AMC 電影院 (AMC) 2020 Q2 法說會逐字稿

Greetings, and welcome to the AMC Entertainment Second Quarter 2020 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded, Thursday, August 6, 2020.

I would now like to turn the conference over to John Merriwether, Vice President, Investor Relations.

Please go ahead.

Thank you, Kevin.

Good afternoon, everyone.

I'd like to welcome you to AMC's Second Quarter 2020 Earnings Conference Call.

With me this afternoon is Adam Aron, our President and Chief Executive Officer; and Sean Goodman, our Chief Financial Officer.

Before I turn the call over to Adam and Sean, let me remind everyone that some of the comments made by management during this conference call may contain forward-looking statements, which are based on management's current expectations.

Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today.

Many of these risks and uncertainties are discussed in our public filings, including our most recently filed 10-K and 10-Q.

Several other factors that will determine the company's future results are beyond the ability of the company to control or predict.

In light of the uncertainties inherent in any forward-looking statements, listeners are cautioned to not place undue reliance on these statements.

The company undertakes no obligation to revise or update any forward-looking statements whether as a result of new information or future events.

On this call, we may reference measures such as adjusted EBITDA, free cash flow, adjusted free cash flow and constant currency, among others, which are non-GAAP financial measures.

For a full reconciliation of our non-GAAP measures to GAAP results, please see our earnings release posted in the Investor Relations section of our website earlier today.

After our prepared remarks, there will be a question-and-answer session.

This afternoon's call is being recorded, and a webcast replay will be available in the Investor Relations section of our website at amctheaters.com later today.

With that, I'll turn the call over to Adam.

Thank you, John.

Good afternoon, everyone, and thank you for joining us today.

I -- needless to say, I'll begin the call as I've begun so many over the past several months.

I do sincerely hope that all of you and your families are safe and healthy.

This is a time that AMC has been waiting for since mid-March of this hard, horrible year of 2020.

More than 1/3 of our theaters in Europe and the Middle East are already open once again, and essentially all should resume operations within 2 weeks.

And of course, we are greatly looking forward to the reopening of our theaters in the United States, which seems to be at hand in most, but not all U.S. cities by the end of this month.

Both for financial and psychological reasons, we are so eager to delight moviegoers as AMC has done now for a full 100 years.

It's no surprise to anyone that with all of our theater operations suspended between March and May, and most of our theater operations suspended even now, the COVID-19, once-in-a-century global pandemic, has significantly impacted the financial performance of companies across multiple sectors with the movie theater industry being particularly hard hit, and AMC has not been exempted from that fate.

With no revenue to speak of coming in the door until June, and then for AMC only in some countries in Europe, you are already all aware that the second quarter of 2020 was arguably the most difficult and unsettling quarter that the theatrical exhibition industry and AMC have ever seen.

I cannot tell you, though, enough how proud I am that the entire AMC organization has responded quickly, boldly and decisively with an exceptional level of commitment, tenacity and professionalism to adjust our plans, and then to deliver on very aggressive new targets, whether those be for massive capital expenditure and operating expense reductions, endless time devoted to landlord negotiations, achieving dramatic enhancements to our liquidity position or the skillful crafting of safe and responsible theater reopening plans.

This afternoon, similar to our first quarter earnings call, we really won't spend very much time at all on the actual financial results of Q2, but instead, we'll focus on what we believe is of primary interest to most of you, and that is to update you on the actions we've taken to manage through this crisis, our preparations to safely welcome guests to our theaters once again, and our general thoughts about the prognosis for our company looking forward.

The 4 priorities that we outlined on our last call remain our primary focus: one, continuing to take actions to bolster our liquidity and to deleverage our balance sheet; two, reducing our cost structure and spending posture, realizing that revenues may take time to ramp up; three, reopening our theaters as smartly and as professionally as we can, enlisting some of the world's top scientists and experts to help us offer a safe and clean theatrical environment for our guests and associates; leveraging our industry-leading guest platform and rich consumer database to drive attendance and implementing a wide variety of strategies to optimize theater profitability once theaters do reopen; and four, managing our business through whatever structural changes, world events or industry dynamics are thrown in our direction.

In the 60 days or so since we last spoke, AMC has made significant progress in each of these 4 focus areas.

The 2 most important of which include: first, our recent successfully completed debt exchange and new first lien debt issue that lowers leverage, provides additional liquidity and extends debt maturities; as well as second, the signing of a historic agreement between AMC and Universal Studios that we believe will expand the market for both Universal and for AMC.

It will preserve the most important period of time during an exclusive theatrical window in which most of the movies' revenues come in the door, while allowing AMC to share in new premium video-on-demand revenue streams.

Our agreement with Universal also works to increase studio profitability from theatrical releases, which over time should lead to the green lighting of more theatrical releases, which after all is the lifeblood of our core business.

We'll share more in a moment, but before we do, I'll now turn the call over to Sean to update you on the second quarter and some of the more recent specific actions taken by AMC.

Mr. Goodman, sir, you're on.

Thanks, Adam, and thank you, everyone, for joining us this afternoon.

I do hope that you and your families have been safe and well during these difficult times.

As Adam mentioned, our results for the quarter were severely impacted by COVID-19 crisis, which necessitated the suspension of all our theater operations in the U.S. for the entire second quarter and all of our international theaters for 2/3 of the quarter.

Theaters in our international markets began to reopen in early June, but only on a limited basis.

And for the quarter, international attendance was only 100,000 tickets sold compared to around 25 million last year.

As of June 30, we had 37 international theaters opened, mostly playing older library Hollywood titles and some local content.

As of July 31, that number of open theaters had grown to more than 130, and as of today, we have 184 theaters open internationally.

We now have theaters open in every country where we operate abroad.

It's very early days but the initial results from our international locations are encouraging, particularly with respect to food and beverage spend per person, which is holding up nicely and actually running well ahead of last year.

We're also especially encouraged by the performance of a local language sequel that just opened in Spain.

The sequel this year is actually driving more box office revenue even in these coronavirus-impacted times than the original did last year.

And the original was the single highest grossing domestic film in Spain in 2019.

Hopefully, this is a harbinger of what can occur when new Hollywood titles are released in the U.S. and overseas starting later this month.

But with virtually no revenue generated in the second quarter, our bottom line financial performance in the second quarter is almost irrelevant.

What is crucial is how we performed against our priorities, namely the preservation and enhancement of liquidity, the reduction of debt and the management of our expenses.

From a liquidity point of view, as of June 30, 2020, we had $498 million of cash, plus $10 million of restricted cash.

Our total cash burden for the second quarter was $292 million, precisely within our targeted monthly cash burn that I guided you to on our last call.

In early June, as you know, we announced an exchange offer to our senior subordinated debt holders and other related transactions which closed on July 31.

More than 87% of the senior subordinated note holders elected to participate in the exchange, resulting in the issuance of approximately $1.46 billion of new second lien notes that are not due until 2026 and the elimination thereby of $555 million of debt.

In addition, as part of this overall transaction, we raised $300 million of new cash prior to transaction costs, premiums payable and original issue discount from the issuance of new 10.5% first lien notes due in 2026.

$200 million of this new cash was raised from subordinated debt holders and $100 million was raised from Silver Lake.

Also, in conjunction with the debt exchange, the $600 million of 2.95% Silver Lake convertible notes have been restructured to first lien convertible notes with a maturity extension from 2024 to 2026.

And a reminder that the coupon on these Silver Lake notes remains unchanged at an extremely attractive 2.95%.

The transaction also calls for the interest expense on the exchange notes to be picked due in 2026 instead of cash due now for the first 12 to 18 months.

This saves the company between $120 million and $180 million of cash outflow -- outlay in the coming 4 to 6 quarters.

In summary, this debt exchange transaction meaningfully improves our financial position in 4 key areas: one, reduces net debt by $555 million; two, provides incremental liquidity of $300 million before discounts and transaction costs from the issuance of the new first lien debt; three, provides $120 million to $180 million of enhanced liquidity from the ability to defer cash interest payments on newly issued second lien debt for the first 12 to 18 months; and four, extends maturities for approximately $1.7 billion of debt that was previously due in 2024 and 2025 through to 2026.

As a result, our liquidity runway, should theater operations remain suspended, is extended through 2021.

Switching topics, I'd like to provide an update on our negotiations with landlords.

Our strong and long-term landlord relationships remain the foundation upon which we have successfully been able to defer or abate the vast majority of rent owed during the second quarter.

Currently, we have over 900 distinct theater leases, and we have already reached agreements on approximately 75% of our leases to defer or abate rent.

Each agreement is unique.

But you should note that in the second quarter, the vast majority of the rent expense shown on the face of the income statement has been deferred with repayment terms mostly around 24 months, although a number of agreements have repayment periods that extend through the remaining lease term, which, in some cases, is in excess of 10 years.

As I previously mentioned, the terms that we have agreed with our landlords are generally confidential and specific to particular facts and circumstances for each landlord and each theater.

While future cash rent payments will depend on our ultimate reopening schedule and level of attendance, we expect that a sizable portion of the rent reflected in the income statement for the third quarter will also be deferred.

Shifting to capital expenditures.

We have slashed capital expenditures to minimize -- to the minimum maintenance levels while theater operations remain suspended.

We've halted all but essential maintenance CapEx and growth CapEx that is associated with projects that were committed to prior to the onset of COVID-19.

During the second quarter, our CapEx spend was only $26.1 million, net of landlord contributions, most of which was committed prior to the outbreak of the pandemic.

This spend is $85.4 million lower than the same quarter a year ago.

We continue to expect 2020 net CapEx to be between $130 million and $160 million.

Finally, before handing the call back over to Adam, it's worth noting that we are using these unprecedented times as an opportunity to intensely examine literally every category of our spending and all plausible opportunities to enhance our efficiency and improve our profitability for the longer term.

While the closure of our theaters is temporary, the learnings and the actions that we are taking will have an enduring benefit for AMC.

Adam?

Thank you, Sean.

In response to the unprecedented environment that we find ourselves in, we have taken bold and decisive action to get through this period of extended suspended operations to best position AMC for the future.

Many of my personal friends and business colleagues graciously have asked me in recent months how stressed am I feeling or how am I holding up or something like that, given the tough hand that we in the movie theater business have been dealt.

Ironically, I have been able to reply each and every time that I honestly haven't felt any pressure because if we want AMC to get through this, it was just so obvious to us exactly what we had to do, and so essential that we get the things we needed to do actually accomplished and to do so expeditiously.

The lack of doubt made it easy to proceed.

Dating back to March, in a very short period of time, this is what AMC has done, 8 crucial steps absolutely necessary which enabled us to move forward: one, we suspended operations and mothballed a multibillion-dollar global enterprise with 1,000 locations spanning 3 continents in only a week.

Two, we reduced our capital expenditures and operating expenses so dramatically, while simultaneously stepping up our cash management efforts with such stringency that our sustained cash outlays were cut by an incredible 80% to 90% in just a matter of weeks.

Three, in April of 2020, we raised $500 million of new public debt, we needed that cash.

Four, we renegotiated hundreds and hundreds and hundreds and hundreds of theater leases the world over.

In addition to deferring and abating rent in 2020, we took this opportunity to permanently lower some rent agreements going forward.

Not talking about the reimbursement of deferred rent dating back to Q2 or Q3 of this year, but looking at ongoing lease contracts, we already know, for example, that our rents owed for 2021 operations, and for essentially all the years thereafter, will be permanently lowered by at least $35 million per annum as a result of these lease renegotiations.

And discussions and negotiations with landlords are still ongoing and continuing in many cases.

Five, John just took you through the successful bond exchange offer, which reduced our debt, increased our cash and extended our maturities.

I want to take this opportunity to thank our investment bankers and attorneys, who so ably helped us through this complex transaction, namely Moelis & Company and Weil, Gotshal, respectively.

Thanks also to all of the firms who thought long and hard about this effort to strengthen AMC.

Our senior subordinated noteholders, led by PGIM and H/2, deserve special mention as they, too, worked incredibly hard to buttress AMC's future.

Many of these noteholders provided AMC with much needed additional cash as did Silver Lake.

Their actions were consistent with the support that AMC has enjoyed over many, many years from all of our stakeholders, up and down the capital stack from top to bottom for which we're all so truly grateful.

Six, John also just related our pouring through every operating expense line and every staff position in our headquarters and at our theaters to reduce our cost structure going forward for the long haul.

We'll be talking about this in more detail on our next quarterly call.

But you should know that our target for a reduction in operating and capital expenditures is in the several hundred million dollar range.

As part of the effort to reduce cost, it's always painful to have to say goodbye to some truly talented managers.

But under these unique circumstances, we had no choice but to reduce staffing at our corporate headquarters by about 1/3 fewer people going forward as compared only a year ago.

Our theater management teams have similarly been streamlined.

We are certainly getting leaner than we have ever been before.

Seven, we developed our extremely important AMC safe and clean protocols consulting with the Clorox Company and faculty of Harvard's prestigious School of Public Health.

This all being done with the overarching goal in the near-term of resuming theatrical operations, safely and responsibly.

And finally, eight, we just negotiated an industry-changing agreement with Universal that will reshape exhibition for years to come and will do so in ways that we believe will materially benefit AMC's shareholders.

There are signs that we're starting to emerge from the deepest abyss of the pandemic as our international theaters began reopening over the last 60 days.

Just yesterday, we welcomed back our 1 millionth paid guest since resuming operations in our international markets.

And we are literally counting the days to our U.S. reopening expected to commence only a couple of weeks from now in the United States.

Let's turn to the subject that many of you are now thinking about, our agreement with Universal, what it means for AMC and what it means for exhibition more broadly.

As you know, from our previous announcement, this is a multiyear agreement that provides for theatrical exclusivity for all Universal pictures and focused features, theatrical releases for at least 3 weekends comprising at least 17 days, the time went as much as 80% of a film's theatrical viewing has already taken place.

After which time, the studio will have the option to make its titles available across premium video-on-demand platforms, known as P-V-O-D or PVOD, including our very own AMC Theaters On Demand accessible at the amctheaters.com website.

Universal has said publicly that not all of their titles will move to PVOD after 17 days, but admittedly, it does provide Universal with that option.

Even though the Universal agreement is about a week old, we already have offered similar arrangements to all of our studio partners.

Undoubtedly, some will and some will not take us up on our offers to do the same.

So why did AMC do this?

Here's the answer.

We cannot just live in the past, fear change and hope that it will never take root.

Sometimes, one has to stare change in the face, recognize that it has or soon will arrive and reshape it to one's own benefit.

That's what we've done at AMC.

Yes, the press seemed focused on Universal's experiment with Trolls back in March, but we were looking at much larger and more important trends, take a deeper look at what has happened of late.

Netflix has outbid major studios for one script after another.

Disney took Hamilton, Artemis Fowl and now Mulan to Disney+.

Warner took SCOOB!

to HBO MAX.

Paramount took SpongeBob to CBS All Access.

Sony sold Tom Hanks' new Greyhound to Apple TV+.

Exhibition will not receive $0.01 on any of these movies.

Sure, some hope that this is merely a short-term coping with closed theaters during the virus, but we saw a changing industry where we at AMC needed to figure out how to be included in the economics of all film viewing whether it takes place in our theaters, on our own website or on people's couches at home.

Incidentally, our capital cost invested in someone's couch at home is precisely 0.

Although the financial terms of the Universal agreement are confidential, I can tell you that the agreement allows AMC to participate handsomely in the entirety of the economics of this new structure, including receiving a share of each film's PVOD revenue stream, whoever may be the retailer as well as receiving considerable additional economics when the film is retailed on our own AMC Theaters On Demand service.

AMC benefits in 3 ways with this new Universal agreement, and hopefully, with other studios where we do something similar.

One, we now will be cut in, included and paid when Universal movies go to the home early.

Two, hopefully, the market will expand.

Think about this very carefully.

Of the hundreds of movies released last year in 2019, pre-COVID, only about 15 grossed more than $150 million domestically.

Only another 15 or so grossed between $100 million and $150 million domestically.

That means that even though movie theaters sold well more than 1 billion tickets in the U.S. and Canada last year, which is a stunningly high number in total, only 30 movies in total sold more than about 10 million tickets in the U.S. and Canada, only 15 movies in total sold more than 15 million tickets in total.

That in 2 countries of more than 340 million people in total.

How much can moviegoing and movieviewing increase with PVOD?

As AMC will meaningfully share in that new revenue stream, this potential dramatic expansion of revenues should protect AMC against the cannibalization that admittedly will occur as some people shift from theatrical viewing to home viewing instead.

This is something that we have very carefully researched, very thoughtfully modeled and something that our company has been thinking about for almost 5 years.

And the third way that we benefit from PVOD is this, PVOD creates the added potential for increased movie studio profit from that added home viewing of theatrical movies.

More profitable theatrical movie making should logically, in turn, lead to more theatrical movies being made.

The reaction of one major studio to our Universal agreement was that AMC would take some incoming flack.

But more importantly, and I quote them verbatim, "Adam, you're going to take heat.

But with this action, AMC just saved Exhibition.

Honestly, we were going to greenlight fewer and fewer theatrical movies.

Now with an added revenue stream to studios, we'll be greenlighting more and more theatrical movies instead."

No doubt, some of you may be interested in our reaction to Disney's Mulan announcement this week.

I'll save the sharing of our view until one of you ask us during Q&A.

Before we open up the call to your questions, in summary: One, AMC remains focused on driving down costs, preserving and increasing liquidity and reducing debt as we manage our way through the current market challenges.

Two, the safety and well-being of our guests is enormously important.

And those of you who visit our theaters when they reopen, will see for yourself that AMC is all over this issue of providing a clean, safe and enjoyable experience at our theaters as we resume operations.

Our marketing activity will be extensive to convince moviegoers to get out of their homes and apartments, where they've almost been in prison since March, and see movies once again at AMC's and Odeon's theaters in our big seats, with our big sound and on our big screens.

Three, AMC is not afraid of change.

And as said, we believe that we are forcing that inevitable change to bend in ways that will serve AMC well and will benefit AMC shareholders as a result.

And four, finally, as we celebrate AMC's 100th anniversary, we're thankful to all those institutions standing by us during difficult times.

We're especially thankful to the dedication and commitment of our management group and our associates who have been and continue to be working tirelessly with great dedication and a great personal sacrifice to allow us to emerge from this crisis as a strong industry leader, ready to provide thrilling experiences for audiences at home and abroad as we've done for decades and decades and decades in century #1 now behind us.

With that, thank you for listening.

We now look forward to taking your questions.

Operator?

(Operator Instructions)

The first question is from Eric Wold with B. Riley.

A couple of questions is one -- probably for Adam, I guess.

I guess a follow-up question on the Universal deal.

Obviously, you spoke with Universal extensively on this digital modeling.

How do you think about -- how should we think about the decision that we made as to whether or not a film is pulled after 17 days or not?

I'll leave it to you to answer if you want.

I guess -- and how would that be communicated to consumers.

Is this communicated well ahead of time?

Will they be a movie showing on the screen so they know it's on PVOD in 10 days?

Will it not be announced until right the release to PVODs?

I just want to make sure that they're not obviously adjusting their behavior as much as they can with advance notice.

Thanks, Eric.

And I really appreciate the question because it gives me an opportunity to make sure that everybody on the call understands what we actually did.

First of all, under the Universal agreement, no movie is being pulled.

The movies that go to PVOD at 17 days are going to stay in theaters, and we expect to still sell a whole bunch of tickets at our theaters even when movies are available on PVOD.

There are certain advantages to watching a film on a 40-foot screen than watching a film on a 40-inch screen.

Our company has invested billions of dollars over the past few years to make sure that our theaters are in great condition, and that our fleet of theaters appeals to consumers.

Similarly, I'll remind everybody the conventional wisdom about streaming and PVOD and all this before the pandemic was -- by the way, conventional wisdom from people who I disagree with but that's a different issue -- was oh, theaters are an anachronism, why would anybody go to a theater?

People want to stay home.

If the pandemic has taught us anything, it's that people would do anything to get out of their house or their apartment.

If you told me right now I could go spend 3 hours at a hardware store, I would tell you, that's an exciting afternoon.

And so movies aren't going to get pulled from theaters.

They'll stay in theaters.

We'll continue to sell tickets.

On that score, yet another reminder, every house has a kitchen, every apartment has a kitchen, people go out to restaurants all the time.

On the issue of when people find out that a film will be going to PVOD, remember that not all films will.

So already you've unpredictability as to which films are going to go PVOD and which films are not going to go PVOD, especially if some other studios take very few films to PVOD, and even Universal itself has said that on many of their films, they won't go to the home in 17 days.

By contract with Universal, they are not allowed to talk about a film being released to the home or to tablet or to cellphone or whatever other distribution channel, to your laptop, I guess.

They're not allowed to state that until after the 10th day of theatric release.

So the only advertising for a movie through its first 2 theatrical weekends, when well more than half of the movie's revenues are booked, we'll say only in theaters.

It's only the Monday after the second weekend where Universal can start talking about the fact that this -- starting this coming weekend, the movie would be available in theaters and at home.

And finally, one last important point in -- buried in the press release -- no not buried, it was there, but I'm not sure everybody focused on it.

In the press release announcing the agreement, we contractually reaffirmed with Universal the 74-day electronic sell-through window and the even later video-on-demand window than that.

So other than the PVOD channel, those cheaper distribution vehicles that exist today for consumers to watch movies in other than theaters, are not going to slide forward.

And there's been enormous discussion and pressure within the industry over the past 4 or 5 years to bring those windows forward.

Those windows have been fully protected under the terms of the Universal agreement.

Perfect.

And just one last follow-up.

As you think about the theaters reopening in the coming weeks and you think about kind of the combination of the operational changes you've made to reduce expenses going forward, including kind of offset by some of the expected pressure from enhanced cleaning procedures, et cetera, how should we think about, on a consolidated basis, the best you can domestically, what kind of a breakeven level attendance would look like?

A simple question, complicated answer.

First of all, on enhanced cleaning costs, they are sizable.

I've seen others of our competitors state what they think they are for their chains.

We think they are appreciably higher, in part, because we're taking this so seriously.

We've got electrostatic sprayers and HEPA vacuums and upgraded MERV-13 air filtration filters that are quadruple the cost of what we had previously.

We can't eat all these costs.

Ultimately, we're going to have to pass these costs on the consumer as all businesses pass costs on to the consumer.

So I don't think you necessarily should assume that enhanced cleaning costs are only going to come out of our bottom line.

In terms of breakeven, it's a question I'd like to save for the next quarterly call when we can exactly and precisely identify our cost-cutting targets for 2021.

The -- as I said, our ambitions are high.

We already have $35 million found in rent reductions.

We've already knocked several hundred people off the payroll, and we're cutting costs all over the place.

So we'll be looking for hundreds of millions of savings, either in capital expenditures or operating expenses, and by definition, where we land will also affect the breakeven point.

But let me just share with you this number.

The real question is, are we better off open or closed?

And by our calculation, if we're more than about 25% of last year's volumes, we're better off open than shut because the theaters would be cash positive.

They may not be generating as much EBITDA as they generated if we were -- had last year's attendance level, but they'll be generating contribution to overhead, contribution to landlord rent payments.

And I haven't seen any research that suggests that with new Hollywood content, with new titles that we'll be doing less than 25% of last year's attendance levels for any lengthy period of time.

So I think that's the most important number.

If we cross 25% of last year's levels, we're better off open than shut.

And of course, the sooner we can ramp up to a much higher attendance level, the sooner -- it won't be an issue are we better off open than shut.

It will be an issue of how much EBITDA are we generating and driving the business forward.

Next question is from Jim Goss with Barrington Research.

A couple more on the topic du jour, Adam.

When you say 80% of the revenues are -- box office revenues are usually generated in the first 3 weekends, I wonder if that figure changes as it gets more compressed, if people do know that PVOD will be available.

And I guess that's always been the whole argument against a longer window because even though the majority are done upfront, that's because of the longer lag.

And so I wonder what you think that might come down to.

And what sort of PVOD sell-through do you think you'd need to make up for whatever it is you might give up?

And are you suggesting today that whole issue might involve not just that particular film, but the broader group of films, so that's how -- part of the rationale as well?

And maybe go with that first.

Okay.

So on the 80% figure, that number's a pretty good number but it does vary title by title.

And on some movies, it's only half of the business is done in the first 3 weekends.

On other films, it's almost 100% of the business is done in the first 3 week -- by the end of the first 3 weekends.

Obviously, the bigger the film, the more successful the film, the more of its revenues will occur after 17 days.

Having said that, the bigger the film, the bigger the potential theatrical revenue to come, that could actually cause a studio not to want to take the film to PVOD in 17 days.

They might prefer to wait and milk the exclusive theatrical window for all they can get.

Remember, there's not a requirement here that all movies go to the home in 17 days.

It's an option on a film-by-film basis for each and every studio who participate in something similar.

And we're putting them in the driver's seat because, as I said, we believe that we're well compensated if they go to the home.

How much we need to essentially breakeven from cannibalization really depends on how big PVOD becomes or not and for what films is it allocated.

In some circumstances, we would need for the incrementality to be very small for us to be ahead of the game on -- of the admitted cannibalization that's going to come.

Some people clearly who would have seen it in a theater are going to watch at home instead.

But we're getting paid for everybody who watches at home.

And as I said, we're getting a meaningful chunk of that revenue.

And we do need some incrementality for this to prove to be a wise decision for AMC.

But it's a reasonable amount of incrementality that we need.

We've modeled this with very high cannibalization rates.

And based on our agreement with Universal, we come out just fine.

The terms are confidential, so I'm not at liberty to say what they are.

And so I -- it would be wiser if I duck the third question, but as I said, we've modeled this very carefully.

It's gone through a tremendous amount of analysis.

And we're pretty sure we're ahead of the game, not behind the game.

Okay.

I appreciate that.

A couple of others, I'll give you the chance to talk about Mulan as you seem to be interested in.

And also, is there room for the other exhibitors to do a similar deal?

Or do you have first-mover advantage, and they would not -- there would not be enough left that one of the studios would want to cut in more than one on the PVOD issue?

I'm expecting this is going to become an industry standard.

So I would expect that some of our competitors will do it, not all.

That's going to be up to the heads of those other exhibitors and the heads of each studio as to -- that's a private negotiation between lots of parties, multiple studios, multiple exhibitors.

Our agreement is U.S. only at the moment.

But we did say in the release that we expect this to go to some European territories over the next -- in the coming weeks or months, we'll sit down with Universal and sort through that where it makes sense.

I do think you should assume that we got a first-mover advantage because we were a first mover, and first movers do deserve to get a first-mover advantage.

As I said, we think we made an attractive deal for AMC's shareholders, and we know it's an attractive deal for Universal.

This is something they've wanted to do for a very long time.

And it's interesting, with all the letter writing and press statements, privately, our discussions with Universal were always amiable, respectful.

We sell more tickets for Universal than anybody on the planet.

We want Bond in our theaters.

We want F9 in our theaters.

We want Candyman in our theaters.

And there might have been a little posturing but there was no ill will between Universal or AMC during this whole process.

And coming out of this whole process, both AMC and Universal are both all smiles and very much committed to continuing to sell a lot of tickets for AMC.

Speaking of our great friends, if I'm being honest, if I just talk about Universal, and I'm going to talk about Disney, I would be really remiss if I just didn't say the word Warner Bros.

Because I think Warner Bros.

is doing something heroic for the exhibition industry by releasing Tenet in a few weeks, assuming it doesn't slip, but sounds pretty good for a Labor Day weekend.

And I just would like to thank everybody at Warner, Ann Sarnoff, Ron Sanders, Jeff Goldstein, Andrew Cripps, Toby Emmerich.

Warner Bros.

is right out there on the edge for exhibition.

Now having said that, surprisingly, you might think I'm disappointed that Mulan is moving.

But AMC has no bigger friend in the planet than Disney.

We sell more tickets for Disney than anyone else in the world.

Disney provided us with more content last year than any other studio in the world.

It's a symbiotic relationship between Disney and AMC, where both companies will thrive if each company thrives.

Mulan was supposed to go to market and have its premiere in March.

It got delayed and delayed and delayed.

Their company just announced earnings.

Just like AMC is under duress, Disney is under pressure, too.

And at some point, they've got to monetize their movie products.

They have a huge slate coming for the balance of 2020.

We will benefit mightily from Disney titles in 2020, with or without Mulan.

So we fully understand that we -- what they did.

We would have preferred that they kept the movie as a theatrical movie only.

But I think our biggest reaction overall to the Mulan announcement is how much it reaffirms our wise and smart decision last week to take the risk and sign on to PVOD because, right now, Disney's choice under the current world order are these 2 choices: they can take it to the home or they can take it to theaters.

They can't do both.

Under the PVOD model, they could have taken it to theaters and taken it to the home, essentially at the same time, admittedly with this at least 17-day lag where a huge percentage of Mulan's revenues theatrically would have been booked.

As we go down the road with studios like Disney, I'm hoping that we take them out of the Hobson's choice of having to choose between Disney+ or theatrical.

I'd like to give them the opportunity to do an and not an or.

And I assure you that we would make far more money out of Mulan if that movie had been released to our theaters and then to PVOD, especially if we got a cut, than we would benefit from Mulan just going straight to the home and our not seeing a penny from it.

Interesting point of view.

I do realize that some of our competitors are anxious about this change.

Change is always difficult for some to cope with.

But as I said, we researched it.

We've modeled it.

We thought about it.

We've argued it.

We've debated it.

And we're sure that we're coming out ahead.

Okay.

They have an extra issue because you have to pay for a Disney+ subscription and pay the extra $30.

So that makes it even more interesting because it limits the audience.

Well, that's true.

That's one reason why theatrical release would still be attractive.

And right now, they're prevented from doing the theatrical release.

But if the AMC-Universal thing becomes an industry standard, they would not be.

And by the way, the Universal-AMC agreement calls that movies cannot be retailed for less than $20.

You'll notice that Disney chose to retail Mulan for $30, $29.99.

That's interesting to us because that gives our theaters an easier point of price comparison.

The other thing that we are especially relieved about is until the Mulan announcement, the Disney+ model was the Netflix model.

It was you pay some dollars a month and you have unlimited content.

There was nothing transactional in it.

So it'll be hard to figure out how we might share in Disney's Disney+ revenue stream.

But what Disney just created with Mulan is a transactional PVOD release, where the consumer does have to pay a premium to watch Mulan.

That's a very good thing for us because they -- if they so choose, they could strike an agreement similar to what we've done with Universal without compromising any of the economics of the basic Disney+ option.

(Operator Instructions) Our next question is from Meghan Durkin with Crédit Suisse.

I just wanted one for Adam and one for Sean.

If other exhibitors, Adam, don't sign on to a similar deal with Universal, how do you envision that proceeds?

Like Universal then, would they sort of segment their titles and deliver the ones that they're aiming for PVOD to just you, and then the tentpoles go to everyone?

How do you envision that would go?

And then I have a follow-up question for Sean.

I think that's a question more smartly directed to Universal than to AMC.

But I can tell you that under certain scenarios, if other circuits do not reach an agreement with Universal, then AMC stands to benefit even more and, potentially, dramatically more, than we do in an environment where everybody signs on to the AMC-Universal model.

But I think that's smarter for me to let Universal comment on the distribution of their films and their alliances with other exhibitors.

Got it.

So Sean, I just wanted to clarify on the comment you made on liquidity through 2021.

Does that mean you have liquidity through the end of calendar '21?

And then just to -- I just wanted to touch on the food and beverage strength that you're seeing overseas.

Where is that coming from?

I'm assuming you're not selling any expanded menus currently.

Is there alcohol that's fueling that?

Anything you can give us on that?

Sure.

So from a liquidity point of view, one thing I'll give you that might be quite helpful.

So we disclosed that at the end of June, we had $498 million of cash available to us.

Pro forma for the debt exchange transaction that goes up to over $700 million of cash.

And when you think about then our run rate, assuming that theaters remained closed, right, throughout the remainder of 2020, so we -- in that scenario, we continue to spend roughly $100 million a month.

That will take us into early 2021.

Obviously, we benefit from the -- as a result of the debt exchange transaction, we benefit from the interest savings from PIK interest.

That kicks in at various points in time during the year, so that will give us some additional liquidity as well.

So that should give you an idea of kind of how things look should everything remain closed right through 2020.

And before Sean goes to the second question, I just want to weigh in, Meghan.

We're not done yet.

We have identified other ways to bolster our liquidity if we need to bolster our liquidity even further.

And these are options that we think are well within our grasp.

But of course, the modeling that Sean just described assumes that all of our theaters are shut.

Already, that's not true, right?

Already 1/3 of our theaters are open in Europe.

We think all of our theaters will be open in -- by Tenet's August 26 release.

And we ought to be able to open 2/3 of our -- at least 2/3 of our theaters this month in the United States.

So we're not going to be shut.

So if our theaters are indeed cash-positive, that even further pushes the runway out later into 2021.

I really do think that, subject to never relying on a forward-looking statement, which is a good time to bring that up again, I think we've survived the corona crisis.

And now we just have to get back to running the company really well.

And I say that either because of the liquidity actions we've already taken or the liquidity actions that are within our grasp if we need to take more.

Now on food in Europe, you want to take that?

Yes.

So just a couple of points on food and beverage in Europe.

What's interesting there is that some countries, because of the regulations, the audience is required to wear masks.

And in some countries, they aren't.

But we're seeing that food and beverage strength across both, and actually in the countries where audience is required to wear masks, Spain, Italy, I think Germany, food and beverage growth is really in line with the rest of Europe.

So that's really pleasing to see.

What we're seeing is really in terms of transactions, a higher percentage of audience is purchasing food and beverage.

There is a limited menu in certain of the countries, but it's just a higher percentage of people purchasing food and beverage.

Bear in mind that, obviously, the attendance is lower than normal level just because of the library content that we're showing.

So it's fairly early stages.

But we're very encouraged by this.

And hopefully, we'll see similar trends in the U.S. when we open here.

Never the underestimate the appeal of the aroma of popcorn slathered in healthy butter and salt, washed down with a Coca-Cola.

Next question is from Jason Bazinet with Citi.

I just had a question regarding some of the covenants in your -- in the new first lien bonds.

The language seems to suggest you might be contemplating asset sales potentially in Europe.

Is that a reasonable interpretation?

What -- look, what I will say is the covenants were negotiated with our first lien bondholders to give us flexibility to do transactions that may be helpful or are ongoing liquidity going forward.

Yes, according to the covenants, there are opportunities to sell assets.

We're allowed to do that.

If you look at the details in the covenants, there are certain restrictions on the cash flow from those asset sales in terms of what percentage goes to repay debt and what percentage stays in with the company.

But we do have the ability in some -- we do have the ability to sell certain assets.

And we do have the ability to keep some of the proceeds from those sales, yes.

Next question is from Eric Handler with MKM Partners.

So I want to touch on the Universal deal a bit more.

So when I'm doing the math, when you look at the average ticket price you had last year and the average spend on food and beverage, and then took your margin on both of those lines, I get to a per person gross margin of $9.23.

If you add on the profit associated with digital ticketing fees that goes even higher.

Now I can't imagine universal's willing to give you $10 when they're only charging $20 for PVOD.

So unless you're getting a substantial reduction in film rents, how are you making profit on a Universal deal?

And then secondly, are you getting paid for each transaction that occurs for PVOD by Universal?

Or are you just getting paid on the PVOD transactions done in ZIP codes where you have theaters?

So -- like, the terms are confidential.

So I can't, as much as I'd like to help you model.

Your numbers are right, right?

We're -- for every cannibalized fellow, male or female, we lose $9.

It could be more if they're coming in Manhattan or Los Angeles.

And we're getting paid something on PVOD attendees.

I'm not allowed to tell you what that is.

But since we can do the same math that you just did, I've been saying for 4 years, we would never do a PVOD deal that was bad for our shareholders.

So I think you should assume, without being specific, that we knew the same math that you're aiming at, and we would not have signed on to an economic program that we thought was a negative.

And to clarify your final question, I know I'm dodging a little bit, but I can't release the terms.

So I can't release the terms.

I can't release the terms.

But we're getting paid on regardless of whether the PVOD customer would have gone to our theater or not, would have -- lives in a ZIP code near our theater or not.

But of course, the exact structure of that and the other components of the agreement are not released and you don't actually have -- you have the loss of the cannibalization that you can calculate but you don't have the inflows.

And it's the combination of the incrementality -- the payments on incrementality, the payments in total against the cannibalization loss, and I think you -- I've said that we've researched it, and modeled it and analyzed it as carefully as we can, we think we're ahead of the game there.

But what's not even in our calculus, if this causes more movies to get released, to be greenlighted and released theatrically, then we're so far ahead of the game here, so far ahead of the game.

Because as I -- is in that quote that I shared with you, and the examples that I gave you of so many -- what could have been theatrical movies not being released theatrically, our industry was facing a circumstance, not just during this PVOD time, but looking ahead where we might see fewer theatrical movies being released.

And if fewer theatrical movies are being released, whether there's PVOD or no PVOD, theatrical attendance will be lower, theatrical revenues will be lower.

We've got a 25% market share in the United States.

That's very meaningful to AMC.

So it's extremely important to us that studios continue to release movies and if we can provide them with incentives to produce -- to release even more movies to first make and then release even more movies, that's where we -- that's -- that dwarfs the PVOD economics, positive or negative.

But as I said, we think that the PVOD economics on their own are positive for AMC based on the deal that we cut.

Got it.

And then one question for Sean.

When you think about your stated interest, not the cash interest, but the overall interest that you'll be paying each quarter, you'll have a reduction because of the redemptions that are being done, but you'll see an increase because of the new debt that you now have.

So net-net, what is your as-reported quarterly interest payment going to look like?

And what is -- what will be the cash component of that?

So the cash -- let's start with the cash component.

The cash component, if you assume that we pick interest on the new second lien debt, the cash component are when you compare before the debt exchange versus after the debt exchange and taking into account the new incremental first lien debt and your cash interest will be lower, lower by probably around $20 million, $30 million on an annualized basis, right?

Because, obviously, you've got the significantly lower interest that you're paying on the second lien debt because of PIK, but you've also got all the new interest that you're paying on the new first lien instruments.

When you look at the income statement amount, the interest is going to be a little bit higher.

It's roughly about 115, 120 basis points higher on the new second lien debt.

It's quite apples-to-apples basis, so it's about that 120 basis points higher just given the 10% versus the average of 6% and then adjusting for the exchange ratio.

So you've got that impact, and then you'll have the impact of the new first lien debt so you can kind of calculate it from there.

And everyone, we have time for one more question.

So our last question is from Chad Beynon with Macquarie.

This is Aaron on for Chad.

I just want to talk about A-List for a little bit.

Given you're...

You want to talk about what?

You broke up a little.

You want to talk about what?

Say again?

Can you hear me?

Yes.

I wanted to talk about A-List a little bit.

Sure.

Yes.

Given your success with the program last year, are there any features you're thinking about rolling out in the near term that you think could help drive attendance or engagement upon reopening?

Yes.

And we're going to share them with A-List members first before we share them with all of our competitors who are going to get a copy of this transcript of this call.

But you should assume that we are going to be very aggressive in marketing offers to A-List members, the Stubs members and through our general customer base at large because we need to get them back in our theaters.

And when we get them back in our theaters, they will just be surrounded by a massive amount of AMC safe and clean paraphernalia.

And we hope that they will look around our theaters and say, "The theater has never been cleaner, and I felt good there." And so if we get them in our theaters, we think the experience that is created in our theaters will accelerate word-of-mouth as they tell all their friends, "I went to a movie theater and, my goodness, that was -- I enjoyed the movie and the theater felt great." And to do that, we've got to be very aggressive to win people back.

So -- and I think there's -- I think there would be a general agreement on this call that if you look at the past 5-ish years, AMC has been a really good consumer marketer, whether it's A-List or Stubs or other things that we've done, we're a really good marketing organization.

Our marketing department continues to blow me away with how good our marketing materials look, the power of their thinking and designing offers for consumers.

So without necessarily revealing exactly what they are, you should just assume that the words hyperaggressive are going to -- should be connected to AMC in terms of convincing moviegoers to come back to AMC once we reopen in the States.

Got it.

That's helpful.

Last one for me.

As you think about the international operations, how do you think the recovery will be different from the U.S.?

I mean you guys have talked about the higher -- the strong CPP.

Any reasons why that shouldn't be the case in the U.S. as well?

No, there's no reason why the U.S. should or should not perform differently than Europe on food.

But I will tell you that within the various countries that we serve in Europe, even though it's the same continent, and a couple of islands off the Northwest Coast called England and Ireland, the performance country-by-country is very different country-by-country.

So if you ask me how the U.S. will perform versus Europe, the virus is under better control in Europe currently than it is currently in the United States.

So I think the ramp-up of attendance levels in Europe would logically come faster than it will come in the United States, but no one's going to know exactly what that ramp is until we open.

And we all can speculate, but there's not one of us on this phone call who really knows what the state of play of the virus is going to be in the United States in October or November or December.

We talk to our scientists and experts at Harvard and elsewhere almost every day, and we're hearing very encouraging signs about rapid testing, rapid inexpensive saliva testing, therapeutic treatment improvements, could you get the virus, the prospects of vaccines being close at hand.

I was on a Harvard call yesterday, for a couple of hours with Sanjay Gupta and Dr. Anthony Fauci, who were sharing with some Harvard insiders their views as to what's coming.

There is a lot of talk that vaccines and therapeutic treatments and rapid testing are close.

There's also a concern that the virus is obviously not as well under control in the United States as it is in some other countries abroad.

So this is something we're all going to learn together.

This is Sean.

I just want to come back to one thing.

I was just looking at the numbers on the interest question from the previous question.

I just want to clarify, right, the new first lien debt, the $300 million of first lien debt, 10.5%, that's $31 million of interest payment, cash interest payment.

The cash savings that we get on the previous subordinated debt of $120 million, I'm talking everything on a 12-month basis.

So effectively, from a cash basis, as a result of the transaction, the interest expense is down by about $90 million.

Then you have the April financing as well.

Sure.

So I'm just performing for the debt exchange.

The April financing, obviously, you've got another $500 million at 10.5%, which you would adjust for as well.

I just wanted to make that clear.

Operator, we'll take one more question if there is one.

There's nothing in the queue at the moment.

(Operator Instructions) Very good.

Then we'll let people go.

I leave you with one and only one thought.

We are very close to theaters opening soon in the United States.

See you at the movies.

See you at AMC.

Thank you all for joining us today.

And everyone, that does conclude our conference call for today.

We thank you for participating, and you may now disconnect.