AMC Entertainment Holdings, Inc. — Q1 2017 Form 10-Q
Reporting period: Quarter ended March 31, 2017. AMC operates movie theatres in the U.S. and Europe. Results are not directly comparable with Q1 2016: AMC acquired Carmike and Odeon in late 2016 and Nordic on March 28, 2017; Nordic contributed only four days of results.
Key financial results
| Metric | Q1 2017 | Q1 2016 | Change / context |
|---|---|---|---|
| Total revenue | $1,283.4 million | $766.0 million | +67.5%; acquisitions were the primary growth driver |
| Operating income | $55.4 million | $59.3 million | Operating margin approximately 4.3%, versus 7.7% |
| Net earnings | $8.4 million | $28.3 million | Down 70.3%; diluted EPS was $0.07 versus $0.29 |
| Adjusted EBITDA | $251.3 million | $146.5 million | +71.5%; non-GAAP measure, including acquisition-related effects and adjustments |
| Operating cash flow | $166.0 million | $22.9 million | Higher partly from acquired operations, collections of receivables and working-capital changes |
| Capital expenditures | $161.3 million | $57.7 million | Reflects expansion and theatre upgrades |
- Admissions revenue rose 69.4%; attendance increased 82.2%, largely from acquisitions, while average ticket price fell 7.1%. Food and beverage revenue rose 63.0%, but revenue per patron declined 10.5%, mainly reflecting the lower international averages.
- Interest expense increased to $61.9 million from $27.1 million. Merger, acquisition and transaction costs were $40.4 million versus $4.6 million; these included a $22.6 million NCM exclusivity-waiver charge.
- Income tax benefit was $9.2 million, versus an $18.1 million provision a year earlier. The current-quarter result included a $2.7 million discrete tax benefit; pretax earnings were a loss of $0.8 million.
Balance sheet, debt and liquidity
- Cash and equivalents were $313.1 million at March 31, 2017, up from $207.1 million at year-end. Current assets were $891.0 million and current liabilities $1,238.8 million; working capital deficit was $347.8 million.
- Corporate borrowings were $4.18 billion on the balance sheet. The debt-and-lease schedule reported $4.896 billion of combined carrying obligations before deferred financing charges and other adjustments, and $4.793 billion after those adjustments. Current maturities of borrowings and leases were $103.2 million.
- AMC reported $137.1 million available under its revolving credit facility, net of letters of credit, and compliance with all debt covenants. Management said cash, operating cash generation, operating float and equity-offering proceeds were expected to fund operations and planned capital expenditures for at least 12 months.
- Financing included $617.5 million net proceeds from February equity offerings and issuance of $475 million of 6.125% notes due 2027 and £250 million additional 6.375% notes due 2024. The equity proceeds helped repay the $350 million bridge loan; note proceeds funded Nordic consideration and refinancing.
Material changes, outlook and risks
- Acquisitions materially expanded AMC: at quarter-end it operated or held interests in 1,027 theatres and 11,247 screens. International revenue was $291.2 million, compared with $1.8 million in the prior-year quarter, primarily reflecting Odeon; Nordic added 683 screens, including associated theatres.
- Management expected 2017 gross capital expenditures of approximately $700–$750 million, before expected landlord contributions of $150–$170 million. AMC also expected about $10 million of Odeon synergies and $35 million of Carmike synergies; these are estimates, not guarantees. No full-year revenue or earnings guidance is provided in the supplied filing text.
- The DOJ settlement requires divestiture of 17 theatres, transfer of 24 theatres to another advertising network, and reduction of AMC’s NCM ownership to no more than 15% by December 20, 2017, 7.5% by December 20, 2018, and 4.99% by June 20, 2019. AMC classified $188.0 million of NCM units as held for sale. The filing reports NCM’s May 5 closing price was down 31.4% from March 31; estimated investment value was then $330.7 million, $154.5 million below its March 31 carrying value, creating potential further impairment risk.
- Other risks include heavy debt and interest costs, acquisition integration and unquantified purchase-price allocations, film-release performance and seasonality, competition and alternative entertainment, currency exposure, and antitrust investigations. Management described ordinary-course litigation as not expected to materially affect the company overall, while acknowledging uncertain outcomes.
- The business is seasonal, with stronger attendance generally in summer and holiday periods; management cautioned that Q1 results are not necessarily indicative of full-year results. A $0.20-per-share dividend was declared after quarter-end for payment in June 2017. The filing also says the upcoming lease accounting standard is expected to materially affect the financial statements, but AMC had not quantified the impact.
Most important facts for investors to verify
- Whether acquisition-driven revenue and Adjusted EBITDA translate into sustainable operating and net earnings after higher interest, rent, depreciation and integration costs.
- Actual capital spending, landlord contributions, realized acquisition synergies and resulting cash generation compared with management’s estimates.
- Progress on DOJ-required theatre divestitures and NCM ownership reductions, and the value ultimately realized from NCM unit sales.
- Debt, lease obligations, refinancing capacity, covenant headroom and the sustainability of the quarterly dividend.
- Final acquisition accounting and any subsequent impairment charges, particularly for goodwill and NCM investments.