AMC has published its Q1 2017 figures and profits are down but revenue is up at the world’s biggest cinema chain. The 67.5% growth in turnover had a lot to do with including Carmike, Odeon and (four days of) NCG revenue, but it is the earning call transcript that provides the most fascinating insights into how the merger and integration of Carmike, Odeon and NCG is proceeding..
It hard to strip out individual figures to make like-for-like comparisons, but combing through the figures, one thing that stands out is capex (capital expenditure), which was USD $57.7 million in Q1 2016 but grew to USD $150.3 million in Q1 2017, driven by spending on re-seating and improved F&B. Net earnings were down to USD $8.4 million in this quarter, compared to USD $28.3 million a year ago.
In the earning call transcript (by Seeking Alpha) we learn that AMC has Coca-Cola Freestyle machines in practically all of its domestic cinemas, will have 275 MacGuffins bars by the year end, saw a +2.3% F&B spend growth per patron, and AMC Stubbs “continues to soar.” But seating is the biggest story by far:
As long as the financial returns stay as solid as they are now, we expect to renovate an additional 118 theatres in the United States, representing 1,480 U.S. screens in 2017 and 2018, which would bring us to 326 recliner-equipped theatres in the U.S. that’s about 51% of our entire domestic footprint including all the theatres of the newly acquired Carmike circuit, which were off to a very slow start under prior ownership.
Other insights: 31% of AMC tickets are now sold online. The conversion of Carmike cinema is going well – only two are left and by the end of this weeks all former Carmike properties part of AMC will all have switched over to AMC “systems, processes and brands.” Only six employees are left in Carmike’s old Georgia HQ, which is about to be sold. Film rental deals are more favourable under AMC terms than under Carmike’s old ones.
Meanwhile in the UK, AMC has met with landlords of over 40 Odeon properties to persuade them to co-finance investment in upgrades to the cinemas. This means that 25 cinema are expected to be fully renovated by the end of 2018 – a remarkable turnaround for a chain not always know for having the most modern of multiplexes. AMC also claims that its push for recliners in the UK has met with early success.
[A]t our theatre in Bournemouth with 17% of its seats being recliners. the recliners are over-indexing at a 40% attendance premium and a 20% price premium. And at Bromborough where 30% of the seats are now recliners, overall theatre attendance is up 66% and the recliners again are commanding an additional 20% price premium on top.
Only four days were left of Q1 when the Nordic Cinema Group deal closed, so it is too early to include much about the Nordics in this earnings report. When it comes to discussions on premium video-on-demand (PVoD) and shortening release winds, Adam Aron assured investors that “we have a backbone and a firm one at that.” He further believes in the company so much that he had bought shares on the open market on no less than three occasions in the past 16 months. The shorting of AMC shares since 1 March has thus come as a surprise to him.
In the Q&A session Aron re-iterated that he feels Odeon can drive “EBITDA gains of 50% over four to five years,” as they have been saying since they acquired Odeon & UCI, with recliners being key: not for an “ego reason” but because “recliner seat is the surest way to produce return for our shareholders.” Some 35 cinemas in Europe are target for recliners by the end of 2018.
AMC has completed the sell-off of 17 cinemas to comply with DOJ decree and ‘ported’ a further 17 cinemas from NCM to Screenvision for pre-show advertising. AMC has 30 months to sell down its stake in NCM but is not rushing to do so, as its share price “took a huge hit last week,” (down 23%) in Aron’s own words.
On a final note about synergies of absorbing Carmike’s operation, Adam Aron gets the final word. “I do hope that the three full-time pilots they [Carmike] had on payroll for their corporate jet are flying for some other company, but they’re not flying for AMC.”
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