AMC Entertainment Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015; comparable figures are for 2014. The company operates movie theatres and reports one segment, Theatrical Exhibition. Unless otherwise noted, financial amounts below are in millions of dollars. Results are unaudited.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $688.8 | $633.9 | $2,163.0 | $1,983.2 |
| Operating income | $35.5 | $28.5 | $161.8 | $114.5 |
| Net earnings | $12.2 | $7.4 | $62.2 | $34.3 |
| Diluted EPS | $0.12 | $0.08 | $0.63 | $0.35 |
| Adjusted EBITDA (non-GAAP) | $109.0 | $90.1 | $382.4 | $323.9 |
- Q3 revenue rose 8.7% year over year; operating income increased 24.6% and net earnings 65.1%. Approximate operating and net margins were 5.2% and 1.8%, respectively, versus 4.5% and 1.2% in Q3 2014.
- Nine-month revenue grew 9.1%; operating income rose 41.3% and net earnings 81.7%. Approximate operating and net margins were 7.5% and 2.9%, versus 5.8% and 1.7% in the prior period.
- Q3 admissions revenue rose 5.7%, supported by attendance growth of 7.4%, partly offset by a 1.6% decline in average ticket price. Food and beverage revenue increased 14.7%; food and beverage revenue per patron increased 6.8%.
- For the nine months, attendance increased 4.9% and average ticket price 1.7%. Food and beverage revenue per patron rose 9.3%. Management attributed growth to film performance, theatre renovations, food and beverage initiatives, and pricing changes.
- Nine-month cash flow from operations was $209.2 million, compared with $118.6 million. Investing cash outflow was $217.1 million, including $215.6 million of capital expenditures. Operating cash flow less capital expenditures was approximately negative $6.3 million.
- Cash and equivalents were $97.9 million at September 30, 2015, down from $218.2 million at year-end 2014. Working capital was negative $210.3 million, including $167.9 million in deferred revenues and income. The company reported $137.1 million available under its revolving credit facility, net of letters of credit.
- Corporate borrowings and capital and financing lease obligations totaled $1.860 billion carrying value, including current maturities. Long-term corporate borrowings on the balance sheet were $1.747 billion. Total liabilities were $3.152 billion.
Changes, outlook, and material items
- AMC issued $600 million of 5.75% subordinated notes due 2025 and used proceeds plus cash to repurchase approximately 96.9% of its 9.75% notes due 2020. The refinancing generated a $9.3 million extinguishment loss in the nine-month period. AMC expected the refinancing to reduce annual cash interest expense by $24 million. It announced plans after quarter-end to redeem the remaining $18.7 million of 2020 notes in December 2015.
- Management expected 2015 gross capital expenditure cash outflows of $320–$340 million, before anticipated landlord contributions of $65–$85 million. It stated that operating cash, existing cash and revolver availability should fund operations, planned capital expenditures and acquisitions for at least the next 12 months, while maintaining covenant compliance.
- AMC agreed to acquire Starplex Cinemas for $171.8 million cash, subject to adjustments and customary conditions, with closing expected by year-end 2015. Starplex operated 33 theatres and 346 screens. Funding was expected from balance-sheet cash and, if necessary, the revolver.
- Nine-month results included an $18.1 million net periodic benefit credit associated with termination and settlement of the postretirement medical plan; eligible associates received approximately $4.3 million in payments. This credit reduced reported general and administrative expense.
- The IRS proposed adjustments to the company’s 2012 tax return. AMC recorded a $1.9 million discrete tax provision for interest, reinstated approximately $17.7 million of deferred tax assets, and recorded $19.6 million of current interest and taxes payable; it also estimated an additional New Jersey tax liability of about $0.7 million. The filing describes the matter as proposed, not resolved.
- The Department of Justice and several state authorities were investigating potential antitrust issues involving film clearances and joint ventures. AMC said it believed it had not violated antitrust laws and was cooperating, but could not predict the investigations’ scope, duration, or outcome.
- CEO and President Gerardo Lopez resigned effective August 6, 2015. CFO Craig Ramsey became interim CEO and President on August 7. Wanda owned approximately 77.85% of outstanding common shares and 91.34% of combined voting power.
- Management identified seasonality and dependence on film supply and popularity as important business characteristics. The filing provides no formal earnings guidance; its outlook principally addresses liquidity, capital spending, the Starplex acquisition, and theatre investment plans.
Investor verification points
- Confirm the Starplex acquisition’s closing, final purchase price, financing, and integration results.
- Track cash balances, working-capital deficit, revolver availability, capital spending, landlord contributions, and dividend capacity.
- Review the remaining debt maturities and refinancing savings against actual interest expense and cash flows.
- Assess whether attendance, ticket pricing, food and beverage spending, and renovated-theatre performance persist beyond the reported periods.
- Monitor the IRS proposed adjustment and antitrust investigations for developments, potential financial exposure, or operating restrictions.
- Distinguish recurring performance from the postretirement medical-plan credit, debt-extinguishment loss, and other adjustments included in reported or adjusted results.