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AMC execs optimistic after brutal 2020, streaming negotiations

AMC Entertainment Holdings Inc.'s 2020 earnings report revealed a staggering $4.59 billion loss for the cinema operator, but after months of creative financial maneuvering and intense studio negotiations, the company offered optimism for the future of its business.

Executives with the century-old cinema operator on a March 10 earnings conference call outlined the company's efforts through the pandemic year and assured investors that it is continuing to prioritize ways to raise capital, reduce new levels of leverage and consider strategic alternatives in the face of a business environment that is still far from normal.

"Thanks to developments on so many fronts during the fourth quarter and especially in January and February, I am now in a position to say that I am optimistic and confident about AMC's ability to weather this COVID-19 storm," CEO and President Adam Aron said on the call, adding that the company's "focus is no longer on survival, but now has turned instead to directing a surge in moviegoing and on the recovery of AMC."

During the year leading up to its earnings, the company was forced to reconsider theatrical windowing agreements it holds with studios as those studios launched their own streaming services and increasingly debuted feature films on these services concurrently with theatrical openings. AT&T Inc.'s Warner Media LLC studio has been one of the most aggressive in its streaming strategy. In 2020 it said that it would release all its 2021 films on its HBO Max streaming service the same day as theaters, and Warner Media CEO Jason Kilar recently touted the success of that strategy, including DC Comics blockbuster "Wonder Woman 1984."

Where other studios, Comcast Corp.'s Universal Pictures in particular, negotiated their streaming windowing strategy with theater operators, Warner Media launched its streaming-focused initiative seemingly unilaterally. However, AMC has only agreed to show theatrical films from studios that are willing to do so on terms that benefit its shareholders, Warner Media films included.

"You may have noticed that we are playing Warner Bros. movies right now," Aron said. "You should properly assume that if we're playing Warner movies, we came to agreement with Warner that any changes in their strategy are being done in ways where AMC shareholders benefit as opposed to or being penalized. We are willing to engage with every major studio on the same topic."

Further, Aron gave an optimistic outlook about consumer behavior post-pandemic as consumers adjust to more streaming options and crowded public spaces.

"If streaming is on the rise, then something will change. Maybe film rents will come down. Maybe prices will go up. We'll see. But don't just assume that people aren't going to theaters. Because I think we're going to find out post pandemic that people are going to go to theaters, and they're going to be really happy that they got out of their homes to do so," the CEO said.

The company's business now depends on a timely rollout of COVID-19 vaccines, Aron said, calling Pfizer CEO Albert Bourla the most important person in the film industry.

However, Aron stopped short of giving any specific guidance regarding theater attendance going forward. He did point to the success of the recent reopening of the New York market, which in its first opening weekend added 250% in attendance to the average weekend tracked at the end of January and beginning of February. He also pointed to the imminent opening of California theaters, wherein the Los Angeles market is about twice the size of New York City.

In order to remain solvent through the pandemic-related disruption to both its business and its business model, the company raised a "boatload of money," negotiated with its stakeholders and landlords, closed properties and sold off others.

The company sold $80 million in assets through the year, took on $2.2 billion in gross debt and equity capital since March 2020, and drummed up $1.6 billion in creditor and landlord concessions, CEO Adam Aron said. While executives declined to give a specific figure for its current total debt, after the exercise of certain convertible securities and other "puts and takes" on its balance sheet, the company's pro forma debt at the end of March was about the same as it was at the end of 2020, which will be disclosed in its upcoming Form 10-K filing.

The company is currently taking "a bit of a breather" on debt issuance, Aron said.

By the end of the year, AMC had 7,231 screens in operation, down 32.1% from the 10,656 screens it operated at the end of 2019. Most of the theaters it shuttered, including 48 domestic properties, were "money-losing properties," so the closure strategy will be accretive to company profits as business returns to normal, CFO Sean Goodman said.

AMC held $308.3 million in cash at the end of the year after running a $1.20 billion adjusted cash flow deficit for the full year, compared to positive cash flow of $358.5 million in the prior year. The company's fundraising efforts through the first weeks of 2021 left it with $1.1 billion at the end of February, Goodman said.

"We believe that this cash puts us in a very strong position to weather continued COVID-related disruptions to our business until attendance returns to more normal levels. However, we ... will continue to actively explore alternatives to raise additional capital and reduce our leverage," Goodman said.

AMC eliminated a total of 176 corporate-level employee positions during the year and reduced capital expenditures to $173.8 million, down from $518.1 million in 2019. The company expects to reduce capital expenditures again in 2021 from 2020 levels, with infrastructure spending focused almost exclusively on maintenance costs, Goodman said.

Fourth-quarter revenue was $162.5 million, down 88.8% from $1.45 billion in the 2019 fourth quarter. That came on a 91.3% decline in attendance, down to about 8 million from 92.6 million in the prior-year quarter.

For the full year, AMC's revenue dropped 77.3% year-over-year to $1.24 billion.

The tumultuous pandemic period cratered profits for the theater operator, with its fourth-quarter net loss landing at $945.8 million, or $6.21 per share, compared to a loss of $13.5 million, or 13 cents per share, in the year-ago quarter. For the full year, the company was in the red by $4.59 billion, or $39.15 per share, compared to a loss of $149.1 million, or $1.44 per share, in 2019.

The S&P Capital IQ GAAP consensus EPS estimate for the fourth quarter and full year were $3.32 and $35.12, respectively.