AMC Entertainment Holdings, Inc. — Q1 2014 10-Q
Reporting period: Three months ended March 31, 2014; unaudited. AMC operated or held interests in 341 theatres and 4,945 screens. Amounts below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $622.8 | $577.8 | +7.8% |
| Operating income | $17.5 | $19.5 | -10.2% |
| Operating margin | 2.8% | 3.4% | Down 0.6 percentage points |
| Continuing-operations loss | $(4.8) | $(15.2) | Loss narrowed |
| Net loss | $(4.5) | $(10.3) | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $102.0 | $82.1 | +24.2% |
| Operating cash flow | $(1.6) | $35.9 | Down $37.5 |
| Capital expenditures | $55.6 | $39.4 | Increased |
Admissions revenue rose 6.8% on attendance growth of 5.1% and average ticket-price growth of 1.7%. Food and beverage revenue increased 8.2%, including a 2.8% increase in spending per patron. Other theatre revenue grew 18.5%. Film exhibition costs rose faster than admissions revenue; they increased to 51.9% of admissions revenue from 50.0%, weighing on operating results. Q1 2014 net loss included a $4.4 million gain on extinguishment of debt. Q1 2013 included a $5.0 million gain from discontinued operations, versus $0.3 million in Q1 2014.
Liquidity and debt
- At March 31, cash and equivalents were $353.3, down from $546.5 at December 31, 2013. Current assets were $601.5 and current liabilities $553.8; working capital was $47.7 and the current ratio approximately 1.09.
- Corporate borrowings were $1,932.1, compared with $2,069.7 at year-end; capital and financing lease obligations were a further $107.4. Current maturities of borrowings and leases totaled $24.2.
- AMC issued $375.0 of 5.875% senior subordinated notes due 2022 and used proceeds, together with IPO proceeds, to repurchase about $464.0 principal amount of 8.75% notes due 2019. The refinancing generated a $4.4 gain on extinguishment. Remaining 2019 notes had $136.0 principal outstanding on April 22; AMC subsequently gave notice to redeem them on June 1 at 104.375% of principal plus accrued interest.
- Available revolving-credit capacity, net of letters of credit, was $136.8. The company reported compliance with applicable debt covenants at March 31. Net cash used in financing activities was $133.4, primarily reflecting the debt repurchase, partly offset by the new notes issuance.
Changes, outlook and risks
- Adjusted EBITDA increased, but operating income declined as operating costs grew 8.4%, exceeding revenue growth of 7.8%. Depreciation and amortization rose 13.0%; equity-method results swung from $0.5 of earnings to $5.4 of losses, largely reflecting Open Road Releasing and lower contributions from other investees.
- Management expected 2014 capital-expenditure cash outflows of approximately $240–$260 million before anticipated landlord contributions of $40–$60 million. AMC also planned roughly $45 million annually over five years for enhanced food and beverage initiatives and approximately $600 million over five years for recliner conversions; expected annual landlord contributions were about $10 million and $35 million, respectively.
- Management stated cash, operating cash generation and existing resources were expected to fund operations, planned capital expenditures and acquisitions, and debt obligations for at least the next 12 months, including redemption of the remaining 2019 notes. It was considering uses for cash above anticipated operating needs, including acquisitions, debt repayment or dividends. A $0.20-per-share dividend was declared after quarter-end, payable June 16, 2014.
- AMC described its business as seasonal, dependent on film release timing and performance; its seven largest distributors represented about 85% of 2013 U.S. admissions revenue. Other stated risks include substantial indebtedness and covenant limits, competition and alternative entertainment, film supply and performance, capital availability, theatre-renovation execution and costs, impairment and closure charges, and legal claims. Management said ordinary-course claims were not expected to materially affect the company overall, while noting adverse outcomes could materially affect results in a period.
- AMC reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no material changes to risk factors from the 2013 Form 10-K.
Most important facts for investors to verify
- Whether revenue growth and attendance gains persist, and whether film-rental costs continue to pressure operating margins.
- Whether operating cash flow recovers after the quarter’s cash outflow and working-capital movements; compare cash generation with planned capital spending and debt service.
- Execution and returns on the recliner, theatre-renovation and food-and-beverage investment plans, including the expected landlord contributions.
- Completion and cost of the June 2014 redemption of the remaining 2019 notes, and the company’s resulting debt, liquidity and interest burden.
- Performance of equity-method investees, particularly Open Road Releasing and NCM, and the potential tax consequences of any NCM unit sales.
- Film-release concentration, seasonality, litigation and other disclosed risks; the filing provides no specific earnings guidance.