October 13, 2020
With a delayed release slate and moviegoers wary of COVID-19, AMC Entertainment, parent to the world’s largest theatrical chain, said it will be out of cash by the end of the year or early 2021 without a renewed external infusion of funds.
Cash burn, or monthly use of cash to fund operations, is impacted by, among other things, the timing of resumption of theater operations, the timing of movie releases and the slate of future releases, theater attendance levels, landlord negotiations and minimum lease payments, costs associated with the enhanced safety and sanitation protocols, and food and beverage receipts.
“To meet its obligations as they become due, the company will require additional sources of liquidity or increases in attendance levels,” CFO Sean Goodman wrote in the Oct. 13 filing. “The required amounts of additional liquidity are expected to be material.”
AMC said it has generated about $40 million to date selling new shares of stock, in addition to lopping off hundreds of millions of dollars owed on long-term debt.
The filing revealed what most observers already knew: The exhibition business is facing extinction if pandemic conditions remain the same and liquidity issues aren’t further addressed. And even if they are, the business realities facing theaters is dire.
“There can be no assurance that the assumptions used to estimate our liquidity requirements and future cash burn will be correct, or that we will be able to achieve more-normalized levels of attendance described above, which are materially higher than our current attendance levels, and our ability to be predictive is uncertain due to the unknown magnitude and duration of the COVID-19 pandemic,” Goodman wrote.
The filing stands in contrast to the confidence CEO Adam Aron has been projecting in recent weeks, including boasts that AMC, unlike rival Regal Cinemas, could remain open in the current business climate due in part to its groundbreaking distribution agreement with Universal Pictures. That deal allows Universal to significantly shrink the theatrical window in exchange for sharing revenue from early transactional VOD and premium VOD releases in the home.
As of Oct. 9, AMC had resumed operations at 494 of its 598 U.S. theaters, with limited seating capacities of between 20% and 40%, representing approximately 83% of the U.S. theaters and 77% of 2019 U.S. same-theater revenue.
Since the resumption of operations in its U.S. markets, AMC said it has seen more than 2.2 million moviegoers frequent theaters, representing a same-theater attendance decline of approximately 85% compared to the same period a year ago.
The remaining 17% of the U.S. theaters left to reopen are primarily located in California, Maryland, New York, North Carolina and the state of Washington, and include some of the chain’s most productive locations, representing approximately 23% of 2019 U.S. revenue.
Twenty-five theaters in North Carolina and Washington State are scheduled to reopen Oct. 16. AMC says it has an “active dialogue” with local and state government officials in the remaining states, however, there is “limited visibility” around the timing for resumption of theatre operations in these locales.
Meanwhile, AMC’s fiscal situation not only affects employees and shareholders, but landlords as well. The company said it had resumed operations at 308 leased and partnership international theaters. This represents about 86% of its international screens and approximately 90% of 2019 international same-theater revenue. Since the resumption of operations in its International markets June 3, AMC has seen more than 5.2 million consumers return, representing a same-theater attendance decline of approximately 74% compared with the same period a year ago.
“It is very difficult to estimate our liquidity requirements and future cash burn rates, and depending on the assumptions used regarding the timing and ability to achieve more normalized levels of operating revenue, the estimates of amounts of required liquidity vary significantly,” Goodman wrote.
Micheal Pachter, media analyst with Wedbush Securities in Los Angeles, doesn’t expect attendance levels to begin to normalize until mid-2021. He said that with 30% of moviegoers in the 50+ age group and another 30% between 30 and 50 (according to MPAA, 2018), a significant portion of moviegoers are not going to be bold enough to return to theaters without a virus vaccine. Losing a substantial portion of this demographic, and especially their children, is driving studios to delay theatrical releases.
“We think the relatively lackluster domestic box office for Tenet, juxtaposed with the seemingly tepid response to Mulan as a PVOD release, have made film releases seem like a risky business in the current environment,” Pachter wrote in a note.