AMC Entertainment Holdings, Inc. — Q1 2016 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2016; balance-sheet comparisons are to December 31, 2015. AMC operates movie theatres and reported one segment, Theatrical Exhibition. At quarter-end, it operated or had interests in 385 theatres and 5,380 screens. Results are seasonal and the company cautions that first-quarter performance is not necessarily indicative of full-year results.
Financial and operating results
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $766.0 million | $653.1 million; up 17.3% |
| Operating income | $59.3 million; 7.7% margin | $32.1 million; 4.9% margin |
| Net earnings | $28.3 million | $6.1 million |
| Diluted EPS | $0.29 | $0.06 |
| Adjusted EBITDA (non-GAAP) | $146.5 million | $115.7 million |
| Cash from operations | $22.9 million | $21.6 million |
| Capital expenditures | $57.7 million | $69.6 million |
Admissions revenue rose 15.3%, supported by attendance growth of 14.5% and a 0.7% increase in average ticket price. Food and beverage revenue increased 21.8%, including a 6.2% rise in revenue per patron. Film exhibition costs rose faster than admissions revenue; they were 54.4% of admissions revenue versus 53.3% a year earlier. Food and beverage costs were 13.9% of related revenue versus 14.2%.
Cash and equivalents were $107.9 million, down from $211.3 million at year-end. Current assets were $286.7 million and current liabilities $583.9 million, resulting in a $297.2 million working capital deficit. Corporate borrowings were $1.851 billion, versus $1.903 billion at year-end; capital and financing lease obligations were another $91.0 million. Cash used in investing activities was $51.6 million and cash used in financing was $74.6 million. Operating cash flow less capital expenditures was negative $34.8 million.
Material changes versus the prior period
- Operating income increased 84.9%; the operating margin improved by about 2.8 percentage points. Revenue growth reflected stronger film attendance, Starplex Cinemas (acquired in December 2015), and theatre upgrades.
- Net earnings increased substantially, but comparison is affected by an $18.1 million postretirement medical-plan termination and settlement benefit recorded in Q1 2015. Q1 2016 also included higher acquisition-related costs and legal expenses.
- Other income included a $3.0 million gain on the sale of AMC’s RealD shares and $7.2 million of National CineMedia tax receivable agreement payments. AMC received the $13.5 million RealD-sale proceeds on April 9, 2016.
- Cash from operations rose modestly, while capital expenditures declined. Financing outflows increased, including repayment of $50 million drawn under the revolving credit facility and approximately $19.8 million of dividends.
Outlook, commentary, risks and unusual items
- Management expected 2016 gross capital expenditures of $400–$420 million, offset by expected landlord contributions of $120–$130 million, for estimated net cash outlays of $280–$290 million. It stated existing cash, operating cash generation and operating float should fund operations and planned capital expenditures for at least 12 months. AMC reported compliance with its debt covenants at quarter-end.
- AMC agreed to acquire Carmike Cinemas for $30 per share in cash, approximately $757 million. Financing commitments included up to $325 million of incremental secured term loans and a $300 million subordinated bridge loan. Closing remained subject to regulatory and shareholder approvals, and AMC cautioned that financing on favorable terms was not assured.
- AMC disclosed ongoing federal and state antitrust investigations concerning potentially anticompetitive conduct, including film clearances and joint ventures. It said it believed it had not violated antitrust laws and was cooperating, but could not predict the investigations’ scope or outcome.
- Other stated risks include substantial indebtedness and refinancing needs, film supply and popularity, competition and alternative entertainment, theatre renovation costs, acquisition integration, and the ability to generate sufficient cash or restricted-payment capacity for dividends. AMC also noted the business’s seasonality.
- Wanda owned approximately 77.82% of outstanding common shares and controlled 91.32% of combined voting power. The board declared a further $0.20-per-share dividend payable June 20, 2016.
Most important facts for investors to verify
- Whether attendance, ticket pricing and food-and-beverage spending continue to support revenue and operating-margin gains, particularly after accounting for Starplex and film-release mix.
- Actual cash generation versus the substantial 2016 capital-spending plan, and the effect of the working capital deficit and dividend payments on liquidity.
- Current debt balances, interest-rate exposure and covenant headroom; AMC estimated a 100-basis-point rate change would affect quarterly interest expense by $2.3 million.
- Completion, financing terms, regulatory outcome and integration costs for the proposed Carmike acquisition.
- Developments in the antitrust investigations and any resulting restrictions, costs or liabilities.
- The extent to which reported earnings and Adjusted EBITDA depend on items such as investment income, equity-method distributions and adjustments excluded from the non-GAAP measure.