Hello everybody. Full disclosure, this is, I think, one of the few sessions that'll be webcast today, so for Q & A later, just so everyone knows. Presenting now is AMC Networks. For those of you who don't know, it's a leading cable network and online streaming company. From the company, we're happy to have here Patrick O'Connell, Executive Vice President and Chief Financial Officer, and Nick Seibert, Corporate Development and Investor Relations. Thank you both for making the trip again. I think two or two years in a row, maybe three, I forget. With that, you know, why don't we just kind of get right into it? Of course, we're going to get into the 2024 guidance that you just provided. Before we do that, I would love to dig into just the business a little bit. Can we just talk about the assets that you own, how you generate revenue, and maybe the tailwinds and headwinds that are embedded in your business right now?
Yeah, sure. Great. It's great to be here. It's always fun to come to sunny Florida in February. So, listen, AMC Networks is, at its core, a content company. You know, that is the beating heart of the company. At the center sits our studio. Our studio produces, acquires, and our company curates, you know, world-class programming both here domestically and internationally. We have produced and curated some of the best TV content, the world has ever seen. This goes back decades. We have a legacy of doing this, stretching back to iconic shows like Mad Men, Better Call Saul, Breaking Bad, most more currently, The Walking Dead Universe, the Anne Rice Universe. So we've done this over a very long period of time. We continue to have enormous amounts of success.
In fact, in the current sort of year, AMC Networks accounts for five of the top 20 scripted cable TV shows, and we have three of the top six new scripted cable TV shows. So we have a long track record of producing just world-class content that resonates with audiences. Downstream of that studio, we have a variety of monetization engines, starting with our domestic linear business and streaming and an international business, which I'll get to in just a second. First, on the domestic streaming business, we've got five domestic channels. So this is AMC+, the mothership, IFC, SundanceTV, BBC America, and We TV. These are unique assets in that they have unique brands and they serve unique audiences.
And most importantly, on the domestic linear side of the business, it's important to understand that collectively, these five networks generate an audience share that is twice their affiliate fee share. So we deliver real value to our distributors and real value to viewers. Said differently, you know, our wholesale rate on the domestic linear channels is very, very low. This gives us a lot of both strategic and financial flexibility when it comes to playing in the new kind of streaming universe. And we'll talk about that later on here. Second part of the business on the domestic side is our streaming business. So we're similarly situated in that regard where we have very distinct brands that super serve unique audiences. So we have AMC +, which I'll talk to separately here in a minute.
We also have brands like Shudder, which serve horror content, Acorn, which serves sort of the Anglophile universe. ALLBLK has urban and Black content. HIDIVE is our anime streaming service. We've taken a unique approach to the streaming side of the business. We have not starved our linear channels to serve our streaming businesses. I'll talk about AMC+ in this regard 'cause it's important to understand. A streaming subscriber to AMC+ gets all of the unique and great content that exists on the linear network, plus they get some exclusive content around Shudder and IFC and Sundance. This puts us in a very good position vis-à-vis our distributors, because we haven't degraded the value of the content that's in the existing pay-TV ecosystem.
And it gives us, you know, a lot of flexibility to move content around between, you know, a-into other streaming platforms, whether they be Amazon Channels or Direct to Consumer or what have you. So we've taken a differentiated approach with respect to how we program AMC+. Likewise, on the targeted services, you know, and I'll use Acorn as an example here, you know, these target high-affinity audiences with robust but cost-effective programming, yields, low churn, and attractive economics. So Acorn as a service is a it's a it's a it's a great business. It's a profitable business. And so we look to invest additional capital, kind of prudently in that regard. But again, very different from streaming businesses you may have sort of seen or heard about elsewhere. Lastly, let me let me turn to our international segment.
We have a fantastic portfolio of channels situated across Europe and South America. We've got particular strength in Spain, Hungary, a couple other countries. These are incumbent channels with sort of strong, local programming as well as, you know, international programming that we bring to the fore. In many instances, we also have local sports programming. So, for the domestic audience, you can think of these as sort of like kind of legacy, channels that cut across general entertainment, sort of cooking, sports, etc. I will also call out you asked about sort of the trends in the business here.
I think just to take a step back for a second, you know, what we're seeing and I'll talk kind of domestically here at the outset is that we're in the beginning of, I'll call it, the great rebundling, which I think really sets up well for AMC. It sets up well because we overdeliver audience vis-à-vis our current affiliate share. And so that's allowed us, you know, to continue to produce and generate meaningful, you know, kind of audience share and profitability on the linear business. And it's gonna translate as the streaming business, we think, rebundles. The Disney Charter deal is something of a template for the streaming model going forward. I think both companies were forward-leaning in terms of constructing that deal.
Effectively, what has been put forth in that paradigm is ad-supported linear networks are being added to the pay-TV ecosystem, which we think, again, sets up well for AMC. And what is happening is the relative value between what a consumer can have on just the pay-TV side is increasing as the cable bill that you pay not just includes a suite of linear cable networks, but it's now gonna include, if you're a Charter customer, it's gonna include Disney + ad-supported. Over time, I think it'll include most other ad-supported streaming networks. So that's adding value into the pay-TV ecosystem. That is juxtaposed against a consumer going out and creating a self sort of selected bundle of streaming products, which is becoming much more expensive.
On average, streaming prices have increased probably across the board roughly 25% over the last 12-18 months. The amount of programming spend that is going into the streaming products has been commensurately reduced as companies are driving towards, making sure those businesses are profitable. So little so from a customer perspective, the relative value between a pay-TV, you know, package and a self-pay you know, created bundle of streaming services is now beginning to shift. It's gonna take some time for that to fully play out over the course of, you know, 18-24 months of affiliate cycle renewals. But we think the tide is turning.
And in the interim, what we're doing at AMC is ensuring that we're de-risking our financial profile in light of the fact that the business model was shifting in this way, notwithstanding the fact that we think we're net winners in this regard. We think it's also prudent to, you know, to generate significant free cash flow. So from 2022 to 2023, we doubled free cash flow. We told the market we'd grow free cash flow into 2024. We're gonna do that and more.
We beat guidance for our free cash flow in 2023. And we've given guidance over the next two years for 2024 and 2025 that will generate $500 million of cumulative free cash flow roughly equally split between 2024 and 2025. There's no hard and fast rule there, but that's gonna be roughly split. So we're excited about the future. We've got a fantastic slate of content kind of rolling out in 2024. We're sort of excited to see how the universe unfolds here.
Well, that just took care of all my Q & A, so that's a wrap. Well, anyway, so at least for the very near- term, linear is in a decline. Streaming is growing. Net revenues are declining, at least for the near- term, again. And what does your margin profile look like in that kind of scenario?
Yep. So in 2023, we actually increased margins, for the first time since 2017. So margins in 2023 were 25%. We feel confident in our ability to maintain healthy margins into next year. We're forecasting margins in the 23%-24% range. You know, margins, I think, are a function of ultimately the value that you're adding as a as a business, right? And so because we are adding value into the existing pay-TV bundle, we're gonna add value from a distribution standpoint and from a customer standpoint into the emerging streaming bundles. We feel good about maintaining healthy margins in this business going forward.
We obviously have lots of levers to pull in terms of modulating, you know, non-programming spend, and, you know, if, if need be, you know, kind of programming over time. But currently, we're kind of fully investing in amazing slate of content. We're investing at the same rate we did pre-pandemic. There's always levers to pull, if the situation requires. But we feel good about maintaining a very healthy margin profile into the near future.
So, given that this is probably 95% credit folks here and maybe at the conference and in this room for sure, I wanted to talk about maybe some of the underlying assets and asset values. If you can share some of those, it might be tough to get that out of you. But, your studio asset, it's probably very underappreciated in the marketplace. So let's talk about that. And I think ultimately, what I wanna try and get at is what content do you actually own? Bec ause you clearly lease a lot of content. But what do you actually own?
Yep. So AMC owns The Walking Dead. We own the Anne Rice universe. But that's not the only thing we own. We own over 7,500 TV episodes domestically. We own over 1,500 movies domestically. We own internationally, you know, tens of thousands of episodes of television. So, I'm not sure the asset is sort of wholly kind of wholly underappreciated. You know, the studio gives us a, you know, a remarkable platform with which to not just program our own networks but have optionality around driving programming elsewhere. You know, we had incubated a project internally a few years ago, that ultimately didn't wind up being a great fit for our networks. We wound up selling it to Apple, and made a nice margin on that project. So the studio gives us not just a fantastic sort of flow, you know, stream of licensing revenue, but allows us to sort of, you know, in opportunistic ways, you know, produce for others if it makes economic sense.
If we were to look at your financial filings, 10-Ks, 10-Qs, are we able to find what you the book value of the studio is anywhere?
Not specifically, but I would point people towards, you know, the gross asset value of the programming that's on our books, which is, y ou know, billions of dollars.
Yep. Oh, you hit, I guess, the Apple deal with Silo. Good show, by the way. I did watch it. Studio here. Okay. Let's actually get into some of your financial guidance that you just gave. And I don't know if I wanna just take it over or I can ask each one .
You can step through it, yeah.
You know, what was your revenue guidance? There's some noise with year-over-year. If you can explain that.
Sure. So revenue in 2023 was $2.7 billion. Guidance for 2024 is $2.4 billion. So it's a $300 million delta there. Half of that $300 million is inorganic. So, we announced that we sold 25/7 Media at the end of this past year. There was about $90 million in revenue associated with that that's going away. We also had about $56 million of revenue from the Silo project you mentioned, the show for Apple, that was in 2023 that was, like I said, a one-off. So think of $150 million of that $300 million delta, you know, being inorganic. So $150 million is a result of declining affiliate and advertising, and to a lesser extent, content licensing, revenue being offset by streaming growth. So that's the top-line revenue guide composition.
Why do you say Silo is a one-off? Why don't you do more of that going forward? I know you haven't done it historically, and that's why it's a one-off, but.
We always have the option to do that. It's not necessarily baked into our guidance, but to the extent that we've got projects internally that maybe not make sense for us or if something else comes to the fore, we could obviously lean further into that business. There was a time where third-party production was kind of really attractive when there was more of a feeding frenzy for content in Hollywood as people were, you know, kind of chasing projects in service of streaming growth. That's less the case right now. And so the margins on that business and the risk profile in that business can vary based on the deal structure at hand. And so, we're not gonna underwrite us doing anything over the next 12 months. But if something comes up, we would obviously, for the right sort of economic and risk profile, you know, welcome it.
How do you balance because I'm interested, again, in thinking about your studio and your licensing dollars? How do you balance licensing that content of yours versus keeping it all to yourselves to really grow your streaming businesses?
Yep. So, you know, the sine qua non of any programming network is exclusive content, obviously. And so having the studio allows us to, you know, produce for ourselves, potentially produce for other people, as we've discussed. We're always gonna have, you know, exclusive content on AMC+. We're always gonna have that, you know, also live, on the AMC network, and frankly across all of our channels. I would say we are executing a classical media playbook here, you know, where we, we essentially take the first window domestic kind of rights. We, we sort of eat our own cooking in that regard. We program for our own networks. Then we look to potentially, you know, have that content live elsewhere.
And we think that's the lesson that a lot of media companies have learned over the last kind of year or two here is that, you know, having a walled garden where you keep everything exclusive on your own platform, you know, isn't, doesn't optimize the economics necessarily. And so, you know, we had done, I think, a lot less of that than others, over the last few years. And so we had the benefit of, you know, kind of releasing some of that content into the wild onto other platforms, in the last 12-18 months. And that's the play that will continue to run.
I'm intrigued a little with your streaming revenue guidance that you gave, right? That's a growing business. So can you talk about that? And obviously, there's volume and rates built into that. So can you discuss how you think about each of those and how they play out?
Sure. So it's a combination of both is the answer. We're gonna take, you know, pricing on a couple of the products. That pricing will be modest. But what we're really looking to do on the streaming side is grow via volume more than anything else. And here, I think it's important, you know, for people to understand that, you know, going back to that whole low wholesale rate, you know, that our partners, Comcast, Charter, and Cox, and that customers enjoy on the linear side gives us a lot of flexibility to take that streaming product and market it across, you know, other platforms. And so we think there's a lot of value there. We think over time, we think the value's gonna come more in us driving volume than rate, even though we'll take rate, you know, on occasion, you know, on a case-by-case basis.
All right. So we did a good job with, kind of building up the top line there. Now, what about your adjusted operating income line? Your guidance there, I think, is $550-$575. Can you talk about and I guess I didn't write down the margin, but maybe probably similar, right? Similar margins to last year.
A little bit lower than last year, yeah.
A little bit more than last year. Can you talk about how that—I mean, you're giving us guidance for year one, but how does that play out even longer term? And are you able to take additional costs out of the system if the top line continues to, you know, stay the same or go down a little bit?
Yep. So the AOI guidance of $550-$575 implies margins in the, you know, 22%-23% range. So we think we can maintain healthy margins. As you mentioned, we've got a lot of cost levers that we can play with. We look to protect programming at all costs, yeah obviously, to continue to invest in the business and generate the, you know, kind of the program that we've had in the past. If you think about the AOI for 2024, the $150 million in revenue, you know, the organic revenue or inorganic revenue slide from 2023 to 2024, about $100 million of that is flowing, you know, down to the bottom line. So we've offset, you know, 30%-40% of the revenue declines with additional cost savings, etc.
The other nuance I'd point out is notwithstanding the fact that cash programming expenses are declining year over year from 2023 to 2024, the amortization's gonna be somewhat flat. So there's a larger impact on the AOI than there is on the free cash flow. So while free cash is actually growing, ultimately, AOI took a little bit of a hit because of that dynamic. And it has to do with the accounting decay curve. So I won't get into the details there, but it's worth noting. So we believe we can maintain, you know, healthy margins, you know, going forward. And so we've got levers to pull, like I said, both on non-programming and programming costs going forward.
Okay. And I know you mentioned this earlier, but I just want, you know, to be able to reiterate it for the audience, your free cash flow guidance this year and your two-year cumulative.
Yeah. So our run-rate free cash flow at the end of 2023 was about $230 million. That was, you know, in excess of the guide of $185 million- $205 million. So we feel really good about kind of where the business is running in that regard. We have line of sight to grow that $231 million into 2024. And we feel very good about generating $500 million of free cash flow over the next two years. That's 2024 and 2025, $500 million. You know, whether it's 50/50 or 60/40, kind of T-B-D, but, you know, we do have line of sight into that. So we feel good about that guidance.
My next question was, what are you gonna do with that free cash flow? I think this is all gonna tie into the balance sheet, so why don't we just go right there. Your leverage is less than 3x. You dealt with your 2024 maturities, y ou still have 2025. So how do we think about you dealing with those and even the timing of dealing with those? What do you say there?
Yeah. So we think we're set up really well, right? We've got about $575 million of cash on the balance sheet as of the end of the year. Free Cash Flow already this year is looking, looking healthy. You know, we've got ample liquidity in the $400 million revolver that's currently undrawn. And we're gonna produce $500 million of Free Cash Flow over the next two years. So we think we're in a good position. I think we've been clear with the market that, you know, our intent is to address the near-term maturities. So we defeat the 2024s at the end of last year. That was kind of well-telegraphed to the market. I think we've been equally clear that we're gonna focus on the short end of the curve there too. So, the 2025s are clearly in sight.
I'll say that we'll be, kind of opportunistic and aggressive in addressing them. I would also, you know, kind of telegraph to the market that, you know, it's highly likely that we'd continue to de-risk the business financially, so reduce gross debt over time as the business model evolves here. So of that $575 million of cash on the balance sheet, there's couple hundred million dollars we need, you know, just kind of for ordinary course. So we've got a lot of excess cash, that we would likely look to, to use in service of reducing gross debt.
It actually just dawned on me, your international business. Is there money that's kind of trapped overseas that you can or cannot bring over, or it's small rounding?
We've repatriated a lot of cash over the last 18 months. So that minimum cash balance of $200 million-$300 million that I mentioned accounts for JVs and international cash and everything else. So it's anything above, you know, $250 million. I'm using my numbers here. You know, it's sort of excess cash in our minds and can be used in service of de-levering the balance sheet.
And I also don't have this in my notes, and I apologize if I get this one wrong. I might be getting confused with another media company. But why did you just buy back some of your 2025s?
At the end of Q4, we nibbled. So we bought back $25 million of notional at a slight discount to market. You know, the intent there was, you know, obviously, to sort of signal our intent to address the 2025s, also capture some discount that existed, and, you know, earn a little bit of a, you know, return on along the way.
Should we expect you to continue to nibble here and there?
You should expect us to be very opportunistic in addressing the 2025 maturities. And, you know, we've got our credit facility comes due in Q1 of 2026 as well. So we're focused on both.
Got it. So you do have a lot of cash. You have a revolver. But what else? What other debt capacity do you have? And of course, I wanna focus on your secured debt capacity. So, what can you do today? And I suspect that if you do that at some point, then there would likely be some new restrictive covenants involved, maybe. Again, I'm not trying to foreshadow anything there.
So about a year ago this time, we undertook an amendment to our existing credit facility that locked in $1.2 billion of secured debt capacity. So if we were to go to market, on a secured basis, you know, we've got that $1.2 billion. It's not ratio capacity. It's literally fixed dollar capacity. So we've got that $1.2 billion against, obviously, the $100 million or $775 million of existing 2025 maturities. So, you know, obviously, it'll be up to us to negotiate with the market in terms of kind of what remains after any financing. But we feel kind of well-placed to have those conversations at this point, plenty of capacity.
The 2025s are the only bonds that you have bought back in the open market, correct?
Correct.
Okay.
Right. We haven't touched the 2029s, and not to say that we never would, but we're very much focused on the front end, less so the back end.
Okay. If there's any questions in the audience, if we can get a microphone around, and hopefully, there's a few out here to keep us going another couple of minutes. So please don't be shy. Just give it one second, please.
Could you just talk? We're spending a lot of time talking about near- term. Could you just where do you see the universe in five years? Because obviously, as I'm sure you're well aware, the street is obviously incredibly skeptical of a lot of this. Just spend a minute talking about how you see things evolving.
Yeah, really. So at a high so the question is, where do I see the universe evolving? And sort of, like, where does growth come from ultimately, I think, is kind of the subtext there. So yeah the industry is in an acute state of transition, obviously, right? And so we're transitioning from a traditional linear model to a streaming model. It feels like those two models are converging, you know, in the context of that Disney/Charter deal that I discussed earlier. If you think about it from AMC's perspective, you know, the advantage we have is our low wholesale rate. I've sort of, like, kind of pounded on that already today.
But what we see the opportunity is longer term, over the course of, call it, an affiliate renewal cycle of kind of two or three years, is the opportunity to drive a lot of volume, right? So think at a high level, the number of households that have left the traditional pay-TV ecosystem. It's tens of millions, 40 million, whatever the number is. We've recaptured a small portion of those, you know, via the VR existing streaming offerings, but only a small fraction. So that is white space over time for AMC as the industry rebundles. And we think that sets up well, given the fact that we add such tremendous value to the existing linear bundle.
And likewise, that's gonna translate the same way on the streaming bundles. We don't have, you know, dozens and dozens of channels that are, you know, have sub-brands and that, you know, we have channels that are sort of have real brands, real audiences, defined content. And so those will continue to live, you know, for a long time in the existing linear ecosystem and eventually, in the streaming ecosystem as well.
If I could just follow up one more point. You talked a lot about recovering the subs. How do you feel about the economics five years from now?
Well, I think that because we have the, the low wholesale rate, it gives us a lot of flexibility, right? You know, we're happy to have kind of retail customers pay us $8.99, if they so choose. But we stand in good stead with our existing distributors because of that low wholesale rate. So we're not constrained to, you know, cut deals at, you know, or rates that are in and around that same level. So we think that it's an advantage we have vis-à-vis a lot of other, incumbent media companies which have, kind of over-earned in the bundle, so to speak, and are gonna be, potentially in a position of having to give up a lot of rate in order to get that volume back.
And while the microphone maybe moves around, I'll maybe add to this line of topic of looking a little bit longer- term. And I think your controlling shareholder has hinted at this on some conference calls. But, you know, you compete against just massive companies, large media companies, technology companies. You know, do these assets need to be part of a larger company as well, in order to compete much longer- term?
Yep. Listen, we compete today. I think we compete well. I think we win in many regards, you know, kind of given how well our content, you know, kind of resonates culturally, the economic returns we're still able to get on it, and the pathway forward we have in order to ensure its continued kind of cultural and, frankly, economic relevance. You know, as to the controlling family, I think they've been sort of fairly clear that they take their fiduciary duties, you know, seriously and are very much focused on shareholder value. You know, it's very easy to paint scenarios where there's strong industrial logic to further consolidation in media that's not lost on anyone. And I think they'll take, you know, kind of prudent decisions in that regard as opportunities arise.
Questions from the audience? Any more down here?
Thanks. Just sort of on the same theme of looking longer. The 2029s are 66 bid. They had been up in the mid-70s. Obviously, maybe the, you know, the kind of hinting that there might be a secure deal knocked them back down again. What about looking at those in terms of, you know, wouldn't you get a lot of value to start buying some of those back as well? And, and is that something you'd consider?
I think there would potentially be value in doing so, yes. But I think in the larger context, we are dealing with an operating environment that's under a substantial amount of flux, you know, as the business model shifts from kind of linear to streaming and rebundling and everything else. So in our minds, you know, de-risking, de-levering, focused on the short end, the shorter duration bonds, you know, kind of is the prudent path there. But I never say never, you know, depending on where the 2029s trade, obviously. There could be compelling economics. But at this point, I think the preponderance of our focus is on the near-term maturities.
I think we may wrap it up, but I do have one final question just dawned on me, and you may not be able to help.
Yeah, I'll give it a hope.
Oh, just start with that. Yeah, just quickly on the equity raises, any incremental plans there and opportunities in the marketplace for you to raise capital preferred-wise or equity-wise?
We'll look at sort of any and all opportunities. At this point, I have nothing more to add on that.
Have you released viewership from the new Walking Dead this past weekend?
I don't think that's yet public. I've seen numbers. We're very happy with its performance and look forward to those numbers, kind of getting out there. But the engagement has been extraordinarily high. The response has been amazing. For those of you that don't know, you know, we have sort of kind of brought back two beloved characters and have a new sort of and fascinating storyline for old and new fans alike. So we're looking forward to, you know, the continuation of that franchise.
Well, I used to watch it. I stopped watching it. Got a little zombied out for a while, but I'm gonna come back to this one. So anyway, t hank you very much.
You're in good company.