8-K: Current report filing

INVESTOR RELATIONS:
John Merriwether, 866-248-3872
InvestorRelations@amctheatres.com

MEDIA CONTACTS:
Ryan Noonan, (913) 213-2183
rnoonan@amctheatres.com

"

Q2 Total Revenues of $1.506 billion, up 4.4% from last year (up 6.0% in constant currency)

"

Q2 Net earnings of $49.4 million, up 122.5% from last year (up 125.2% in constant currency)

"

Q2 Adjusted EBITDA of $237.6 million, down 2.9% from last year (down 1.8% in constant currency)

"

Q2 Adjusted EBITDA, adjusting 2018 for ASC 842 impact, increased 7.3% (up 8.6% in constant currency) – these growth figures do not also adjust for a $10.8 million rent benefit in Q2 2018 that did not recur in 2019

"

Q2 attendance of 97.0 million tickets sold set an all-time high quarterly record

"

2019 net capital expenditures guidance updated to approximately $415 million and 2020 net capital expenditures guidance set at approximately $300 million – consistent with medium to long-term financial target announced at the April 2019 Investor Day of $250 to 300 million net capex to be reached within three to five years

"

Profit Improvement Plan announced, targeted to realize approximately $50 million in incremental operating income in 2020 from cost savings and revenue initiatives – consistent with the medium to long-term target announced at the April 2019 Investor Day to improve Adjusted EBITDA margins by up to 200 basis points 

Quarter Ended June 30,

Six Months Ended June 30,

2019

2018

Change

2019

2018

Change

GAAP Results

Revenue

$

1,506.1

$

1,442.5

4.4

%

$

2,706.5

$

2,826.1

(4.2)

%

Net earnings (loss)*

$

49.4

$

22.2

122.5

%

$

(80.8)

$

39.9

N/M

Net cash provided by operating activities

$

152.2

$

131.7

15.6

%

$

153.6

$

297.1

(48.3)

%

Non-GAAP Results**

Total revenues (2019 constant currency adjusted)

$

1,528.8

$

1,442.5

6.0

%

$

2,757.2

$

2,826.1

(2.4)

%

Adjusted EBITDA

$

237.6

$

244.8

(2.9)

%

$

345.8

$

522.7

(33.8)

%

Adjusted EBITDA (2018 Adjusted for ASC 842)

$

237.6

$

221.4

7.3

%

$

345.8

$

475.6

(27.3)

%

Adjusted free cash flow

$

100.1

$

73.9

35.5

%

$

50.3

$

187.3

(73.1)

%

Adjusted free cash flow (2018 Adjusted for ASC 842)

$

100.1

$

59.5

68.2

%

$

50.3

$

158.3

(68.2)

%

Operating Metrics

Attendance (in thousands)

96,955

91,245

6.3

%

176,780

182,177

(3.0)

%

U.S. markets attendance (in thousands)

71,900

69,751

3.1

%

126,879

131,607

(3.6)

%

International markets attendance (in thousands)

25,055

21,494

16.6

%

49,901

50,570

(1.3)

%

Average screens

10,675

10,684

(0.1)

%

10,679

10,737

(0.5)

%

·

Revenue: Second-quarter total revenues were $1.506 billion, increasing 4.4% on a GAAP basis (increasing 6.0% in constant currency) from the year-ago quarter. Results were driven by (i) record setting U.S. and International attendance, up 3.1% and 16.6%, respectively, (ii) strong food and beverage per patron growth, up 3.9% (up 5.1% in constant currency) primarily due to strategic pricing initiatives and (iii) other theatre revenues per patron, which grew 10.9% (grew 12.7% in constant currency) largely from increases in online ticketing fees.

·

Net Earnings (Loss): Net earnings was $49.4 million, increasing 122.5% on a GAAP basis (increasing 125.2% in constant currency) from the year-ago quarter. The increase in net earnings included the impact of the 4.4% increase in total revenues and several other items. These items included $41.0 million of other income related to the quarterly fair-value remeasurement of a derivative liability and derivative asset, offset by $16.6 million of other expense related to the repayment of indebtedness. Furthermore, Q2 of 2018 benefited from a $10.8 million rent adjustment related to a lease modification that did not recur in 2019.

·

Adjusted EBITDA:  Total Adjusted EBITDA was $237.6 million, down 2.9% from the year-ago quarter (down 1.8% in constant currency). Total Adjusted EBITDA grew 7.3% year-over-year (up 8.6% in constant currency), after adjusting the year-ago quarter for $23.4 million in non-cash accounting impact of ASC 842 for comparability. The increase year-over-year is prior to adjusting for a $10.8 million rent benefit related to a lease modification recorded in Q2 of 2018 that did not recur in 2019.

·

Cash Flow: Net cash provided by operating activities was $152.2 million, compared with $131.7 million in the year-ago quarter. Adjusted Free Cash Flow was $100.1 million, compared with $73.9 million in the year-ago quarter or $59.5 million in the year-ago quarter after adjusting for the non-cash accounting impact of ASC 842. The increase in Adjusted Free Cash Flow is primarily related to increases in net cash provided by operating activities and the timing of maintenance capital expenditures.  

·

Industry Performance: In the second quarter of 2019, the U.S. industry box office generated $3.2 billion in admissions sales (down 3.7% year-over-year on a 2.5% decline in attendance), which was the second largest U.S. industry box office quarter of all time. AMC outperformed the U.S. industry on both an attendance per screen and admissions revenue per screen basis by approximately 650 and 260 basis points, respectively, and after excluding AMC from the U.S. industry statistics, that outperformance grew to 800 and 400 basis points, respectively. Internationally, the industry box office in countries served by Odeon and Nordic’s theatres grew 16.6% and 11.1%, respectively, in constant currency. The industry box office across Europe benefited from the record-breaking AVENGERS: ENDGAME and an increase in well-received family product.

·

AMC Stubs A-List Program: Since its launch in June 2018, the A-List tier of our successful AMC Stubs loyalty program has already attracted more than 900,000 subscribers, far in excess of initial internal expectations of 500,000 subscribers in the first year. During the first quarter of 2019, AMC implemented a 10% membership price increase in ten states and a 20% price increase in five states. Based on an average monthly frequency of 2.85x for our A-List members in the second quarter, their associated full-price bring-along guest attendance, their food and beverage spend and the price increases in the first quarter, we believe the A-List program was profitable in the first half of 2019 compared to our estimated results if the program had not existed.

·

Medium and Long-Term Financial Targets:  During the second quarter, the Company outlined its medium to long-term financial targets which included the following: 1) anticipated total annual revenue growth of between 3% and 5%, based on a 1% to 2% annual outperformance of an assumed annual industry box office growth of between 2% and 3%; 2) Adjusted EBITDA margin (Adjusted EBITDA divided by Total Revenues) of between 16% and 18%; 3) a reduction in annual net capital expenditures to between $250 and $300 million over the next three to five years, and; 4) deleveraging to achieve a Net Leverage Ratio of between 3.5x and 4.5x by the end of three years and approximately 3.0x over the long-term. Net Leverage Ratio is defined as Net Debt divided by Adjusted EBITDA. Net Debt is defined as corporate borrowings plus capital and financing lease obligations, debt issuance costs for corporate borrowings, discounts (premiums) for corporate borrowings less the derivative liability related to the senior unsecured convertible notes due 2024, less cash.

·

Capital Expenditures:  In the context of the medium and long-term financial targets presented above, we are updating our capital expenditure guidance for 2019 and introducing capital expenditure guidance for 2020, which we believe will result in meaningful progress toward achieving those targets.

·

Profit Improvement Plan: In conjunction with the reduction in capital expenditures, AMC is also announcing a comprehensive profit improvement plan to enhance operational efficiency and as part of its efforts to achieve its medium and long-term margin targets. These initiatives will seek to achieve cost savings across the entire income statement, including general & administrative, operating, rent and other expense line items, while also

generating additional revenues through strategic pricing and programming initiatives. The plan is targeted to realize approximately $50 million in incremental operating income by the end of 2020 with approximately $5 million of benefit expected in the remainder of 2019.

·

Circuit Update: As of June 30, 2019, AMC owned, operated, or had interests in 639 theatres in the U.S. and 365 theatres internationally. In the second quarter, the Company added premium recliner seating to 15 theatres, including nine in the U.S. and six internationally, which includes two new build theatres. Premium large format offerings continue to attract guests by delivering the best sight and sound experience, and the Company added eight new Dolby screens, one new IMAX screen and one new Prime at AMC screen during the quarter. Furthermore, during the second quarter of 2019, 878 screens were converted to reserved seating. The Company has converted 97% of AMC branded screens and 98% of AMC-Dine-In branded screens to reserved seating. 

·

New Lease Accounting Standard (ASC 842): The Company adopted ASC 842 on January 1, 2019. As previously disclosed, ASC 842 is an accounting change with no impact on AMC’s business or total cash flows. While this new rule introduces certain presentation changes to all three of AMC’s core financial statements, it does not affect day-to-day operations or cash generation. As a result of adopting ASC 842, the key changes are as follows: 1) the Company’s consolidated balance sheet now includes operating right-of-use assets and operating lease liabilities of $4.8 billion and $5.4 billion, respectively, at June 30, 2019; 2) the Company’s income statement for the three months ended June 30, 2019 includes additional rent expense of $30.4 million, a decline in depreciation and amortization of $24.0 million and a decline in interest expense of $6.9 million; and 3) the Company’s cash flows provided by operating activities for the six months ended June 30, 2019 is lowered by $28.0 million, offset by an equivalent increase in the Company’s cash flows provided by financing activities.

·

Cash Dividend / Share Repurchase: The Company paid approximately $20.8 million of dividends in the second quarter of 2019. Since its IPO, AMC has paid $622 million in total dividends and repurchased $480 million in common stock for a cumulative return of capital of $1.1 billion. Following the dividend declared on August 5, 2019, the Company will have issued a dividend in 21 consecutive quarters beginning in Q2 of 2014.

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Revenues

 Admissions

$

895.5

$

896.3

$

1,627.0

$

1,771.3

 Food and beverage

492.5

445.8

861.3

851.6

 Other theatre

118.1

100.4

218.2

203.2

   Total revenues

1,506.1

1,442.5

2,706.5

2,826.1

Operating costs and expenses

 Film exhibition costs

482.5

471.4

847.8

897.9

 Food and beverage costs

76.4

72.2

137.9

138.4

 Operating expense, excluding depreciation and amortization below

437.4

424.5

840.2

836.4

 Rent

245.9

199.7

487.9

389.4

 General and administrative:

   Merger, acquisition and transaction costs

3.2

4.3

6.5

9.0

   Other, excluding depreciation and amortization below

43.2

43.0

89.4

87.2

 Depreciation and amortization

112.0

137.7

225.0

268.2

   Operating costs and expenses

1,400.6

1,352.8

2,634.7

2,626.5

Operating income

105.5

89.7

71.8

199.6

Other expense (income):

Other expense (income)

(23.4)

2.2

6.4

3.4

Interest expense:

Corporate borrowings

74.2

62.2

145.5

123.9

Capital and financing lease obligations

2.1

9.8

4.2

20.1

Non-cash NCM exhibitor services agreement

10.1

10.4

20.3

20.9

Equity in earnings of non-consolidated entities

(10.2)

(13.0)

(16.7)

(4.0)

Investment income

(2.1)

(1.5)

(18.2)

(6.7)

       Total other expense

50.7

70.1

141.5

157.6

Earnings (loss) before income taxes

54.8

19.6

(69.7)

42.0

Income tax provision (benefit)

5.4

(2.6)

11.1

2.1

Net earnings (loss)

$

49.4

$

22.2

$

(80.8)

$

39.9

 Diluted earnings (loss) per share

$

0.17

$

0.17

$

(0.78)

$

0.31

Average shares outstanding diluted (in thousands)

135,528

128,105

103,814

128,042

As of

As of

June 30,

December 31,

2019

2018

Cash and cash equivalents

$

190.5

$

313.3

Corporate borrowings

4,734.5

4,723.0

Other long-term liabilities

192.0

963.1

Finance lease liabilities

120.3

560.2

Stockholders' equity

1,325.1

1,397.6

Total assets

13,514.9

9,495.8

Three Months Ended

Six Months Ended

June 30,

June 30,

Consolidated

2019

2018

2019

2018

Net cash provided by operating activities

$

152.2

$

131.7

$

153.6

$

297.1

Net cash used in investing activities

$

(122.8)

$

(66.7)

$

(221.3)

$

(181.5)

Net cash used in financing activities

$

(20.6)

$

(55.5)

$

(54.5)

$

(117.9)

Adjusted free cash flow

$

100.1

$

73.9

$

50.3

$

187.3

Capital expenditures

$

115.1

$

(133.8)

$

(229.9)

$

(241.1)

Screen additions

16

17

37

40

Screen acquisitions

64

 9

64

31

Screen dispositions

36

44

104

134

Construction openings, net

(3)

(65)

(52)

(118)

Average screens

10,675

10,684

10,679

10,737

Number of screens operated

11,036

10,988

11,036

10,988

Number of theatres operated

1,004

1,005

1,004

1,005

Screens per theatre

11.0

10.9

11.0

10.9

Attendance (in thousands)

96,955

91,245

176,780

182,177

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Other operating data:

Attendance (patrons, in thousands):

U.S. markets

71,900

69,751

126,879

131,607

International markets

25,055

21,494

49,901

50,570

Consolidated

96,955

91,245

176,780

182,177

Average ticket price (in dollars):

U.S. markets

$

9.47

$

9.95

$

9.43

$

9.87

International markets

$

8.57

$

9.40

$

8.64

$

9.34

Consolidated

$

9.24

$

9.82

$

9.20

$

9.72

Food and beverage revenues per patron (in dollars):

U.S. markets

$

5.58

$

5.29

$

5.43

$

5.17

International markets

$

3.65

$

3.56

$

3.46

$

3.38

Consolidated

$

5.08

$

4.89

$

4.87

$

4.67

Average Screen Count (month end average):

U.S. markets

8,006

8,010

8,003

8,053

International markets

2,669

2,674

2,676

2,684

Consolidated

10,675

10,684

10,679

10,737

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Revenues

U.S. markets

$

1,161.2

$

1,129.3

$

2,028.4

$

2,111.4

International markets

344.9

313.2

678.1

714.7

Consolidated

$

1,506.1

$

1,442.5

$

2,706.5

$

2,826.1

Adjusted EBITDA

U.S. markets

$

202.1

$

222.2

$

279.5

$

430.5

International markets

35.5

22.6

66.3

92.2

Consolidated

$

237.6

$

244.8

$

345.8

$

522.7

Capital Expenditures

U.S. markets

$

84.1

$

101.0

$

159.6

$

172.0

International markets

31.0

32.8

70.3

69.1

Consolidated

$

115.1

$

133.8

$

229.9

$

241.1

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Net earnings (loss)

$

49.4

$

22.2

$

(80.8)

$

39.9

Plus:

Income tax provision (benefit)

5.4

(2.6)

11.1

2.1

Interest expense

86.4

82.4

170.0

164.9

Depreciation and amortization

112.0

137.7

225.0

268.2

Certain operating expenses (2)

2.3

5.7

4.8

9.4

Equity in (earnings) loss of non-consolidated entities (3)

(10.2)

(13.0)

(16.7)

(4.0)

Cash distributions from non-consolidated entities (4)

1.8

3.5

12.3

27.8

Attributable EBITDA (5)

2.0

(0.4)

2.9

1.6

Investment income

(2.1)

(1.5)

(18.2)

(6.7)

Other expense (income) (6)

(23.8)

2.5

6.1

3.7

Non-cash rent - purchase accounting (7)

5.8

 —

13.4

 —

General and administrative expense—unallocated:

Merger, acquisition and transaction costs (8)

3.2

4.3

6.5

9.0

Stock-based compensation expense (income) (9)

5.4

4.0

9.4

6.8

Adjusted EBITDA(1)

$

237.6

$

244.8

$

345.8

$

522.7

Rent

$

245.9

$

199.7

$

487.9

$

389.4

1)

We present Adjusted EBITDA as a supplemental measure of our performance.  We define Adjusted EBITDA as net earnings (loss) plus (i) income tax provision (benefit), (ii) interest expense and (iii) depreciation and amortization, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance and to include attributable EBITDA from equity investments in theatre operations in international markets and any cash distributions of earnings from other equity method investees. These further adjustments are itemized above. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.  Adjusted EBITDA is a non-U.S. GAAP financial measure commonly used in our industry and should not be construed as an alternative to net earnings (loss) as an indicator of operating performance (as determined in accordance with U.S. GAAP). Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. We have included Adjusted EBITDA because we believe it provides management and investors with additional information to measure our performance and estimate our value. 

·

does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments;

·

does not reflect changes in, or cash requirements for, our working capital needs;

·

does not reflect the significant interest expenses, or the cash requirements necessary to service interest or principal payments, on our debt;

·

excludes income tax payments that represent a reduction in cash available to us;

·

does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; and

·

does not reflect the impact of divestitures that were required in connection with recently completed acquisitions.

2)

Amounts represent preopening expense related to temporarily closed screens under renovation, theatre and other closure expense for the permanent closure of screens including the related accretion of interest, non-cash deferred digital equipment rent expense, and disposition of assets and other non-operating gains or losses included in operating expenses. The Company has excluded these items as they are non-cash in nature, include components of interest cost for the time value of money or are non-operating in nature.

3)

During the three months ended June 30, 2019, the Company recorded $9.0 million in earnings from DCIP.

4)

Includes U.S. non-theatre distributions from equity method investments and International non-theatre distributions from equity method investments to the extent received. The Company believes including cash distributions is an appropriate reflection of the contribution of these investments to its operations.

5)

Attributable EBITDA includes the EBITDA from minority equity investments in theatre operators in certain international markets. See below for a reconciliation of the Company’s equity (earnings) loss of non-consolidated entities to attributable EBITDA. Because these equity investments are in theatre operators in regions where the Company holds a significant market share, the Company believes attributable EBITDA is more indicative of the performance of these equity investments and management uses this measure to monitor and evaluate these equity investments. The Company also provides services to these theatre operators including information technology systems, certain on-screen advertising services and our gift card and package ticket program. As these investments relate only to our Nordic acquisition, the second quarter of 2017 represents the first time the Company has made this adjustment and does not impact prior historical presentations of Adjusted EBITDA.

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Equity in earnings of non-consolidated entities

$

(10.2)

$

(13.0)

$

(16.7)

$

(4.0)

Less:

Equity in earnings of non-consolidated entities excluding international theatre JV's

(9.8)

(13.9)

(15.8)

(3.6)

Equity in earnings (loss) of International theatre JV's

0.4

(0.9)

0.9

0.4

Income tax provision

0.1

 —

0.1

 —

Investment income

(0.3)

 —

(0.5)

 —

Interest expense

0.1

 —

0.1

 —

Depreciation and amortization

1.7

0.5

2.3

1.2

Attributable EBITDA

$

2.0

$

(0.4)

$

2.9

$

1.6

6)

Other income for the three months ended June 30, 2019 includes income of $33.9 million due to the decrease in fair value of our derivative liability for the Convertible Notes due 2024, income of $7.1 million as a result of an increase in fair value of its derivative asset, and an expense of $16.6 million of fees related to modification of term loans. Other expense for the six months ended June 30, 2019 includes income of $20.6 million due to the decrease in fair value of our derivative liability for the Convertible Notes due 2024, an expense of $8.0 million as a result of a decrease in fair value of its derivative asset, an expense of $16.6 million of fees related to modifications of term loans, and $1.0 million loss on GBP forward contract. Other income for the three and six months ended June 30, 2018 includes financing

related foreign currency transaction losses.  

7)

Reflects amortization of certain intangible assets reclassified from depreciation and amortization to rent expense, due to the adoption of ASC 842.  

8)

Merger, acquisition and transition costs are excluded as they are non-operating in nature.

9)

Stock-based compensation expense is non-cash or non-recurring expense included in General and Administrative: Other.

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Net cash provided by operating activities

$

152.2

$

131.7

$

153.6

$

297.1

Plus:

Merger, acquisition and transaction costs(2)

3.2

4.3

6.5

9.0

Less:

Maintenance capital expenditures(3)

25.7

31.9

45.0

46.5

Landlord contributions(5)

29.6

30.2

64.8

72.3

Adjusted free cash flow (1)

$

100.1

$

73.9

$

50.3

$

187.3

Reconciliation of Capital Expenditures

Capital expenditures

Growth capital expenditures(4)

$

88.2

$

109.2

$

158.7

$

183.2

Maintenance capital expenditures(3)

25.7

31.9

45.0

46.5

Change in construction payables(6)

1.2

(7.3)

26.2

11.4

Total capital expenditures

$

115.1

$

133.8

$

229.9

$

241.1

1)

We present “Adjusted Free Cash Flow” as a supplemental measure of our liquidity.  Management uses this measure and we believe it is helpful to investors as an indication of our ability to generate cash in-excess-of maintenance capital expenditures and certain other non-operating and costs and for other uses including repayment of our corporate borrowings and generating cash for growth opportunities.  Adjusted Free Cash Flow is a non-U.S. GAAP financial measure and is defined as net cash provided by operating activities, plus merger, acquisition and transaction costs, less maintenance capital expenditures and landlord contributions. Adjusted free cash flow does not represent the residual cash flow available for discretionary expenditures.  It should be considered in addition to, not a substitute for or superior to net cash provided by operating activities. The term adjusted free cash flow may differ from similar measures reported by other companies. Also provided is a reconciliation of Capital Expenditures disclosed in the Consolidated Statement of Cash Flows made up of growth capital expenditures, maintenance capital expenditures and change in construction payables as further explanation of the components of adjusted free cash flow.

2)

Merger, acquisition and transition costs are excluded as they are non-operating. 

3)

Maintenance capital expenditures are amounts required to keep our existing theatres in compliance with regulatory requirements and in a sustainable good operating condition, including expenditures for repair of HVAC, sight and sound systems, compliance with ADA requirements and technology upgrades of existing systems.

4)

Growth capital expenditures are investments that enhance the guest experience and grow revenues and profits and include initiatives such as theatre remodels, acquisitions, newly built theatres, premium large formats, enhanced food and beverage offerings and service models and technology that enable efficiencies and additional revenue opportunities. We did not deduct these from adjusted free cash flow because they are discretionary, and the related benefits may not be fully reflected in our net cash provided by operating activities.

5)

Landlord contributions represent reimbursements in our strategic growth initiatives by our landlords. 

6)