Amc Entertainment Holdings, Inc. Q4 FY2022 Earnings Call

Greetings, and welcome to the AMC Entertainment Fourth Quarter and Year End 2022 Earnings Webcast. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Merriwether, Vice President, Capital Markets and Investor Relations. Thank you, John. You may begin.

Thank you, Vikram. Good afternoon. I'd like to welcome everyone to AMC's fourth quarter and year-end 2022 earnings webcast. With me this afternoon is Adam Aron, our Chairman and CEO; 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 during this webcast may contain forward-looking statements that are based on management's current expectations. Numerous risks, 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-K and 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 against relying on these 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 the webcast, we may reference non-GAAP financial measures such as adjusted EBITDA, constant currency, free cash flow, operating cash burn and operating cash generated among others. 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 question-and-answer 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. Let me add a very special welcome to the thousands of our individual shareholders who have been making it a habit to tune into these quarterly earnings webcasts for AMC Entertainment. 2022 marked another year of significant strategic, operational and financial gains for AMC Entertainment. With our two announcements today on Q4 2022 earnings and the launch of AMC Perfectly Popcorn at more than 2,600 U.S. Walmart stores, once again, AMC is demonstrating unmistakable progress along our multiyear pandemic recovery glide path. In my opinion, there are five reasons why AMC shareholders should be especially excited and smiling today: first, the increasing size of our industry as it recovers; second, AMC's performance in Q4; third, the fact that we are outperforming our competitors; fourth, our agility in raising cash and reducing debt; and fifth, this morning's Walmart-AMC Perfectly Popcorn announcement. First and foremost is the size of our industry itself, which is increasing. For five consecutive years prior to the pandemic from 2015 to 2019, the domestic box office, which includes all theaters and all brands across the United States and Canada, exceeded $11 billion. It was $11.4 billion in 2019. But then COVID came and brought our industry to its knees, resulting in a 2020 domestic box office of only $2.2 billion. Down, as we all know, a breathtaking 82% year-over-year from the pre-pandemic level in 2019. Since then, our industry has seen a steady growth trajectory. The 2021 domestic box office was $4.5 billion, which was more than double that of 2020, and 2022's full year domestic box office of $7.4 billion was about 65% higher than 2021. The numbers again: $11.4 billion in 2019, falling to $2.2 billion, then rising to $4.5 billion, and finally rising to $7.4 billion. Based on the box office results so far in the first quarter of 2023, which is already up 44% year-over-year, combined with a much larger number of broader and deeper movie titles to be released in the coming quarters, the 2023 domestic box office will almost certainly be significantly higher than that of 2022. We started 2023 on a very strong note with what is already the third highest-grossing film of all time, James Cameron's epic sequel, "Avatar: The Way of Water." It truly is a testament to the genius of James Cameron, who is responsible for three of the four highest-grossing movies in the history of cinema. I digress for a moment to say thank you, Jim Cameron, and thank you to your producing partner, Jon Landau. Your contributions are greatly appreciated by AMC and our millions of moviegoers. Please keep making more movies. Speaking of more movies, that's one of the key stories for the upcoming year 2023. Films like the incredible Tom Cruise's "Top Gun: Maverick," which grossed more than $1.5 billion at the box office in 2022, and "Avatar: The Way of Water," which has already grossed almost $2.3 billion in only 11 weeks, prove that moviegoers are no longer afraid to visit cinemas as they were in the darkest days of 2020. Our challenge now is generating attendance in theaters; it's largely due to Hollywood releasing fewer movies recently. Depending on the metrics used, the number of major movies released in 2022 was somewhere between a third and a half fewer than those in 2019 before the pandemic. Fortunately, that is changing. We currently estimate that about 30 or more movies will gross more than $100 million domestically in 2023, compared to only 18 doing so in the completed year of 2022. That represents an increase of about 75% in the number of major movie titles grossing $100 million or more. Let me repeat that: we expect a 75% increase in 2023 for such films compared to last year. The second reason for our enthusiasm is that AMC posted improved results for the fourth quarter of 2022. Naturally, we're pleased that AMC Entertainment easily surpassed consensus estimates for Q4 2022 revenue and adjusted EBITDA while also posting a beat on adjusted net income and EPS for 2022 in Q4 after excluding for noncash impairment write-offs. We're also encouraged that Q4 2022 revenue per patron reached $19.98, well above pre-pandemic levels, thanks to rising ticket prices and consumers' continued propensity to indulge in our high-margin food and beverage offerings. AMC's full year 2022 results represented our strongest year since pre-pandemic 2019, with results improving over 2021, which in turn were better than those of 2020. In full year 2022, AMC saw our annual revenue increase by over 54% year-over-year, and our adjusted EBITDA improved by over $338 million compared to 2021. That's a substantial increase. The third reason we are smiling today is that, as the world's largest theater chain, we are outpacing our competitors. Competitor Regal Cineworld, is in bankruptcy court because they ran out of cash in September. In contrast, AMC has been masterful in raising equity as needed, and we ended 2022 with over $840 million in cash or undrawn credit lines. As for competitor Cinemark, our Q4 metrics in the United States speak volumes. Average ticket price for AMC was $12.22; for Cinemark, it was only $10. Food and beverage per patron: AMC at $7.76; Cinemark at $7.43. Total revenues per patron were AMC at $21.85, while Cinemark only earned $19.35. Film exhibition costs—where you aim to keep the number low—showed AMC at 51% of our admissions revenues compared to Cinemark at 58%. My fourth marker of progress at AMC has been our ability to strengthen our liquidity profile and balance sheet. Over the past 12 months, AMC raised around $314 million in gross cash proceeds and reduced our debt principal balance by approximately $390 million since the beginning of 2022. The fifth reason for our enthusiasm today is the thrilling popcorn announcement this morning as we launch with Walmart. What an enormous vote of confidence it shows from the largest retailer in the United States regarding the quality and consumer appeal of our new microwave and ready-to-eat popcorn. I'll come back to that and other essential topics after I return. But right now, let's pass the call over to Sean Goodman, our CFO, to review our financial and operating results in more detail. Sean?

Thanks, Adam, and thanks to everyone for joining us this afternoon. 2022 was a year of growth and recovery for AMC. During the year, we welcomed 201 million guests to our theaters around the world. That's a 56% increase compared to 2021 and 72 million more guests than in 2021. This attendance improvement, coupled with strong admissions and food and beverage revenue per guest, translated into a $1.384 billion increase in consolidated revenue—a 54.7% increase compared to 2021. Likewise, our adjusted EBITDA for 2022 improved by more than $338 million to a positive $46.6 million, compared to a loss of $291.7 million in 2021. Clearly, our recovery is continuing in earnest. Now looking specifically at the fourth quarter of 2022 compared to the same period last year. The North American box office declined by 14.5% to $1.8 billion due to the strong performance of "Spider-Man: No Way Home" in 2021 and the limited number of new titles available for release in October and November of 2022. Our fourth quarter consolidated revenue declined by $181 million, or 15.4%, to $991 million. However, on a constant currency basis, consolidated revenue declined by 12.4% as we outperformed the overall industry thanks to our strong operating performance metrics. For the fourth quarter, on a constant currency basis, total consolidated revenue per patron was $20.69, approximately 5.4% higher than in Q4 2021. This was driven by admissions revenue per patron growth of 5.1% and food and beverage revenue per patron growth of 7.8%. Consolidated revenue per patron in Q4 2022 was 30.8% higher than pre-pandemic in 2019, indicative of tremendous revenue growth per patron during our recovery period. Domestic revenue in Q4 declined by 10.7%, with admissions revenue per patron increasing by 6.2% to $12.22, and food and beverage revenue per patron increasing by 7.7% to $7.76. Additionally, other revenue per patron increased by 6.3%. In our international business, on a constant currency basis, revenue in Q4 declined by 16.6%, with admissions revenue per patron increasing by 2.2% to $10.70 and food and beverage revenue per patron increasing by 7.4% to $4.98. Other revenue per patron decreased by 8.8% as theater rental revenue generated during 2021 was replaced by regular admissions and food and beverage revenue. We continue to generate strong growth in revenue per patron as our guests enjoy our innovative food and beverage offerings, including movie theater-themed cocktails and collectible items. Our initiatives to optimize admissions revenue, including blockbuster pricing, have yielded positive results, and the increased adoption of our industry-leading AMC app alongside our marketing initiatives are helping to drive overall revenue per patron growth. This growth is further supported by increased premium format or PLF attendance, representing 25.5% of domestic attendance in Q4 2022 compared to 19.8% in Q4 2021. In our international markets, premium format attendance represented 18% of attendance compared to 10.7% in the fourth quarter of 2021. Clearly, guests are increasingly appreciating the premium experiences offered by our IMAX, Dolby, and AMC Prime offerings. Looking forward, we will maintain our focus on enhancing the guest experience that supports the strength of our key performance metrics, including: one, ongoing enhancement of our loyalty programs and functionality of the AMC app; two, innovative food and beverage offerings; three, investing in providing the best possible sight and sound experiences through advanced laser projection technology and premium offerings such as IMAX, Dolby, and AMC Prime; and four, growing revenue through diversification initiatives, such as retail popcorn, the AMC credit card, renting out theaters during off-peak times, marketing, and promotional initiatives—all while being attentive to our overall operating efficiency. Let's talk about the balance sheet now. We ended the quarter with liquidity of $843 million, which comprised $632 million of cash and cash equivalents and $211 million of undrawn credit facilities. During the fourth quarter, net cash used in operating activities was $33.3 million, and we achieved positive non-GAAP operating cash generated of $57.5 million. During 2022, we actively engaged in capital markets to strengthen our balance sheet. In total for 2022, we raised $229 million of gross equity capital, refinanced $1.4 billion of debt, extended certain debt maturities through to 2026 and beyond, and repurchased $123.5 million of debt at an average discount of 43.7%. The net result was a $220 million reduction in the principal amount of interest-bearing debt outstanding during 2022. Additionally, we also strengthened our balance sheet by repaying approximately $158 million of deferred rent, reducing our deferred rent balance to $157.2 million at December 31, 2022. You may recall that back in March of 2021, this deferred rent balance exceeded $470 million. Over the last 21 months, we have lowered our deferred rent liability by approximately $313 million. If we include the decrease in deferred rent, we reduced our liabilities by a total of $378 million in 2022. Furthermore, in the first quarter of 2023, we raised another $84.7 million of gross equity proceeds and reduced the principal balance of our debt outstanding by an additional $170.2 million through debt-to-equity exchanges and taking advantage of opportunities to repurchase debt at a discount. These actions in Q1 2023 bring our total debt reduction to $548 million, including deferred rent liabilities, while our total equity capital raised now stands at $314 million. Note that during 2023 we plan to further reduce the rent balance by $75 million to $100 million, which will decrease the liability to approximately $60 million to $80 million by the end of 2023. Regarding capital allocation, our priorities remain unchanged: one, maintaining sufficient liquidity to navigate through the recovery phase; two, strengthening our balance sheet by extending debt maturities, reducing debt, and minimizing associated interest costs; three, investing in our business to enhance the guest experience; and four, opportunistically pursuing value-enhancing initiatives, including those that lead to diversifying our business and revenue streams. Having the flexibility to raise equity capital allows us to take critical actions to strengthen our balance sheet while successfully navigating our industry's ongoing recovery. For these reasons, I urge shareholders to vote in favor of the proposals at the upcoming shareholder meeting on March 14. These proposals are designed to protect the long-term value of AMC equity while providing the flexibility necessary for a successful recovery from the ongoing impact of the COVID pandemic. Our capital expenditure, net of landlord contributions, was $69 million in Q4 2022, and we finished the year with a total net CapEx spend of $182.1 million. Similar to 2022, we expect our capital expenditure in 2023 to be in the range of $150 million to $200 million. We continue to actively manage our theater portfolio, adding new high-performing locations while closing low-performance ones, with the aim of improving guest satisfaction and enhancing profitability. In Q4, we added five new theaters while closing nine, bringing the total number of locations closed since the pandemic began to 115 and new locations opened to 54 for a net reduction of 61 theaters. The combined 54 new locations continue to outperform the closed ones prior to their closures and exceed expectations. Looking forward, we are optimistic about future opportunities to strengthen and diversify our business, all while improving our financial position. With that, I'll hand the call back over to Adam to discuss exciting recent announcements and provide an update on strategic initiatives, including the upcoming stockholder meeting.

Thank you, Sean. As I said at the top of the call, at AMC, we're all smiles today, but by no means are we out of the woods yet. We need to remain smart and action-oriented to successfully navigate through still COVID-impacted waters. But clearly, we have been and are now making great progress. While there's much more work ahead, my ongoing conversations with our studio partners—including some as recently as this weekend—bolster my optimism that more movies are indeed coming to theaters, and that the value of theatrical exhibition is being recognized by the heads of all major studios. As the leader of AMC, I am proud that we have resiliently weathered many storms over the past 36 months, from the virus itself to the threats against exclusive theatrical windows. More recently, there was the conviction held by some that streaming services would win out over theaters, along with concerns that there wouldn't be enough cash in our coffers to outlast everything we faced. Fortunately, those who predicted our failure were mistaken. And even better for us, our new retail investors turned out to be the saviors. Their passion for AMC provided the necessary cash resources for us to survive. They also flooded us with great ideas, including one of my personal favorites—to sell popcorn into the home market, a huge opportunity for us. Today, I'm excited to announce that AMC's microwave and ready-to-eat Perfectly Popcorn is launching on March 11—just ahead of the Oscars telecast on March 12—exclusively at Walmart. You can find our popcorn at hundreds of Walmart locations on sought-after end cap displays. In the following weeks, Perfectly Popcorn will reach the shelves of over 2,600 Walmart stores across the United States in three varieties: classic butter, extra butter, and lightly salted. These microwave varieties will retail at $4.98 plus tax for a six-count box. As an extra unique bonus, the extra butter microwave boxes will have six packets of buttery topping, allowing moviegoers to replicate the authentic AMC theater popcorn experience at home. This first-of-its-kind initiative by a theatrical exhibitor to distribute ready-to-eat and microwave popcorn at retail outlets significantly differentiates AMC as the industry's leader and extends the visibility of our brand. Additionally, we are excited to sell AMC and movie-themed merchandise, which has been quite popular, generating nearly $2 million in sales over just two weeks. Thanks to our retail shareholders for these ideas. Next on the agenda is the launch of our co-branded AMC Entertainment Visa Card, designed to enhance brand loyalty and increase attendance at AMC theaters while generating attractive financial returns with minimal risk. Finally, we've also begun testing Sightline seating at AMC in select theaters in New York, Chicago, and Kansas City. We are charging a slight premium for the most popular seats while discounting the less desired seats closer to the screen. This change aligns with how live theaters, concerts, and sporting events sell their tickets and has been in practice in Europe for years. We understand this change may be substantial for U.S. moviegoers, so we will closely monitor reactions to this test. We'll share updates on these trials in future calls, looking forward to benefiting both moviegoers and AMC. Our ability to continue raising capital during this recovery makes these transformative innovations possible and is crucial to our future success. Let me dedicate the remaining time to discussing the importance of the upcoming March 14 Special Stockholders' Meeting. Last August, we issued 516,800,000 APE preferred equity units as a dividend to AMC common shareholders. The primary goal of issuing APE was to create a new currency that strengthened our balance sheet, generating cash, bolstering our liquidity, and reducing debt. This has proved successful, with APE units facilitating AMC in raising $314 million and reducing our debt by over $221 million. However, despite having the same economic and voting rights as AMC common shares, APE units have traded at a mysterious discount to common shares. This creates inefficiencies increasing our cost of capital and causing unnecessary dilution. Therefore, after careful consideration, our Board of Directors has proposed key actions for shareholders to vote on at the upcoming meeting on March 14: 1) increase the number of authorized AMC common shares from 524 million to 550 million and combine AMC common shares and APE units; 2) effect a reverse stock split of one share for every 10, which will allow for the automatic conversion of APE into AMC common stock. Our Board and I strongly believe these changes are in the best interest of AMC shareholders to simplify our capital structure and eliminate discrepancies in unit prices. As AMC's largest individual shareholder, with millions in AMC shares and units, my interests align directly with those of our shareholders. I am not some hedge fund or Trojan Horse as a few bizarre theories have claimed. I am firmly on the side of the retail investor. I encourage shareholders to vote in favor of the proposed changes for seven reasons: first, it enhances AMC's resilience; second, it reduces capital raising inefficiencies by consolidating prices; third, it enhances our ability to raise cash and increase liquidity; fourth, it strengthens AMC's balance sheet; fifth, it simplifies ownership; sixth, it positions AMC for transformation into a stronger, more diversified company; and seventh, it aims to create long-term value for AMC. The upcoming shareholder meeting is critical for AMC's future, and I ask shareholders to vote for these proposals promptly. Regarding the reverse stock split, I want to clarify that while it may seem complex, it will not alter the total value—it merely consolidates shares. Having the flexibility to raise capital is crucial to AMC's success and has kept us from the fate of competitors seeking bankruptcy protection. If we lose this capital-raising capability, our future could dim. Our success thus far hinges on our careful navigation of this pandemic, and we must continue this careful strategy moving forward. While I've received incredible advice from millions regarding AMC's direction, I want to remind everyone that we have a solid track record managing this company through challenging times. Avoiding dire outcomes has been a promise I've made to our shareholders since the pandemic began, and I remain steadfast in that commitment today. Every action AMC has taken is in direct support of that promise. Despite criticisms from naysayers, our mission remains clear: we are committed to saving AMC. That concludes the report for Q4 2022; Sean, let's now move to questions from our industry analysts and shareholders.

Great, thanks, Adam. Let's begin with questions from our shareholders. We have several inquiries about the upcoming shareholder vote. Here is an example: What are the implications if the vote passes, and what if it does not?

If the vote passes, I expect that the gap between the price of APE and AMC share will close. This disparity is unreasonable since they share the same economic and voting rights. If the vote passes, I believe that this discount will disappear, allowing us to raise capital on more attractive terms. Conversely, if the vote does not pass, the status quo will remain unchanged: APEs and AMC shares will continue to exist, likely maintaining the previous discount, as our ability to raise capital ties directly to APE prices. A continuous existence of APEs would indicate that we may face challenges raising capital on favorable terms, leading to further dilution.

We have a number of shareholders asking about proxy materials. For example, one individual inquired, 'I have not yet received my proxy materials from my broker. How can I obtain them to vote?'

As Bill Clinton famously said in the 1990s, 'I feel your pain.' I have shares at four brokerage firms and only received voting materials from three. If you haven't heard from your broker, please call them and explain that there is a March 14 shareholder vote. They should provide you with a proxy. Should your broker be unresponsive, you can reach out to our proxy solicitor, D.F. King, at amc@dfking.com or call 800-859-8511. This information is applicable for our U.S. shareholders, and we are aware that some brokerage firms, especially in Europe, do not facilitate shareholder voting, leaving limited options unless shares are moved to a different broker.

Concerning the lawsuit you mentioned in your prepared remarks, has it been reported that AMC is defending against two lawsuits related to the issuance of APE units? Can you clarify?

Yes, litigation has been initiated. We believe it is misguided and assert that all our actions have been lawful, consistent with our charter. We will vigorously defend our position. We appreciate that the Delaware Court of Chancery has allowed the March 14 vote to proceed as scheduled.

There are questions regarding our loyalty programs. For instance, do we have plans to revise these programs or consider partnerships with streaming companies?

These are valuable questions and ideas. We have been reviewing our AMC Stubs and A-List programs, as these are crucial for our clientele. About half of our guests participate in our Stubs program, while around 15% of our total activity comes from A-List members. We continue considering possible changes and enhancements, though there are currently no immediate plans other than the AMC Entertainment Visa card, which will allow Stubs members to earn even more points.

There is also interest regarding our theater footprint. Does AMC plan on opening new theaters in areas with limited presence, such as South Carolina?

While I can't comment specifically about South Carolina, there are areas where we lack a presence, such as Hawaii and Alaska. We have the largest national footprint of any operator, active across 43 or 44 states. We're always looking to add theaters and have closed over 100 non-performing theaters during the pandemic while opening 54 new, which significantly outperform the closed ones. We've successfully acquired many locations as several operators faced bankruptcy, and we remain open to further opportunities.

There is significant interest in the retail launch of AMC Perfectly Popcorn. Can you provide more details about the opportunity and availability?

Absolutely! The enthusiasm surrounding AMC Perfectly Popcorn is palpable, especially with our upcoming launch. We are debuting on March 11 during Oscar weekend with special displays at Walmart, and by late April, popcorn will be available in over 2,600 Walmart stores—over half of all locations in the U.S. We will have a website detailing where to find our products, and there will also be options for online purchases through Walmart and potentially on our AMC website. While we will initially launch in the U.S., Canada and Europe are potential markets for the future.

I appreciate your efforts to listen to retail investors and integrate their ideas. Shall we move to analyst questions now?

Of course! Let's proceed to analysts' questions; we've already spent quite some time on this call.

Thank you very much. We only have time for one question, so we'll take a question from Eric Wold with B. Riley Securities. Please go ahead.

Hi, good afternoon, Adam and Sean. I appreciate it. I'm eager about the popcorn business being a separately reported segment. Regarding the core theater business: First off...

Eric, not to interrupt. But you're going to love how we report popcorn results. We've worked hard on the flavor profile for this product. They are genuinely great.

Looking forward to enjoying it during the Oscars. On the Sideline seating plan, what do you see as the biggest benefit: the premium on better seats, filling up less desirable seats, or do loyalty members not pay extra charges for premium seats drive more memberships?

The answer is all of the above. The concept allows us to discount upfront, charge a slight premium for the most desired seats, and A-List members won't incur that premium charge. This could improve our revenue stream while also maintaining member value, allowing for an upfront discount for less desirable seats. In the post-COVID, inflationary landscape, it might be wise to consider specific seat pricing rather than raising the general price for all.

Thank you very much. I appreciate your insights.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the floor back over to Mr. Aron for closing comments.

Thank you, operator. Thank you all for being with us today. It was a good day for AMC. We reported unexpectedly positive results and introduced our popcorn line while discussing the importance of the March 14 shareholder meeting, which will simplify and strengthen our capital structure moving forward. We look forward to seeing you at our theaters soon.

Thank you very much, sir. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.