Q4 2019 Earnings Call
Please note this conference is being recorded.
At this time will turn the conference over to John Merriwether, Vice President Investor Relations Mr., Mary whether you may begin.
Thank you Rob good afternoon, I'd like to welcome everyone to AMC is fourth quarter and year end 2019 conference call.
This afternoon is there for President Chief Executive Officer, Craig Ramsey Executive Vice President Chief Financial Officer, and Sean Goodman Executive Vice President.
Before I turn the call over to Adam Let me remind everyone that some of the comments made by management. During this conference call may contain forward looking statements, which are based on management's current expectations.
Numerous risks uncertainties and other factors may cause actual results to differ materially from those that might be expressed today.
Many of these risks and uncertainties are discussed in our public filings, including our most recently filed 10-K in 10-Q.
The factors that will determine the company's future results are beyond the ability of the accompanies the control or predict.
In light of the uncertainties inherent in any forward looking statements listeners are cautioned cannot place undue reliance on these statements.
The company undertakes no obligation to revise or update any forward looking statements, whether as a result of new information future events.
On this call we may reference measures such as adjusted EBITDA [laughter] adjusted EBITDA margin.
Free cash flow adjusted free cash flow in constant currency, among others, which are non-GAAP financial measures.
For a full reconciliation of our non-GAAP measures to GAAP results. Please see our earnings release issued earlier today.
In conjunction with our beliefs, we encourage you to review the supplemental financials for fourth quarter year ended 2019 that we published this afternoon on our website in tandem with the earnings release.
After our prepared remarks, there will be a question answer session.
To be respectful of your time, we intend to keep the call do approximately an hour.
This afternoons call is being recorded and a webcast replay will be available in the Investor Relations section of our website at AMC theaters Dot com later today.
With that I'll turn the Colorado.
Thank you John Good afternoon, everyone I'm very pleased you could join Craig Ramsey and me today.
I'm also delighted to formally introduce you to Sean Goodman.
What has been with US since December that has been working to ensure a smooth and seamless transition of the CFO responsibilities.
As you assume learn Sean is a very smart and world we follow.
We're excited to have more board I like great. We look forward to working together with Sean to create value for all AMC stakeholders in the years ahead.
I would also take this opportunity to express sincere gratitude and appreciation to Craig for 25 years of outstanding service the M.C.
He will be retiring on the 29 to this month just two days from no and Sean will formally take on the CFO title.
At that time.
Looking back on 2019.
The year turned out to be the largest global box office of all time, having generated 42 and a half billion dollars in worldwide admission revenues.
AMC benefited from that strength globally in Europe, we experienced another year of strong box office growth.
Driven by industry attendance increase of more than 6%.
And our new theaters in the Middle East are Roaring Hot [noise].
<unk> views held by doubters, the facts are actually quite different.
It is simply undeniable.
Theatrical exhibition globally was alive and well in 2019.
And setting new record high.
In the United States, though.
It doesn't 19 was a year the saw both ups and downs the year started off with a difficult first quarter and then for its way back to become essentially tied with 2016 as being the second highest domestic box office of all time.
2018 of course, the your prior being the strongest domestic box office in history.
Specifically for the fourth quarter.
The next to spot the domestic box office came in at $2.9 billion, 1.6% less than last year, but right on par for the average fourth quarter over the past five years in Europe.
Industry box office performed much better than in the U.S. up 6.3 on a constant percentage on a constant currency basis weighted according to our geographic European footprint.
Of particular note.
Not only that AMCC healthy growth internationally, but in the United States. The fourth quarter was the seventh consecutive quarter.
In which AMC gained market share and dramatically outperformed the rest of the theatrical exhibition industry on both attendance per screen admission revenues per screen.
Also the important.
We can clearly see that the previously announced profit improvement plan designed both to cut costs and the drive revenues is already kicking in.
We're going to start this call by asking Sean to review, our fourth quarter in full year financial results. All then come back and give you an update on several important topics that continue to have the business for the long term benefit of all of our stakeholders Sean over to you.
Thank you Adam I'm honored and excited to be on this truly exceptional team.
Turning to the financial results for the fourth quarter AMC seventh consecutive quarter industry outperformance.
Consolidated results with variance to last year's fourth quarter calculated in constant currency artists caught us.
Total revenue was up 3.2% to a fourth quarter record of 1.4 or 5 billion.
Adjusted EBITDA was $269.1 million up 12.5% after accounting for the impact of assay 842.
The adjusted EBITDA margin was 18.6% up over 150 basis points after accounting for the impact of assay age 42.
And on an as reported basis adjusted free cash flow increased by $186 million to $303 million and free cash flow, which represents net cash provided by operating activities less capex increased by $190 million to 119.
$9 million and both of these cash flows in price increases are off to adjusting 2018 for the cash flow classification impact of assay 842.
All of these results were achieved an environment, where the domestic box office attendance declined by 5.3% and box office revenue decreased by 1.6%.
By contrast, and sees fourth quarter U.S. attendance declined by 4.4%, which is approximately 100 basis points better than the rest of the industry.
M. sees domestic admissions revenue actually grew by 1.7% 423 basis points better than the rest of the industry.
Our admissions revenue growth was driven in part by an average ticket price increase of 6.4% 329 basis points better than the rest of the industry.
This overperformance reflects the many competitive advantages enjoyed by and see no to going into fourth quarter is the continued success of our eldest subscription program strategic pricing initiatives and premium format offerings.
Overall, our fourth quarter attendance in the U.S. was 62.3 million visits our second highest fourth quarter attendance ever.
International admissions revenue was aided by a positive industry backdrop and the success of our initial investments in recliner seating premium formats, as well as improved food and beverage offerings to enhance the guest experience.
For our international operations on a constant currency basis admissions revenue grew by 4.1%.
And this was driven by 4.8% increasing attendance per screen, partially offset by decline than the average ticket price by 0.7% as we matched incident select cases price cutting by some of our competitors.
We are particularly satisfied that I like fit is renovated with recliner seating experienced attendance growth of more than three and a half times higher than the industry at large.
Our international fourth quarter attendance was 30.2 million visits giving us a consolidated fourth quarter attendance of 92.6 million, our second highest fourth quarter attendance ever.
Okay.
From a food and beverage perspective, as you know AMC goes far beyond classic concession offerings like popcorn and fountain drinks to give I guess, an unrivaled out of the home experience.
In the U.S. food and beverage revenue per patron increased by 2.5% to $5.33, while the international business food and beverage revenue per patron grew 7.8% in constant currency to $3.59.
Both the domestic and international results represent AMC records for the fourth quarter.
This was achieved by continuing to innovate and refresh menu choices, while implementing strategic pricing actions to optimize revenue for the company, while maintaining the value proposition for August.
We see a significant opportunity to continue to grow the overall spend in food and beverage in the years ahead.
Even though we believe that we are primarily valued on EBITDA rather than net income I should highlight to you that this quarter's income statement reflects certain noncash items that impacted net income.
We recorded an 84.3 million dollar charge related to payments of long lived assets. The vast majority of this is attributable to payments of operating lease right abuse assets that were established with the adoption of AC 842.
We also recorded a non cash charge of approximately $9.6 million associated with the fair value Remeasurement of a derivative liability at derivative assets related to the company's convertible notes due in 2024.
As a reminder, we recorded income of $165.5 million in the fourth quarter of last year associated with the same derivatives.
And finally, our income tax expense reflects an approximately 41.5 million dollar credits from a nonrecurring tax benefit related to our international operations.
In order to aid in transparency this quarter, we're disclosing and adjusted net income metric, which simply normalizes net income for the above mentioned noncash charges and the appropriate provides a clearer picture of the underlying performance of the company.
Adjusted net income for the fourth quarter was $38.9 million up 105.8% compared to last year's fourth quarter.
[noise] to touch very briefly on the consolidated full year results with variances to prior year calculated in constant currency.
Total revenue was a record of $5.5 billion up 1.6% admissions revenue was $3.3 billion down 1% food and beverage revenue was $1.7 billion up 4.1% consolidated adjusted EBITDA was 771.4 million dollar.
It is down 3.5% after adjusting for the impact of as see a 42 and the benefits from a 35 million taught a onetime lease modification that happened in 2018.
And on an as reported basis adjusted free cash flow increased by $118 million to $359 million and free cash flow increased by $172 million to $61 million. Both of these cash flow increases after adjusting 2018 for the cash flow.
Classification impact of assay 842.
Net capital expenditure for 2019 was approximately $412 million and we are updating our twentytwenty net capital expenditure guidance to now be between 275.
$300 million often landlord contributions.
The capex reductions for 2019, and Twentytwenty are a reflection of us having already completed the renovation of so many of our U.S. theaters and a lessening of the domestic renovation needs as a result.
The high end of our full cost it Twentytwenty Capex guidance includes approximately $150 million of maintenance Capex and a $150 million of net growth capex off to landlord contributions and such landlord contributions continues to be quite sizeable.
For Twentytwenty, we are disproportionately directing our capital investments into our European theaters, where recent financial returns have been particularly compelling and just to technology initiatives, which continue to drive operational efficiencies and increased customer loyalty.
From a balance sheet perspective, we ended the year with $265 million up unrestricted cash and $332 million of undrawn revolving credit availability, which totaled $597 million of liquidity.
And finally as the company has stressed for almost a year now we're looking at our leverage and valuation ratios you should pay particular attention to the effect of the data services capital Ikea, Bloomberg and Factset Overstate AMC is dead by including operating lease liabilities would indicate that.
This is inconsistent with us gap.
Accordingly, they significantly overstate AMC is leverage and valuation multiples.
With that I'll now hand, the call back over to Adam.
Thank you Sean.
As you just heard we had a successful fourth quarter, where AMC solely outperformed the industry yet again.
These results are directly tied to the continued commitment to innovation in the AMC platform through which we deliver a personalized and targeted end to end experience for our guests leveraging technology and data driven insights that all drive consumer loyalty.
We believe that AMC as blazing.
Using a unique trail in creating nothing less than the quintessential 21st century movie going experience.
Before turning to your questions I'd like to comment on eight important specific topics first.
On the attractiveness of the industry box office looking ahead.
As I said, a few minutes ago.
Globally, the 2019 box office at an all time record high.
Much has been written that the domestic box office may face challenges this year in 2020.
That may be true.
But some of tried to draw conclusions.
Tests will short term softness and argue that this is due to a secular decline in out of home movie going.
We could not disagree more strongly.
As we look ahead, especially the 2021, we see dramatic growth in the size of the domestic box office not so far away.
Well the 2021 box office eventually as reported we believe it will be the pessimism, the naysayers, who will turn out to have been wrong.
You will recall that as recently as 2017 somewhere writing the obituary of theatrical exhibition only to find the 2018 was the biggest domestic industry box office ever.
2019 was the biggest global industry box office ever.
People have been forecasting the theatergoing isn't anachronism for more than 70 years no.
Television was going to put movies is out of business. These see ours, we're going to put movie theaters out of business Dvds, we're going to put movie theaters out of business premium video on demand was going to put movie theaters out of business and now streaming is supposed to be putting movie theaters out of business.
Yes, the resilience of theaters has overcome and overcome and overcome.
2021 is right around the corner and 2021 in our opinion should be quite a wonderful year for AMC.
As we look to 2021 and beyond we see brute proven billion dollar franchises and incredible film Slates Act anchored by the likes of Avatar Jurassic World, Indiana Jones mission impossible and Star Wars to name just a few this makes us extremely optimistic.
About our industry's future.
Second.
On AMC is revenue growth cost cutting and margin improvements.
We are ever so proud that for the seventh consecutive quarter AMC outperformed the rest of the domestic industry with attendance per screen, beating the rest of the industry by 284 basis points and admissions revenue per screen, beating the rest of the industry by 607 basis points that speaks volume.
For the EFT of Efficacies of all the competitive advantages that AMC enjoys in the United States.
As industry wide box office revenues grow globally to record levels. This past year in 2019, we are reminded how smart it was for AMC.
The recently become the largest exhibitor in Europe.
What's more our European theaters are responding to renovation and to the installation of recliner seating with growth rates, three and a half times that of the industry growth rate generally in Europe.
Approximately 40 of our theaters have recliner seating installed now at approximately 60 of our theaters in Europe should ever Kleiner seating installed by year end 2020.
We are similarly pleased by our latest geographic expansion in the Middle East.
We opened our second theater their 10 weeks ago.
Out of our 1000 theaters in 15 countries.
On a per seat basis that new theater that opened 10 weeks ago in Riyadh already is our highest grossing theater in the entire world.
By year end 2020.
We expect to have 15 opened theaters in the middle East and possibly more we expect to have 25 or more theaters open there by year end 2021.
On costs at the end of the second quarter, we announced a 50 million dollar profit improvement plan to enhance aspects of our revenue and optimize our operations and cost structure to improve efficiency and margins. We've already taken actions the heightened the certainty that we will deliver on or exceed this.
$50 million goal.
Results of our significantly increased focus on cost discipline are already showing up.
Adjusted for AMC, a 42, our EBITDA margin improved by 150 basis points.
For the quarter just completed.
During 2020, we'll continue to see the benefits of the profit improvement plan kicking in throughout the year.
Third.
As the Capex and free cash flow.
As our capital expenditures come down AMC is turned the corner on free cash flow generation.
Our investments in strategic initiatives are yielding strong returns.
And with the natural evolution of our U.S. theaters needing less investment money with so many of the theaters already have we been renovated AMC is capital expenditures in 2020 will be somewhere approximately $110 million to $135 million less than they were in 2000.
Contain.
But these amount still are more than sufficient to continue to invest in our business to drive growth.
Especially with theater renovations in Europe.
And with technology innovations everywhere.
Fourth.
We made an important announcement today about capital allocation.
Especially is that relates to returning cash to shareholders.
AMC is committed to a balanced capital allocation approach to achieve the highest long term risk adjusted return for our shareholders.
This includes investing in the business.
Reducing leverage and returning cash to shareholders through either dividends or share buybacks.
We've been saying for sometime now that we have raised the priority being recorded through reducing AMC is leverage.
Since the significant reduction in our forecasted capital expenditures.
Deleveraging remains our single highest priority at the moment.
Today, we also announced that given the current depressed level of our share price.
And given that the financial markets seem to be giving AMC very little credit for paying an oversized dividend.
We realized there's an opportunity to enhance shareholder value by deleveraging and by increasing the proportion of capital returned to shareholders through buybacks rather than through dividend payments, even so the paying a dividend remains an important component of our capital allocation and the current new dividends.
We are doing so consistent with the average paid by other New York Stock Exchange listed companies.
Some of the speculated that we might not have the wherewithal financially to fund the higher dividend.
Lets just nonsense and it's completely belied by our $265 million of cash and $332 million, an undrawn revolving lines of credit at year end 2019, totaling approximately $600 million of total year and liquidity.
The explanation is this simply put.
We cannot justify paying out a dividend with the yield exceeding 11%.
Well our share prices currently one to three multiple points below historic EBITDA trading ranges adjusted for ASEAN 42.
Our view given current conditions, the smartest way to return cash to shareholders now.
His through share repurchase rather than a dividend.
Then a typically large deals.
So we are adjusting our capital accomplished allocation accordingly at this time.
AMC is board of directors as we issued a press release a few minutes ago has declared a dividend for the quarter ended December 31, 2019 of three cents per share on shares of class a a class b common stock the 24th consecutive dividend since the company's initial public offering but.
Admittedly at a lower level starting this quarter.
The dividend decrease of 17 cents per share compared to the fourth quarter of 2018 reduces the total dividend payout for the quarter by approximately $18 million.
And should this dividend continue unchanged.
Approximately $72 million annually, providing capital that we can optimally deployed towards both de leveraging and to equity buybacks.
That will create value for our shareholders.
To that end.
Our board has also authorized.
Up to $200 million of class a common stock repurchases.
Over the next three years.
Topic five.
We also announced today, a new executive compensation program for our most senior officers.
The trades immediate pay reductions reductions.
For our share equivalent grant that is considerably out of the money.
AMC his management team and I believe.
That our shares are fundamentally mis priced.
And that at current levels, our shares or a bargain.
As a result.
All of the relevant senior officers of AMC.
Voluntarily and enthusiastically signed onto a new reduced compensation program.
Where our corresponding benefit is dependent on a one time way out of the money share equivalent grant.
Here are details of the high level more information will be contained.
In an 8-K filing.
The current total target compensation.
Of AMC is participating senior officers.
We'll be immediately reduced.
By an amount equal.
To the sum of.
15%, one 515% of their cash salaries.
Plus 15%, one 515% of their target cash bonus opportunity.
This compensation decrease.
We will be split into thirds and applied evenly as reductions in compensation across each of three categories.
One third lowering combined test salary and cash bonus.
One third lowering at market restricted share ground amounts that time vest.
And one third lowering at market performance share grants that that's based on performance.
Importantly.
These sacrifices now.
And lowered cash salary and cash bonus.
As well and lowered at market restricted shares and performance shares will continue at the new lower totals in each of the coming three years.
In exchange.
The officers reducing their pay now.
We will receive a onetime grant of AMC share equivalents.
That with certain exceptions has a three year time vesting provision.
And also requires.
Thats, the AMC share price rise materially.
In order for any vesting to occur.
This year grant is split in the six equal Traunches.
Initial vesting will occur it will not occur.
Initial vesting will not occur until the AMC share price recovers.
On a 20 day vwap basis.
$12 per share.
A 102% premium.
Yesterday's market close.
The second tranche will invest only when the AMC share price rises to $16.
170% premium.
Yesterday's close.
The third tranche best at $20.
237% premium to yesterday's close.
The subsequent traunches, that's the $24 $28 and $32.
Premiums of 305%, 372% and 440% respectively.
For teen senior officers.
Of AMC are all participating in this effort, including me personally of course.
We are all trading immediate compensation reductions for three years.
In exchange for a security that will have no value at all until the AMC share price more than doubles or triples and more.
As you can see.
All of us of deep conviction about AMC is future.
And therefore.
Each of us is putting our money where our mouth is.
Management is totally aligned with shareholders.
Your cash pay cuts and lowered it market share grants now we are all pitting putting more skin in the game.
We are heavily incentivized to build the AMC share price back up.
We have every confidence that will occur.
And we will be doing all in our power.
To make that possible.
Six as to a list.
As we've done each quarter, a quick update on our AMC stubs Ala subscription program.
The fourth quarter, just completed was another quite successful quarter for us.
This is one of our most vital and impactful marketing programs.
We are constantly and proactively manage the program to improve our company's overall profitability.
We continue to have between 900001 million paid members.
Hey list members currently represent between 15% and 20% of our total U.S. admissions.
The superb aeolus news in the fourth quarter.
Is that average a list frequency for the fourth quarter.
Was again 2.4 theater visits per member per month right in the heart of the sweet spot of the mid to high two X range, which defines program success at current membership pricing levels.
Just as a less has been ahead of schedule on membership accounts and program profitability from right out of the suit.
The fourth quarter frequency of movie going at two point Fourx also per month is also favorable to our initial planning models.
We continue to have a rock solid reassuring and confidence building analytic handle.
On the list program.
And innovation continues where they lost our new entourage feature has been a must welcome enhancements a list. It was launched in November of 2019, and it allows a less members to link their accounts. So that they can make in a single quick and easy booking transaction a movie reservation, including specific.
Reserved seats for multiple moviegoers the people in their entourage.
And just three months, we have about 115000 members available.
Link their accounts through entourage.
Overall.
Hey lift contributed more than $20 million of incremental operating income the AMC in 2019 way ahead of our earlier announced expectations and the full year ahead of our expectations described during the launch of the list program back in June of 2018.
We expect even more from a list in 2020, it continues to exceed our expectations.
It's increased loyal to AMC.
It has benefited our theaters our studios in our premium format partners.
Hey, less is a big reason why AMC is us attendance has been robust.
And why AMC has outperformed the industry.
Quarter after quarter.
After quarter after quarter.
After quarter after quarter after quarter.
Seventh.
On the issue of streaming.
Some seem to accept on faith that an increase in streaming content will serve as some mortal threat to movie theaters.
They choose to ignore the facts that 2019 was the biggest global box office year for movie theaters ever.
Or is it when television exploded with content from four major channels to hundreds of channels theaters to just fine.
Or that companies like AMC have invested billions of dollars to increase the creature comforts at our theaters enticing more and more movie goers to get out of the house.
Or that our marketing engagement programs are increasing loyalty on a customized basis like never before.
Or that our technology interfaces have made it far far easier to book a prime seeded a movie theater.
And for us to stay continuously engaged.
With our guests.
Studies have indicated a clear and strong positive correlation.
Between those who stream movies and those who also like to go to theatres to enjoy movie watching in person.
On a big screen with powerful sound and the smell of buttered popcorn.
In short movie watching the gets movie going.
Further.
Rather than looking at theaters as competitors.
We believe there is a significant opportunity for streaming providers to further utilize theatrical exhibition.
To create drum tremendous value for their content.
And for their shareholders.
The theatrical format has always had strong branding power, particularly in today's world of endless scroll of content icons on streaming platforms.
Theatrical exhibition helps to differentiate high quality content from low quality content.
Patrick will exhibition AIDS users in discovery.
Multiple studios have utilized theatrical excavation as the anchor in building incredibly valuable franchises, which are then extendable into TV content streaming content theme parks video games and merchandise all with the building demand base that was created is initially and then.
We encourage and encouraged from that initial theatrical release.
These studios are starting to do that now with their streaming offerings too and they do this while earning billions and profits.
By the theatrical box office.
Which has the content arms race continues to play out we think will be increasingly important to help defray the massive investment.
In contrast that is required to succeed.
Importantly, the more of theatrical exhibition keeps talented director Cinematographers writers and actors.
Cited and motivated knowing that their work will be shown enjoyed in the best possible way on a big screen.
As a result.
We have every confidence that we will maintain our century long partnerships with existing major studios and forge new alliances with emerging streaming powerhouses.
For them to use our movie theaters as vehicles to propel their own business success.
With this in mind.
AMC just hired a new senior vice president of strategy.
Who joins us Monday.
He is media world savvy highly regarded and as previously worked as a longtime executive Vice President of business development and strategy of 20th century fire of 20 century, Fox television and before that Universal Pictures based in Los Angeles is first major effective will be to create partnerships with.
Streaming services, both from established studios and from emerging streaming players to create value for the benefit of all parties.
But especially to create value for us here at AMC.
And finally.
Propagate just before we head to your questions. It seems appropriate to take a moment to briefly address the topic on everyone's mind.
The Corona virus.
AMC Entertainment does not have movie theaters in China.
Nor in South Korea, nor anywhere in Asia.
AMC does not have movie theaters in Iran.
We do have theaters in Italy, some of which in northern in northeastern Italy, We have decided to close for a week starting three days ago as upper caution.
As best we can tell the economic impact of krona on AMC, So far has been minimal.
While it's conceivable that could change as of today, our theaters, which are predominantly in the United States and northern Europe.
Appear to have felt little or no pain.
It goes without saying that we're vigilantly monitoring reports and advice from governmental authorities in the United States and throughout Europe as well as for medical experts of course as you would expect.
We will be responsible player here taking into account the safety of our guests and of our staff.
But importantly to report looking broadly at our circuit of 1000 theaters across 15 countries.
Visited a million times per day by movie goers around the world So far so good.
And probably this is as good a place as any in this call today to remind one at all.
That AMC does not have a single debt maturity before the year 2024.
Also our securities or Covenant Lite.
A flat a flexible capital structure with no debt maturities portfolio for four full years.
Should be coming.
In conclusion.
The quarter, just completed was another period in which JMC truly performed well, while we realize in looking at our share price that there are many who seem to doubt us with every confidence that as we continue to deliver results will be proven correct that agencies future.
Is extraordinarily bright with that operator, we're ready for questions.
Thank you.
I'll now be conducting question and answer session.
To ask a question today. Please press star one from your telephone keypad and a confirmation to indicate your line is the question Q.
Let me press star to accumulate to move your question from the Q.
Our participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment. Please so we poll for questions.
Thank you.
First question is front line of Eric Wold with B. Riley FBR. Please proceed with your question.
Thank you good afternoon.
You just quick question on the capital allocation plan, obviously, Adam you talk about.
The reduction of dividend can be deployed towards share repurchases and a decrease in debt maybe some thoughts on.
How that decision is made between those two use it and kind of how do you prioritize them too.
Sure Eric.
Actually I think it was your report that first suggested that we switch from dividends to buybacks I might add.
Look we have been returning $80 million a year.
And dividends.
We are going to continue.
To pay out dividends admittedly at the lower rate.
It generates a right around $70 million annually $72 million.
Should the current new dividend rate continue unchanged.
Essentially that by itself would fund.
The share buyback authorization that we announced.
But in terms of deciding between returning cash to shareholders well, let me just because you are going and second.
We also.
To build up.
Cash on the balance sheet.
Therefore increase.
Our decreased net debt, therefore, improving our leverage ratio, we are bringing our capex.
Expenditures way down as you know.
And $110 million to $135 million comparing.
2000.
20 to 2019.
That allows us to deleverage significantly.
In the prior years, there were some assets that we were able to sell and monetize in cash.
I do believe there's some opportunity for us to continue to do that in 2020.
When we look at the share price and see that our assets are.
Being valued at less than seven times EBITDA, it seems pretty low enough us some of the some of the items under our control or were far more.
Than that.
So all of these things are in our our sites in terms a priorities it's very clear.
Priority, one is to deleverage and we'll doing that through reduced capital expenditures and the possibility of a small amount a modest amount of asset sales I don't want anything anybody to think we're doing anything big.
[music].
Then also I would say next priority is to continue to return cash to shareholders.
And but we will choose to do that more through share repurchase.
Then through dividends, especially with the uncertainty in the world today.
The uncertainty in the markets in the last three days.
Now the good timely.
Adding cash through the balance sheet and Thats, what we intend to do above all else.
Perfect if I might real quick on stones analysts, who follow up there yes.
We've had that in place for almost two years can you talk about what you see what kind of the.
Less than active users and they tend to stay on most far you see churn away from people, who don't use as much and then you know with that what is your thoughts on the ability or or need to take additional price increases.
Sure.
Hey last has been force for 20 months.
As I said in the call like.
That was more successful than we ever hoped it could be right out of the shoot membership accounts were higher profitability was faster.
You may recall, a long time ago, we said, we thought by year end, we would get the $3 per member per month.
Right about what's happening these days.
The average if you look at churn, which we look at very carefully.
The average day lift member looks like they're going to stay with us for at least three years.
Turns pretty low.
Logically the people who would fall off most.
Are the people who are inactive gov kind of a logical thing.
But we we have been replacing those departing.
Hey, let's members with more new members.
So our membership count keep growing rather than shrinking.
There is no compelling need could take a pricing action.
I remember we've already.
Set three different pricing regions across the United States.
We intend to be judicious in how we price the program.
I do think theres, an opportunity in some markets or in some states to take the price up.
There are a couple of other really interesting levers.
That we can pull.
That will affect the program profitability a lot.
That don't require a price increase.
For competitive reasons I don't actually want articulate what they are this phone call.
But there is one decision by itself.
That could improve atlas profitability by.
At least $10 million, possibly more on an annualized basis.
And we started testing.
In several markets quite quietly.
Various approaches surrounding that decision.
To see how they play with consumers summer leave you with had been a mystery only because I don't want to tip our hand.
But as I said.
We are constantly living this program.
Proactively managing it looking at all sorts of.
Ways in which we can generate.
Increase value from it.
We separated.
AMC a less members into desktop sales based on their activity there frequency their food and beverage spend we're putting different promotions out the different people based on your activity.
Just trying to stimulate the activity that they.
Could spend more with us not trying to dilute activity, where they're already spending a lot with us.
If there is one thing this company ever did well ever in its 100 year history.
And this is our hundred here by the way in 2000 2400 entering.
Hey, less might be the hit of all his.
Thank you.
Our next question comes from the line of David Miller with Imperial Capital. Please proceed with your question Hey, guys Great results congratulations there.
On a couple of questions for you and Craig maybe want to chime in just because I know you have this background obviously.
When we look at your capital structure.
The net debt to EBITDA.
It is what it is and it's it's recorded efficiently and I get it that they are some inefficiencies with the way it's being recorded by the wire services, but the the net debt to EBITDA ratio looks invariably much higher when you count in the converge when that you county in the 600 million dollar.
Convert and the problem with that convert is that its busted and its way below money. So what if anything can be Don about renegotiating. The terms of the convert and then specifically separate question.
I think Craig maybe about a year ago, you mentioned that you.
You would consider a European IPO on either Euronext or London, if there was consistency with the European results, which there has been I think thats three quarters in a row of European outperformance. So.
You know a European IPO at least by my account, which is this rate.
Any criticism that you guys would our guys are over leverage and I'm wondering what flavor you had in tackling that at this point thanks very much.
David It's Adam I'm going to field, both on the issue the silverlake convert.
I would remind everybody that wall it stays that.
Theres, an interest rate of 2.95%.
And if it converts to equity.
As far as the public carrier shareholders of AMC are concerned.
Well.
It was issued at 80 95 I believe.
It could drop into the Fourteens, if we stay low the share price stays low.
Hi, defy anybody in this call to be unhappy.
If management was able to raise significant equity.
North of $14 a share when our share price is trading at six.
We are aware that there may be an opportunity renegotiate.
The terms the convert.
We would only do so if we could do so on terms that were attractive day, MC and beneficial to AMC is public shareholders.
On the issue of a European IPO.
We did raise that issue about two years ago.
I think we put that you are correct that if we sold off.
A lot of our European assets, we set a European IPO might be selling off essentially a quarter of Europe that that would prove to the world that it is ludicrous that our European theater assets are being valued at under seven times EBITDA.
But there are other ways to make the same point and I also said.
I think six to 12 months ago on one of these calls that the results of our recliner renovations in Europe.
Our so high.
Realizing that we now have 40 theaters, Don and we're going to have 60 theaters done by year end 2020.
Right now we think its smartest for our current shareholder base.
To review all of the.
Increased shareholder value that accrues from those recliner renovations going into place.
And that it would be unwise.
To give away a quarter that upside to the European public so for the month for the moment, it's off the table. We do think there other ways to prove to one and all that some of our European theaters, and where the lot more than less than seven times EBITDA.
But we don't think we should be selling the whole European estate to do so.
Hey, Thank you.
Our next question is from the line as Chad mentioned with Macquarie. Please proceed with your question.
Hi, good afternoon, and thanks for taking my question.
For 2020, I think most prognosticators are.
Looking for domestic.
Admission revenues to be down mid singles or maybe even slightly worse.
So if you guys can continue to gain market share and obviously benefit from the cost cutting plan that you put in place and that we saw nice margin improvement I'm fourth quarter domestically can you help us think about.
Margin potential as you've laid out before.
For for 2020 gifts that is the.
Scenario that ends up playing out thank you.
Thank you Chad look here in a nutshell right.
We've got three vectors at work.
In.
Four factors at work in 2020, we've got.
Solid growth in Europe, the middle East.
We've got.
Market share gains in the U.S., which we hope to continue.
And we have all they help from the profit improvement plan.
Which I increasingly confident.
Increasingly confident that not only will we deliver on our goal that we will exceed our goal. The fourth vector is the domestic box office could be soft.
You know in an ideal world the some of the three first vectors.
Would all fully offset the fourth vector.
But it's only February 15th and it's too early to tell.
Gotcha. Thank you.
Then separately just back on the share repurchase announcement or their restrictions in terms of how much you can purchase per day or per week just given.
The volume.
I guess as a percentage of the daily flow and how did you talk about.
I think it's it's 25% of the last two weeks trading volume is what we can buy in a single day Thats our limit.
Okay perfect. Thank very much guys and how you're going to say I cut you off I didn't mean to and you were saying how do we talk about something rather.
Well I was just going to say, how do you think about repurchasing opportunistically versus doing kind of a standard Dutch tender out in the market.
I think our preference is to do a purchase op opportunistically based on share price at the time.
Uh huh.
During this gradually might be better than shooting our wide all in a single Dutch auction also.
That by doing so opportunistically.
We get to the get to decide the timing of our buys.
No.
We are going to we certainly clearly are buying back stock or effect, we clearly will stop today, where to quiet period, we clearly will be buying back stock, but after the timing of that stock.
A repurchase.
Debt.
Reduction.
Lowering increasing our our net debt are increasing our cash to reduce our net debt decreasing our leverage ratios.
Deleveraging is still our single top priority.
And especially right now.
When there's real uncertainty in the world.
We're going to be conservative.
And keeping cash in our pockets.
To make sure that.
The what I think might be somewhat irrational fear as the market has had over the past few days.
Don't out, though turnout to be rational fears.
Having cash in our pocket would be a good thing but.
Deleveraging first share repurchase second both will happen.
Go back to the Investor Day from April 2019, nothing has changed with respect to our Aspirationally targets, we laid out a three to five year road for AMC to go down in which de leveraging was a major strategy for the company margin improvement was a major strategy for the company revenue.
Growth was a major strategy for the company.
That is still our view of where AMC will go in the years ahead.
Thank you I appreciate it.
Thank you.
We're nearing the end of a question answer session. It's time for one additional question, which is coming from the line of making Durcan with credit Suisse.
Hi, guys I wanted to get a little more color on Italy impact revenue and EBITDA contribution from those theaters, how many screen the closed and why did you decide to close for one week and what types of the valuations Levy doing before you opened the theaters again and then just one last is what.
Texans do you have if there is it more prolonged close or is there insurance or.
Something like that.
Well that's about night I mean, we do our you may have about 19 questions.
We have 47 theaters in Italy.
We've closed.
22 of them for all in inordinately generally around Milan.
There are another seven in northeastern Italy.
Where the local government has gone back and forth three times in the past 48 hours, where they want us open or close.
The end back in Milan.
There are already a lot of.
Entities in Milan that have reopened to the public.
There is an increasing view of Milan in Milan.
That there may be an overreaction in and around Milan.
We decided to close for week.
Because thats what.
All the local governmental authorities in local medical authorities thought was the right thing to do.
Milan and its environments are not on a quarantine or a lock down.
We did this cooperatively with local governments just as it were caution.
In terms of the economic impact it's.
It's de Minimis.
You know its if the only issue is that those theaters in Italy are closed for week.
It's.
Between a half a million dollars at a $1 million for a week's closure.
Yes thats.
Not even got to be noticed.
But when we wrap up AMC for the year.
The issue might be.
If it scares movie goers elsewhere in Italy or elsewhere in Europe.
If it causes people to return to theater slowly.
After the theaters reopened.
But it's way too early.
To start prognosticating, what's going to happen.
Right now we have a few handfuls of theaters.
That are closed their smaller theaters in general.
Economic impact is really low and.
No.
We don't we're not being pollyanna I raise the issue in my script on the call.
If the crowd of IRS, where.
The United States in a huge way like that would be a problem for us, but what's happened in Milan is not and as I said as we assess where we are today.
As you look at our circuit broadly across the thousand theaters.
Theres little or no impact.
I should say that we do not have business interruption insurance for art.
Further crowd of Iris.
So that that is not at protection that is currently available company.
I tried in my prepared remarks to be calm about.
Try to virus.
Right now Mcs and a very good place, let's hope it stays that way.
Okay, Thanks, and my best to Craig.
Oh, thank you.
Reagan every everybody that's a nice way to end the call. After 25 years everybody's best to Craig. Thanks.
Thank you at this time I'll turn the floor back to enter for any closing remarks.
So I said all add to say before folks.
I, just put my money, where my mouth us.
I just signed onto a $1.6 million pay cut over the next three years.
Take AMC securities.
That will have no value until our share price crosses $12 or $16 or $20 24, 28 and 32.
I personally on 459833 shares of AMC stock today.
We believe the future I haven't sold a single share in the four years I've been here.
And I'm, maybe acquiring a lot more I think our future is enormously bright I think the pessimists, who have been doubting us over the past.
Year, but especially the last.
Six months in three months I think there just flat out wrong.
And all in our managed seem is out to prove them. So we will do everything humanly possible to deliver results at AMC as we did in the fourth quarter.
And we know that.
All the talk in the world isn't going to matter.
The only there's going to matter is do we delivered results. We're very much committed to doing so we have done so.
And we will see together the fruits of that labor that we thank you for joining us for staying with US late on a Thursday night, especially in the East coast.
And we'll have during the call.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.