AMC Entertainment Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results; comparisons are against 2020, when almost all theatres were temporarily closed for much of Q2 due to COVID-19.
Business context and operating recovery
AMC operates theatres in the U.S. and internationally. At June 30, 2021, it owned, operated or had interests in 947 theatres and 10,552 screens. It reported 593 domestic theatres operating (approximately 100% of domestic locations) and 335 international theatres (approximately 95%); capacity restrictions were easing during the quarter.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $444.7 million | $18.9 million | $593.0 million | $960.4 million |
| Operating loss | $296.6 million | $471.6 million | $724.4 million | $2,457.7 million |
| Net loss | $344.0 million | $561.2 million | $911.2 million | $2,737.5 million |
| Net loss per share | $0.71 | $5.38 | $2.07 | $26.25 |
| Adjusted EBITDA (non-GAAP) | $(150.8) million | $(340.3) million | $(445.5) million | $(337.2) million |
Q2 revenue rebounded as theatres reopened: attendance was 22.1 million versus 0.1 million a year earlier. The six-month revenue decline was 38.3%, reflecting limited operations, lower attendance and delayed or alternatively distributed films. Q2 operating loss and net loss narrowed year over year, but losses and negative Adjusted EBITDA persisted. Six-month Adjusted EBITDA worsened year over year.
For the six months, operating cash flow was negative $546.7 million (versus negative $415.9 million); investing cash flow was negative $2.5 million; financing cash flow was positive $2,066.9 million. Cash and cash equivalents were $1.811 billion at June 30, up from $308.3 million at year-end 2020; cash plus restricted cash was $1.840 billion. The cash increase was principally funded by equity and debt financing, not operating cash generation.
Working capital, excluding restricted cash, was positive $425.5 million, versus a deficit of $1.105 billion at year-end. Unused capacity under the Senior Secured Revolving Credit Facility was $211.9 million, net of letters of credit.
At June 30, corporate borrowings were approximately $5.50 billion on the balance sheet ($5.480 billion long-term and $20 million current); finance lease liabilities were $79.4 million. Operating lease liabilities were $5.493 billion. Corporate borrowing principal maturities include $580.4 million in 2023 and $3.830 billion in 2026. Six-month corporate borrowing interest expense was $239.6 million, versus $150.9 million.
Material changes and financing
- ATM equity offerings raised $1.612 billion gross in the first half; fees and other costs reduced proceeds. AMC also issued 8.5 million shares to Mudrick for $230.5 million gross. Class A shares outstanding were 513.3 million at June 30 and August 2, 2021.
- Silver Lake and co-investors converted $600 million of convertible notes into 44.4 million Class A shares, reducing first-lien debt but increasing share count. AMC also issued $100 million of 15%/17% cash/PIK toggle notes and Odeon borrowed under a high-coupon term loan due 2023.
- AMC sold its remaining interests in Estonia and Lithuania, completing the Baltics divestiture; it recorded a $5.5 million gain.
- Q2 other income included $42.2 million of international COVID-19 governmental assistance; first-half other income included $54.6 million of COVID-related assistance.
Outlook, risks and unusual items
Management believed cash and expected operating cash generation would fund operations, obligations and covenant requirements for at least 12 months. It said achieving positive operating cash flow and long-term profitability requires attendance to rise significantly toward pre-COVID levels. Management expected reopenings and the film slate to help, but emphasized uncertainty.
- AMC forecast 2021 capital expenditures, net of landlord contributions, of $100–$120 million, primarily for maintenance.
- Approximately $420.6 million of rent payments had been deferred as of June 30; cash rent outflows were expected to rise significantly in the second half of 2021 and later years.
- The revolving-credit financial covenant suspension was extended through March 31, 2022, subject to conditions including minimum liquidity. AMC’s stated minimum liquidity requirements totaled approximately $145 million. The secured leverage covenant is scheduled to resume beginning with the quarter ending June 30, 2022; management expected compliance if attendance assumptions were met.
- Key risks include renewed COVID restrictions or variant concerns, weak attendance, movie-release delays, shorter theatrical windows and direct-to-streaming practices, high debt and interest burden, refinancing and covenant compliance, and the possibility of needing additional liquidity. AMC warned that insufficient liquidity could lead to a restructuring in which common shareholders could lose their investment.
- AMC disclosed substantial share dilution and extreme trading-price volatility, noting that market prices may not reflect operating performance. It also reported a securities class action in which a purported class was certified in March 2021; other shareholder derivative matters were stayed or pending.
- No impairment charges were recorded in the first half of 2021; the comparable 2020 period included $1.852 billion of impairment charges, materially affecting the year-over-year loss comparison. First-half 2021 interest expense included a $70 million non-cash write-off associated with conversion of the convertible notes.
Important facts for investors to verify
- Whether attendance, film availability and theatre operations recover enough to reduce continuing operating cash burn.
- How AMC will meet deferred rent obligations and debt maturities, particularly the 2023 and 2026 principal payments, and whether it can comply with covenants when the suspension ends.
- Whether additional equity issuance or other financing is needed, and the resulting dilution and financing costs.
- Whether the $100–$120 million capital expenditure outlook and management’s at-least-12-month liquidity assessment remain achievable under updated operating conditions.
- Developments in the securities litigation and other contingencies, as well as the effect of COVID variants, theatrical release windows and studio distribution practices.