AMCX - NASDAQ

Good day, and thank you for standing by. Welcome to the AMC Networks' Fourth Quarter and Full Year 2023 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Nick Siebert, Vice President of Corporate Development and Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to the AMC Networks' Fourth Quarter and Full Year 2023 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 required definitions and reconciliations can be found in today's press release. With that, I'd like to turn the call over to Kristin.

[Operator Instructions] Our first question comes from the line of David Joyce with Seaport Research Partners.

I appreciate your commentary for the outlook this year, but also interested in digging more into your advertising offering. Could you please help to differentiate how your programmatic approach compares and contrasts with other leader networks efforts that have been moving digital? And also, if you could layer on to beginning of the fourth quarter, which was one that saw an acceleration of advertisers applying some of their budgets to the streamers' ad tiers. How are you also going to market to -- with that backdrop?

David, it's Kim Kelleher. Thanks for your question. I think as an industry, we continue to be an absolute leader and national linear addressable advertising, excuse me, we're taking this difficult time and really leaning into innovation and investments in our technologies to serve better solutions to our partners. We believe this upfront is going to be heavily leaning towards data targeted audience solutions and buys, and we couldn't be more well positioned to take full advantage of that. On your specific question regarding programmatic, we successfully developed and enabled the first Vitable programmatic buying capabilities within our linear inventory. This is the first time in the industry, a company has been able to successfully do this. So as Kristin mentioned, we had a number of partners debut this product with us in the fourth quarter, and the results were beyond promising. In particular, L'Oreal has quoted that there -- they saw increases of over 10% from expected performance. So also last year, we launched Audience+ at our upfront event. Audience+ combines all of the development we've done for the last 3 years to ready for this moment. That brings our partners the most advanced targeting capabilities seamlessly. It really simplifies the transaction and offers a true cross-platform targeting with all of our inventories, live linear, VOD and CTV altogether. So, we see a huge opportunity to automate the sale of addressable going forward and think this will be an area of large growth and yield. On Q4 specifically, it was a difficult quarter, but I think you're seeing the same headwinds. Most of our competitors are reporting. Yes, it's -- we're seeing revenue move into streaming categories, and we launched AMC+ ad supported right at the right time. So, we launched in late September, and that product is up and running on one large partner platform, and we are adding platforms every single month. So, we anticipate to be able to pace with those trends.

I would just add, David, it's Kristin. On your question about programmatic on linear. Like essentially, what it means is that the traditional digital advertisers, people that have solely bought digital or dabble in traditional television, they can now purchase our national linear inventory programmatically. So, they're basically using the buying platforms that they always use on digital to buy linear television, which for us and I think for most people in the business is a huge opportunity to finally swing the pendulum back from digital first to shared purchase of traditional television as well as digital to support the advertisers' efforts.

Our next question comes from the line of David Karnovsky with JPMorgan. Your line is now open.

Our next question comes from the line of Robert Fishman with MoffettNathanson.

It's [indiscernible] for Robert. I want to know if you had any other color to share on the experiments with putting turn titles on Max and if we expect some news in the future? And also, then more generally, how you guys are thinking about growing licensing revenues, balancing building a roster exclusive for AMC+ versus renting out to third parties?

It's Kristin. I'm going to let Dan take the second question, and then we'll go back to the Max partnership. So, your second question around content was around sharing content between AMC+ and AMC -- is that the question number...

AMC+ versus licensing out?

Yes. I'll take -- I'll start with the second question, Robert. So, with respect to licensing, look, we're focused on -- this is Dan, by the way. We're focused on generating the best possible return from our content investments. And we appreciate the strategic advantages and optionality that our studio model has for us. Obviously, our owned IP and beloved franchises are very desirable and sought after. So, we seek to monetize them as efficiently as possible. We have 5 linear platforms, 7 streaming platforms. So, we window through our ecosystem in the interest of maximum revenue and profit generation. As far as whether or not we'll produce for third parties like we did with Philo for Apple, -- we look at ourselves as being very opportunistic and highly selective and tactical when we take on those opportunities. We'll do it when the risk-reward makes sense. And we typically develop a lot of content that maybe not all of it is suitable for AMC Networks. So, we -- and we do have deep and long relationships with all other platforms. So, we will be out in the market and will sell to third parties when appropriate. It's not our primary business, though. So, we're not in a situation where we have to chase other platforms and are dependent upon that.

And just to follow up on the Max partnership, I think it was a learning experience for both. We were thrilled with the increases in viewership that our content received both on Max, but then also the associated lift in the more current seasons for the series that we shared with Max. -- when we have more current seasons on AMC+. So, we shared a lot of information in a privacy-compliant way we between the 2 companies, and I think they were pleased with hopefully some positive retention and engagement on the Max side and we were certainly pleased with the learnings and the increased viewership that we got on AMC+ for those series.

Yes, I'll just add one thing, which is that what that experiment showed us was that when we get on to a larger distribution platform and a bigger ecosystem, our content scales significantly and is as appealing and more so than even in our own ecosystem.

Thank you. Our next question comes from the line of Thomas Yeh with Morgan Stanley.

I would just add, it's also worth noting that in the past 12 months, we renewed more than half of our affiliate subscriber footprint. And there were some big ones in there, Dish, Sling, [ Charter ], Altice, Mediacom, WOW, Philo, [ Bell ]. We did a Rogers deal in Canada amongst others. And then also, obviously, we partnered with Comcast on the [ NOW TV ] offering. And then we launched AMC+ with Charter, as you know, plus the aforementioned Philo deal. So, we're feeling really positive about our relationships with distributors. And as Patrick said, pretty comfortable with how we're moving forward on the partnership side.

I would just add, sorry, Tim, it's Kristin again. This is part of the technical reworking that we're doing in order to have a consolidated back in that we can turn on streaming wherever we want globally. So, we partner with digitally with through Amazon there. So, we actually feel like there's a lot of opportunities around AVOD in certain select European markets. So, you couple that opportunity with the work that we're doing technologically. And we think the goal here would be an investment-light model that maximizes the overall returns of the consolidated business. So international, while a small piece of our overall business is one that we feel very positive about.

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

Maybe first, just kind of stepping back from it all. Kris, and you all are managing the business very, very tightly on the cost side, and things are certainly improving, but I think investors are also just curious if you think you can get back to a level of growth, either at the top line or at the AOI line in the next couple of years. So, I'd just love to get your comments on kind of the bigger picture as to when you see the business maybe starting to flatten out or even grow again? And then just one on advertising with high single-digit declines in guidance for 2024 at domestic. Could you help us think about what your expectation is for kind of volume delivery versus pricing? And what I'm trying to get at is, it's just been such a couple of tough years for comps and then you have the new Walking Dead season this year. So, is that high single-digit really a reflection of just the weaker marketplace that you talked about? Or are impressions still down on a year-on-year basis even as you cycle into some new programming.

Great. I'll take your first question, Steven, on the cost management and the top line. Look, we've been really clear for the last year and going forward about how we're managing the business, streamlining it, making it as efficient as possible. And Patrick's mentioned, our target where we feel we can do $0.5 billion in free cash flow in the next 2 years. But on the top line, we're really waiting out what's going on in the industry. And what I'm happy about is that we continue to produce through Dan and the team, really high-quality content. The TCA event this week was we were so proud and so enthusiastic about the slate that we're putting out right now. And this is part of our ongoing strategy to own and manage franchises that we can monetize over time. So, as the marketplace sorts itself out, the opportunity to grow top line in the out years continues to be there. I think it's just got to settle. So, we're sort of sticking to our knitting, as you said, tight cost management, but effective utilization of the resources that we have, and we're going to stick to the plan, and we're optimistic over the next year to 2 years that this ship will write itself in our industry and things will open up again. But we're confident that we're doing what we've always done best, which is to create great content for various select but very passionate audiences.

Steven, on your second question on volume delivery versus pricing, as we look at 24, I would actually call it impression shifting we are very thoughtfully working towards increasing our digital inventory through the addition of AMC+ as supported tiers. Our growing CTV distribution through, as Kristin mentioned, we have 100 fast feeds right now in market across 11 platforms. We see a large AVOD opportunity in 2024. As we convert that inventory as those impressions shift to digital, we're able to get better yields and pricing out of those impressions. So, while our estimate is not great for '24, we do actually believe that this is moving in the right direction for the future, and we'll continue to just be very, very thoughtful about how we expand our viewership.

Our next question comes from the line of Charles Wilber with Guggenheim Securities.

This is Charlie on for Michael Morris. You guys mentioned and highlighted the fast expansion. I just wanted to dive in on that a little bit and see if you could help us understand the contribution from these and provide any color on how the economics of these work? Is it primarily inventory share, revenue share approach? And then if any impact or lift on the viewership and engagement you may have seen across the portfolio, the linear and subscription services. And then secondly, you just mentioned the potential international AVOD opportunity. I just wanted to get your thoughts on how that may extend to the fast channels businesses as well.

Sure. Charlie, on the first part of your question, I would I would say it's extremely important to our strategy that we are -- we have first sales position on selling our shows. And that has been key to all of our distributions and all of our platform partners, and that has been very lucrative for us and the partners. We don't break out specific contribution of this particular line of business, but it is growing. We are seeing continued growth quarter-over-quarter and expect that to continue through '24 and into the future. On international, the only thing I'd lead with is we see huge opportunity in AVOD and fast. And it's obviously a more nascent market, but as partners like Pluto and Samsung and other global partners start looking at their continued rollout by territory and it overlaps with the regions that we are strong players and, as Patrick mentioned before, we know we will be at the forefront of those growing businesses.

And Charlie, probably it goes without saying, but I'll say it anyway. The advances we've made in advertising in our ability to sell segments, then it's up to the internal teams to deliver that segment across all the platforms in which we insert advertising. So, whether it's fast or AVOD or linear or linear national addressable or programmatic. We just – Kim's team sells the segment and then they place as needed. So, we're getting really sophisticated in really optimizing every single impression that we have and the CPMs associated with it. So that's part of the reason we don't break it out because it would be nearly impossible to do that math. We just -- we put together the best cost to deliver the segment. And then as we mentioned before, very proud of our opportunities and our ability beyond that to deliver attribution reporting and prove out to clients like L'Oreal that they've done really well in placing their money with us and letting us distribute it in the way that best reaches their target audience. So more to come on that front, but the ability to do that beyond the U.S. is really exciting to us.

And I'm showing no further questions at this time. I'd like to hand the call back over to Nick Seibert for closing remarks.

Thank you for joining us today, and we appreciate the interest in AMC Networks. Have a good day.