AMC ENTERTAINMENT HOLDINGS, INC. annual report, FY2022

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AMC Entertainment Holdings, Inc. — 2022 Form 10-K

Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022; it is not a quarterly filing. AMC operates movie theatres in the United States and international markets, earning most revenue from admissions and food and beverage sales. At year-end, it operated or had interests in 940 theatres and 10,474 screens across 12 countries. The audited financial statements received an unqualified opinion, and management and the auditor reported effective internal control over financial reporting.

Financial performance and liquidity

  • Revenue: $3.911 billion, up 54.7% from $2.528 billion in 2021. Admissions revenue was $2.201 billion (up 57.9%); food and beverage revenue was $1.314 billion (up 53.2%); other theatre revenue was $396.3 million (up 43.4%). Attendance rose to 201.0 million from 128.5 million, but remained well below 356.4 million in 2019.
  • Profit and margins: Operating loss was $522.3 million, compared with a $930.0 million loss in 2021; net loss was $973.6 million, compared with $1.270 billion. Operating margin was approximately -13.4% (2021: -36.8%) and net margin approximately -24.9% (2021: -50.2%). Adjusted EBITDA, a non-GAAP measure, was $46.6 million versus negative $291.7 million; it was positive $59.6 million in U.S. markets and negative $13.0 million internationally. These adjusted results do not represent cash available for debt service or capital spending.
  • Costs: Film exhibition costs were 47.8% of admissions revenue, versus 43.6% in 2021; food and beverage costs were 17.4% of related revenue, versus 16.1%. Rent expense rose 7.0% to $886.2 million. AMC recorded $133.1 million of long-lived asset impairment charges, up from $77.2 million; no goodwill impairment was recorded in 2022.
  • Cash flow: Operating cash outflow was $628.5 million, slightly greater than $614.1 million in 2021. Investing cash outflow was $224.0 million, including $202.0 million of capital expenditures. Financing cash outflow was $91.3 million. Cash and cash equivalents fell to $631.5 million from $1.593 billion; cash plus restricted cash was $654.4 million at year-end.
  • Debt and liquidity: Corporate borrowings had a $5.141 billion carrying value and $4.949 billion aggregate principal amount at year-end; finance lease obligations were $58.8 million. Discounted operating lease liabilities were $4.820 billion, and deferred pandemic-related lease amounts were $157.2 million. Working capital was negative $811.1 million, versus positive $54.6 million in 2021. AMC had $211.2 million of unused capacity under its $225 million revolving facility and was subject to a $100 million minimum-liquidity condition. The revolving facility’s financial covenant suspension was extended through March 31, 2024; the facility matures April 22, 2024.

Material changes versus 2021

  • Revenue and attendance improved substantially as theatres operated essentially without restrictions, but both remained below pre-pandemic levels. 2022 revenue of $3.9 billion compares with $5.5 billion in 2019.
  • Net loss narrowed by $296.2 million, and Adjusted EBITDA improved by $338.3 million. Operating cash outflow nevertheless increased by $14.4 million, reflecting deferred-rent repayments and working-capital use.
  • Interest expense fell to $378.7 million from $458.1 million, while impairment charges increased. Other expense included substantial debt-extinguishment costs, partly offset by gains on debt repurchases and government assistance.
  • AMC issued 207.7 million AMC Preferred Equity Units through an at-the-market program for $228.8 million gross proceeds. It also declared a special dividend of one preferred unit per common share. As of February 22, 2023, 517.6 million common shares and 929.8 million preferred units were outstanding.

Outlook, risks and unusual items

  • Management expects a stronger 2023 film slate and believes attendance and revenue can continue recovering, but provided no quantified revenue or earnings guidance. It said revenue must increase significantly toward pre-COVID levels for sustained positive operating cash flow and long-term profitability, and described current cash burn rates as unsustainable.
  • Management believed available cash and operating cash generation would cover operations, rent, planned capital expenditures and applicable liquidity requirements for at least 12 months. It also cautioned that liquidity needs are difficult to forecast and that additional financing may be necessary beyond that period; failure to obtain sufficient liquidity could lead to a liability restructuring or bankruptcy, potentially wiping out equity investors.
  • For 2023, AMC estimated capital expenditures net of landlord contributions of $150 million to $200 million. Near-term contractual cash requirements include $417.6 million of interest, $20.0 million of corporate-borrowing principal, $973.2 million of minimum operating lease payments, and $9.1 million of finance lease payments.
  • Key operating risks include film release delays or fewer releases, shorter theatrical exclusivity and direct-to-streaming competition, dependence on a small number of studios, inflation, labour and supply constraints, and high energy costs in Europe. Further impairment charges are possible. Debt, rent and interest obligations constrain financial flexibility.
  • In 2022 AMC issued $950 million of 7.5% first-lien notes due 2029 to refinance higher-rate debt, and issued $400 million of 12.75% Odeon notes due 2027 to repay its Odeon term loan. These transactions extended maturities but leave significant interest costs. AMC also repurchased debt below par and recorded gains on extinguishment.
  • Subsequent events include Antara-related preferred-unit issuances and debt exchanges, a January 2023 sale of AMC’s Saudi Cinema Company investment for approximately $30 million, and proposed charter amendments to authorize additional common shares and a 1-for-10 reverse split to facilitate preferred-unit conversion. Shareholder lawsuits sought to block implementation; a court status quo order permitted the March 14, 2023 vote but barred implementation pending further court action.
  • AMC disclosed a February 2023 modification of performance awards that triggered approximately $20.2 million of additional stock-based compensation expense and estimated cash tax-withholding payments of $9.1 million. Tax assets remain subject to substantial valuation allowances; a 2020 debt restructuring had eliminated $1.2 billion of federal net operating losses.

Most important facts for investors to verify

  • Whether attendance, box office releases and revenue recover enough to reduce operating cash burn, and whether recovery assumptions support management’s liquidity outlook.
  • Cash balances, revolver availability, covenant conditions, debt maturities and cash interest requirements, together with repayment timing for deferred rent and other lease obligations.
  • Progress and terms of any additional financing, debt repurchases, equity issuance or exchanges, including their cost and dilution to common shareholders and preferred-unit holders.
  • Outcome and implementation status of the charter-amendment proposals and related litigation, including the effect of any conversion or reverse split on the two securities.
  • Whether planned 2023 capital spending and new initiatives can be funded while maintaining required liquidity, and whether future impairment charges or tax-asset valuation changes arise.
  • Reconcile the reported $5.141 billion carrying value of corporate borrowings with the $4.949 billion principal amount, and distinguish operating lease liabilities from corporate debt when assessing total obligations.