AMC - AMC Entertainment Holdings

[txvalue]

DM sent

[TBW]

This is interesting, but the financials are a bit confusing to parse through.  Can anyone explain to me why rent went up, I know its due to accounting change, but still find it a bit hard to understand. 

 

Other questions:

 

- what are landlord contributions in the cashflow statement, and are they recurring?  They are a large part of current CFO

- why are net operating margins so low?  They are ~2%, rest of industry appears to be at 15%, why?

- EBITDA expectations have steadily decline, were $900mil, then 2018 was ~$800mil, now its run-rate of $600mil, what exactly has happened here?

- why hasn't there been any talk of management change?

 

If net operating margins could stabilize at even 5%, this looks cheap.  But I don't really understand why cash generation has been so much less than expected when revs have been roughly flat.  I also don't understand why there hasn't been any visible scale benefits.

 

Just digging in, so appreciate any help getting up to speed.

[given2invest]

You pretty much summed it up...it's a terrible business possibly in secular decline run by one of the worst CEO's in the public markets.  Other than that it's a great investment.

[5xEBITDA]

Does anyone have an idea at this point how much attendance growth is being driven by AMC Stubs?

[txvalue]

You pretty much summed it up...it's a terrible business possibly in secular decline run by one of the worst CEO's in the public markets.  Other than that it's a great investment.

 

Your posts are always so helpful lol - winners in investing don't always have to be perfect situations. You yourself said you like to invest in hairy situations.

 

I would disagree that it is a terrible business, the company is 100 years old and theaters have made many families and individuals wealthy and they have made some wealthy folks even more so.  An industry doesn't need software margins to be investable.

 

Are there challenges to the industry, sure - but you bash on AMC early and often and even your post said that it is "possibly" in secular decline - it is a bit early to know how the story here plays out and even if it is in decline I'd argue it could still be investable.There are lots of examples of things like this coal, tobacco etc.

 

[txvalue]

Does anyone have an idea at this point how much attendance growth is being driven by AMC Stubs?

 

Not sure if you are referring to Stubs or Stubs A-List. They provide Stubs membership numbers frequently and some metrics are given out in their reporting and on calls. The number of Stubs users has skyrocketed over the past few years and there are different tiers to the loyalty plan. The lowest being essentially a member of a mailing list for promotions and showtimes.

 

If you are referring the highest Tier, A-List - they have stopped providing membership number updates in detail, using 900,000+ as the number in recent discussion. I asked IR about this and they dodged the question a bit. Cineworld doesn't provide much color or updates on their membership so I don't know if AMC has changed their policy in response to the new Regal unlimited plan or because A-List growth has lapped its first year comps and growth has slowed down. I think its likely a combination of both of these factors.  They provide some detail in conference calls about the attendance share of A-List users but there is a bit of guesswork involved to answer your question as not all of the variables are public.

 

[given2invest]

You pretty much summed it up...it's a terrible business possibly in secular decline run by one of the worst CEO's in the public markets.  Other than that it's a great investment.

 

Your posts are always so helpful lol - winners in investing don't always have to be perfect situations. You yourself said you like to invest in hairy situations.

 

I would disagree that it is a terrible business, the company is 100 years old and theaters have made many families and individuals wealthy and they have made some wealthy folks even more so.  An industry doesn't need software margins to be investable.

 

Are there challenges to the industry, sure - but you bash on AMC early and often and even your post said that it is "possibly" in secular decline - it is a bit early to know how the story here plays out and even if it is in decline I'd argue it could still be investable.There are lots of examples of things like this coal, tobacco etc.

 

Wow stuck a nerve heh?  I have owned AMC in the past.  I am not short AMC.  My portfolio is filled with crappy companies.  I just don't think this particular crappy company is investable.  I know you do...that's great!  What makes a market.  If it goes to $20 I will be thrilled for you and all the other AMC holders.

 

I'll also add since I posted in this thread in Nov 2018 offering cautious comments the stock has been more than halved w/ the broader market up what 30%?  So as of now...my negativity has been warranted. 

 

I urge anyone interested in this to read the entire thread from start to finish, it's not very long.

[given2invest]

Re-reading this thread...

 

From June:  "My position is now full".

 

 

 

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

 

 

 

From December: 

 

I have increased my position 3.5x over the past two months.

 

That's...confusing.  It's now 3.5x a full position? 

[txvalue]

I tend to be concentrated in my positions, and clearly I would have been better off not continuing to add. I thought my position was full but I was not expecting the sharp price decline we saw either so I changed my mind as I had funds free up.

 

I am always glad to hear your comments in this thread, didn't mean to come off as antagonistic to your flip post my only true issue with your posts has been your misleading EBITDA comments here & VIC which you clarified.  You have been on the right side of the trade thus far, so I tip my hat to that.

 

 

[given2invest]

My EBITDA #s were incredibly close to what they actually were and the difference is a rounding error to the points I was making both on VIC and here which don't need to be restated. 

 

Anyway, it's been many months since I've posted in this thread (I do read all your posts and remain silent) and I'm sure it will be many months before I return, unless someone has changed that warrants a post. 

 

I don't see how this stock can work in 2020.  It's not just the box office, which almost certainly will be down, it's the poor operating results/margins even after tremendous cap ex spend. 

 

I posted this on VIC 11 days ago:

 

Big Picture:

 

Go look at the AMC writeups from the past and see what EBITDA was in 2017, 2018 (or predicted to be).  If you just want to pull up one - try JSTC's here:

 

https://www.valueinvestorsclub.com/idea/AMC_ENTERTAINMENT/6453528578

 

He has 2017 at 967 and 2018 at 1026b.  All the #s were around this 900-1b level pro forma for the acquisitions.  These are 2016 #s.

 

Four full years later (2020) EBITDA should be well south of these numbers despite, what, $1b in cap ex?  Can't make the argument that theaters have been out of commission for refurb cause they were out of commission in 2017 and 2018 too!  The year over year comparisons are not impacted if there is always 3% of theaters out for refurb.  So what's happening?  Either the legacy theaters are seriously comping negative OR the growth cap ex is not getting the returns they say it's supposed to get OR the box office shift to Disney has taken a larger take of the gross OR a combo of all three.

 

The box office hasn't materially changed over the last 3-4-5 years yet consolidated EBITDA has been pressured, despite all the capex spend. 

 

Even if they do the $900M or whatever your # is of 2020 EBITDA, the road to de-levering is long and complicated.  They should cut the dividend to 0, sell assets, and get the balance sheet right.  Adam Aron has presided over disaster after disaster destorying the balance sheet.  The European assets were a terrible purchase and the Silver Lake deal was done for benefit of Wanda to pull some cash out.  The canada takeout comp is ridiculous because there will be big synergies for the buyer and there is no buyer for the AMC U.S. unit that can extract similar synergies.  There can also not be an LBO here given the poor de-levering math and the lumpy box office not to mention the secular risks that have been mentioned over and over in all these threads.

 

I want to like this.  I love terrible stocks.  I just can't see what the exit is here in the next 6, 9 months.  If they could have sold the European assets or IPO'd them they'd have done it already.  If there was a buyer for the whole business in the 20's, Wanda would have taken it. 

 

International box office is vastly different than domestic so it's unfair to cite it as a reason to be bullish.  Vast majority of AMC's business is U.S. and their Europe business has not been great the last 1-2 years.

 

So can the stock work?  Sure.  But you will need a box office that grows in 2020 vs 2019 + you will need EBITDA to somehow grow despite years of EBITDA declining in the face of $1b in capex spend.  The real wild card would be if they could sell assets at high multiple and delever but I'm not sure it will be so easy.  What's non core here?  Europe?  Then why did you buy it in the first place!

[TBW]

That is helpful.  I think you can look at the data and make both the case for and against secular decline.  I lean toward not in decline, but I have only a low conviction.

 

You highlight, but don't provide an answer, why are margins so low?  If I look at CNK, or other competitors, Q3 was weak, but not crazy out of line with historical margins and in general margins seem ok at others.  Why are things so bad at AMC?

 

If you can make the case that margin are temporarily low, than stock is probably a buy.  Given leverage, if margins stay low this is one to avoid.  I have no idea yet, but interested to hear people's thoughts.

[daddy]

@Given2Invest, I have found txvalue's comments over the last year incredibly insightful on how others are looking at this business, and businesses in general. I do not appreciate your comments, especially because they are likely to become a deterrent for others posting in the future.

 

I understand that you must be extremely frustrated with AMC. Looking through your other comments on VIC, I note that you originally disclosed your AMC position on July 24th, 2017 (when the stock was >$21/share), commented on December 21st, 2017 (when the stock was about $15/share) that you thought "the setup here is fantastic", and commented on February 13th, 2018 (stock ~$15) that you were purchasing call spreads (which are now worthless). For such a high conviction call by yourself, it is interesting that your positions if held through today would have resulted in 70-100% losses. How are you dealing with that?

 

Additionally, regarding your comments about this being a terrible and unownable business; Will Thorndike chronicled AMC as one of the best businesses in history. Do you think he is wrong?

 

You pretty much summed it up...it's a terrible business possibly in secular decline run by one of the worst CEO's in the public markets.  Other than that it's a great investment.

 

Your posts are always so helpful lol - winners in investing don't always have to be perfect situations. You yourself said you like to invest in hairy situations.

 

I would disagree that it is a terrible business, the company is 100 years old and theaters have made many families and individuals wealthy and they have made some wealthy folks even more so.  An industry doesn't need software margins to be investable.

 

Are there challenges to the industry, sure - but you bash on AMC early and often and even your post said that it is "possibly" in secular decline - it is a bit early to know how the story here plays out and even if it is in decline I'd argue it could still be investable.There are lots of examples of things like this coal, tobacco etc.

 

Wow stuck a nerve heh?  I have owned AMC in the past.  I am not short AMC.  My portfolio is filled with crappy companies.  I just don't think this particular crappy company is investable.  I know you do...that's great!  What makes a market.  If it goes to $20 I will be thrilled for you and all the other AMC holders.

 

I'll also add since I posted in this thread in Nov 2018 offering cautious comments the stock has been more than halved w/ the broader market up what 30%?  So as of now...my negativity has been warranted. 

 

I urge anyone interested in this to read the entire thread from start to finish, it's not very long.

[given2invest]

lol.  A+ troll.  i'm not going to engage you, Mr. 1 post.  And I did not hold my AMC and I made money on it.  You can see, in this thread, when I turned bearish and the stock was >$20.  But you have no real interest in that, troll.  So troll on, Daddy.  Great name btw.

 

 

[johnny]

Dropping in this thread to say a few things:

 

1. Being long at $20 and short at $10 doesn't make your opinion invalid; if anything it makes it more interesting.

2. g2i has not been maximally diplomatic in this thread, but i can't imagine anybody would want to not post because of his contributions. If this describes you, please eat some red meat and come back to play

3. I haven't used my AMC subscription in maybe 6 months, which is $300 of pure profit to AMC. So maybe there's something to this business model yet. Then again, my circumstances are unusual.

[given2invest]

Thanks johnny...

 

And to be clear, I'm not short!

[Foreign Tuffett]

This has been one of the better COB&F forum threads for the past year or two, with both bulls and bears making smart, well-informed, posts. Hopefully that will continue.

 

Two quick points:

 

Saw a movie @ a Regal Cinema several weeks ago on a Friday night. Non-IMAX screen. Ticket was just over $14 before sales tax. Makes me, yet again, question the wisdom of AMC A-List being priced @ $20 a month.*

 

Google "How the motion picture industry miscalculates box office receipts." Very interesting reading, despite the paper being from 2004.

 

 

* The real price is somewhat less, as subscribers earn something like $40 or $50 worth of AMC Stubs points from their annual sub fees

[txvalue]

Interesting paper - thanks for sharing. I believe that much of the data from the past is not very reliable.  Matthew Ball, the former head of Amazon studios, is basically twitter's version of Given2Invest in terms of this thoughts of AMC & theaters. He recently said that he is unable to find accurate data prior to 1960.

 

In the paper they talk quite a bit about data from early time periods so while their conclusion stands, I think their source material is potentially faulty.

 

The number of theaters has declined sharply over the past 20 years.

1999 - 7031

201907 - 5548

 

But during this time as art house and small theaters have shuttered the number of indoor screens is actually up (all of these numbers exclude drive-ins)

 

1999 - 36448 (5.18 screens per site)

2019 - 40613 (7.32 screens per site)

 

Admissions in North America

1999 - 1.44 Billion

2019 - 1.244 Billion

 

We know that moving from stadium seating to recliners knocks out 50-65% of the original seat count. I haven't found reliable data reported for seat counts across North America over time but as things get renovated it stands to reason that there are going to be less seats, which I believe is an underreported element in how to think about these numbers & any potential trend.

[given2invest]

Just to be clear, it's not just that I'm bearish on the domestic theater industry, it's that I find AMC management to be the worst of the worst in *any* sector. 

[Foreign Tuffett]

Interesting paper - thanks for sharing. I believe that much of the data from the past is not very reliable.  Matthew Ball, the former head of Amazon studios, is basically twitter's version of Given2Invest in terms of this thoughts of AMC & theaters. He recently said that he is unable to find accurate data prior to 1960.

 

In the paper they talk quite a bit about data from early time periods so while their conclusion stands, I think their source material is potentially faulty.

 

The number of theaters has declined sharply over the past 20 years.

1999 - 7031

201907 - 5548

 

But during this time as art house and small theaters have shuttered the number of indoor screens is actually up (all of these numbers exclude drive-ins)

 

1999 - 36448 (5.18 screens per site)

2019 - 40613 (7.32 screens per site)

 

Admissions in North America

1999 - 1.44 Billion

2019 - 1.244 Billion

 

We know that moving from stadium seating to recliners knocks out 50-65% of the original seat count. I haven't found reliable data reported for seat counts across North America over time but as things get renovated it stands to reason that there are going to be less seats, which I believe is an underreported element in how to think about these numbers & any potential trend.

 

Per capita cinema attendance has slowly declined over time.

 

The industry has taken price, largely through upgrades to the cinema experience like stadium seating, recliners, digital projection, etc, etc.

 

Recently AMC and Regal, following Movie Pass, have decreased the price of attendance via subscriptions services. As I have mentioned before, I don't think the current subscription models work all that well given the ~50/50 revenue split between the studios and cinemas.

[txvalue]

Earnings call is live. Stock touched low 5's today but is now 6.8

 

- Announces quarterly dividend of $0.03 per share

- Announces $200 million share-repurchase authorization

- AMCʼs most senior officers voluntarily choose to take immediate salary and other compensation reductions in exchange for out-of-the-money share equivalent grant

 

"The dividend decrease of $0.17 per share compared to the fourth quarter of 2018, reduces the total dividend payout for the quarter by approximately $18.0 million, providing capital that can be deployed towards share purchases and the decrease of net debt."

 

[JRM]

The market cap at today's close was $707M.  You would think this would send the shorts running.

[johnny]

Thanks to this thread for reminding me to cancel my A list sub. We fell into the gym trap and have probably gone about 4 months with no utilization. So to any remaining bulls, you're welcome for softening the loss this Q.

 

I think we are going to be a problem case for them; as long as there is a Blockbuster Season, I'm not sure what is to stop many people from just paying $30 a month from June to September and going into de-activation/hibernation for the rest of the year.

[Guest roark33]

AMC is one of those levered companies that could just get wiped out after one bad season.  I think this whole thing will blow over by the summer, but all the exhibitors went bankrupt back in 2000 or around there when the summer movie slate was just awful. 

 

This stock comp plan just seems so Adam, just dumb on lots of fronts. 

[txvalue]

Awful price action here, over the past few week I have trimmed my position a good amount. I think it could still work long term but with everything going on and Bond getting pushed back my thesis has been broken.  Hope things find a bottom as the weather warms up - and I have started adding to MCS and CNK a bit here.

[HalfMeasure]

Awful price action here, over the past few week I have trimmed my position a good amount. I think it could still work long term but with everything going on and Bond getting pushed back my thesis has been broken.  Hope things find a bottom as the weather warms up - and I have started adding to MCS and CNK a bit here.

 

Market seems to be fussing leverage this week, especially today (across many names, not just this one).