was done completely, remotely. It was lauded in those circles and it was a pandemic movie that was a horror movie. And it was lauded and there was electric amongst the Shudder audience. Shudder has slightly higher churn, wide availability of material, and it's a dollar threshold for producing for it against the target audience is frankly not that high, a movie like Host is rather inexpensive and they enjoyed it very well. So the net of this, if I were to summarize it, is as compared to the general SVODs. The dollar requirement is in a different league. It's nothing like you see and read about Netflix, et cetera, spending on a per hour basis. It's actually a different universe. And it has different sets of economics that are very attractive and frankly much lower. And so it's a wonderful business to be in. And I think that we have advanced and refined our capability in how to find target and retain those audiences as proven by the numbers. So while I wouldn't say we're the worldwide leader in targeted SVODs, we may, in fact, be the worldwide leader in these targeted SVODs. It's a nice claim to make, I think, it's legitimate.

Okay. Thanks Josh.

Thank you. Next question comes from the line of Steven Cahall. Your line is open.

Thanks. Two from me. Maybe first just tracking your distribution revenue it does seem like that may be in addition to sub declines there's a little bit of pricing pressure. And so just wondering if it's logic for us to conclude that as you're renewing with MVPDs, you're launching these digital bundles, is there a little bit of price pressure that's working into your networks as you make that pivot? So that's the first one. And then the second one, I was just wondering about the life of series deal with Netflix, for the Walking Dead, as you start to think about delivering the final seasons of the Walking Dead, how do you think about that deal? And we've seen some legacy libraries like Mad Men recently get repriced up as they've come available. So, does the end of that show sort of reopen that deal with Netflix? And if it does, do you feel like that's more upside or downside to your licensing revenue? Thank you.

So I'll answer the first part of it – the first question and the first part, the second one, I'll ask Ed to participate. On the distribution side, there has been some pricing pressure downward rate of growth on MVPD renewals used to be double digits, it's lowered now. The most significant factor affecting the moderation of the line and our distribution revenue and it has a bunch of components, as you know, it includes content licensing revenue as well, is subscriber declines, which unfortunately have taken place, particularly in the satellite sector, which we’re widely exposed through AT&T and through Dish. There has been a moderation in rate of growth, each deal is different that we've done. We are focused on a holistic, as I mentioned in my prepared remarks, relationship with our MVPD partners. So, off note Comcast was a helpful architect in what was first called AMC Premiere and then AMC+, Dish and Sling supports it, AT&T supports it and carries it. So we are focused on what our world looks like over 12 and 24 months in aggregate. But we're also focused on frankly, we think we have among the most valuable basic cable services that are out there with four of the top six rated dramas. And they are great for MVPDs. We're trying to both retain, and you saw recent numbers in the charter, frankly, grow standard video subscribers. If my information was correct. So we're living happy on both sides of the house. The nicest thing for our company that we see is that our cherished MVPD partners are embracing our linear offerings and our SVOD offerings. And they see us as a stable, high quality, reliable, integrated provider on both sides of the house. So as they live with more broadband-only in…

Right, Steven. So several years after we stop making and delivering new episodes of the Walking Dead, all the rights, revert back to us from Netflix. And so that that will be over 170 zombie hours. And then if you combine that with Fear, Fear the Walking Dead, which comes off Hulu a few years after we stopped making and delivering it, we'll have well over 225 hours. And it's important because we will then have the freedom to use them on our platforms to continue to either share licenses domestically or continue to aggressively license them internationally. And I think the point that you are scratching at is a good one. With a show like Walking Dead, I’d put it in a rare league, like Game of Thrones and Sopranos, there are always new people aging into that demo. So they will always be people who want to see that show. So if we have that show and we decide to use it on our platforms or license it around the world, share a license domestically, we have the option to do that. And as Josh was alluding to us, it dovetails nicely with the studio strategy that we've been talking about for the past few years. So shows like Into the Badlands, and Halt and Catch Fire, and Rectify and Turn, literally hundreds of hours are coming back to us and we have our choice to exploit them on AMC+, or to come up with other creative splits that are in our economic interest to do.

Thanks Ed.

Thank you. Next question comes from the line of Michael Morris. Your line is open.

Thank you. Good morning. Two topics for me. First, can you share your thoughts on pricing for the AMC+ service? So specifically the why do you have such a variance on – at least on a percentage basis between say a Comcast customer, and an Apple or Amazon customer? And then also the $9 price point on Amazon Prime and Apple feels fairly high on a relative basis. So why is that the right price and sort of what other considerations there? And then secondly, as your revenue streams do increasingly diversify, how do you think about the long-term AOI margin compared to maybe what you've enjoyed on a pretty steady basis at the National Networks space – segment in that kind of mid-to-high 30s range? How do you think about it for the company over all over the longer term? Thanks.

Sure. So I'll kick it off, Michael and Ed may have something to add. I’ll start with the margin first, which is we – the SVOD services that we have really do, as I mentioned earlier in the Q&A, have unusual expense characteristics, they are unusual. The targeted services are a different species from an SVOD service that is striving to be in 50 million domestic homes and 200 million worldwide homes, and is looking to serve every member of a household with something from kids programming, et cetera, on. So the scalability and the leverage in our expense base is relatively very attractive to wit, we’re run rate profitability and all that stuff put four million subs in aggregate is something that is indicative of what it costs to actually serve with great satisfaction that the consumers who are buying these things. They're critical, they're making decisions and we are satisfying them with that level of expense. Now it takes – it is yet to be relatively good at it both programming and marketing, but that's what we've been doing now for it's going on six-and-a-half, seven years. On AMC+ we also had a benefit in the sort of share – appropriate shared programming between linear services and SVOD. So if we replace a third party as the outlet for SVOD, and we enjoy the benefits of it ourselves, and we also own the show, that is an attractive proposition for us economically. So I wouldn't make a margin prediction for us. 36 to 48 months out I would say that we'll have a – we hope a radically different top line of diversified revenue coming from multiple different sources, which is already underway, doubling SVOD subs and doubling SVOD revenue in 12 months is a reasonably healthy rate of growth, obviously. And the margin profile in aggregate of our company, I think, will be very attractive over time which is not the same any one period, there won't be some fluctuations. As it relates to your other question on price, I'll offer one – I'll turn it over to Ed if I may, he will perhaps be more authoritative, go ahead Ed.

Hey, Michael, I'll just remind you we had established a price point in the market for Shudder, which was $5.99. And that said that has exceeded a million subscribers. And we have a price point in the market for Sundance Now at $6.99. And then we had AMC Premiere on Comcast and Comcast really was a co-architect of that concept of taking AMC content and making it available in a premium, commercial-free, sort of binge friendly format. And that was about a $5 price point. So, with all that value, as you would imagine, we did a fair amount of modeling and determined that that $8.99 was the right introductory price point. And we'll be migrating some of those AMC premiers at lower price points to higher price points over time. It might help. If I give you a little information about the programming model with AMC+ the viewing data and its early days. But in the few weeks we've been out there, the power of the broad offering on the Walking Dead is proving very compelling to subscribers. And so when we combine that with Shudder, and then The Scary Movies and original series such as Creepshow, we have a lot of experience programming into this genre in defense of the genre content. It's the Comic-Con crowd that has embraced our Zombie series and shows like Preacher, and Into the Badlands and A Discovery of Witches, and it's broad. So we think the combination of AMC content combined with the offerings of some of our targeted SVODs, I'm talking about, Shudder and Sundance Now hits a sweet spot. It's still a targeted product, but it's one with a significantly higher stealing. So the genre is a big aspect for us to program to hit those Comic-Con fans that have great reverence for our shows. The other major track is the prestige side of AMC's brand. So that's exemplified by shows like Mad Men, and Killing Eve and Better Call Saul. And that, we think, is reinforced by the indie films and series from Sundance Now and IFC Films. So both on the genre and the prestige side, it's a lot of good content at an attractive price point, we're off to a fast start, its early days, but we really like the trajectory that we're on.

Great. Thank you both.

Thank you. Next question comes from the line of Kutgun Maral. Your line is open.

Great, thanks for taking the questions. Two if I could. First, sticking with AMC+, you had previously sized the total addressable market for each of the four targeted services to be over $10 million in the U.S. alone, your updated SVOD subscriber targets today imply fairly encouraging adoption of AMC+ either through Xfinity DISH, Sling or now through Apple and Amazon. So how are you thinking about the longer term, subscriber potential for AMC+? I assume the service accelerates your SVOD revenue expectations as well. I'm not sure if you'd be willing to update your previous 2024 outlook, or if maybe we should wait for a year end. And I know you've talked about the relative, attractive cost structure of your SVOD services overall. Does AMC+ shifts the path or timeline to profitability? And I have a follow-up.

It's a good question. I'll give you a couple of answers. And the answer to the ceiling of market opportunity is substantially or dramatically higher. When we spoke to you about targeted SVODs, we were talking to you about those four, Shudder, Sundance Now, UMC and Acorn. And AMC+ if I can – I think Ed said it is targeted and niche, but I would say it's super, super steroid targeted. And if you have four of the five – four of the top – I shouldn't have said five, forgive me, four of the top 10 or 20 shows of the past four years, which have not been widely exposed that are genre oriented, you are not in a 10 million subscriber opportunity range, you are either in a sort of super targeted range. So the market size opportunity radically different than when we spoke to you before the launch of AMC+ now going that several months or a year plus ago. So that is a new development in our activity, it's a new development in our expectation, and it's a new development for the actual perspective of the overall company. I can't dramatize it enough. In terms of cost, there's a few things to consider that we will find opportunities to invest. I think with degrees of discipline and also with degrees of the efficiency that will come organically from the situation we're in, and they'll – they come in two different flavors. First and foremost, what Ed just said is he named the list of shows, they each have explorations on their SVOD licensing. And they are over and then they come back to our library we own them. What is interesting this phenomenon is and you see it is that, audiences that come of age and are of interest in that material have not seen or heard them. So they're new to them. And they discover them. And we own them. So that will be – that will create a level of efficiency for us to expand and raise the ceiling on that market opportunity. Number one. And then number two, when we produce for AMC Networks, AMC, BBC America, Sundance, IFC, we can produce for our SVOD services and our linear services. That will similarly give us an inherent economy in our approach to what we're doing. So we're going to need to be great, we're going to need to serve audiences, we're going to need to excite, but we have two fundamental characteristics that give us cost advantage as we mind that much more significant opportunity.

That's very helpful. Thank you. And second, if I could just on buyback, the tender offer was a very clear and impressive expression of the Board's confidence in business. That said, there still appears to be plenty of dry powder, given the strong balance sheet, ample liquidity and free cash flow generation. I appreciate that this would be a Board decision, but should investors expect buybacks will continue to remain elevated as shares remain range bound in the mid- to lower $20 range?

Hi, it's Donna. I think, as I outlined in our prepared remarks, where we feel we have a very good balanced approach to investing in the company, maintaining our leverage level and returning capital to shareholders, so I think that we are going to continue to be opportunistic in our decisions on buybacks. We'd have $135 million left in our existing authorization from the Board. As you point out, we're very optimistic about the future of the company and the strategy that Josh laid out. And so we're quite pleased with the way the Dutch auction worked out. But I think that going forward, we're going to maintain our four tenants that I outlined in our script and continue to be opportunistic in both investing in the company and doing share buybacks.

Thank you both.

Operator we have time for one last question, please.

Thank you, sir. Next question comes from the line of Brett Feldman. Your line is open.

Thanks for squeezing me in. You've continued to make the point you're demonstrating it with your performance that managing these targeted SVOD services is a real core competency of the company. And you've talked about this $10-plus million addressable market for the services you have. I would imagine that if you were to come up with a theoretical list of targeted SVOD services that could need different demos, it could be much more expensive than four services. And so have you thought about trying to cultivate a fifth or a sixth, I got to imagine you get pitched ideas a lot, and as just noted in the last question, you have plenty of financial resource available to you. So I was just hoping you maybe you could just expand on how you think about diversifying that service portfolio over time. Thank you.

Sure. I think – thanks for the question. We started Shudder several years ago, we started Sundance Now several years ago on an almost R&D basis. We put it in rework to move it away from our mainstream activity in order to feed it and give it the support that it needed. And then we did have our eye on other targets we had experienced. Just to give you a bit of history, we had experienced the appeal frankly of British-oriented or produced programming through our partnership with the BBC. So we were happily able to acquire the services Acorn and UMC, and you were familiar with black-oriented programming through VTV. And so we had distinct attraction to, and was on our list, British and urban-oriented, or black-oriented content. To your question about expansion, I'll note one asterisk, we launched very recently, something called IFC Films Unlimited, which is a targeted Indie film service that had some reasonably good uptick rather rapidly. And we do study the market, and we do study pricing and we do now have increasingly available data to understand really different price points, what people will buy. And as you might imagine, we're of course aware of everything that's in the marketplace that's operating today, particularly in U.S. what the ownership is, what their subscriber performance are and roughly what their metrics are. So without saying anything – without conclusion we're studying the marketplace, we will determine whether there are opportunities either for organic or M&A activity in this area. I think we have reached a place where we have degrees of competency, if not confident plus in how to market – bring these things to market, how to organize them, how to work with distribution partners, both digital and MVPDs, and to how to discount, arrange, and sell and retain. So the answer is yes. We think there may be opportunities to grow. We just want to make of course, right calls, the right moves and have the right ROI.

Great. Thanks for taking the question.

Well, thank you everyone for joining us on today's call. We apologize for the delay at the outset of the call, but we do appreciate your interest in AMC Networks. Operator, you can now conclude the call.

Thank you, sir. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.