AMC Entertainment Holdings, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. AMC operates theatres in the U.S. and internationally; it reported 1,001 theatres and 10,995 screens at quarter-end. Results are seasonal and not necessarily indicative of the full year.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change / context |
|---|---|---|---|
| Revenue | $1,200.4 million | $1,383.6 million | Down 13.2% |
| Operating income (loss) | $(33.7) million | $109.9 million | Turned to loss |
| Net earnings (loss) | $(130.2) million | $17.7 million | Loss per diluted share: $1.25, versus earnings per share of $0.14 |
| Adjusted EBITDA | $108.2 million | $277.9 million | Down $169.7 million |
| Cash from operating activities | $1.4 million | $165.4 million | Decrease attributed primarily to lower attendance and operating results |
| Capital expenditures | $114.8 million | $107.3 million | Company expected approximately $450 million of gross capex in calendar 2019 |
| Cash and cash equivalents | $184.6 million | $313.3 million at Dec. 31, 2018 | Restricted cash was an additional $10.6 million |
Admissions revenue fell 16.4% to $731.5 million; food and beverage revenue declined 9.1% to $368.8 million; other theatre revenue declined 2.6% to $100.1 million. Attendance decreased 12.2% and average ticket price decreased 4.8%. Food and beverage revenue per patron increased 3.6%. Adjusted EBITDA declined in both U.S. markets ($77.5 million, down from $208.4 million) and International markets ($30.7 million, down from $69.5 million).
At March 31, corporate borrowings were $4.738 billion, excluding lease liabilities. Finance lease liabilities were $128.6 million. Following adoption of ASC 842, operating lease liabilities totaled $5.397 billion, including $570.7 million current. The reported current working-capital deficit, excluding restricted cash, was $1.152 billion; it included the newly recognized current operating lease liability. AMC reported $211.6 million available on its main revolving facility and $100.5 million available on Odeon’s facility, net of stated draws and letters of credit.
Material changes and drivers
- Lower attendance, driven mainly by the film slate compared with Q1 2018, temporary refurbishment closures, and increased international competition, weighed on admissions and concession sales. Foreign currency translation also reduced international results.
- Rent expense rose 27.6% to $242.0 million. The comparison reflects a prior-year lease modification that reduced Q1 2018 rent by $24.2 million, as well as ASC 842 reclassifications and purchase-accounting effects. The company adopted ASC 842 on January 1, 2019 using a modified retrospective approach; prior-year comparative figures were not restated.
- Other expense was $29.8 million, principally from fair-value changes in derivatives related to the 2024 convertible notes and associated Wanda share-cancellation option. Investment income of $16.1 million included an $11.1 million gain on the sale of the Austria theatres.
- Interest expense was $83.6 million, versus $82.5 million. The increase primarily reflected the $600 million 2.95% convertible notes issued in September 2018.
Outlook, risks and unusual items
- Management stated that cash from operations, existing cash and available revolving credit were expected to fund operations, planned capital expenditures and dividends, and support debt-covenant compliance for at least the next 12 months. AMC reported compliance with all financial debt covenants at March 31, 2019.
- The company expected approximately $450 million of gross capital expenditures for 2019. It also expected 140 Dolby Cinema screens and 525 additional recliner-seat conversions by year-end.
- On April 22, 2019, after quarter-end, AMC entered into a $2.0 billion term loan due 2026 and extended its revolver maturity to 2024. Proceeds refinanced specified term loans and notes due 2022–2023; AMC expected an approximately $16 million loss on extinguishment.
- AMC declared a further $0.20-per-share dividend on May 3, payable June 24, 2019. Management cautioned that dividends depend on cash generation and restricted-payment capacity under debt agreements.
- Key stated risks include reliance on film distributors and film popularity, competition and alternative entertainment, shrinking theatrical windows, significant indebtedness and refinancing needs, capital availability, international and currency exposure, theatre renovation execution, impairment risk, information-system and privacy risks, and litigation.
- Pending matters included securities class and derivative litigation concerning prior disclosures and 2018 transactions. The company said it believed the matters would not materially affect its financial position or overall operating trends, while noting that litigation outcomes are uncertain and could adversely affect results.
Important facts for investors to verify
- Whether attendance, admissions revenue and Adjusted EBITDA recover after the weak quarter, and how upcoming film releases affect results.
- The recurring cash cost and covenant implications of corporate debt and substantial operating lease commitments; review the April refinancing terms and use of proceeds.
- How much of the reported rent increase reflects ASC 842 presentation changes versus underlying lease economics, and whether the prior-year lease benefit distorted comparisons.
- Whether the $450 million 2019 capital-spending plan and quarterly dividends remain fundable given low Q1 operating cash flow and the working-capital deficit.
- Potential earnings volatility from convertible-note derivative valuations, foreign exchange, litigation, and possible goodwill or other asset impairment.