AMC Entertainment Holdings, Inc.
Q1 2022 Earnings Call Transcript

Published: 9 May 2022

[Operator:]

Good day, and welcome to the AMC Entertainment's First Quarter 2022 Earnings Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Merriwether, Vice President of Capital Markets and Investor Relations. Please go ahead.

[John Merriwether:]

Thank you, Cerra. Good afternoon. I'd like to welcome everyone to AMC's first quarter 2022 earnings webcast. With me this afternoon is Adam Aron, our Chairman and CEO; and Sean Goodman, our Chief Financial Officer. Before I turn the webcast over to Adam, let me remind everyone that some of the comments made by management during this webcast may contain forward-looking statements that are based on management's current expectations. Numerous risks, and uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. Many of these risks and uncertainties are discussed in our most recent public filings, including our most recently filed 10-K and 10-Q. Several of the factors that will determine the company's future results are beyond the ability of the company to control or predict. In light of the uncertainties inherent in any forward-looking statements, listeners are cautioned to not place undue reliance on these statements. The company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events. On this webcast, we may reference non-GAAP financial measures such as adjusted EBITDA, operating free cash flow, operating cash burn, operating cash generated among others. For a full reconciliation of our non-GAAP measures to GAAP results, please see our earnings release posted in the Investor Relations section of our website. After our prepared remarks, there will be a Q&A Session. This afternoon's webcast is being recorded, and a replay will be available in the Investor Relations section of our website at amctheatres.com later today. With that, I'll turn the call over to Adam.

[Adam Aron:]

Thank you, John. Good afternoon, everyone and thank you for joining us today. Following on the heels of our progress throughout 2021, AMC's first quarter of 2022 marked yet another milestone. Thanks in part to Sony's UNCHARTED and Warner Brothers, The Batman, it was our best first quarter in 2 years. And we exceeded market expectations with a more than fivefold or $637 million improvement in revenue. And an almost 80% or $233 million improvement in adjusted EBITDA compared to the same quarter of a year ago. What a difference a year makes. We are especially encouraged that when they did come to our theaters, our guests have been spending like never before, with revenues per patron through the roof at AMC up 34% above pre-pandemic norms and meaningfully higher than was seen at our largest competitors. During our last earnings webcast, we noted the timing of when big movies would release this year, not because of streaming and not because of COVID fears among patrons, but rather solely because of what titles would open when. We told you in our last call that the first quarter of 2022 would be the softest quarter of this year, and that box office numbers would improve sequentially as the year progressed. This view remains exactly how we see this year unfolding, with an improving box office and improving financial performance at AMC each and every successive quarter. But the real news of the day is the $187.4 million domestic opening, and the $450 million global opening of Disney's Doctor Strange. This one was the biggest movie opening of 2022, and the second biggest opening of the pandemic era, second only to Spider Man

[Sean Goodman:]

Thank you, Adam, and thanks everyone for joining us this afternoon. During the first quarter, we welcomed 39 million guests to our theaters around the world. That's a very significant increase from the 7 million guests that we entertained in the same period last year. And our Q1 2021, sorry, Q1 2022 attendance generated revenue of $785.7 million. This is more than 5x the $148.3 million of revenue that we had in Q1 of 2021. In addition, our Q1 '22 adjusted EBITDA improved by $233 million to a loss of $61.7 million. And this compares to a loss of $294.7 million in Q1 of 2021. Clearly, we are making meaningful progress along our recovery path. While Q1 revenue and attendance were well below pre-pandemic levels, this is precisely as we predicted in our most recent quarterly earnings call. Knowing that the timing of when the big movies would be released this year we said then that the industry box office would rise markedly in calendar year 2022 but that most of the strength would occur in the second half of 2022. In Q1, we saw that the box office momentum built as the quarter progressed. And Q2 has started off strong. Just as fast we can look at the robust Doctor Strange opening. Indeed, consumers are flocking to the theaters once again. We are very encouraged by the compelling upcoming film slate and are consistently very strong post-pandemic operating performance. That reflects our laser focused on both the guest experience and profit improvement initiatives to grow and enhance the business. First quarter consolidated revenue per patron or $0.20.11. 33.7% higher that pre-pandemic Q1 of 2019. Consolidate admissions revenue per patron was up 23.9% and consolidated food and beverage revenue per patron was up 40%, both of this compared to the first quarter of 2019. In our domestic business, admissions revenue per patron increased by 28.5% compared to pre-pandemic Q1 2019 and our international business achieved a 15% increase. The admissions revenue per patron growth was driven by increasingly choosing to upgrade to the very best possible site and sound experiences that could only be found at our premium large format offerings such as IMAX, Dolby Cinema and AMC Prime. PLF, or premium large format attendance, represented 16% of our domestic attendance in Q1 of 2022 compared to 13% in the first quarter of 2019. And in our international markets, Q1 2022 PLF tenants represented 9.5% of compared to 8.1% in the first quarter of 2019. In addition, we also benefited from an overall favorable Showtime mix, coupled with pricing adjustments, including blockbuster and opening weekend pricing. From a food and beverage perspective, we continue to enjoy exceptionally strong food and beverage revenue per patron as our guests enjoy the full outside-the-home entertainment experience that is offered at AMC. In our domestic markets, food and beverage spend per patron in the first quarter was $7.52. That is 43.7% higher than the average spend in pre-pandemic Q1 2019. And in the international business, food and beverage spend per patron was $4.40, and that is 35% higher than pre-pandemic Q1 of 2019. Our significant food and beverage outperformance continues to be primarily driven by an increase in the proportion of guests choosing to enjoy our industry-leading food and beverage offerings that are made easy and convenient to purchase through the AMC app. Consolidated other revenue per patron in Q1 2022 increased by 82.4% compared to the same period in 2019, with domestic other revenue per patron increasing 93.5% and international other revenue per patron increasing by 61.9%. These statistics reflect an increasingly higher percentage of guests that are choosing to reserve their seats and to order their food and beverage in advance using our industry-leading website and app, together with the benefit of diversification initiatives that we've deployed such as renting our theaters during off-peak times to businesses and government organizations for meetings or other events. In an ongoing effort to enhance efficiency, we continue to be extremely agile in adjusting payroll hours and flexing showtimes to reflect the market demand and to optimize our efficiency. For example, our Q1 domestic attendance of 25.8 million guests represented 46.9% of Q1 2019 attendance, but it also represented 71% of Q1 2019's attendance per showing. Moving to cash and liquidity. We ended the quarter with a liquidity of approximately $1.4 billion comprised of $1.165 billion of cash and cash equivalents and $211 million of undrawn credit facilities. As anticipated and as discussed during last quarter's webcast, cash burn this quarter was adversely impacted by normal seasonal Q1 working capital needs. Our working capital almost always comes under pressure during Q1 following a strong Q4 holiday box office, and this year was no exception. Operating cash burn representing cash burn before debt servicing costs and before deferred rent payback was $223.9 million and this compares to $321.6 million in Q1 of 2021. Looking ahead, we expect our cash burn to improve sequentially through the year, with Q2 being better than Q1, but still relatively weak. But with the second half of 2022 being substantially better than the first half with positive operating cash generation by the fourth quarter. Regarding capital allocation, we continue to pursue a balanced and very disciplined approach to capital allocation. Our priorities remain unchanged

[Adam Aron:]

Thank you, Sean. Before we open up this webcast to questions, I'd like to update you on some of our key strategic initiatives to enhance value for AMC and for our shareholders. Let's start with our strategy at AMC, which can best be described with three unmistakable words

[Sean Goodman:]

Thanks, Adam. So we have a few questions to start relating to the upcoming shareholder meeting. Specifically, there's questions about people's voting materials, when they will be received, what is on the docket for voting at the shareholder meeting. And there's a question about will international shareholders be allowed to vote at this meeting.

[Adam Aron:]

Thank you for the question. Our shareholder meeting is scheduled for June 16 at 2

[Sean Goodman:]

Thanks, Adam. So the next question is about our entry into the retail popcorn business. The specific question is when is popcorn likely to be available in stores?

[Adam Aron:]

As I said in my prepared remarks, our hope is that we can be there in the fourth quarter of this year, 2022. There's a lot of action behind the scenes, including discussions with various major retailers. And the one thing I know is that our microwave and ready popcorn is going to be a strong competitor. Our brand resonates with consumers. We are known for popcorn. I've had lots of ideas submitted by shareholders that we should include something called a golden ticket with our packaging. That's a great idea. And I'm sure that we will, sort of like Cracker Jack has a gift in every box, I wouldn't be surprised if we have some benefit relating to AMC Theatre moviegoing in every box of our perfectly popcorn. Let's hope we can get there in the last trimester of 2022.

[Sean Goodman:]

One of the many questions that -- sorry, one of the many suggestions that we've had is relating to AMC merchandise. And there's a question of when can people expect to be able to purchase AMC merchandise.

[Adam Aron:]

So the suggestion of AMC merchandise is also a good idea. And we've tested some either at our theaters or online. We've had -- you may recall, we had a Ghostbusters Ambulance that we sold out of. We had Batman popcorn holders that we sold out of. And what's very clear to us is the merchandise is going to work for us. We are in the process of figuring out now how to make AMC-branded merchandise and movie themes merchandise available to our guests, whether at theaters or online. Look for that to unveil to consumers sometime in the second half of 2022.

[Sean Goodman:]

So people are asking what sort of marketing and initiatives are being done when we acquire new theater locations.

[Adam Aron:]

Well, I will answer the question of what we are doing in a second, but let me start by saying, it sure is working. Look at what's going on at The Grove and The Americana brand out in L.A. These were good and strong theaters for Arclight. It's why we took them into our -- and Pacific. That's why we took them into our network. But their performances soared in our watch. There are like 5,000 movie theaters in the country, and these two have consistently been performing in the top 30 ever since we took them over. In terms of what we do, the first thing that we look at is how can we upgrade the product, bring AMC service levels and amenities into the theaters that we acquire. We will be doing the same thing at the Bow Tie theaters in Connecticut, Upstate New York and Annapolis that we did out West. In the case of some of our theaters, we're going to be installing IMAX locations or Dolby Cinema locations or both. Beyond improving the product, we are also bringing our loyalty programs to these theaters. AMC Stubs, our frequent moviegoing program; AMC Stubs A-List, our monthly subscription program. We are also then, as we convert customers from these theaters into our loyalty program, we’re then communicating with them frequently, certainly on a weekly basis to let them know what's coming at AMC. We are adding to all this local marketing through social media, including paid media, and as I said, it's all working really well so far. And I might add, we are not done. We are going to add more high-quality theaters to our network throughout 2022.

[Adam Aron:]

Some questions about dividends. When will AMC pay a dividend?

[Sean Goodman:]

Well, I have seen suggestion after suggestion that you'd like to see us pay a dividend. I think we've announced publicly previously that our current debt documents prevent us from paying a cash dividend prior to June of 2023. So this is not really a decision for today. This is a decision for a year down the road.

[Sean Goodman:]

Another one of the many suggestions, will AMC make its own movies?

[Adam Aron:]

This one is a particularly interesting topic. Several years ago, AMC owned 50% of Open Road Films, where we did make our own movies, and in fact, got the Oscar in 2016 for the Best Picture of the Year with Spotlight. And I have to say that there are a lot of conversations that are underway now with various movie makers about whether we should repeat our activity in prior years of making our own content. It is something that's on the list. We're thinking very hard about it. We've had very serious conversations with some very well-known movie studio executives, major movie directors and it is something that has our attention.

[Sean Goodman:]

With our recent …

[Adam Aron:]

Can I just add while we are on the subject? But even if we were to make our own movies, now is a good time to put in a good word to our long-standing studio partners. Hollywood is turning out great product again, and it's finally being released exclusively in theaters for exclusive theatrical window. And we are just -- I just want to say how grateful we are to the likes of, you name it, Disney, Universal, Warner Bros., Sony, Paramount, Lions Gate, all the makers of movies. And it does raise the question, can we convince some of the streamers to introduce their movies to some of their movies theatrically as well? We have had conversations over the years with Netflix, Amazon and Apple. We continue to make it very clear that we would be very pleased to show some of their bigger, better movies. But in doing so, we have to respect our long-standing industry partners, the major studios. We can't have one set of rules for the major studios and a separate set of rules for streamers. But if we can convince the streamers, that it's in their interest to show movies theatrically, that might be another -- yet another way of getting more movie product into our theaters.

[Sean Goodman:]

So with our recent acceptance of cryptocurrencies and other forms of payment, people want to know, to what extent are these new forms of payment being accepted, including Dogecoin, Bitcoin, et cetera?

[Adam Aron:]

So this was only put on our radar screen by our shareholders. And there was just enormous interest in it. And so we went down the path of doing the programming required to accept cryptocurrency. And what we found is that the same programming that was needed to accept cryptocurrency is the exact same programming that we needed to accept Apple Pay and Google Pay, PayPal and a whole bunch of other payment types. And it's been a massive home run for us. While crypto itself is modest in usage, when you take all of those new payment types that we introduced for AMC as a result of our exploring crypto, again, it's in the neighborhood of one-third of our total online ticketing is now being paid for in all these various alternate payment methods. So I would say this whole endeavor has been a massive success for us. And of course, the Holy Grail is do we actually ever consider launching a cryptocurrency of our own? We've said publicly that we're intrigued by that notion. We are studying that notion. The biggest issue that we want to make sure that we get exactly right is that we believe the regulatory environment around cryptocurrency will radically change during 2022 and in 2023. And we want to make sure that if we do embrace issuing cryptocurrency rather than just accepting cryptocurrency, that we anticipate the new regulatory climb as well, and we stay on the right side of the law.

[Sean Goodman:]

People are interested in our plans with respect to NFTs. Up until now, we've been largely using them for promotional purposes. There's questions as to whether AMC would look to sell NFTs in the future?

[Adam Aron:]

So that also is an interesting question. That also was put on the radar screen by our shareholder base. I said in my earlier remarks that we have 8 NFT programs either already been launched or in the works. And we, historically -- sorry, we only have 4 of these programs so far, but historically, we've been giving away these NFTs. We did an interesting poll on Twitter saying, "Should we continue to give them away free or should we sell them?" And the results of that poll, in very round numbers, are two-thirds or two-thirds said, "Keep giving it away free." But a healthy percentage said that we should sell some NFTs to generate some funds. So who knows exactly what we will do going forward? Maybe we will do a mixture of both. Some NFT programs we will give away free, and others we will sell. But we are exploring very carefully and thinking very hard about how to maximize the profitability possibilities that could accrue to AMC from our interest in NFTs. And I would say that with respect to our competition, we are way out in front of any other movie theater exhibitor anywhere on the planet. We've issued literally hundreds of thousands more NFTs than anyone else.

[Sean Goodman:]

There's broad-ranging question here about how we keep AMC relevant with the strength of streaming.

[Adam Aron:]

Well, look, I do think that's playing out before our very eyes. If you look at the pandemic, the period when movie theaters were shut, studios played around with every possible variation of theatrical release, including taking some movies to the home simultaneous with that release. In other cases, just taking movies to the home and not releasing them in theaters overall. I think we've convinced Hollywood that the way to optimize their profitability is for them to support their streaming services, but also to support theatrical exhibition. Theatrical window has returned. That's good for the future and relevance of movie theaters. Beyond that, though, if you really look at the darker times for revenue generation over the past 24 months, it's been because there just wasn't a lot of good movies coming out. It wasn't so much the quality of movies that was bad, it was the quantity of movies that was depressed. What's happened of late that started in the fourth quarter of 2021, finishing up with huge hit in Spiderman

[Sean Goodman:]

And finally, a question about our partnership with Dreamscape and our plans with respect to that partnership. Will AMC consider more Dreamscape locations, for example.

[Adam Aron:]

Well, for those of you who don't know what Dreamscape is, it's a really innovative virtual reality product. We opened up three Dreamscape locations, One in New Jersey, one in Ohio, one in Texas to test them. The product is spectacular. The economic returns are okay. They're not spectacular, but they're okay. We are told that there are changes in the technology coming with VR that will make it more affordable to introduce more Dreamscape locations. So with respect to Dreamscape specifically, we will see. But the fact that we are willing to embrace Dreamscape 3 or 4 years ago, I think is yet another signal of AMC's willingness to embrace alternate content. And this summer, we experimented with a variety of interesting concepts showing concert movies, some live, some on tape. We showed WWE and UFC events in our theaters. For 2 of the past 3 years, we showed NFL games on Sunday afternoons in our theaters. And I just have a strong view that if we can obtain the rights to show professional sporting events or collegiate sporting events in our theaters going forward, that would be very popular with our guests. So all of this is in the works. And the minute we strike a rights deal with a major league, we will put out a press release. With that, are there any other questions? Do we have time? It's already 59 minutes in. We kind of promised people an hour. So maybe, operator, we will take a question and then call it a day.

[Operator:]

Thank you. It appears we have reached our time limit for the conference. This concludes our question-and-answer session. I would like to turn back to you for closing remarks.

[Adam Aron:]

All right, Operator, I guess we are done. We tried. Closing remarks. Very simple folks, we had a good quarter. We are on the march forward, we are in the middle of a long road to recovery. But if you ever want to get enthusiastic about where we are on that road, just look at the $187.4 million, 26% of it was ours, from the Doctor Strange in the Multiverse of Madness this weekend, go see it at an AMC theater near you. And I am telling you, whatever you do in life, do not miss Top Gun

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.