AMC Entertainment Holdings, Inc.
Q2 2020 Earnings Call Transcript

Published: 6 Aug 2020

[Operator:]

Greetings, and welcome to the AMC Entertainment Second Quarter 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Thursday, August 6, 2020. I would now like to turn the conference over to John Merriwether, Vice President of Investor Relations. Please go ahead.

[John Merriwether:]

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

[Adam Aron:]

Thank you, John. Good afternoon, everyone. And thank you for joining us today. Needless to say, I begin the call as I've begun so many over the past several months, I do sincerely hope that all of you and your families are safe and healthy. This is a time that AMC has been waiting for since mid-March, of this horrid horrible year of 2020. More than a third of our theatres in Europe and the Middle East are already open once again and essentially all should resume operations within two weeks. And of course, we are greatly looking forward to the reopening of our theatres in the United States, which seems to be at hand in most, but not all U.S. cities by the end of this month. Both for financial and psychological reasons, we are so eager to delight moviegoers as AMC has done now for a full 100 years. It's no surprise to anyone that was all of our theatre operations suspended between March and May. And most of our theatre operations suspended even now. The COVID-19 once in a century global pandemic has significantly impacted the financial performance of companies across multiple sectors, with the movie theatre industry being particularly hard hit, and AMC has not been exempted from that faith.

[Sean Goodman:]

Thanks Adam. And thank you everyone for joining us this afternoon. I do hope that you and your families have been safe and well during these difficult times. As Adam mentioned, our results for the quarter was severely impacted by COVID-19 crisis, which necessitated the suspension of all our theatre operations in the U.S. for the entire second quarter and all of our international theatres for two-thirds of the quarter. Theatres in our international markets began to reopen in early June, but only on a limited basis. And for the quarter, international attendance was only 100,000 tickets sold compared to around 25 million last year. As of June 30, we have 37 international theatres open, mostly playing older library Hollywood titles, and some local content. As of July 31, that number of open theatres had grown to more than 130. And as of today, we have 184 theatres open internationally. We now have theatres open in every country where we operate abroad. It's very early days, but the initial results from our international locations are encouraging, particularly with respect to food and beverage spend per person, which is holding up nicely and actually running well ahead of last year. We're also especially encouraged by the performance of a local language sequel that just opened in Spain. The sequel this year is actually driving more box office revenue, even in these coronavirus impacted times than the original did last year. And the original was the single highest grossing domestic film in Spain in 2019. Hopefully, this is a harbinger of what can occur when new Hollywood titles are released in the U.S. and overseas starting later this month. But with virtually no revenue generated in the second quarter, our bottom line financial performance in the second quarter is almost irrelevant. What is crucial is how we performed against our priorities, namely the preservation and enhancement of liquidity, the reduction of debt and the management of our expenses. From a liquidity point of view, as of June 30, 2020, we had $498 million of cash, plus $10 million of restricted cash. Our total cash burden for the second quarter was $292 million precisely within our targeted monthly cash burn that I guided you to on our last call.

[Adam Aron:]

Thank you, Sean. In response to the unprecedented environment that we find ourselves in, we’ve taken bold and decisive action to get through this period of extended, suspended operations to best position AMC for the future. Many of my personal friends and business colleagues graciously have asked me in recent months, how stressed am I feeling around, or am I holding up or something like that, given the tough hand that we and the movie theatre business have been dealt? Ironically, I’ve been able to reply each and every time that I honestly haven’t felt any pressure, because if we want AMC to get through this, it was just so obvious to us exactly what we had to do, and so essential that we get the things we needed to do actually accomplished, and to do so expeditiously. The lack of doubt made it easy to proceed. Dating back to March, in a very short period of time this is what AMC has done; eight crucial steps, absolutely necessary, which enable us to move forward. One, we suspended operations and mothballed a multibillion-dollar global enterprise with 1,000 locations spanning three continents in only a week. Two, we’ve reduced our capital expenditures and operating expenses so dramatically while simultaneously stepping up our cash management efforts with such stringency that our sustained cash outlays were cut by an incredible 80% to 90% in just a matter of weeks. Three, in April of 2020, we raised $500 million of new public debt. We needed that cash.

[Operator:]

Thank you. The first question is from Eric Wold with B. Riley. Please go ahead.

[Eric Wold:]

Thank you. Good afternoon. A couple of questions probably for Adam, I guess. I guess, four questions on the Universal deal. Obviously, you spoke with universal extensively on this digital modeling. How do you think about – how should we think about the decision that we made as to whether or not a film is pulled after 17 days or not? I’ll leave that to you kind of answer how you want it. And how will that be communicated to consumers? This communicated well ahead of time? Will they be – a movie showing in a screen so they know it’s on PVOD in 10 days or not be announced until right the release to PVODs. I just want to make sure that they’re not obviously adjusting their behavior as much as they can with advanced notice.

[Adam Aron:]

Thanks, Eric. And I really appreciate the question because it gives me an opportunity to make sure that everybody in the call understands what we actually did. First of all, under the Universal agreement, no movie is being pulled. The movies that go to PVOD at 17 days are going to stay in theatres. And we expect to still sell a whole bunch of tickets at our theatres, even when movies are available on PVOD. There are certain advantages to watching a film on a 40-foot screen than watching a film on a 40-inch screen. Our company has invested billions of dollars over the past few years to make sure that our theatres are in a great condition and that our fleet of theatres appeals to consumers. Similarly, I remind everybody, the conventional wisdom about streaming and PVOD and all this before the pandemic was – by the way, conventional wisdom from people who I disagree with, but that's a different issue, without theatres are an anachronism. Why would anybody go to a theatre, people want to stay home. If the pandemic has taught us anything, it said people would do anything to get out of their house or their apartment. If you told me right now, I could go spend three hours at a hardware store. I would tell you that's an exciting afternoon. And so movies aren't going to get pulled from theatres. They'll stay in theatres, we'll still continue to sell tickets. And on that score yet another reminder, every house has a kitchen. Every apartment has a kitchen. People go out to restaurants all the time. On the issue of when people find out that a film will be going to PVOD, remember that not all films will, so already you've unpredictability as to which films are going to go PVOD and which films are not going to go PVOD. Especially, if some other studios take very few films to PVOD and even Universal itself has said that on many of their films, they won't go to the home in 17 days. By contract with the Universal, they are not allowed to talk about a film being released to the home or to tablet or cell phone or whatever other distribution channel to your laptop I guess. They're not allowed to date that until after the 10-day of the after release. So the only advertising for a movie through its first two theatrical weekends, when well, more than half of the movies, revenues are booked, we'll say only in theatres. It's only the Monday after the second weekend, where Universal can start talking about the fact that this starting this coming weekend, the movie be available in theatres and at home. And finally, one last important point, buried in the press release, no one buried, but it was there, but I'm not sure everybody focused on it. In the press release, we announcing the agreement we contractually reaffirmed with Universal the 74-day electronic sell through window and the even later video-on-demand window than that. So other than the PVOD channel, those cheaper distribution vehicles that exist today for consumers to watch movies in other than theatres are not going to slide forward. And there's been enormous discussion and pressure within the industry over the past four or five years to bring those windows forward. Those windows have been fully protected under the terms of the Universal agreement.

[Eric Wold:]

Perfect. Thank you. And then just one last follow-up on, you think about the theatres reopening in the coming weeks. And we think about it kind of the combination of the operational changes you've made to reduce expenses going forward, including, how kind of offset by some of the expected pressure from enhanced cleaning procedures, et cetera. How should we think about on a consolidated basis, the best you can domestically, what kind of a breakeven level of attendance would look like

[Adam Aron:]

So that simple question, complicated answer. First of all, on enhanced cleaning costs, they are sizeable. I've seen others of our competitors’ state, what they think they are for their chains. We think they are appreciably higher in part. Because we're taking this so seriously, we've got electrostatic sprayers and HEPA vacuums and upgraded MERV 13 air filtration filters that are quadrupled the cost of what we had previously. We can't eat all these costs. Ultimately, we're going to have to pass these costs on the consumer. As all business, past costs on the consumer, well I don't think you necessarily should assume that enhanced cleaning costs are only going to come out of our bottom line. In terms of breakeven, it's a question I'd like to say for the next quarterly call when we can exactly and precisely identify our cost cutting targets for 2021. The – as I said, our ambitions are high. We already have $35 million found in rev reductions. We've already knocked several hundred people off the payroll. And we're cutting costs all over the place. So we'll be looking for hundreds of millions of savings, either in capital expenditures or operating expenses and by definition, where we land will also affect the breakeven point. But let me just share with you this number. The real question is, are we better-off open or closed? And by our calculation, it were more than about 25% of last year's volumes. We're better off open than shut. Because the theatres would be cash positive. They may not be generating as much EBITDA as they degenerated if we were had last year as a tennis level. But there'll be generating contribution to overhead, contribution to landlord rent, payments. And I haven't seen any research that suggests that with new Hollywood content, with new titles, that we'll be doing less than 25% of last year's attendance levels for any lengthy period of time. So I think that's the most important number. If we cross 25% of last year's levels, we're better off open than shut and of course, the sooner we can ramp up to much higher attendance level, the sooner it won't be an issue are we better off open and shut, it'll be an issue of how much EBITDA are we generating and driving the business forward.

[Eric Wold:]

Perfect. Thanks, Adam.

[Operator:]

Next question is from Jim Goss with Barrington Research. Please go ahead.

[Jim Goss:]

Okay. A couple more on the topic du jour, Adam. When you say 80% of their revenues are box-office revenues, usually generated in the first three weekends? I wonder if that figure changes is, gets more compressed. If people do know that a PVOD will be available and I guess that's always been the whole argument and against a longer window, because even though the majority are done upfront that's because there's a longer lag. And so I wonder what you think that might come down to and what sort of PVOD sell through, do you think you'd need to make up for whatever it is you might give up. And are you suggesting today that whole issue might involve not just that particular film, but the broader group of films? So that's how part of the rationale as well, and maybe call it that first?

[Adam Aron:]

Okay. So on the 80% figure, that number is a pretty good number, but it does vary title by title. And on some movies, it's only half of the businesses done in the first three weekends. On other films, it's almost a 100% of the businesses done in the first three weeks – by the end of the first three weekends. Obviously, the bigger the film, the more successful the film, the more of its revenues will occur after 17 days. Having said that the bigger the film, the bigger the potential theatrical revenue to come, that could actually cause a studio not to want to take on film to PVOD of 17 days. They might prefer to wait and knock the – the exclusive theatrical window for all they can get. Remember there's not a requirement here that all movies go to the home at 17 days. It's an option. On a film by film basis, for each and every studio, who partitioned something similar, and we're putting them in the driver's seat. Because as I said, we believe that we're well compensated, if they go to the home. How much we need to essentially breakeven from cannibalization, really depends on how big PVOD becomes or not, and for what films is it allocated. In some circumstances, we would need for the incrementality to be very small for us to be ahead of the game on that – the admitted cannibalization that's going to come. Some people clearly who would have seen a theatre are going to watch it home instead. But we're getting paid for everybody who watches it at home. And as I said, we're getting a meaningful chunk of that revenue. And we do need some incrementality for this to prove, to be a wise decision for AMC, but it's a reasonable amount of incrementality that we need. We've modeled this with very high cannibalization rates. And based on our agreement with Universal, we come out just fine. The terms are confidential. So I'm not at liberty to say what they are. And so I – it’d be wiser if I ducked a third question. but as I said, we’ve modeled this very carefully. It’s gone through a tremendous amount of analysis. We’re pretty sure we’re ahead of the game, not behind the game.

[Jim Goss:]

Okay. I appreciate that. A couple of others, I’ll give you the chance to talk about Mulan as you seem to be interested in. And also, is there room for the other exhibitors to do a similar deal, or if you’re a first mover advantage and they would not – there would not be enough left that one of the studios would want to cut it in more than one on the PVOD issue?

[Adam Aron:]

I’m expecting this is going to become an industry standard. So, I would expect that some of our competitors will do it, not all. That – that’s going to be up to the heads of those other exhibitors and the heads of each studio as to – that’s a private negotiation between lots of parties, multiple studios, multiple exhibitors. Our agreement is U.S. only at the moment, but we did say in the release that we expect this to go to some European territories over the next – in the coming weeks or months, we’ll sit down with Universal and sort through that where it makes sense. I do think you should assume that we got a first mover advantage, because we were a first mover and first movers do deserve to get a first mover advantage. As I said, we think, we made an attractive deal for AMC shareholders, and we know it’s an attractive deal for Universal. This is something they wanted to do for very long time and it’s interesting with all the letter writing and press statements privately. Our discussions with Universal are always amiable, respectful. We sell more tickets for Universal than anybody on the planet. We want bond in our theatres. We want F9 in our theatres. We want Candyman in our theatres. And there might have been a little posturing, but there was no ill will between Universal or AMC during this whole process. And coming out of this whole process, both AMC and Universal are both all smiles and very much committed to continuing to sell a lot of tickets for AMC. Speaking of our great friends, if I’m – if I just talked about Universal, and I’m going to talk about Disney, I would be really remiss if I just didn’t say the word Warner Bros., because I think Warner Bros. is doing something heroic for the exhibition industry by releasing Tenet in a few weeks, assuming it doesn’t slip, but sounds pretty good for a Labour Day weekend. And I just would like to thank everybody at Warner Ann Sarnoff, Ron Sanders, Jeff Goldstein, Andrew Cripps, Toby Emmerich, like Warner Bros. is right out there on the edge for exhibition. Now, having said that, surprisingly, you might think I’m disappointed that Mulan is moving, but AMC is no bigger friend in the planet than Disney. We sell more tickets for Disney than anyone else in the world. Disney provided us with more content last year than any other studio in the world. It’s a symbiotic relationship between Disney and AMC, where both companies will thrive, if each company thrives. Mulan was supposed to go to market and have its premiere in March. It got delayed and delayed and delayed. Their company just announced earnings. Just like AMC is under duress, Disney is under pressure too. And at some point they’ve got to monetize their movie products. They’ve a huge slate coming for the balance of 2020. We will benefit mightily from Disney titles in 2020 with or without Mulan. So, we fully understand that we – what they did, we would have preferred that they kept the movie as a theatrical movie only. But I think our biggest reaction overall to the Mulan announcement is how much it reaffirms our wise and smart decision last week to take the risk and sign on to PVOD. Because right now, Disney’s choice under the current world order or these two choices, they can take it to the home or they can take it to theatres. They can’t do both. Under the PVOD model, they could have taken it to theatres and taken it to the home, essentially at the same time, admittedly, with this at least 17-day lag, where a huge percentage of Mulan’s revenues theatrically would have been booked. As we go down the road with studios like Disney. I’m hoping that we take them out of the Hobson’s choice of having to choose between Disney Plus or theatrical. I’d like to give them the opportunity to do an and, not an or. And I assure you that we would make far more money out of Mulan, if that movie had been released to our theatres and then to PVOD, especially, if we got a cut, then we would benefit from Mulan, just going straight to the home and are not seeing a penny from him.

[Jim Goss:]

Interesting point.

[Adam Aron:]

I do realize that, some of our competitors are anxious about this change. Change is always difficult for some to cope with. But as I said, we’ve researched it, we’ve modeled it, we’ve thought about it, we’ve argued it, we’ve debated it and we’re sure that we’re coming out ahead.

[Jim Goss:]

Okay. They have an extra issue, because you have to pay for a Disney Plus subscription and pay the extra $30. So that makes it even more interesting, because it’s limited to the audience.

[Adam Aron:]

Well, that’s true. That’s one reason why theatre release would still be attractive. And right now, they’re prevented from doing the theatre release. But if the AMC and Universal thing becomes an industry standard, they would not be. And by the way that the Universal-AMC agreement calls that, movies cannot be retailed for less than $20. You’ll notice that Disney chose to retail Mulan for $30, $29.99. That’s interesting to us, because that gives our theatres an easier point of price comparison. The other thing that we are especially relieved about is, until the Mulan announcement, the Disney Plus model was the Netflix model. It was, you pay some dollars a month, and you have an unlimited content. There was nothing transactional in it. So, it’d be hard to figure out how we might share in Disney’s Disney Plus revenue streams. But what Disney has just agreement with Mulan is a transactional PVOD release, where the consumer does have to pay a premium to watch Mulan. That’s a very good thing for us, because they – if they so chose, they could strike an agreement similar to what we’ve done with Universal, without compromising any of the economics of the basic Disney Plus options.

[Jim Goss:]

Thanks so much. Appreciate it.

[Adam Aron:]

Thank you, Jim. I hope you’re well.

[Jim Goss:]

You too.

[Operator:]

Our next question is from Meghan Durkin with Credit Suisse. Please go ahead.

[Meghan Durkin:]

Hi, guys. I just wanted one for Adam and one for Sean. If other exhibitors Adam, don’t sign on to a similar deal with Universal, how do you envision that proceeds like Universal then would they sort of segment their titles and deliver the ones that they’re aiming for PVOD to just you and then the tent poles go to everyone? How do you envision that would go? And then I’ll have a follow-up on.

[Adam Aron:]

I think that’s a question more smartly directed to Universal than to AMC. But I can tell you that under certain scenarios, if other circuits do not reach agreement with Universal. Then AMC stands to benefit even more and potentially, dramatically more than we do in an environment, where everybody signs onto the AMC-Universal model. But I think that’s smarter for me to let Universal comment on the distribution of their films and their alliances with other exhibitors.

[Meghan Durkin:]

Got it. So Sean, I just wanted to clarify on the comment you made on liquidity through 2021. Does that mean you have liquidity through the end of calendar 2021? And then just – I just wanted to touch on the food and beverage strength that you’re seeing overseas, where’s that coming from? Or I’m assuming you’re not selling the expanded menus currently. Is there alcohol that’s feeling that anything you can give us on that?

[Sean Goodman:]

So, from a liquidity point of view, one thing, I’ll give you that might be quite helpful. So, we disclosed at the end of June, we had $498 million of cash available to us. Pro forma for the debt exchange transaction that goes up to other $700 million of cash. And when you think about then our run rate assuming that the theatres remained closed right, throughout the remainder of 2020, so, we – in that scenario, we continue to spend roughly $100 million a month. That’ll take us into early 2021. Obviously, we benefit from the – as a result of the debt exchange transaction, we benefit from the interest savings from pick interest that kicks in at various points in time during the year. So that will give us some additional liquidity as well. So that should give you an idea of kind of how things look should everything remain closed right through 2020.

[Adam Aron:]

And before Sean goes to the second question, I just want to weigh in Megan, we’re not done yet. We have identified other ways to bolster our liquidity if we need to bolster our liquidity even further, and these are options that we think are well within our grasp. But of course, the modeling that Sean just described assumes that all of our theatres are shut. Already, that’s not true, right. Already, a third of our theatres are open in Europe. We think all of our theatres will be open in – by Tenet’s August 26 release, and we ought to be able to open two thirds of our – at least two thirds of our theatres this month in the United States. So, we’re not going to be shut. So, if our theatres are indeed cash positive that even further pushes the runway out later into 2021. I really do think that subject to never relying on a forward-looking statement, which is the good time to bring that up again. I think we’ve survived the corona crisis, and now we just have to get back to running the company really well. And I’d say that either, because of liquidity actions we’ve already taken, or the liquidity actions that are within our grasp, if we need to take more. now on food in Europe.

[Sean Goodman:]

Yes. So, just a couple of points on food and beverage in Europe. What’s interesting there is that some countries, because of the regulations the audience is required to wear masks and in some countries, they aren’t. but we’re seeing food and beverage strength across both and actually in the countries, where audience required to wear masks Spain, Italy, and Germany. food and beverage growth is really in line with the rest of Europe. So that’s really pleasing to see what we see it’s really in terms of transactions, a higher percentage of audience is purchasing food and beverage. There is a limited menu in certain of the countries, but it’s just a higher percentage of people purchasing food beverage. bear in mind that obviously, the attendance is lower than normal levels, just because of the library content that we’re shoving. So, it’s fairly early stages up, but we’re very encouraged by this. And hopefully, we’ll see some of the trends in the U.S. when we open here. So, we never underestimate the appeal of the aroma of popcorn, slathered in healthy butter and salt, washed down with Coca Cola.

[Meghan Durkin:]

Got it. Thanks.

[Operator:]

Next question is from Jason Bazinet with Citi. please go ahead.

[Jason Bazinet:]

I just had a question regarding some of the covenants in your – in the new first lien bonds. The language seems to suggest you might be contemplating asset sales potentially in Europe. Is that a reasonable interpretation?

[Adam Aron:]

look, what I will say is, the covenants were negotiated with our first lien bondholders to give us flexibility to do transactions that may be helpful or ongoing liquidity going forward. Yes. In according to the covenants, there are opportunities to sell assets. We’re allowed to do that. If you look at the details in the covenants, there are certain restrictions on the cash flows from those asset sales in terms of what percentage goes to repay debt and what percentage stays in with the company. But we do have the ability – we do have the ability to the sell some assets, and we do have the ability to keep some of the proceeds from myself. Yes.

[Jason Bazinet:]

Super helpful. Thank you.

[Adam Aron:]

Yes.

[Operator:]

Next question is from Eric Handler with MKM Partners. Please go ahead.

[Eric Handler:]

Thank you very much for the question. So, I want to touch on the universal deals a bit more? So, when I’m doing the math, when you look at the average ticket price you had last year and the average spend on food and beverage. and then so your margin on both of those lines, I get to a per-person gross margin of $9.23. If you add on the profit associated with digital ticketing fees that goes even higher. Now, I can’t imagine Universal’s willing to give you $10 when they’re only charging $20 for PVOD. So, unless you’re getting a substantial reduction in film rents, how are you making profit on a universal deal? And then secondly, are you getting paid for each transaction that occurs for PVOD by universal? Or are you just getting paid on the PVOD transaction is done in zip codes, where you have theatres?

[Adam Aron:]

So, like the terms are confidential. So, I can’t – as much as I’d like to help you model, your numbers are right. for every cannibalized fellow, male or female, we lose $9, it could be more if they’re coming in Manhattan or Los Angeles and we’re getting paid something on PVOD attendees. I’m not allowed to tell you what that is. but since we can do the same math that you just did, I’ve been saying for four years, we would never do a PVOD deal that was bad for our shoulders. So, I think you should assume without being specific that we knew the same math that you’re aiming at and we would not have signed onto an economic program that we thought was a negative. And to clarify your final question, and I know I’m dodging a little bit, but I can’t release the terms. So, I can’t release the terms. I can’t release the terms. But we’re getting paid on regardless of whether the PVOD customer would have gone to our theatre or not, would have lives in a zip code near our theatre or not. but of course, the exact structure of that and the other components’ agreements are not released. And you don’t actually have – you have the loss of the cannibalization that you can calculate, but you don’t have the inflows. And it’s the combination of the incrementality, right; the payments on incrementality, the payments in total against the cannibalization loss and I think you – I’ve said that we’ve researched it and modeled it, and analyzed it as carefully as we can. We think we’re ahead of the game there. but with not even in our calculus, if this causes more movies to get released, to be green-lighted and released theatrically, then we’re so far ahead of the game here so far out of the game. Because as I – is in that quote that I shared with you, and the examples that I gave you of so many, what could have been theatrical movies, not being released theatrically. Our industry was facing a circumstance, not just during this PVOD time, but looking ahead, where we might see fewer theatrical movies being released. And fewer theatrical movies are being released, whether there’s PVOD or no PVOD, theatrical attendance will be lower. Theatrical revenues will be lower. We’ve got a 25% market share in the United States that’s very meaningful to AMC. So it's extremely important to us that studios continue to release movies. And if we can provide them with incentives to produce – to release even more movies to first make and then release even more movies, that's where – that dwarfs, the pivot economics, positive or negative. But as I said, we think that the pivot economics on their own are positive for AMC based on the deal that we got.

[Eric Handler:]

Got it. And then one question for Sean, when you think about your stated interest, not the cash interest, but the overall interest that you'll be paying each quarter, you'll have a reduction because of the redemptions that are being done, but you'll see an increase because of the new debt that you know how. So net-net, what is your as reported quarterly interest payments going to look like? And what is – what would be the cash component of that?

[Sean Goodman:]

So the cash – let’s start with the cash compound, the cash component, if you assume that we pick interest on the new second lien debt, the cash component when you compare before the debt exchange versus after the debt exchange and taking into account the new incremental first lien debt and your cash interest will be lower, lower by probably around $20 million, $30 million on an annualized basis, right, because obviously you've got the significantly lower interest that you’re paying on the second lien debt, because of big, but you've also got all the new interest that you pay on the new first lien instruments. When you look at the income statement amount, the interest is going to be a little bit higher, it's roughly about 115 basis points and 120 basis points higher on the new second lien debt, that it is on an apples-to-apples basis, so that's about – 120 basis points higher, just given the 10% versus the average of 6% and then adjusting for the exchange ratio, so you got that impact, and then you have the impact of the new first lien debt. So you can kind of calculate it from there.

[Eric Handler:]

Okay. Thank you very much.

[Adam Aron:]

Thank you, Eric.

[Operator:]

And everyone, we have time for one more question. So our last question is from Chad Beynon with Macquarie. Please go ahead.

[Aaron Lee:]

Hi, this is Aaron on for Chad. Thanks for taking my question. I just want to talk about Ellis for a little bit, given your…

[Adam Aron:]

You broke up – say again.

[Aaron Lee:]

Hey, can you hear me?

[Adam Aron:]

Yes.

[Aaron Lee:]

Yes, I wanted to talk about Ellis a little bit.

[Adam Aron:]

Sure.

[Aaron Lee:]

Yes. Given your success with the program last year, are there any features you're thinking about rolling out in the near-term that you think could help drive attendance or engagement upon reopening?

[Adam Aron:]

Yes. And we’re going to share them with Ellis members first, before we share them with all of our competitors, we're going to get a copy of this transcript of this call. But, you should assume that we are going to be very aggressive in marketing offers to Ellis members, to Stubs members and to our general customer base at large, because we need to get them back in our theatres. And when we get them back into our theatres, they will just be surrounded by a massive amount of AMC, safe and clean paraphernalia. And we hope that they will look around our theatres and say the theatre has never been cleaner, and I felt good there. And so if we get them in our theatres, we think the experience that is graded in our theatres will accelerate word of mouth, as they tell all their friends, I went to a movie theatre and my goodness it was, I enjoyed the movie and the theatre felt great. And to do that, we've got to be very aggressive, the will people back. So I think there would be a general agreement on this call that if you look at the past five-ish, years, AMC has been a really good consumer marketer, whether it's A-list or Stubs or other things that we've done, we're a really good marketing organization. Our marketing department continues to blow me away with how good our marketing materials look, the power of their thinking and designing offers for consumers. So without necessarily revealing exactly what they are, you should just assume that the words hyper-aggressive should be connected to AMC in terms of convincing moviegoers to come back to AMC once we reopened in the States.

[Aaron Lee:]

Got it. Thank you. That's helpful. Last one for me, as you think about the international operations, how do you think the recovery will be different from the U.S. when you guys talked about higher of the strong CPP? Any reasons why that shouldn't be the case in the U.S. as well?

[Adam Aron:]

No. There's no reason why the U.S. should or should not perform differently than Europe on food. But I will tell you that within the various countries that we serve in Europe, even though it's the same continent, and a couple of islands off the Northwest Coast called England and Ireland. The performance country-by-country is very different country-by-country. So if you ask me how the U.S. will perform versus Europe, the virus is under better control in Europe currently than it is currently in the United States. So I think the ramp up of attendance levels in Europe would logically come faster than it will come in the United States, but no one's going to know exactly what that ramp is until we open. And we all can speculate, but there is not a one of us on this phone call, who really knows what the state of play of the virus is going to be in the United States in October or November or December. We talked to our scientists and experts at Harvard and elsewhere almost every day. We're hearing very encouraging signs about rapid testing, rapid inexpensive saliva testing, therapeutic treatment improvements that you'd get the virus, the prospects of vaccines being close at hand. I was on a Harvard call yesterday for a couple of hours with Sanjay Gupta and Dr. Anthony Fauci, who were sharing with some Harvard insiders their views as to what's coming. There is a lot of talk that vaccines and therapeutic treatments and rapid testing are close. There is also a concern that the virus is obviously not as well under control in the United States, as it is in some other countries abroad. So this is something we're all going to learn together.

[Aaron Lee:]

Got it. Thank you.

[Sean Goodman:]

This is Sean, just want to come back to one thing, I was just looking at the numbers on the interest question from the previous question, and just want to clarify that, the new first lien debt, the $300 million of first lien debt, 10.5%, that's $31 million of interest payment, cash interest payment. The cash savings that we get on the previous subordinated debt is having $20 million, I’m talking everything on a 12 month basis. So effectively from a cash basis, as a result of the transaction, the interest expense is done by about $90 million.

[Adam Aron:]

Then you have the April – then you have the April financing as well.

[Sean Goodman:]

Sure. So I'm just performing for the debt exchange, the April financing obviously you got another $500 million, 10.5%, which you would adjust for as well. I just wanted to make that clear.

[Adam Aron:]

Operator, we'll take one more question, if there is one.

[Operator:]

There is nothing in the queue at the moment. But if we did have time…

[Adam Aron:]

Wonderful.

[Operator:]

Very good.

[Adam Aron:]

Then we'll let people go. I leave you with one and only one thought, we are very close to theatres opening soon in the United States, see you at the movies, see you at AMC. Thank you all for joining us today.

[Operator:]

And everyone, that does conclude our conference call for today. We thank you for participating, and you may now disconnect.