Earnings Transcript for AMC - Q4 Fiscal Year 2022

Operator: Greetings, and welcome to the AMC Entertainment Fourth Quarter and Year End 2022 Earnings Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to your host, John Merriwether, Vice President, Capital Markets and Investor Relations. Thank you, John. You may begin.

John Merriwether: Thank you, Vikram. Good afternoon. I'd like to welcome everyone to AMC's fourth quarter and year-end 2022 earnings webcast. With me this afternoon is Adam Aron, our Chairman and CEO; and Sean Goodman, our Chief Financial Officer. Before I turn the webcast over to Adam, let me remind everyone that some of the comments made by management during this webcast may contain forward-looking statements that 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 most recent public filings, including our most recently filed 10-K and 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 the uncertainties inherent in any forward-looking statements, listeners are cautioned against relying on these statements. The company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events. On the webcast, we may reference non-GAAP financial measures such as adjusted EBITDA, constant currency, free cash flow, operating cash burn and operating cash generated among others. For a full reconciliation of our non-GAAP measures to GAAP results, please see our earnings release posted in the Investor Relations section of our website earlier today. After our prepared remarks, there will be a question-and-answer session. This afternoon's webcast is being recorded, and a replay will be available in the Investor Relations section of our website at amctheatres.com later today. With that, I'll turn the call over to Adam.

Adam Aron: Thank you, John. Good afternoon, one and all, and thank you for joining us today. Let me add a very special welcome to the thousands of our individual shareholders who have been making it a habit to tune into these quarterly earnings webcast for AMC Entertainment. 2022 marked another year of significant strategic, operational and financial gains for AMC Entertainment. With our two announcements today on Q4 2022 earnings and of the launch of AMC Perfectly Popcorn at more than 2,600 U.S. Walmart stores, once again, AMC is demonstrating unmistakable progress along our multiyear pandemic recovery glide path. In my opinion, there are five reasons why AMC shareholders should be especially excited and smiling today

Sean Goodman: Thanks, Adam, and thanks to everyone for joining us this afternoon. 2022 was a year of growth and recovery for AMC. During the year, we welcomed 201 million guests to our theaters around the world. That's a 56% increase compared to 2021 and at 72 million more guests than in 2021. This attendance improvement, coupled with strong admissions and food and beverage revenue per guest, translated into a $1.384 billion increase in consolidated revenue, representing a 54.7% increase compared to 2021. And likewise, 2022 adjusted EBITDA improved by more than $338 million to a positive $46.6 million. This compares to a loss of $291.7 million in 2021. Clearly, our recovery is continuing in earnest. Now looking specifically at the fourth quarter of 2022 compared to the same period last year. The North American box office declined by 14.5% to $1.8 billion. This was due to the relative strength of Spider-Man

Adam Aron: Thank you, Sean. As I said at the top of the call, at AMC, we're all smiles today, but by no means are we out of the woods yet. We will need to remain smart and action-oriented to successfully chart our way through - we are still COVID-impacted waters. But clearly, we have been and are now making great progress. And while we have much more work ahead of us still, my ongoing conversations with our studio partners, including some as recently as this weekend, buoys my optimism that more movies are indeed headed to theaters, and that the value of theatrical exhibition is clearly recognized and internalized by the heads of every single major studio. As the leader of AMC, I am proud that we have resiliently weathered many a storm over the past 36 months, a storm first of the virus itself, then the threat to exclusive theatrical windows. More recently, the conviction held by some that streaming services would win out over theaters and all through it was the concern that there would not be enough cash in the coffers for AMC to outlast all that we had to stir down. What's more? There was the added complexity for us of doing something well that few, if any company ever thought about before, how to adjust to a whole new cadre of millions of individual shareholders taking ownership of our company. Fortunately for us, the people who predicted that we could not weather the storms were all wrong. And more fortunately, for us, those new retail investors turned out to be the savers of our company. Their passion for AMC saved our company as they provide us with the cash resources we needed to survive. They also flooded us with some truly great ideas, including one of my personal favorites, that we should sell popcorn into the home market in what is, after all, a multibillion-dollar category. This morning's exciting news announcement that the retail launch of AMC's microwave and ready-to-eat, Perfectly Popcorn is at hand and exclusively with the nation's largest retailer, Walmart. It keeps a promise to do so that I made 16 months ago to our shareholders and is yet another example of AMC's powerful commitment to innovation. Beginning on March 11, just ahead of the Oscars telecast on March 12, AMC's ready-to-eat popcorn will be available exclusively at hundreds of Walmart locations on much sought after featured end cap displays. In the weeks that follow, AMC Perfectly Popcorn will hit the shelves again exclusively at more than 2,600 Walmart stores in the United States with three varieties of ready-to-eat popcorn in the following flavors

A - Sean Goodman: Great, thanks, Adam. Let's start with some questions from our shareholders. There are a number of questions coming through about the upcoming shareholder vote that we just spoke about. Here is a good example. What are the implications if the vote passes? And what are the implications if the vote does not pass?

Adam Aron: So if the vote passes, it's my expectation that this ridiculous gap between the price of an APE and the price of an AMC share will go away. And when I say it's a ridiculous gap, folks said the same thing. They have the same economic rights. They have the same voting rights. Why shouldn't APE be trading at a third the price of a common share or a seventh of the price of a common share as it was just two months ago. If the vote passes, I think what you'll find is that this discounting of the APE goes away. What that means is that we'll be able to raise capital - in my opinion, more attractive terms. If the - similarly what will happen to those passes is there will be a one to 10 reverse stock split. So you'll stop seeing the share price of AMC floating around $3 or $4 or $5 a share. The simple math is it should multiply by 10. Where it goes from there, up or down, that's a function of market dynamics. But it is simple math, you'll be trading one share - you'll be trading 10 shares for one, which mathematically should be priced 10 times higher. If it - if the votes that we're voting on at this shareowner meeting do not pass. It's true that the reverse split won't happen. But what is true is that the status quo doesn't change, which means that there's still be APEs, and there are still the AMC shares. The APEs will continue to trade at a discount, I would guess. No one has a perfect crystal ball, but that's been the experience since August. And since our ability to raise capital is tied only to the price of the APE. If the APE continues to exist, it would seem that we would be - we wouldn't be bought from raising capital, but we'll be raising capital on much less attractive terms. It would cause more dilution to the stock that is entirely 100% preventable if a majority of our shareholders vote, yes.

Sean Goodman: So here, another question related to this. It's related to the reverse stock split. And basically, it says, why do we need to do a reverse stock split? Can't we just convert APE units into AMC without doing this reverse stock split?

Adam Aron: We could. But as I said in my earlier remarks, the share price would hover in the single-digits. And there are certain technical listing rules on stock exchanges. We don't think it's a good idea for our stock to be trading in single-digits. And since we're going to have a shareholder vote anyway, it seems logical to us to resolve both questions at the same time. It's expensive to call these special meetings of shareholders, cost millions of dollars to do so. We'd rather get them both done now than have to deal with a reverse stock split at some point in the future.

Sean Goodman: We have a number of shareholders asking about their proxy materials. One example he has, I have not yet received my proxy materials from a broker. What do I need to do to be able to vote to get my proxy materials and be able to vote?

Adam Aron: As Bill Clinton famously said in the 1990s for those of you who are old enough to remember the 1990s, I feel your pain. My AMC shares and APE units are at four brokerage firms, and I've received the voting materials from three of the four firms but not the fourth. So if you have not heard from your broker, you should do what I'm about to do, call them, explain to them that there is a March 14 shareholder vote, that you own shares or units and that you'd like to cast your vote, and they should get you a proxy. If your broker is not acting in response to your question quickly enough, e-mail or call our proxy solicitor, D.F. King. You can reach them at an e-mail address amc@dfking.com, amc@dfking.com. Their phone number is 800-859-8511. All the information I just gave is for our U.S. shareholders, probably our Canadian shareholders and international shareholders in many countries. But we are all aware painfully that the brokerage firms in some countries, especially in Europe do not facilitate shareholder voting. And there's - if that - if you're with one of those firms, there's not much you can do other than put - your shares in a different broker who would allow you to vote at future shareholder meetings.

Sean Goodman: And there's a question here about the lawsuit that you mentioned in your prepared remarks. Is it has been reported that AMC is defending against two lawsuits relating to the issuance of APE units. Is this true? And can you elaborate?

Adam Aron: Yes, litigation has been filed. We think it's misguided. We believe that all the actions we've taken are lawful. We think we have the merits in this case. It's consistent with our charter. We will defend our position vigorously. And we are encouraged that the Delaware Court of Chancery has allowed this March 14 vote to proceed on schedule.

Sean Goodman: There are some questions here about our loyalty programs, and I'll just read a few of them to you. Does AMC have any plans to revise loyalty programs and A-List memberships, for example, what about family memberships, partnerships with streaming companies, maybe a lower price for memberships with restrictions to limit frequency of attendance, et cetera?

Adam Aron: So those are all good questions and good ideas. We have been and are studying them all. The two of the most important marketing programs we have, our AMC Stubs and especially AMC Stubs A-List, about half of our total clientele in the United States, participates in Stubs and about 15% of our total activity in the United States comes from A-List members. These are very important programs. We're constantly reviewing them for possible changes and improvements. There's nothing immediately on the horizon that would change either program other than AMC Visa Entertainment card, it's going to be added an AMC Entertainment Visa card yes I got it right. AMC Entertainment Visa card that will be coming as part of the Stubs program that will allow Stubs members to even - to earn even more subs points. Both when they spend at our theaters and when they spend away from our theaters, but keep the good ideas flowing, we continue to think hard about what's the best way for AMC to approach the moving going public.

Sean Goodman: Question about our theater footprint, does AMC plan on opening new theaters in areas such as perhaps South Carolina or other states where AMC has a limited presence?

Adam Aron: I can't make a specific comment about South Carolina, but at least South Carolina is one of our theaters. We have none in Hawaii. We have none in Alaska. We have none in Mississippi. I don't think we're in Vermont. But we do have the largest national footprint of any operator. I think we're in 43 or 44 states on the District of Columbia. We have a sizable market share in the largest cities all across the country. Plus we have a big platform of theaters, even in smaller rural markets. We're always looking to add theaters and you said earlier in the call, Sean that we closed over 100 theaters that were not performing during the pandemic, but we opened up 54 new ones. And the 54 new ones were producing to the bottom line far more than the 100 that we put. I think 10 of the 54 probably produce far more EBITDA than the 100 that we closed. So, we're always looking to grow. We can grow by adding new build theaters from the ground up or there's also the opportunity for us to inexpensively add into our system theaters that may have been opened by other operators who have faltered during the pandemic. Several firms declared for bankruptcy in over the last three years and shed a lot of theaters. And we picked up a bunch. As you know, we picked up about a third of the ArcLight circuit, which was headquartered in Los Angeles. We picked up more than half of the Vote right circuit that was headquartered in Connecticut. Our eyes continue to be wide open. I do believe that there will be a continued opportunity for AMC to add theater locations quite inexpensively. And I might add to do so sometimes it requires money, which is why it was so very helpful to us that we have raised over $300 million of cash from August through January. The more cash in the bank, the easier it is to make the decision to add theaters and grow.

Sean Goodman: There is a huge amount of interest in the retail launch of AMC Perfectly Popcorn. Let me read you just a few of the questions. Can you talk more about the opportunity for AMC in retail popcorn? When will AMC popcorn be available in the U.S. nationwide? Will AMC popcorn be available to purchase online through the AMC website? Will AMC popcorn be available to purchase in Canada and maybe in Europe?

Adam Aron: Lots of questions yes, the enthusiasm and excitement for AMC Perfectly Popcorn in home is real. I see it on Twitter. When I look at the readership of the tweets I've been putting out recently on popcorn, they're sky high. The likes are sky high. The re-tweets are sky high. The comments back to me, every single one of which I read, by the way, I got like 4,000 or 5,000 inbound messages on the popcorn tweets recently, and I read them all. Will they make me excited, because you're excited about it. We launched March 11, Oscar weekend with end cap displays at Walmart, they're almost impossible to get. And Walmart volunteered them up to us because they're excited about popcorn. And by late April, we'll be at 2,600 - more than 2,600 Walmart stores. That's more than half of all Walmart locations in the United States. We will have a website where you'll be able to go to find out at what locations you'll be able to actually pick up boxes of microwave popcorn or bags of ready-to-eat popcorn. We are going to sell on walmart.com, which of course, is nationwide. I would expect it will sell in amctheaters.com. We're discussing whether or not we should sell microwave boxes of popcorn at our theaters. Like it's all new. We haven't started yet, and the interest level is very high. This is a nice position to be in when you're launching a new product. Let's put it this way. We're setting up our production plans to make millions of bags and microwave pouches of popcorn. We think this is a big opportunity for us. Right now, we're going to launch only in the United States. Canada is a possibility. If we did it in Europe, we would probably not do it under the AMC brand. We would do it under the - one of the Odeon brands of our cinemas operate with their own distinct brands and several countries - across Europe. But right now - you crawl before you walk, you walk before you run. We're going to start in the United States and see where it goes from there.

Sean Goodman: Thanks, Adam. We continue to receive a very large number of really terrific suggestions from our retail investors, business ideas to grow and diversify and build on the business. And I want to say that we as a management team review these. We investigate these so please, investors, please keep these ideas coming. I think with that...

Adam Aron: Let me just respond.

Sean Goodman: Sure.

Adam Aron: [indiscernible], a company that actually listens to its investors? How about that for a change? Yes, sir, you want to go to our question from an analyst maybe? We're already running a little bit long, but - on this call today, but if any investor wants to ask, go ahead.

Sean Goodman: Operator, we can go to questions from analysts.

Operator: Thank you very much [Operator Instructions] So, we have time for only one question, and we take a question from the line of Eric Wold with B. Riley Securities. Please go ahead.

Eric Wold: Hi, good afternoon Adam and Sean, I appreciate it. I guess as much as I'm looking forward to the popcorn business being a separately reported segment, I like - so couple questions on the core theater business. I guess, first off...

Adam Aron: Eric, not to interrupt, but - you're going to like more than how we report the popcorn results. Eating the popcorn it's really good. We actually worked for a full year on the flavor profile of these products. They are really great.

Eric Wold: I'm looking forward to enjoying it with the Oscars. On the sideline seating plan or program, I guess, obviously, that makes sense given what we've seen with other entertainment businesses. I guess what are your thoughts on where you see the biggest benefit coming from? Is it the premium on the better seats? Is it filling up the less desirable seats to have the price lower or is it that loyalty members don't pay the premium seat charges if the benefit driving more loyalty membership into that program?

Adam Aron: And the answer is all of the above. You've got the three benefits of the concept, right? We can discount upfront. We can charge a slight premium in the middle. And we don't charge - when I say in the middle, the dead center of the auditorium, where most people want to sit. And if we don't charge that premium and impose it on A-Listers, that's just another big value increase for A-List members, which should make more people want to be A-List members. So all three have the ability to drive improvement and some people have looked at this as a price increase, which, of course, it is on day one. But what's really interesting is that we are in inflationary times, and inflationary times cause costs to rise. And without making any comment about what AMC is going to do, because it's not legal to talk about pricing prospectively. But companies facing inflationary pressures tend to raise prices, not talking about AMC. Under the pre-sightline structure of our industry, if we want to raise the price in a theater, the only choice we had was to raise the price on all the seats in the theater. And so what's - one of the many benefits of sightline other than the three that you mentioned, are that 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. So it's actually a way of - well, it is a way of increasing the price now, it's a potential way of preventing a price increase later on. And then there is, in fact, the opportunity to discount upfront. I'm telling you, I've been looking at what we call heat maps, which are - what seats are booked for a particular movie. And nobody sits in row 1 in movie, theater. It just doesn't happen. It could be opening night of Star Wars. Every seat in the auditorium in row three to 18 is booked solid and row one is empty. And it really - there is a possibility here that by discounting the price upfront, we might be able to expand the movie going market to more price-sensitive consumers.

Eric Wold: Perfect, that's helpful Adam. Thank you very much, appreciate it.

Operator: Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the floor back over to Mr. Aron for closing comments, over to you, sir.

Adam Aron: Thank you, operator. To everyone on the call, thank you for being with us today. Today was a good day for AMC. We reported results that were unexpectedly positive. We introduced our popcorn line. And we've had a lot of discussion about the importance of the March 14 shareholder meeting that will simplify and strengthen the capital structure of this company going forward. Thank you for joining us today. There are a lot of big movies coming out. We look forward to seeing you at our theaters sometime soon.

Operator: Thank you very much, sir. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.