Giant exhibitor AMC Entertainment said net losses swelled to $2.18 billion, including a giant $1.8 billion in non-cash impairment charges, for the first quarter of the year from a negative $130 million the year before in what CEO Adam Aron called “unprecedented times.”
Revenue dropped 22% to $941 million from $1.2 billion for the three months ended in March. The nation’s largest chain had presaged the numbers last week when it announced preliminary, unaudited results within a range that it filed with the SEC. The loss was at the lower end of the range it had predicted — of between $2.1 to $2.4 billion. The adjusted net loss, without the charges, was $231 million.
Free cash flow was a negative $275 million versus negative $113 million in the year-earlier quarter. As the company celebrates an historic 100-year birthday this year, Aron during a conference call to discuss the earnings, gave an unusual callout to a pair of strategic and financial alllies in hedge fund Silver Lake and Citibank for standing by the company in a difficullt period. At certain points over the past few months, Wall Street feared AMC wouldn’t have enough cash to continue operating without filing for Chapter 11. The company itself said as recently as last week it wan’t sure it would be able to continue as a “going concern” and big ratings agencies Moody’s and S&P downgraded its credit rating over a controversial distressed debt swap that would force debt holders to take a haircut. S&P called the move tanamount to a default. But things appear to be moving somewhat quickly since.
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The company has been successfully renegotiating with “hundreds and hundreds of landlords” around the world, Aron said, including getting first quarter rent completely forgiven, converting fixed-price rent to a percentage of revenue going forward, lowering rents for the second half of 2020 or in some cases for the duration of the lease. It has also been working with vendors, studio, and other business partners to defer or abate cash costs while theater operations were suspended.
AMC is currently planning to reopen almost all of our U.S. and U.K. theatres in July, to be positioned to showcase Warner Bros’ release of Christopher Nolan’s Tenet now slated for release on July 17 followed by Disney’s Mulan now slated for release on July 24. So far it has already reopened 10 theatres in Norway, Germany, Spain and Portugal and expects to be fully opened globally in July.
He noted a robust slate for the remainder of the year including: Unhinged, Saint Maud, Antebellum, Spongebob Square Pants, Wonder Women1984, A Quiet Place II and Black Widow, among others.
While AMC is in active dialogue with Universal, no movies made by Universal Studios are currently on the docket, Aron said. The companies had clashed over the studio’s rollout of Trolls World Tour directly to the home and subsequent commeent by executives about their future strategy and theatrical windows.
Aron said the company said is taking the following steps aimed “at optimizing the timeliness, safety and profitability of our reopenings”:
• Maintaining close contact with local, national and international officials to understand and coordinate the timing and requirements under which we can reopen.
• Consulting with current and former faculty from the Harvard University School of Public Health to seek guidance from the best scientists and experts on how best to create a safe environment for our guests and associates. Personal protection equipment, cleaning protocols, limited theatre capacity, blocked seating, and other strategies are 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, HEPA vacuums and wherever possible upgraded MERV 13 air ventilation filters.
• Establishing a protocol partnership with the global leader in all things clean, the Clorox Company, as they advise us as to how we can make our theatre environments as safe and clean as possible.
• Educating our guests so that they understand the actions we are taking with their safety in mind.
• Implementing aggressive marketing communications and promotional activity aimed at jumpstarting consumer demand.
• Reducing our cost structure, intensely examining every category of our expenditures to lower our spending wherever possible.
Aron described how strongly the year had started before everything crashed. “AMC’s 2020 fiscal year started strongly with total revenues up nearly 10% compared to the prior year through February.” Aron said in a statement. “However, as theatres in Italy and across Europe began closing in late February and social distancing practices were initiated in the U.S. in response to the ensuing COVID-19 global pandemic, attendance and revenues began to deteriorate in early March.”
On March 17, he continued, “in response to COVID-19 safety concerns for our associates and guests, and in compliance with local, state and federal directives, AMC suspended operations at all domestic and international theatres, resulting in virtually no revenue for the Company for the remaining two weeks of the first quarter. These are truly unprecedented times. I join with all our employees around the world to offer our sympathies to those affected by the coronavirus, as well as our sincerest gratitude to those on the front lines,” said Aron. “After starting the year with two solid months of revenue growth compared to last year, in midMarch we were forced to pivot the entire company to respond to the effects of the pandemic.”
Big ratings agencies Moody’s and S&P downgraded the company’s credit rating over a controversial distressed debt swap that would force holders to take a haircut. S&P called the move tanamount to a default. The shares rallied last week however, buoyed by hope of reopening this summer.
“We believe, but cannot guarantee, that the exhibition industry will ultimately rebound and benefit from pent-up social demand for out-of-home entertainment, as government restrictions are lifted and home sheltering subsides. However, the ultimate significance of the pandemic, including the extent of the adverse impact on our financial and operational results, will be dictated by the currently unknowable duration and the effect on the overall economy and of responsive governmental regulations, including shelter-in-place orders of the pandemic and mandated suspension of operations,” the company said in an SEC filing last week.
AMC had furloughed its employees and managers took steep pay cuts. During the quarter, AMC drew down approximately $325 million under existing revolving credit facilities. In April, it, issued $500 million in notes.
Aron ended Tuesday’s call saying: “We will do everything in our power to make sure that this company thrives and prospers. With that, see you at the movies.”