AMC 電影院 (AMC) 2004 Q1 法說會逐字稿

Good morning.

My name is Michelle, and I will be your conference facilitator today.

At this time I would like to welcome everyone to the AMC Entertainment International fiscal year 2004 first quarter conference call hosted by Peter Brown, chairman and Chief Executive Officer of AMC Entertainment International, Inc.

Any forward-looking statements contained in this call, which reflects management's best judgment based on factors currently known, involve risks and uncertainties.

Actual results could differ materially from those anticipated in the forward looking statement as a result of a number of factors include, among the others, the Company's ability to enter the various financial programs, the performance of the Company, competition and construction delays, ability to open or close theatres, or screenings as planned, domestic and international, political, social and economic conditions, demographic changes, increases in demand for real estate, changes in real estate, zoning, and tax laws, unforeseen changes in operating requirements, the Company's ability to identify suitable acquisition candidates and to successful integrate acquisitions into operations and the results of significant litigation.

During the call, reference will be made to certain non-GAAP financial measures as defined by regulation G of the Securities and Exchange Commission.

A discussion of these measures and reconciliations to the most directly comparable to GAAP measures is contained in the press release and is posted on the Company's web site.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period.

Analysts who would like to ask a question during this time should press star, then the number 1, on your telephone key pad, and questions will be taken in the order they are received.

To withdraw your question, press the pound key.

Thank you.

Mr. Brown, you may begin your conference.

Thank you, Michelle, and welcome everyone to the first quarter earnings conference call for AMC Entertainment International, Inc.

As Michelle said, I'm Peter Brown, Chairman and Chief Executive Officer.

Joining me are Craig Ramsey, CFO , Philip Singleton, COO, and Dick Walsh, Chairman, AMC Film.

I'll lead off the presentation today with a few comments on the quarter's highlights.

Craig Ramsey will then take us through the financials and Dick Walsh will then wrap up the formal part of the presentation with comments on film products.

All of us, along with Bill Singleton will then be available to participate in the Q and A. On that note, let's begin.

I hope by now you've all had a chance to review the press release that went out over the wire early this morning.

In terms of some of the key highlights, as you saw in the release, the quarter produced both records both in terms of revenues and adjusted EBITDA.

Now, Craig will go into this more in detail in a few minutes, but I just want to say that we feel very pleased to have posted these kind of results given the extra ordinary box office performance that we were up against last year.

Those of you may recall that focusing just on the June quarter of last year, that quarter was up a whopping 23% over the prior year.

Now, the fact that we were able to post these record results in the face of extraordinarily strongbox office we feel speaks volume to the quality of the AMC franchise as well as our management team.

Now, along with the record revenue and adjusted EBITDA results, a key margin that we watch, our adjusted EBITDA margin, increased by 120 basis points on a year-over-year basis for the quarter comparison, and again, Craig will go more into the details on that in just a few moments.

We continued on the positive free cash flow trajectory and that we've been on essentially since our fiscal 2002 year.

In the quarter we generated after-tax cash flow, now, that is the cash earnings that the business generates, our net-to-common plus the depreciation and amortization, of $40 million.

Now, when you subtract from this number our net capital expenditures of $24 million, you get free cash flow of $16 million in the quarter, and again, Craig will be speaking more about that in a moment.

On an LTM basis, this did translate into an approximate $75 million of free cash flow, again on an LTM basis.

Now, the free cash flow that we are generating is continuing to fuel an improvement in our credit profile, our leverage measured as net debt to adjusted EBITDA declined from the last quarter and stood at about two times at the end of the June quarter.

Last but probably most importantly and certainly not least, our asset quality continued to remain strong.

I now want to take a few moments to run through some of the key metrics that we use to measure asset quality.

Now, those of you who follow us regularly know that we segment our circuit screen portfolio into three types of theatre, megaplexs, something we call continuing multiplexes, and disposition multiplexes.

Now, we define a megaplex as generally a theatre of 12 to 14 or more screens with predominantly stated south seating and continuing multiplex is (inaudible) as a character such as a protected real estate profile that makes it a viable asset, at least through the remainder of the fleet line.

The disposition multiplex is a theater targeted for disposition.

Our megaplex percentage, which is shown on the slide in green, accounts for the greatest percentage of our circuit screen portfolio, 70% at the end of June.

Continuing multiplex account for approximately 23% of our portfolio.

Disposition multiplexes account for just 7% or 243 screens of our total circuit screen count.

The disposition screens are screens we've targeted proactively take offline over the next three years.

As we do this we will continue to improve the quality of our portfolio, and I'll talk more about that in just a few moments.

Now, the AMC Theatre circuit is characterized by modern high performance theatres that have a breadth of market coverage that include all of the U.S. markets.

Our screens typically gross more, that is generate more box office per screen, than most of the industry and our peer competitors.

This slide shows the AMC box office revenue per screen versus the industry on an LTM basis at the end of June.

As you can see at just over $350,000 per screen, again that is just box office revenue per screen, which account for 67% of the total revenues, the AMC circuit is 30% higher than the industry average of 269,000 per string.

Another indicator of quality and high performance is the number of theatres an exhibitor has in the top 50 performing theatres in North America.

We track this statistic very closely, look at it week in, week out.

As this slide shows, AMC dominates this metric with just under 50% of the top 50 theatres in North America.

Our next closest competitor has just 16% of the top 50 theatres in North America.

Now the AMC franchise continues to be in outstanding shape when it comes to what we define as quality market coverage.

One of the reasons why our quality is continuing to improve has to do with how we manage our portfolio, both on the new-built and disposition front on a simultaneous basis.

As noted in the press release we opened two new megaplex theaters in the quarter for a total of 34 screens.

The Burbank 16 in Burbank, California, and Alphemont (ph) in Mall 18 in Orlando, Florida.

Both theatres have got off to very, very strong starts.

In fact the Burbank theatre was the number 2 grossing theatre in North America this past weekend, and it's only been open barely a month.

One of the things that we've done so successfully over the past three years -- past few years and that we're continuing to do is to build great new theatres while, at the same time, take offline older, obsolete theatres, and this slide essentially illustrates that phenomenon.

Since 1995 we've added over 2,200 screens while taking offline 1,000 screens.

In the current fiscal year we're on track to add a little over 100 screens while at the same time disposing of about the same number of screens.

Through this simultaneous new build and disposition activity we've been able to lead our peer competitors and the industry in a key measure of asset quality, and that is screens per theatre.

As you can see on this slide at present, AMC screen per theatre count stands at 14.7 and is projected to grow to 15.6 in fiscal 2006, as we continue the process of simultaneously opening and closing screens.

On that note I'll now turn the presentation over to Craig Ramsey, our CFO, who will take us through the numbers.

Thank you, Peter.

But before discussing AMC's financial results for the first quarter ended July 3rd, let's first review some industry statistics for the quarter that will serve as a backdrop, and I want you to note that these stats are from the box office, do coincide with our financial reporting periods in both 2002 and 2003.

As you see on the slide, admissions revenues were up 2% from $2billion319 million in the first quarter of last year, to $2billion354 million this year.

Industry attendance was down to 387 million this year.

However, industry wide average ticket prices increases fueled the box office result, increasing from $5.50 last year to an estimated $6.90 this year or about 5% increase.

Now, performance of films grossing over $100 million was up in comparison to the same quarter last year, and as you can see on the slide, eight films released during the first quarter of this year accepted to exceed $100 million in box office and in total contribute $1 billion 539 million.

Compared to seven films last year during the quarter that contributed about $1 billion 360 million.

So the over $100 million films did produce more box office compared to last year, which resulted in the year-over-year increase in North America box office.

With that let's now look at AMC's results for the first quarter.

Our total revenues increased $11 million or 3% over the same quarter last year, increasing from 462 million to 473 million.

This record breaking performance was driven primarily by increases in average ticket prices which increased from $5.86 to $6.43 or a 10% increase.

Now, adjusted EBITDA increased 7 million or 11% over the same quarter last year, to a record-setting $69 million.

The momentum of the box office and our ability to leverage strong revenue performance with effective cost controls produced these solid results that exceeded expectations.

Now, although not shown on this slide, it's important to note, as we mentioned earlier, that we continued to produce increasing adjusted EBITDA margins, which were up over 120 basis points from 13.4% last year to about 14.6% this year.

Now, the next three data points on the slide relate to our stated objective of free cash flow positive results, and you can see that we delivered on that important initiative.

We define after-tax cash flow as our net loss, plus depreciation, amortization, and other non-cash items, and believe it represents the best picture of our operating performance from a cash generation perspective.

Our after-tax cash flow increased over last year by 2%, driven by the improvement in operating results that we just discussed.

Net cap ex is up a bit over last year over the prior year, but it's in line with our plan for the year, and it's indicative of our reduced level of new-build activity.

Our free cash flow is positive and note on the slide we show the last 12 months LTM results and the free cash flow of 75 million reflect a substantial improvement in this metric over the last several years.

This next slide we drilled down to some of the key drivers and analytics for the first quarter, and we see all are positive and confirm the strength of the first quarter results.

Screen additions in 2003 included two theatres in North America with 34 screens.

Remember, that the additions in 2002 include 641 screens that were added in the general cinema acquisition and in addition 18 new-build screens.

During the quarter we closed one theatre with 14 screens, and screen for opening and closings resulted in a year-over-year reduction in the average number of screens operated, as you can see, by about 1%.

Now, similar to the industry's experience, attendance was down during the quarter, leading to a reduction in attendance per screen.

As we noted earlier, our average ticket for the quarter experienced a year-over-year increase, which was the primary contributing factor to the theatre revenue per head increase that you see here on the slide at 8%.

In addition to average ticket increase, we also experienced a 4% increase in concession sales per head.

It increased from $2.39 to $2.48.

This resulted from an increase in units sold, which was a reflection of our initiatives to increase concession operating efficiencies.

We should also note that our theatre revenues do not include vendor rebates, as these have been consistently reported as a reduction of the associated concession cost.

As you see on the slide, our film exhibition cost decreased from 56.5% in the first quarter of last year to 55.4% last year.

You may recall that last year's film exhibition cost results are reflective terms on two very large pictures during the quarter being "Spider-man" and "Star Wars."

And as we have discussed before, our focus is on both percentages and dollar amounts of contributions, and in this case, we look at annualized amount of admissions revenues that we retain after paying our film cost, or we call it, as you see on the slide, film retention per screen, which you can see increased about 7%.

In combination with the strong revenue performance of the quarter, we also successfully managed the costs in our business, both operating and overhead.

As noted, our operating expenses, as a percent of theatre revenues, were reduced by approximately 90 basis points.

That reflects a very targeted cost savings initiatives.

Our operating expenses were down as a percent of revenue, and they were also down in absolute dollar terms.

Our recurring G & A, expenses were also down -- G&A were down, decreasing from 2.7% to 2.5%.

Now, because our fiscal year -- last fiscal year included 53 weeks, our reporting period in the current fiscal year may not line up with that of some of our peers, so as a result, we looked at what our operating results would have been on a 13-week period basis, ended June 26, and we found that our admission revenues in North America would have been flat, which would compare with a 2.5% decline for the industry.

Our average ticket prices would have been up about 9.2% and our concession revenue per head would have been up 3.5%.

Our film exhibition costs would have been down 170 basis points, and our theatre operating expenses, as a percent of theatre revenues, would have been down 20 basis points.

Finally, our adjusted EBITDA would have been up 3%, and our adjusted EBITDA margin would have been up 30 basis points.

Let's now talk about liquidity and capital resources.

We continued to improve the credit profile of our balance sheet and maintain financial flexibility to act on opportunities that are accretive for us.

Again, our balance sheet shows a strong cash position with over $260 million of cash at the end of the quarter.

We also had CIP cap ex, which is construction in process, on theatres that we have not yet opened, and this really represents a cash equivalent, and we'll look at this in a minute as we talk about leverage.

Our total debt was $730 million, reflecting our senior sub-debt, our capitalized lease obligations and our financing lease obligations.

Net debt in the amount of $469 million is down from the end of last fiscal year, it was $483 million on a net debt basis due to our positive free cash flow.

As you can see at quarter end, our leverage was a very comfortable two times, and if we adjusted it for CIP cap ex as a cash equivalent, it's reduced to 1.9 times.

With that I'd like to turn the program over to Dick Walsh who will provide some commentary on the film product outlook.

Thank you, Craig.

In terms of the film product outlook, we see kind of three things going on here.

We're going to have a favorable July box office when compared to last year.

We've had some strong openings in July, led by "Terminator 3,"Pirates of the Caribbean”, and "Bad Boys 2.”.

We also have three solid pictures opening today in "Lara Croft," "American Wedding," and "Spy Kids" 3.

August and September are going to be up against difficult comparisons, however.

The combination of “Austin Powers,” “Signs,” and “Triple X” were a strong impetus, carrying us through Labor day last year.

While we have plenty of titles this year, we see no single title having the grossing potential of any of those three pictures.

Finally, also absent is the "Greek Wedding" effect that expanded its number of runs heavily in September and actually went on to gross $70 million in that month alone.

So as we look to the end of the September quarter, we will have a favorable July but not enough to offset the comps for August and September.

The quarter for the industry will likely be flat to slightly down.

As we discussed previously, we believe that the industry will end the year with a box office that is comparable to the record of 2002.

And we ought to pause and reflect on that.

That would give us a second year in a row of 9 billion plus in box office, and we feel that that will continue to demonstrate the public's desire for film entertainment in the theatre environment.

Peter?

Okay.

I think at that point we're ready for the Q&A, Michelle?

At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number 1, on your telephone key pad.

We'll pause for just a moment to compile the Q&A roster.

Our first question comes from Bishop Cheen (pm) from Wachovia.

Good morning, Peter and Craig and Dick and Phil.

Good morning, Bishop.

Just a couple of questions.

I'm going to go right to the balance sheet.

Let me billboard three questions for you.

What do you do with all that cash?

That's certainly an upscale dilemma.

The outlook for ticket price hikes in your fiscal year going forward, you benefited from a pretty nice one so far.

And then in the net cap ex, I'd just like to know -- we like to keep track of the gross cap ex and what you're netting against?

I saw the reconciliation on your release, but I think you started with a net expenditure for capital expenditures, so I was wondering what grosses that up.

Okay.

Bishop, Craig will take, I guess, (b).

And (c), I'll take a shot at the cash, and Craig can add his point of view as well.

You know, this is a question that we expect to come up, I think it was asked last quarter.

We always answer these questions honestly, which is we really believe that our cash balances give us a lot of flexibility, and in this business, flexibility is a good thing.

Having said that, as you know, we've always guided the company with the governing principle to be maximizing shareholder value, we've really been about that for the last decade.

We like the fact that we've got the cash at this point in terms of our flexibility.

We will continue to look at the opportunities to use that cash in a way that maximizes shareholder value, but we really have nothing specific to say today.

As we talked about, the new-build program, and I showed you the portfolio optimization, you can see we're on a prudent pace in terms of adding our new-buildings over the next few years, and we don't think we need to do anything in terms of ramping that up or ramping that down anyway.

As I said, and I'm now getting repetitious, the flexibility that we have with these cash balances for the opportunistic, should an interesting acquisition opportunity come up, puts us in a good spot, and we're just being very prudent about decision-making at this point in time.

Craig will address ticket prices and gross cap ex.

Yeah.

You observed, I think, properly -- and we talked about before that we did take some price adjustments and discount adjustments in about the middle of last fiscal year, and if you run those out on a full fiscal '04 basis, you are probably looking at about a 5% impact in the current year, without any additional lift from pricing in the latter part of fiscal '04, and I'd have to say that we, as we always do, we look at pricing in the individual markets and assess competitive conditions throughout our theatre circuit and adjust accordingly.

So I -- will there be additional price increase?

It remains to be seen.

We'll just have to study that on a go-forth basis.

On the cap ex question, the gross number is 115, and we have about a $60 million sale lease-back program.

And I know you haven't really commented on your next fiscal year, but looking forward, you plan ahead, would you have, as lofty a sell lease-back program next fiscal year as well?

As lofty a cap ex?

Well, cap ex coupled with the sell lease-back.

I don't think, as we look at our plan next year, that sale lease back, we'd probably put half of what we've programmed for this year into next year. (inaudible) of cap ex at this point.

All right, gentlemen.

Thank you.

I may come see you for a loan. [ Laughter ]

With your good credit.

Your next question comes from Anthony DiClemente from Lehman Brothers.

Sessions revenues, the trend, the decline to reverse itself in the September quarter, just given the momentum of children's movies, ""Finding Nemo" and "Rugrats," and how much do you think they as opposed to admission.

You know, I didn't get all of your first question.

If you wouldn't mind repeating it, Anthony?

Sure.

I was just wondering if you expected the decline and concessions revenues that we saw, do you expect trends in concessions to reverse themselves in the second quarter, given the momentum of "Finding Nemo" and "Rugrats," as opposed to the skewing in the first quarter?

Certainly the type of movie that's playing in the market will impact the concession sales and you do see lift typically associated with children's product.

The point that I'd like to make and reinforce about our concession results in the first quarter is that we actually had an attendance decline but we were able to show -- reflect a per-head increase in our concession results, primarily because of selling more units.

And that's a matter of how efficiently you operate the concession, how it's staffed and the turnover that you can achieve.

So it's not -- it's not just a film issue in terms of your concession results.

There are other things that you can do to positively impact results and which we were successful in doing in this last quarter.

Thank you.

Your next question comes from Ray Schleinkofer from Thomas Weisel Partners.

Good morning.

Just a quick question on sort of film-studio mix.

In the quarter, we had, “Finding Nemo” that did very well and now we have "Pirates of the Caribbean" that's coming in for July, and I know that you guys tend to be very heavily weighted in Disney product.

Do you see that as sort of being something that may have boosted you guys for the past quarter and possibly the next a little bit higher than the rest of the industry, or is that really not having a direct impact?

Well, I do think that we had very good coverage on both those pictures, but let's not forget Warner Brothers with "Matrix" and "23" has had a fantastic summer also.

I think our relative strength with all the studios as opposed to any one studio, and we certainly believe that's going to continue in the future ("T3").

When it's such broad base of so many studios bringing out so much product, that's going to be an advantage for us.

Just kind of a follow-up.

In terms of the timing of how particular films were running, I just want to make sure I fully understand versus last year.

Was this completely against the "Star Wars," "Spider-man" quarter that you guys are counting, or was there a week there that fell into fourth quarter of last year?

I just want to make sure I've got that understood.

No, "Spider-man" opened on May 9th and "Star Wars" opened two weeks later and both of those pictures were contained in the first quarter of last fiscal year.

Okay, perfect.

Thanks so much.

You're welcome, Ray.

Your next question comes from Stewart Halpern with RBC Capital Markets.

On the concession issue, in terms of the concession margin increase, is there anything in particular to account for that, anything proactive that you guys have done anything on the vendor side; and secondly, can we see much more improvement from these kinds of levels?

Well, I'd say on the -- we've continued to pursue aggressively as much efficiency on the buying side as we can, and I'd say we're not -- we didn't see an extraordinary number of rebates or anything like that.

I would say that was probably pretty much in line with what we've seen in the past, so nothing unusual there.

We also had the impact of General Cinema last year, and the change that we've been able to effect in their concession operations have probably had a positive impact.

Just one other thing.

Can you comment, give us a little bit of update on what's going on in the international circuit as well as some sense of what the impact on cash flow was from international?

Yeah.

If you look at the year-over-year results related to international, we actually were able to improve the results slightly.

The business in general was, I would say, was kind of on an even keel, about the same on an overall basis.

You might recall that we did some lease restructuring last year that really provided some lift for us this year.

So on the whole, flat.

But because of some efficiencies and some cost savings that we were able to achieve last year, we're beginning to really see the fruits of that.

Just for clarity, when you're referring to flat, are you talk beg flat talking about flat versus last year or on a break-even basis on the cash flow?

No, versus last year.

There was still adjusted on the EBITDA.

Great, thanks.

Stewart, the other thing I'd add strategically, is steady as we go I would characterize as our strategy on international.

Great.

Thanks, Peter.

Your next question comes from Alex Gould with CIBC World Markets.

Hi, good morning.

Just going back to ticket prices for a second.

It looks like the year-over-year increase on ticket prices was 10% but sequentially it was lower than that.

The first question is related to overall ticket prices and I know it's been a topic of debate for sometime and whether or not there really is a ceiling, but can you give us your thoughts on sustaining ticket prices.

And secondly just in terms of the remainder of the year, do you expect the concession trend rates to -- the children's product and ticket prices average being a little lower?

Thanks.

I'll just make a couple of comments and then Craig will.

Alex, if you look -- a couple of interesting things about the business, if you look back historically, it's been a business that's let's say been able to absorb ticket price increases fairly easily.

In fact, if you look back to the 1995 period, you'd see that North American ticket prices increased on a 4% compounded growth rate, and if you look back over the last 22 years, you'd find that that same 4% rate would apply as well.

Now, in our plan for this year, Craig, we've got about 5%, all, total.

And I wanted to make that comment based on an earlier question that was asked.

And one other comment that I'll make, and this is a bit of a -- I believe a competitive advantage from our perspective, the quality of the product that we deliver in terms of the package of the location that is we have, I'm talking about the physical location with our real estate strategy, the way we build the theatres, the way we operate the theatres, the way we market the theatres to build our brand, I believe all combine to give us an ability to have perhaps a little more pricing, upward pricing flexibility than those competitors that would not have the overall package of delivery in terms of the quality of experience that we offer, and one of the keys there is a phrase that we use called "Price Value."

We watch the price value equation very carefully.

So my summary statement is that I think we're in good shape with respect to our flexibility on the pricing side.

If you look at the history of the business over the last -- since 1995, over the last 22 years, you'll see an average of around 4%.

Having said that, we've got about 5% this year in our plan.

Craig, do you want to add to that?

Back a comment I made earlier, we took price adjustments earlier in the year and we're experiencing the carry-over effect of that.

It will average to about 5% for the year.

The other comment I want to make and I want you to look at when you look at AMC versus the rest of the industry, we have, as part of our pricing mix, have historically had some more discounts, or at least that's our feeling, and we've been looking at those and adjusting those and so it's not -- what you're seeing in our average ticket result is not just raising prices, we're also trying to right-size our discounting philosophy, and some of the lift we've had is a result of taking some discounts back at high-volume periods.

So I'd add that you should probably think about as you look at our results.

Great.

Thank you very much.

You're welcome, Alex.

There are no other questions at this time.

Okay, great.

I want to thank everyone for joining us this morning.

We obviously feel good about the quarter's results, again particularly in light of the tough comparisons we were up against last year.

We think that that speaks volumes to the strength of the company's asset base, management, as well as the health of the overall business.

As we finish off the summer season and head into the fall, we'll continue to stay focused on executing on the fundamentals of our business, improving the quality of our portfolio, and enhancing our brand.

Though product winds may blow a little less favorably, we'll continue to manage for the long-term.

Thank you, and we'll see you all again in October.

Thank you for participating in today's conference call.

You may now disconnect.