AMC 電影院 (AMC) 2005 Q1 法說會逐字稿

Good afternoon. My name is Carmen and I will be your conference facilitator today. At this time, I would like would everyone to the AMC Entertainment, Inc. conference call hosted by Peter Brown, Chairman and CEO of AMC Entertainment Inc.

Any forward-looking statements contained in this call, which reflect 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 statements included herein as a result of a number of factors, including among others the Company's ability to enter into various financing programs, the performance of films licensed by the Company, competition, construction delays, the ability to open or close theaters and screens as currently 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 successfully integrate acquisitions into its operations and results of significant litigation.

During the call, reference will be made to certain non-GAAP financial measures as defined by Regulation G of the SEC. A discussion of management’s use of these measures and reconciliation to the most directly comparable GAAP measure is contained in the Company’s first quarter earnings release and is posted on the Company’s web site at www.amctheatres.com.

(Caller instructions) Thank you. Mr. Brown, you may begin your conference.

Okay, thank you, Carmen and good afternoon, everyone and welcome to the FY05 first quarter earnings conference call for AMC Entertainment Inc.

As Carmen said, I’m Peter Brown, Chairman and CEO and joining me on the call today are Craig Ramsey, our CFO, Phil Singleton our COO, and Dick Walsh, Chairman of our Film Group.

Now, in light of the announcement that went out over the wire earlier this morning, our presentation today will be just a little different than our typical quarterly earnings call. I’ll do the highlights as I always do and Craig will then take us through the quarter’s numbers. We will then move right into the Q&A portion of the program and before we do that, Craig will go through some summary points on the transaction that was enacted this morning.

So, on that note, let’s begin.

It was really just a super quarter in terms of the Company’s performance. We posted the highest quarterly revenues and adjusted EBITDA in our history. In addition, on an LTM basis, which those of you who know, who have been following us regularly for a long time, know is really the way we watch the business. We reached our highest ever revenue level at $1.8b and our adjusted EBITDA was the most we’ve ever seen, again on an LTM basis, at $258m.

Now, the margin improvement trend that we’ve seen in just about every quarter for the last several fiscal years continued in this quarter as well. Our adjusted EBITDA margin at 16.3% was the highest quarterly adjusted EBITDA margin that we’ve seen in over 6 years. On an LTM basis, our adjusted EBITDA margin was 14.3%, which continued the positive trend that we’ve seen in our LTM adjusted EBITDA margin, really, since the end of fiscal 2000.

Our free cash flow generation continued in the quarter, up $2m from the quarter a year ago, and on an LTM basis, our free cash flow was just a little over $100m. And finally, our growth in free cash flow continued to add cash to our balance sheet, which in turn strengthened our liquidity position and in general, improved the overall condition of our balance sheet as we have continued to see happening in the last several quarters.

So, on that note, I’ll now turn the program over the Craig Ramsey, our CFO.

Thank you, Peter and again, welcome to all of you that chose to be with us here today.

Our record results in the first quarter were the product of a number of factors, including the strength of the box office. And for purposes of comparing year-over-year box office changes in North America that will kind of serve as a backdrop to our discussion on AMC’s results, I want you to keep in mind that our quarter ended July 1st this year versus the quarter end date of July 3rd last year. So, as a result, the quarter last year benefited from an additional 2 days of the July 4th holiday weekend business that, as you all know, are usually fairly high revenue days.

With that in mind, using these AMC fiscal quarter reporting periods for both years, we estimate that the box office in North America increased from about $2 billion 353 million during the first quarter of last year to about $2 billion 472 million this year or about a 5% increase. This was fueled by a 5% increase in industry-wide average ticket prices, as attendance levels were essentially flat between the two quarters.

Now, for AMC, as you see on the slide, in the first quarter our total revenues increased $17m or 4% in comparison with the same quarter last year, increasing from $472m to $489m. And as we just discussed, the increase resulted from a slight decline in attendance, due primarily to the last July 4th holiday business, when compared to last year. Our operating results did benefit from a 4.5% increase in total patron spending per hear, which was comprised of a 4% increase in our average ticket and a 3.6% in concession spending per head.

As we noted earlier, our adjusted EBITDA increased $10m from the same quarter last year to $79m. The revenue performance that we just talked about was a contributing factor in this increase, as were reductions in our film exhibition costs and operating expenses as a percent of revenues. Adjusted EBITDA margin increased 150 BP over last year’s 16.2%.

Now, the next three points on the slide relate to our stated objective of free cash flow positive results, and as you can see, we again delivered on that important initiative. We define our after tax cash flow as our net earnings plus D&A and any other non-cash item and believe that it represents the best picture of operating performance, from a cash generation perspective. Our after tax cash flow increased 16%, compared to last year, and our free cash flow increased by $2m.

Looking at some of the key analytics and drivers, during the first quarter we opened one theater with 16 screens, which was in line with our plan for the year and we also closed one theater with 6 screens. Screen openings and closing resulted in the slight year-over-year increase in the average number of screens operated during the quarter.

Now, as we talked [technical difficulty - audio drop out] exhibition cost decreased from 55.4% in the first quarter last year to 54% this year and this, in combination with our increase in average ticket price, led to a nice increase in our film retention per screen. And as we say, we always focus on both percentages and absolute dollar amounts, which in this case is film retention per screen and you can see that the lower film cost, in combination with the higher average ticket, drove a 5% increase in our overall film retention.

Now, a significant contributor to our first quarter results was the successful management of our operating costs and as you can see, our operating expenses as a percent of theater revenues was reduced by 150 BP, which reflected a number of our targeted savings initiatives. Our recurring G&A percent increased as a percent of total revenues and is due primarily to insurance and pension cost increases over last year.

Finally, I’d like to talk briefly about our capitalization and liquidity. Again, our balance sheet shows a very strong cash position, with $399m of cash at the end of the quarter. Our total [debt] was $747m at quarter-end, comprised of our senior sub debt and capitalized leases and financing lease obligations.

We have a $175m revolving credit facility that there were no amounts borrowed under the facility at the end of the quarter and net debt in the amount of $348m is down from the prior quarter due to seasonal working capital changes and strong cash flow during the quarter. So, our total average at the end of the quarter came in at 1.4 times.

Now, as Peter noted, before we open it up for the Q&A portion of our day today, I’d like to just give you some brief comments about the transaction that we released earlier. And as was stated in the press release, JP Morgan Partners and Apollo Management will acquire all of the outstanding stock of AMC Entertainment for $19.50 per share. This would value the transaction at approximately $2b and would represent a multiple of about 7.8 times on the LTM adjusted EBITDA results reported for the LTM period of July 1, 2004 or the end of the just-reported period.

Now, financing for the transaction will include equity investments, by the sponsors, of approximately $785m and that’ll represent about 45% of the transaction financing in total. Other sources for the transaction will be provided by fully committed financing from JP Morgan Chase Bank and Citigroup in the aggregate amount of approximately $625m. This will include a senior secured revolving credit facility that we expect to be structured fairly similar to our existing facility. However, we do not intend to utilize any of the revolving credit facility proceeds to fund the transaction.

We intend to issue senior unsecured notes at the holding company level and the financing may also include some senior discount notes at a hold-co level. Now, based on a review of the existing indentures, this transaction has been structured to keep the senior subordinated issues of 2012 and 2013 in place. The 2011 notes will trigger a change of control, due to a definitional difference in the permitted holder’s definition between the 2011 and the other two issues.

So, with that, I’d like to turn the program back over to Carmen and we’re ready to take questions.

(Caller instructions) We will pause for just a moment to compile the Q&A roster. Your first question comes Grant Jordan with Wachovia Securities.

Good morning, gentlemen, congratulations on the transaction and I’ll just jump right to my questions, which are going to deal mostly with the existing bonds that are outstanding. So just so I understand, on the 8% notes of 2014, the way you understand it is there is not a change of control event in those?

That’s correct.

Okay and that’s because, I assume, Apollo is keeping majority voting control?

No, I’ll just repeat what I said. There are some definitional differences in terms of permitted holders.

Okay.

And the definition of those permitted holders, and as we’ve reviewed those terms, the transaction’s been structured to trigger a change of control only on the 2011 notes.

Okay. So the other two notes will remain outstanding. And my other question is, I guess, the way I read some of the covenants, there seems to be a fairly hard dollar cap on bank debt of $425m, plus maybe another $100m in other permitted indebtedness. Do you see that relatively low level of bank debt being a problem in financing this transaction?

Well, I’m not at liberty to go into a lot of detail as to the overall financing structure of the transaction at this point in time. I will say that we do believe that the conditions in the markets today are very strong and that we will move quickly to finance the transaction. So we’ll be developing our offering memorandum and planning our exact timing on, on the road show, and all that will, of course, be available as we distribute any offering memorandum information.

Great. Okay. One last question on the operations. The 4.5% ticket hike in the quarter, was that planned or was that due to film mix to some extent and do you see that going forward?

Well, as we’ve discussed in the past, we typically take a look at our pricing a couple times a year, both in advance of the summer season and in advance of the Thanksgiving and Christmas holiday. We did look at ticket prices, adjusted some, so the 4.5% would be a combination. We did raise some prices and we did experience some change in the mix of product that would have affected average ticket price also.

Okay and then, going forward, are we going to see more of a 1% to 2% or do you think 4% is realistic?

Well, I wouldn’t expect the 4% to 4.5%. Again, it’s year-by-year, but our expectations with it is it’s not going to be quite that high going forward.

Great. Thank you very much.

Uh-huh.

Your next question comes from Anthony DiClemente from Lehman Brothers.

Hi Peter. Hi Craig, congratulations on the transaction. I have two questions. My first question is regarding film costs.

It seems as though, despite the trend toward the quicker burn off for films on a week in-week out basis, that you still managed to lower your film expenses as a percentage of revenue and I was wondering if you could elaborate on why that is. Is it that you have more contracts with the studios being settled in the aggregate? Is it by virtue of your size that helps your bargaining position?

And then my second question is just regarding your strategy going forward, with respect to screen build-outs and screen dispositions. Just curious as to whether or not there’ll be any change in that strategy that you had laid out previously.

Well, yeah, Anthony, thanks. I’ll address the second and Dick Walsh, who’s here to my right, will take the first on film costs.

I don’t think that there’ll be -- we’ve always talked in terms of sort of 100 or so screens a year, roughly about the same amount of screens coming off line. Now that will vary, plus or minus maybe 50 screens or so. Sometimes these new locations have delays and they move into a year later or a quarter later that would cause them to go into a fiscal year later. But it’s a very steady-state plan that we’ve really had in place for the last several fiscal years and that will continue going forward.

On the film cost question, I’ll defer to my colleague Dick Walsh right here.

Yeah. I think what you’ve seen in the last year in particular is a broadening out of the marketplace to the extent that we’re not as dependent on blockbusters, the most expensive film product coming out of the studios.

To that extent, you’re seeing lower cost films outperform what they had normally done in the marketplace and that has had a very nice effect, from our perspective, on our overall FEC costs. So, does this trend continue go forward? You know we’ll just have to see how the cards lay out. But again, we’re not as dependent on the 4 or 5 big pictures every year that we used to be as an industry and the studios are coming to bat more often and their product seems to be scoring at all levels of production.

Thank you.

You’re welcome, Anthony.

Your next question comes from Ray Schleinkofer with Sturdivant & Co.

Good afternoon, congratulations, guys.

Thank you, Ray.

Just a couple quick questions. First, it seems like you’ve got the sign-off, obviously, of Apollo, the Durwood Trust management and the Board. Is there any other type of vote that has to go through in order for the transaction to be completed or is this essentially, for all intents and purposes, done?

Ray, the transaction will be effected through a merger, which will require a shareholder vote. There’ll be the typical regulatory approvals. We’ll need to complete the financing, but it’s pretty customary conditions.

Yes and then, just kind of back to the operations. You had some good improvement on those cost lines and you kind of identified that there were some real benefits from the targeted cost initiatives you’ve put in place.

Could you give a little bit more flavor there as to what specifically this quarter was kind of starting to kick in? Because you did actually have, particularly on the theater and other operating cost line -- you were flat versus the year ago period despite higher revenues.

Well, as we’ve discussed before, we spent some time and energy managing our labor costs and I think it’s a credit to our operations group and certainly our theater management groups to work that pretty hard and be able to adjust the theater-staffing model to really coincide with the business that they’re doing each week. And at the same time, not sacrifice the per-heads, particularly in the concession area.

So all that seems to be working very well and I think that’s a credit to management. Just we have good systems, good programs, good information, and good management. We’ve also, I think, done a better job recently in maintaining our facilities in terms of our repair and the maintenance and our refurb programs and we just have a better handle on our repair and maintenance costs, because we’re out in front of that. And I think that we’ve maintained that under control.

And then, it’s just, I think, discipline in all the other areas to try to be cognizant of the money we’re spending. So labor is most important and I’d still highlight that one as kind of number one.

And then, just a last question. Maybe if you could give us a little bit of a sense of film slate, kind of what you’re thinking going forward? Particularly now that we’ve got “Spiderman” behind us and we’re starting to look at what might be, at least after this quarter, potentially some tougher comps, just what you’re thinking about the pipeline.

Yeah. We do come out of the summer looking pretty good and we enter the October, November, December period, as you said, up against some tough comps. I think what we’re going to see this year is more first-time product coming into the marketplace and not as reliant on sequels.

To that extent, we’ll have to see how the movie-going public votes on a plethora of new product they’re going to see between October and the end of the year. There’s no “Harry Potter” out there. There’s no “Lord of the Rings” out there during that quarter. But we’re confident that the slate of films is going to be broad enough to appeal to every demographic and in many ways, this could be the building of new tent poles for the future.

You know, “Polar Express” with Tom Hank’s in it is certainly a foregone conclusion as a home run and Pixar and Disney has another picture coming into the marketplace, “The Incredibles” and so we’re actually rather bullish on that slate, but your point’s well taken. It’s not as rock solid proven because of the tent pole pictures that entered the marketplace last year, but we like what we’re seeing out there.

Thanks so much, guys.

You’re welcome.

Your next question comes from Matthew Harrigan from Janco Partners.

Congratulations on the results. But I just wanted more comments on the valuation on the transaction. I mean, particularly Peter commented in the last call you’ve done 15% EBITDA growth on a compounded basis over the last 5 years.

I think Regal, which has had a slower growth rate, is trading as a public company at about an 8 times multiple and certainly the reality of it is the share price wasn’t likely to get to the high teens this year in the absence of a transaction. But it still looks like this is a pretty nice transaction for Apollo and for JP Morgan and I was curious as to how the other interests were balanced out on the determination of the price.

Well, Matt, I think sort of address, I think, what you’re talking about, we looked at the premium first and I think that to the day that the stock - the day before it leaked - was about a 37% premium.

We did have a good process in terms of with our Board and with the Special Committee and we had advising them -- they had their own investment bankers and their own lawyers and the Company as well had investment bankers and lawyers.

And I think the way I look at it and what Craig talked about earlier is that relative to even some of these other transactions that we’ve seen conducted, we’re a little bit north of those in terms of our multiple. So we think it’s a good transaction and a good realization in terms of getting the value to the shareholders at this point in time.

I don’t know, Craig, do you have anything to add to that?

No. I think you just reiterated a good process and just looking at the options, we had spent some time considering some strategic alternatives. They didn’t seem to be developing as we had hoped, so we really did start evaluating other ways to return value to shareholders.

Well you have a wonderful franchise. Good luck, going forward.

Thanks, Matt.

Yeah, thanks, Matt and Matt? Thanks for all the years.

All the way back to ’91.

Yeah.

It’s been a long time, Peter.

Yeah, the very first bond road show back there in August of ’92. I remember it well.

But big company now.

Yeah. Thank you for all your support for all the years.

Sure. Thank you.

Your next question comes from Lee Olive [ph] with Citigroup.

Hi guys, good morning.

Hi Lee.

Hi, good afternoon, actually. Craig, could you again just go over the sources for the transaction and specifically the cash equity that’s coming in from JPM? I was writing feverishly and didn’t get all that down.

Yeah. The total equity between the two sponsors is about $785m.

So it’s, all right, $390m in cash, right?

Yes.

Okay and then the other sources?

Well, yeah, I kind of gave you the total or debt financing. The total other sources would be about $625m and that would be comprised of the senior notes, and as I said, we may also do some financing at the holding company level. But the aggregate on that would be $625m.

And those are senior notes at AMC Entertainment, Inc.?

At the operating company.

The operating company. Okay.

That’s right.

And then potentially a wholesale piece as well. Okay, great and then my second question. It looks like rent expense was a little bit higher than I was expecting. It was up, on a per-screen basis, let’s see, about 4% or 5%. Is there anything going on there? Was it a unique quarter in terms of the number of step ups you maybe had in the quarter or is this the kind of increase we could expect over the next few quarters?

No. The only thing I’d say is that we did have the sale leaseback at the end of the fourth quarter.

Right.

That would have kicked in for the full first quarter.

For the whole quarter.

Yeah.

Okay.

But that’s the only unusual year-over-year comparison.

Okay. Thank you.

You’re welcome.

Your next question comes from Michael Savner with Banc of America Securities.

Oops, sorry about that. Thanks. Congratulations on the deal. Really, just one question left and this is more of a housekeeping issue. But are there any provisions in the agreement that upon any events the terms of the deal could change or be terminated, obviously other than not being able to complete the financing?

Well, I think I went through the conditions of approval.

Right.

The shareholder vote, regulatory, which are pretty typical and completion of the financing, which is fully committed.

Those are the conditions.

So those are the conditions.

Conditions to closing.

All right. Thanks, guys, congratulations.

You’re welcome. Thank you, Michael.

Your next question comes from John Maxwell with Merrill Lynch.

Hi, good afternoon. Peter, I was wondering if you could touch on just did the new ownership change the Company’s operating policies going forward at all? Do you just keep doing what you’ve been doing or do you envision now that you’re not a public Company that you operate possibly in a different fashion?

No. The short answer, John, is no. We’ve had a good, successful, and clear strategic plan over the last few years and we will continue executing it.

It really involves sort of - we’ve talked about this at length, but just to repeat - three primary aspects and one of them Craig alluded to or addressed when we were talking about some of these operational efficiencies. But really maximize operating efficiencies, constantly improve the quality of our portfolio, new builds while all at the same time dispositions, and then tend to the ancillary revenue opportunities that are there.

So, we’ve been saying we’re doing that for a number of years and it’s been successful and our feeling is why tinker with that successful formula, so we’ll keep doing it.

Okay. Does it -- I know, obviously, you’ve been looking at various acquisitions. Is that still in the mix or is that, just given what you’ve seen and looked at over the past 12-18 months? You just don’t envision anything significant out there that’s that appealing at attractive prices?

Yeah. We’ve been, well, implicit in the improving the quality of the portfolio. There are two ways that you can do that. You can do acquisitions as well as new builds and those acquisitions would have to fit the criteria that we’ve laid out in terms of asset quality and market fit.

I think I’ve commented on prior calls we’ve had lines in the water and will always, I think, have lines in the water. We haven’t gotten any bites on any of those lines of late or you’d know about them, but I think consolidation for the industry is still something that’s out there.

I think the industry should continue to consolidate and I look at us a continued consolidator, given the quality of the asset base that we have and really, more than that, I think the quality of the associate base and the management team. We’re really built for more, if we can do it.

But having said that, these things have to be done carefully and correctly and a lot of that is always contingent upon can you get the right valuations and we just haven’t seen anything out there, of late, that is in the arena of the right valuation.

Okay, great. Thank you very much for the comments, Peter.

You’re would, John. Thanks for the question.

Ladies and gentlemen, we have reached the allotted time for questions and answers. Do you have any closing remarks, Mr. Brown?

Okay. Yeah, Carmen, thanks, I will. I just want to simply thank everyone for joining us this afternoon. We’re so used to saying “this morning”, but I think everyone can understand why we’re having the call this afternoon. We’re obviously pleased with the quarter’s result.

I want to say I think we’re also very excited about the transaction announced today. It’s a watershed moment in the Company’s 80-year history and we think it’s the right transaction, as I said earlier, at the right time, really just a great realization of value for our shareholders. And also the beginning of a new partnership with JP Morgan Partners and Apollo that we feel will allow us to continue building our position as the world class Company and an industry leader that we are.

So, I’ll just simply close by saying as always we thank you for your continued interest and support and I hope I’ll see you again, really, where I always most want to be and that’s at the movies. So, thank you all very much and good afternoon.

Thank you for participating in today’s AMC Entertainment, Inc. conference call. This call will be available for replay beginning at 5:00 P.M. EST today through 11:59 P.M. EST on August 4, 2004 through the web site www.amctheatres.com.

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