AMC Entertainment Holdings, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Filing signed November 3, 2020. AMC operates movie theatres in the U.S. and internationally. Results were severely affected by COVID-19 closures, capacity limits, weak attendance, and film-release delays.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $119.5 million | $1,316.8 million | $1,079.9 million | $4,023.3 million |
| Operating income (loss) | $(675.4) million | $20.8 million | $(3,133.1) million | $92.6 million |
| Net income (loss) | $(905.8) million | $(54.8) million | $(3,643.3) million | $(135.6) million |
| Adjusted EBITDA | $(334.5) million | $156.5 million | $(671.7) million | $502.3 million |
| Operating cash flow | Not separately stated | Not separately stated | $(771.6) million | $210.2 million |
- Q3 admissions revenue fell 92.1%, food and beverage revenue 93.1%, and other theatre revenue 72.4% year over year. Nine-month revenue declined 73.2%.
- Q3 and nine-month basic and diluted loss per share were $(8.41) and $(34.56), respectively, versus $(0.53) and $(1.31) in 2019.
- Impairment charges were $195.9 million in Q3 and $2.0478 billion for the first nine months, including $1.9011 billion of goodwill impairment for the nine-month period. These charges were principally non-cash.
- Cash and cash equivalents were $417.9 million at September 30, 2020, compared with $265.0 million at year-end 2019. Total Q3 cash burn was approximately $388 million. Working capital deficit, excluding restricted cash, was $990.5 million.
- At September 30, corporate borrowings had approximately $5.448 billion principal outstanding; the balance sheet reported $5.804 billion of non-current corporate borrowings plus $20 million current maturities. Total liabilities were $13.212 billion and total equity was a deficit of $2.335 billion.
- Rent expense was $214.3 million in Q3 and $676.2 million for the first nine months. AMC reported $185.1 million of contractual rent due and unpaid in accounts payable, in addition to deferred lease liabilities.
Material changes and financing
- AMC exchanged more than 87% of its senior subordinated notes for approximately $1.462 billion of 10%/12% cash/PIK toggle second-lien notes due 2026. The exchange reduced debt principal by approximately $555 million and extended about $1.7 billion of maturities to 2026.
- AMC issued $300 million principal amount of 10.5% first-lien notes due 2026, receiving $270 million after discounts and financing costs, and issued $500 million of 10.5% first-lien notes due 2025 earlier in 2020. It also borrowed $322.2 million under revolving credit facilities during the nine-month period.
- The second-lien notes may pay interest in kind for the first three interest periods, subject to limitations; AMC estimated this could conserve $120–$180 million of near-term cash. The notes carry a 10% cash rate or 12% PIK rate, as applicable.
- AMC’s lenders waived maintenance covenants through March 31, 2021; the filing says the next required compliance test in the following 12 months is June 30, 2021. AMC had drawn the full availability, net of letters of credit, on its U.S. and Odeon revolving facilities.
- AMC raised $2.9 million gross through its ATM share offering in September. By October 30, it reported $53.2 million gross proceeds from October ATM sales and a further $33.8 million gross proceeds under an additional offering, with fees and share dilution.
- AMC agreed to sell its Baltic theatre interest for approximately €77.25 million, including about €64.35 million cash consideration. It received $37.5 million upon transferring a 49% interest; remaining transactions, subject to regulatory clearances, were expected in 2021.
Outlook, risks, and unusual items
- At September 30, AMC had reopened 467 U.S. theatres at 25%–40% capacity and 321 international theatres at 25%–50% capacity. Attendance at reopened theatres was down approximately 83% in the U.S. and 74% internationally versus comparable prior-year periods. By late October, renewed restrictions had led to closures in several European countries.
- Management said that, without materially higher attendance or additional liquidity, existing cash could be largely depleted by the end of 2020 or early 2021. AMC stated that substantial doubt existed about its ability to continue as a going concern for a reasonable period and warned that, if liquidity sources are unavailable or insufficient, it would likely pursue an in-court or out-of-court restructuring; common shareholders could lose their entire investment.
- Cash needs depend heavily on attendance, film availability and release timing, reopening restrictions, consumer confidence, landlord negotiations, and operating costs. Management warned that rent cash outflows could increase significantly in 2021 after agreed deferrals. Potential additional financing, asset sales, landlord concessions, and other liquidity sources were uncertain and might not be sufficient.
- AMC expects 2020 capital expenditures, net of landlord contributions, of $130–$160 million and 2021 capital expenditures of $80–$100 million. These are estimates, not assurances of funding availability.
- Debt restructuring generated estimated cancellation-of-debt income of $1.2 billion for tax purposes. AMC expected related tax-attribute reductions to eliminate a significant portion of net operating losses and credits, potentially weakening future cash flows. The filing also identifies securities and derivative-related litigation and contingent lease guarantees; management said unfavorable litigation outcomes could materially affect results.
- Other notable items include COVID-related international government assistance, debt-modification fees, fair-value changes on convertible-note derivatives, and additional theatre and goodwill impairments. AMC suspended dividends and share repurchases under debt-covenant restrictions.
Important facts for investors to verify
- Whether AMC obtained enough additional liquidity to meet obligations beyond the stated end-2020/early-2021 cash runway, and the terms and dilution of subsequent financing.
- Actual attendance, theatre reopening and closure levels, film-release schedules, and progress toward positive operating cash flow.
- Whether landlords granted lasting rent relief and how deferred rent payments affect 2021 cash requirements.
- Compliance with debt covenants when testing resumes, and the ability to pay cash interest and refinance or service substantial debt.
- Final tax effects of cancellation-of-debt income, subsequent impairment charges, and developments in material litigation or contingent lease guarantees.