AMC reports after the bell – here’s what to expect

Macquarie Group senior analyst Chad Beynon discusses his expectations for AMC, which is expected to release its second quarter results after the bell on Monday, as well as its outlook for the film industry.

Video transcript

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JULIE HYMAN: AMC Entertainment, set to release its second quarter results after the bell today, and joining us now in discussing what to expect is Chad Beynon He, Senior Analyst at Macquarie Group. Chad, as far as numbers matter for the diehard for AMC, let’s talk about what to expect here. As Brian Sozzi mentioned earlier, Cinemark reported at the end of last week, and maybe we can extrapolate some encouraging things for AMC. What’s your perspective?

CHAD BEYNON: Of course, thank you for having me, Julie. So a few of the highlights that we’ve talked about from Cinemark and then some of the other chains that have released second quarter results. What we saw was that revenue was generally down around 70% from the comparable two-year period in Q2 2019. However, the big plus for everyone was actually an opportunity to invest. ” balance cash flow. And that’s what we saw from Cinemark, from Marcus. IMAX was another company. A little different business model, but again they burn less money or actually no money which is good for the future.

But on the basic fundamentals, clearly, we’re seeing a drop in demand for films coming out. This was demonstrated this weekend with “Suicide Squad”, which is a bit below expectations. For the second half of the year, we expected US admissions revenue to be between 10-25%. We have lowered our estimate. And then that lowers our estimate for 2022.

BRIAN SOZZI: Chad, do these companies, AMC, Cinemark, still have this access to capital that they potentially need later this year?

CHAD BEYNON: I think AMC was able to resolve these issues during the past quarter. They will talk about it tonight on the conference call. They still have a significant amount of deferred rent that they will have to pay. These were not debt relief leases. But yes, currently they have cash on the balance sheet. They will burn less. I’m not sure if they will be able to access the markets as they were in Q1 and Q2, given what happened with the proxy and the lack of options for AMC.

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BRIAN SOZZI: Out of all the major movie channels you see some of the action we show on screen, AMC, Cinemark, IMAX, National CineMedia, is there a movie channel you are worried about that maybe won’t survive not at that?

CHAD BEYNON: From a margin perspective, IMAX is a very light business model. They have a healthy track record. They are in the best position. They have global diversification. This stock has been hampered only by what is happening in China from a headline perspective. Cinemark, on the traditional exhibitor space, generated margins of 25% before the pandemic.

When we spoke to them on Friday, they actually said they still think they can get back to those levels. They have very low costs in terms of utilities, labor, wages, et cetera. And they are more outside of urban markets. AMC is still the right one, just because their rent is extremely high. They’re located downtown, New York, LA, Chicago, some of those bigger markets, and it’s just going to be more difficult for them to generate positive margin and positive free cash flow.

MYLES ABROAD: And Chad, just thinking about the general setup of the movie industry, I mean, we heard a very different tone from Viacom last week when they released their results, trying to be very, and we talked. To the CFO of the program, I thought they were trying to be extremely explicit in their friendliness with talent, say, compared to other brands that we’ll be hearing about later this week. Have we perhaps underestimated the change that has taken place with film distribution during the pandemic? And have we opened up a Pandora’s box here, to use the industry phrase, and maybe that isn’t reflected in some movie channels as much as it should be?

CHAD BEYNON: I think we cannot be naive in the conversation around movie theater windows. We won’t be going back for three or four months. Before the pandemic, the average was around 75 days in the cinema compared to at home. Now it certainly happens somewhere between 30 and 45 days. I think all studios think this is the right model. They always believe that there is something created and generated in the theater.

But the consumer wants things now. They can’t wait three or four months like they maybe years ago. So they had to adapt. And I think it’s just something we’re going to have to live with. And with the daily releases, as we’ve seen with some of these movies, it’s going to be a very sticky situation, because as we’ve seen with Scarlett Johansson, a lot of the artistic and financial perks that come into the industry are not being rewarded like they were in the previous business model.

JULIE HYMAN: And Chad, I wanted to ask a question about “Suicide Squad” because he didn’t meet his screenings in theaters this weekend. And what are we going to take away from it? Should we take away that people are worried about the Delta variant and that there are more important implications for the theater sector? Is it just because of this movie? What’s your takeaway?

CHAD BEYNON: Yes, I think we had lowered our expectations due to the compliance of the masks and the Delta variant. But this has come below, to your point. This may be due in part to earlier reviews of the previous film. One part, I think, was probably the Delta variant. It’s really, it’s hard to say. I think we are seeing good momentum in the cinema sector. We see it with premium content, premium projections. This translates into good ticket prices and really a move towards IMAX or premium type screenings.

So we were slightly optimistic that it might exceed expectations. These really are the romantic comedies and some of those low budget movies these will take a lot longer to recover. But it certainly hurts the names. I think that’s one of the reasons stocks are down today. They all sold hard in July when their reopening name sold out, and I think that will put pressure on them for the next month or so.

JULIE HYMAN: Hey, Chad, we kind of joked this morning about our own market research that we did on different topics. Have you been to the movies? What did you see ? What did you notice? Are people buying more drinks, less? I mean, what’s going on outside?

CHAD BEYNON: Personally, I haven’t gone back to the movies yet, just considering the approach taken by my family. I think uh, that’s tricky, because the numbers we see clearly show that there is no price elasticity. There are people who want to go and do a lot of things, whether it’s on vacation, to a restaurant, or to the movies, and the operators can charge for anything. And those who want to go will continue to go. So we’re seeing very high prices, but attendance is still well below previous levels.

You have a multitude of differentiated content that will be released in the next few months and which will probably bring me back to this environment. But we have always said that the cinema is a place where children can escape parents and parents can have children, and I think parents right now are not choosing to escape their children, to have a baby. -sitter and go to the movies. They are doing other things that they may not have been able to do in the past 18 months. And it kind of got pushed back up the priority ladder.

JULIE HYMAN: And speaking of you, there are, of course, also safety concerns about bringing it home for your kids. So it is telling that a market research in itself is that you are not there yet. And I think a lot of people are in the same boat. Chad Beynon, good to see you. Senior Analyst of the Macquarie Group, thank you for being here.