AMC Defends Push On Tiered Seating Prices As Firm Records Wider Losses
AMC Entertainment (NYSE: AMC, APE) reported its Q4 and full-year 2022 financials, top billed by a quarterly revenue of $990.9 million. This is a decline from Q4 2021’s $1.17 billion.
Net loss also widened to $287.7 million from last year’s $134.4 million loss. This translates to $0.26 loss per diluted share, a decline from last year’s $0.13 loss per share.
Adjusted EBITDA also declined to $14.5 million from $159.2 million in the comparable period last year.
“Naturally, we are pleased that AMC Entertainment easily bested consensus estimates for Q4 2022 Revenue and Adjusted EBITDA, as well as posting a beat on Adjusted Net Income and EPS after excluding for non-cash impairment write offs,” CEO Adam Aron said. “We are similarly encouraged that our Q4 2022 revenue per patron of $19.98 was well above pre-pandemic levels, thanks to rising ticket prices and the consumer’s continued predilection to indulge more at our concession stands in our high-margin food and beverage business.”
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Despite the year-on-year declines on quarterly earnings, the full-year results tell a different story. Annual revenue jumped to $3.91 billion from 2021’s $2.53 billion. Net loss also shrunk to $973.6 million from last year’s $1.27 billion loss.
“But the real story is that in 2022, AMC Entertainment continued on a multi-year glide path to recovery. AMC’s full-year 2022 results represented our strongest year since pre-pandemic 2019, with 2022 results improving over 2021, which in turn were better than those of 2020,” Aron added.
Source of revenue growth
The theater chain is banking on a lot of things to grow its performance in 2023, including its branded popcorn hitting shelves.
“AMC Perfectly Popcorn will hit the shelves again exclusively at more than 2,600 Walmart stores in the United States… The ready-to-eat varieties are expected to be priced at $3.98 per bag, plus tax, and they all offer the authentic taste of real AMC movie theater popcorn to be enjoyed anywhere.” Aron noted in the earnings call. “Then our microwave AMC Perfectly Popcorn will become available at Walmart… And they are expected to retail for $4.98 plus tax for a six-count box.”
He added that they expect the 2022 recovery to continue next year “as Hollywood is expected to release approximately 75% more major movie titles than it did in 2022,” noting the success of Avatar: The Way of the Water boosted Q1 2023’s industry performance.
Aron also highlighted the upcoming co-branded AMC Entertainment Visa Card, “designed to drive increased AMC brand loyalty along with incremental attendance to our AMC theaters and should generate attractive financial returns with very little risk to boot.”
Tiered sightline
The chief executive also defended the recently announced tiered seating prices to be implemented in AMC theaters in New York, Chicago and Kansas City.
“With Sightline seating, as you know, if you saw the release, we are charging a slight premium for the most popular seats in an auditorium, but discounting the prices of less popular seats closer to the screen upfront,” Aron said in the earnings call, drawing parallel from other business models for “live theater, for concerts, [and] for sporting events.”
The firm announced earlier this month, to much criticism, that seats in its auditorium would be classed as Value Sightline (lower price), Standard Sightline (standard pricing), and Preferred Sightline (higher price).
“We are in inflationary times, and inflationary times cause costs to rise,” Aron said. “Under the pre-Sightline structure of the industry, if we wanted to raise the price in a theater, the only choice we had was to raise the price on all the seats in the theater.”
But with Sightline, “if we feel the need to raise prices, we might only do it in the most popular seats in the auditorium and actually hold the line and not raise prices on other seats in the auditorium.”
In the earnings call, Aron also touted that AMC has bested the competition, noting that “number two, Regal Cineworld” is in bankruptcy court while it has a higher revenue per patron over Cinemark.
“By contrast, AMC has been masterful in raising equity as needed, and we ended 2022 with over $840 million of cash in the bank or undrawn revolving credit line,” Aron touted.
He also noted AMC’s ability “to strengthen [its] liquidity profile and balance sheet,” relaying that AMC has “raised approximately $314 million in gross cash proceeds… and reduced the aggregate principal balance of our debt by approximately $390 million since the beginning of 2022.”
In its financial report, AMC ended 2022 with $654.4 million in cash, down from its 2021 year-end balance of $1.62 billion.
For Q4 2022, the firm also had a net operating cash burn of $33.3 million, down from a positive operating cash flow of $46.5 million in the comparable period last year. Free cash flow for the quarter also ended at an outflow of $105.6 million compared to an inflow of $8.0 million last year.
Current assets as of end of 2022 came in at $902.1 million vis-a-vis current liabilities ending at $1.69 billion. Corporate borrowings ended at $5.14 billion from last year’s balance of $5.43 billion.
Shareholder vote
In the statement, Aron stressed that it is crucial “for AMC to remain viable.”
“As we have been saying for a long time, the industry-wide box office will not return to pre-pandemic norms before 2024 or 2025 at the earliest. Therefore, this active management of our capital structure is vital for AMC to ultimately both survive the pandemic and to thrive over the long haul,” the CEO explained.
He encouraged AMC shareholders “to ‘vote yes,’ voting FOR the recommended proposals at the March 14 special meeting of shareholders, which gives AMC the best chance to generate value for all of our shareholders in the months and years to come.”
The proposal, among other things, is putting up for vote combining eight preferred equity units and AMC common shares.
“AMC is unequivocally a stronger company today as a result of the creation of the APE dividend and it’s allowing us to raise cash and reduce debt,” Aron said. “However, despite having the same economic and voting rights as our AMC common shares, eight preferred equity units have consistently traded at a mysterious and substantial discount to AMC common shares.”
The board is also proposing to increase the number of authorized AMC common shares from 524 million to 550 million, as well as effect a reverse stock split of one share for every 10 shares.
“Our Board and I strongly believe that’s in the best interest now of AMC shareholders to convert 8 units into AMC common shares, thereby simplifying our capital structure and eliminating the gap between the prices of 8 units and of AMC shares,” Aron added.
When asked if shareholders can just convert APE units into AMC without doing this reverse stock split, Aron answered that they could but “the share price would hover in the single-digits.”
Following the financials release, AMC shares fell 7.6% and closed at $6.57 while APE fell 9% and closed at $1.87 on the NYSE.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
