AMC Entertainment Holdings, Inc.
Q1 2020 Earnings Call Transcript

Published: 9 Jun 2020

[Operator:]

Greetings and welcome to AMC Entertainment’s First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Mr. John Merriwether. Thank you. You may begin.

[John Merriwether:]

Thank you, Devin. Good afternoon. I'd like to welcome everyone to AMC’s first quarter 2020 earnings conference call. With me this afternoon is Adam Aron, our President and Chief Executive Officer; and Shaun Goodman, our Chief Financial Officer.

[Adam Aron:]

Thank you, John. Good afternoon, everyone. We're very pleased you could join us today. Let me start by saying on behalf of all of us at AMC, we hope that each of you and your families are safe and healthy. For the past 84 days, internally within AMC we've interacted constantly via video and audio calls but for the first time in a long time, Sean, John, and I are actually in the same room physically to bring you this call as we reopened our theater support center headquarters here in Leawood, Kansas, a lovely suburb of Kansas City, just yesterday. This afternoon, while we'll take a brief look at the first quarter results, we'll focus much more on what we believe is of primary interest to most listeners on the call, and that is the actions we've taken to manage through this crisis and the actions we will be taking to prepare to safely welcome our guests back to our theaters once again. Before we begin, given what we've seen on the streets of U.S. cities these past 14 days and nights, I'd like to preface my remarks today by pointing out that at AMC theaters in the United States, more than half of our guests and more than half of our employees come from diverse communities from within the American melting pot. So, last week on the day of the very moving memorial service for George Floyd, I put out a strong and lengthy message to all of our employees expressing our outrage and heartbreak over the killing of Mr. Floyd and our special concern for the pain being felt among African-Americans. That was coupled in the strongest possible language with the reaffirmation of AMC's absolute rock solid and unshakable commitment that discrimination of any kind against anyone has no home or shelter at AMC.

[Sean Goodman:]

Thank you, Adam. And thank you everyone for being on the call with us today. I hope that you and your families have been safe and well during these unprecedented times.

[Adam Aron:]

Thank you, Sean. Over the past three months, we have not hesitated to move expeditiously and making difficult but necessary decisions to manage through this crisis and to position AMC well for a successful resumption of theater operations when it's safe for our guests and associates to return to our theaters. On the subject of immediate cost cutting, the robust nature of our actions is almost breathtaking. By just two weeks after our mid-March theater-decision, we had already set in motion, shedding or deferring almost 90% of our ongoing cash expenditures. Think of that, a $5 billion multinational operating across 15 countries on three continents, chasing away almost 90% of its cash spending in the blink of an eye. I remember last August how we agonized over eliminating 50 positions in the name of efficiency. This March by contrast, we furloughed around 35,000 people with a single decision, not callously, not mindlessly, not indifferently, but because we knew with certainty that there simply was no other choice. Last year, I spent more than four full months discussing with and convincing our senior officers as to the wisdom of our all taking a 15% reduction in total compensation in exchange for a sizable out of the money share grant. This March by contrast, our senior officers came to me and in a single conversation insisted that we all take an additional 20% salary reduction in exchange for absolutely nothing, solely because it was the right thing to do. For a century, we paid our theater landlords the rent that we owed them, and right on time to boot. In the second quarter of 2020, nada, and with their understanding and cooperation, I might add, with almost everyone focused on getting through this now and rebuilding AMC to visit position of strength and success. As I said, the Company is taking big bold action and doing so swiftly. On the subject of liquidity, Sean earned his AMC stripes really fast and did a truly masterful job in containing cash going out the door. Similarly, our success in raising $500 million of new public market debt in April, at least temporarily silenced all those journalists who were breathlessly reporting with certainly that AMC would lead to Hertz, Neiman Marcus and J Crew in the bankruptcy court. On the debt race, I would especially like to call out and thank Citibank and Silver Lake who threw everything they had into the effort of getting AMC a $0.5 billion of fresh cash. As most of you know, 2020 is AMC's 100th anniversary. In 100 years of business activity, one picks up a lot of friends and allies along the way. Citibank and Silver Lake are two of those, and we're very grateful for their extraordinary skill and dedication to our Company. And if it’s completed, the bond offer that Moelis and Weil, Gotshal crafted is currently in the market and could be another huge step forward for AMC. Now, let's turn to the subject that's on everyone's mind, the resumption of operations at our theaters. In Europe, last week, we successfully opened the doors of our first three theaters in Norway. In a highly encouraging bit of trivia, even though those three theaters were limited in ticket sales to 25% of seat capacity, we sold 83% of our available seats this past weekend. Additionally, food and beverage spending held up nicely. So, taking all things into consideration, amazing but true, these three theaters wound up doing about the same business this weekend this year, as they did for the same weekend last year. As we sit here today, we now have 10 theaters currently operating across four countries, Norway, Germany, Spain and Portugal. On Monday, we will start operations at theaters in Italy. More theaters and more countries, again, we're welcome paying guests in June. Our current expectation in our two largest territories is that but for a few exceptions, essentially all of our theaters in the United States and the United Kingdom will resume operations in the month of July. Our current plan is to have almost all of our theaters globally operating in July, which is time for and assumes that the industry stays on schedule for Warner Brothers release of Christopher Nolan's Tenet currently scheduled for July 17th, followed by Disney's release of Mulan currently scheduled for July 24th. The second half of this year continues to have strong film slate that benefits from really big titles, such as Wonder Woman 1984, Black Widow, Top Gun

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Eric Wold with B. Riley FBR. Please proceed with your question.

[Eric Wold:]

Thank you. Good afternoon, everyone. Glad you guys are all back, back together. A couple of questions, I guess. One, I know you saw some fluid situations out there in terms of when theaters can reopen. Maybe give us a better sense of, once you get the green light in a region or have a fairly good sense of when that green light will come, when you start hiring employees back and what's the timeline to get a theater ready? And would you ever going to plan to have a theater ready open for tenants, even if you don't necessarily know that market will allow it yet or you have to wait until you completely have that green light?

[Adam Aron:]

Thanks, Eric. So, yes, it's fluid. I believe that for 14 of the 15 countries that we serve, we have national guidelines as to reopening dates. The only country that I think has not yet declared is Saudi Arabia. In addition though to national guidelines, there are local guidelines. And that's especially important in the United States, which is the largest movie market in the world. We were greatly heartened that last night, the Governor of California announced that theaters could open on June 12. That was new and welcome news. We still want to engage with the mayors of Los Angeles and San Francisco. But we believe that both will be on time for a July 17 Tenet opening date, assuming that that date holds. New York State has similarly announced the theaters there can reopen for Tenet, assuming it stays on schedule of July 17. The Mayor of New York City has not yet opined as to when the five boroughs of New York, the city, not the state, will reopen. We expect to know that soon. We can open the -- because we've been planning this now for three months and our planning efforts have been massive, we actually can open our theaters very quickly. I actually was on the telephone earlier -- Zoom call earlier today with the managers of the 635 theaters that we have in the United States discussing our reopening planning with them and telling them to be ready to open on a moment's notice. We do believe that we can open our theaters in a matter of a week or two, at the most to find as the date from when the first employee shows up inside a theater to when all the employees are in a theater and it's open for business. And we would expect, as I said, with a handful of exceptions, there may be a few theaters that economically we decide not to reopen, because they weren't making all that much money beforehand. That we should have all of our theaters, essentially all of our theaters, pick the number, 97%, 98% of our theaters open in time for Tenet and Mulan, if they hold to those dates. Other circuits, who’ve opened earlier than that have opened with what's called catalog products at discounted prices, meaning older movies, old not necessarily meaning Gone with the Wind, but, movies that some might be very old, some might be classic, some might be movies from last year. We'll do the same, but we also think that optimizing the profitability of our theaters is a good idea. And our attendance and our revenues will be much more or lush on the new movie releases rather than playing the repertory older product. So, we also think that it's important, as I said over and over again in the script, to operating our theater safely and well. It is our view that some jurisdictions, which try to open various venues as early as the first of May, were opening prematurely. We're much happier opening in June and July, with the bulk of our theaters opening in July, not in June, giving more time for preparation and more time for the world to get the pandemic under better control and containment. So, to be more safe and to be more profitable, we're going to open our movie theaters right up before Tenet but not much before Tenet. In terms of Tenet and for that matter, Mulan, based on conversations we had as recently as last night, those two movies are still on schedule for July 17 and July 24. There are a whole host of movies that are also being released in the month of August. But, we can't guarantee you that those dates won't slip. Those decisions are made by Warner and by Disney, and by the other studios who release. What I do know is that we will be ready to open our theaters whenever new movies are ready for us.

[Eric Wold:]

Thank you, Adam. Last question, I guess maybe for Sean, is given that we’re kind of going into a kind of new world so to speak, I guess with attendance restrictions, at least initially coupled with your efforts to control costs in places last year offset by intentionally new costs and cleaning procedures, et cetera, maybe give us a sense of how you expect four-wall margins to kind of vary, on various attendance levels as you kind of ramp up, if you’re initially restricted to 25% that goes to 50%, and then always you staff accordingly. How would you expect that that delta to move your margins?

[Adam Aron:]

So, we're both going to take this question, Eric, because it's so important. A reminder to one and all, even the 25% limitation is not nearly as painful as you would think on first blush. If you think about a Broadway theater, all of us have gone to a Broadway theater in our lives at one time or another, you often find that every seat is sold for every performance. By contrast, if you look at the movie theater industry, we are very much a church built for Easter Sunday. And our theaters are mostly empty, not mostly full. And that's the reason why it was so easy for AMC to reduce seat capacities when we renovated seats and renovated theaters by putting in reclining seats. Because what we were doing, we were pulling out empty seats. Even with a number of theaters that have reclining seats installed today, if you look at the number of seats that we had available for sale in 2019, again, for tickets that we sold, we only sold 17% of our seats. So, when you marry that up against the 25% seat limit and certainly against the 50% seat limit, you don't chase out many guests. Of course, you're going to chase out some Friday and Saturday night guests. But, we looked at the economic modeling, and we went back and ran our theaters, as if we had imposed a 50% seat limit last year. And it knocked out only about 12% of our guests and that assumes that no one shifted the performances that they went to see, based on not having available seats or alternatively, because of a desire on the consumers part of social distancing to go to performances that are not as full. So, really, even a 50% seat limitation, probably only knocks out a single -- when you especially factor in this voluntary redistribution of performances that people go to done by the consumer, even a 50% seat limitation only knocks out single-digit attendance at AMC. And the difference between 25% and 50% isn't a whole lot greater. So, it's a counterintuitive notion, but the seat limit capacity is not as painful as you might think given that last year, we only sold 17% of our available seats. Having said that, it goes without saying that the more full our auditoriums are, the better our margins will be, and the less full that our theaters are, the worse that our margins will be. And while I'd love to think that the whole world is going to operate like Norway did where in our very first weekend, we essentially did the same business as last year. That seems to be too optimistic of an assumption. And we've seen market research that says the vast majority of our customers are going to come immediately back to theaters, but not all of them, and that there will be a ramp up of increasing attendance over time, which does mean that there should be a ramp-up of our margin increasingly over time, which means that our margin on the first day of Tenet will not be as good as our margins at Christmas or our margins in 2021 or beyond. Sean, do you want to add anything to that?

[Sean Goodman:]

No. Thank you, Adam. Two other things I'll just add to that is, one is we looked at this very carefully when designing the opening plan for our theaters. So, what you would expect is the first theaters to open versus the last theaters to open before the major studio releases. The last theaters will be the ones that require higher level of attendance in order to break even in the first one, which could break even earlier. The other point -- and I think Adam mentioned this as well is we have a flexible asset base in terms of capacity. Unlike live theater or sports, we can adjust times, we can adjust number of screens, we can adjust the number of screen times and that allows us to manage our profitability quite well. And then, as Adam said, we could operate very profitably at 40%, even significantly lower capacity levels as we have done in the past on average.

[Adam Aron:]

And if I can just add to that last point, Sean's, we’re in dialogue with every studio, big and small, as you would expect. And they're saying to us, holy mackerel! Capacity limitations. And we're saying, right, but we normally play 20 movies. We have theaters with 14 screens. We have some theaters with 24 and 30 screens. When Tenet and Mulan come out, don't worry about seat capacity limitations, we’ll double or triple or quadruple the number of auditoriums that we allocate to showing Tenet or Mulan, as examples among many. So, we have a lot of arrows in our quiver to make sure that the seat capacity limitations don't hurt us.

[Eric Wold:]

Perfect. Thank you, both.

[Adam Aron:]

And if I can add one more thing, it's the inverse of that. Right? We can add a lot of showtimes by adding screens. Also, if attendance is light, we can decrease the number of showtimes, especially in the off peak periods. Remember, our theaters -- routinely we’re open at 10 in the morning till 1 in the morning. If demand is lighter than normal, we can take out a lot of operating costs by reducing showtimes in those very marginal time slots when there's not much demand, which allows us to concentrate opening hours and lower costs and therefore improve our economic performance.

[Operator:]

Our next question comes from the line of Meghan Durkin with Credit Suisse. Please stay with your question.

[Meghan Durkin:]

Hi, guys. So I want to -- so, in your discussions with the landlords, have you been able to negotiate any reductions to your rents going forward, not just the deferrals? And follow-up, I hope you allow me this one. Since Silver Lake needs to approve the exchange, I wonder if its board members were involved in the decision to commence the exchange.

[Adam Aron:]

Sure. Before we begin, I owe you an apology because on the last earnings call you ask me about 15 questions about the coronavirus in Italy. And I think I said something like it's like eight theaters in Italy. 2.5 weeks later, it is 1,000 theaters in 15 countries. But back to your question of today, on landlords, yes, we've had -- we have literally hundreds and hundreds of different leases with different landlords all across the world. We've had considerable success so far in abating and deferring rent. But yes, we've also had considerable success especially for the second half of 2020 in actually lowering rents and converting rents from fixed price rents to percentage of revenue rents. And similarly with other individual landlords, we have been talking about forgiving rents, not just deferring rents from the Q2, but actually forgiving rents in Q2. And with other landlord we've added considerable success and discussions about actually reducing our rents going forward, not just for a short period of time like in 2020, but permanently with respect to the entire duration of the lease. On the issue of the bond exchange offer, you're absolutely correct that to get it done, we need the consent of the bondholders, who will be exchanging their bonds. Those are individual consents, not a universal consent. We will need Silver Lake's consent to do the whole thing. And of course, it goes without saying that our Silver Lake board member has refused himself from all matters associated with the exchange effort, as you would properly expect good corporate governance in place.

[Meghan Durkin:]

Okay, got it. I'll leave it there. And, no issues on the last call.

[Adam Aron:]

Got it. We got the worst health problems since 1918. We've got the worst economic crisis since the 1930s. And we have the biggest social unrest in United States of 1960s. If there is a fourth one in the world would like to throw at us, I just want to know if you want to predict what that one is, since you certainly had corona called 90 days ago.

[Meghan Durkin:]

No, please no. I can't take anymore.

[Operator:]

Our next question comes from the line of Chad Beynon with Macquarie Group. Please proceed with your question.

[Chad Beynon:]

Hi. Good afternoon. Good to hear you're all well. At the beginning you guys talked about just everything you've done reexamining all of your theaters and just the business in general. And I was wondering if you could comment on how you're thinking about domestically, the 200 or so classic theaters, which I believe haven't received a lot of the same CapEx and renovations as the others versus I guess your AMC branded and kind of the renovated theaters, which I believe are almost fully CapEx. So how does that fit into your future thinking? And the sidebar of that is, should we expect any closures in either of those segments? Thanks.

[Adam Aron:]

Thanks, Ted. Look that's a very important question. And I'll take it the way you framed it. Let's just start with the classic theaters. While they are not as profitable as AMC theaters, they are not unprofitable, they're just not very profitable. So for example 90% of our cash flow comes in -- that's a rough number, John will correct me if I'm wrong, 85% to 90% of our cash flow comes out of the AMC and AMC Diamond brand, but that doesn't mean that there is no cash flow coming out of the classic brand, even though each of those theaters individually is not nearly as profitable as each of the big papa bear AMC theaters. So that's sort of one way to look at it. The second way to look at it is to the extent that we have an unprofitable theater, you have to look at profitability two ways, is it absolutely unprofitable or is it not making a big profit, but it's providing contribution to overhead that is greater than the rent that is contractually owed to the landlord in which case it's better for that theater to be in operation because it's contributing to overhead maybe not much, but it's contributing to overhead. So again those theaters stay open. Having said that, we have some -- we have about 50 or so theaters that we own in the United States where we don't even -- where there are no theater leases if any of those theaters are unprofitable they may not reopen. I'm expecting that we're going to open up 97%, 98% of our US theaters in July, but I wouldn't be surprised if a couple of percentage points maybe 96%, if a couple of percentage points of our theaters we choose not to reopen because their profitability is marginal. Over time meaning looking ahead, not just the next 90 days, or 180 days, but looking into '21 and '22 and '23, we're going to have to take a very hard look especially as theaters come up for normal lease expiration. We're going to go through an exhaustive analysis of every single theater and make the determination whether that theater stays in our fleet or it leaves our fleet or it only stays in our fleet that we can renegotiate terms with the landlord such that rents are more affordable going forward on a let's say five year contractual extension. I don't see anything that's going to decrease our theater count that would have us fall below, being the largest theater operator in the United States. Having said that, I don't think we'll be at 635 theaters either because we are going to take a very hard look at profitability, and we want to run those -- we want to run those theaters that are contributing to overhead and shedding those theaters that are not.

[Chad Beynon:]

Okay, that's perfect. Thanks, Adam. And then Sean, I'm going to be a little greedy here, you gave us the March quarter end cash balance and then you gave us the April 30 cash balance of $718 million, are you willing to give us a more updated number? A May number, which might help us kind of bridge what your monthly cash burn was in May and then kind of what that would essentially assume for June or are you holding that back because of the bond offering?

[Sean Goodman:]

Well, I won't give you direct numbers, but I will give you some guidance to point you in the right direction perhaps, maybe we can compromise at that level. If you think about the information that we've publicly disclosed at the moment, what we said when we raised the additional $500 million that would give us approximately $800 million cash equivalent at the beginning of the second quarter. We said that that would be sufficient cash to enable us to withstand a suspension of our field operations right through to Thanksgiving, so $800 million eight months. Now, we wouldn't use all of that cash, so that would had nothing at the end of November. Obviously, there would be a cash balance to that point of view. So our monthly cash burn is something slightly south of $100 million and that includes the debt servicing costs run at about $24 million a month. So you can kind of use that to roughly estimate what the cash position is at the end of May and at the end of period thereafter. We have to be careful because we are in the market with the bond offering, we got to know them out and we have to be careful what new numbers we supply. So what I will -- and just one other thing I'd add to that our cash burn is in line with to slightly better with than our expectations when we did the bond offering we are managing very well toward the projections that we had as Adam indicated in his prepared remarks, I am watching the cash very carefully.

[Adam Aron:]

Like a hawk. We're going to give a new nickname, like a hawk. But you didn't ask this question, but since it is related, we're not only bring down operating costs. We said in the remarks that we are taking capital expenditures to the bare bone. I think Sean in his prepared remarks, said that CapEx expenditure in the first few months was under $80 million. We think that for the remaining 10 months of the year CapEx maybe another $50 million to $80 million, meaning that total CapEx for the year will be somewhere between $130 million and $160 million. You may recall, last year we were spending over $400 million, two years before that we were spending around $600 million and we gave guidance that CapEx would be $250 million to $300 million this year, we always said that if we needed to turn on the brakes and turn CapEx off immediately, we have the ability to do it. And if anybody doubted that we could pull that off, well we just pulled that off because CapEx this year is going to be $130 million to $160 million in total. Had we not spend $80 million in the first or $75 million to $80 million in the first two months of this year, the CapEx burn would have been a lot less than $130 million to $160 million this year.

[Sean Goodman:]

And just one quick clarification on that. That's net CapEx, the numbers that Adam is referring to.

[Adam Aron:]

All of those numbers were net CapEx, including for the prior period.

[Operator:]

Our next question comes from the line of Eric Handler with MKM Partners. Please stay with your question.

[Eric Handler:]

Thank you very much for the question. One to Adam, wonder if you could talk about New York City a little bit, specifically what percentage of your US circuit in terms of screens or revenue does New York City account for? And considering that the state or the city just entered its Phase 1 of reopening and theaters I believe are part of the Phase for opening, how hopeful are you that New York City could be part of a July opening?

[Adam Aron:]

Well, you know, we're a major player in New York City. We have a market share in excess of 40%. But we do have 600 -- well, we -- pre-corona, we had 635 open theaters in the United States. New York City represents single digit percentage of our total circuit. You know Eric, obviously I would love for New York City open as soon as it can and as soon as it's safely can. I've already said that as a company, AMC did not rush out the opening of theaters ahead of when we thought it was safe to do so. So we are empathetic with the public officials in New York City who have a herculean task to try to get a city of 8 million people open in a healthy manner. I don't -- so I don't really want to make any predictions whether New York City will be open for a July 17 Tenet date or not. I hope so. They probably will just skirt through it. They might not. And the reality is, I think if you asked the mayor of New York that question, he wouldn't know the answer either. I think what we learn over the next four weeks will determine what happens four weeks from now. As I said in my earlier remarks, it's a very fluid situation. But let's hope we can get open. New York State certainly -- I shouldn't say -- I should never use the word certainly about anything in this environment, but based on current expectations, New York State is supposed to open broadly in early July ahead of Tenet. New York City will be right on the cusp. And of course that assumes that the Tenet holds on July 17 and that's a decision that's being made in a different boardroom than ours.

[Eric Handler:]

Fair enough. I wonder, could you comment a little about A-List, where ended up in the first quarter? I'm assuming you've -- that you're telling your customers that you're halting their payments and how churn is holding up through this pandemic.

[Adam Aron:]

So let's just talk about January-February, we talk about now. So A-List was great in January and February. We were over 900,000 members. Film usage was right in the sweet spot of where it had been in the months prior. The program as we look at -- the program profitability was greatly profitable. It was a big reason, not the only reason, but a big reason why our EBITDA was up $53 million as a company year-over-year in two months. Extrapolate that. If we had been up $53 million every two months of EBITDA for all of 2020, how would this company have looked financially going forward. This was a year we were going to harvest free cash flow and all these wonderful plans we laid out pre-coronavirus. As soon as we did theater shutdown, we went out to all of our AMC Stubs members and all of our AMC Stubs A-List members, we paused all payments without them having to take any action, and we are -- when -- I talked in my remarks, there were seven things we're going to do. One of them is an aggressive plan of marketing communications and promotional activity. Some of that will be aimed at our A-List population. When we go out with our -- our resumption of operations, communications to our guests will tell them what we're going to do with respect to A-List going forward. I don't want to jump that gun. I think our members deserve to hear first, what we're going to do for them, rather than doing it on this call and having it bleed out into the press. But I can tell you that A-List population is a very important part of our customer base. Roughly 15%, in very round numbers, of our customer base. The Stubs population in total -- these are of our US customer base. The Stubs population in total is a very important part of our customer base. It's right around half of our customer base. They're very important to us. We will take a lot of action to make them happy with AMC to give them benefit that hopefully will propel them to come right back into our theaters. What the result of all that activity will be, none of us are going to really know until, A, we do it, and B, the theaters are open and operating, and we see how they respond. So I think rather than guessing -- it would just be a guess. Rather than guessing how they'll perform ahead of time, we'll be very open and comprehensive in giving you information about how they did perform as we report third quarter numbers.

[Eric Handler:]

And just as a refresh…

[Adam Aron:]

Hey Eric, I can tell you how they're going to perform in the second quarter. They're not going to go to a single movie in the second quarter.

[Eric Handler:]

Yes. Just as a refresh, you said January-February, there was about 900,000 members. How does that compare to where you ended 2019 in December?

[Adam Aron:]

It was right around the same. We think we...

[Eric Handler:]

Okay.

[Adam Aron:]

Thank you. Thank you, Eric.

[Operator:]

Our next question comes from the line of David Miller with Imperial Capital. Proceed with your question.

[David Miller:]

Hey guys, a few questions. Sean, I'll start with you, and Adam, if you want to chime in or contribute, that would be great. I know you guys are still in the market with the second-lien notes. Can you say though whether or not the second-lien notes are going to rank pari passu with the term loan? And then I've a couple of follow-ups. Thanks.

[Sean Goodman:]

It's Sean. We're not in the market with the first-lien notes. Sorry, just repeat the -- you said you know we are still in the market with the first-lien notes?

[David Miller:]

So, my understanding is that the first-lien notes rank pari passu with the term loan. So, but you're out with second-lien notes. You're out in the market with second-line notes.

[Sean Goodman:]

With the Exchange Offers? Yes.

[David Miller:]

Yes.

[Sean Goodman:]

Sorry, and what was the question?

[David Miller:]

Will that rank pari passu as well as the initial offering?

[Sean Goodman:]

No. It won't.

[David Miller:]

Okay. All right, fair enough. And then...

[Adam Aron:]

Second-lien is second-lien. First-lien is first-lien. But those notes that exchange would be ahead of those notes that do not exchange.

[Sean Goodman:]

Correct.

[David Miller:]

Right, exactly. We can -- there are some nuances to that we can talk about it offline, that's totally fine.

[Adam Aron:]

Actually, we -- hey, Sean -- actually, David, we can't talk about it on this call, and we can't talk about it online. We're in the market with an active bond exchange. We've got to live on the OM, and not say much more than that publicly.

[David Miller:]

Okay. And then, I appreciate the color about the rents. In many cases, obviously rents are going to be deferred. Can you talk about like in general, how is this going to be reconciled on the back end of the virus? Is some or all of it going to have to be paid back in 2021, or is it more like fourth quarter '20, or how would you -- if you were us, how would you model that?

[Adam Aron:]

It literally varies agreement by agreement, landlord by landlord. But we are trying to get agreements in place that extend repayment at least until the end of 2021. And in some cases, we've got -- we're approaching agreement to have repayment over a period of six years. So it really depends deal by deal. All the deals aren't done yet. We'll probably be able to give you more color on a future call as we make more progress.

[David Miller:]

Okay, great. And then, Adam, any progress in sort of warming relations with Universal? We're obviously aware of the letter that you wrote. You stated that you're not going to show any Universal films that was, I don't know, six, seven, eight weeks ago or so. I'm more asking the question actually on behalf of MGM shareholders who might be on the call and who are somewhat worried about James Bond 25 out in November because Universal is the international distributor on that film.

[Adam Aron:]

Thank you for the question. So look, relations are warm with Universal. You said they were not warm. Relations with Universal have always been warm. And I am using warm as a good word as opposed to not a good word. There is nothing personal about this issue with Universal. I have great respect for Universal executives. I think they have great respect for us. This is just an issue about money. And we are in active dialog with Universal, but if you look at the press release on Page 3, it says and I quote, while we are in active dialog with Universal, no movies made by Universal Studios are currently on our docket. We'll see how it all shakes out.

[David Miller:]

Okay. And then real quickly, Adam, were you aware of the attendance caps imposed by the State of California Health Department today prior to what you announced today? Were you aware of that when you wrote up the script, or were you just made aware of that today?

[Adam Aron:]

Are you talking about the 100 cap on attendance?

[David Miller:]

No, the 25% caps out here in California with this limit and its caps.

[Adam Aron:]

It's a 25% cap, and in no case more than 100 people. We had all that yesterday -- well, before it was announced by the Governor, but certainly immediately after it was announced by the Governor, and all the comments we made on this call today assumed those caps, were it -- would be in place. The Governor of California also said that they would quickly reevaluate those caps of 25% and 100 seat -- 100 maximum people per performance and possibly re-evaluate that in a matter of weeks after the June 12 reopening. But as I -- that's why I've been saying throughout the call more than once, this whole situation is quite fluid and things are going to change. And they're not going to -- and they're going to change on a daily and weekly basis. And you can be sure we're very much in touch with all these authorities and have a very good sense of what's going on.

[David Miller:]

Okay, great. Thank you very much.

[Operator:]

Ladies and gentlemen, we have time for one final question from the line of Jim Goss with Barrington Research. Proceed with your question.

[Jim Goss:]

Thank you. One question is involving the capacity limitations that was just brought up, to some extent. But in general, to the extent that -- are the limitations and capacity really primarily an issue in just the most densely populated urban areas, which I know is a big share of your emphasis? And are those areas also ones where you might have the most flexibility in say film times and that sort of thing that might have people willing to spread around and maybe minimize the impact? Just want to know what your thoughts are on that.

[Adam Aron:]

Yes. So Jim, it's a great question. I don't -- I think if you look at the whole portfolio of our theaters, we got flexibility everywhere. We have 1.1 million seats in the United States with an average of 4.5 show times a day pre-corona's -- 365 days a year. And we only sold 250 million tickets. We do not lack for seats. And we have 8,000 screens in the United States. And whether it's a big city or a small location, the average AMC theater has more than 12 screens. Between all those screens, all the showtimes, we have enormous flexibility to move people around. That's why I said that the seating limitation cap is much less of a problem for us than it is for other industries. Let's just think of other industries that sell seats. Right. The load factor on U.S. airplanes pre-corona was probably in excess of 75% of their seats sold. The average sports team tends to sell out its arenas every night with often with 100% of seats being occupied. At AMC, we sold 17% of our seats last year. If there is anybody who can get through this social distancing, seat-blocking capacity limitation thing, it's our industry as an industry. And with respect to AMC as a company, I do believe that our company is data-rich, very analytic, has lots of quantitative analyst resource within the company. And so I think within the industry, our ability to manage through this is even better than a lot of our smaller competitors who may not be as quantitatively sophisticated as is AMC.

[Jim Goss:]

Okay. And one other...

[Adam Aron:]

Jim, just -- I don't think the issue that you should to be worried about is a limitation on supply. The issue is, what's the level of demand. We can accommodate whatever level of demand the world wants to throw at us. Last year, we could have basically increased our demand and accommodate our demand if it grew six-fold, which it certainly is not going to do in a coronavirus situation. So the issue for us to manage through is what happens if it's less than last year and how we manage our way through that from a cash burn standpoint, from a profitability standpoint, from a ramp-up standpoint. And we're all over it. And you had one more that you wanted to ask.

[Jim Goss:]

Well, the one other thing I was going to ask was related to some of the cost benefits you might have developed. How does the coronavirus -- mainly working from home and office space utilization, are there savings you think might persist beyond this where you may not need quite as much space or in terms of -- yeah, suppose it's mainly headquarters, but it could be other areas as well within the company. So, are there things that will persist beyond the pandemic?

[Adam Aron:]

Oh! Yes. The answer to your question is, oh! Yes. Remember, we had a profit improvement plan that we announced a year back? I think we said that we did identified $75 million of savings and therefore we were going to commit to $50 million because we wanted to make sure we got it all. We told you something, we want to deliver on it. We got to be looking for hundreds of millions of dollars of savings, because the revenues are not going to come back to pre-corona levels on the first day. They're going to ramp up and they're going to start at some level and they're going to grow. And it's anybody's guess whether that they grow over six weeks, six months or six years. But it's going to take time for them to grow. We're going to be operating not just AMC as a company, but as an industry. And by the way, the whole of the economy is going to be operating in a demand-limited environment, which means that revenues will be harder to come by, which means costs are going to have to be cut. So this isn't just about whether we need less office space at our headquarters. We're going to have to run our company more efficiently at our theaters, in our headquarters. We're going to have to cut labor cost, we're going to have to cut non-labor cost, and the management team here does not have small targets or small aims. We've got to balance our revenues with our costs -- or, we got to balance our costs with our revenues to the extent that it's possible to do so, and we are on the case with big targets in mind.

[Jim Goss:]

All right, thanks. I'll let it go there.

[Operator:]

Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the call back over to Mr. Adam Aron for any closing remarks.

[Adam Aron:]

Thank you, operator. Look, I thank you for participating in the call. I'm just going to end it with one sentence. We will do everything in our power to make sure that this company thrives and prospers. With that, see you at the movies.

[Operator:]

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.