AMC Entertainment Holdings, Inc.

Greetings and welcome to the AMC Entertainment Holdings second quarter 2024 earnings webcast. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Merriweather, Vice President, Capital Markets. Thank you, John. You may begin.

Thank you, Alicia. Good afternoon. I'd like to welcome everyone to AMC's second quarter 2024 earnings webcast. With me this afternoon is Adam Aaron, our Chairman and CEO, and Sean Goodman, our Chief Financial Officer. Before I turn the webcast over to Adam, let me remind everyone that some of the comments made by management during this webcast may contain forward-looking statements that 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 most recent public filings, including our most recently filed 10Q and 10K. Several of the 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 against relying 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 webcast, we may reference non-GAAP financial measures, such as adjusted EBITDA, constant currency, and non-GAAP cash burn, among others. 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 webcast is being recorded, and a 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, everybody, and thank you for joining us today. You might think that someone reporting an 84% drop an adjusted EBITDA this quarter compared to the same quarter last year, might be in a foul mood. But to the contrary, as I sit here today and look at what has transpired so far this year, and especially over the past seven weeks, I am ecstatic. Pick any adjective you want. Ecstatic, euphoric, almost giddy? At AMC's Prospects, for near-term and medium-term improvement and recovery. In fact, I'm now more confident than I've been in more than four years about how well AMC will perform over the next six to 30 months. That would seem to be inconsistent with the earnings release that we just put out for the second quarter, but here are the four Key reasons for my optimism. First, include monies raised during the second quarter. AMC ended the second quarter with $770 million of cash. I've said it repeatedly over the past few turbulent years. Cash is king. And having ample cash reserves is the single best strategy for survival. Sometimes a few of our retail shareholders want to hang me by my toenails that on my watch we have brought so much cash in AMC's coffers. But I cannot say it enough times. It is so important. The single smartest thing that AMC has done since 2020 was to make sure that our bank account balances were always plentiful and abundant. Despite all the rocky roads of the past several years, AMC has stayed strong. We've defied the conventional wisdom. We've continued to innovate, and we've maintained our leading industry position, and we did that at the exact same time that many of our competitors, large and small, in the U.S. or in Europe, found themselves in ruin. How did we pull that off? Well, in honor of the Paris Olympics, which I might add, in partnership with NBC, we have to be showing right now in our AMC theaters in the United States, I'll use a French word. We pulled it off by having beaucoup of cash. I've said it before, and I'll say it again. Cash is king. Cash is king. Cash is king. And we ended the quarter with $770 million. The second reason. Starting in mid-June, this is just a month and a half ago, the box office finally, after four long, tough years, has shown evidence of its making a real and enduring comeback. Disney's and Pixar's Inside Out 2, which debuted in mid-June, became the highest grossing animated film of all time. It was followed by an enormous success, from Universal's Illumination Studios with its despicable Me 4, Twister's Open Strong, and Disney then came right back with Marvel's smash hit Deadpool and Wolverine, which has set all sorts of attendance and revenue records for AMC. We knew 2024 was coming. We correctly predicted and previously publicly disclosed that moviegoing in general would be weak in the early months of 2024 because production delays caused by the prolonged writers and actors' strikes of 2023 would decrease the number of movies that would be ready for theatrical release early this year. But by the end of May, the impact of those 2023 Hollywood strikes was finally, for the most part, firmly behind us. And it is as clear as a bell right now that the box office has started its big upwards climb. As but one example, the June domestic industry box office was so much larger than the prior months that June was only two percentage points less than the box office of April and May combined. And comparing June to the earliest part of 2024, that same June domestic industry box office was 10% more than the January and February 2024 box office combined. The strikes of 2023 had their impact, but that impact appears to be, for the most part, behind us. It's not surprising then that with a surging June box office, AMC saw a remarkable contrast in our own results between the early quarter with a dearth of movie releases and the end of the quarter with a record-setting movie, Inside Out 2, delighting audiences in theaters. There was a soaring difference for the industry's performance and, more importantly to us, in AMC's performance when looking later in the second quarter versus looking earlier in the second quarter. The contrast was so vivid, the difference between the end of the quarter and the beginning of the quarter, that it was as if we were two totally different companies surrounded by two totally and completely different industry dynamics. And the proof is in the pudding. AMC capitalized on the strong June box office recovery. And in so doing, AMC set an all-time monthly adjusted EBITDA record for the month of June, meaning this was the best June result for AMC of any June in AMC's 104-year history. There were 103 Junes before this one, and this was the best. And we did so across the board. We did so domestically. We did so internationally, and we did so on a consolidated basis. But the good box office does not stop with June. We have carefully and intensely studied the movie slate coming for the remainder of 2024, as well as the slates that are coming out for 2025 and 2026. Our current expectations are that the box office turned an important corner in June of 2024 and looking ahead, We at AMC believe we will see sizable growth in industry-wide revenues and therefore most likely in AMC revenues in the second half of 2024. It's possible that the third quarter box office may not overtake last year's record-breaking Barbenheimer phenomenon, but the fourth quarter slate really looks to easily outpace that of Q4 last year with spectacular titles This year, like Warner Brothers' Joker, Universal's Wicked, Disney's Mufasa, The Lion King, and Disney's Moana 2, Sony's Venom, and Paramount's Gladiator 2, among so many other big films that are coming out in the remainder of 2024. Based on the movies that we know are coming, including in 2025 and 2026, another Star Wars movie, another Avengers movie, and another Avatar movie, and so many more, a growing box office is also what we believe will be the case again in 2025 and again in 2026. Clearly, a rising box office is good news to those who are rooting for AMC to succeed and bad news for those who root against us. As a significant portion of our expense structure consists of fixed costs, more than half of incremental revenues wind up flowing through as contribution. Clearly then, a box office that looks to be rising over the next 30 months blows extremely well for the cash generation and the financial results that AMC could be reporting over the two and a half years ahead. The third reason for our optimism and why there's such a palatable sense of confidence here and almost a relaxation compared to the stresses and pressures that we've been facing since the spring of 2020. It's our company's laser focus on driving up revenue and driving down expense that's been in evidence over the last several years. We've gotten this way both through product innovation to capture more revenues and by our cost cutting efforts to reduce expense. As but one example of many in driving revenues, our retail shareholders floated an idea a few years back that we sell merchandise in our theaters. Three years ago, we sold next to nothing in the way of merchandise in our theaters until this recommendation came from our retail investor base. This year, by comparison, we should sell around $50 million of merchandise, especially movie-themed collectibles, and we will do so with handsome profit margins. Here's the other statistic that drives home the point of our latest laser focus on becoming more efficient. AMC's June 2020-24 adjusted EBITDA was higher than AMC's June 2023 adjusted EBITDA, but that occurred despite the fact that the box office in June of 24 was actually 3.6% lower than the box office in June of 2023. And even more dramatic, our June 2024 adjusted EBITDA was higher than the June 2019 adjusted EBITDA pre-pandemic, despite the fact that the 2024 box office was approximately 12% lower in June of 24 than it was in June of 2019. And the summary of it all that continues to support our proposition that we are more innovative than ever before while being more lean than ever before is that often our contribution to overhead per patron, that is our contribution per head, can be as much as 50% more now than it was five years ago. A 50% improvement in our profit per head. So what that means, because we're bringing in more per head, we don't actually need for movie theater attendance to rise all the way back up to pre-COVID levels for us to generate pre-COVID levels or maybe even more than pre-COVID levels of adjusted EBITDA. And finally, the fourth reason our confidence levels are so high. Just last week, we announced that AMC completed several transformative capital market transactions that took up to $2.45 billion of our debt, previously due in 2026, and extended the maturities to 2029 and 2030. This was an enormously complex effort, but one that will have profound positive impact on AMC. the years 2029 and 2030 are a long way away. We have years and years of additional breathing room before then to further build, grow, and strengthen our company. For full disclosure and complete transparency, we did not move all of our debt that was due in 2025 or 2026 to 2029 and 2030, but that which remains that is still due in 2025 or 2026, in my view, is de minimis compared to the previous amounts due, and we believe it's thoroughly and entirely manageable. I cannot even begin to count the number of nervous Nellies, bloggers, and journalists who are agonizing in the press about our looming debt repayment obligations just 20 months from now prior to this debt refinancing. And they were just over and over again, wherever you look, predicting our demise in 25 or 26 as a result of the debt payment that until last week was owed 21 months from now. Perhaps that's what they believe. Perhaps they were spurred on by the short-selling community who had every financial incentive in the world to sow seeds of doubt. about AMC's viability, there's no way of knowing for sure. But in any case, it does not matter now because so much of our debt has been pushed so far out into the future, it's no longer an issue. With this debt refinancing and our other capital markets actions, this managing team has demonstrated our competence in buckressing our balance sheet at AMC. Needless to say, There are still fertile lines here at AMC, and we have numerous other thoughts and ideas about how we can further reduce some of our debt or further improve the terms surrounding our debt along the pathway between now and 2029 and 2030. This debt refinancing is an accomplishment of the highest order, one of the most important things that AMC will get done all year long in 2024. So it would be an error, an absolute error, if on behalf of myself personally and on behalf of our company, if I failed to express my gratitude and the gratitude of AMC to our lenders who worked so constructively with us on this endeavor. Make no mistake, AMC's lenders just gave our company a strong vote of confidence as to their view of the likelihood of AMC's long-term success. And we're grateful to them for that. In summary, my comments this afternoon are simple and straightforward. The 2023 strikes impacted the number of movie titles early in 2024 and somewhat crushed our profitability January and May. But look out world, June and July were decidedly different. And we believe the rest of 2024 and on into 2025 and on into 2026 also should be decidedly different. The power of our extending our financial runway for many years into the future, combined with what we believe is a multi-year slate of blockbuster movie releases immediately ahead of us, sets the stage for continued recovery at AMC. Now, it does go without saying that we cannot just declare a win today and take a victory lap today. We still have to implement and execute very well between now and the end of this year, beyond the end of next year, by the end of the year after that. But even with that statement that we have to do our jobs well and we continue to have to excel and be on the ball every step of the way, Today, as we sit here right now, we are more confident than ever in our ability to ensure that AMC will thrive as both our company and our industry continue to rebound. With that, as introductory remarks, I'm going to turn the call over to our CFO, Sean Goodman, to give you more detail on our results.

Thank you, Adam. Thanks to everyone for joining us this afternoon. As expected and as we've previously discussed, the North American box office was indeed challenging during the first half of this year. The first half box office was some 19% below the same period in 2023 and 36% below the same period in 2019. And while the second quarter box office grew around 19% from the first quarter of this year, the box office nonetheless fell way short of the prior year by approximately 27% in the second quarter. The second quarter of 2023, as a reminder, was the highest quarter of that year. With this order's background, simple year-over-year comparisons may not necessarily be helpful in understanding our true financial position and potential future financial performance as the industry grows as we expect it will. I therefore want to focus my comments on some of the key metrics that we look at when we're assessing our performance and forecasting our future financial performance. First, let's take a look at market share. Our North American market share continued to increase in the second quarter of 2024 with approximately 50 basis points of growth compared to last year. This is despite the fact that we reduced our North American theater count by approximately 15 locations during this period. In a quarter where the North American box office declined by 27.2% compared to last year, our domestic admissions revenue declined by only 25.6%, outpacing the industry box office by approximately 160 basis points. Second, looking at our per patron revenue and profitability. We have successfully been able to grow and then sustain revenue and profit per patron at levels that are meaningfully higher than pre-pandemic 2019. For Q2, consolidated revenue per patron was $20.61. This is some 33% higher in 2019 and also 1.5% higher than the prior year. But even more important than revenue per patron is contribution margin per patron, which we define as total revenue, less film exhibition costs, and less food and beverage costs divided by the number of guests. This measure is indicative of the incremental profit generated per guest at our theaters. Consolidated contribution margin per patron in Q2 2024 was $13.77. This is some 41% higher than 2019 and 4.6% above the prior year. Now, if we look at the North American business, total revenue per patron at $22.36 was 38% ahead of the second quarter of 2019, 2.8% ahead of Q2 2023, and, by the way, a record achievement in the second quarter. It's worth noting that our food and beverage revenue per patron reached an all-time high of $8.34 in the second quarter, an all-time high. And most importantly, contribution margin per patron at $14.73 was 48% above the second quarter of pre-pandemic 2019 and also 6% above the second quarter of 2023. And we achieved yet another all-time record with food and beverage gross profit per patron of $6.86, another all-time record. Now, looking at our international segment in constant currency, Total revenue per patron of $15.96 was 20.8% ahead in the second quarter of pre-pandemic 2019, and it was in line with the second quarter of 2023. And the important contribution margin per patron was approximately 26% above the second quarter of pre-pandemic 2019 and 3.9% ahead of the second quarter of 2023. These achievements in market share growth and revenue and profit per patron, they're as a result of the ongoing success of our market-leading food and beverage offerings, including collectible movie-themed items, movie-themed cocktails, and menu upgrades, as well as our leading position in immersive premium large format auditoriums and our innovative alternative content options, plus also revenue diversification initiatives such as retail popcorn. This all coupled with active theater portfolio rationalization and focused expense management initiatives means that we should be able to achieve pre-pandemic levels of EBITDA even while the box office is lower than in 2019. Now let's talk a bit about the balance sheet. Since our last earnings webcast, we have been incredibly active taking meaningful steps to materially strengthen the balance sheet. We're not done, but the progress is undeniable. We started this quarter by completing a $250 million equity capital raise through an at-the-market offering. And then we followed up with the elimination of $173.9 million of our second lien 10% debt obligations. That's the elimination of $173.9 million of our second lien 10% debt obligations through debt for equity exchanges. And in the process of doing that, we recorded a profit a debt extinguishment of $85.3 million. But most noteworthy is last week's refinancing announcement that considerably improved our financial position by extending the maturity date of up to $2.45 billion of our debt from 26 to 2029 and 2030, as Adam mentioned in his remarks. The transactions that we announced last week represent an unequivocal sign that our lenders believe in AMC and our recovery trajectory. These transactions are unique in that they represent the results of true collaboration between AMC, our second lien, and our first lien terminal lenders, which we believe will extend AMC's liquidity runway for the benefit of all of our stakeholders. These are complex transactions, and I urge you to read our public disclosures for more details. However, in summary, The results of the transactions are as follows. One, as of today, $1.864 billion of term loans that were previously due in 2026 are now new term loans due in 2029. That represents more than a 98% participation rate. Two, $580 million of second lien debt that was due in 2026 has been refinanced with $104 million of new term loans due in 2029 and $440 million of exchangeable notes due in 2030. Three, new term loans, they bear interest at software plus between 600 and 700 basis points depending on our leverage levels. Four, the exchangeable notes bear cash interest at 6% per annum or 8% per annum if the interest is paid in kind. Five, we have the ability to further reduce the amount of debt maturing in 2026 by increasing the size of the new term loan due in 2029 by an additional $31 million. And we also have the ability to further reduce year-term debt maturities by increasing the size of the exchangeable notes due in 2030 by an additional $50 million. And finally, very importantly, As the exchangeable notes can be exchanged into equity under various conditions, we have the potential to permanently reduce debt by up to $464 million. Performa, for this transaction, our remaining debt in June in 2026 is now approximately $340 million. As I said, there's still more to do, but the progress is undeniable. Since the beginning of 2022, we've raised more than $1.3 billion of gross equity capital. We've lowered the principal value of our debt and finance leases by $888.3 million, and we've repaid $268.8 million of deferred leases. All of this for total debt and deferred rent reduction of $1.16 billion since the beginning of 2022. For now, our capital allocation priorities remain One, ensure that we have sufficient liquidity to manage through our recovery phase. And two, continuing the work that we're doing to strengthen the balance sheet by extending maturities, reducing debt obligations, and improving our financial leverage. Before handing the webcast back over to Adam, a couple of additional points worth noting. First, the deferred rent balance at the end of Q2 was approximately $40 million. We plan to reduce this balance by another approximately $5 million by the end of 2024. We ended the second quarter, as Adam mentioned, with a cash position of $770 million. This translates into $34.6 million of net cash used in operating activities for the quarter. This is roughly $21 million better than in Q2 of 2023, and this despite the box office in Q2 2024 obviously being significantly below that of Q2 2023. TAPEX, net of landlord contributions, was $34 million in the second quarter. We continue to expect net TAPEX in 2024 to be in the range of $175 to $225 million. From a theater portfolio perspective, we continue to actively manage our footprint. During the second quarter, we closed nine underperforming locations. This will bring the total number of locations closed since the pandemic began to 178. Total number of new locations opened to 60 for a net reduction of 118 locations, or 11.8% of our locations at December 31, 2019. And, of course, we continue to see that the 60 new locations significantly outperform the 178 closed locations. So, in summary, duty has been a quarter of indisputable progress. We've materially strengthened our financial position. As Adam noted, the box office recovery from the impact of the Hollywood strikes has very clearly begun with a particularly strong performance in June. We see that same strong performance in July. And as the box office grows, we believe AMC is incredibly well positioned to leverage our operating capabilities to meaningfully grow both adjusted EBITDA and cash flow and finally recover from the challenges of the last four years. And with that, I'll now hand the call back over to Adam.

Thank you, Sean. As I said at the start and Sean just reiterated, we really do believe that the good times are about to roll. and that AMC is very well positioned for an industry and company recovery in 2025 and 2026. It's been a lot of work to get the company to this position, but we can feel it in our bones now based on what we've seen starting with Inside Out 2 and what's happened ever since and with what we know is coming down the pike. Before we move to your questions, I'd just like to touch very briefly on just a few topics. Let me start by saying clearly a significant innovation for AMC last year in 2023 was our distributing, for the first time in AMC's history, a movie and exhibiting that movie. Of course, that movie being the concert film of the Taylor Swift years tour, followed almost immediately by the concert film of Renaissance, a film by Beyonce Knowles Carter. Those two efforts were quite lucrative for AMC. They were perceived to be big successes in the marketplace. They should be perceived that way since Taylor's film was the highest grossing concert film in history. And Beyonce's film was strong. And it's no surprise since that we realized we had an opportunity here. Many world-class artists have come to us. We've gone to many world-class artists. We've had many more such interactions, and I can say with certainty that there will be more such theatrical events ahead of us over the next 30 months. The first of those was in May when AMC, in partnership with Apple Music and Interscope Records, hosted exclusively listening parties at more than 100 of our U.S. theaters for Billie Eilish in the launch of her latest smash hit album, Hit me hard and soft. And just this week, we announced that we will be showing Usher's concert film called Usher, Rendezvous in Paris in our AMC theaters beginning on September 12th of this year, 2024. We're doing so in partnership with Usher, of course, but also with Sony Music Vision and Trafalgar Releasing. We have ongoing conversations right now with several others of the best musicians and the best performers on the planet. And you can expect more announcements from us in this regard as time goes by. That segues nicely into other alternative content. And to that end, we're also very proud to be in an exclusive partnership with NBC to be showing NBC's telecasts of the Paris Olympics right now in many of our AMC theaters across the United States. If you think watching the Olympics is great at home, wait until you see it on a 40-foot screen in our theaters. Of course, that content is shown in our theaters, and I should also mention that it is our intent to continue to invest in our theaters to improve their overall consumer appeal, as are finances, prudently allow through capital expenditure dollars. Speaking of our theaters, what sells first at our theaters is the seats in our auditoriums with large screens. AMC Theaters and Odeon Cinemas in the US, across Europe and the Middle East, have more premium large format screens now than any other movie theater operator in the world. Consumers clearly are showing that they have a preference. They're showing it through their buying habits for large format auditoriums. And so over the course of the next year, I expect that AMC will be making a variety of announcements to further strengthen our lead in having more large format screens than anyone else in our industry. Our marketing team is not only reactive in marketing upgrades to theaters that include our large screen auditoriums, but significant work is also underway right now within our marketing groups to enhance two of the most powerful marketing programs that AMC has ever launched. AMC Stubs, our loyalty program, and AMC Stubs A-List, our movie subscription program. Look for announcements coming about those two programs towards the end of this year and early next. I'm relaying this information to you not to tease you now by hinting that things are coming, but then forcing you to wait for the full announcements later. But instead, my intent is to point out that there are so many, many facets to a company like AMC, and our goal here is to make progress in as much of our business activities as we can. We are always thinking and we're always willing to dare to innovate where it makes sense for us to do so. We're about to turn over the call to fielding your questions, but before we do, I'd just like to remind you one last time why at AMC right now we're so optimistic, we're so bullish as we look ahead to 2025 and 2026. It's very simple. It's four things. We had $770 million of cash at quarter end. The box office is roaring back. We're running our company more efficiently than ever, and our debt extension transactions are literal game changers for this company. We're proud of the fact that we know we're the biggest movie theater operator in the world, and we'd like to think that among the mass operators, we're also the best. What we think is pretty clear to one and all is that because of our size and because of the innovations that we have made, AMC for many years now has been the clear leader in our industry. And let me tell you what leaders do, what they do best. What leaders do best is they lead. And so now with what we believe is finally the wind in our back at AMC, We intend to continue to lead and to be out front. With that, thank you for listening today, Sean. Let's turn to taking questions both from our equity research analysts and from our retail shareholders.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Eric Wald with B Reilly Securities. Please proceed with your question.

thank you and good afternoon adam and sean um i guess obviously doing doing great here domestically um with the shared gains and improved monetization i guess maybe give us an update on on the current state of the uk um and your international markets you know what are you seeing there with underlying movie going demand relative to the us um how its pricing power um improved or not uh in recent months given the competitive environment there and lastly how do you view the opportunity to take share internationally, either organically or inorganically, with some competitors struggling in closing locations.

First of all, hello, Eric. Nice to hear your voice. And since Europe reports to Sean directly, I'm going to let him answer the question first, and then I might chime in after. Go ahead, Sean.

Sure. Hi, Eric. So the European business, overall the industry in Europe has been responding quite well. The industry performance in Q2 24 is actually better than in the domestic market. But the thing about the European business is a couple of things. One, from an operating leverage point of view, inherent in the structure of that business is it has higher operating leverage than what we have here. That's just part of the inherent structure there. So when you have a situation where attendance is down on the previous level, year's quarter, and attendance is still significantly down versus 2019. You do have more of an operating leverage impact there. So one has to bear that in mind when looking at the European results. The other thing one has to bear in mind when looking at our European results is if you look at the percentage of theaters closed in Europe versus percentage of theaters closed in the U.S., closed a higher percentage of theaters in Europe than closed in the U.S. The third thing to bear in mind with the European business is the market there is different from the U.S. market in that during the pandemic and for a while after that, many of the competitors in the market received government assistance. So you haven't seen that level of theater closures yet as we saw in the U.S. market. So those are all factors impacting the performance of the business there. As you heard in my prepared remarks, our business there is doing well. The contribution margin profitability is high, significantly higher than it was pre-pandemic. It's actually slightly higher than it is in the U.S. With that operating leverage and with the theaters being closed, you do see more of the bottom line impact. Just from the market point of view, the market there is quite challenging, particularly in the UK market. We have a competitive situation there where it's somewhat irrational pricing from one of our competitors in the UK market. That irrational pricing is not sustainable for them, but that is creating some pressure on our ability to take price increases there. But as I said, that's not sustainable for them, over the long period of time. So we do see our ability to take market share as things sort of normalize there to certainly get better. But that's sort of my perspective on the European market. I don't know if Adam. No, that's all right.

I would just make sure they come in the UK in particular. There is one circuit that's pricing movie theater tickets privately in bulk, you know, They're doing sort of an institutional business-to-business program as low as three pounds, which is lunacy. It's idiocy. But it'll be very hard to take. But if that's what they're doing, market share will move in their direction. It'll be very difficult to take share back when a competitor is practically giving it away free. But... we're very proud of what we're doing in Europe, and our European team, first of all, we run our European theaters from Europe. We don't run them from Kansas City, which is the best decision we made as a company eight years ago, because there aren't a lot of people in Kansas City who speak Portuguese. But they've really done a great job running the circuit there. We've come up with a lot of imaginative ideas, and one that I just want to It wasn't in my prepared remarks, but I talked about large screens, and they've done something I think is quite interesting that I might share. In almost all of our buildings, we have movie theater screens that are quite large, and we've never marketed them as anything special, although that's where the newest, most important movies go, because it makes sense. You would put, you know, if... Inside Out 2 is coming out. You're not going to put it on a small screen way in the back. You're going to put it on the biggest screen that you have in the entire theater complex. And so what Odeon did earlier this year is they branded these large auditoriums with large screens, like really large screens. And they branded them XL as their shorthand for extra large and started to market them. as being exactly what they are, a better movie experience than even other screens in the same theater because they can be as much as double the size of other screens in the same theater. And that's a really smart idea that we might try to bring over here in the United States because there's almost no capital required to implement the idea because the large screen is sitting right there. It just hasn't been... packaged and tied up with a nice little bow and marketed to consumers as being exactly what it is. And right now we have 67 of these things in Europe already. So our team in Europe is really quite good. And, you know, we're proud of them. We're proud of the business. And as the box office grows, you know, Europe will be the beneficiary of the growing box office just the same way that we here in the United States will be the beneficiary of the growing box office. As you all know, the whole of our industry is not doing as well with the $9 billion box office as we did with the $11.5 billion box office, which is basically what we had five years in a row pre-COVID, or a $10 to $12 billion box office, which we had 11 years in a row pre-COVID. We're still not back to those levels yet, but obviously we're quite bullish that the box office is going to grow. In the second half of 24, we think it's going to grow in 25. We think it's going to grow in 26. And that should boost profitability levels across the whole of the industry, but certainly across all of AMC, and not only in the U.S., but also in Europe.

Perfect. Thank you both. Appreciate it.

Thank you. Our next question comes from the line of Chad Benham with Macquarie. Please proceed with your question.

Afternoon. Thanks for taking my question. Wanted to continue the conversation on operating leverage, but maybe focus it back here on the U.S. A few times in your prepared remarks, you talked about June results, I guess really without giving us the exact numbers, but wanted to think about margins here. So for the quarter, your domestic margins were 6%. pre-pandemic, you guys were in the mid to high teens. So I guess maybe the best way to ask it is, is there anything that you're seeing in the business in terms of where it is now versus before or anything that you saw in June that makes you think that you can't get back to those margins that you experienced in 19? Thanks.

Thank you, Chad. First of all, hello, Chad. I'll start and then I'll pass it off to Sean. So You know, we just don't want to get, start to, you know, we release quarterly results. We don't want to make the mistake of releasing monthly results and then have to release monthly results forever after. But you should, without giving you a quantifiable number so we set the precedent of having to tell you what every single month is going forward in perpetuity, I think the way to describe our profitability in June compared to that of April and May, and by profitability I'm referring to adjusted EBITDA, is I think there's a technical term called through the roof. And there might be a curse word there for the roof. Like the difference between April, May and June is just, it would take your breath away of how much of a change. And that's why in my earlier remarks, I kept on saying this is such a strange quarter where you can't really even look at the quarterly results because the April-May results are so radically different than the June results. Now, as to your specific question about margins, can we get back to historic margins? Sean, do you want to take that one?

Yes. Starting off from what Adam said, by definition, what these prepared remarks is that the June EBITDA was higher than June 2019, right? So by definition, our EBITDA margin in June 2024 was higher than it was in June 2019. And I think to your question, like, is there any reason why we shouldn't be able to do that going forward? I don't think so because Remember we spoke about the contribution margin per patron and the contribution margin profitability so much higher than it was pre-pandemic. We've been able to sustain that now for year after year. We were concerned initially, is that sustainable? Back in 2021, beginning of 2022, is that sustainable? It only got better. It only got better. And I think the actions that we've taken, particularly on the food and beverage side and enhancing the guest experience and with potential new investments in PLS, et cetera, I don't see any reason why we shouldn't be able to return to those sort of margins as the industry recovers.

And I would just add, when you look at F&B, right, these numbers are pretty public. If you assume that – it's not a perfect assumption, but if you assume that labor stays constant in a theater – regardless of volume, which isn't really totally true. But we do have to step up a little bit as volume increases at the theater. But if you were to make that assumption, you already know what our film rent is. So you know what percentage of ticket price flows through the contribution line. Prior to all those other expenses that you have to cover, like labor, but I'm pretending that that's fixed at the moment. We've been very public over the years saying that our margins in F&B are in the low 80% range. And you have our food and beverage revenues released for the quarter. And if you go back and compare the food and beverage revenues of 2024 against the food and beverage revenues of 2019 pre-pandemic, you're going to see that we used to be doing about $5 a head in food. And now we're doing $9. And I'm talking about you. You're using US numbers. I'm not using consolidated numbers. And now we're doing $9 a head, sometimes $10 a head. Depends on the day, week, month, quarter. Well, by definition, that extra food and beverage revenue has much higher margins. than our other revenues. And that's where we've seen the biggest growth. The biggest growth has come in extra food and beverage revenue. And so that's not the only reason, but that's one of the key reasons why the profit per patron is up so much. The other reason that the profit per patron number is up so much is because we've really just done such a great job in cutting costs. And remember, we had In my prepared remarks, I said even though the box office was down 3.5% June over June, the adjusted EBITDA in June was up. So what that means is it all came out of expense cuts. Now, that's comparing June of 24 to June of 23. If you compare June of 24 to April and May of 24, then the big and profit drivers in June of 24 versus April and May of 24 is a combination of the expense cuts and the fact that the revenues were so much higher in June because the box office was so much higher in June than it was in April and May.

That makes a lot of sense.

Thanks for everything, Adam. But the point of that long-winded answer is to say, I believe our margins are going to look really good. And if you... I mean... I said in my prepared remarks that more than 50% of our incremental dollar flows to the contribution line, right? And in some cases, it's a lot closer to 65% than over 50%. Well, in an industry where the revenues are increasing and 65% of the marginal dollars flow to the bottom line, not the debt profit line, but the EBITDA line or the contribution overhead line, That's huge operating leverage. And conversely, if the revenues are shrinking, which is what we've been dealing with for the last five years of our lives, four and a half years of our lives, that incremental operating leverage works against you. And so every dollar of revenue that we lost, we were losing 65 cents from the unit down line. But it's, in our opinion, And by the way, for full disclosure, we could be wrong, right? I don't think we're wrong. We have a lot of data that proves we're right, but no one's crystal ball is absolutely perfect. But if we're right that industry revenues are about to grow and AMC revenues are about to grow, and recently we've been gaining market share, not losing market share, which means if that were to continue, and there's no guarantee that it will, but if it were to continue, it means we would even grow faster. it means our margins are going to expand because our overall margins are in the teens and our incremental margins are in the 50s and 60s. There's a big difference. So I think there's a possibility as opposed to, like, is there a chance we can't get our margins back? I think it might go the other way. I think it's a possibility. The probability is our margins will actually start to expand. Yeah.

Great. Thank you both very much. Appreciate it.

Thank you. Our next question comes from the line of Jason Bazinet with Citi. Please proceed with your question.

I just had a quick question on the theatrical window. Do you mind just giving us an update on sort of how the contours of the window have changed and whether that's good or bad? Sure, Jason. Thanks. Yeah.

It is Friday night. It's an hour later on the East Coast, so I'll try to talk shorter. In the good old days, I'm going to use U.S. only because the windows are different in every country in the world. But U.S., in the good old days, pre-pandemic, the windows were 74 days before the movie went to a pay window in the home. And then it might have gone to DVD. And it might have been six months before it went to the home for free. I want to say for free, you know, like going on the home HBO, you know, where you're not paying a, you know, you're subscribing to the service, but you're not paying individually for the title. Understood. There was a lot of experimentation during COVID. People tried a lot of different things. And you've heard of all the things they did. Some studios took movies to their streaming services and took them out of theaters. And by the way, a lot of studios tried lots of different things. So when I say some studios, I don't mean a studio only did one thing. They might have done multiples of these. Some of them tried to take the movie to the home day and date the same day that it went to theaters. It went to the home on a streaming service. Sometimes they took it to a streaming service free. Sometimes they took it to a streaming service for pay. One student in particular, with our full agreement, we entered a deal with Universal that they would take a few movies that were small to a pay window at 17 days and we would share in the revenue of that. That was later amended to they would take small movies at 17 days, and they would take big movies at 30 to 35 days. But with all that experimentation that went on, what the industry coalesced around was a 45-day window exclusively in theaters. And after that, it could go to the home on streaming services. So you'd have to pay to have the streaming service, but you didn't have to pay to have the title. And the only exception to that was the universal PVOD deal and occasional PVOD deal that somebody might throw at us on an ad hoc basis. And there weren't that very many movies that were going in the PVOD system. So if I had to guess, I would say 90% of the movies coming out were observing a 45-day cruise with the out of the window. Okay. It's unclear... whether that was just fine or whether theaters have been hurt by it. Well, the reason I say it's unclear is because you know the box office is not yet back to pre-COVID levels. So how much of that is because there have been fewer titles and how much of that is fewer attendance? It looks to us like it's more fewer titles is causing the drop in the box office, not lesser attendance per movie released. So right now we think the 45-day window has not hurt us, but we don't know that for sure. And we'll learn a lot more over the next 18 months as clearly the number of titles increases, the revenue is going to increase, and we'll see. The only reason I mention all that is there was one other learning. Warner Brothers, for one year, took all their movies – to Max on the same day for free as they put them in theaters for pay. And they compensated us for that somewhat, not entirely, by dramatically reducing the film rent that we were charged. But I will tell you that was a disaster for theaters. And our quantification is when movies went to the home for free the same day, that they were released to theaters for full price, we lost about half the audience in theaters. Now, you'll notice that that went away from the industry because it would have destroyed the whole industry. But it's unclear whether the 45-day window is okay, but it might be. It might not be, but it might be. But it was very clear that going to the home day and date was a disaster. I'm not saying it was a disaster for Warner. I'd say it was a disaster for the theater industry.

Crystal clear. Thank you. It's very helpful.

Thank you. Our next question comes from the line of Jim Goss with Barrington Research. Please proceed with your question.

All right. Thank you. I wanted to ask you, Adam, about the screen-based rationalization effort. You've been... carrying back on both the domestic and international screens, especially domestic. Typically that happens when leases come up for expiration and you decide to extend or end the lease. I'm wondering what share of the decision tends to go to extension versus ending the lease? Do they tend to be focused in the AMC classic markets? And is there more room to run on that?

Look, we've closed 160 theaters out of 1,000 in the last four years. So if a theater is a money loser, and it's at the end of its lease term, we sit down with the landlord and we discuss it. And there are any variety of outcomes. Often the landlord will renegotiate the rent terms and make them more favorable such that we can keep the theater open. Sometimes, jointly with the landlord, we decide that the best course of action is to renovate the theater and invest in the theater and improve the product with the hope of driving more revenue with the theater, which would then support a different rent structure. In other cases, the rent structure is removed from fixed price to variable price, which is to say that You know, instead of we take all the risk, like the rent is X dollars no matter what the volume of the theater is. In some cases, we are successful in convincing the landlord to take a percentage of revenue. So the landlord can make more if the theater succeeds, but the landlord takes less if the theater can't sustain a higher rent. And sometimes we have to close the theater. If I had to guess on the percentage, I mean, my real estate guy knows it like intimately. And he's told me 20 times, and I think I have it directly right, but I might be marginally off. I think we wind up closing about 40% of the theaters where we have those conversations with the landlords at the end of lease. And about this, again, these are round numbers, but about 10% of our theaters come up for lease renewal every year. So, you know, we... So say, you know, 55 theaters come up in the United States every year. 85 theaters come up globally every year. And, you know, more than half of them will stay open on better terms or different terms, but some will close. And I don't know that the percentages are going to change. Well, actually, I do know the percentages are going to change. As we look ahead... as opposed to looking back. We will continue to close tired, worn out, end of their life stage theaters, especially where the market rents are too high to support the revenues of the theater. But my prediction is here's what's going to happen. We've just said on this call over and over again, the box office is about to grow radically. If the box office grows radically, the profitability of the theater will rise. and it will rise precipitously. And if the profitability of the theater rises precipitously, then there won't be as much desire by a theater operator to close it, because by definition, more theaters will be profitable, or more theaters will be more profitable than they were previously. Some won't rise to the level to get above the threshold from losing a lot to making a lot, Some may go from losing a lot to losing a little. Those stills will get closed. But in an era of rising revenues, that means an era of rising profitability. That means fewer theaters should close. But we're not quite at that point yet. I mean, I think that might be a year away. And in terms of whether they're – they're not all classic theaters. Some of them are classic theaters, and a healthy chunk of them are classic theaters. But there are plenty of instances where you've got big theaters where the rents are just out of kilter because somebody signed a contract 10, 15, 20, 25 years ago, took on a theater and agreed to a rent and an escalator clause where it might have worked 20 years ago, but it's just out of kilter today. Or similarly, there might be theaters that weren't classic theaters that were in good retail malls but not great retail malls. And in the course of 15 years from when the original lease was established, the mall itself has become a failing mall, in which case the theater is going to be a failing theater. So they're not all classic theaters, but, you know, a healthy percentage are.

Okay, well, thanks for taking my question.

Thank you, Jim. Nice to talk to you again, as always. Same here.

Thank you. Our next question comes from the line of Alicia Reese with WebBush. Please proceed with your question.

Hi, guys. Thanks for taking the question. I had a quick question really on the concessions per cap and margin. Just looking at the specialty popcorn buckets, and assuming that there's obviously going to be a bigger benefit in quarters where you have titles like Dune II, Deadpool, Wolverine, and such. But I'm wondering if what you're seeing there on films like that, I do understand that you only offer that in the very early days of the film's release, but are you seeing a larger basket of concessions purchased around that? Obviously, are you going to get higher margins on that? I was just wondering if you could give a little bit more detail around that.

Well, we're learning as we're going. And we built this up from basically zero to $50 million a year in 30 months, which is pretty good. And we didn't want to get stuck with a lot of excess inventory. So we tended, as a company, our strategy was buy for the biggest movies only. and buy enough quantity that you can kind of last the whole of opening weekend. But you weren't stuck with a lot of excess supply beyond opening weekend. And the first learning is we can do a lot more movie programs than just a few. So when we started this thing, we were doing maybe six movies a year, maybe eight, maybe four. I forget exactly, but it was single digit. And now we're practically doing them every week, almost every week, but certainly twice a month. So I'm guessing we have 30-ish, maybe 40 merchandise programs a year now. And the other thing, the next thing that we've learned is whether it's because we've trained the consumer to like these things or the consumer just likes these things, they're flying off the shelves. And so the other thing that's happened is to, Satisfy the full opening weekend demand. This is a high-quality problem, not a bad problem. We've had to increase how much of the stuff we order. And remember, we order like eight months in advance because it's often made overseas and shipped to the United States. And so we've had to increase our orders. And it's getting so popular. that we might have had one movie-themed merchandise item for a film, and now we'll have three different merchandise things for a film. And in the case of Deadpool and Wolverine, where we ordered about 50% more than we've ever ordered before, we were sold out by Thursday night around 5 o'clock, which is mind-blowing to us. So one of the learnings is these are very popular. We're going to wind up doing more movies, not fewer. We're going to wind up doing more merchandise items per movie, not fewer. We're going to order larger quantities. We might not be so insistent that we be, you know, sold out at the end of the first weekend. We might be willing to take the risk of ordering enough to last two or three weekends. Right now, you can only buy this stuff really easily at our theaters. We haven't yet worked this onto the web yet where people can buy this stuff online. But we went from zero million to 50 million in two years, and I think we could double it again. So I think there's real upside for us. And then some of the merchandise items is sort of geared for commemorative cups for soda purchase, commemorative popcorn tins or tubs for a popcorn purchase. So it may not only drive an incremental sale of the merchandise item, but it might also drive an incremental sale of a $7 Coke or a $10 tub of popcorn, which is also high margin for us. So it's just like it's an all good news story. And our margins on these concession items are similar to normal retail margins. So you know what normal retail margins are. They're 40%, 50%, something like that. We haven't disclosed the exact number, but you can guess and estimate. You're probably pretty close.

Yeah, it seems like a good program. Were you able to get any merchandise around the Olympics? And also, I was wondering what the ticket price was around that, if you're able to share that, or just qualitatively, if it's higher or lower than typical field tickets?

We did not get Olympics merchandise. And honestly, I don't know what price we're charging for the Olympics. I never asked. I was so excited that we landed it. I never asked our head of programming what she was going to charge. I could tell you what every concert movie goes for, though. To the penny.

Yeah, if you would.

Taylor was 1989 for adults and 1313 for kids. Great. Beyonce was $22. Sorry, go ahead. Sorry, go ahead.

Thank you. I appreciate the detail. And I just had one last housekeeping item for Sean. I think I heard you say the CapEx for the year was $175 to $225, as you had said before. But did you say $175 to $200? Did that come down, or was that still $225?

No, it's the same as it was before, $175 to $220. Excellent.

All right. Thanks for your time, guys.

Thanks, Alicia.

Alicia, if you're still there, we just pulled up the price for the Olympics. It's $8.99 for an adult, $6.69. Oh, great.

That's a reasonable price, so I'll get people in. Thank you.

Adam, let's take just two quick questions from our retail shareholders.

The call has run long, and it is a Friday night. For us, it may be a Friday night in the summer, but this is a 24-7 kind of a place. We didn't actually get the debt extension deal done by working Monday to Thursday, 9.30 to 4.30. But it is a Friday night, so we do want to get off the phone and let you guys go home. Let's take a couple of shoulder questions and then we'll sign off. We'll just take two quick ones.

The first one is about our auditoriums. The question is general. What are the plans to enhance the auditorium experience for the future? What about things like private booths or 4D experiences for our guests?

That's a good question because there's some serious activity going on in this area within the company right now. First, we have about 43 theaters out of 550 that represent about a third of our EBITDA. So these are very successful theaters. This is the opposite of the Jim Goss City Close-On. This is where we make a lot of our money. And so we keep on looking at ways to improve those theaters And at the highest grossing AMC theater in the United States, which is our theater in Burbank, California, it's not every single week it's the highest grossing, but most weeks it's the highest grossing theater in the country, the seats were quite run down. And we didn't have the option of putting in reclining seats because the theater was packed. And the seat loss would have been too high if we put in reclining seats. But we did rip out all the seats. fabric seats, and we put in a brand which were like sit-em-up straight, uncomfortable seats, sort of traditional movie theater seats that have gone by the wayside over the years. But in the words of Yogi Berra, the place was so crowded nobody goes there anymore. The place was so crowded we couldn't take seats out. So what we did is we did replace all those seats, and we put in leather seats, and they were 15% wider. and they had more padding, and they rocked. So you can control, so the comfort was much better. And we had minimal seat loss, and it changed the entire look of the theater and made it look like a car with beautiful leather seats instead of junky, stained fabric seats that had Coca-Cola spilled on them for the last 14 years. We are going to make some press announcements next week about doing that same kind of a program in other places. And we're not going to get to all 43 theaters right away, but we are going to continue to see what we can do to upgrade our profitable theaters. So that's point one. Point two, I think there's an enormous opportunity to capitalize on the consumer's desire to watch movies on a giant screen. That means More Dolby Cinemas. It either means more IMAXs or upgrading. Remember, we were one of the first people to put IMAXs in with a lot of them. So that means maybe converting some regular IMAX auditoriums to IMAX lasers with an upgraded sound system, which is a much better IMAX experience. It also means more of our house label PLFs. iSense in Europe, Prime here in the United States. We have this Excel concept in Europe, which is interesting. I'd really like to see us play up the fact that we have large auditoriums and make sure the consumer knows we have them because that's what the consumer wants. There are other things. 4DX is popular. Some chains have them, and they're a little gimmicky. The seats... bounce around like a rollercoaster seat, and depending upon whether it's D-Box or 4DX, it sprays water in your face when it's raining on the movie screen. We at AMC believe that there's a possibility one could put something like that in. There's another concept called ScreenX, which is a wraparound screen where the screen not only covers the front, the normal screen, but it comes up about a third of the way on either wall around you to give you sort of an envelope feel with obviously more of the image on the screen. There are a lot of things we could do, but what we think is the most relevant for the consumer and the one where we already have a big presence, we at AMC, we're the place where you go for a premium large format screen. And I think if we increase the number of our large screens, that's the smartest thing that we could do. And just to tell you why we're doing this, the premium large format screens, and this is not just IMAX and Dole because we have some house brands too. But if you add up all of our PLFs, we have 421 of them in the United States. We have 550 of them globally. Those are exact numbers. And they represent about 5% or 6% of our screens globally. And they represent about 20% of our revenue. So, and there are some, in the case of Inside Out 2, the typical PLF seat sold seven times more tickets than the typical seat in a non-PLF auditorium. So, and in very, few cases does a PLF auditorium sell fewer than three times as many tickets as a regular seat in a regular auditorium. So the large format screens are very successful and that's where I think we have the greatest opportunity and that's where I'd like to see us really make a big dent in improving the product at EMC. The second area where we go is also in the food and beverage area and we continue to change menus on a monthly or quarterly basis. We continue to try to find consumer-pleasing items because if they're happier at the concession stands, they're going to be happier in the theater experience. If they're happy with the experience, they'll come back more and more. Other questions, Sean?

Yeah, the last question, staying on the theme of investment opportunities, the question is sort of where are we focusing on investment dollars, and I think you've spoken about that right now. But then it goes on to say, are there investment opportunities outside of the exhibition industry that we would consider?

So this is an area where AMC has had our head jerked around a bit in the last year. Because exactly a year ago at this time, we thought, based on the number of authorized shares that we had in our share price, that If we were to use all those shares, not that we would, don't get nervous retail investors. You know, these shares are quite precious.

Quite precious. Give me one sec.

We might have been able to raise $6 billion. How did we... trying to sell those shares at market, not that we would have done so. We would have only done so if we had something really good to do with money, and we didn't have anything that brilliant to do with money. But our share price has come way down in the last year. And today, based on the current share price, we could probably only raise about $500 million. And if we only could raise $500 million, and if you add that to the $770 million of cash we have now, That money needs to be husbanded very carefully to make sure that our liquidity position is strong, that we can bring in debt as we need to bring in debt. We still have about $450 million of debt that is currently due in 2025 or 2026. Some of that we might be able to push out and extend it, but some of it we might buy back. Some of it we might buy back at a discount. We also need money to invest in growth initiatives inside the business, like more PLF auditoriums, like I just described a few minutes ago. So I think right now, external M&A, if we were doing, it would only be if we were investing a very small amount of money. You know, $25 million, not $1 billion. And So right now, external M&A is not our highest priority because we think that we should treat the cash that we have as precious. We should treat the shares that are in the treasury that we have not yet used as precious. And so I think we've got to grow the business internally and organically for now. With that, everybody, We're going to end the question in session. I'd just like to close the call by reminding everybody that the challenging first half of 24, which was impacted by the 2023 strikes, is behind us. It's in the rearview mirror. So now at AMC, we believe we're off to the races. We're highly confident that the box office will be growing in the second half of 24. We're highly confident that box office will be growing in 25. We're highly confident that box office will be growing in 26. And that's good news for us, and that's good news for people who want us to succeed. With that, thank you very much for your time today, and we'll adjourn the call. We appreciate you joining us.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.