Ladies and gentlemen, thank you for standing by, and welcome to the AMC Networks Fourth Quarter 2020 Earnings Call. At this time, all participant lines are in a listen-only mode. [Operator Instructions] After the presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference maybe recorded. I'd now like to hand the conference over to your host today Nick Seibert, Head of Investor Relations.

Thank you. Good morning, and welcome to the AMC Networks fourth quarter and full year 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 Chris Spade, Chief Financial Officer. Following a discussion of the company's fourth quarter and full year 2020 results, we will open the call for questions. If you do not 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'll 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 to which we will refer on this call. With that, I would now like to turn the call over to Josh.

Good morning, everybody and thank you for joining us. I'm pleased to report that 2020 was a year of strong performance for AMC Networks, as we continued to transform our company, while successfully navigating what has been a uniquely challenging and uncertain operating environment. Our results reflect the strength of both our linear and streaming platforms and validate our strategy as we continue to grow our streaming businesses. AMC Networks is now the worldwide leader in targeted streaming and we believe there are significant and sustainable opportunities before us. Over the last year, we more than doubled our paid subscribers to end 2020 with more than six million subs in aggregate across our four targeted streaming services as well as our new premium AMC+ offering. That is a full three years ahead of the earlier expectations that we shared with you. Our streaming run rate revenue increased from approximately $125 million at year end 2019 to approximately $300 million at the end of 2020 based on the company's share of the month of December's gross paid subscription fees annualized. We now anticipate over nine million paid subscribers by year end 2021 and looking further ahead to 2025 admittedly a much longer horizon. We anticipate being in the range of 20 million to 25 million paid subscribers by then. So streaming is now the most significant growth area of our company and we expect it will become our largest revenue segment within that longer horizon. Importantly, our relationships with our distributors are very strong now supported by these streaming efforts. Over the past two years we've renewed eight of our major affiliate agreements with several renewals in 2020, including AT&T's DirecTV, which we mentioned on our third quarter call. Our renewals now encompass our streaming services as well as our linear…

Thank you, Josh and good morning, everyone. I am delighted to join you today for my first AMC Networks earnings call. Before I review our financial performance for 2020 and expectations for 2021, I would like to take a moment to say that I'm pleased to join AMC Networks. The current entertainment environment is thriving and it is energizing to be able to be a part of the continued growth evolution, especially the pivot to streaming platforms with AMC Networks. I am honored to be a part of the team driving the company forward with a clear vision for the future and for long-term growth. As a consumer, AMC Networks has been my go-to place for many of my favorite premium shows like The Walking Dead, Breaking Bad and Better Call Saul. I believe AMC Networks has the right asset mix to flourish in the evolving media ecosystem and to continue its legacy of creating sought after world-class original programming and original IP. Now let's turn to the fourth quarter and full year 2020 results. AMC Networks had a strong full year 2020 performance while facing pandemic-related uncertainty in the global marketplace. Liquidity is healthy for the company evidenced by the generation of $686 million of free cash flow in 2020 and a strong balance sheet. Full year results were supported by significant streaming revenue and subscriber growth. Strong scatter market performance in Q4 offset by continued subscriber universe declines and inventory pressures for linear advertising. As I go through my remarks today, I'd like to summarize a few singular items that are reflected in our 2020 results, which include $122 million of impairment charges related to AMC Networks International, which we recognized in the second quarter; $86 million of programming expense write-downs of which $54 million occurred in the…

[Operator Instructions] Our first question comes from the line of Thomas Yeh with Morgan Stanley.

Hi, thanks for taking the questions and congrats Chris on the new role. Can you expand a bit on the sequential improvement in the quarter for affiliate revenues at the National Networks? And what were the major drivers of that? Given the recent major renewals is there increased visibility? Is that barring any major changes in subscriber erosion trends? That's kind of the right level to think about in 2021? And then second, I was hoping you could share any updated views just about the streaming profitability. Has wider adoption of these services changed your view on the appropriate levels of investment either marketing or more exclusive content which informs you on the path towards greater profitability? I know you guided to 2021 expenses increasing just maybe more color on the investments there and the thoughts around profitability over time? Thank you.

Sure Tom. This is Josh. I think -- if I may I think the most important thing to focus on in dynamics with our affiliate base are the changing nature of our relationship with them very fundamentally. Whereas in the past you're aware we had a linear-only relationship. We now have a linear and streaming relationship. So when we sit down at the table with our MVPD partners and now our new growing array of digital partners, we have multiple things to discuss and consider and engage on -- with them together and they include linear and streaming. So we're now in -- frankly a wonderful new form of harmony with them. We developed our streaming services some of them with the input of these very MVPDs and we have multiple products that go on their shelves. So, we have extraordinarily well read lower-priced very strong linear cable channels and now they're carrying our streaming services as a retailer that gives them a margin opportunity. And we manage the content to make each of them have propriety linear and streaming which provides multiple strength. So, it allows our MVPDs to engage in two forms of activity with us and to reach their broadband-only subscribers as a retailer of our streaming services. So, I think you'll see that in our history and you'll see that as a critical dynamic as we go forward. And that is really the most important thing that's occurring in our affiliate world. I'll just comment, if I may, broadly on your second area a question of streaming profitability. In general and this is really quite important and it was in my prepared remarks, the streaming services that we operate are quite different than the -- something for everyone general interest streaming services. We have discrete areas of editorial interest in each of them as I mentioned that really make them appeal to and be chosen by individuals who associate with and want to find either British-oriented comment in Acorn or horror-oriented content in Shudder or epic worlds and prestige content on the AMC part of AMC+. As a consequence of that, our content costs are being leveraged across multiple products significantly and that gives us a fundamentally different economic profile than frankly, having to spend and spend and spend into a gargantuan race for some sub number and a worldwide market share. So, we're really in a different world and in a business model and an economic model, that's really quite attractive.

That makes sense. Thank you so much.

Our next question comes from Michael Morris with Guggenheim.

Thank you. Good morning guys and thanks for all the information. I have two questions or two topics. The first is on content and the windowing. Josh, you referenced the availability of the discovery of which is in particular on AMC+ first and then later in the year on the linear channel. And so my question is can you provide some more detail on how you are thinking about windowing content? When you think about that content investment, how are you making the decisions, what goes where and what timeframe? And then also can you talk a little bit about that content licensing revenue source at the National Networks? And how much of that as we look forward do you expect to be sort of internal sales to your streaming businesses? And then also just if I could on the streaming side the long-term guidance that you provided for subscribers is very helpful. You referenced the international growth ambitions as well. Can you share any more about what that path looks like in terms of whether it's market rollouts or the size of an international contribution to the total that would be great. Thanks a lot.

Sure Mike. So, on your first question on windowing, I would say that it is really not a one-pattern-fits-all at all. We have our multiple products as you now well know linear and streaming. So, in some instances we will go streaming first and linear second window. In other instances, there'll be absolute propriety between linear and streaming and there will not be overlap. And in other instances, we'll go with linear first and streaming second. So, there is really not a one-size-fits-all-like approach to what we're doing in streaming. We are guided by value in streaming so the consumer is paying a fair price for something that they like a lot and they feel is valuable. Value and utilization on our linear channels to maximize our value to MVPDs who are paying us affiliate fees and the associated advertising that we get from it. And we'll marry the combination of these different play patterns. And frankly, it will be an increasingly important part of our business as we go forward. As it relates to your second part of your question, which is the content licensing revenue the nice news is that we have our hands on the dials of what goes where. So, we have our incumbent position of arrangements we've made with third-parties which in some cases are for life of series. So, we have commitments to them of course, that we will honor and they will have that material as we entered into contracts with them some time ago. As to new product we will make determinations Mike about where and how it's our business model the best. But there's a couple of variables that will go into that. How strong is the material for our streaming service? And what geographies we want it for and we…

Good. Thank you, Josh.

Our next question comes from Michael Nathanson with MoffettNathanson.

Thanks. Good morning and congratulations Chris. So, Josh a couple for you and one for Chris. I think to Thomas' first question we're trying to just figure out the quarterly volatility in subscription fees right? It's bounced around a lot in the past four quarters. We're just trying to figure out look if we think it's mid-single-digits declines in pay-TV, how should we then translate that into a subscription revenue growth going forward? So, that's one. Two is on the Paramount Plus Investor Day. I thought it was really clever that they're going to use AVOD and FAST to promote, maybe click to buy for Paramount Plus. I wonder is that something you're thinking about. Do you have the opportunity within your FAST deals? And how you're structuring maybe your AVOD-FAST platforms to connect to maybe a click to buy? And, I guess, lastly for you Chris on working capital in 2021. How much of that delta in cash flow in 2021 simply working capital catching up from what happened in 2020? So thanks.

Sure Mike. So if I may I'll try and address your first question and turn it over to Ed on how we're looking at linear and AVOD as selling opportunities if I may. I'll just if I may I'm going to echo what I said before. Michael, we've renewed eight of our significant affiliate agreements over the past couple of years. We did a significant number in the last year. As you know they all have different characteristics. They have terms in general between a few years and many years. They're now increasingly have streaming in them. And I would say that what's -- most important if I can convey it, it may not exactly answer your granular question is that we now have new harmony with our MVPD partners. So they have, of course, pressures on linear video and they have an increasing broadband-only footprint. We are now able to inhabit their basic cable world at a spectacular price if I may for the value of our linear channels. I think it is -- frankly it is single best price in the industry for the value that is on linear by far. And now we have material for their broadband-only subscribers that they're very interested in carrying and deploying and they are carrying and deploying it. So I think that's the most important thing I can convey about how and what is occurring in our distribution relationships. If I may I'll turn it over to Ed to talk about the manner, in which we're marketing selling and how we're using all of our outlooks.

Hi, Michael. So yes we're happy with our AVOD and FAST channel strategy of being on all the major platforms. And we do control a portion of that inventory and it is certainly part of our strategy to up-sell to our SVOD services. Now we do that in sync with our linear channels. And it's interesting, Josh talked a bit about windowing before, we have returning successful series coming back to the SVOD platforms. For example, we're up to the third season of Riviera, which has been a very successful show for Sundance Now, and discovery of which is in its second season driving to both Shudder and Sundance Now and we've already ordered a third season. And what we find is by running festivals of the prior season on linear and throwing to our SVOD that is becoming a compelling way of building new sampling on our SVOD platforms. So we like the strategy and we're going to continue to lean into it.

Michael this is Chris. Thank you also for your question and thank you for the good wishes. It's great to talk to you this morning. So for the working capital in 2021, we gave deliberate guidance of $200 million for free cash flow because we did want to give visibility into cash flow dynamics that we expect to see this year. Based on what we know today, a lot of it is the working capital catching up. If you look back to where we were in 2019, our free cash flow was about $377 million. So when you average 2020 and 2021 you're above that zone. And again we will continue to manage according to what we see in terms of investment return, but we will -- we also have a strong commitment to working capital strength. Thank you.

Okay. Thank you all.

Our next question comes from Kutgun Maral with RBC Capital Markets.

Great. Thanks for taking the questions. Just first a quick one. Another follow-up on core affiliate trends, I don't want to mischaracterize 2020 but it seems like there was an elevated level of renewal activity. Would it be fair to assume there's a fair bit of slowdown in deals coming up in 2021 and 2022? And then I have a follow-up.

Sure. We had -- I guess it's fair to say that the last year was a fairly rich year in terms of affiliate renewals and the last two years were fairly rich. The cadence of these things is fairly constant as you know. It can be -- and frankly we in part designed it that way, so that we have stability and even this in our horizon of affiliate renewals in part because of the changing nature of the business to it what we've now done with streaming services and linear. So it works quite well to have a calendar that is sensible and I would say somewhat smooth. With that said, there are some variations year by year. We have renewals coming up all the time and always will. So I think we had a richer year a little bit in the past 12 months, but there will always be renewals and that's what our horizon looks like.

Understood. Thank you. And just on SVOD, I'm just thinking about the $300 million in run rate revenue you had exiting 2020. If I just assume ARPU remains largely stable, your 2025 subscriber targets kind of imply that that revenue stream could go well over $1 billion, fairly substantial and encouraging? So I guess the questions are; first, how do you expect ARPU, maybe on a blended basis, to trend over time? Second, sorry if I missed it, but again, if you could help us think about the U.S. versus international mix? And just lastly, I know you talked about profitability, but is there anything more you can share with us in terms of the passive breakeven or even a longer-term margin potential of that business, as you look to that great $20 million to $25 million figure? Thank you.

So, this is Ed. Let me just try and give some color on what we're thinking about the model. I'm going to start first with the targeted businesses that have really exceeded our expectations. The model we're finding is a lot more efficient than we originally thought and the efficiency is holding as we scale. So we're very pleased with the momentum. Services represent, not only a destination for the viewers, but they tend -- we're seeing to form a community around the content. And so as you would imagine, that's helpful on churn in stack. And we think we continue to gain share in this space, because no one has the depth or the library or the community that we've built in these targeted areas and we just continue to expand it. I would also point out on your question about ARPU levers. We don't feel we've really begun to tap that and we feel quite confident about the stickiness of the subscribers. So that we think is optimistic and sort of all ahead. On the international piece of it, there was a question about this before, I would just give a little more color and say we're just beginning to expand internationally. Acorn and Sundance Now have been available outside the U.S. about a year maybe a little less. And outside the U.S. represents roughly 10% of their subscribers, mainly in the U.K. Canada and Australia. So its early days, but we do see significant opportunity outside the U.S. and we think we're making good progress.

Thank you, both.

Our next question comes from Tim Nollen with Macquarie.

Good morning. Thanks. I'd like to ask about your efforts in addressable advertising. I saw your announcement a few days ago about the campaigns that you just managed to do. I guess, my question is, this is such an obvious natural progression in the industry, maybe could you fill us in a little bit more on kind of what it takes to make this a more standard procedure? Because it seems like such a good opportunity for all parties involved. Thanks.

Thanks, Tim. So I think it takes strong relationships and partnerships and we have them. Just to fill people in, we announced this week with Omnicom that in November and December we completed the first of a couple of national linear addressable campaigns. And one of the campaigns was with Volkswagen. But to your question, we did that -- really was driven by our partnership with Canoe which has, as you probably know, addressable spots running on Comcast and Charter. So it's covering about 25 million homes. So in this case, Volkswagen was specifically targeting viewers who had shown recent interest in SUVs and the campaign was able to achieve higher reach and frequency than non-addressable advertising. So it's interesting, if a household within the addressable footprint matches the advertiser target, they serve a specific piece of creative. If the household does not match, then they don't see an ad from that client and we can run something else. So the results of this were encouraging. I think Omnicom and Volkswagen were pleased with it. And certainly, Canoe our partners at Charter and Comcast, were pleased with it. So that's what it takes to do more. I mean it takes a bit of work and coordination, but the upsides are apparent and this was a good test for us to do, as we're going into the pre-upfront season and we're having more conversations now with advertisers.

Thanks. And I just wanted to follow up on that actually is, to make it a more standard procedure. Is it becoming more of a discussion point in the upfronts? Can it become a meaningful proportion of your total ad business over time?

I think, it will. I think, it will ramp up slowly.

Okay. Thank you.

Our next question comes from Doug Creutz with Cowen.

Hey. Thanks. Just want to line up a couple of numbers. I think you said that streaming revenues grew 97% in Q4. You also indicated that the run rate at the end of the quarter went from $125 million last year to $300 million this year, which is obviously a lot more than 100% growth rate. Is the delta there just a reflection of you having a lot of ads in December? Thanks.

Sorry, having a lot of ads is that -- a lot of subscriber ads? When you say ads, I think of it very differently. We're all sort of looking at each other. Sorry. So, yes, we did have a strong December on the platform, on the SVOD platforms. And as you know, we surpassed our expectations. We're also off to a strong start now in the first quarter. And it's being aided right now by the new episodes of The Walking Dead coming on to the platform. We're also seeing continued strength throughout the targeted SVOD portfolio. That's being driven in no small part by A Discovery of Witches and a program called Creepshow on Shudder. If I haven't exactly addressed your question, you can ask it again. But that's I think the spirit of the number growth.

I agree, Ed. Doug, it is a factor of that. Thank you.

[Operator Instructions] Our next question comes from the line of Steven Cahall with Wells Fargo.

Thanks. I'm going to probably beat a couple of dead horses here, but I'll give it a shot anyway. So, on the third quarter call, I think you talked about Q4 National Networks' subscription trends being similar to Q3. Q3 was down 10%. Q4 was down 1%. So is there anything one-time in the Q4 number, or is that really just improvement of trends? And then on direct-to-consumer, Josh, you talked a lot about how you have a structurally much more profitable business today than a lot of the big streaming war competitors. So at the AOI level, can you give us any sense of what that profitability looks like? Are you near breakeven, or when you get to your long-term targets, are you going to be substantially better than breakeven? Thank you.

Sure. So look, I think just on the distribution side, I think, I may just leave it where we were which is that we have this new harmony and we're engaged in renewals with a range of distributors. As you know any one deal can move things up or down a bit when you divide the numbers into quarters they get somewhat small. So they move around a little bit. I think the most important point is as we go forward is the harmony that we have with our MVPD partners and that we're engaging with them with a slightly different -- or substantially different point of view on our part and on their part. On the structural side and on the economic profile of our streaming services, it is developing. But fundamentally as we've said in our prepared remarks, and as we've attempted to emphasize, we are -- we have a Golden Globe nominee movie on Shudder. For those who are fans Golden Globe's return as La Llorona. We have Creepshow, which is I wouldn't say it's the most expensive show on television and it's killing it on Shudder. It's a central show. On Shudder, we have Joe Bob, who’s grids drive in meter, which is -- he is -- he developed -- he has a monstrous fan base for the Shudder base. I say those anecdotes and I'm sure you're not familiar with them. They're illustrative of what meaningful is on a targeted business. And so they have different economics than doing a show that costs many, many, many, many millions of dollars per hour and attempting to follow a different plot and pattern. So as we created a plan for our next five years that was taken into account and we had economics that we like. We know where we come from. We know what our margin profile was in the past and we think we're occupying and mining an area of the SVOD landscape that is different than what is generally pursued by others. And it's characterized by frankly inherently somewhat lower costs for content, because we're engaged with people who are fans of British drama. And so when they see Murdoch Mysteries or Foyle's War, they're extraordinarily pleased and that's sort of a hit for them on Acorn, et cetera, et cetera. So that's the nature of our business. It's a substantially different business. It has a different cost structure. It has frankly better sustainability. And we think it's the perfect adjunct for AMC Networks.

Thanks. And if I could maybe ask one follow-up. You didn't mention Killing Eve or Better Call Saul in your press release have resumed production. Those are pretty big shows for you this year. So, just wondering if those might be back on as well. Thanks a lot.

Right. So we still have some shifting around due to COVID production delays for our shows. As we mentioned in our prepared remarks, we have a fuller slate of The Walking Dead Universe shows than we've had in some with The Walking Dead back Fear the Walking Dead back at full strength and the second season of World Beyond. For Better Call Saul, it does look likely at this point that Better Call Saul will move into the first quarter of 2022. That's the way we're seeing it right now. And other shows we're really -- we're on a production sort of timing schedule. We'll have a clear review I think next quarter.

Thanks.

That concludes today's question-and-answer session. I'd like to turn the call back to Mr. Seibert for closing remarks.

Thank you. We'd now end the call.

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