AMC Entertainment Holdings, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Unaudited results; dollar amounts are in millions unless stated otherwise. AMC operates theatres in the U.S. and internationally and reported 1,002 theatres and 10,971 screens at quarter-end.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $1,221.4 | $1,178.7 | $4,047.5 | $3,662.4 |
| Operating income (loss) | $(21.9) | $(4.1) | $177.7 | $31.8 |
| Net loss | $(100.4) | $(42.7) | $(60.5) | $(210.8) |
| Adjusted EBITDA | $142.4 | $147.4 | $665.1 | $534.3 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $298.8 | $229.6 |
| Capital expenditures | $133.8 | $149.7 | $374.9 | $467.7 |
- Q3 revenue increased 3.6%, but operating loss widened and net loss more than doubled. Reported Q3 results included a $54.1 charge from remeasuring the embedded derivative in the new convertible notes.
- Nine-month revenue rose 10.5%; operating income improved to $177.7. Adjusted EBITDA grew 24.5%, while net loss narrowed substantially. The prior-year comparison included a $204.5 NCM investment impairment and a $136.4 tax benefit, making net income comparisons less representative of underlying operations.
- Q3 admissions revenue was nearly flat: a 4.0% attendance increase was offset by a 4.2% decline in average ticket price. Food and beverage revenue grew 6.5%; other theatre revenue rose 33.5%, partly reflecting ASC 606 presentation changes and non-cash NCM agreement accounting.
- Operating margin, calculated from reported figures, was approximately (1.8)% in Q3 2018 versus (0.3)% in Q3 2017, and 4.4% for nine months 2018 versus 0.9% in 2017.
Liquidity, debt and capital allocation
- At September 30, cash and cash equivalents were $333.3; restricted cash was $11.0. Current assets were $686.5 and current liabilities $1,158.4. The company reported a $482.9 working-capital deficit excluding restricted cash.
- Corporate borrowings were $4,840.3, with $516.7 of long-term capital and financing lease obligations and $83.0 of current maturities of borrowings and leases. Total liabilities were $8,108.1; stockholders’ equity was $1,254.5.
- Available borrowing capacity was $211.1 under the U.S. revolving facility and $104.2 under Odeon’s facility, net of relevant drawings and letters of credit. AMC reported compliance with debt covenants and said available liquidity and operating cash were expected to cover operations, planned capital spending, dividends and repurchases for at least 12 months.
- Nine-month operating cash flow of $298.8 was below capital expenditures of $374.9. Investing cash outflow was $114.3, including $162.5 of NCM sale proceeds, $50.1 from a sale-leaseback and $45.8 from the Screenvision merger.
- AMC issued $600.0 of 2.95% senior unsecured convertible notes due 2024. Proceeds funded a $421.0 repurchase of 24.1 million Class B shares from Wanda and a $1.55-per-share special dividend. The company also paid $0.20-per-share regular dividends during each of the first three quarters. A further $0.20-per-share dividend was declared after quarter-end.
Changes, outlook and notable items
- Q3 Adjusted EBITDA declined 3.4%, to $142.4. Management attributed the decrease to higher U.S. general and administrative expense and lower distributions from investees, as well as foreign exchange and lower attendance in international markets. For the first nine months, management cited higher attendance and a $35.0 lease-modification rent reduction as contributors to EBITDA growth.
- Q3 merger, acquisition and transaction costs increased to $18.1 from $5.6, including an $8.0 write-off of deferred costs for a proposed Odeon public offering and $6.3 related to an arbitration ruling on a pre-acquisition Odeon rent dispute.
- AMC sold its remaining NCM interests in July, recording a $28.9 gain, and received Screenvision merger distributions, recording $30.1 of equity-method earnings. These and the convertible-note derivative charge materially affected reported Q3 results.
- The company adopted ASC 606 in 2018 using the modified retrospective method; prior-year figures were not recast. The change increased nine-month reported revenue by $34.8 and added $31.2 of non-cash NCM agreement interest expense. Investors should account for this presentation change when comparing periods.
- For 2018, management expected gross capital expenditures of $600–$640, before anticipated landlord contributions of $140–$150. No formal revenue, earnings or EBITDA guidance is provided in the supplied filing text. Results are seasonal and depend substantially on film releases.
- AMC expected to adopt lease accounting (ASC 842) in 2019 and estimated recognition of $5–$7 billion of additional operating lease liabilities, with corresponding right-of-use assets; the estimate was not final.
- Key risks include high indebtedness and refinancing needs, film performance and competition, theatre renovation and capital requirements, possible dilution from convertible notes or share sales, foreign exchange exposure, and legal or regulatory matters. Securities class actions and a derivative action were pending; the company said it intended to defend them. Antitrust investigations remained ongoing, although Texas closed its inquiry without action.
Important facts for investors to verify
- How much of reported revenue and earnings change reflects underlying theatre performance versus ASC 606 presentation and one-time NCM, Screenvision and derivative valuation items.
- Cash generation after capital expenditures, landlord contributions, dividends and other financing needs, and the company’s capacity to service and refinance substantial debt.
- Whether AMC Stubs A-List growth supports attendance and loyalty without materially weakening ticket yields or increasing film exhibition costs; management noted higher film costs associated with the subscription program.
- Progress and final balance-sheet effects of ASC 842, including the estimated $5–$7 billion lease liability recognition.
- Developments in the securities litigation and antitrust investigations, and any effect on costs, operations or liquidity.