AMC Entertainment Holdings, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; unaudited. AMC operates theatres primarily in the United States and reported one segment, Theatrical Exhibition. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Key financial results
| Metric | Q2 2015 | Q2 2014 | H1 2015 | H1 2014 |
|---|---|---|---|---|
| Revenue | $821.1 | $726.6 | $1,474.2 | $1,349.3 |
| Operating income | $94.2 | $68.4 | $126.2 | $85.9 |
| Net earnings | $43.9 | $31.4 | $50.1 | $26.9 |
| Diluted EPS | $0.45 | $0.32 | $0.51 | $0.27 |
| Adjusted EBITDA | $157.8 | $131.8 | $273.5 | $233.8 |
| Operating cash flow | Not stated separately | Not stated separately | $192.9 | $106.2 |
Q2 revenue grew 13.0%, operating income 37.7%, and net earnings 39.9% year over year. H1 revenue increased 9.3%, operating income 46.9%, and net earnings 86.2%. Operating margin was approximately 11.5% in Q2 versus 9.4% a year earlier, and 8.6% for H1 versus 6.4%. A simple operating-cash-flow-less-capital-expenditures measure was $49.2 million for H1 2015, compared with negative $9.0 million in H1 2014.
- Q2 admissions revenue increased 11.4%, reflecting attendance growth of 7.3% and average ticket price growth of 3.8%. Food and beverage revenue rose 18.4%, including a 10.2% increase in revenue per patron.
- For H1, attendance grew 3.8% and average ticket price rose 3.3%; food and beverage revenue per patron increased 10.6%.
- Film exhibition costs rose faster than admissions revenue: 55.4% of admissions in Q2 versus 53.7% in 2014, and 54.5% for H1 versus 52.9%. Management attributed this to a mix of higher-grossing films with higher film-rental percentages.
- Cash and equivalents were $179.3 million at June 30, down from $218.2 million at year-end. Current assets were $462.6 million and current liabilities $616.9 million, a $154.4 million working-capital deficit. Deferred revenue and income accounted for $176.8 million of current liabilities.
- Corporate borrowings were $1,748.9 million; capital and financing lease obligations were $105.9 million. Total debt and lease obligations were $1,864.2 million, including current maturities. The filing reports $137.0 million available under the revolving facility, net of letters of credit.
Material changes and unusual items
- AMC issued $600 million of 5.75% subordinated notes due 2025 and used proceeds plus cash on hand to tender for $581.3 million principal amount of 9.75% notes due 2020. It recorded a $9.3 million extinguishment loss; $18.7 million principal of the 2020 notes remained outstanding at quarter-end. Assuming full redemption, management expected annual cash interest savings of $24 million.
- Interest expense declined 11.2% in Q2 and 11.4% in H1 year over year. AMC stated that it was in compliance with applicable financial covenants at June 30, 2015.
- Termination of the AMC Postretirement Medical Plan generated $18.1 million of H1 net periodic benefit credits, including curtailment and settlement gains; approximately $4.3 million was paid to eligible associates.
- H1 capital expenditures were $143.8 million, compared with $115.2 million in H1 2014. AMC forecast 2015 gross capital expenditures of $320–$340 million, before expected landlord contributions of $65–$85 million.
- Cash dividends paid in H1 totaled $39.3 million ($0.40 per share declared during the period). A further $0.20-per-share dividend was declared July 28, payable September 21, 2015.
Outlook, commentary and risks
- Management said cash from operations, existing cash, and revolving-credit availability should fund operations, planned capital expenditures, and acquisitions and support covenant compliance for at least the next 12 months. No revenue or earnings guidance was provided. Results are seasonal and depend on film-release timing and popularity; H1 results are not necessarily indicative of the full year.
- AMC agreed in July to acquire Starplex Cinemas for $171.8 million in cash, subject to adjustments and customary closing conditions, with closing expected by year-end. Starplex operates 33 theatres and 346 screens. AMC expected to use balance-sheet cash and, if needed, its revolving facility.
- The Department of Justice and attorneys general in Ohio, Texas, Washington, and Florida issued civil investigative demands concerning potential antitrust issues, including film clearances and joint ventures. AMC said it was cooperating, did not believe it violated antitrust law, and could not predict the investigations’ scope or outcome.
- CEO Gerardo Lopez gave notice of resignation effective August 6, 2015; CFO Craig Ramsey was appointed interim CEO and president effective August 7.
- Other material risks include significant indebtedness and interest-rate exposure, film-supply and box-office variability, competition and alternative entertainment, capital needs, theatre renovation execution, regulatory requirements, and litigation. A 100-basis-point rate change would have affected H1 interest expense by approximately $3.8 million on the term loan.
Most important facts for investors to verify
- Whether attendance, ticket pricing, and food-and-beverage spending gains persist, and how film-rental costs affect margins.
- Completion and economics of the 2020-note redemption, the stated $24 million annual interest savings, and the company’s debt and liquidity position after the Starplex acquisition.
- Actual 2015 capital spending and landlord contributions versus the forecast ranges, alongside cash generation and dividend payments.
- Developments, potential costs, and operational consequences of the antitrust investigations and Starplex regulatory review.
- The extent to which H1 earnings benefited from the one-time $18.1 million benefit-plan credit and other unusual items; Adjusted EBITDA is a non-GAAP measure and excludes specified items.