AMC - AMC Entertainment Holdings

[given2invest]

lol at that explanation

[txvalue]

I get that the stock is not popular and you all may be right that the excuse/explanation is weak.

 

I still like to hear other thoughts and opinions on the company considering it is down so much with the outlook looking reasonable over the next 3 quarters.

 

Given2Invest you are back - I'd love a response to my question about your EBITDA numbers earlier in the thread.

[given2invest]

I didn't respond to your EBITDA question because you already knew the answer; I was off by a little bit but the pro forma #s from 2016 or whatever didn't include EBITDA from a $1B EU acquisition either. 

 

I have no idea why the stock is down.  I am not involved and wouldn't be at any price.  The risks are numerous, namely the CEO is a complete buffoon and can't be trusted.

 

Silver Lake got a sweetheart deal with the convert.  It has a reset function and, if it resets, AMC can only take it out w/ cash if they pay them a 15% IRR.

 

The box office over the next 18 months will not outperform.  2020 very likely might be a disaster given the slate.  There is huge operating leverage in this business.  Disney controls essentially the entire box office.  They are about to launch a streaming service that will take some of their content direct to TV.  They will also have tremendous leverage over the exhibitors w/ price. 

 

Currently AMC has no deal w/ Disney or anyone else on how subscription should work.  I think this is very risky.  They are just paying them full ticket prices.  Hey, at least if the box office is terrible, they should make a lot on the subscription business as people don't go to the movies!

[johnny]

I just want to note, as somebody who has been using the product quite a bit, a few bullish observations (not enough to make me long just yet)

 

1. The quality of the overall experience (From the app design to the reliability of the back-end to the relatively seamless check-in process in-theater) has really impressed me. You really don't expect to see something so well executed from a non-software company. It's not a trivial set of things going on here either, and I've yet to experience any sort of failure or hiccup. Maybe this is one of those things where the top-level guys are so incompetent it actually creates a sort of distraction-free paradise for mid-levels to get things done. Maybe they just lucked out when they threw a dart at the contractor board.

 

2. All of us being autistic penny-pinchers, we may fail to give full credit to the food/beverage angle of this business. I suspect there may be something going on here where somebody getting "free" admission to the theater imagines they are now starting off at a -$12 cost and have some house money to play with in the concessions area. Somebody in my family at least.

 

3. Assuming they're never able to work out some sort of special pricing deal for subscription admissions with the distributors (which I do), I suspect they'll have quite a bit of room to change up the shape of the offering, not just on the price side but on the admissions as well. Once you have exploited the word of mouth and reached as many subs as possible, I think you can choke back from 3 to 2 showings per week and really not lose many customers, etc. I was quite shocked to see just how many customers stuck with Moviepass despite its monumental failures and panicky revamps of the actual product offering.

[Foreign Tuffett]

I continue to think that A-List's popularity is, in part, due to it being significantly under priced:

 

A-List members get both Stubs Premiere benefits + earn Stubs Points on their monthly membership charges. I calculated last year that the latter benefit alone is worth $48 in Stubs points annually.   

 

 

Earlier this year I bought two tickets to see "Avengers Endgame" in a premium-type theater for $18 each. Another couple with A-List paid $0 for tickets to the same showing.

 

Let's assume they saw 1 more film that month (@ $10 ticket price). Let's also assume a 50/50 theater/studio split. Finally, let's assume 1 moviegoer instead of 2:

 

Not A-List:

($18 ticket + $10 ticket) * 50% take = $14 to AMC (and $14 to studios)

 

A-List

$20 monthly subscription fee - $14 to studios = $6 to AMC

 

 

Don't even get me started on AMC's economics for A-List members that are seeing 1 or more movies a week.

[stahleyp]

According to this AMC gives $8.99 to the studios:

 

https://www.fool.com/investing/2018/07/10/theres-1-potential-danger-in-amcs-new-subscription.aspx

 

How much will AMC pay the studios?

The hangup for studios is that A-List pays studios a cut of admissions using a ticket price of $8.99. The problem? A-List members are probably going to see films in deluxe formats (since it doesn't cost extra), which carry a higher price. In fact, AMC's average ticket price was $9.32 in 2017 ($9.68 in domestic markets), with deluxe offerings in big-city markets being much higher. So studios will make less from a person seeing a film via A-List than if they'd seen it without the program.

 

AMC justified choosing the $8.99 by saying that is the figure used by the new monthly plan of rival Cinemark, which offers only one film per month and 20% off concessions (with unused tickets rolling over to the next month). The catch: Cinemark's average ticket price in 2017 was only $6.48 ($7.71 domestic), as it operates in smaller markets than AMC. 

[txvalue]

Foreign you are correct in that basic calculation but I think there are a few notes worth adding.

 

- People buy food & beverage at the theater, on average $5/person. Management has said that that the average A-List sub spends less than this. We know food has 85% margins so lets call it $3/ person into AMC's pocket per A-List visit. As for Stub points if I give you a gift card for $100 of popcorn it is only costing me $15 dollars.

 

- Your calculation ignores take alongs, if you have A-List and a friend or family member doesn't you will get them to see the movie at an AMC rather than a Cinemark.

 

- The price is no longer $20 across the board, new users are often paying 21.95 or 23.95/mo.  AMC has said repeatedly that customers don't notice small price increases, for example a dollar up charge for a ticket on a weekend, or changing discount Tuesday to be slightly more expensive.

 

 

- I think that they intentionally underpriced it to get traction and prevent others from being able to match/beat the offering. Again Johnny hit on this with the winner take all dynamic. AMC has so much of the countries big cities blanketed that it doesn't make sense to get two memberships to see the same movies. It's not a situation like subscribing to Netflix and Disney+.

 

- The amount of A-List visits is growing, but still only around 10% of total theater attendance.

 

- They have said that moving forward on average an A-List sub will provide $3 Ebitda per sub per month.

 

- I believe that AMC is paying less to the studios for an A-List visit than they are for a "normal" visit, on average as there have been some comments that the studios are not thrilled with this. (sorry to mention this twice this I was typing my reply while Stahleyp posted).

 

[Foreign Tuffett]

Foreign you are correct in that basic calculation but I think there are a few notes worth adding.

 

- People buy food & beverage at the theater. On average this is over $5/person but I don't think it is split out separately for A-List, although on calls and investor events they do say that the average A-Lister spends less than this. We know food has 85% margins so lets call it $3/ person into AMC's pocket per A-List visit. As for Stub points if I give you a gift card for $100 of popcorn it is only costing me $15 dollars. $48 annually becomes less of a big deal when you look at it this way.

 

- Your calculation ignores take alongs, if you have A-List and a friend or family member doesn't you will get them to see the movie at an AMC rather than a Cinemark. You can see this happening as their attendance is out indexing other chains.

 

- The price is no longer $20 across the board, new users are often paying 21.95 or 23.95/mo.

 

- I think that they intentionally underpriced it to get traction and prevent others from being able to match/beat the offering. Again Johnny hit on this with the winner take all dynamic. AMC has so much of the countries big cities blanketed that it doesn't make sense to get two memberships to see the same movies. It's not a situation like subscribing to Netflix and Disney+. AMC has said repeatedly that customers don't notice small price increases, for example a dollar up charge for a ticket on a weekend, or changing discount Tuesday to be slightly more expensive.

 

- The amount of A-List visits is growing, but still only around 10% of total theater attendance.

 

- They have said that moving forward on average an A-List member will provide $3 Ebitda per sub per month.

 

- I believe that AMC is paying less to the studios for an A-List visit than they are for a "normal" visit, on average as there have been some comments that the studios are not thrilled with this. (sorry to mention this twice this I was typing my reply while Stahleyp posted).

 

1) Food and beverage gross margin % will come down as the traditional overpriced candy and popcorn mix continues to shift more towards "restaurant food" like hamburgers and chicken fingers. Take a look at iPic Entertainment for what this looks like.

 

There's a reason why movie theaters have, traditionally, been run the way they've been run: operate lean and cheap, make your money on overpriced concession stands that are simple enough for 16 year olds run, take small price increases every year, and let the movie slate drive attendance. I feel like AMC is trying to reinvent the wheel. 

 

2) I stand corrected on this point. That said, I don't think this is a situation that will last: one way or the other, Disney is going to get its 50 - 60% of the take. Now that the Fox-Disney transaction has closed, Disney has unprecedented market share.

 

I don't know if this has been discussed yet, but when you apply a more realistic maintenance capex estimate, alot of the pro forma FCF disappears. 

[txvalue]

Speaking of trying to reinvent the wheel I chuckled at the iPic reference. They have 15ish theaters (vs 1000) that are trying to be odd luxury venues with extensive menus. I don't think iPic is long for this world but they are entertaining to watch. 

 

Margins may come down a bit on F&B but as long as the overall spend is growing I don't think that it will be a back breaker.  I don't disagree with your overall assessment of the business though, you are spot on that there is a reason the business was run this way for decades.

 

I think 300m-350m on CapEx/Growth is about where things could realistically end up vs what mgmt has guided depending on how aggressive the Euro circuit is revamped, but they could also save additional money by trimming the dividend. At this point I seriously doubt it is being held for the yield by most besides maybe Wanda. The yield is now 7.25%+

 

For as much as Aron likes to talk and promote I am puzzled as to why the company is being so silent knocking against 52 week and multi year lows.  There is room on the buyback to retire a meaningful amount of shares but the market is so focused on debt that it might not matter. With all this in view the only recent action has been to acquire another small chain a few weeks ago that needs a refurb.

 

Similar to a Barnes & Noble, I continue to feel that a buyer could make a killing here.  The asset is fine, but the mgmt is just struggling after flying too close to the sun. If its not an unlikely strategic like NFLX, AMZN etc. then someone could come take a big stake and buy this thing out.  Sell off the Euro assets, clean up the debt and bounce mgmt to the curb. You do that and this thing spits out cash for years to come.

 

[given2invest]

You can be sure Wanda looked for a buyer for the whole company before they sold their partial stake at a discount...and there was none.

[txvalue]

Regal is said to be releasing an unlimited subscription plan in July. It looks like it will have a small upcharge for PLF showings.  All the details don't appear to be firm quite yet, but it will be interesting to watch.  If folks think A-List is not sustainable it seems unlikely that an all you can eat plan will pencil. Interesting to see if this offering draws the heavy users to Regal.

 

My AMC position is now full, never thought I'd be able to buy in the 9's.

 

 

[given2invest]

All a Regal all you can eat sub will do is bring a price war to the industry...won't be good for all players.  Maybe you're right they will take the heaviest users but I'd guess less than 1% actually see >3 movies a week so AMC is effectively all you can eat.

 

I posted this on VIC...will repost here...not sure how people can own this at any price given the 2020 box office upcoming debacle.

 

copy/pasted below:

 

Is nobody long this concerned with 2020 box office?  What is happening with 2019?  This is the 3rd or 4th weekend that has disappointed.  See this article:

 

https://www.boxofficepro.com/weekend-estimates-toy-story-4-childs-play-anna/

 

Something definitely seems wrong.  But beyond that, 2020 is setting up to be a disaster.  There is no Avengers, no Star Wars, no Frozen, and Pixar is debuting two original films.  No Lion King.  And 2019 might not even be > 2018 even with all those movies.

 

Go look at the expectations for 2020 movies on HSX.  It's not pretty, especially 2020 Q4. 

 

https://www.hsx.com/security/feature.php?type=upcoming

 

What if the super hero movies disappoint? 

 

New York Times did a long piece on the future of movies and it sure doesn't read great.  I'm struck by this comment:

 

"I was at a bar with a friend who directs big movies, and while we were in line for the bathroom, he was saying that movie theaters were going to go away. He was like, “Kids don’t watch movies, they watch YouTube.” Which I thought was crazy. So he goes, “Watch this.” There was a girl in front of us in line, and he said, “Hey, excuse me, what’s your favorite movie?” And she said, “I don’t watch movies.” Just randomly, he picked someone — and she was like 25, she wasn’t a child or anything. We were like, “Well, do any of your friends watch movies?” And she said, “Not really.”

 

https://www.nytimes.com/interactive/2019/06/20/movies/movie-industry-future.html

 

There is so much operating leverage in this business.  It just seems like the stock can't be owned at any price with the risk of a double digit decline in the box office in 2020. 

 

[txvalue]

Spring 2019 was up over 10% vs 2018 and the "disappointment" over the summer slate is way overblown IMO. Toy Story 4 had the best opening weekend in the franchise and as a family film it will perform well this summer just like Aladdin is doing.  No one expected MIB, Dark Phoenix, Godzilla etc. to do well.

 

The best part is that summer year to date is only down 2.3% vs 2018 and CNN, CNBC and the NYT are all writing as if its the end of the world. Once Spiderman and the Lion King come out over the next few weeks I fully expect Summer 2019 to be outpacing 2018. I guess "YouTube" must not work in summer : )

 

In 2015 the top 4 movies outgrossed 2016's top 4 by 600 million dollars.  2016 still managed to beat 2015 when the dust settled. The top end of the slate matters but mid range movies can make still make up ground.

 

2020's slate is not top heavy, but it likely would have kept pace with 2019 had Avatar not been pushed back into 2021.  That being said films are still getting placed on the schedule so its early and a stock should be valued off the future not one year. There are now Avatar and Star Wars films coming out in each of the next 7 years beginning in 2021.

 

A wildcard is that AMC has opened up negotiations with NFLX again Re: playing their content.

[given2invest]

Netflix original content is awful and nobody is paying to see their movies in the theater with a 30 day window let alone a 90 day one. 

 

The articles I linked, both on the recent disappointment and long term worries, go much deeper than "one bad weekend". 

 

2020 could very well be -10% or worse.  Not sure how you think the stock would look past that given the leverage.

[txvalue]

There was an analyst note this week acknowledging that the recent film underperformance has pressured shares and that the balance sheet presentation due to ASC 842 is potentially preventing buyers from stepping up to offset the decline.  Multiple people have been given this same info from AMC IR who has said they are still working with Capital IQ and Bloomberg etc. to present the data in another way to make things clear. PT is $20.

[given2invest]

Every bull on VIC, here, and twitter, thinks AMC went from 15 to 9 on an accounting change causing quants to short/sell it.

 

This is the most ridiculous explanation of a stock decline I've heard in my entire career.

[Foreign Tuffett]

Looks like Regal Cinemas will be introducing its own subscription service soon:

 

https://deadline.com/2019/07/regal-cinemas-unlimited-movie-ticket-subscription-program-cineworld-1202640441/

 

 

[txvalue]

Vue International is putting itself up for sale with bids due in September. They are a reasonable size INTL player and the third largest UK chain.  They were also in on the Odeon bidding that AMC ended up winning in 2016.

 

Sky is reporting that Vue could fetch $2 billion. Vue is owned by pension funds and mgmt and they seem to have scrapped their IPO plans. They also report financials regularly so this process may help bring some clarity to market value for AMC's Odeon/UCI circuit in the UK and abroad.

[Foreign Tuffett]

Looks like Regal Cinemas will be introducing its own subscription service soon:

 

https://deadline.com/2019/07/regal-cinemas-unlimited-movie-ticket-subscription-program-cineworld-1202640441/

 

Regal Unlimited plan pricing and terms suggests that, as I've argued here before, AMC A List is materially under priced.

 

https://www.regmovies.com/static/en/us/unlimited

[txvalue]

Interested to see if someone like a Gabelli sticks their nose into the situation at these levels. They have a very small position at the moment. With such a high short interest and such a small float I think it would be a money making recipe. The top 50 holders plus Wanda account for basically the entire outstanding share count so it may just be that there aren't enough shares available for someone to build a worthwhile position.

 

Management clearly is not up to the task of supporting the stock.

 

[txvalue]

FT Interested to get a little color on your comment about A-List pricing. Aside from the PLF inclusion in AMC's plans they seem very similar. (Keep in mind that PLF screens are still relatively rare at AMC on a % basis).  Another major difference is that Regal charges a small fee per booking due to a contract arrangement with a third party vendor, whereas AMC built out their tech and does not have to pay that fee.

 

Regal's plan is of course "unlimited" allowing a visit per day, where as AMC's has the weekly limit of 3 visits.

 

I don't disagree with your overall assessment that the AMC plan is a bit underpriced as it almost certainly took a small amount of frequent visitors and put them on a discounted flat rate plan, but I didn't understand what about Regals offering cemented your thoughts on the pricing.

 

From a competive landscape perspective Regal was trounced last quarter vs AMC and Cinemark.  Regal's Q2 attendance was down 18% y/y where CNK and AMC showed much more resilient performance. For those looking for a laggard in the industry I am puzzled why Regal isn't the obvous choice here.

 

Regal's operations were run very lean while under the old guard and their theaters were not renovated at the same clip as AMC's and I think you are seeing the Cineworld management team realize they were snookered a bit by Anschutz.

[Foreign Tuffett]

FT Interested to get a little color on your comment about A-List pricing. Aside from the PLF inclusion in AMC's plans they seem very similar. (Keep in mind that PLF screens are still relatively rare at AMC on a % basis).  Another major difference is that Regal charges a small fee per booking due to a contract arrangement with a third party vendor, whereas AMC built out their tech and does not have to pay that fee.

 

Regal's plan is of course "unlimited" allowing a visit per day, where as AMC's has the weekly limit of 3 visits.

 

I don't disagree with your overall assessment that the AMC plan is a bit underpriced as it almost certainly took a small amount of frequent visitors and put them on a discounted flat rate plan, but I didn't understand what about Regals offering cemented your thoughts on the pricing.

 

From a competive landscape perspective Regal was trounced last quarter vs AMC and Cinemark.  Regal's Q2 attendance was down 18% y/y where CNK and AMC showed much more resilient performance. For those looking for a laggard in the industry I am puzzled why Regal isn't the obvous choice here.

 

Regal's operations were run very lean while under the old guard and their theaters were not renovated at the same clip as AMC's and I think you are seeing the Cineworld management team realize they were snookered a bit by Anschutz.

 

AMC A List is superior value proposition largely because you can see premium format movies (including IMAX) without paying a surcharge. Also, you can go to any AMC theatre, not just select theatres like in Regal Unlimited's base plan.

 

A List's 3 movies a week limitation is almost irrelevant since the % of moviegoers who want to watch over 3 movies @ theatre a week on any sort of regular basis is almost certainly very small.

 

Overall, I think AMC A List is materially superior. The fact that Regal can't/won't match AMC's offer suggests that A List may be underpriced.

 

 

[txvalue]

Appreciate your thoughts.

 

As you know, Regal has tiered pricing just like AMC's so while packaged differently I don't know that the end result is that different.

 

Regal Unlimited - $18 (200 Theaters)

Regal Unlimited Plus - $21 (400 Theaters)

Regaul Ulimited All Access - $23 (All US Theaters)

+ Surcharges for tickets due to third party vendor

+ Surcharges for PLF that range in price

 

AMC A-list - $19.95

AMC A-list - $21.95 (all states but CA, CT, MA, NJ, NY)

AMC A-list - $23.95 (all states)

 

I agree that AMC has the superior offering, but with out knowing PLF attendance on both plans and if any different back room deals were cut with Dolby and IMAX to help drive attendance I think it may be premature to suggest it is "materially underpriced" vs Regal. As an example Dolby is AMC exclusive so its not quite apples to apples.  If you say it "may be underpriced" I can see that.  The decision making process for most folks, if you monitor things seems to boil down to which theater near them has better amenities. 

 

I continue to maintain that if you are looking for an exhibitor stock with downside risk at today's prices it's Cineworld.

 

On another note the Joker has now set all time records for an October opening weekend, and October Monday, Tuesday and Wednesday.  Of note the 13.9 million Tuesday record handily beat the previous 8.2 million record. It is not an industry with out challenges, but I think exhibitors defensive properties are being overlooked here and the stock is paying you 8% per year at these prices.

 

https://deadline.com/2019/10/joker-october-tuesday-box-office-record-weekend-forecast-addams-family-will-smith-gemini-man-1202756065/

 

[txvalue]

This month Kinepolis closed an acquisition of MJR (10 locations in Michigan providing $81m rev.) for $152.5m - 7 of the 10 sites were owned by MJR rather than leased.

 

Marcus bought Movie Tavern from VSS for 126m when announced (30m cash plus stock) for 22 locations and 208 screens in early 2019 and others like Cinepolis have made purchases to get toeholds in the US domestic market.

 

With Craig Ramsey suddenly retiring and a new CFO coming onboard I would really like them to be more assertive about wringing out value from their assets. I'd be interested to see a small asset sale of domestic theatres in an area they are not focused on - they could then use that cash to tender for shares.

 

This deal would:

 

- show the value of the assets

- remove lease obligations, which would result in a debt decrease on the balance sheet

- put pressure on the shorts

- save millions in annual dividend payments

- retire around 8-10% of outstanding shares

 

It would also likely have a minimal impact on earnings if they sold 15-20 of their 1000 sites.

 

I get that they need cash to hunker down for 2020 headwinds but the shorts have no fear of managment thinking outside the box to show value especially with the Euro IPO seemingly always in limbo.  With a market cap under a billion a deal like this seems like a winner to me.

 

Curious what others would do in this situation as a thought exercise, how would a capable management team take advantage of this market action?

[stahleyp]

https://www.amctheatres.com/about/on-demand

 

I would imagine this will be a waste of capital. The only benefit I see is that you get points.  Unless you really like points, why not just use amazon or google?