AMC Entertainment Holdings, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. AMC operates theatres in the U.S. and internationally. All theatres were temporarily suspended by March 17, 2020, due to COVID-19. The filing was submitted June 9, 2020, relying on the SEC’s COVID-19 reporting extension.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Total revenue | $941.5 million | $1,200.4 million | Down 21.6% |
| Admissions revenue | $568.0 million | $731.5 million | Down 22.4%; attendance fell 24.2%, partly offset by higher average ticket prices |
| Food and beverage revenue | $288.1 million | $368.8 million | Down 21.9% |
| Operating loss | $1,986.1 million | $33.7 million | Includes $1,851.9 million of non-cash impairment charges |
| Net loss | $2,176.3 million | $130.2 million | Loss per share was $20.88, versus $1.25 |
| Adjusted EBITDA | $3.1 million | $108.2 million | Down $105.1 million; U.S. segment was negative $3.8 million |
| Operating cash flow | $(184.0) million | $1.4 million | Outflow reflected operating disruption and working-capital payments |
| Capital expenditures | $91.7 million | $114.8 million | Full-year 2020 estimate was $130–$160 million, net of landlord contributions |
Film exhibition costs were 47.8% of admissions revenue, compared with 49.9% a year earlier. Food and beverage costs were 18.5% of related revenue, versus 16.7%, including charges for obsolete inventory following theatre closures.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $299.8 million, with another $10.0 million restricted. Working capital, excluding restricted cash, was negative $1,070.3 million.
- Corporate borrowings were $5,020.8 million, excluding finance leases; operating lease liabilities totaled $5,365.8 million, including current and long-term amounts. The company had drawn the available amounts under its U.S. and Odeon revolving facilities.
- Stockholders’ equity shifted from $1,214.2 million at year-end 2019 to a deficit of $1,074.0 million, primarily reflecting the quarterly loss and foreign-currency translation loss.
- After quarter-end, AMC issued $500 million of 10.5% first-lien notes due 2025, receiving proceeds at an original issue discount. The notes add interest and are secured pari passu with the senior secured credit facility.
- Lenders waived maintenance covenants under the senior secured and Odeon revolving facilities through the earlier of March 31, 2021, or specified earlier dates. AMC stated it believed it could remain covenant-compliant for the next 12 months.
Material changes and unusual items
- Revenue declined as attendance and operations deteriorated during March, with theatres closed by March 17. Attendance was down 24.2% overall; average ticket price increased 2.5%.
- AMC recorded $1,744.3 million of goodwill impairment ($1,124.9 million domestic and $619.4 million international), alongside impairments of long-lived and intangible assets. These were non-cash charges and drove most of the reported operating loss.
- Deferred tax asset valuation allowances in Spain and Germany contributed to a $68.2 million tax provision. AMC used a discrete quarterly tax calculation because COVID-19 made reliable full-year taxable-income estimates unavailable.
- AMC deferred $17.5 million of operating lease payments during the quarter and was negotiating rent and operating-expense relief with landlords and other partners.
- The quarterly dividend was reduced to $0.03 per share. Management did not expect further dividends or stock repurchases during 2020; the previously authorized buyback was up to $200 million.
Outlook, risks and contingencies
Management said March 31 cash was expected to withstand a global suspension until a partial reopening in July 2020. Including the April note proceeds and anticipated cash generation after reopening, AMC said it may have sufficient liquidity for operations and essential capital expenditures for 12 months, and believed theatres could reopen that summer or later. These were estimates, not assured outcomes. The filing states that substantial doubt exists about AMC’s ability to continue as a going concern for a reasonable period.
- Liquidity depends on reopening timing, attendance, movie releases, rent relief, cost savings and capital needs. Further closures, weak attendance, delayed films, or unavailable financing could require additional capital, which may not be available on favorable terms or at all.
- AMC expected approximately $18.5 million of CARES Act-related cash tax refunds, payroll-tax deferrals and payroll-tax credits, but said it could not assure timely access to benefits. As of the filing, AMC had not participated in CARES Act loans.
- On June 3, AMC announced exchange offers for certain subordinated notes for new 12% cash/PIK second-lien notes due 2026. The offers and related consent solicitations were subject to conditions; the filing does not establish their eventual outcome.
- Legal matters include securities and stockholder derivative actions and contingent lease guarantees for previously divested theatres. AMC recorded $5.3 million of estimated credit losses on such guarantees in Q1.
Most important facts for investors to verify
- Actual reopening dates, operating restrictions, attendance recovery and the timing and availability of film releases.
- Cash burn and liquidity runway, including access to landlord relief, government benefits, financing and any additional capital.
- Compliance with debt covenants after waivers expire, and the cost and terms of the new first-lien notes and any subordinated-debt exchange.
- Whether further impairments, lease-guarantee losses or deferred tax asset valuation allowances arise.
- Whether the going-concern uncertainty improves as theatres resume operations and cash generation becomes clearer.