Amc Entertainment Holdings, Inc. Q3 FY2021 Earnings Call

Greetings. Welcome to the AMC Entertainment Third Quarter Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. And please note that this conference is being recorded. I will now turn the conference over to your host, John Merriwether, Vice President of Investor Relations. You may begin.

Thank you, Operator. Good afternoon, everyone. I'd like to welcome you to AMC's third quarter 2021 earnings webcast. With me this afternoon is Adam Aron, our CEO and Chairman, and Sean Goodman, our Chief Financial Officer. Before I turn the webcast over to Adam, let me remind everyone that some of the comments made by management today during this webcast may contain forward-looking statements that are based on management's current expectations. Numerous risks and uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. Many of these risks and uncertainties are discussed in our most recent public filings, including our most recently filed 10-Q. Several of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict. In light of the uncertainties inherent in any forward-looking statements, listeners are cautioned to not place undue reliance on those statements. The Company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events. On this webcast, we may reference measures such as adjusted EBITDA, free cash flow, operating cash burn, and constant currency, among others, which are non-GAAP financial measures. For a full reconciliation of our non-GAAP measures to GAAP results, please see our earnings release posted in the Investor Relations section of our website earlier today. After our prepared remarks, there will be a Q&A session. This afternoon's webcast is being recorded and a replay will be available in the Investor Relations section of our website at amctheatres.com later today. With that, I'll turn the call over to Adam.

Thank you, John. Good afternoon, everyone. And thank you for joining us today. A very special welcome to thousands of our individual shareholders who we expect will be joining us on this webcast as well. At the beginning of 2021, we shared with you our view that both the film exhibition industry and AMC would see sequential improvements in the industry-wide box office during the course of 2021. And indeed, we are seeing exactly that. The industry's box office has been meaningfully increasing each and every quarter thanks to improved vaccination levels and an increasingly appealing film slate. Add to that AMC's commitment to robust health and safety protocols through AMC's Safe and Clean initiative and our stepped-up marketing activity, and our numbers for attendance and admission ticket revenues at AMC also continue to rise. When we reported second quarter 2021 numbers, I said on that quarterly earnings call in August that 'AMC crusted.' I didn't say that because we were yet profitable or because we were out of the pandemic woods at that point, but rather because our results were so much better than market expectations and also because Q2 results were so much stronger than Q1 results. In that spirit, the just-announced Q3 results for AMC once again, are encouraging. Our numbers for attendance, revenues, adjusted EBITDA, and net loss continued to markedly improve and continue to be well ahead of consensus market expectations. Looking at our industry, the third quarter of 2021 posted the largest domestic industry box office of the year at nearly $1.4 billion, 66% higher than that of Q2 2021, and 486% higher than that of Q1 2021. And as for AMC more specifically, here are just a few snippets of the improving performance that we reported today. The global attendance count for AMC in Q3 2021 was 40 million people. We would not normally be smiling at an attendance level that was not even half of what it was two years ago. But again, this attendance count of 40 million in Q3 of this year is so very much larger than the 22 million guests we had with us in Q2 of this year or the 7 million guests we had in Q1 of this year. And for that matter, the 40 million guests in Q3 are so much higher than the 8 million guests we had in Q4 of 2020, the 6.5 million guests we had in Q3 of 2020, and the mere 100,000 guests we had in Q2 of 2020. 40 million AMC guests in Q3 2021 was up 81% from our Q2 2021 attendance and up 488% from our Q1 2021 attendance. And look at this positive trend another way. Q1 2021 attendance at AMC was only 9% of that from the comparable pre-pandemic first quarter of 2019. However, Q2 2021 AMC attendance was 23% of the comparable Q2 of 2019, and Q3 at AMC, just completed, was 46% of the comparable Q3 of 2019. Importantly, these positive trends continue as the fourth quarter of 2021 begins. Thanks to films like Venom, Bond, Halloween Kills, and Dune, which each performed well in the first four weeks of October respectively. Last week we announced that October 2021 was AMC's biggest month for attendance and admission revenues since February of 2020, and we can tell you now that our attendance in October 2021 was 72% of that of October 2019, and admissions revenue was even stronger, almost 90% of that of October 2019. The upward trend is clear and unmistakable. The story is similarly compelling for AMC's total consolidated revenues. $763 million in Q3 2021 was up 72% over Q2 2021's $445 million. It was up 414% from Q1 2021's $148 million. And if you want a year-over-year comparison, $763 million of consolidated revenues in Q3 of 2021 was up 539% over the $120 million of revenue AMC had in Q3 of 2020 a year ago. How about we look at adjusted EBITDA? We essentially broke even on the EBITDA line in Q3 2021, with an adjusted EBITDA loss for the combined three-month period of only $5 million. That number is much better than consensus market expectations. It is $145 million or 96% better than the Q2 2021 adjusted EBITDA loss. It's $329 million better or 98% better than the Q3 2020 adjusted EBITDA loss for the same quarter a year ago. But let's also look beyond the numbers. There were many bright spots for AMC during the third quarter of 2021 and the first five weeks of the current Q4. High notes that are of interest to consumers generally, and where our shareholders tell us make them proud to be the owners of AMC. Here are nine examples of a variety of positive developments going on inside AMC right now. 1. We upped our game on alternative content, showing concert movies and live sporting events, including UFC, WWE, heavyweight boxing championship fights, and professional football games on Sunday afternoons in Q3. 2. We introduced open caption showtimes each week in hundreds of our U.S. theaters, specifically for the benefit of the hearing impaired and for those where English is a second language. 3. Recognizing the success of our promoting artist-driven, curated movie releases through our Artisan Films effort that was launched in the summer of 2019, we just now launched AMC Thrills and Chills, our unique promotional spotlighting of horror movies that are showing at AMC. 4. We similarly launched $5 fan faves, allowing us to bring back popular movies that were released in prior years. 5. Having a charitable event around the 20th anniversary of 9/11 in September, AMC again screened the Paul Greengrass movie, United 93, and donated the ticket proceeds to the Flight 93 National Memorial. On Veteran's Day, Thursday of this week, we will show Clint Eastwood's film, American Sniper, and we'll donate our ticket proceeds to the Wounded Warriors Project. And we could never forget September 24, which is World Gorilla Day, where the ticket proceeds from Gorillas in the Mist showing in our theaters and the nine Planet of the Apes movies showing on AMC Theaters On Demand were donated to both the Diane Fossey Gorilla Fund and to the Wildlife Conservation Society. 6. We started accepting cryptocurrency for AMC gift cards and are coding right now to accept cryptocurrency for online payments on our website and mobile app. Bitcoin, Ethereum, Litecoin, Dogecoin, among other cryptocurrencies are all new works, and we are exploring now how we can take Shiba Inu as well. While we will accept cryptocurrency, we will not hold it on our balance sheet and therefore will not face increased balance sheet risks. 7. We introduced a new program called AMC Investor Connect, a communication and rewards program for our shareholders; already with more than 385,000 people enrolled in AMC Investor Connect since its inception in late June of 2021. Next, we opened The Grove and Americana Theaters in Los Angeles to great success. Under AMC's management and benefiting from the power of AMC's marketing programs, a few weeks ago, these two theaters had already climbed to become the 8th and 34th highest grossing movie theaters in the entire U.S. And we're not done. As we sit here today, we have signed three leases and five letters of intent on particularly appealing potentially successful movie theater pickups around the U.S. Seven of the eight are coming to us from Arclight Pacific Theaters, which has ceased operations as you know. Beyond these eight new theaters, we are continuing to review additional new theater opportunities that are coming our way. And finally, there are our seven new, in our opinions, simply stunning Nicole Kidman television commercials for AMC Theaters in the U.S., which have also been used for all our theaters across Europe, which aired in September of 2021 in Q3, and in which Nicole Kidman reminds us all how wonderful it is to see, in her words, dazzling images on a huge silver screen, and that at AMC Theaters, we make movies better. Our financial results have gotten stronger and stronger, and our company is doing good things, innovative things in area after area. One can see and one can feel that our industry and our company, AMC Entertainment, are on a path of recovery and improvement from this hard global pandemic that has occupied us all since early in 2020. Therefore, no surprise, our spirits are upbeat. However, even amidst such good news, we're not yet where we want to be and where we need to be. We wish to emphasize that no one should have any illusions. There are more challenges ahead of us still to be met. The virus continues to be with us, we need to sell more tickets in future quarters than we did in the most recent quarter, and adjusted EBITDA is still well below pre-pandemic levels. But it is also clear we are making progress, considerable progress. Sean, over to you.

Thank you, Adam, and thank you, everyone, for joining us this afternoon. For the first time since the fourth quarter of 2019, essentially all of our theaters around the world were open for the entire quarter. Much has been written about the impact of the COVID pandemic on the theatrical exhibition industry and AMC in particular. Recovery takes time. But with all of our theaters now open, and looking at how our financial results have progressed over the last nine months, and considering the strength of the upcoming film slate, it really feels like we are moving towards a more normal theatrical exhibition environment. The numbers clearly show our recovery trajectory. Adam has already highlighted some of this information. In Q3, we achieved 40 million global attendees, representing an 81% increase over Q2 and a nearly five-fold increase over Q1. Consolidated adjusted EBITDA of negative $5 million, very close to break-even, a $145 million improvement over Q2's EBITDA loss of $151 million, and a $289 million improvement of the Q1's EBITDA loss of $295 million. Finally, operating cash burn, representing operating cash flow before interest payments, pay back of deferred rent, and non-recurring rent prepayments, was approximately $10 million per month, which compares to approximately $42 million per month in Q2 and $107 million per month in Q1. We continue to expect sequential improvement as we go into the fourth quarter. Indeed, as Adam noted, the fourth quarter got off to a very strong start. October 2021 admissions revenue was almost 90% of October 2019 admission revenue levels. And just this past weekend, total AMC revenue exceeded the 2019 comparative period. While we have more room for improvement ahead, the comparisons of our performance now to that of two years ago pre-pandemic are much improved over where they were during the past five quarters. As you just heard, the 40 million guests that we welcomed at our theaters during the third quarter represented 46% of attendance in Q3 of 2019, but that was also 67% of attendance per showtime during Q3 of 2019. This difference between having 46% of Q3 2019 attendance versus having 67% of Q3 attendance per showtime illustrates our continued ability to flex capacity and therefore flex operating costs to efficiently meet the level of demand. This effective management of our cost structure is one of the key reasons we were able to achieve the strong results that we saw this quarter. Results that were considerably better than many expected from AMC. As we are still in a ramp-up phase, comparison of our results to quiet periods in 2020 and 2019 is often not particularly meaningful. However, there are some important performance indicators that are worth discussing. Our consolidated revenue per patron for Q3 was a very strong $19.08. This compares to $15.12 in Q3 of 2019, a 26% increase. In the domestic market, revenue per patron was $20.15, up $4.28 or 27% from Q3 of 2019. This was driven by a 39% increase in food and beverage spend per patron from $5.35 in 2019 up to $7.41 in 2021, coupled with a 16% increase in average ticket price from $9.45 in 2019 up to $10.98 in 2021, and a 64% increase in other revenue per patron from $1.70 in 2019, up to $1.76 in 2021. In our international markets, revenue per patron was $16.95, up $3.60 or 27% from the third quarter of 2019. This was driven by a 41% increase in food and beverage spend per patron from $3.59 in 2019 up to $5.07 in 2021, coupled with a 17% increase in average ticket price from $8.45 in 2019 up to $9.91 in 2021, and a 50% increase in other revenue per patron from $1.31 in 2019 up to $1.96 in 2021. Clearly, across all of our markets, we continue to see significant strength in average ticket prices, food and beverage spend, and other revenue per patron. The strength in average ticket price has been helped by pricing actions taken during the third quarter, along with a high utilization of our premium large format offerings, such as IMAX and Dolby Cinema. Our guests view going to the movies as a special occasion, and they increasingly choose to splurge on the best possible sight and sound experiences available through our premium offerings. Likewise, the increase in our food and beverage revenue per patron is a reflection of guests' enjoyment of the full theatrical experience at AMC. Moving over to the balance sheet, we ended the quarter with $1.825 billion of total liquidity. This is comprised of $1.613 billion of cash and cash equivalents and $212 million undrawn under our revolving credit facilities. Regarding capital allocation, we continue to pursue a balanced and disciplined approach to capital allocation. Our priorities remain: 1. Ensuring that we do have sufficient liquidity, 2. Strengthening our balance sheet by reducing our debt and associated interest costs, 3. Investing in our business to enhance the guest experience, and 4. Opportunistically pursuing value-enhancing initiatives, including those that lead to diversification of our business. With respect to strengthening our balance sheet, as discussed during our last webcast, we continue to choose to pay cash interest rather than payment in kind or paying interest, thus avoiding any increases in our debt position. During the third quarter, we exercised an option to repurchase $35 million of our highest cost debt that carried a 15% cash, 17% payment-in-kind coupon. While this may seem like a relatively small amount, it is yet another step that we are taking on the path to recovery and will result in a reduction in our annual interest cost by approximately $5 million. Similarly, during the quarter, we repaid approximately $45 million of deferred rent, taking our deferred rent balance down to $376 million. In total during Q2 and Q3 of 2021, we have reduced our deferred rent obligations by approximately $100 million. For now, we continue to focus a substantial majority of our capital expenditures on maintenance expense. CapEx for the third quarter was $17.5 million net of landlord contributions, and net CapEx for the whole of 2021 is now expected to be in the range of $80 to $100 million. As part of our ongoing efforts to optimize our theater portfolio, during the quarter, we opened seven new theaters and closed four. This brings the total number of locations closed in 2021 to 17 and the total number of new locations opened to 18 for a net addition of one location as we continue to effectively manage our portfolio by adding new high performing locations and eliminating lower performing ones. Looking towards the fourth quarter and 2022, as Adam noted, we have reason to be optimistic. Based on a Q4 domestic box office full cost of approximately $2 billion, we currently believe that our adjusted EBITDA and our operating cash burn is likely to turn positive in the fourth quarter. While we are pleased with our Q3 results and the momentum going into the fourth quarter, we do recognize that there is much work still to be done. We are very focused on the task at hand, and we are confident that we are well-positioned to capitalize on the improving and increasingly more attractive industry box office as we close our 2021 and head into 2022. And with that, I will pass the call back over to Adam.

Thank you, Sean. Before we open the floor to questions, I want to briefly discuss our strategy moving forward. It's clear that we are committed to revitalizing AMC to its pre-pandemic stature as the top movie theater company globally. Staying true to our roots, we aim to be as creative and innovative as possible during this process. However, it's important to look both back and forward; focusing solely on where we have been isn't enough. Some observers mistakenly only reference AMC's past performance, not considering that our enthusiastic new shareholders have provided us with significant liquidity—over $1.8 billion. We plan to manage this liquidity judiciously, first using it to navigate the aftermath of the pandemic. Nevertheless, these resources also allow us to contemplate transforming AMC into a broader business that does more than just screen movies. For instance, we announced last week our entry into the multi-billion-dollar popcorn industry in 2022. We boast two major advantages: first, our established brand, AMC Theaters Perfectly Popcorn, which has built credibility over our 101 years in business. On peak days, we sell around 50 tons of popcorn, and I believe nothing compares to real movie theater popcorn, especially ours. Second, we have strong, long-standing relationships with the largest mall operators. Thus, starting in 2022, we will open kiosks, counters, and stores in retail malls across the country. We're also collaborating with manufacturers to launch an AMC Theaters line of ready-to-eat and microwavable popcorn for grocery and convenience stores, ideally starting in 2022. Additionally, as we currently pop popcorn in nearly a thousand theaters across twelve countries, we'll introduce new to-go packaging for pick-up and take-out options and partner with existing delivery services for home delivery. Separately, AMC has been publicly discussing cryptocurrencies and NFTs lately. I can confirm that we have been exploring with partners how to accept cryptocurrency and consider launching our own. We are also in talks with several major Hollywood studios about joint ventures for commemorative NFTs tied to films at our theaters. This is the 21st century, and we see real potential for AMC in these areas. To clarify, these discussions are still in preliminary stages. The regulatory landscape is evolving, which may influence our decisions, and we cannot guarantee how or when we will proceed. However, the opportunities are exciting. Popcorn, cryptocurrency, and NFTs are just a few of the many ideas we're contemplating at AMC. We will share more when we have further updates. As you think about AMC's future, especially analysts who provide extensive analysis of various exhibitors, including us, keep in mind that we are taking a broad view of our future as well. Before we move on to questions, I’d like to add a personal note. I believe that CEOs should hold stock in their companies, and I value transparency. I want to reiterate what I shared during our last earnings call three months ago. One of my initial actions this summer as the new Chairman of the Board of AMC was to propose a new executive stock ownership policy for our board's consideration. This recommendation was approved at our most recent meeting, impacting 19 of our senior executives. Without delving into the specifics, this policy generally requires me, as CEO, to hold eight years of my salary in AMC stock, whether it's fully-owned or granted by the board. The objective is for the CEO to think and act like a shareholder, which I am. I want my interests aligned with yours. Additionally, I noted during the last call that the majority of my compensation isn’t cash but rather AMC stock, with 62.5% of my annual compensation being in stock. In almost six years of leading AMC, I haven't sold a single share, even when the stock value was rising this year. Despite that, I want to remind you that I will turn 67 this September, a time when prudent estate planning suggests diversifying my assets, especially with talks about potential capital gains tax increases. Therefore, although I wasn't required to disclose my plans, I chose to do so for transparency. I announced my expectation to sell some AMC shares before the year is out, following a 10b 5-1 plan, which transfers trading control to an independent bank, in this case, JPMorgan Chase. This plan includes several regulations, such as setting it up months in advance and spreading any sales over three months. You should anticipate some transactions on my behalf soon. I anticipate that critics may attempt to sow doubt around this, but here’s what they won’t highlight: even after this selling period, I will still hold over 2 million fully-owned or granted AMC shares. This level of ownership demonstrates my substantial personal investment in AMC's future and, by extension, in your investment as well. I strongly believe in AMC, and my interests align closely with those of our shareholder base regarding the value of our ongoing investments in AMC Entertainment. That sums up our thoughts following Q3. Sean, let's begin addressing the questions submitted by our shareholders. What’s the first question?

Thanks, Adam. So the first question is, will AMC consider various promotions associated with the new popcorn sales such as perhaps a golden ticket?

So I have to admit, it's no surprise that I'm following almost 2,500 of our shareholders on Twitter. I receive hundreds, sometimes thousands, of messages every day on my Twitter feed. I try to read as many of those as I can each day because I learn a lot from our shareholders' feedback and thoughts. This year, we've been overwhelmed by suggestions from our shareholder base. Since the popcorn announcement just last week, I've seen repeated suggestions to include discount certificates or occasional surprises, like a free ticket or even a free private theater rental, in the boxes of popcorn sold in supermarkets. I think it's a fantastic idea. If you watch television, you'll see other companies, like Domino's, running major promotions called Surprise Freebies, where they give away items with pizza orders, which isn't new. Cracker Jack has always included a surprise in every package, even though it's not the best one. We have a great chance to lower the perceived cost of buying AMC theater popcorn by including either a discount certificate for a future visit or a free movie ticket. Additionally, we have an enormous promotional opportunity to let people know they should see a movie, which can be for a specific film or include all movies at a nearby AMC Theater. I think it's a great idea, and I’ll write it down. We're going to do it.

Thanks, Adam. So the next question is, will you accept Shiba Inu?

So regarding Shiba Inu, we've received a significant amount of input from shareholders expressing that we should become more involved in cryptocurrency, identifying it as a real opportunity for AMC. Back in August or September, we announced with confidence our plan to accept Bitcoin for online payments by year-end, either through our website or mobile app. This announcement was well-received. Consequently, we expanded the types of currencies we accept to include Ethereum, Litecoin, and Bitcoin Cash. After receiving numerous inquiries about Dogecoin, I conducted a Twitter poll, which showed strong support for accepting it. We are currently working out the details on how to accept Dogecoin. Once we announced the plans for Dogecoin, we also revealed that customers would soon be able to purchase AMC gift cards using all the mentioned cryptocurrencies. We are on track to accept Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and others by the end of this year. We anticipate being able to accept Dogecoin in the first quarter of 2022 through our website and mobile app. Following those announcements, we began receiving comments about Shiba Inu. After another Twitter poll, which generated a lot of votes in favor, we are now exploring how to accept Shiba Inu as a payment option; it is next on our list for cryptocurrency acceptance. It's worth noting that we have found ways to avoid holding cryptocurrency on our balance sheet, which helps mitigate balance sheet risks associated with this potential acceptance. Additionally, as we learn more about cryptocurrency opportunities for AMC, we are considering whether we should simply accept existing cryptocurrencies or possibly create our own AMC cryptocurrency. If we choose to create one, that might be something we could hold on our balance sheet, as we would be interested in the value it could generate for our shareholders.

Thanks, Adam. And the next question is, what are the opportunities for AMC with respect to NFTs?

Our inbox is filled with ideas from our shareholders about NFTs. I remember reading a tweet or a direct message that suggested we should launch commemorative movie tickets as NFTs. I immediately thought it was a smart idea. As I kept reading, I realized I was not the only one receiving such messages about NFTs and commemorative tickets. This encouraged us to explore the idea further. We have begun serious discussions with multiple major Hollywood studios about launching NFTs alongside some of the significant movie titles showing in our theaters. There's nothing to report today, but stay tuned; this area is very intriguing to us.

Thanks, Adam. The next question is, will AMC offer a method by which people can buy retail AMC merchandise?

Well, you seem to be on the hit parade of suggestions from our shareholders. Over and over again, people are telling me that we ought to launch various lines of AMC merchandise. It's a whole variety of things that would carry the AMC logo, whether it's golf shirts or other apparel, or various movie-themed memorabilia. I think that it's a really compelling suggestion, and we are actively contemplating it moving forward.