AMC Entertainment Holdings, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Unaudited consolidated results; amounts below are in millions of dollars unless otherwise noted. AMC operates movie theatres and reported one segment, Theatrical Exhibition. At quarter-end it operated or had interests in 347 theatres and 4,972 screens. Results are seasonal and this quarter is not necessarily indicative of the full year.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 | Change / context |
|---|---|---|---|
| Revenue | $653.1 | $622.8 | Up 4.9% |
| Operating income | $32.1 | $17.5 | Up 82.8%; operating margin about 4.9% versus 2.8% |
| Continuing-operations earnings (loss) | $6.1 | $(4.8) | Q1 2015 diluted EPS $0.06; prior-year diluted loss per share $0.05 |
| Net earnings (loss) | $6.1 | $(4.5) | Prior period included $0.3 of discontinued-operations gain |
| Adjusted EBITDA | $115.7 | $102.0 | Up 13.4%; non-GAAP measure |
| Cash from operating activities | $21.6 | $(1.6) | Improved year over year |
| Capital expenditures | $69.6 | $55.6 | Operating cash flow less capex was $(48.0) |
| Cash and equivalents | $144.8 at March 31 | $218.2 at December 31 | Down $73.4 during the quarter |
Revenue and margins: Admissions revenue increased 2.4% to $418.7; attendance was essentially flat, while average ticket price rose 2.5%. Food and beverage revenue increased 10.3% to $200.5, primarily as revenue per patron rose 10.6%. Film exhibition costs were 53.3% of admissions revenue, compared with 51.9% a year earlier. Food and beverage costs were 14.2% of related revenue versus 13.8%; food and beverage gross profit per patron increased 10%.
Debt and liquidity: At March 31, corporate borrowings were $1,771.6 long-term, plus $15.9 of current corporate borrowings; capital and financing lease obligations totaled $123.7, including current maturities. Working capital deficit was $166.2, including $183.4 of deferred revenues and income. The revolving facility had $137.0 available, net of letters of credit. AMC reported compliance with its debt covenants and said cash, operating cash generation and existing liquidity should fund operations and planned spending for at least 12 months.
Dividends: AMC paid $0.20 per share during the quarter, totaling $19.8 million including dividend equivalents. After quarter-end, the board declared another $0.20-per-share dividend, payable June 22, 2015.
Material changes versus the prior comparable period
- Revenue grew 4.9%, while operating costs rose 2.6%; operating income increased $14.5 million.
- Net income improved from a $4.5 million loss to $6.1 million of earnings. The comparison reflects lower interest expense and improved equity-method results, as well as a large reduction in other general and administrative expense.
- Other G&A expense fell to $4.9 million from $18.2 million, primarily due to an $18.1 million net periodic benefit credit associated with terminating and settling the postretirement medical plan. The plan termination generated a significant, non-recurring benefit; AMC also paid eligible associates approximately $4.3 million.
- Operating cash flow improved from a $1.6 million use to $21.6 million provided, but capital expenditures rose to $69.6 million from $55.6 million. Cash declined $73.4 million, including dividend payments and investment spending.
- Interest expense decreased to $28.5 million from $32.2 million, mainly reflecting lower rates and reduced aggregate borrowing balances. The 2014 comparison included a $4.4 million gain on extinguishment of debt, absent in 2015.
- Equity-method results shifted to $1.3 million of earnings from $5.4 million of losses. Q1 2015 nevertheless included approximately $6.1 million of AMC’s share of NCM-related Screenvision termination and transaction expenses.
Outlook, management commentary and risks
- Capital spending: AMC expected 2015 gross capital expenditures of $320 million to $340 million, before expected landlord contributions of $65 million to $85 million. Spending is directed to strategic growth, theatre remodels, maintenance and technology upgrades.
- Operating strategy: Management highlighted recliner renovations, online ticketing, reserved seating, premium formats and expanded food and beverage offerings. AMC reported average attendance at recliner-renovated locations about 80% above prior levels; this is company-reported performance, not a forecast for all theatres.
- Expansion plans: AMC expected to install Dolby Cinema at AMC Prime in up to four locations in 2015 and stated longer-term targets of 50 locations by December 2018 and up to 100 by December 2024.
- No earnings guidance: The filing provides capital expenditure expectations and selected initiative targets, but no clear full-year revenue, earnings or cash-flow forecast.
- Key risks: Results depend on film supply, release timing and popularity, and are seasonal. Other identified risks include significant debt and interest-rate exposure, competition and alternative entertainment, access to capital, theatre renovation costs and execution, legal and regulatory matters, and the performance of NCM and other investments. AMC stated that risk factors had not materially changed from its 2014 Form 10-K.
- Contingencies and ownership: AMC described ordinary-course claims and litigation, noting that unfavorable outcomes could materially affect results in the period incurred. Wanda owned approximately 77.85% of common stock and 91.34% of combined voting power, giving it control. AMC’s 15.05% NCM investment had an estimated fair value of $296.9 million versus a $257.2 million carrying value; the filing cautions that a sustained decline could require impairment.
Important facts for investors to verify
- Whether ticket-price increases and higher concession spending per patron persist, given flat attendance and higher film-rental costs as a share of admissions.
- Whether the $18.1 million benefit-plan credit materially overstates the sustainability of reported operating income and earnings.
- Whether operating cash flow can support the planned capital spending and dividends, given Q1 capex exceeded operating cash flow and cash balances fell.
- Debt repayment capacity, covenant headroom, the availability of the revolving facility, and sensitivity to higher interest rates.
- The actual economics and execution of recliner renovations, premium formats and other expansion plans, alongside possible NCM investment impairment or further related costs.