AMC Entertainment – Food & Beverage Revenue & Labour Expense Dynamics Post-recovery – 1 December 2021

What is the likelihood going into 2022 that we will reach close to the USD 11bn domestic box office in the US, keeping in mind the Omicron variant? Through September 2021, the industry is still 75% below 2019, 16.6 million attendants year-to-date relative to 264 million the year before.

Are there cohorts permanently turned off of the movie-going experience from what might have made up that 264 from the first three quarters of 2019? I’m thinking of particularly the 18-34 single group, so much as the families and the elderly are likely to return more quickly.

What is the window of opportunity for an exhibitor to consider transformative growth CAPEX opportunities, when considering attendance is still so low? Exhibitors are still managing cash flow and there’s also so much debt that got put on the balance sheet for someone such as AMC. Even to the extent that you get back into full-fledged recovery mode, then there’s balance sheet management to be considered.

Do you consider the A-list subscription members AMC has the core piece of the end customers it is catering to? How do you find a balance of trying to cater to the 24 million-plus that are subbed vs also trying to pivot and broaden what AMC’s real estate footprint can cater to? How do you make sure you’re not ignoring your loyal movie-goers, but also trying to broaden the TAM that it’s aiming to cater to?

It seems the extent to which product availability is so low for exhibitors is somewhat related to the attendance declines. AMC CEO Adam Aron stated in the most recent earnings that Q3 2021 attendance was 46% that of Q3 2019, but when you consider that on a per-showtime basis, it’s actually 67% of Q3 2019. Why would the company not start to put more products into the market, given it seems the attendance, when you compare it on a like-for-like basis in terms of total showing hours, is a more positive story? To the extent that it’s a function of not getting as lucrative box office numbers on a per-movie basis, what other event types could start driving attendees back into theatres, regardless of whether or not it’s for a movie?

What events make sense to make up for the shortfall on the movie product side in the interim, or even more sustainably long term? What do you think fits well to your point, that wouldn’t cost AMC a lot of money to market itself to those types of opportunities?

Are AMC, the broader movie theatre industry or the exhibitors over-screened, given the potential opportunities that might exist in the future? In previous Forum Interviews, experts have said AMC is 25% over-screened on average, but it’s screen count moved minimally when comparing 2019 to today. Will AMC’s higher-quality be part of that rationalisation story, so much as a fading as the mom-and-pops?

Is there anything unique on that front across the different exhibitors? What will drive a different recovery story for AMC relative to Regal Cinema, Marcus or the mom-and-pops? What is most differentiated in terms of studio relationships, quality of locations and cost structure? In its Q2 2021 earnings, Cinemark was able to go flat EBITDA at 65% below peak, whereas AMC had a meaningful loss. Do you expect there’s a cost structure for the businesses when we compare them?

We’ve discussed AMC has a pretty high fixed cost. Presumably, when you go through a distress period such as the pandemic, you put that high fixed cost base under scrutiny. Do you think there were opportunities to make the F&B [food & beverage] business or even OPEX as a whole for the movie theatre at AMC more variable than fixed for post-pandemic vs pre-pandemic?

Would you say labour is overly optimised at theatres and that much of those growth opportunities from new and innovative events would require not to try and optimise labour further? How will the labour costs for this business be considered from a rationalisation standpoint, and would that be a smart choice for a longterm growth strategy?

How savvy are landlords regarding opportunities AMC or other exhibitors might be thinking about longerterm? What does that make you also think about in terms of rent? It would seem exhibitors received a lot of rent relief during the pandemic. How does that make you think about that being deferral vs permanent rent reduction? Are landlords aware there might be impending opportunities that make the real estate a lot more valuable?

Is there a sustainable positive ROI for an in-theatre dine-in model such as MacGuffins? How much more should we expect from that? While this may seem to be a good strategy to reinvent over the long-term, a dinein model may not be the most optimal in the sense the company is still thinking about cash burn, the labour necessary to go to a dine-in model and the impact on dine-in from the Omicron variant. Will these strategies be executed over a 12-24-month period, or is that something that needs to be considered longer-term?

Does dine-in’s value proposition inform that there’s even more upside to what’s been already unprecedentedly high F&B per patron revenues? Is this more of a splurge by the early returners on concessions for their first few revisits vs a sustainably higher propensity to spend in the movie theatre building in terms of who the end consumers are? Is there room to drive that F&B spend up more by innovating, or is it part of the recovery story that will normalise?

What should AMC focus on in the interim to drive a better capture rate for people coming into the theatre and not spending? What would drive that to be better across the board and not concentrated towards those higher-spend core visitors?

Does AMC have room for improvement for mobile ordering, or is it already improving either capture rates or order sizes to make the experience more streamlined for the customer?

What has occurred to broaden and improve the menu already, perhaps even pricing items more properly and not under-monetising? What runway exists for that still?

How do you think about inflated commodity or input costs for the F&B business, as well as wage inflation and staffing challenges you referenced earlier? How challenging and how much longer do you expect those cost challenges to exist for AMC?

F&B costs are already 16% of the revenues, which is what they were pre-pandemic. Do you feel those cost impacts are already being felt in the P&L, or will that be something that’s more of a 2022 dynamic? Would you anticipate those costs to be passed on via temporarily higher pricing on other food items, or is that something that will drive that percent of revenues for the cost for F&B up temporarily for 2022?

When considering OPEX as a percent of revenues for AMC, it’s 10% higher than it was in 2019. Is that fully due to wage inflation, or might some of that be might because of F&B, perhaps a rent catch-up given it was more deferral vs reduction? Are there other factors that might be contributing to the higher percent of revenues that OPEX is?

Would any increases to ticket prices have a negative impact to the F&B per caps?

What opportunities for various upgrade projects exist for exhibitors? The most simplistic one is just a seat retrofit.

Would it better to be the first vs the follower to do an upgrade project? Is there an opportunity for a player such as AMC to do it more efficiently if it waits for someone else to reinvent themselves, given it’s at a scale where it can potentially do that? Will AMC be the frontrunner to reinvent itself vs Cinemark, Regal, or a midtier player such as Marcus?

What is your outlook for what AMC’s business might be in 5-10 years?

Do you have any closing remarks?