Category Archives: Earnings Announcements

AMC’s Premium Recliner Seating Plans Revealed

AMC recliner seats

A week after Regal announced that it plans to convert 25% of its screens to luxury seating, AMC has provided details about its plans for reseating. While the Chinese-owned exhibitor is not committing to a particular screen percentage target, the ambition is great for the cinema chain that in many ways kickstarted luxury reseating trend amongst the major exhibitors. AMC also continues to stress that reseating is only a part of its overall enhanced guest experience.

While attendance and box office was down for AMC in the forth quarter of 2014 (by 4.3% and 4.5% respectively), as well as for the year as a whole in line with the rest of the industry, the exhibitor managed to eek out an overall increase thanks to better concessions spend. AMC’s food and beverage (F&B) revenues per customer increased by 13.5% to $4.46 in the last quarter of 2014, a record high for the company.

Speaking at the Q$ 2014 earnings call (transcript by Seeking Alpha), CEO Gerry Lopez reminded the analysts listening in that when the reseating initiative was started three years ago it was not universally well received. “I don’t think I can use over an open line some of the adjectives and some of the names that we were called for this notion of taking two-thirds of the seats out of an auditorium,” he said. Yet today, “we’re seeing the same things that you are seeing which is everybody’s announcing them and everybody is doing them.”

At the end of the 2014 calendar year AMC had refitted or installed luxury recliner seats in 598 screens across 53 theatres, which represents an increase of 51% on the previous year. The reseated theatres are said to have delivered an increase in admissions of 13.8% on a per screen basis, compared to an average industry decline of 4.3%, in the last quarter of 2014.

Looking at the year as a whole, AMC claims that reseats delivered a 25.3% increase, compared to an industry slump of 5.6%. Taken together reseats thus delivered an 18 and 31 point outperformance for the quarter and the year.

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Why RealD is For Sale and Who Would Want to Buy It

RealD Founders Michael Lewis and Josh Greer

RealD founders Michael Lewis, left, and Josh Greer wear 3-D glasses inside their theater at their Beverly Hills headquarters. (Ken Hively / Los Angeles Times)

Following a disappointing Q3 RealD has revealed that it has appointed investment banker Moelis & Co. to “explore a full range of strategic alternatives available to the Company”, which as Bloomberg notes is “language that typically means a company is seeking a buyer.” So why is RealD for sale (or is it really?), who would want to buy it and what would be the reason for wanting to acquire it?

The ‘For Sale’ sign was so prominent in the earnings conference call (transcript by Seeking Alpha) that it was effectively posted before the figures for the quarter were even mentioned:

We will be looking at the full spectrum of options available to us, including but not limited to mergers, divestitures, return of capital alternatives and a potential sale of the Company. Our previously announced review of R&D initiatives will be a part of this broader strategic review.

Cynics would say that RealD had every reason to draw attention away from the poor figures of the most recent quarter.

Revenue in Q3 dropped to USD $32.6 million compared to USD $55.4 million for the same period a year before, a decline of almost 41%. At the same time losses increased to USD $11.3 million compared to a loss of just USD $271,000 for Q3 a year earlier. Despite this the share price jumped over 10% and one analyst upgraded the stock to “Outperform”.

In the previous quarterly earnings call (transcript by Seeking Alpha), CEO Michael Lewis had already outlined previous steps to “enhance shareholder value”:

Moving beyond our quarterly performance. Over the past year, we have evaluated all aspects of our business and are taking additional steps designed to enhance shareholder value. In consultation with our outside advisors, we’re actively evaluating alternatives for restructuring our R&D efforts, Consumer; Laser; Screen and TrueImage. In doing so we have three primary goals, to minimize future capital outlays and expenses associated with our R&D efforts with an expectation of significantly reducing OpEx and CapEx in fiscal year ‘16; to partner with outside third parties to speed the path to commercialization; and to maximize our future economic participation.

It seems that these efforts of “streamlining” the company and finding “additional efficiencies” have not succeeded or been enough. So what is behind the drop and what would be the rational for a sale?

Part of the decrease is purely film-slate related. The same quarter in 2013 was strong with “Frozen”, “Gravity” and “Thor 2″, while this year’s “Hobbit 3″ was not strong enough and “Interstellar” was only released in 2D. But there were deeper underlying problems, as hinted at by CFO Drew Skarupe:

Product and other revenues decreased 41% from the prior-year quarter and represented approximately 36% of total revenues. The decrease was primarily related to decreased purchases from international exhibitors and the overall decrease in our box office performance over the prior-year period. Domestic product revenues represented 55% of total product revenues, and international product revenues represented 45% of total product revenues. Licensing gross profit was $9.5 million or 45% gross margin versus 68% gross margin reported in the prior-year quarter.

So is RealD merely ‘pulling a Regal’? Last year Regal stated that it was looking at possible buyers, after two quarters of disappointing figures. In the end the largest exhibitor in the US decided that it was not for sale and took themselves off the market. But whether it was serious or not in the first place, the company’s announcement gave several media outlets (us included) something other to talk about than the soft box office.

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Wanda Cinemas Announces 2014 Figures & AAM Tech Deal

Wanda logo

Wanda Cinemas has published its first post-IPO figures for they whole of 2014 and they show overall growth in the number of screens and box office, though the exhibitor’s market share has slipped somewhat.

Win Business Network reports that:

Wanda Cinema’s 2014 box office revenue was 4.21 billion yuan [USD $674 million], an increase of 33.1%, with audiences 102 million patrons, an increase of 30.8%; Up to December 31, 2014, the company has already opened in 182 theaters, with 1,616 screens.

The corresponding data in January 2015 Wanda Cinema is realized grossed 380 million yuan [USD $60.8 million], an increase of 44.1%, with audiences 8,990,000 patrons, an increase of 36.6%, has been opened in 183 theaters, 1,624 screens.

However, Wanda Cinemas’ overall marketshare slipped slightly, after having grown for the previous three years.

In January this year, the State Press and Publication Administration of Radio Film Board has already grossed Chinese film last year had informed: 29.639 billion yuan [USD $4.75 million], an increase of 36.15%. This makes it possible to calculate the Wanda Cinema last year accounted for about 14.2 percent of the market.

Wanda Cinema’s market share data with the previous two years or less. According to the prospectus of the data Wanda Cinema, 2011 to 2013, Wanda Cinema’s market share was 13.61%, 14.49% and 14.52%, both the market first.

It is difficult to compare the figures and total takings with previous years accurately due to tax reforms in the past year that have impacted cinemas’ revenue. This is due to the total box-office deduction of 5% which goes to the “special movie fund”, and then there is a further 3.3% of the tax deduction, and only then do we get the net box office.

Wanda Cinemas continues to benefit financially – and enjoy an advantage over competitors – because of the close ties between Wanda Cinema and Wanda Plaza real-estate. This means that Wanda Cinemas are shielded from rising rents costs that affect other theatres.

However, this sort of arrangement only continue for as long as the real-estate market is strong and Wanda Plaza can afford to play corporate sugar daddy to Wanda Cinemas.

Now that both companies are listed companies there could be questions about this type of arrangement if the fortunes of the two companies start diverting. Though with the majority shares of both companies firmly controlled the Wang family, there is not much other shareholders can do to alter this cosy arrangement.

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Quarterly Results: RealD (Good) and NCM (Not)

RealD logo

We are coming to the end of the current season of quarterly financial results, with RealD and National CineMedia, Inc announcing their respective Q1 2015 and Q2 2014 results. One is good and the other one not so good.

Starting with 3D technology licensing company RealD, the figures should please investors, with a 43% EBITDA year-on-year growth and net income of over USD 5 million. The press release gives the details:

Total revenue was $55.4 million, comprised of license revenue of $36.0 million and product and other revenue of $19.4 million. For the first quarter of fiscal 2014, total revenue was $59.2 million, comprised of license revenue of $37.3 million and product and other revenue of $21.9 million.

China license revenue represented 14% of total worldwide license revenue, up from 8% in the first fiscal quarter of 2014.

GAAP net income attributable to common stockholders was $5.5 million, or $0.10 per share, compared to GAAP net loss attributable to common stockholders of $1.5 million, or $0.03 per diluted share, for the first quarter of fiscal 2014.

The key metrics are interesting in terms of showing RealD weathering a slowdown in North America, both in terms of deployment and box office, with growth in emerging markets more than compensating and in some cases overtaking US/Canada numbers.

  • Estimated box office generated on RealD-enabled screens(1) for the first quarter of fiscal 2015 was $787 million ($387 million domestic, $400 million international). In the first quarter of fiscal 2014, estimated box office generated on RealD-enabled screens was $838 million ($431 million domestic, $407 million international).
  • Ten 3D films were released in the first quarter of fiscal 2015, compared to eight 3D films in the first quarter of fiscal 2014. These figures reflect the number of 3D films released domestically during the periods.
  • International markets generated 63% of license revenue and 34% of product and other revenue in the first quarter of fiscal 2015.
  • As of June 30, 2014, RealD had deployed approximately 25,600 RealD-enabled screens, an increase of 9% from approximately 23,500 screens as of June 30, 2013, and an increase of 400 screens (50 domestic, 350 international), or 2%, from approximately 25,200 screens as of March 31, 2014.
  • As of June 30, 2014, RealD had approximately 13,450 domestic screens at approximately 3,000 domestic theater locations and approximately 12,150 international screens at approximately 3,000 international theater locations.

In the earnings call (transcript by Seeking Alpha, as always) CEO Michael V. Lewis pointed to a 20% cost reduction and significant growth in China, Russia and Latin America as keys to the company’s success in this quarter.

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AMC Q2’14 Results: Revenue Down But Focus On Re-Seat, Imax, AMC Prime, F&B and Internet Ticketing Steady

AMC Wanda logo

AMC has released its quarterly figures and it was a dark cloud but with a silver lining. Revenue was down nearly five per cent (4.7%), dragged down by a 7.1% drop in admissions and despite average ticket price being up to an average of USD $9.55, with Imax and F&B (food & beverage, i.e. concessions) as the main good news. The press release highlighted this other significant milestones.

“In spite of some tough comparisons, we enter the second half of the year building momentum behind our continuing transformation of the AMC guest experience. Our five strategic action fronts continue to deliver innovation, additional revenue opportunities, improved profit flow-through and better-than-industry results,” said Gerry Lopez, AMC president and chief executive officer. “Our vision for the circuit is working and is long-term, and we’re keeping our focus on it.”

“Our comfort and convenience, and enhanced food and beverage initiatives drive significant benefits for our guests and the Company, and are helping us outperform our peers. One of the newest, best examples is open source internet ticketing. After rolling out our own ticketing engine in April, tickets to an AMC theatre are now both easier to get and available in more places on the web than any of our competitors’. So far, we’ve seen a 45 percent increase in online ticket revenues this year, and have sold approximately 13 million online tickets this year. ”  LINK

The conference call provided some ‘drill-down’ details, particularly for topics such as AMC’s re-seating (swapping regular seats for larger and more luxurious premium seats).

Let me briefly give you an update on the significant progress we have made on a few of our strategic action fronts. First, comfort and convenience remains a key focus as we continue with our recliner reseats. There are 505 screens at 44 locations; I said 505 screens at 44 locations that we have deployed to-date, delivered admissions revenue per screen growth of 33% more than doubling of the EBITDA in the second quarter of 2014.

To be sure, the solid top-line per screen growth and more than doubling of EBITDA in a period where industry admissions revenue was down 6.5 points, says we are dramatically significantly outperforming and our strategy is working. That 33% per screen admissions growth was nicely balanced as well, with 21 points coming from attendance and 10 points coming from average ticket price increase.

We believe that this type of balanced growth clearly illustrates the tremendous power of our re-seat program and their customers are not solely driven by this slate of movies, but also the experience of seeing those movies in the comfort and style of an AMC theater.  LINK

Lopez also highlights the 69% top-box get satisfaction scores, calling it “not only the highest in the circuit, but in a class by themselves when it comes to retail enterprises.” Coupled with the improved on-line ticketing and an average concession spend per customer of USD $4.22, the message is clear: even if Hollywood delivers a poor slate of film, we are getting good at extracting more money from the people who do still go to the cinema.

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Quarterly Earnings: Regal, Imax and Dolby

 

Quarterly figures have been arriving thick and fast this week. We look at three key cinema companies: Regal Entertainment, Imax Corporation and Dolby Laboratories.

regal-entertainment1

The world’s largest cinema operator announced its quarterly figures and they were not what the analysts had hoped for, with revenue of USD $770.3 million, down 8.5% year-on-year and misses expectations by USD $41.41 million. There was a dividend of USD $0.22 per share. The CEO put a brave face on the drop and found a silver lining to highlight, though I’m not sure about her positive take on this year’s BO potential.

In a challenging summer box office environment, the growth in our average concession sales per patron and our focus on controlling variable costs helped drive Adjusted EBITDA margin of over 19%, stated Amy Miles, CEO of Regal Entertainment Group. With year-to-date industry box office results on par with last years record setting pace and an exciting film slate in the back half of the year, we are optimistic regarding the potential for further box office success in 2014.  LINK

In the earnings call that followed there was an acknowledgment of the harsher realities faced this summer but also some historical perspective by Ms Miles.

When viewed from a broader perspective, this year’s second quarter industry box office revenue was in line with the historical average for the last 5 years. On — one other item of note as it relates to the second quarter box office performance, we were again encouraged by the studios’ willingness to expand the summer box office season by delivering high-profile films throughout the quarter. Difficult comparisons aside, we continue to believe that a diverse film slate and a well-spaced release calendar increase the long-term potential for box office success for us and our studio partners.  LINK

Concessions, better consumer amenities, premium seats as well as Imax/RPX (premium large format) screens are the key to riding out the financial troughs.

And finally, the early returns on our initial investments in luxury, reclining seats are very promising, and in most cases, ahead of our expectations. We have fully converted 5 locations with 46 screens and are on track to complete 25 locations with 275 screens by the end of the year. As a reminder, this concept is not right for every location. Many of our theaters are simply too busy to sustain the seat loss that results from the installation of the larger recliners.

But in some situations, where the theater has been impacted by competition or simply nearing the end of its useful life, a return-minded investment in reclining seats can rejuvenate and potentially even extend the life of an existing theater. Based on the early success of these auditoriums, we believe we will have further opportunities to invest in our asset base in both 2015 and ’16. We remain excited about the potential for growth and financial returns associated with these initiatives and look forward to updating you as they progress.  LINK

Other insights: average ticket price was up by USD $0.05, premium screens attract 17% of box office, operating expenses were down by 1% (“due primarily to decreases in attendance-driven theater-level cost and lower payments associated with premium format revenue”), New York City and Washington D.C. were down by more than the market average, while alcoholic beverage serving was up from 31 to 39 locations. Interestingly the company doesn’t think it is possible to cut staffing levels any more than they already have.

Obviously, we’ll always look to reduce costs where we can in a low-attendance environment, and I think our managers and our field personnel will continue to do a great job doing that. But to ask them to do a lot more than that I think is going to be tough for us.  LINK

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Ballantyne Reports Strong Q3 Earnings, New CEO

Ballantyne-Strong Logo.jpgBallantyne Strong, Inc., a leading cinema equipment vendor and service provider, has been keeping their public relations staff busy this week with two important announcements.

On Thursday the Omaha, Nebraska based company released their record breaking earnings for the third quarter of 2010. If you were looking for a sign that the digital cinema rollout was truly underway, then Strong’s financial statement could serve as exhibit A.

The company’s net revenue for the quarter ending September 30th of this year was USD $32.9 million, a 99 percent increase in sales over the same quarter in 2009. Strong’s net earnings jumped from USD $500,000 (USD $0.04 per share) a year ago to USD $2.3 million (USD $0.16), making it the second consecutive record quarter for the vendor.

One of the biggest contributors to Strong’s increased earnings was the sale of digital cinema equipment, which leapt 291 percent to USD $20.2 million. Meanwhile, exhibitors scooped up USD $5 million worth of cinema screens, improving sales by 77 percent. Silver screens needed for certain 3D systems were the biggest sellers. And, with all that d-cinema equipment rolling out the door, someone had to actually install it in theatres. Strong made USD $2.2 million providing cinema services, an increase of 148 percent.

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Kodak’s Losses Decline In Q3

Kodak Logo.jpgEarlier today shares in the Eastman Kodak Company skyrocketed 12% after the company announced their third-quarter financial results had beaten Wall Street expectations. It wasn’t that Kodak had turned a huge profit, but rather it hadn’t lost as much money as had previously been forecast.

Per U.S. generally accepted accounting principles (GAAP), Kodak had third-quarter losses from continuing operations of USD $43 million or $0.16 a share on sales of USD $1.785 billion. That may not sound like good news, though compared to last year’s third quarter loss of USD $111 million or $0.41 it’s a huge improvement.

Kodak has inkjet printers to thank in large part to its improved performance. Turns out those little inkjet cartridges that always seem to be empty in your printer produce a hefty profit margin. Revenue from the company’s inkjet products grew by 23 percent, helping its digital commercial printing division expand by 13 percent. In fact, all of Kodak’s digital businesses were up a combined 10% during the quarter, the fourth consecutive quarter to show year-over-year increases.

It wasn’t all good news for Kodak however, and it is in an area of more specific interest to our readers that the company suffered steep decline. Sales for Film, Photofinishing and Entertainment Group amounted to USD $431 which is down 25 percent from last-year’s third-quarter. Per Kodak’s announcement:

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Cineworld Revenue Boosted By 3D Blockbusters

Cineworld Logo.jpg

Despite much of the world suffering from economic recession Cineworld seems to be having a banner year. Yesterday the United Kingdom’s second largest theatre chain reported that total revenues were up 8.5 percent since the beginning of the year. Cineworld’s success is spurred on by 8.3 percent year-over-year growth in box office since June.

Cineworld’s share of the U.K. box office has crept up to 24.5 percent to date, which is an increase over last year’s 23.8 percent. The company credits Hollywood blockbusters, specifically those in 3D, as being the cause for higher admissions and 1.5 percent in retail revenue. Specifically, Cineworld cited summer hits such as “Shrek Forever After” and “Toy Story 3″, both in 3D, as well as “Twilight: Eclipse” as being particularly profitable for them.

The third installment of the “Toy Story” franchise has earned GBP £70 million (EUR €80.1 million or USD $110.5 million) in the U.K. making it the territories top film of the year. For Cineworld, this not only means increased box office from higher ticket prices, but also revenue from selling 3D glasses. In fact, the company’s “other income” from the sale of glasses, booking fees and renting theatre space rose 43.8 percent when compared with last year’s figures.

With 3D helping drive box office it’s no wonder Cineworld is on schedule in a three year rollout of digital cinema in their 77 venues. In fact, they plan on converting even more screens in the next four months:

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Cinedigm Year-End Figures Shows Company Treading Water

Cinedigm has published its Q4 and year-end financial figures for fiscal 2009, which make for interesting reading, given that the company is the only* publicly listed third-party digital cinema operator. The good news is that the company is treading water, not drowning. The bad news is that it does so in a sea of red ink. Let’s take a closer look at the number and highlight some of the key statements in the company’s press release.

You know that the company has little to write home about when it starts off its list of achievements with the re-branding of the company from AccessIT to Cinedigm, instead of talknig about the number of screens converted, as CEO Bud Mayo does:

“The past year has been tremendously exciting for Cinedigm. Not only did we rebrand the company, but we also brought ground-breaking events to consumers and fans of college football and the NBA in the fourth quarter.”

He then goes on to acknowledge that it is a cold financial wind blowing out there, but trusts the resilience of the exhibition industry and 3D to carry the business through. So how bad are the economic conditions and what has the impact been for the company’s bottom line? First of all, let’s do way with Cinedigm’s EBITDA and the likes. Any CFO with half a brain these days will tell you, revenue is vanity, profit is sanity and cash is king, so the fact that Cinedigm’s revenue is up three per cent is of little consequence in the larger scheme of things.

Encouragingly operating losses decreased from $5.9m to $4.9m for FY09 compared to FY08, according to Cinedigm, due to “increased revenues and reduced direct operating expenses and SG&A, offset by an impairment charge and increased depreciation.” Similarly losses decreased for Q4 from $2.4m to $2.0m. But look more closely at the P&L figures lower down, particularly for the last three months. you will see that net loss was improved by $1,889,000. However, this is more than explained by the difference in interest payments of $2,378,000, which is half a million more than the difference in profit and loss for the the last three month. So the depressed interest rates is what is helping Cinedigm, rather than any management miracles.

There are also some worrying admissions that point to financial challenges in the months ahead:

Fiscal 2009 fourth quarter revenue decreased by 18%, to $17.9 million from $21.9 million in the comparable year-ago period primarily due to a contracted 16% step-down in VPF rates and seasonally fewer titles and prints in the quarter. This contracted step-down in VPF rates charged to the major studios will stabilize with just one more contracted reduction of 7% in the third quarter of fiscal 2012.

So the good news is that there will only be one more cut in the VPF rate, the bad news is that there should be any cut in the VPF rate in the first place. Remember that AccessIT (as it was then still called) got the best VPF rates that any company will ever get from the Hollywood studios in Phase 1 of its deployment – which mainly helped kit out troubled exhibitor Carmike – with VPFs currently being much lower.

It is well known that there are penalty clauses in VPF payments for entities that don’t meet their target number of screens (hello, Arts Alliance and XDC!), but that there should be automatic VPF fee cuts for entitites that came very close to meeting their full target, s AccessIT did in Phase 1, is troubling. And where does Cinedigm stand with regards to deployment for Phase 2? Mayo again:

“We are optimistic about our intensifying efforts to secure financing for Phase 2 installations through third party lenders as well as our exhibitor and vendor partners which will generate ongoing fees and other key revenue streams for Cinedigm. To date we have installed 139 Phase 2 screens and approximately 3,900 screens in total.”

139 screens is a drop in the ocean, or just over one per cent, of the planned 10,000 screens for Phase 2. Don’t expect Cinedigm to be collecting much in the way of the anyways reduced  VPF for these screens. Cinedigm aknowledges as much when it goes on to state that “All comments regarding fiscal year 2010 do not assume a large Phase 2 deployment or a large rollout by other entities, including DCIP, although the Company expects both to occur.” Though to be brutally honest, the likelihood of the latter is greater than the former.

Instead Cinedigm is pinning its hopes to a growth in DMS (digital media services) division revenue, cushioned by steady income (minus another VPF rate cut) from Phase 1. The strategy is thus to keep treading water, hope for the financial climate to improve. At leasthe amended credit facility with GM should ensure that no sharks will be circling just yet.

The situation is unlikely to be much better for the likes of AAM and XDC, though because they are not publicly listed companies, there is no way of knowing whether they are swimming, sinking or treading water nearby, waiting for rescue in the form of radically improved financial climate and/or a buy-out.

*(Companies like Dolby and Kodak are also engaged in third party deployment, but it is not their primary business, unlike Cinedigm, which we group with Arts Alliance Media and XDC)