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.
While AMC is a major customer of Imax, the company is not shy about about the success of its own premium large format (PLF) brand.
IMAX sets the bar high, but our premium sight and sound execution goes beyond delivering a single product. We continue to strive to improve the customer experience by incorporating the very best of premium large-format and the unique AMC touch and luxury in our own concept, which we called AMC Prime.
This quarter we made progress on our AMC prime rollout, which we now have up and running in six locations. AMC Prime is a concept that further enhances the sight, sound and a static in-theater experience, including power recliners and top-of-the-line JBL speakers.
AMC Prime is clearly a next generation PLF, and guest feedback has been tremendous where the rollouts have occurred. The last of the strategic action fronts I will comment on this afternoon is targeted programming, specifically how our theater and film teams are working together crunching data to schedule more shows more aggressively in our buildings. Their combined efforts helped us register the number one market share for opening weekend on four of the top five grossing films during the quarter, as well as the number one share for the entire run of The Amazing Spider-Man 2, the fourth highest grossing film in the quarter. LINK
While AMC is not likely to terminate its agreement with Imax once the leases on the Imax screens start expiring – not least given Wanda’s major ties with Imax – it gives AMC a better negotiating position in negotiations with Imax about new screens and contract renewals, as well genuinely offering a broader slate of programming than the semi-rigid Imax booking agreements allow. To not have a PLF screen that can show other things than what Imax dictates and when Imax dictates for it to be shown would be leaving money on the table.
Lopez also boasts that six of the top ten grossing cinemas in the US are AMC, including the top two. He then hands over to Craig Ramsey, Chief Financial Officer (CFO) of AMC who goes over the numbers in more detail. Two interesting details relate to additional revenue and film rental costs.
Our gross profit per patron grew 3.9% during the period. Other theater revenues increased by $8.4 million or 30.2% as compared to the same period last year, due primarily to a 31% increase in Internet ticketing fees, a 38% increase in AMC Stubs’ membership revenues and higher gift card revenues.
Our film exhibition cost of $257.2 million represented 53.7% of admissions revenue, a decrease of 165 basis points as compared to the same period last year. This decrease was driven by a shift in mix due to lower grossing films during the quarter, which delivered lower attendance levels, but at lower film terms.
In terms of screen opening/closings there was no big shift, at least not for a company the size of AMC.
During the quarter, the company opened one new theater with 12 screens in the U.S. We acquired one theater with 11 screens, temporarily closed 57 screens and reopened 70 screens in the U.S. to implement our strategy and deploy guest experience upgrades. We also permanently closed one theater with 13 screens in Canada. LINK
As Lopez takes the word again, he rounds off by pointing out that AMC does not see itself as just another exhibitor, but stands apart from competition.
Overall, AMC’s last 12-month Box Office share is 21%. This would [“with”?] only 7% of the U.S. total peer account and even less of its screen count. While this is an impressive statistic, we measure ourselves even deeper using the metric we track very closely internally and we share with you in the past few quarters. We call it a 20-mile proximal market share.
When we measure ourselves against competition in 20 mile radius of our buildings, we are seeing almost six percentage points of Box Office per screen outperformance versus the competition dating back to April of 2011. This metric shows in a granular first-screen level that focusing on the customer experience is the right thing to do for them and for our shareholders long-term.
So focus on customer experience is what secures AMC’s long-term future and also helps it ride out ups and downs of the varied Hollywood slate.
The Q&A is slightly less tedious than for Regal, where the analysts in their pack mentality only seemed to be able to focus on 20th Century Fox’s attempted takeover of Warner Bros. and what that would mean for the exhibition industry. In a response to a question about the re-seat scheme CFO Craig Ramsey responds with some interesting data.
One of the things that I think we are seeing is that we are now comping against re-seat, so there is a same-store, same-reseated store piece of the business, so if you look at these levels those that are opened less than a year, the attendance per screen is up 75%. If you go the second year, they are up 27%. If you go to the third year, they are kind of flat to up slightly a couple of percent. I mean, if that store base increases and you get the effect of more same stores year-over-year it is just going to be tough to keep the 70% growth. LINK
So cutting down on the number of seats but making the remaining seats more comfortable leads to over 100% cumulative increase in attendance over two to three years! And that is on top of the price increase for the comfy chair screens. With a final question about the seat race between AMC and Regal it seems that it is too early to tell what the results will be, but that AMC feels it is ahead and the it is its ‘total package’ that puts it at an advantage.