Amc Entertainment Holdings, Inc. Q2 FY2024 Earnings Call

Greetings and welcome to the AMC Entertainment Holdings Inc. Second Quarter 2024 Earnings Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, John Merriwether, Vice President, Capital Markets and IR. Thank you, John. You may begin.

Thank you, Alecia. Good afternoon. I'd like to welcome everyone to AMC's second quarter 2024 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-Q and 10-K. 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 this webcast, we may reference non-GAAP financial measures such as adjusted EBITDA, constant currency, and non-GAAP cash flow 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 amctheaters.com later today. With that, I'll turn the call over to Adam.

Thank you, John. Good afternoon everybody, and thank you for joining us today. You might think that someone reporting an 84% drop in adjusted EBITDA this quarter compared to the same quarter last year might be in a foul mood. But to the contrary, as I sit here today and look at what has transpired so far this year and especially over the past seven weeks, I am ecstatic. Pick any attitude you want. Ecstatic, euphoric, all those giddy and AMC's prospects for near term and medium term improvement and recovery. In fact, I'm now more confident than I've been in more than four years about how well AMC will perform over the next 6 to 30 months. That would seem to be inconsistent with the earnings release that we just put out for the second quarter. But here are the four key reasons for my optimism. First, including monies raised during the second quarter, AMC ended the second quarter with $770 million of cash. I've said it repeatedly over the past few years, cash is king and having ample cash reserves is the single best strategy for survival. Sometimes a few of our retail shareholders want to hang me by my toenails for bringing in so much cash to AMC's coffers, but I cannot say it enough times. It is so important that the single smartest thing that AMC has done since 2020 was to make sure that our bank account balances were always plentiful and abundant. Despite all the rocky roads in the past several years, AMC has stayed strong. We've defied the conventional wisdom. We've continued to innovate and we've maintained our leading industry position, and we did that at the exact same time that many of our competitors large and small in the U.S. or in Europe found themselves in ruin. How do we pull that off? Well, in honor of the Paralympics which I might add in partnership with NBC, we are currently showcasing, I’ll use a French word. We pulled it off by having a lot of cash. I've said it before and I'll say it again, cash is king, cash is king, cash is king. And we ended the quarter with $770 million. The second reason, starting in mid-June, the box office finally after four long tough years has shown evidence of a real and enduring comeback. Disney's and Pixar's Inside Out 2 which debuted in mid-June became the highest grossing animated film of all time. It was followed by an enormous success from Universal's Illumination Studios with its Despicable Me 4, Twisters Open Strong, and Disney then came right back with the Marvel Smash Hit, Deadpool & Wolverine which has set all sorts of attendance and revenue records for AMC. We knew 2024 was coming. We correctly predicted and previously publicly disclosed that moviegoing in general would be weak in the early months of 2024 because of production delays caused by the prolonged writers and actors strikes of 2023, with a decreasing number of movies that will be ready for theatrical release early this year. But by the end of May, the impact of those 2023 Hollywood strikes was finally, for the most part, firmly behind us. It is as clear as a bell right now that the box office has started its big upward climb. I'll just put one example, the June domestic industry box office was so much larger than the prior months that June was only 2 percentage points less than the box office of April and May combined. And comparing June to the earliest part of 2024, that same June, domestic industry box office was 10% more than the January and February 2024 box office combined. The strikes of 2023 had their impact, but that impact appears to be for the most part behind us. It's not surprising then, there was a surge in June box office. AMC saw a remarkable contrast in our own results between the early quarter with the dirt and movie releases and the end of the quarter with record-setting movie Inside Out 2 delighting audiences in theaters. There was a soaring difference for the industry's performance and more importantly for us in AMC's performance when looking later in the second quarter versus looking earlier in the second quarter. The contrast was so vivid, the difference between the end of the quarter and the beginning of the quarter that it was as if we were two totally different companies surrounded by two totally and completely different industry dynamics, and the proof is in the pudding. AMC capitalized on the strong June box office recovery, and in so doing set an all-time monthly adjusted EBITDA record for the month of June, meaning this was the best June result for AMC of any June in AMC's 104 year history. There were 103 Junes before this one and this was the best. And we did so across the board. We did so domestically, we did so internationally, and we did so on a consolidated basis. But the good box office does not stop with June. We have carefully and intensely studied the movie slate coming for the remainder of 2024, as well as the slates that are coming out for 2025 and 2026. Our current expectations are that the box office turned an important corner in June of 2024 and would be ahead. We at AMC believe, we will see sizable growth in industry-wide revenues and therefore most likely in AMC revenues in the second half of 2024. It's possible that the third quarter box office may not overtake last year's record-breaking Barbenheimer phenomena, but the fourth quarter slate really looks to easily outpace that of Q4 last year with spectacular titles this year like Warner Brothers' Joker: Folie à Deux, Universal's Wicked, Disney's Mufasa: The Lion King, and Disney's Moana 2, Sony's Venom, and Paramount's Gladiator II, among so many other big films that are coming out in the remainder of 2024. Based on the movies that we know are coming, including in 2025 and 2026, another Star Wars movie, another Avengers movie, and another Avatar movie and so many more. A growing box office is also what we believe will be the case again in 2025 and again in 2026. Clearly, a rising box office is good news to those who are rooting for AMC to succeed, and bad news for those who root against us. As a significant portion of our expense structure consists of fixed costs, more than half of incremental revenues wind up flowing through as contribution. Clearly then, a box office that looks to be rising over the next 30 months goes extremely well for cash generation and the financial results that AMC could be reporting over the two and a half years ahead. The third reason for our optimism and why there's such a powerful sense of confidence here and almost a relaxation compared to the stresses and pressures that we've been facing since the spring of 2020, is our company's laser focus on driving up revenue and driving down expense that's been in evidence over the last several years. We've gotten this way both through product innovation to capture more revenues, and by our cost-cutting efforts to reduce expenses. As but one example of many in driving revenues, our retail shareholders floated an idea a few years back that we sell merchandise in our theaters. Three years ago, we sold next to nothing in the way of merchandise in our theaters until this recommendation came from our retail investor base. This year by comparison, we should sell around $50 million of merchandise especially movie scene collectibles and we will do so with handsome profit margins. Here's the other statistic that drives home the point of our laser focus on becoming more efficient. AMC's June 2024 adjusted EBITDA was higher than AMC's June 2023 adjusted EBITDA. But that occurred despite the fact that the box office in June ’24 was actually 3.6% lower than the box office in June 2023. And even more dramatically, our June 2024 adjusted EBITDA was higher than the June 2019 adjusted EBITDA pre-pandemic despite the fact that the 2024 box office was approximately 12% lower in June of ’24 than it was in June of 2019. And the summary of it all that continues to support our proposition that we are more innovative than ever before while being more lean than ever is that often our contribution to overhead per patron, can be as much as 50% more now than it was five years ago, a 50% improvement in our profit per head. So what that means is because we're bringing in more per head, we don't actually need movie theater attendance to rise all the way back up to pre-COVID levels for us to generate pre-COVID levels or maybe even more than pre-COVID levels of adjusted EBITDA. Finally, the fourth reason our confidence levels are so high is just last week, we announced that AMC completed several transformative capital market transactions that pushed up to $2.45 billion of our debt previously due in 2026 and extended the maturities to 2029 and 2030. This was an enormously complex effort, but one that will have a profound positive impact on AMC. The years 2029 and 2030 are a long way away. We have years and years of additional breathing room before them to further build, grow, and strengthen our company. For full disclosure and complete transparency, we did not move all of our debt that was due in 2025 or 2026 to 2029 and 2030, which remains that is still due in 2025 or 2026, which I believe is de minimis compared to the previous amounts due and we believe it's thoroughly and entirely manageable. I cannot even begin to count the number of nervous nellies, bloggers and journalists who are agonizing in the press about our looming debt repayment obligations just 20 months from now prior to this debt refinancing, and they were just over and over again, predicting our demise in '25 or '26 as a result of the debt payment that until last week was owed 21 months from now. Perhaps that's what they believe, perhaps they were spurred on by the short-selling community who had every financial incentive in the world to sow seeds of doubt about AMC's viability, there's no way of knowing for sure. But in any case, it does not matter now, because so much of our debt has been pushed so far out into the future, it's no longer an issue. With this debt refinancing and our other capital markets actions, this management team has demonstrated our confidence in buttressing our balance sheet at AMC. Needless to say, there are still further lines here at AMC and we have numerous other thoughts and ideas about how we can further reduce some of our debt or further improve the terms surrounding our debt along the pathway between now and 2029 and 2030. This debt refinancing is an accomplishment of the highest order. One of the most important things that AMC will get done all year long in 2024. So it would be an error, an absolute error if on behalf of myself personally and on behalf of our company, if I failed to express my gratitude and the gratitude of AMC to our lenders who worked so constructively with us on this endeavor. Make no mistake, AMC's lenders just gave our company a strong vote of confidence as to their view of the likelihood of AMC's long-term success and we're grateful to them for that. In summary, my comments this afternoon are simple and straightforward. The 2023 strikes impacted a number of movie titles early in 2024 and somewhat crushed our profitability January and May. But lookout world, June and July were decidedly different. And we believe the rest of 2024 and all into 2025 and all into 2026 should also be decidedly different. The power of extending our financial runway for many years into the future combined with what we believe is a multi-year slate of blockbuster movie releases ahead of us sets the stage for continued recovery at AMC. It does go without saying that we cannot just declare a win today and take a victory lap today. We still have to implement and execute very well between now and the end of this year, beyond the end of next year, and by the end of the year after that. But even with that statement that we have to do our jobs well and we continue to have to excel and be on the ball every step of the way, today, as we sit here right now, we are more confident than ever in our ability to ensure that AMC will thrive as both our company and our industry continue to rebound. With that, I'm going to turn the call over to our CFO, Sean Goodman, to give you more detail on our results.

Thank you, Adam. Thanks to everyone for joining us this afternoon. As expected and as we've previously discussed, the North American box office was indeed challenging during the first half of this year. The first half box office was some 19% below the same period in 2023 and 36% below the same period in 2019. And while the second quarter box office grew around 19% from the first quarter of this year, the box office nonetheless fell way short of the prior year by approximately 27% in the second quarter. The second quarter of 2023 as a reminder was the highest quarter of that year. With this backdrop, simple year-over-year comparisons may not necessarily be helpful in understanding our true financial position and potential future financial performance as the industry grows as we expect it will. I therefore want to focus my comments on some of the key metrics that we look at when we're assessing our performance and forecasting our future financial performance. First, let's take a look at market share. Our North American market share continued to increase in the second quarter of 2024 with approximately 50 basis points of growth compared to last year. This is despite the fact that we reduced our North American theater count by approximately 15 locations during this period. In a quarter where the North American box office declined by 27.2% compared to last year, our domestic admissions revenue declined by only 25.6%, outpacing the industry box office by approximately 160 basis points. Second, looking at our per patron revenue and profitability. We have successfully been able to grow and then sustain revenue and profit per patron at levels that are meaningfully higher than pre-pandemic 2019. For Q2, consolidated revenue per patron was $20.61, this is some 33% higher than 2019 and also 1.5% higher than the prior year. But even more important than revenue per patron is contribution margin per patron, which we define as total revenue less film exhibition costs and less food and beverage costs divided by the number of guests. This measure is indicative of the incremental profit generated per guest at our theaters. Consolidated contribution margin per patron in Q2 2024 was $13.77, this is some 41% higher than 2019 and 4.6% above the prior year. Now, if we look at the North American business, total revenue per patron at $22.36, was 38% ahead of the second quarter of 2019, 2.8% ahead of Q2 2023 and, by the way, a record achievement in the second quarter. It's worth noting that our food and beverage revenue per patron reached an all-time high of $8.34 in the second quarter, another all-time high. Most importantly, contribution margin per patron at $14.73 was 48% above the second quarter of pre-pandemic 2019, and also 6% above the second quarter of 2023. We achieved yet another all-time record with food and beverage gross profit per patron of $6.86, another all-time record. Now looking at our international segment in constant currency. Total revenue per patron of $15.96 was 20.8% ahead of the second quarter of pre-pandemic 2019 and it was in line with the second quarter of 2023. The important contribution margin per patron was approximately 26% above the second quarter of pre-pandemic 2019 and 3.9% ahead of the second quarter of 2023. These achievements in market share growth and revenue and profit per patron are as a result of the ongoing success of our market-leading food and beverage offerings, including collectible movie-themed items, movie-themed cocktails and menu upgrades, as well as our leading position in immersive premium large format auditoriums and our innovative alternative content options, plus also revenue diversification initiatives such as retail popcorn. This all coupled with active portfolio rationalization and focused expense management initiatives means that we should be able to achieve pre-pandemic levels of EBITDA even while the box office is lower than in 2019. Now, let's talk a bit about the balance sheet. Since our last earnings webcast, we have been incredibly active taking meaningful steps to materially strengthen the balance sheet. We're not done, but the progress is undeniable. This quarter by completing a $250 million equity capital raise through an at-the-market offering, and then we followed with the elimination of $173.9 million of our second lien 10% debt obligations. That's the elimination of $173.9 million of our second lien 10% debt obligations through debt-for-equity exchanges, and in the process of doing that, we recorded a profit on debt extinguishment of $85.3 million. But most noteworthy is last week's refinancing announcement that considerably improved our financial position by extending the maturity date of up to $2.45 billion of our debt from '26 to 2029 and 2030, as Adam mentioned in his remarks. The transactions that we announced last week represent an unequivocal sign that our lenders believe in AMC and our recovery trajectory. These transactions are unique in that they represent the result of true collaboration between AMC, our second lien and our first lien term loan lenders, which we believe will extend AMC's liquidity runway for the benefit of all of our stakeholders. These are complex transactions and I urge you to read our public disclosures for more details. However, in summary, the results of the transactions are as follows: One, as of today, $1.864 billion of term loans that were previously due in 2026 are now new term loans due in 2029, that represents more than a 98% participation rate. Two, $580 million of second lien debt that was due in 2026 has been refinanced with $104 million of new term loans due in 2029 and $414 million of exchangeable notes due in 2030. Three, new term loans that bear interest at SOFR plus between 600 and 700 basis points depending on our leverage levels. Four, the exchangeable notes bear cash interest at 6% per annum or 8% per annum if the interest is paid in time. Five, we have the ability to further reduce the amount of debt maturing in 2026 by increasing the size of the new term loan due in 2029 by an additional $31 million and we also have the ability to further reduce near-term debt maturities by increasing the size of the exchangeable notes during 2030 by an additional $50 million. And finally, very importantly, as the exchangeable notes can be exchanged into equity under various conditions, we have the potential to permanently reduce debt by up to $464 million. Pro forma for this transaction, our remaining debt due in 2026 is now approximately $340 million. As I said, there's still more to do, but the progress is undeniable. Since the beginning of 2022, we've raised more than $1.3 billion of gross equity capital. We've lowered the principal value of our debt and finance leases by $888.3 million and we've repaid $268.8 million of deferred leases. All of this for total debt and deferred rent reduction of $1.16 billion since the beginning of 2022. For now, our capital allocation priorities remain: One, to ensure that we have sufficient liquidity to manage through our recovery phase and two, continuing the work that we're doing to strengthen the balance sheet by extending maturities, reducing debt obligations and improving our financial leverage. Before handing the webcast back over to Adam, a couple of additional points worth noting. First, the deferred rent balance at the end of Q2 was approximately $40 million, and we plan to reduce this balance by another approximately $5 million by the end of 2024. We ended the second quarter, as Adam mentioned, with a cash position of $770 million. This translates into $34.6 million of net cash used in operating activities for the quarter. This is roughly $21 million better than in Q2 of 2023 and despite the box office in Q2 2024 being significantly lower than that of Q2 2023. CapEx net of annual contribution was $34 million in the second quarter. We continue to expect net CapEx in 2024 to be in the range of $175 million to $225 million. From a theater portfolio perspective, we continue to actively manage our footprint. During the second quarter, we closed nine underperforming locations. This will bring the total number of locations closed since the pandemic began to 178, total number of new locations opened to 60 for a net reduction of 118 locations or 11.8% of our locations as of December 31, 2019. Of course, we continue to see that the 60 new locations significantly outperform the 178 closed locations. In summary, it has been a quarter of indisputable progress. We've materially strengthened our financial position. As Adam noted, the box office recovery from the impact of the Hollywood strikes has very clearly begun with a particularly strong performance in June. We see the same strong performance in July. And as the box office grows, we believe AMC is incredibly well-positioned to leverage our operating capabilities to meaningfully grow both adjusted EBITDA and cash flow and finally recover from the challenges of the last four years. With that, I'll now hand the call back over to Adam.

Thank you, Sean. As I said at the start and as Sean just reiterated, we really do believe that good times are about to roll and that AMC is very well positioned for an industry and company recovery in 2025 and 2026. There's been a lot of work to get the company to this position, but we can feel it in our bones now, based on what we've seen starting with Inside Out 2 and what's happened ever since, and with what we know is coming down the pike. Before we move to your questions, I'd just like to touch very briefly on just a few topics. Let me start by saying, clearly a significant innovation for AMC last year in 2023 was our distributing for the first time in AMC's history a movie and exhibiting that movie, of course, that movie being the concert film of Taylor Swift, New York, followed almost immediately by the concert film of Renaissance, a film by Beyonce and Ellis Carter. Those two efforts were quite lucrative for AMC. They were perceived to be big successes in the marketplace. They should be perceived that way since Taylor's Film was the highest grossing concert film in history, and Beyonce's film was strong. And it's no surprise since that we realized we had an opportunity here. Many world-class artists have come to us, we've gone to many world-class artists, we've had many more such interactions. I can say with certainty that there will be more such theatrical events ahead of us over the next 30 months. The first of those was in May, when AMC in partnership with Apple Music and Interscope Records hosted exclusive listening parties at more than 100 of our U.S. theaters for Billie Eilish in the launch of her latest smash hit album Hit Me Hard and Soft. And just this week, we announced that we will be showing Usher's concert film called Usher Rendezvous in Paris, in our AMC Theatres beginning on September 12th this year 2024. We're doing so in partnership with Usher, of course, but also with Sony Music Vision and Trafalgar Releasing. We have ongoing conversations right now with several others of the best artists and the best performers on the planet, and you can expect more announcements from us in this regard as time goes by. That segues nicely into other alternative content, and to that end, we're also very proud to be in an exclusive partnership with NBC to be showing NBC's telecasts of the Paris Olympics right now in many of our AMC Theatres across the United States. If you think watching the Olympics is great at home, wait until you see it on a 40-foot screen in our theaters. Of course, that content is shown in our theaters, and I should also mention that it is our intent to continue to invest in our peers to improve their overall consumer appeal as our finances prudently allow through capital expenditure dollars. Speaking of our theaters, let's sell first at our theaters is the seats in our auditoriums with large screens. AMC Theatres and Odeon Cinemas in the U.S. across Europe and the Middle East have more premium large format screens now than any other movie theater operator in the world. Consumers clearly are showing that they have a preference, they're showing it through their buying habits for large format auditoriums, and so over the course of the next year, I expect that AMC will be making a variety of announcements to further strengthen our lead in having more large format screens than anyone else in our industry. Our marketing teams not only reacted in marketing upgrades to theaters that include our large screen auditoriums, but significant work is also underway right now within our marketing groups to enhance two of the most powerful marketing programs that AMC has ever launched. AMC Stubs, our loyalty program and AMC Stubs A-List, our movie subscription program. Look for announcements coming about those two programs towards the end of this year and early next. I'm relaying this information to you not to tease you now, but to hint that things are coming, but then forcing you to wait for the full announcements later. But instead my intent is to point out that there are so many facets to a company like AMC, and our goal here is to make progress in as much of our business activities as we can. We are always thinking and we're always willing to dare to innovate where it makes sense for us to do so. We're about to turn over the call to field questions, but before we do, I'd just like to remind you one last time why at AMC we're so optimistic and bullish as we look ahead to 2025 and 2026. It's very simple, it's four things. We had $770 million of cash at quarter end, the box office is roaring back. We're running our company more efficiently than ever and our debt extension transactions are literal game changers for this company. We're proud of the fact that we know we're the biggest movie theater operator in the world, and we'd like to think that among mass operators we're also the best. What we think is pretty clear to one and all is that because of our size and because of the innovations that we have made, AMC for many years now has been the clear leader in our industry. And let me tell you what leaders do, what they do best. What leaders do best is lead. And so now with what we believe is finally the wind in our back at AMC, we intend to continue to lead and to be upfront. With that, thank you for listening today. Sean, let's turn to taking questions both from our equity research analysts and from our retail shareholders.

Our first question comes from Eric Wold with B. Riley Securities.

Thank you. Good afternoon, Adam and Sean. I guess, obviously, doing great here domestically with the share gains and improved monetization. I guess, maybe give us an update on the current state of the UK and your international market. What are you seeing there with underlying movie-going demand relative to the U.S.? How has pricing power improved or not in recent months, given the competitive environment there? And lastly, how do you view the opportunity to take share internationally either organically or inorganically with some competitors struggling and closing locations?

First of all, hello, Eric. Nice to hear your voice. And since Europe reports to Sean directly, I'm going to let him answer the question first and then I might chime in after. Go ahead, Sean.

Hi, Eric. The overall European business and its industry have been responding positively. In the second quarter of 2024, the industry's performance in Europe has actually outpaced the domestic market. It's important to note that the European business has a higher operating leverage compared to the U.S. as a result of its structure. When attendance falls compared to the same quarter last year and remains significantly lower than in 2019, the impact of that operating leverage becomes more pronounced. This is a key consideration when evaluating the European results. Additionally, we have closed a higher percentage of theaters in Europe compared to the U.S. The European market differs from the U.S. market in that many competitors there received government support during and after the pandemic, which has resulted in fewer theater closures compared to what we've seen in the U.S. These factors are influencing the performance of our business in Europe. As I mentioned earlier, our business is performing well, with a contribution margin that is significantly higher than pre-pandemic levels and slightly above the U.S. However, the UK market presents challenges due to competitive pressures, particularly from one competitor employing unsustainable pricing strategies that affect our pricing power. Nevertheless, we believe that our potential to gain market share is improving and that conditions are gradually getting better in Europe. That’s my take on the European market.

No, that’s all right. I would just maybe comment in the UK in particular. There is one circuit that's pricing movie theater tickets privately in bulk. They're doing sort of an institutional business to business program as well as charging £3, which is lunacy, it's idiocy. But it'll be very hard to take. But if that's what they're doing, market share will move in their direction. And it'll be very difficult to take share back when a competitor is practically giving it away free. But we're very proud of what we're doing in Europe and our European team. First of all, we run our European theaters from Europe. We don't run them from Kansas City, which is the best decision we made as a company eight years ago, because there are a lot of people in Kansas City who speak Portuguese. But they've really done a great job running the circuit there and come up with a lot of imaginative ideas. And one that I just want to it wasn't in my prepared remarks, but I talked about large screens and they've done something I think is quite interesting that I might share. In almost all of our buildings, we have movie theater screens that are quite large, and we've never marketed them as anything special, although that's where the newest most important movie scope should go. So if Inside Out 2 is coming out, you're not going to put it on a small screen way in the back, you're going to put it on the biggest screen that you have in the entire theater complex. So what Odeon did earlier this year is they branded these large auditoriums with large screens, like really large screens, and they branded them XL as their shorthand for extra-large, and started to market them as being exactly what they are, a better movie experience than even other screens in the same theater because they can be as much as double the size of other screens in the same theater. And that's a really smart idea that we might try to bring over here in the United States because there’s almost no capital required to implement the idea because the large screen is sitting right there. It just hasn't been packaged and tied up with a nice little bow and marketed to consumers as being exactly what it is. And right now we have 67 of these things in Europe already. So our team in Europe is really quite good, and we're proud of them, we're proud of the business, and as the box office grows, Europe will be the beneficiary of the growing box office just the same way that we here in the United States will be the beneficiary of the growing box office. As you all know, the whole of our industry is not doing as well with the $9 billion box office as we did with the $11.5 billion box office, which is basically what we had 5 years in a row pre-COVID or a $10 billion to $12 billion box office, which we had 11 years in a row pre-COVID. We're still not back to those levels yet, but obviously, we're quite bullish that the box office is going to grow in the second half of '24. We think it's going to grow in '24. We think it's going to grow in '26, and that should boost profitability levels across the whole of the industry, but certainly across all of AMC, and not only in the U.S. but also in Europe.

Our next question comes from the line of Chad Beynon with Macquarie.

Afternoon, thanks for taking my question. I wanted to continue the conversation on operating leverage, but maybe focus it back here on the U.S. A few times in your prepared remarks, you talked about June results. I guess, really without giving us the exact numbers, but wanted to think about margins here. For the quarter, your domestic margins were 6%, pre-pandemic you guys were in the mid to high teens. I guess maybe the best way to ask it is, is there anything that you're seeing in the business, in terms of where it is now versus before or anything that you saw in June that makes you think that, you can't get back to those margins that you experienced in '19?

Thank you, Chad. First of all, hello, Chad. I'll start, and then I'll pass it off to Sean. We just want to be cautious about our quarterly results. We don't want to make the mistake of releasing monthly results and then feel obligated to continue doing so in the future. While I can't provide a specific number, we've communicated with the press about our expectations for the months ahead. To describe our profitability in June compared to April and May, particularly in terms of adjusted EBITDA, it’s a significant improvement. The change from April and May to June is remarkable, almost unbelievable. That's why I mentioned earlier that this quarter feels unusual, as the quarterly results are difficult to evaluate due to the stark differences between the results of April, May, and June. As for your specific question about margins, could we return to the starting margins? Sean, would you like to address that?

Yes. Following up from what Adam said, by definition, what Adam said in his prepared remarks is that the June EBITDA was higher than June 2019, right? So, by definition, our EBITDA margin in June 2024 was higher than it was in June 2019. I think to your question, Mike, is there any reason why we shouldn't be able to do that going forward? I don't think so, because remember we spoke about the contribution margin per patron and contribution margin profitability so much higher than it was pre-pandemic. We've been able to sustain that now for year after year, where we were concerned initially is that sustainable back in 2021, beginning 2022, is that sustainable?

It only got better.

It only got better, and I think the actions that we've taken, particularly on the food and beverage side and enhancing the guest experience with potential new investments in PRS, I don't see any reason why we shouldn't be able to return to those sort of margins as the industry recovers.

And I would just add, just when you look at F&B, right, these numbers are pretty public. If you assume that it's not a perfect assumption, but if you assume that labor stays constant in a theater regardless of volume, this isn't really totally true, but we just step up a little bit as volume increases at the theater. But if you were to make that assumption, you already know what our film rent is. So you know what percentage of ticket price flows through the contribution line. Prior to all those other expenses that you have to cover like labor, but I'm assuming I'm pretending that that's fixed at the moment. We've been very public over the years saying that our margins at F&B are in the low 80% range. And you have our food and beverage revenues released for the quarter. And if you go back and compare the food and beverage revenues of 2024 against the food and beverage revenues of 2019 pre-pandemic, you're going to see that we used to be doing about $5 a head in food. And now we're doing $9 and I'm not talking about you. I’m using U.S. numbers, I'm not using consolidated numbers. And now we're doing $9 a head, sometimes $10 a head, depends on the day, week, month, quarter. Well, by definition that extra food and beverage revenue has much higher margins than our other revenues. And that's where we've seen the biggest growth. The biggest growth has come in extra food and beverage revenue. And so that's one of it's not the only reason, but that's one of the key reasons why the profit per patron is up so much. The other reason that the profit per patron number is up so much is that we've really just done such a great job in cutting costs. And remember in my prepared remarks I said even though the box office was down 3.5% June over June, the adjusted EBITDA in June was up. So what that means is it all came out of expense cuts. Now that's comparing June of ’24 to June of ’23. If you compare June of ’24 to April May of ’24, then the big profit drivers in June of ’24 versus April May of ’24 is a combination of the expense cuts and the fact that the revenues were so much higher in June because the box office was so much higher in June than it was in April May.

That makes a lot of sense. Thanks.

The essence of my lengthy response is to express my belief that our margins will be quite strong. I mentioned earlier that more than 50% of our additional dollar revenue contributes to the contribution line, and in some instances, it approaches 65%. In an industry experiencing revenue growth, having 65% of the marginal dollars contribute to the EBITDA line and overhead expenses reflects significant operating leverage. Conversely, during the period of declining revenues we've faced for about 4.5 years, this marginal operating leverage has worked against us. This meant that for every dollar of lost revenue, we were losing $0.65 from the EBITDA line. However, we could be mistaken, although I believe our data supports our view. If we are correct that the industry and AMC's revenues are about to rise, and as we've recently gained market share, continuing this trend could lead to even faster growth. This would allow our margins to expand, as our overall margins are in the teens while our incremental margins range in the 50s and 60s. This difference is significant. I believe there is a strong chance of our margins not only recovering but potentially improving further.

Our next question comes from the line of Jason Bazinet with Citi.

I just had a quick question on the theatrical window. Do you mind just giving us an update on sort of how the contours of the window have changed? And whether that's good or bad for the spring? Thanks.

It's Friday night, and since it's an hour later on the East Coast, I’ll keep my comments brief. In the past, before the pandemic, the theatrical window in the U.S. was typically 74 days before a movie would move to a pay window at home, or be released on DVD, which could take up to six months before it was available for free on services like HBO, where you subscribe without an additional fee for the title. During COVID, there was extensive experimentation, with studios trying various approaches. Some moved films directly to their streaming services instead of theaters, and others opted for same-day releases in theaters and homes. We specifically partnered with Universal, who agreed to release certain smaller films at a 17-day pay window, which was later adjusted to 17 days for smaller films and 30 to 35 days for larger titles. Ultimately, the industry settled on a 45-day exclusive theatrical window, after which films could stream at home, requiring a subscription without an extra title fee, except for specific PVOD deals. I estimate that about 90% of the films follow the 45-day theatrical window.

Okay.

It's uncertain if the situation is merely acceptable or if theaters have been negatively impacted. The ambiguity arises because the box office has not yet returned to pre-COVID levels. We're trying to understand the decline—whether it's due to fewer movie releases or lower attendance per film. It appears that the main issue stems from having fewer titles available rather than reduced attendance. Currently, we believe that the 45-day window hasn't had a damaging effect on us, but we can't confirm that. In the next 18 months, as the number of titles increases, we will have more clarity, and we expect revenues to rise accordingly. I mention this because of another observation: Warner Brothers, for one year, released all their films on Max for free at the same time they were available in theaters. Although they compensated us somewhat by significantly reducing the film run charges, it ultimately caused major problems for theaters. Our assessment shows that when movies were available for free at home simultaneously with their theater release, we lost about half our audience. This approach was quickly abandoned by the industry, as it could have led to its downfall. So, while we're uncertain about the implications of the 45-day window, one thing is clear: releasing films for free at home on the same day they hit theaters was disastrous for the theater industry. I wouldn't categorize it as such for Warner, but for theaters, it was detrimental.

Our next question comes from the line of Jim Goss with Barrington Research.

I wanted to ask you, Adam, about the screen-based rationalization effort. You've been carrying back on both the domestic and international screens, especially domestic. Typically, that happens when leases come up for expiration and you decide to extend or end the lease. I'm wondering what share of the decision tends to go to extension versus ending the lease. Do they tend to be focused in the AMC Classic markets? And is there more room to run on that?

We have closed 160 theaters out of 1,000 over the past four years. When a theater is unprofitable and the lease is nearing its end, we meet with the landlord to discuss options. There are various possible outcomes; often, the landlord may renegotiate the rent terms to make them more favorable, allowing us to keep the theater open. Sometimes, we collaborate with the landlord to renovate and invest in the theater, hoping to increase revenue, which could support a different rent structure. In some cases, we shift from fixed rent to variable rent, meaning we bear all the risk, where the rent remains constant regardless of theater volume. Occasionally, we persuade the landlord to accept a percentage of revenue, so they receive more if the theater succeeds but less if it fails to sustain a higher rent. In some instances, we have to close the theater. Based on estimates, about 40% of theaters are closed after discussions with landlords at lease end. Roughly 10% of our theaters are up for renewal each year, equating to about 55 theaters in the U.S. and 85 globally, with more than half likely remaining open under improved or different terms, although some will close. I believe these percentages may change moving forward. We will continue closing old, worn-out theaters, especially where market rents are too high for sustained revenue. Looking ahead, if the box office significantly grows, theater profitability will markedly increase. If theater profitability increases dramatically, there will be less reason for operators to close theaters, as more theaters will become profitable. Some may transition from major losses to smaller losses and those will be the ones closed. However, with rising revenues leading to increased profitability, fewer theaters will close. We aren't quite at that point yet; I think we might be a year away. Not all theaters are classic; some are, but many large theaters have rents misaligned due to contracts signed many years ago. Additionally, there are cases where theaters in decent retail malls have deteriorated into failing malls, resulting in failing theaters. So, while not all are classic theaters, a significant number are.

Okay. Well, thanks for taking my question.

Thank you, Jim. Nice to talk to you again as always.

Our next question comes from the line of Alicia Reese with Wedbush.

Hi, guys. Thanks for taking the question. I had a quick question on the concessions per cap and margin. Just looking at the specialty popcorn buckets and assuming that there's obviously going to be a bigger benefit in quarters where you have titles like Dune 2, Deadpool, Wolverine and such. But I'm wondering if what you're seeing there on films like that? I do understand that you only offer that in the very early days of the film's release. But are you seeing a larger basket of concessions purchased around that? Obviously, you're going to get higher margins on that. I was just wondering if you could give a little bit more detail around that.

We are learning as we move forward. We built this up from essentially nothing to $50 million a year in just 30 months, which is quite impressive. We aimed to avoid excess inventory, so our strategy was to focus on the biggest movies and purchase enough stock to meet the demand for the opening weekend without being left with surplus. One insight we gained is that we can handle many more movie programs than we initially thought. In the beginning, we were working with a handful of movies each year—maybe six to eight. Now, we are almost running programs every week, or at least twice a month. Currently, we are managing around 30 to 40 merchandise programs annually. Another key takeaway is that whether we've trained consumers to enjoy these products or they genuinely do, the merchandise is selling rapidly. To meet the demand for the opening weekend, which is a great challenge to have, we've had to increase our order quantities. We place our orders approximately eight months in advance since much of it is produced overseas and shipped to the United States. As a result, we've scaled up our orders; instead of one item for a movie, we may now offer three different items. For instance, for the Deadpool and Wolverine movies, we ordered about 50% more than ever before, and we sold out by Thursday night, which was astonishing to us. These findings indicate that the merchandise is quite popular. We anticipate that we will be managing more movies, not fewer, and increasing the variety of merchandise per film. We may also order larger quantities and be more flexible about selling out by the end of the first weekend, possibly extending our orders to cover two or three weekends. Currently, purchasing our merchandise is primarily easy at our theaters, and we haven't yet expanded sales online. We've gone from zero to $50 million in two years, and I believe we can double that. Moreover, some merchandise items include commemorative cups and popcorn tins, which can boost not only the sale of the merchandise itself but also increase sales of high-margin concession items like soda and popcorn. This is all positive news for us, as the margins on these concession items align with typical retail margins, which tend to be around 40% to 50%. While we haven't disclosed our exact figures, you could make a reasonable estimate based on that information.

Yes, it seems like a good program. Were you able to get any merchandise around the Olympics? And also I was wondering what the ticket price was around that, if you're able to share that or just qualitatively if it's higher or lower than typical field ticket?

We did not get Olympics merchandise. And honestly, I don't know what price we're charging for the Olympics. I never asked. I was so excited that we landed it. I never asked our head of programming what she's going to charge. I could tell you what every concert movie goes for though, to the penny.

Yes. If you would.

The other was $19.89 for adults and $13.13 for kids. I know, please continue.

Thank you. I appreciate the detail. And I just had one last housekeeping item for Sean. I think I heard you say the CapEx for the year was $175 million to $225 million as you had said before. But did you say $175 million to $200 million, does that come down or was that still $225 million on the high end?

No, it's the same as it was before, $175 million to $225 million here.

Thank you.

If you are still there, the price for the Olympics is $8.99 for adults and $6.69 for kids.

Adam, let's take just two quick questions from our retail shareholders. Yes, the call has run long, and it is a Friday night. Like, for us, it may be a Friday night of summer, but this is a 24/7 kind of place. We didn't actually get the debt extension deal done by working Monday to Thursday, 9:30 to 4:30. But it is a Friday night, so we do want to let you guys go home. So, let's take a couple of short questions and then we'll sign off.

Okay. We'll just take two quick ones here.

The first one is about our auditoriums. The question is general, what are the plans to enhance the auditorium experience for the future? What about things like private booths or 4D experiences for our guests?

That's a great question. There is significant activity happening in this area within the company right now. Currently, we have about 43 theaters out of 550 that account for roughly a third of our EBITDA. These are our most successful locations, where we generate substantial revenue. We're continually exploring ways to enhance these theaters. For example, our theater in Burbank, California, is often the highest-grossing AMC Theater in the United States. Although not every week, it typically leads in sales. The seats there had become quite worn, and we couldn't install reclining seats due to the high occupancy, which would have resulted in too many seats lost. Instead, we removed all the fabric seats and replaced them with more traditional cinema-style seats, aiming for comfort. We upgraded to leather seats that are 15% wider, better padded, and rock, providing a much-improved experience. We've minimally lost seats while significantly enhancing the theater's appearance. Our upcoming press announcements next week will detail similar upgrades across other locations, and while we can't overhaul all 43 theaters immediately, we are committed to improving our profitable theaters. Moreover, there's a substantial opportunity to tap into consumers' desire for a large-screen movie experience. This could involve adding more Dolby Cinemas or IMAX screens, including upgrading some traditional IMAX auditoriums to IMAX lasers with enhanced sound for a superior experience. We aim to promote our large auditoriums to ensure consumers are aware of their availability. Additionally, features like 4DX, while somewhat gimmicky, can enhance the experience, along with the ScreenX concept that wraps the screen around viewers for a more immersive feel. We see great potential in expanding our presence in the premium large format screen segment. Current statistics show that while these premium large format screens represent only about 5% to 6% of our screens, they account for approximately 20% of our revenue. For instance, in the case of Inside Out 2, a typical PLS seat sold 7 times more tickets than a seat in a non-PLS auditorium. The opportunity for large format screens is significant, and we aim to make substantial improvements in that area at AMC.

The second area where we go is also in the food and beverage area, and we continue to change menus on a monthly or quarterly basis. We continue to try to find consumer pleasing items because if they're happier at the concession stand, they're going to be happier in the theater experience. If they're happy with the experience, they'll come back more and more. Other questions, Sean? Yes. The last question, staying on the theme of investment opportunities, the question is sort of where we focus on investment, and I think you've spoken about that right now. But then it goes on to say, are there investment opportunities outside of the exhibition industry that we would consider?

This is an area where AMC has had our head jerked around a bit in the last year, because exactly a year ago at this time, we thought, based on the number of authorized shares that we had in our share price that if we were to use other shares not that we would, don't get nervous retail investors. We know these shares are quite precious. Give me one sec. We might have been able to raise $6 billion. How do we try to sell our shares of market, not that we would have done so? We would have only done so if we had something really good to do with money, and we didn't have anything that brilliant to do with money. But our share price has come way down in the last year. And today, based on the current share price, we could probably only raise about $500 million. And if we only could raise $500 million and you add that to the $770 million of cash that we have now. That money needs to be husbanded very carefully to make sure that our liquidity position is strong, that we can bring in debt as we need to bring in debt. We still have about $450 million in debt that is currently due in ‘25 or ‘26. Some of that we might be able to push out and extend it, but some we might buy back. Some we might buy back at a discount. We also need money to invest in growth initiatives inside the business like more PLF auditoriums like I just described a few minutes ago. So I think right now external M&A, if we were doing, it would only be if we're investing a very small amount of money, $25 million, not $1 billion. And so right now external M&A is not our highest priority because we think that we should treat these, the cash that we have as precious. We should treat the shares that are in the treasury that we have not yet used as precious. So I think we've got to grow the business internally, organically for now. With that, everybody, we're going to end the question-and-answer session. I'd just like to close the call by reminding everybody that the challenging first half of '24 which was impacted by the 2023 strikes is behind us. It's in the rearview mirror. So now at AMC we believe we're off to the races. We're highly confident that the box office will be growing in the second half of ‘24. We're highly confident that box office will be growing in ‘25. We're highly confident that box office will be growing in ‘26. And that's good news for us, and that's good news for people who want us to succeed. With that, thank you very much for your time today. And we'll adjourn the call. We appreciate you joining us.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.