AMC Entertainment Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. AMC operates theatres in the U.S. and internationally; at quarter-end it operated or held interests in 1,000 theatres and 10,945 screens. Results are seasonal and can vary with film releases. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $1,316.8 | $1,221.4 | $4,023.3 | $4,047.5 |
| Operating income (loss) | $20.8 | $(21.9) | $92.6 | $177.7 |
| Net loss | $(54.8) | $(100.4) | $(135.6) | $(60.5) |
| Loss per diluted share | $(0.53) | $(0.82) | $(1.31) | $(0.48) |
| Adjusted EBITDA (non-GAAP) | $156.5 | $142.4 | $502.3 | $665.1 |
- Revenue grew 7.8% in Q3, while operating income improved to a profit. Operating margin, calculated from reported figures, was about 1.6% versus negative 1.8%. For the nine months, revenue declined 0.6% and operating income fell 47.9%; the corresponding operating margin was about 2.3% versus 4.4%.
- Q3 attendance increased 5.4%; nine-month attendance decreased 0.4%. In Q3, admissions revenue rose 6.1%, food and beverage revenue 9.1%, and other theatre revenue 16.8%. Nine-month admissions revenue fell 3.9%, partly offset by higher food and beverage and other theatre revenue.
- Adjusted EBITDA rose $14.1 in Q3 but declined $162.8 for the nine months. Management attributed the nine-month decline primarily to lower attendance, higher rent under the new lease accounting standard, and a $35.0 prior-year lease modification benefit.
- Cash from operations was $210.2 for the nine months, down from $298.8. Capital expenditures were $348.2, producing cash flow after capital expenditures of negative $138.0, compared with negative $76.1 in the prior-year period. Cash and cash equivalents were $100.4 at September 30, down from $313.3 at year-end 2018; restricted cash was $10.2.
- Working capital deficit, excluding restricted cash, was $1,208.7, versus $557.5 at year-end 2018. The deficit includes $568.1 of current operating lease liabilities. AMC reported $211.7 of availability under its revolving credit facility, net of letters of credit, and $92.1 available under Odeon’s facility.
- Corporate borrowings were $4,710.1 noncurrent and $21.4 current. Finance lease liabilities totaled $99.5. Separately, operating lease liabilities totaled $5,425.7; this balance-sheet recognition followed adoption of ASC 842 and is not directly comparable with 2018. Total liabilities were $12,098.0 and stockholders’ equity was $1,183.3.
Material changes and unusual items
- Q3 results benefited from stronger attendance and per-patron spending, while the prior-year quarter included $54.1 of expense from a fair-value change in the convertible-note derivative. The prior-year nine-month comparison also included significant NCM and Screenvision-related equity earnings; these items contributed to the higher 2018 comparative earnings.
- AMC adopted the new lease standard on January 1, 2019 without restating prior periods. It recognized $4,794.9 of operating lease right-of-use assets and $5,425.7 of operating lease liabilities at September 30. Adoption also changed expense and cash-flow classifications, complicating year-over-year comparisons. Management said the standard reduced Adjusted EBITDA by approximately $12.8 in Q3 and $38.4 for the nine months in U.S. markets, and $9.9 and $29.7, respectively, in international markets.
- In April 2019, AMC refinanced existing term loans and redeemed specified notes, issuing a $2.0 billion term loan due 2026. The transactions included $16.6 of reported loss on repayment of indebtedness; the new loan carried a 5.23% rate at September 30. AMC reported compliance with financial debt covenants at quarter-end.
- AMC recorded $12.9 of investment income from the sale of its Austria theatres during the nine months. A sustained decline in AMC’s share price prompted a September goodwill impairment test; estimated enterprise fair value exceeded carrying value by 9.9% for U.S. theatres and 11.8% for international theatres, so no impairment was recorded. The U.S. reporting unit had a negative equity carrying value.
Outlook, commentary, and risks
- AMC expected 2019 capital expenditures, net of landlord contributions, of approximately $415.0. Management stated that operating cash generation, cash on hand, and available revolver capacity were expected to fund operations, planned capital expenditures, and dividends for at least the next 12 months and support covenant compliance.
- The board declared a $0.20-per-share dividend in October 2019, payable December 16, 2019. The filing cautions that future dividends depend on cash generation and restrictions in debt agreements.
- Management cited film performance, competition, alternative entertainment and delivery methods, shorter theatrical release windows, A-List revenue performance, indebtedness and refinancing needs, capital availability, lease and theatre investment costs, foreign exchange and economic conditions, and possible impairment as important risks. AMC noted that its market capitalization had remained below carrying value since May 2019 and that adverse performance or valuation changes could lead to future impairment.
- Legal matters include securities class actions, with the court granting defendants’ dismissal motion in part and denying it in part in September 2019, and stockholder derivative matters that were stayed. AMC stated that unfavorable litigation outcomes could affect results, although it did not expect the disclosed matters, individually or collectively, to materially affect its financial position or overall operating trends.
- Wanda owned approximately 49.85% of outstanding common stock and controlled 74.89% of combined voting power at September 30, 2019. Forward-looking statements are subject to the risks described in the filing; AMC provided no specific earnings guidance in the supplied filing text.
Key facts for investors to verify
- Whether operating cash flow and liquidity can sustain capital spending, lease payments, debt service, and dividends, particularly given the working capital deficit and declining cash balance.
- How much of reported year-over-year performance reflects underlying operations versus ASC 842 accounting changes, film-release timing, foreign currency movements, and prior-year one-time gains or charges.
- Debt refinancing terms, interest-rate exposure, covenant headroom, and the company’s capacity to meet principal and interest obligations.
- Attendance, ticket pricing, food and beverage spending, and A-List membership economics, as well as whether Q3 improvements persist.
- Goodwill valuation assumptions and headroom, future impairment risk, and developments in the disclosed litigation and tax contingencies.