Q1 2020 AMC Entertainment Holdings Inc Earnings Call
It's not all participants starting to listen only mode. A question next session will follow the from the presentation.
<unk> operator sits just turn the conference piece first stars are all on your telephone keypad. Please note. This conference is being recorded I would now like turn the conference over to your host Mr., John Merriwether like you may begin.
Thank you Debbie.
Afternoon, I'd like to welcome everyone to AMC is first quarter 2020 earnings conference call.
With me. This afternoon is that American, our President and Chief Executive Officer, and Sean Goodman, Our Chief Financial Officer.
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 restaurant uncertainties are discussed our public filings, including our most recently filed 10-K a 10-Q.
Several of the factors that will determine the company's future results are beyond the ability of the company to control or predict.
In light of [laughter] inherent in any forward looking statements listeners are cautioned to not place undue reliance on these statements.
The company undertakes no obligation to revise or update any forward looking statements, whether as a result of new information what future events.
On this call we may reference measures such as <unk> adjusted EBITDA 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 posted any investor Relations section of our website earlier today.
After our prepared remarks, there will be a question answer session.
This afternoons call is being recorded in 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 call over that.
Thank you John.
Good afternoon, everyone. We're very pleased it could join us today.
Let me start by saying on behalf of all of US at AMC, We hope that each of you and your families are safe safe and healthy.
For the past 84 days.
Internally within AMC, we have interacted constantly via video and audio calls.
But for the first time in a long time, Sean John and I are actually in the same room physically to bring you. This call as we reopened our theater support center headquarters here in Leawood, Kansas, well always suburb of Kansas City just yesterday.
This afternoon.
Well I will take a brief look at the first quarter results well focus much more and what we believe is a primary interest to most listeners on the call and that is the actions we've taken to manage through this crisis.
And the actions, we will be taking to prepare to safely welcome our guest.
Back to our theaters once again.
Before we begin given what we've seen on the streets of U.S. cities. These past 14 days, a nice I'd like to preface my remarks today by pointing out.
But at AMC theaters in the United States more than half of our guests and more than half of our employees come from diverse communities from within the American melting pot.
So last week on the day of the very moving Memorial service for George Floyd I put out a strong and lengthy message to all our employees expressing our outrage and heartbreak over the killing him Mr. Floyd.
And our special concern for the pain being filled among African Americans that was cold in the strongest possible language.
With a reaffirmation of AMC is absolute rock solid and unshakable commitment that discrimination of any kind of against anyone has no home or shelter at AMC.
No.
Why don't we moved from social unrest, the global pandemic, an economic black Lockdown all happening at the same time.
To say that people the world over all experiencing extraordinary times would be a colossal understatement.
Well the onset of the covered 19 global pandemic.
And the resulting economic hardships it was created.
Literally every one on the planet Earth has been affected and affected profoundly.
For what it's worth.
Although it's likely to be a tough long slog toward full recovery across the entire world I'm convinced that people will emerge from this challenging time with a renewed sense of community.
And in appreciation of communal experiences such as movie going.
That is proving to be an integral part of this nation social fabric for well over a century.
And I tried and true source of enjoyment amusement and emotional escape.
The world over.
You all know that that's the type of uncertainty having said that at AMC, we're focusing on what we can control.
And we're committed to taking big bold action on multiple fronts to improve our circumstances.
Well cautious lawyers and accountants properly like for us the air the obvious substantial doubts.
Should more calamity happen.
Oh I for one know that AMC will lift every rock and take every reasonable action we can.
To put AMC on a solid and improving path.
And my heart of Hearts, I passionately believe that in the yen.
AMC were both succeed and prosper.
And we'll take every prudent step that we can't really Ken.
To achieve that all important objective.
Looking ahead.
Everything at AMC in the near an immediate term will be focused on four things one.
Reopening our theater to smartly and its professionally as we can.
Optimizing safety and close for our guests and associates benefiting from the industry, leading caliber of our marketing to drive revenues and implementing a wide variety of strategies to optimize theater profitability.
To continuing to take actions to bolster our liquidity.
And the de leverage our balance sheet.
Three.
Reducing our cost structure and spending posture, realizing that revenues make take time to ramp up.
And understanding the need to produce and harvest.
Free cash flow.
And for.
Managing our business through whatever structural change world events or industry dynamics are thrown our way.
In life changes inevitable of course, but in recent months indeed in recent weeks.
Well Nellie has there been a lot of change.
Cataclysmic change.
But smartly managing through change whatever that may entail.
It is what management teams across all industries.
Our paid to do.
Before looking ahead further we can take great comfort that when we look back on the first quarter prior to the mid March theater operation suspension.
It's apparent that the hard work and cost controls that we put in place during the latter half of 2019, we're taking hold.
Similarly, the competitive success that we'd seen continuously as a result of our marketing efforts since mid 2018 was again very much in evidence.
Domestically.
In the first two months of 2020 AMC admission revenues were outperforming the rest of the industry.
By about 260 basis points. This industry outperformance together with strong International results you will total company revenue growth of nearly 10%.
And when combined with the operational efficiencies in place on the cost side.
Thanks to our previously initiated profit improvement plan.
Adjusted EBITDA for the company grew nearly $53 million compared to the first two months of 2019.
But then.
Hi Boomer.
Our encouraging January and February results were overshadowed by world events as we all know.
During the larger latter part of February only a few handfuls of our theaters and these only in Italy.
Began to close in response.
So the current a virus.
But by March 17th as you know.
We had made the decision to temporarily closed all 1000.
Of our U.S., an international theaters across all 15 countries that we serve.
In addition to all the work associated with shuttering our theaters.
In March we took swift action focusing on three key areas first.
Dramatically, reducing our cash burn second strengthening our liquidity.
And third preserving the capabilities and commencing comprehensive planning efforts.
To effectively re commence operations at our theaters as soon as we were both Abel and it would be wise to do so.
It's that we can Ken Ken can continue to grow and outperform our competition in the years ahead.
Despite operating under a companywide furlough.
Which included all the senior executives of AMC and myself.
AMC Senior leadership team has spent what seems like every waking moment. These past two and a half months working diligently on these three focus areas that generate what we firmly hope and expect.
We will be our future success.
I'll now turn the call over to Sean our CFO to briefly review the first quarter financial results as a take you through some of the actions that we've taken today.
The deal was all things Corona Sean.
Thank you Adam and thank you everyone for being on the coal with US today I hope that you and your families have been safe and well during these unprecedented times.
Our results for the quarter look clearly significantly impacted by the kinds of 19 crisis, which began to pick the operations in early March.
As Adam pointed out we began twentytwenty with very solid results.
Well the first two months of the Oh consolidated revenue was up nearly 10% and adjusted EBITDA was up $53 million or 134% compared to the same period last year.
Key drivers of our success at the beginning of the quota, including the benefits of the profit improvement plan implemented last year and the continued success of our hey, let's subscription program.
Well the first two months of the quota, we increased increased food and beverage revenue per person by almost 7% and average ticket price by 4.5% clearly evidenced that our pricing and food and beverage initiatives a looking.
In the month of March.
We were significantly impacted for the quota.
The March results took adjusted EBITDA down from 92 million for January and February down to $3 million as we suspended operations at all about the it is across the world.
Our net income for the first quarter was also materially impacted by noncash impairment charges of approximately $1.85 billion.
These non cash charges were driven by the suspension of our global operations and the resulting declines in the company's market capitalization and enterprise value.
2020 was to be the yes, when we would begin to see meaningful reductions in the company's leverage levels through EBITDA growth and a natural decline in our Capex investment cycle.
All of this changed with kind of the 19 and early in the fourth quarter. We began planning for the possible impact of this club O pandemic.
From a financial management perspective, all clear focus since the beginning of this crisis has been to minimize our cash burn and optimize our liquidity.
With respect to managing our cash burn some of the actions that we have taken include the following.
We initiated full or partial photos of all corporate level company employees, including senior executives with salary reductions ranging from 20% to 100%.
We canceled annual merit pay increases, we eliminated or reduced non healthcare benefits, including for a one k. match and vacation accruals.
We 40 foot I'd, all domestic theater level crew members and we reduced theater level management to the minimum levels necessary to maintain our assets and our reopening capabilities.
We eliminated nearly all contract to roles.
And we taught non essential operating expenditures, including costs that are normally consider to be fixed but that rapidly become variable in this environment.
In addition, we have also been working with our studio and landlord partners to negotiate extended payment terms.
To expand a bit on theater rental costs.
We are grateful to all landlords for partnering with us during this crisis.
As a result of our strong and long term landlord relationships, we have successfully been able to defer or a base. The vast majority of rent Jude during the period that our operations remained shot it and this has had a positive impact on a monthly cash burn.
Note that our income statement and EBITDA will reflect our full rent liability for each reporting period.
You should note that we have a large number of landlords and the terms that we have agreed with each one of them are confidential and specific to the particular facts and circumstances, but each landlord and each theater.
In addition, there remains some landlords, where we are still finalizing agreements.
For the second quarter, you should expect that the vast majority of rent reflected in the income statement will be deferred.
Future cash rent payments will depend on our ultimate reopening schedule and level of attendance.
Regarding capital expenditure.
We have reduced capital expenditure to minimum maintenance levels.
Theater operations, all suspended essentially with halting all but absolutely indispensible capex.
During the first caught up our Capex spend was $75.6 million nature of landlord contributions compared to $79.6 million in the first quarter of last year.
We now expect Twentytwenty net capex to be between 130 and $160 million.
And one more thought relating to expense management.
While the did as well the theater closures are temporary some of our cost saving initiatives and learnings will not be temporary as we plan to prepare for significant EBITDA growth and margin improvement in the future.
We expect to receive relief from the Kids Act in the falling forms.
Approximately 18.5 million dollar cash tax refund and refundable alternative minimum tax credits.
Hi, deferral of social security payroll tax matches that would otherwise be required and twentytwenty.
And the receipt of a payroll tax credit in Twentytwenty, well expenses relating to paying wages and health benefits to employees, who are not working as a result of the impact of kind of 19 on our business.
In addition to the Kids Act in the United States. During Q2, we are also benefiting from various government assistance programs in Europe that provide support for ongoing payroll and rent expenses during the period of suspended operations.
From a liquidity point of view in March as it precautionary measure, we drew down our revolving credit lines totaling approximately $326 million.
In April we issued $500 million, a five year, especially nuts.
As part of this financing we undertook to suspend dividends and also suspend our stock repurchase program.
We also obtained agreement to suspend our maintenance debt covenant requirements through Twentytwenty one.
The combined efforts to reduce our cash burn and strengthened our liquidity resulted in a cash balance as of April 30, 2020 of approximately $718 million.
Finally last week, we initiated a date exchange offer to exchange existing senior subordinated debt due from 2024 to 2027 for second lien secured notes due in 2026.
To the extent that our senior subordinated debt holders elect to exchange that nodes, we have the potential to meaningfully reduce on average and further enhance our liquidity.
Because of this exchange offer is currently active in the market, we will not be able to take questions on todays call regarding this offer.
With that I'll turn the call back over to Adam So he can share with you our reopening flat Adam.
Thank you Sean.
Over the past three months, we've not hesitated to move expeditiously, and making difficult, but necessary decisions to manage through this crisis.
Positioned AMC well for a successful was resumption of theater operations, when it's safer our guests and associates.
To return to our theaters.
On the subject of immediate cost cutting.
The robust nature of our actions is almost breathtaking.
By just two weeks after our mid March theater decision, we had already set in motion shedding or deferring almost 90%.
Of our ongoing cash expenditures.
Think of that.
5 billion dollar multinational operating across 15 countries on three continents chasing away almost 90% of its cash spending in the blink of an eye.
I remember last August.
How we agonized over eliminating 50 positions and the name of the efficiency.
This marks by contrast.
We furloughed around 35000 people.
With a single decision.
Not callously not mindlessly not in differently.
But because we knew with certainty.
But they're simply was no other choice.
Last year I spent more than four full months discussing with and convincing our senior officers.
As to the wisdom.
Overall, taking a 15% reduction in total compensation in exchange for sizable out of the money share growth.
This March by contrast.
Our senior officers came to me and in a single conversation insisted.
That we all take an additional 20% salary reduction in exchange for absolutely nothing.
Solely because it was the right thing to do.
First century, we.
We paid our theater landlords the rent that we owed them.
And right on time to boot.
In the second quarter of 2020 Nada.
And with their understanding and cooperation I might add with almost everyone focused on getting through this now and rebuilding AMC to visit position of strength and success.
As I said the company is taking big bold action and doing so swiftly.
On the subject of liquidity.
Sean earned as AMC stripes really fast.
And did a truly masterful job and containing cash going out the door.
Similarly.
Our success in raising $500 million of new public market data and April.
At least temporarily silence all those journalists, who are breathlessly reporting with certainty.
That AMC would lead hurts Neiman, Marcus and J crew into bankruptcy court.
On the debt raise I.
I would especially like to call out and thank.
Citibank and silverlake, who through everything they had ended the effort of getting AMC, a half a billion dollars afresh cash.
As most of you know <unk>.
2020 years AMC is 100th anniversary.
You know 100 years, a business activity one picks up a lot of friends and allies along the way.
Citibank and silver Lake are two of those and were very grateful for their extraordinary skill and dedication to our company.
And if it's completed the bond offer that Moelis and while got solid crafted is currently in the market and could be another huge step forward for AMC.
Now, let's turn to the subject that's on everyone's mind the resumption of operations.
At our theaters.
In Europe last week, we successfully opened the doors of our first three theaters.
In Norway.
In a highly encouraging bit of trivia.
Even though those three theaters were limited in ticket sales to 25% of seat capacity.
We sold 83% of our available seats. This past weekend. Additionally, food and beverage spending held up nicely. So taking all things into consideration amazing, but through these three theaters whether doing about the same business. This weekend. This year as they did for the same weekend last year.
[music].
As we sit here today.
We now have 10 theaters currently operating across four countries, Norway, Germany, Spain and Portugal.
On Monday.
We will start operations at theaters in Italy.
More theaters in more countries.
Again, we'll welcome paying guests in June.
Our current expectation in our two largest territories.
Is that but for a few exceptions essentially all of our theaters in the United States on the United Kingdom.
We'll resume operations in the month of July.
Our current plan is to have almost all of our theaters globally operating in July.
Which is time for and assumes that the industry stays on schedule for Warner brothers release of Christopher Nolan Tenet.
Currently scheduled for July 17th followed by Disney is released the mood lawn currently scheduled for July 24th.
The second half of this year continues to have strong of a strong film slate that benefits from really big titles, such as Wonder woman 1984, Black widow top gun Maverick acquired place to among many many others.
Of course, I should point out that this entire situation is fluid.
And we stand prepare to adjust the timing of our phase theater operation schedule as necessary to comply with local regulations and the timing of major studio releases.
We have an incredibly detailed and comprehensive approach.
<unk> running our theatres.
To rehiring at retraining, the people, who will be working at our theatres.
To be welcoming our guests.
And they're doing all this safely.
The most critical aspect of our plan of course.
It has to do all that we can to provide an environment.
Safe uncomfortable both for our guests and our associates.
To that end, we have left no stone unturned.
And we're working with the most trusted names in cleaning and public health and safety to develop industry, leading cleaning procedures and safety protocols.
Many things can change between now in July.
Even though that's but a few short weeks away, but where the safety and well being of ours.
Yes, and associates as our first priority.
Combined with our commitment to rebuilding a successful in thriving business.
We are taking the falling seven steps.
Aimed at optimizing the timeliness safety and profitability of our resumed theater operations.
One.
Maintaining close contact with local national and international officials to understand and coordinate the timing and requirements under which we can operate.
Two.
Consulting with current and former faculty from the prestigious Harvard University School of public health.
To see guidance from the best scientist and experts on how best to create a safe environment for our guests and associates.
Personal protection equipment, much more intensive cleaning regimens employee health protocols limited theater capacity block seating and other strategies are now all being planned.
We are especially looking at high Tech solutions as well to aid in our sanitization techniques, including the use of electrostatic sprayers have a vacuums and wherever possible upgraded Merv 13 air ventilation filters.
Three.
Establishing a protocol partnership with a global leader in all things clean the Clorox company.
As they advise us as to how we best can make our theater environments as safe and clean as possible.
For.
Using our industry, leading technology in our website and smartphone apps to facilitate contact was ticketing and expanding our mobile food and beverage ordering capabilities to adapt to an additional 300 U.S. theater locations.
This will help us as we implement our social dispensing practices all across the company.
Five.
Educating our guests so that they understand the actions, we're taking with their safety in mind.
Six.
Implementing aggressive marketing communications and promotional activity.
All aimed at Jumpstarting consumer demand.
And finally, seven seriously reducing our cost structure.
Intensely examining every category of our expenditures to lower our spending wherever possible.
The full details of these strategies and protocols with respect to resume theater operations will be announced publicly later this month, possibly as soon as early next week.
In conclusion.
After a period of time, where billions of people.
Have endured confinement.
Limited social interaction.
We believe that there will be a significant pent up demand to get back out into the world including.
Enjoying the immersive and social experience of watching compelling content on the big screen.
Having said that we're under no illusions the waters will be choppy.
There may be unforeseen tosses in turns to be navigated through.
And full recovery may take quite a while.
Still.
AMC is extremely well positioned to benefit from this demand.
With a modern and upgraded theatre portfolio.
With the world's largest movie going customer database.
With an industry, leading subscription loyalty and technology program.
All combined with an unparalleled global footprint.
We have a highly able executive team that is absolutely committed.
Damn sees long term survival.
And more importantly toward long term success.
Knowing that the do so.
We'll have to resume our theater operations well and safely.
Well have to strengthen AMC is liquidity in the will of deleverage our balance sheet.
On the Tru measure that success of course.
Well the AMC the ability to make smiles happen for our guests and are producing once again meaningful free cash flow for our shareholders.
With that we're looking forward to seeing it back into movies and operator, we're now ready for questions.
Thank you and I will be conducting a question and answer session.
If you like that's question. Please press star one on your telephone keypad a confirmation. So indicate your line is no question Q.
Let me start to feel like turn move your question from the Q.
For participants using speaker equipment, and maybe next year to think handset.
Sorry.
One monkeys as we pulled your question.
Our first question comes on line of Eric Wold with B. Riley.
You see with your question.
Thank you.
Thank you everyone I'm glad you guys roll back back together.
It's a couple of questions I guess one you.
I never saw some fluid situations out there during the when when theaters can reopen maybe give us a better sense on your once you get the green light in a region or have a fairly good sense when that greenlight and when do you start hiring plays back into whats the timeline to get either ready and.
Do you would you ever going to plan to have a theater ready open or tenant even if you don't necessarily noted that market will allow it yet or do you have to wait till you completely how that green light.
Thanks, Eric.
So yes, it's fluid.
I believe that for 14 of the 15 countries that we serve.
We have national guidelines as to reopening dates.
The only country that I think has not yet declare to Saudi Arabia.
In addition, though to national guidelines, there our local guidelines.
And that's especially important in the United States, which is the largest movie market in the world.
We were greatly heartened that last night.
The Governor of California announced the theaters could open on June 12.
That was new and welcome news.
We still want to.
Engage with the mayors of Los Angeles, and San Francisco.
But we believe that both will be on time for a July 17.
Tenant opening date, assuming that that date holds.
New York State has similarly announced.
That theaters, there can reopen for tenant.
Assuming it stays on schedule July 17.
The mayor of New York City has not yet opine as to when the five boroughs of New York.
The city not the state will reopen will we expect to know that soon.
We can open the because we've been planning this now for three months and are planning efforts have been massive.
We actually can open our theaters very quickly I actually was on the telephone earlier zoom call earlier today.
With the managers of the 635 theaters that we have in the United States.
Discussing our reopening planning with them and telling them to be ready to open on a moment's notice.
We do believe that we can open our theaters.
In a matter of.
A week or two.
At the most.
Defined as the date from when the first employees shows up inside a theater.
So when all the employees are in a theater and its open for business.
And.
We would expect.
As I said with a handful of exceptions, there maybe a few theaters that economically we decide not to reopen because they weren't making all that much money beforehand.
That.
We should have all of our theaters essentially all of our theaters pick your number 97% 98% of our theaters open in time for tenant in Milan.
If they hold to those dates or other circuits have opened earlier than that.
Have opened with what's called catalog products.
At discounted prices meeting older movies old old not necessarily meaning gone with the wind.
But you know movies that some might be very old some might be classic somebody to somebody to be movies from last year I will do the same.
But we also think that optimizing the profitability of our theaters is a good idea.
And our our attendance.
And our revenues will be much more lush.
On the new movie releases, rather than playing the repertory older product.
So were.
We also think that it's important to as I said over and over again in the script.
To operate our theater safely and well.
It is our view that some jurisdictions, which try to open.
Various venues as early as the first of May we're opening prematurely. We're much happier opening in June and July.
With the bulk of our theaters opening in July not in June.
Giving more time for preparation and more time for the the world to get the pandemic under better control in containment.
So.
So the more safe.
And to be more profitable, we're going to open our movie theaters write up before tenant, but not months before tenant.
In terms of tenant.
And for that matter Milan.
Based on conversations we had as recently as last night. Those two movies are still on schedule for July 17 in July 24, there are a whole host of movies.
That are also being released in the month of August.
But we can't guarantee you that those dates will slip.
Those decisions are made by Warner and by Disney.
By the other studios or release.
What I do know is that we will be ready to open our theaters whatever new movies are ready for us.
Thank you. Thank you Adam just last question I guess, maybe for Cheyenne.
Given that we're kind of going into kind of a new world So to speak I guess with.
Tenants restrictions at least initially coupled with your efforts to control cost in places last year offset by usually new costs Im thinking procedures et cetera, you maybe give a sense of how you expect.
Four wall margins to kind of Barry.
On various attendance levels as you can a ramp Bobby out there if you Miss your 6% to 25% 50, and then obviously you staff Accordingly, how would you expect that delta to move move your margins.
So I were both going to take this questionnaire because it's so important.
A reminder to one at all.
Even the 25% limitation is not nearly as painful as you would think on first at first blush.
If you think about a Broadway theater.
All this is going to a Broadway theater in our lives a onetime or another.
You often find that every seat is full for every performance.
By contrast.
If you look at the movie theater industry.
We are very much a church built for Easter Sunday.
And our theaters are mostly empty not mostly fall and that's the reason why it was so easy for AMC to reduce seat capacity is when we renovated seats on renovated theaters by putting in reclining seats.
Because what we're doing we're pulling out empty seats, even with the number of theaters that have reclining seats installed today.
If you look at the number of seats.
We had available for sale in 2019.
Against the tickets that we sold.
We only sold 17% of our seats.
So when you marry that up against a 25% see limit and certainly against the 50% see limit.
You don't Chase out many yes of course, you're going to chase out some Friday and Saturday night guess, but we've looked at the economic modeling.
And we went back and ran our theaters.
As if we had imposed a 50% seat limit last year.
And it knocked on out only about 12% of our gas and that assume that no one.
Shifted the performances that they went to see.
Based on not having available seats or alternatively, because of a desire on the consumer as part of social distancing to go to performances that are not as fall.
So really even a 50% so it seemed limitation.
Probably only knocks out a single you know as when you, especially factor in this.
Voluntary redistribution of performance is that people go to buy done by the consumer.
Even a 50% see limitation only knocks out single digit attendance.
At AMC.
And the difference between 25% in 50% isn't a whole lot greater.
So it's.
It's a counter intuitive.
[music].
Notion.
But let's see limit capacity.
It's not as painful as you might think.
Given that last year, we only sold 70% of our available seats, having said that it goes without saying.
But the more full or our auditoriums are the better our margins will be.
And the less full that are theaters are the worst than our margins will be.
And it and.
Well I'd love to think that the whole world is going to operate like Norway did.
Were in our very first weekend, we essentially the same business was left here.
That seems to be too optimistic of an assumption.
And we've seen market research.
That said the vast majority of our customers are going to come immediately back to theaters, but not all of them.
And that there will be a ramp up.
The increasing attendance overtime.
Which doesnt mean that there should be a ramp up of our margin increasingly overtime, which means that our margin on the first day of tenant will not be as good as our margins at Christmas or our margins in 2021 or beyond Sean you would add anything to that.
Thank you Adam.
Two other things I'll just add to that is one is we looked at this very carefully when designing the opening plan for our theaters. So you know what you would expect is the first theaters to open versus the lost it has to up and before the major studio releases last year. This will be the ones that require a highly.
What are the attendance intent and in order to breakeven in the first ones, which could breakeven area. The other point and I think Adam mentioned. This is why does we have a flexible asset base in terms of capacity.
Unlike life data all sports, we can adjust times, we can adjust number screens, we can adjust and I'm a screen times and that allows us to manage our profitability it quite well.
And then as Adam said.
Sad, we can operate very profitably at 40% even significantly lower capacity levels as we have done an off on average.
And if I can just add to that last point of sean's.
Good and dialogue with every minute studio big and small as you would expect.
And you know, they're saying to us Holy mackerel.
Capacity limitations.
And we're saying right, but we would normally play 20 movies, we have theaters with 14 screens, we have some theaters with 24 and 30 screens.
You know when tenet and Milan come out.
Don't worry about seat capacity limitations will double or triple or quadruple the number of auditoriums that we allocate to showing tenant or Milan.
As examples among many.
So we have a lot of arrows in our quiver.
To make sure that the seat capacity limitations don't hurt us.
Perfect. Thank you bye.
If I can add one more thing.
It's the inverse of that right. We can add a lot of showtime's by adding screens also if attendance is light.
We can decrease the number of showtime's.
Especially in the off peak periods.
Remember our theaters routinely we're open to add.
10 in the morning told one of the morning.
If demand is light or lighter than normal.
We can take out a lot of operating costs.
Reducing showtime's and those very marginal time slots when there's not much demand, which allows us to concentrate opening hours and lower costs and therefore improve our our economic performance.
Our next question comes on line up making burden with credit Suisse. Please proceed with your question.
Hi, guys.
I wanted so in your discussions with the landlords have you been able to negotiate any reductions to your rents going forward not just the deferral.
And I follow I hope you'll allow me that's one.
Like needs to approve the exchange I Wonder if its board members were involved in the decision to commence <unk> James.
Sure before we begin I owe you an apology.
Because I know last earnings call you asked me about 15 questions.
But the Corona virus in Italy, and I think I said something like it's like eight theaters in Italy.
Two and half weeks later as a thousand theaters in 15 countries.
But back to your question of today.
On landlords, yes, we've had.
You know, we have literally hundreds and hundreds of different leases with different landlords all across the world.
We've had considerable success, so far in abating and deferring rent.
But yes, we've also had considerable success.
Especially for the second half of 2020.
And actually lowering rents and converting rents from fixed price rents the percentage of revenue rents.
And similarly within that with other individual landlords.
We have been talking about forgiving rent not just.
Differing rents from the Q2, but actually forgiving rents in Q2.
With other landlords, we've added considerable success and discussions about actually reducing our rents going forward not just for a short period of time like in 2020, but permanently with respect to the entire duration of of the.
These.
On the issue of the bond exchange offer you're absolutely correct that to get it done.
We need the consent of the bondholders, who will be exchanging their bonds a.
Those are individual consents not a universal consent.
We will need silverlake consent to do the whole thing.
And of course, it goes without saying.
That our silver Lake Board member has refused himself from all matters associated with the exchange effort.
You would properly expect good corporate governance in place.
Okay got it I'll leave it there.
No no issues on the last call.
Yes, yes, yes, we've got we've got the worst health problems. Since 1918, we've got the worst economic crisis since the 19 thirties, and we had the biggest social unrest in United States. It's a 19 sixties, if there's a forced what fourth one of the world would like to throw at US I just wonder if you want to predict what that one is.
Since you certainly had corona called 90 days ago.
No.
I can't take anymore.
Our next question comes on line of Chad Beynon with Macquarie Group. Please proceed with your question.
Hi, good afternoon, good to hear your all well.
At the beginning you guys talked about just everything you've done re examining.
All of your theaters in just the business in general and I was wondering if you would comment on how you're thinking about domestically the 200 or so classic theaters, which I believe haven't received a lot of the same capex and renovations.
As as the others versus I guess, your your AMC branded and kind of the renovated theaters, which I believe are almost fully capex. So how does that that fit into your.
Your future thinking and decide bar of that is should we expect any closures and in either of those segments. Thanks.
Thanks, Chad.
Look that's a that's a very important question.
And I'll take it the way you framed it lets just start with the classic theaters.
Well, they're not as profitable as AMC theaters.
They're not unprofitable.
They're just not very profitable.
So for example.
90% of our cash flow.
Yeah, that's a rough number John will correct me if I'm wrong.
85, the 90% of our cash flow comes out of the AMC, an AMC dine in brand.
But that doesn't mean that theres no cash flow coming out of the classic brand even though.
You know each of those theaters individually is not nearly as profitable as each of the.
The big pop a bear AMC theaters.
So that's sort of one way to look at the second way to look at it is.
To the extent that we have.
An unprofitable theater.
You have to look at profitability two ways.
Is it absolutely unprofitable.
Or is it.
Not making a big profit, but it's providing contribution to overhead.
That is greater than the rent that is contractually owed to the landlord.
In which case.
It's better for that theater to be an operation.
That's contributing to overhead.
Maybe not much but it's contributing to overhead.
So again those theater stay open.
Having said that we have some we have about.
Oh, 50, or so theaters that we own in the United States.
Where we don't even where there are no theater leases.
To any of those theaters around profitable they may not reopened.
I'm expecting that we're going to open up 97%, 98% of our U.S. theaters.
In July, but I wouldn't be surprised.
Yes.
A couple of percentage points, maybe 96%.
A couple percentage points of our theaters, we choose not to reopen.
Because their profitability as marginal.
Over time.
Meaning looking ahead not just of the next 90 880 days, but looking into 21 and 22 and 23.
We're gonna have to take a very hard luck.
Especially as theaters come up for.
<unk> normal lease expiration.
Every we're going to go through an exhaustive analysis of every single theater and make the determination whether that theater.
Stays in our fleet.
Or it leaves our fleet or it only stays in our fleet. If we can re negotiate terms with a landlord set the rent such that rents are more affordable.
Going forward on a.
Let's say five year contractual extension I.
I don't see anything that's going to decrease our theater count.
That would have us fall below.
Being the largest theater operator in the United States, having said that I don't think we'll be at 635 theaters either.
Because we are going to take a very hard look at profitability.
And we want to run those probably want to run those theaters that are contributing to overhead and shutting those theaters that are not.
Okay, that's perfect. Thanks, Adam.
And then John I'm going to be a little greedy here you gave us the March quarter on cash balance and then you gave us. The April 30 cash balance of 718 are you willing to give us a more updated number I'm amazed number which might help us kind of bridge what your monthly cash burn was.
Well I want give you direct not much but I will give you some guidance to point you in the right direction, perhaps maybe we can compromise at that level.
If you think about the information that we publicly described at the moment.
Well, we said when we raised an additional 500 million.
That would give us approximately 800 million cash equivalent at the beginning of the second quarter, we said that that would be sufficient cash to enable us to withstand a suspension of opted operations right through to Thanksgiving site under money in eight months now we wouldn't use all that cash.
So that we'd had nothing at the end of that they have augusti there'd be a cash balance at that point of view. So our monthly cash burn is you know something slightly south of 100 million and that includes the debt servicing cost at run at about 24 million a.
Month.
So you can kind of use that to roughly estimate what the cash position it.
End of May and at the end of period, there often we have to be careful because we are in the market, where the bond offering and we you know we got to know M. out and.
We ought to be careful what new numbers, we supply.
So what I will and just one other thing I'd add to add to that out all cash burn is in line with to slightly bandwidth than expectations. When we did the bond offering we are managing very well towards the projections that we had.
As Adam indicated in his prepared remarks, I'm watching the cash very carefully like a hawk like on the man you're going to give a new nickname his name is like a hawk.
Thank you, but you didn't ask this question, but since its related.
Uh huh.
We're not only bring down operating costs, we set in the remarks that we were taking capital expenditures to the bare bones I think Sean his prepared remarks said that the capex expenditure in the first few months was under $80 million.
We think that for the remaining 10 months of the year.
Capex, maybe another 50 to 80 million, meaning that total capex for the year will be somewhere between 130 160 million.
You may recall last year, we were spending over 400.
Two years, where that we're spending around 600.
And.
We gave guidance.
Capex would be to 50 to 300. This year, we always said that if we needed to.
Turn on the brakes and turn Capex off immediately we had the ability to do it and if anybody doubted that we could pull that off what we just pull that off because capex. This year is gonna be 130 to 160 in total and had we not spent 80 in the first or 75 to 80 in the first two months of this year.
The Capex burn would've been a lot less than 130 to 160 this year.
And just one quick clarification on that that's net capex than others that Adam surfactant all of those numbers were not one of those are net including for the prior period.
Yes.
Our next question comes on line of Air Canada MKM partners your question.
Thank you very much for the question one day out Im Wonder if we could talk about New York City.
A little bit.
Specifically what percentage of your U.S. circuit.
In terms of screens or revenue this New York City account for.
And considering that the state.
I'd just entered its phase one of reopening.
And theaters I believe are part of the phase for opening.
How hopeful are you that New York City could be part of July opening.
Oh, well, you know where a major player in New York City, we have a market share in excess of 40% but.
But oh, we do have 600 and well we pre Gorazde. We had 635 opened theaters in the United States, New York City represents a single digit percentage of our of our total circuit.
[music].
The.
Uh huh.
You know I.
Eric.
Obviously, I would love for New York City to open.
As soon as it can.
And as soon as it safely Ken.
I've already said that as a company AMC that not rush out the opening of theaters.
Ahead of when we when we thought it was safe to do so.
So we are empathetic with the public officials in New York City.
Whoever herculean task to try to get a city of 8 million people open in healthy matter.
I don't so I don't really want him make any predictions, whether new York City will will be open for a July 17 tenant date or not.
I hope so.
Uh huh.
They probably will just skirt through it.
They might not and the reality is I think if you ask the mayor of New York that question. He wouldn't know the answer either I think what we learned over the next.
Four weeks.
We'll determine what happens four weeks from now as I said in my earlier remarks, it's a very fluid situation.
But but let's hope we can get open New York State certainly I shouldn't say I shouldn't ever use the word certainly about anything in this environment.
But based on current expectations, New York State as opposed to open broadly in early July had a tenant.
New York City will be right on the cost.
Of course that assumes that attended holds the July 17.
And that's a decision that's being made in a in a different boardroom than ours.
Fair enough I Wonder could you comment a little about a list where yes ended up in the first quarter I'm assuming you.
[noise], you're telling your customers that you know your your halting their payments.
And how how you know churn is holding up through this.
Ah through this pandemic.
Let's just talk about January February we talk about now.
So a lift was great [laughter] in January and February we were over 900000 members.
Film usage was right in a sweet spot of where it had been in the months. Prior the program as we look at program profitability was greatly profitable.
It was a big reason not the only reason, but a big reason why our EBITDA was up $53 million as a company year over year.
In two months you know extrapolate that.
If we had been up $53 million every two months of EBITDA for all 2020.
How would this company have looked financially going forward. This was a year, we were going to harvest free cash flow and all these wonderful plans, we laid out pretty corona virus.
As soon as.
We did theater shutdown, we went out to all of our AMC.
Stubbs members and all of our AMC stubs a lift members.
We paused all payments.
Without them, having to take any action.
And.
We are when I talked in my remarks that were seven things were going to do one of them as they aggressive plan of marketing communications and promotional activity some of that will be aimed at our analyst population.
[music].
When we go out with our real our resumption of operations communications to our guests.
I will tell them, what we're going to do with respect to a list going forward I don't want to jump that gun.
I I think our members deserve to just deserved a here first what we're going to do for them.
Rather than doing it on this call and having it bleed out in the press, but I can tell you.
That aeolus population is very important part.
Of our customer base.
You know roughly 15% in very round numbers, our customer base.
The stubs population and toes of our U.S. customer base. The stubs population in total is very important part of our customer base.
Right around half of our customer base, there very important to us.
We were two we'll take a lot of action.
Two.
Make them happy with AMC.
To give them benefit.
That hopefully will propel them to come right back into our theaters.
What the result of all that activity will be.
None of us are going to really know until.
Hey, we do it and be the theaters are open and operating.
And we see how they respond so I think rather than guessing I would just be a guess rather than guessing how they'll perform ahead of time will be very open and comprehensive and given your information about how they did perform as we report third quarter numbers.
And just.
Hey, Eric I can tell you how they're going to perform in the second quarter, they're not going to go to a single movie in the second quarter. Yeah, I just as a refresh. She said January February there was about 900000 members how did that compare to where you ended 2019 in December.
It was right around the same we think we.
Thank you.
Thank you are.
Our next question comes on line of David Miller with Imperial Capital. Please proceed with your question.
Hey, guys few questions, Sean I'll start with you and Adam if you want.
I mean are contribute that'd be great. I know you guys are still in the market would be secondly notes can you say, though whether or not.
Secondly notes are going to rank Perry actually with the term loan and then I've a couple of follow ups. Thanks.
So has shown we're not in the markets with the first lien sorry, just repeat the question. You said you know we're spending a market with others do not yesterday. So my understanding is that first lien no shrank pari passu with the term loan so but you're out with secondly nodes in the market I wouldn't change up right yeah, yes.
Sorry, I was the question.
Well that rank Perry pursue as well as the initial offering.
No.
And whatnot.
Fair enough second and secondly, Nicolas Sarkozy [laughter], Yeah, first lien as far as Leah.
But those but those notes that exchange.
Would be ahead of those notes that do not exchange right.
Exactly we can there's some nuances that we could talk about off line, that's totally fine accident actually we I shall I actually David we can't talk about on this call and we can't talk about online we're in the market with an active bond exchange, we got to live on the O M and not say much more than that publicly.
Okay, and then I appreciate the color about the ranch in many cases, obviously rents are gonna be deferred can you talk about like in general how it's just going to be reconciled on the back end of the virus. I mean is all is some or all that's going to have to be paid back in 2021 or is it more like.
Fourth quarter 20, or how would you. If you were asked how would you model that.
It literally varies agreement by agreement landlord by landlord.
But we are trying to get.
Agreements in place.
That.
Extend repayment.
At least until the other 2021.
And in some cases, we've got.
We're we're approaching agreement.
We have repayment over a period of six years. So it really depends deal by deal. All the deals are done yet, we'll probably be able to give you more color on a future call as we make more progress.
Okay, Great and then Adam any progress in sort of warming relations with Universal. We're obviously aware of the letter that you wrote you stated that you're not going to show when a universal films that was no 678 weeks or so I'm I'm more asking the question actually on behalf of MGM shareholders, who might be on the call.
On July are somewhat worried about James bond 25 out in November because universities the international distributor on that.
Thank you for the question so look.
Relations are warm with Universal you said they were not warm unit relations with universal have always been warm.
Well I don't using warm as a good word as opposed to not a good word.
There's nothing personal about this issue with universal.
I have great respect for Universal executives I think they have great respect for US. This is just an issue about money.
And.
We are active dialogue with universal.
But if you look at the press release.
On page three.
It says and I quote.
While we were in active dialogue with Universal No movies made by Universal Studios are currently on our docket.
Will.
We'll see how it all shakes out.
Okay, and they're real quickly Adam where are you aware of the attendants caps imposed by the state of California Health Department.
Today prior to what you announced today, we are you aware of that.
When you wrote off script or were you just made aware of that today.
Are you talking about.
The 100 cap on attendance no the 25% caps out here in California.
And it's Ken just wondering if it's a 25% cap I didn't know case more than 100 people.
We had we had all that yesterday.
Well before was announced by the Governor, but certainly immediately after as announced by the Governor and all the comments we made on this call today.
Assumed.
Those caps, where it would be an input would be in place. The governor, California also said that they would quickly reevaluate.
Those caps of 25% in 100 C 100, <unk> Maxx, when people performance and possibly as reevaluate that.
In a matter of weeks after the June 12, reopening, but as I, that's why I've been saying throughout the call more than once this whole situation is quite fluid.
And.
You know things are going to change and they're not going to they're going to change on a daily and weekly basis.
You can be sure we're very much in touch with all these authorities and have a very good sense of what's going on.
Okay, great. Thank you very much.
Ladies and gentlemen, you have time for one final question from a line of Jim Goss with Barrington Research. Please proceed with your question.
Thank you.
One question is Ah involving the.
Capacity limitations and there was just brought up to some extent, but in general it to the extent that or are the limitations on capacity really primarily an issue and just the most densely populated urban areas, which I know, it's a big share of your emphasis and.
Are those areas also ones, where you might as much flexibility and say.
Sometimes and that sort of thing that night.
Have people willing to use spread around and maybe minimized the impact.
Just one of those thoughts on it so Jim as a great. It's a great question I don't I mean.
I think if you look at the whole portfolio of our theaters.
We got flexibility everywhere.
We have.
1.1 million seats on the United States.
With.
An average of four and a half show times, a day freak around US 365 days a year.
And we only sold 250 million tickets, we do not like for seats.
And we have 8000 screens in the United States.
And whether it's a big city or a small location.
The average AMC theater.
[noise] has more than 12 screens.
Between all those screens all the showtime's.
We have enormous flexibility to move people around that's why I said that the.
The ceding limitation cap.
Is much less of a problem.
For us than it is for other industries.
Let's just think of other industries that sell seats right.
The load factor on U.S. airplanes.
Pre Corona it was.
Probably in excess of 75% of their seats sold.
The average sports team.
Tends to sell out its arena is every night.
With often with 100% of seats being occupied.
At AMC, we sold 17% of our seats last year.
So if there's anybody who can get through this social distancing seat blocking capacity limitations thing.
It's our industry as an industry and with respect to AMC as a company.
I do believe that our company is.
Data rich.
Very analytic.
Has lots of quantitative analyst resource within the company.
So I think within the industry.
Our ability to manage through this is even better.
That a lot of our smaller come competitors, who may not be as quantitatively sophisticated as his AMC.
Okay.
Other Jim just that I don't think the issue that used to be worried about is.
Limitation on supply.
The issue is what's the level of demand.
We can accommodate whatever level of demand.
The the world once the Thrace.
Last year, we could have basically increased our band and accommodate or demand if it grew six fold, which it.
Certainly is not going to do and across the virus situation.
So the issue for us to manage through is what happens if it's less.
Then last year.
And how we manage our way through that.
Of from a cash burn standpoint from a profitability standpoint.
From a ramp ups Jim.
And we're all over it.
And as a and you add one more than one as.
Well, there's one other thing I'll just ask whether it relates to some of the cost benefits you might have.
Developed how does the crown a virus.
Mainly a working from home and office space utilization or their savings you think might persist beyond. This are you may not need quite as much space or you know in terms of the.
Yeah, I suppose it's mainly headquarters, but it could be other areas as well within the company.
So are there are things that will persist beyond.
And then.
Oh, yes, the answer to your question is Oh, Yeah, remember, we had a profit improvement plan.
That we announced.
Your back I think we said that we did that identified $75 million a savings and therefore, we were at a commit to 50, because we wanted to make sure. We got at all we we told you something we want to deliver on it.
We got to be looking for hundreds of millions of dollars of savings.
Because the revenues are not going to come back.
ER to pre Corona levels on the first day.
They're going to ramp up.
And they're going to start at some level and they're going to grow and it's anybody's guess whether that they'd rover.
Six weeks six months or six years.
But it's going to take time for them to grow we're gonna be operating not just AMC as a company, but as an industry.
By the way the whole the economy.
It's going to be operating in a.
Demand limited environment.
Which means that revenues will be harder to combine.
Which means costs are gonna have to be cut.
So this isn't just about whether we need.
Less office space at our headquarters.
We're gonna have to run our company more efficiently outdoor theaters in our headquarters we're gonna have to cut labor cost, we're gonna have to cut non labor costs.
And the management team here does not have small targets or small aims.
Got it balance our revenues with our costs are we got to balance our cost with our revenues to the extent that as possible to do so.
And we're on the case.
With with big targets in mind.
All right thanks to let it go out there.
Ladies and gentlemen, we understand of our question and answer session and I would like to turn the call back over to Mr. Adam Arab.
<unk>.
Thank you operator look guys. Thank you for participating on the call I'm just gonna ended with one cents.
We will do everything in our power.
To make sure that this company.
Thrives and prosper.
With that.
See it the movies.
This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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