Good day, and thank you for standing by. Welcome to the AMC Networks First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker, Nicholas Seibert, VP of Corporate Development and Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to the AMC Networks first quarter 2024 earnings conference call. Joining us this morning are Kristin Dolan, Chief Executive Officer; Patrick O'Connell, Chief Financial Officer; Kim Kelleher, Chief Commercial Officer; and Dan McDermott, President of Entertainment and AMC Studios. Today's press release is available on our website at amcnetworks.com. We will begin with prepared remarks and then we'll open the call for questions. Today's call may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to AMC Networks SEC filings for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements made on this call today. We will discuss certain non-GAAP financial measures. The require definitions and reconciliations can be found in today's press release. With that, I'd like to turn the call over to Kristin.

Thanks, Nick, and good morning, everyone. In the first quarter, we continue to execute on our strategic priorities, including the ongoing delivery of healthy free cash flow. New technologies are transforming the media industry, providing consumers with more entertainment options than ever before. For AMC networks, taking advantage of these new opportunities, addressing how, when, and where consumers watch our programming is at the heart of our strategy. Last month we joined with our most important commercial and creative partners for our 2024 upfront. I'd like to spend a few minutes on some of the key messages we delivered to our commercial partners, which underscore our strengths and how these strengths connect to our strategy, which is to produce great content and make it available to viewers whenever and wherever they want to watch. We engage with viewers through a wide variety of endpoints and monetize our content wherever possible. We serve an aggregated audience of more than 91 million across our linear networks, targeted streaming services, and more than 100 channel feeds on third party CTV and FAST platforms. As an independent programmer not tied to a broadcast network or distribution platform, AMC Networks has the freedom to present our content in all of these places in whatever format our partners and viewers enjoy. Our options are not limited or constrained in this fast-changing world. In fact, we're seeing them grow. Our partners understand that we have the ability to be everywhere and importantly that we add value wherever we are. In addition to our priority of engaging viewers with premium content, we also focus heavily on nurturing and expanding our commercial relationships. We aim to create content that resonates in the marketplace and we work hard to ensure that our partners also benefit from that success. As part…

Thank you, Kristin. We are pleased with our first quarter results, and we remain on track to achieve our financial outlook for the year. This includes year-over-year free cash flow growth for 2024 and approximately $0.5 billion of cumulative free cash flow by the end of 2025. I'll start with a high-level review of our results for the quarter, and then I'll provide a summary of the recent actions we took to strengthen our balance sheet, then I'll briefly discuss our outlook, and then we'll move to Q&A. We've made significant progress in reorienting our business in a tough environment. Our endemic strengths have allowed us to act quickly and decisively to achieve an equilibrium, balancing investment in our most important asset, our content, with the generation of significant free cash flow to maintain our healthy balance sheet. While we remain vigilant, we are pleased with the results we see today. This is more than just the strong performance of The Walking Dead: The Ones Who Live or the diverse and exciting slate we have teed up for the rest of the year, which Kristin just highlighted, but also the meaningful free cash flow we delivered in the first quarter and our expectation of continued cash generation going forward. On to our first quarter consolidated results. Consolidated revenue decreased 17% to $596 million in the quarter. Excluding nonrecurring revenue from Silo, the AMC Studio series we produced for Apple TV and 25/7 Media in the prior period, revenue decreased 6%. Adjusted operating income was $149 million, representing a 25% margin and we generated $144 million of free cash flow in the quarter. Free cash flow in the quarter increased meaningfully as compared to the prior year period and reflected our prudent content investment strategy as well as the timing of…

Certainly. [Operator Instructions] Our first question will come from David Joyce of Seaport Research Partners. Your line is open.

Thank you. On the distribution side of things, I was wondering what are you seeing in terms of the incremental cord cutters from here? Is it a factor of older demographics not being replaced by the younger cord nevers? Or are you still seeing people who are looking for some price differential? And if it is pricing, what do you think it will take to get the industry to -- and I think you are maybe further along thematically than some other entities. But in terms of making a program available on whatever platform, but what's it going to take for the whole industry to be agnostic as to where subscribers are watching? Thanks.

Hi, David, it's Kristin. That was a long one. Good morning. Across the board, I think we're seeing -- you saw we had some growth in our streaming subscriptions this quarter and which is interesting for us, because we haven't actually scraped our linear programming to support our streaming services. So for us, we're somewhat agnostic to the platform in which we deliver the content because we give everybody all of our best stuff regardless of where they want to watch. But I do think the skinny bundles will probably help as more distributors focus on ad opportunity and then seeing things like unlimited broadband from Comcast and different approaches to just distribution of broadband capabilities will probably help kind of smooth some of this out going forward. But for us, again, our motto has always been to deliver everything we can to whoever wants to view it in whatever format they want to view it. So that's really our focus particularly since we're not tied to a distributor.

And do you still have more of those agreements to come? Or are you already set? Patrick O’Connell: Hi, David, it's Patrick. I'll take it. Yes, listen, we've got fantastic relationships with our existing distributors. Obviously, we just recently announced the renewal of our deal with Verizon. You should assume that at any given point, we're sitting in front of between 25% and 50% of our distribution footprint. As you all know, these are long-standing highly symbiotic relationships that are multidimensional in terms of their economics. We add tremendous value into these -- to these distributors and also, obviously, to the end consumer, given that our programming punches way above its weight from a kind of price to kind of audience delivery perspective. So we like those dynamics that are appreciated by our distributors. And we continue to have sort of very open, constructive and, frankly, innovative conversations with these distributors as the world continues to evolve here in terms of having in streaming products, having to participate on the advertising side of the business, et cetera. So it's really more the evolution that Kristin described. So we feel well situated in that regard given how much value we add into the traditional bundle. And we think that carries over as a perfect analog as this sort of rebundling of streaming products comes to the floor as well. So we like the cards that we hold in that respect.

All right. Thank you.

One moment for our next question. Our next question will be coming from Thomas Yeh of Morgan Stanley. Your line is open.

Thanks so much. I wanted to ask about churn management opportunities on the streaming side. You cited some strong customer acquisition, but I think the net adds decelerated a little bit in the quarter relative to 4Q, does the programming schedule ahead or any other mechanism you see have an opportunity to control a little bit for churn from show to show? And maybe talk a bit about the overall programming slate and how that helps with managing the churn over time?

Great. It's Kristin. I'll speak to the churn and then I'll let Dan speak a little bit about our programming. Our goal with all our streaming services, as we've talked about over the past few years is to provide a really good price value equation. And given that we're significantly less expensive on our targeted streaming services, we see lower churn, particularly on products like Acorn and HIDIVE. And so, both of those services have undergone in the last quarter rate events, rate increases where we saw minimal impact to our subscriptions. And then we're also seeing increased engagement on each of those services, as well as on Shudder, which we mentioned before. So we feel pretty confident -- very confident actually that the services provide a robust platform of programming for very specific segments of people. And then as we look at the programming slate, we're also identifying opportunities to share content amongst the different streaming services because the audiences are somewhat unique. So we're monetizing what we have in a variety of places and then really super serving the fans of the niche services that we offer at a competitive price. So Dan, I don't know if you want to add on the content slate.

I'll just reiterate, our services super serve passionate fan communities that engage distinct audiences. And we're designed to operate efficiently at a much more reasonable level of subscribers compared to larger general entertainment services. And this drives lower levels of churn and win backs. We have -- as you know, we have five streaming platform -- five linear platforms and seven streaming platforms as well as 18 FAST channels and multiple AVOD platforms. So consequently, our ability to efficiently window content throughout our ecosystem allows for maximum audience exposure and aggregation and importantly, revenue generation. And this is one of the things that makes us really distinct and compelling.

Got it. And Kristin, you sounded excited about the ad-supported streaming opportunity. We've heard about elevated inventory driving some pressure on premium CPMs as more entrants kind of come into the space. Is there any color on just market dynamics around AVOD and CPMs and what you expect out of the opportunity to maybe replicate the ARPU that you're seeing on that ad free side?

I'm glad you picked up on that, Thomas. We are very excited about ad-supported version of AMC Plus. And we can speak to that a little bit and then as well as our announcement about launching ad-supported versions of our other streaming services in the next 12 months and beyond. So Kim, do you want to just spend a minute on the CPM, this stuff gets a little heady, but...

Sure. Sure. I actually -- it's a good time for the question. It's a little early for upfront predictions right now, but we feel it's going to be a solid upfront. And we think that we are pricing our premium content in a very thoughtful way. We're not looking to outprice it. So we'll leave it to others to compete in that space. We're looking to actually serve impressions across all of our distributions and continue to put together a solution for our marketer and advertisers need to reach as many of their targeted subscribers as possible across the entire media ecosystem. But we're not looking to outprice ourselves and feel we are in a competitive place right now.

Understood. Thank you.

One moment for our next question. Our next question will be coming from Robert Fishman with MoffettNathanson. Your line is open.

Hi. Good morning, everyone. I'm wondering if you can talk more about your bundling strategy for AMC+ and your other streaming services. Curious, how should we think about the opportunity for the company to participate in a broader industry reaggregating of streaming services, maybe through direct company partnerships like the recently announced Disney+, Hulu and Max Deal? Or do you see the aggregation pass more just through the typical standard aggregators like Amazon or Roku? And maybe just add, if there's any way to share like what percent of your streaming subs today come direct through or through third parties?

Hi, Robert, it's Kristin. Unfortunately, we can't answer the last question on the D2C versus partners, but I will say that we see great opportunity in bundles or the work that we did last summer with MAX was really positive for us in garnering insights and also helping us understand the ability to put the AMC brand in its own space amongst other content that people can subscribe to. So we're actually -- we're excited to hear about the Disney+, Hulu, MAX bundle. We think in an odd way, it is sort of recreating family cable and putting all the entertainment products together. And we -- as evidenced last summer, feel we sit quite nicely along the same lines with our content from AMC, AMC Plus and all of our other services. So we expect to see more streaming bundles. We are more than happy, as we've said, to participate in them, and we have quite a few conversations going on right now that we hope to share some insights on going forward. Do you want to add anything, Kim?

Yes, I'd love to -- we've been an early adopter of bundles being one of the first to bundle on Verizon plus play with Netflix. And then we have current bundles right now with both MGM and Stars that are performing very well. And we continue to pursue opportunities with other programmers in this space, both on the D2C and partner side.

Actually -- Sorry, Robert. the one thing I was going to add is the ad-supported versions of the targeted services now offer us additional opportunities because we can bundle with people that are also ad-supported. So it really doubles and it allows us to double down on opportunities in this area. So we feel really well positioned.

Perfect. Thank you.

[Operator Instructions] Our next question will be coming from Charles Wilber of Guggenheim Securities. Your line is open.

Hi. Good morning. Thank you. Two, if I may. First, on content licensing. You noted, excluding the Silo comp that, that was up about 31%. I wondered if you could share any color on what drove that underlying growth and kind of how to think about the puts and takes in the balance of the year. I know there was some impact from accelerating the Hulu agreement last year. And then secondly, on affiliate trends. I believe you've now lapped the fubo nonrenewal there and so it appears that underlying affiliate trends may have accelerated a bit sequentially in the first quarter here. So just any color on drivers here rate versus volume or anything? And whether there's any updates to the full year outlook of the 10% decline given that you didn't reiterate that in the prepared remarks there. Thank you. Patrick O’Connell: Hi, Charles, it's Patrick. Thanks for the question. I'll take them in turn. First, on content licensing. I think as we said consistently, there's always a robust market for premium programming. And I think we saw that in Q1. We called out the sale of Killing Eve in particular. So we feel very good about the remainder of the year. We obviously got back a bunch of content as we unwind the Hulu deal last year. So that is content that is sitting on the shelf. We've got lines of side across both international and domestic markets, and there's some interesting opportunities percolating there, I would say. So more to come, but we feel kind of very good about that. On the affiliate side, I'd reiterate what I said at the top of the call, which is these relationships are very healthy, very dynamic. We're in conversations with partners continuously here, hear you on the 14% in Q1. But I think as we said before as well, we're taking deliberate actions here to be proactive with many of our partners, extend the durations of our deals. And so whilst the cord cutting is minus 7% or so, our universe looks have a little bit differ than that. So it's kind of high single digits on our affiliated universe. So I just kind of put that on the table for you as well to incorporate into your thinking. But we are very much focused on duration here, and we'll trade a little bit duration for a little bit of rate as the deals come up. So I would think about that as well. But no, we're holding on the guidance broadly, both in terms of total revenue and the components for now. Thanks.

Great. Thank you.

And our next question will be coming from Steven Cahall of Wells Fargo. Steven, your line is open.

Thank you. Three for me maybe. So first, Patrick, thank you for the two year free cash flow guide, really big free cash flow in the quarter. Should we think of any of the $0.5 billion being more heavily weighted to 2024 versus 2025? Or was this kind of some timing of spend in Q1? And then secondly, just on your licensing philosophy overall, I think you got fear back from Hulu late last year. I think you have international rights for The Walking Dead. Maybe coming back this year and domestic isn't too far off. Is the kind of philosophy here that you want to put all this together and then you can relicense it for a bigger sum? Or do you think more about keeping it exclusively on your own streaming services to drive value? And then just lastly, how do you think about AMC as a studio for third parties? I know you've kind of walked away from Silo, which was very capital intensive, focused more on programming of your own assets. It does seem like there's still a pretty strong demand for projects in the broader streaming community. So how do you think about kind of AMC as a studio versus a network or a platform at this point? Thank you. Patrick O’Connell: Hi, Steven, it's Patrick. We'll take these in turn. I'll start with number one on the free cash flow, really healthy quarter. As you noted, it was more timing than anything else in terms of just production. We also had a couple of tax items in there, both on just tax credit as well as reasonably kind of modest kind of tax event that gave us sort of low tens of millions of dollars in the quarter to the good. In terms of 2024 versus 2025, I think we'll stick with what we've been saying consistently, which is we're going to grow over the run rate free cash flow out of 2023, which is $231 million. So we feel really good about growing that into 2024 and continue to feel very good about the $0.5 billion over 2024 and 2025. But this was a really heavy quarter, recognize that. So it will be not quite as heavy going forward here, obviously, given the guide there. So that's the free cash flow piece.

Hi, Steve, it's Kim. I'm going to jump in on the licensing. And I would say it's -- we're really thoughtful about it. When you have franchises like Sphere and The Walking Dead coming -- rights coming back our way, we look at each of these franchises very carefully in a considered way, especially internationally, it's more region by region. Where can we monetize it most effectively and make sure we're reaching the largest number of bands. It's not a one size fits all. We're very, very careful about and thoughtful about how we license these franchises. So if it makes sense in one territory to roll everything up into a larger Walking Dead package, we will consider that and are having those conversations. And where it makes sense to hold it back, we will hold it back based on our own streaming plans.

It's Kristin. I just want to reiterate to your question, Steven, relicensing for a bigger sum or keeping it, we really do both depending on the area. So that's, I think, what's allowed us to continue to optimize our growth in the content distribution revenue line. Dan, do you want to --

Steven, this is Dan. I'll take the video piece. So AMC Studios is a vibrant and productive group that produces for every one of our platforms. And these shows enable us to build a library, which accrues real value over time for the company and allows us to execute on the monetization of this content, the long-tail monetization now and over time. And so the studio is really important to us. And as we're producing for outside platforms, our production capabilities and the volume of programming that we produce at AMC Studios gives us the opportunity to be highly tactical and selective. And when we have shows like Silo that don't fit for us but fit for other platforms, we're going to take advantage of those opportunities. It's not our primary business, but we certainly envision producing more shows rail-type platforms as we proceed forward.

Thank you.

Okay. And I'm showing no further callers. I would like to turn the conference back to Nicholas for closing remarks.

Thank you all for joining us today. This concludes the call. Have a nice day.

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