Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10–Q contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “may,” “will,” “forecast,” “estimate,” “project,” “intend,” “plan,” “expect,” “should,” “believe” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions and speak only as of the date on which it is made. Examples of forward-looking statements include statements we make regarding the impact of COVID-19, future attendance levels and our liquidity. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including those discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the following:
● the risks and uncertainties relating to the sufficiency of our existing cash and cash equivalents and available borrowing capacity to comply with the minimum liquidity requirement under our debt covenants related to borrowings pursuant to the Senior Secured Revolving Credit Facility (as defined in Note 6—Corporate Borrowings and Finance Lease Liabilities in the Notes to the Condensed Consolidated Financial Statements under Part I, Item 1 thereof), fund operations, and satisfy obligations including cash outflows for deferred rent and planned capital expenditures currently and through the next twelve months. In order to achieve net positive operating cash flows and long-term profitability, operating revenues will need to increase significantly from current levels to levels in line with pre COVID-19 operating revenues. We believe the anticipated volume of titles available for theatrical release and the anticipated broad appeal of many of those titles will support increased operating revenues and attendance levels. However, there remain significant risks that may negatively impact operating revenues and attendance levels, including changes to movie studios release schedules and direct to streaming or other changing movie studio practices. If we are unable to achieve significantly increased levels of attendance and operating revenues, we may be required to obtain additional liquidity. If such additional liquidity is not obtained or insufficient, we likely would seek an in-court or out-of-court restructuring of our liabilities, and in the event of such future liquidation or bankruptcy proceeding, holders of our Common Stock, AMC Preferred Equity Units, and other securities would likely suffer a total loss of their investment;
● the impact of COVID-19 upon the operations of the exhibition industry; the practices of distributors; and the changing movie-going behavior of consumers;
● increased use of alternative film delivery methods including premium video on demand or other forms of entertainment;
● the risk that the North American and international box office in the near term will not recover sufficiently,
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resulting in higher cash burn and the need to seek additional financing;
● risks and uncertainties relating to our significant indebtedness, including our borrowings and our ability to meet our financial maintenance and other covenants;
● shrinking exclusive theatrical release windows or release of movies to theatrical exhibition and streaming platforms on the same date, and the theatrical release of fewer movies;
● the seasonality of our revenue and working capital, which are dependent upon the timing of motion picture releases by distributor, such releases being seasonal and resulting in higher attendance and revenues generally during the summer months and holiday seasons;
● intense competition in the geographic areas in which we operate among exhibitors or from other forms of entertainment;
● certain covenants in the agreements that govern our indebtedness may limit our ability to take advantage of certain business opportunities and limit or restrict our ability to pay dividends, pre-pay debt, and also to refinance debt and to do so at favorable terms;
● risks relating to impairment losses, including with respect to goodwill and other intangibles, and theatre and other closure charges;
● risks relating to motion picture production and performance, including labor stoppages affecting the production and supply of theatrical motion picture content;
● general and international economic, political, regulatory, social and financial market conditions, including potential economic recession, inflation, the financial stability of the banking industry, and other risks that may negatively impact discretionary income and our operating revenues and attendance levels;
● our lack of control over distributors of films;
● limitations on the availability of capital or poor financial results may prevent us from deploying strategic initiatives;
● an issuance of preferred stock, including the Series A Convertible Participating Preferred Stock (represented by AMC Preferred Equity Units), could dilute the voting power of the common stockholders and adversely affect the market value of our Common Stock and AMC Preferred Equity Units;
● limitations on the authorized number of Common Stock shares prevents us from raising additional capital through Common Stock issuances;
● our ability to achieve expected synergies, benefits and performance from our strategic initiatives;
● our ability to refinance our indebtedness on terms favorable to us or at all;
● our ability to optimize our theatre circuit through new construction, the transformation of our existing theatres, and strategically closing underperforming theatres may be subject to delay and unanticipated costs;
● failures, unavailability or security breaches of our information systems;
● our ability to utilize interest expense deductions will be limited annually due to Section 163(j) of the Internal Revenue Code as amended by the Tax Cuts and Jobs Act of 2017;
● our ability to recognize interest deduction carryforwards, net operating loss carryforwards and other tax attributes to reduce our future tax liability;
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● our ability to recognize certain international deferred tax assets which currently do not have a valuation allowance recorded;
● impact of the elimination of the calculation of USD LIBOR rates on our contracts indexed to USD LIBOR;
● review by antitrust authorities in connection with acquisition opportunities;
● risks relating to the incurrence of legal liability, including costs associated with the ongoing securities class action lawsuits;
● dependence on key personnel for current and future performance and our ability to attract and retain senior executives and other key personnel, including in connection with any future acquisitions;
● increased costs in order to comply or resulting from a failure to comply with governmental regulation, including the General Data Protection Regulation (“GDPR”) and all other current and pending privacy and data regulations in the jurisdictions where we have operations.
● supply chain disruptions may negatively impact our operating results;
● the availability and/or cost of energy, particularly in Europe;
● the dilution caused by recent and potential future sales of our Common Stock and AMC Preferred Equity Units, including the implications of the proposed conversion of the Series A Convertible Participating Preferred Stock (which are represented by AMC Preferred Equity Units) to Common Stock, could adversely affect the market price of the Common Stock and AMC Preferred Equity Units;
● the market price and trading volume of our shares of Common Stock has been and may continue to be volatile and such volatility also applies to our AMC Preferred Equity Units, and purchasers of our securities could incur substantial losses;
● future offerings of debt, which would be senior to our Common Stock and AMC Preferred Equity Units for purposes of distributions or upon liquidation, could adversely affect the market price of our Common Stock and AMC Preferred Equity Units;
● our ability to implement the Charter Amendment Proposals due to the Shareholder Litigation (as defined herein);
● the potential for political, social, or economic unrest, terrorism, hostilities, cyber-attacks or war, including the conflict between Russia and Ukraine and that Sweden and Finland (countries where we operate approximately 100 theatres) have either signed or completed accession protocols. Their accession could cause a deterioration in the relationship each country has with Russia;
● the potential impact of financial and economic sanctions on the regional and global economy, or widespread health emergencies, such as COVID-19 or other pandemics or epidemics, causing people to avoid our theatres or other public places where large crowds are in attendance;
● anti-takeover protections in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage or prevent a takeover of our Company, even if an acquisition would be beneficial to our stockholders; and
● other risks referenced from time to time in filings with the SEC.
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative but not exhaustive. In addition, new risks and uncertainties may arise from time to time. Accordingly, all
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forward-looking statements should be evaluated with an understanding of their inherent uncertainty and we caution accordingly against relying on forward-looking statements.
Readers are urged to consider these factors carefully in evaluating the forward-looking statements. For further information about these and other risks and uncertainties as well as strategic initiatives, see Item 1A. “Risk Factors” of this Form 10-Q, Item 1. “Business” in our Annual Report on Form 10–K for the year ended December 31, 2022, and our other public filings.
All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included herein are made only as of the date of this Quarterly Report on Form 10–Q, and we do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Overview
AMC is the world’s largest theatrical exhibition company and an industry leader in innovation and operational excellence. We operate theatres in 11 countries, including the U.S. and Europe.
Our theatrical exhibition revenues are generated primarily from box office admissions and theatre food and beverage sales. Our remaining revenues are generated from ancillary sources, including on-screen advertising, fees earned from our AMC Stubs® customer loyalty program, rental of theatre auditoriums, income from gift card and exchange ticket sales, and online ticketing fees. As of March 31, 2023, we owned, operated or had interests in 920 theatres and 10,264 screens.
Box Office Admissions and Film Content
Box office admissions are our largest source of revenue. We predominantly license theatrical films from distributors owned by major film production companies and from independent distributors on a film-by-film and theatre-by-theatre basis. Film exhibition costs are based on a share of admissions revenues and are accrued based on estimates of the final settlement pursuant to our film licenses. These licenses typically state that rental fees are based on the box office performance of each film, though in certain circumstances and less frequently, our rental fees are based on a mutually agreed settlement rate that is fixed. In some European territories, film rental fees are established on a weekly basis and some licenses use a per capita agreement instead of a revenue share, paying a flat amount per ticket.
Our revenues attributable to individual distributors may vary significantly from year to year depending upon the commercial success of each distributor’s films in any given year. Our results of operations may vary significantly from quarter to quarter and from year to year based on the timing and popularity of film releases.
Movie Screens
The following table provides detail with respect to digital delivery, 3D enabled projection, large screen formats, such as IMAX ® and our proprietary Dolby Cinema™, other Premium Large Format (“PLF”) screens, enhanced food and beverage offerings and our premium seating as deployed throughout our circuit:
U.S. Markets
International Markets
Number of Screens
Number of Screens
Number of Screens
Number of Screens
As of
As of
As of
As of
Format
March 31, 2023
March 31, 2022
March 31, 2023
March 31, 2022
IMAX®
186
185
32
37
Dolby Cinema TM
158
154
7
8
Other Premium Large Format ("PLF")
57
56
74
77
Dine-In theatres
667
729
13
13
Premium seating
3,518
3,395
536
579
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Seating Concepts and Amenities
U.S. Markets
International Markets
Consolidated
Three Months Ended
Three Months Ended
Three Months Ended
March 31,
March 31,
March 31,
2023
2022
2023
2022
2023
2022
Recliner screens operated
3,518
3,395
536
579
4,054
3,974
Recliner theatres operated
364
351
83
90
447
441
Dine-In screens operated
667
729
13
13
680
742
Dine-In theatres operated
48
51
3
3
51
54
Number of theatres offering alcohol
358
350
236
241
594
591
Loyalty Programs and Other Marketing
As of March 31, 2023, we had more than 28,800,000 member households enrolled in AMC Stubs® A-List, AMC Stubs Premiere™ and AMC Stubs Insider™ programs, combined. During the three months ended March 31, 2023 our AMC Stubs® members represented approximately 43.9% of AMC U.S. markets attendance.
We currently have approximately 15,000,000 members in our various International loyalty programs.
See “Item 1. Business” in our 2022 Annual Report on Form 10-K for additional discussion and information of our screens, seating concepts, amenities, loyalty programs and other marketing initiatives.
Holders of Shares
As of March 31, 2023, approximately 7.9 million shares of our Class A common stock and approximately 124.7 million shares of our AMC Preferred Equity Units were directly registered with our transfer agent by 16,779 and 14,852 shareholders, respectively.
Critical Accounting Estimates
For a discussion of our critical accounting policies and the means by which we develop estimates therefore, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K. Other than as discussed above, there have been no material changes from critical accounting estimates described in our Form 10-K.
Significant Events
Saudi Cinema Company. On December 30, 2022, we entered into an agreement to sell our 10.0% investment in Saudi Cinema Company, LLC for SAR 112.5 million ($30.0 million), subject to certain closing conditions. On January 24, 2023, the Saudi Ministry of Commerce recorded a sale of equity and we received the proceeds on January 25, 2023. We recorded a gain on the sale of $15.5 million in investment income during the three months ended March 31, 2023.
Debt Repurchases. The below table summarizes the cash debt repurchase transactions during the three months ended March 31, 2023, including related party transactions with Antara, which became a related party on February 7, 2023:
Aggregate Principal
Reacquisition
Gain on
Accrued Interest
(In millions)
Repurchased
Cost
Extinguishment
Paid
Related party transactions:
Second Lien Notes due 2026
$
41.9
$
24.4
$
25.3
$
0.7
5.875% Senior Subordinated Notes due 2026
4.1
1.7
2.3
0.1
Total related party transactions
46.0
26.1
27.6
0.8
Non-related party transactions:
Second Lien Notes due 2026
57.5
30.4
37.5
1.1
Total non-related party transactions
57.5
30.4
37.5
1.1
Total debt repurchases
$
103.5
$
56.5
$
65.1
$
1.9
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Additional Share Issuances Antara. On December 22, 2022, we entered into a forward purchase agreement (the “Forward Purchase Agreement”) with Antara pursuant to which we agreed to (i) sell to Antara 106,595,106 AMC Preferred Equity Units for an aggregate purchase price of $75.1 million and (ii) simultaneously purchase from Antara $100.0 million aggregate principal amount of the Company’s 10%/12% Cash/PIK Toggle Second Lien Notes due 2026 in exchange for 91,026,191 AMC Preferred Equity Units. On February 7, 2023, the Company issued 197,621,297 AMC Preferred Equity Units to Antara in exchange for $75.1 million in cash and $100.0 million aggregate principal amount of the Company’s 10%/12% Cash/PIK Toggle Second Lien Notes due 2026. The Company recorded $193.7 million to stockholders’ deficit as a result of the transaction. We paid $1.4 million of accrued interest in cash upon exchange of the notes.
Equity Distribution Agreement. During the three months ended March 31, 2023, we raised gross proceeds of approximately $80.3 million and paid fees to the Sales Agent and incurred other third-party issuance costs of approximately $2.0 million and $7.8 million, respectively, through our at-the-market offering of approximately 49.3 million shares of our AMC Preferred Equity Units. The Company paid $6.8 million of other third-party issuance costs during the three months ended March 31, 2023. See Note 13—Subsequent Events in the Notes to the Condensed Consolidated Financial Statements under Part I, Item 1, for information about additional AMC Preferred Equity Unit issuances.
Special Awards. On February 23, 2023, AMC’s Board of Directors approved special awards in lieu of vesting of the 2022 PSU awards. The special awards were accounted for as a modification to the 2022 PSU awards which lowered the Adjusted EBITDA and free cash flow performance targets such that 200% vesting was achieved for both tranches. This modification resulted in the immediate additional vesting of 2,389,589 Common Stock 2022 PSUs and 2,389,589 AMC Preferred Equity Unit 2022 PSUs. This was treated as a Type 3 modification (improbable-to-probable) which requires the Company to recognize additional stock compensation expense based on the modification date fair values of the Common Stock PSUs and AMC Preferred Equity Units PSUs of $6.23 and $2.22, respectively. During the three months ended March 31, 2023, we recognized $20.2 million of additional stock compensation expense.
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Operating Results
The following table sets forth our consolidated revenues, operating costs and expenses:
Three Months Ended
(In millions)
March 31, 2023
March 31, 2022
% Change
Revenues
Admissions
$
534.1
$
443.8
20.3
%
Food and beverage
328.7
252.5
30.2
%
Other theatre
91.6
89.4
2.5
%
Total revenues
954.4
785.7
21.5
%
Operating Costs and Expenses
Film exhibition costs
246.2
189.8
29.7
%
Food and beverage costs
61.4
42.6
44.1
%
Operating expense, excluding depreciation and amortization below
383.2
344.8
11.1
%
Rent
205.7
223.2
(7.8)
%
General and administrative:
Merger, acquisition and other costs
0.2
0.4
(50.0)
%
Other, excluding depreciation and amortization below
72.3
53.1
36.2
%
Depreciation and amortization
93.6
98.7
(5.2)
%
Operating costs and expenses
1,062.6
952.6
11.5
%
Operating loss
(108.2)
(166.9)
(35.2)
%
Other expense:
Other expense
39.2
136.3
(71.2)
%
Interest expense:
Corporate borrowings
90.7
82.0
10.6
%
Finance lease obligations
0.9
1.2
(25.0)
%
Non-cash NCM exhibitor service agreement
9.5
9.2
3.3
%
Equity in (earnings) loss of non-consolidated entities
(1.4)
5.1
*
%
Investment income
(13.5)
(63.4)
(78.7)
%
Total other expense, net
125.4
170.4
(26.4)
%
Net loss before income taxes
(233.6)
(337.3)
(30.7)
%
Income tax provision
1.9
0.1
*
%
Net loss
$
(235.5)
$
(337.4)
(30.2)
%
* Percentage change in excess of 100%
Three Months Ended
March 31,
March 31,
Operating Data:
2023
2022
Screen additions
—
7
Screen acquisitions
2
30
Screen dispositions
208
118
Construction openings (closures), net
(4)
12
Average screens (1)
9,998
10,099
Number of screens operated
10,264
10,493
Number of theatres operated
920
938
Screens per theatre
11.2
11.2
Attendance (in thousands) (1)
47,621
39,075
(1) Includes consolidated theatres only and excludes screens offline due to construction.
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Segment Operating Results
The following table sets forth our revenues, operating costs and expenses by reportable segment:
U.S. Markets
International Markets
Consolidated
Three Months Ended
Three Months Ended
Three Months Ended
March 31,
March 31,
March 31,
(In millions)
2023
2022
2023
2022
2023
2022
Revenues
Admissions
$
384.0
$
310.8
$
150.1
$
133.0
$
534.1
$
443.8
Food and beverage
258.5
194.0
70.2
58.5
328.7
252.5
Other theatre
62.0
58.3
29.6
31.1
91.6
89.4
Total revenues
704.5
563.1
249.9
222.6
954.4
785.7
Operating Costs and Expenses
Film exhibition costs
188.5
138.7
57.7
51.1
246.2
189.8
Food and beverage costs
44.0
28.7
17.4
13.9
61.4
42.6
Operating expense
278.3
241.0
104.9
103.8
383.2
344.8
Rent
150.7
166.3
55.0
56.9
205.7
223.2
General and administrative expense:
Merger, acquisition and other costs
0.2
0.2
—
0.2
0.2
0.4
Other, excluding depreciation and amortization below
53.4
35.2
18.9
17.9
72.3
53.1
Depreciation and amortization
74.9
75.6
18.7
23.1
93.6
98.7
Operating costs and expenses
790.0
685.7
272.6
266.9
1,062.6
952.6
Operating loss
(85.5)
(122.6)
(22.7)
(44.3)
(108.2)
(166.9)
Other expense (income):
Other expense
47.7
133.7
(8.5)
2.6
39.2
136.3
Interest expense:
Corporate borrowings
76.1
63.2
14.6
18.8
90.7
82.0
Finance lease obligations
0.1
0.1
0.8
1.1
0.9
1.2
Non-cash NCM exhibitor service agreement
9.5
9.2
—
—
9.5
9.2
Equity in (earnings) loss of non-consolidated entities
(0.9)
0.3
(0.5)
4.8
(1.4)
5.1
Investment expense (income)
2.0
(63.4)
(15.5)
—
(13.5)
(63.4)
Total other expense (income), net
134.5
143.1
(9.1)
27.3
125.4
170.4
Net loss before income taxes
(220.0)
(265.7)
(13.6)
(71.6)
(233.6)
(337.3)
Income tax provision
0.4
0.1
1.5
—
1.9
0.1
Net loss
$
(220.4)
$
(265.8)
$
(15.1)
$
(71.6)
$
(235.5)
$
(337.4)
U.S. Markets
International Markets
Consolidated
Three Months Ended
Three Months Ended
Three Months Ended
March 31,
March 31,
March 31,
2023
2022
2023
2022
2023
2022
Segment Operating Data:
Screen additions
—
—
—
7
—
7
Screen acquisitions
—
30
2
—
2
30
Screen dispositions
116
88
92
30
208
118
Construction openings (closures), net
(2)
12
(2)
—
(4)
12
Average screens (1)
7,513
7,622
2,485
2,477
9,998
10,099
Number of screens operated
7,530
7,709
2,734
2,784
10,264
10,493
Number of theatres operated
578
587
342
351
920
938
Screens per theatre
13.0
13.1
8.0
7.9
11.2
11.2
Attendance (in thousands) (1)
32,362
25,792
15,259
13,283
47,621
39,075
(1) Includes consolidated theatres only and excludes screens offline due to construction.
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Adjusted EBITDA
We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net earnings (loss) plus (i) income tax provision (benefit), (ii) interest expense and (iii) depreciation and amortization, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance and to include attributable EBITDA from equity investments in theatre operations in International markets and any cash distributions of earnings from other equity method investees. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. The preceding definition of and adjustments made to GAAP measures to determine Adjusted EBITDA are broadly consistent with Adjusted EBITDA as defined in the Company’s debt indentures.
Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net earnings (loss) as an indicator of operating performance (as determined in accordance with U.S. GAAP). Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. We have included Adjusted EBITDA because we believe it provides management and investors with additional information to measure our performance and estimate our value.
Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. For example, Adjusted EBITDA:
● does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments;
● does not reflect changes in, or cash requirements for, our working capital needs;
● does not reflect the significant interest expenses, or the cash requirements necessary to service interest or principal payments on our debt;
● excludes income tax payments that represent a reduction in cash available to us; and
● does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future.
During the three months ended March 31, 2023, Adjusted EBITDA in the U.S. markets was $10.9 million compared to $(43.4) million during the three months ended March 31, 2022. The year-over-year improvement was primarily due to the decreased net loss driven by an increase in attendance as a result of the popularity of new film releases compared to the prior year and decreases in rent expense, partially offset by increases in operating costs due to the increase in attendance. During the three months ended March 31, 2023, Adjusted EBITDA in the International markets was $(3.8) million compared to $(18.3) million during the three months ended March 31, 2022. The year-over-year improvement was primarily due to the decreased net loss driven by the increase in attendance as a result of the popularity of new film releases compared to the prior year and decreases in foreign currency translation rates, partially offset by increases in operating costs due to the increase in attendance and decreases in government assistance. During the three months ended March 31, 2023, Adjusted EBITDA in the U.S. markets and International markets was $7.1 million compared to $(61.7) million during the three months ended March 31, 2022, driven by the aforementioned factors impacting Adjusted EBITDA.
The following tables set forth our Adjusted EBITDA by reportable operating segment and our reconciliation of Adjusted EBITDA:
Three Months Ended
Adjusted EBITDA (In millions)
March 31, 2023
March 31, 2022
U.S. markets
$
10.9
$
(43.4)
International markets
(3.8)
(18.3)
Total Adjusted EBITDA
$
7.1
$
(61.7)
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Three Months Ended
(In millions)
March 31, 2023
March 31, 2022
Net loss
$
(235.5)
$
(337.4)
Plus:
Income tax provision
1.9
0.1
Interest expense
101.1
92.4
Depreciation and amortization
93.6
98.7
Certain operating expense (1)
1.1
2.3
Equity in (earnings) loss of non-consolidated entities
(1.4)
5.1
Cash distributions from non-consolidated entities (2)
—
0.7
Attributable EBITDA (3)
0.5
0.2
Investment income (4)
(13.5)
(63.4)
Other expense (5)
42.8
139.8
Other non-cash rent benefit (6)
(9.6)
(7.1)
General and administrative — unallocated:
Merger, acquisition and other costs (7)
0.2
0.4
Stock-based compensation expense (8)
25.9
6.5
Adjusted EBITDA
$
7.1
$
(61.7)
(1) Amounts represent preopening expense related to temporarily closed screens under renovation, theatre and other closure expense for the permanent closure of screens, including the related accretion of interest, disposition of assets and other non-operating gains or losses included in operating expenses. We have excluded these items as they are non-cash in nature or are non-operating in nature.
(2) Includes U.S. non-theatre distributions from equity method investments and International non- theatre distributions from equity method investments to the extent received. We believe including cash distributions is an appropriate reflection of the contribution of these investments to our operations.
(3) Attributable EBITDA includes the EBITDA from equity investments in theatre operators in certain International markets. See below for a reconciliation of our equity in loss of non-consolidated entities to attributable EBITDA. Because these equity investments are in theatre operators in regions where we hold a significant market share, we believe attributable EBITDA is more indicative of the performance of these equity investments and management uses this measure to monitor and evaluate these equity investments. We also provide services to these theatre operators including information technology systems, certain on-screen advertising services and our gift card and package ticket program.
Three Months Ended
(In millions)
March 31, 2023
March 31, 2022
Equity in (earnings) loss of non-consolidated entities
$
(1.4)
$
5.1
Less:
Equity in (earnings) loss of non-consolidated entities excluding International theatre joint ventures
(1.1)
0.3
Equity in earnings (loss) of International theatre joint ventures
0.3
(4.8)
Income tax benefit
(0.1)
—
Investment expense
0.1
—
Impairment of long-lived assets
—
4.2
Depreciation and amortization
0.2
0.8
Attributable EBITDA
$
0.5
$
0.2
(4) Investment income during the three months ended March 31, 2023 primarily includes deterioration in estimated fair value of the Company’s investment in common shares of Hycroft Mining Holding Corporation of $2.3 million, deterioration in estimated fair value of the Company’s investment in warrants to purchase common shares of Hycroft Mining Holding Corporation of $2.3 million, a $(15.5) million gain on the sale of the Company’s investment in Saudi Cinema Company, LLC, and interest income of $(2.3) million.
Investment income during the three months ended March 31, 2022 includes appreciation in estimated fair value of the Company’s investment in common shares of Hycroft Mining Holding Corporation of $28.8 million and appreciation in estimated fair value of the Company’s investment in warrants to purchase
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common shares of Hycroft Mining Holding Corporation of $35.1 million.
(5) Other expense during the three months ended March 31, 2023 includes a non-cash litigation contingency reserve charge of $116.6 million, partially offset by income related to foreign currency transaction gains of $(8.7) million and gains on debt extinguishment of $(65.1) million.
Other expense during the three months ended March 31, 2022 included loss on debt extinguishment of $135.0 million, partially offset by foreign currency transaction losses of $4.8 million.
(6) Reflects amortization expense for certain intangible assets reclassified from depreciation and amortization to rent expense due to the adoption of ASC 842, Leases and deferred rent benefit related to the impairment of right-of-use operating lease assets.
(7) Merger, acquisition and other costs are excluded as they are non-operating in nature.
(8) Non-cash expense included in general and administrative: other.
Segment Information
Our historical results of operations for the three months ended March 31, 2023 and March 31, 2022 reflect the results of operations for our two theatrical exhibition reportable segments, U.S. markets and International markets.
Results of Operations— For the Three Months ended March 31, 2023 Compared to the Three Months ended March 31, 2022
Condensed Consolidated Results of Operations
Revenues. Total revenues increased $168.7 million or 21.5%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Admissions revenues increased $90.3 million or 20.3%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to an increase in attendance of 21.9% from 39.1 million patrons to 47.6 million patrons partially offset by a 1.2% decrease in average ticket price. The increase in attendance was primarily due to the popularity of film product compared to the prior year. The decrease in average ticket price was primarily due to higher frequency on our A-List subscription program, a higher amount of discount-day ticket attendance, increased discount ticket attendance for non-adult tickets, which are typically discounted, and a decrease in foreign currency translation rates, partially offset by increased attendance for 3D content.
Food and beverage revenues increased $76.2 million 30.2%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to the increase in attendance and an increase in food and beverage per patron. Food and beverage per patron increased 6.8% from $6.46 to $6.90 due primarily to an increase in average prices and units purchased per transaction and the lifting of COVID-19 restrictions on the sale of food and beverage, partially offset by higher frequency from our AMC Stubs loyalty members and a decrease in foreign currency translation rates.
Total other theatre revenues increased $2.2 million or 2.5%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to increases in ticket fees and screen and other advertising due to the increase in attendance, partially offset by lower income from gift cards and package tickets and the decrease in foreign currency translation rates.
Operating costs and expenses. Operating costs and expenses increased $110.0 million or 11.5%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Film exhibition costs increased $56.4 million or 29.7%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 46.1% for the three months ended March 31, 2023, compared to 42.8% for the three months ended March 31, 2022. The increase in film exhibition cost percentage is primarily due to the concentration of box office revenues in higher grossing films in the current year, which typically results in higher film exhibition costs.
Food and beverage costs increased $18.8 million or 44.1%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase in food and beverage costs was primarily due to the
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increase in food and beverage revenues and increases in product costs and obsolescence. As a percentage of food and beverage revenues, food and beverage costs were 18.7% for the three months ended March 31, 2023 and 16.9% for the three months ended March 31, 2022.
As a percentage of revenues, operating expense was 40.2% for the three months ended March 31, 2023, and 43.9% for the three months ended March 31, 2022. Rent expense decreased 7.8%, or $17.5 million, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, due primarily to the early termination of one theatre lease for a benefit of $16.7 million, which included an early termination payment from the landlord for $13.0 million and the decrease in foreign currency translation rates. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of COVID-19 on leases and rent obligations of approximately $123.6 million that have been deferred to future years as of March 31, 2023.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $0.2 million during the three months ended March 31, 2023, compared to $0.4 million during the three months ended March 31, 2022.
Other. Other general and administrative expense increased 36.2%, or $19.2 million, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022 due primarily to stock-based compensation expense of $20.2 million related to a February 23, 2023 special award grant accounted for as a modification to the 2022 PSU awards which lowered the Adjusted EBITDA and free cash flow performance targets such that 200% vesting was achieved for both tranches. This modification resulted in the immediate additional vesting of 2,389,589 Class A Common Stock PSU’s and 2,389,589 Preferred Equity Unit PSU’s. The modification was treated as a Type 3 modification (improbable to probable) which required us to recognize additional stock compensation expense based on the modification date fair values of the Class A Common Stock PSU’s and AMC Preferred Equity Unit PSU’s of $6.23 per unit and $2.22 per unit, respectively during the three months ended March 31, 2023. See Note 7—Stockholders’ Equity in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about stock-based compensation expense.
Depreciation and amortization. Depreciation and amortization decreased $5.1 million or 5.2%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to lower depreciation expense on theatres impaired during years ended December 31, 2021 and December 31, 2022 and the decrease in foreign currency translation rates, partially offset by accelerated depreciation related to the replacement of digital projectors.
Other expense. Other expense of $39.2 million during the three months ended March 31, 2023 was primarily due to $126.6 million of expense related to a proposed settlement of the Shareholder Litigation comprised of $10 million of estimated legal fees and $116.6 million of non-cash expense for the estimated fair value as of March 31, 2023 of settlement shares proposed to be issued to holders of AMC Class A Common Stock, partially offset by a gain on extinguishment of debt of $62.8 million related to the redemption of $99.4 million aggregate principal amount of the Second Lien Notes due 2026, a gain on extinguishment of debt of $2.3 million related to the redemption of $4.1 million aggregate principal amount of our Senior Subordinated Notes due 2026, a receipt of $14.0 million in settlement of the Lao Action and $8.7 million in foreign currency transaction gains. Other expense of $136.3 million during the three months ended March 31, 2022 was primarily due to a loss on extinguishment of debt of $135.0 million related to the full redemption of the $500 million aggregate principal amount of the First Lien Notes due 2025, the $300 million aggregate principal amount of the First Lien Notes due 2026, and the $73.5 million aggregate principal amount of the First Lien Toggle Notes due 2026. See Note 1—Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense (income).
Interest expense. Interest expense increased $8.7 million to $101.1 million for the three months ended March 31, 2023 compared to $92.4 million during the three months ended March 31, 2022 primarily due to:
● the issuance of $950.0 million of 7.5% First Lien Senior Secured Notes due 2029 on February 14, 2022;
● the issuance of $400.0 million 12.75% Odeon Senior Secured Notes due 2027 on October 20, 2022; and
● the increase in interest rates on the Senior Secured Credit Facility Term Loan due 2026,
partially offset by:
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● the extinguishment of $317.6 million of 10%/12% Cash/PIK/Toggle Second Lien Notes due 2026 from May 2022 to March 2023;
● the extinguishment of $500.0 million of 10.5% First Lien Notes due 2025 on February 14, 2022;
● the extinguishment of $300.0 million of 10.5% First Lien Notes due 2026 on February 14, 2022;
● the extinguishment of $73.5 million of 15%/17% Cash/PIK/Toggle Second Lien Notes due 2026 on February 14, 2022;
● the extinguishment of £147.6 million and €312.2 million ($476.6 million) 10.75%/11.25% Cash/PIK Term Loans due 2023 on October 20, 2022; and
● the decline in foreign currency translation rates.
Equity in (earnings) loss of non-consolidated entities. Equity in earnings of non-consolidated entities was ($1.4) million for the three months ended March 31, 2023, compared to a loss of $5.1 million for the three months ended March 31, 2022. The decrease in equity losses from the prior year is primarily related to our 10.0% interest in Saudi Cinema Company, LLC that was sold on January 24, 2023.
Investment income. Investment income was $13.5 million for the three months ended March 31, 2023, compared to $63.4 million for the three months ended March 31, 2022. Investment income in the current year includes a gain on sale of our 10.0% interest in Saudi Cinema Company, LLC of $15.5 million and interest income of $2.3 million, partially offset by $2.3 million of decline in estimated fair value of our investment in common shares of Hycroft Mining Holding Corporation and $2.3 million of decline in estimated fair value of our investment in warrants to purchase common shares of Hycroft Mining Holding Corporation. Investment income of $63.4 million in the prior year includes $28.8 million of appreciation in estimated fair value of our investment in common shares of Hycroft Mining Holding Corporation and $35.1 million of appreciation in estimated fair value of our investment in warrants to purchase common shares of Hycroft Mining Holding Corporation.
Income tax provision. The income tax provision was $1.9 million and $0.1 million for the three months ended March 31, 2023 and March 31, 2022, respectively. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information.
Net loss. Net loss was $235.5 million and $337.4 million during the three months ended March 31, 2023 and March 31, 2022, respectively. Net loss during the three months ended March 31, 2023 compared to net loss for the three months ended March 31, 2022 was positively impacted by the increase in attendance as a result of the popularity of new film releases compared to the prior year, decreases in rent expense, decreases in depreciation and amortization expense, decreases in other expense, decreases in equity in losses and decreases in foreign currency translation rates, partially offset by increases in general and administrative expenses, increases in interest expense, decreases in investment income and an increase in income tax provision.
Theatrical Exhibition–U.S. Markets
Revenues. Total revenues increased $141.4 million or 25.1%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Admissions revenues increased $73.2 million or 23.6%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to an increase in attendance of 25.5% from 25.8 million patrons to 32.4 million patrons partially offset by a 1.5% decrease in average ticket price. The increase in attendance was primarily due to the popularity of film product compared to the prior year. The decrease in average ticket price was primarily due to higher frequency on our A-List subscription program, a higher amount of discount-day ticket attendance, and increased attendance for non-adult tickets, which are typically discounted, partially offset by increased attendance for 3D content.
Food and beverage revenues increased $64.5 million or 33.2%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to the increase in attendance and an increase in food and beverage per patron. Food and beverage per patron increased 6.3% from $7.52 to $7.99 due primarily to an increase in average prices and units purchased per transaction, partially offset by higher frequency from our AMC Stubs loyalty members.
Total other theatre revenues increased $3.7 million or 6.3%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to increases in ticket fees and screen and other
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advertising due to the increase in attendance, partially offset by lower income from gift cards and package tickets.
Operating costs and expenses. Operating costs and expenses increased $104.3 million or 15.2%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Film exhibition costs increased $49.8 million or 35.9%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 49.1% for the three months ended March 31, 2023, compared to 44.6% for the three months ended March 31, 2022. The increase in film exhibition cost percentage is primarily due to the concentration of box office revenues in higher grossing films in the current year, which typically results in higher film exhibition costs.
Food and beverage costs increased $15.3 million or 53.3%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase in food and beverage costs was primarily due to the increase in food and beverage revenues and increases in product costs and obsolescence. As a percentage of food and beverage revenues, food and beverage costs were 17.0% for the three months ended March 31, 2023 and 14.8% for the three months ended March 31, 2022.
As a percentage of revenues, operating expense was 39.5% for the three months ended March 31, 2023, and 42.8% for the three months ended March 31, 2022. Rent expense decreased 9.4%, or $15.6 million, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, due primarily to the early termination of one theatre lease for a benefit of $16.7 million, which included an early termination payment from the landlord for $13.0 million. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of COVID-19 on leases and rent obligations of approximately $106.1 million that have been deferred to future years as of March 31, 2023.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $0.2 million during the three months ended March 31, 2023, compared to $0.2 million during the three months ended March 31, 2022.
Other. Other general and administrative expense increased 51.7%, or $18.2 million, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022 due primarily to stock-based compensation expense of $18.1 million related to the February 23, 2023 special award grant accounted for as a modification to the 2022 PSU awards discussed further in Condensed Consolidated Results of Operations. See Note 7—Stockholders’ Equity in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about stock-based compensation expense.
Depreciation and amortization. Depreciation and amortization decreased $0.7 million or 0.9%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to lower depreciation expense on theatres impaired during years ended December 31, 2021 and December 31, 2022, partially offset by accelerated depreciation related to the replacement of digital projectors.
Other expense. Other expense of $47.7 million during the three months ended March 31, 2023 was primarily due to $126.6 million of expense related to a proposed settlement of the Shareholder Litigation comprised of $10 million of estimated legal fees and $116.6 million of non-cash expense for the estimated fair value as of March 31, 2023 of settlement shares proposed to be issued to holders of AMC Class A Common Stock, partially offset by a gain on extinguishment of debt of $62.8 million related to the redemption of $99.4 million aggregate principal amount of the Second Lien Notes due 2026, a gain on extinguishment of debt of $2.3 million related to the redemption of $4.1 million aggregate principal amount of our Senior Subordinated Notes due 2026 and a receipt of $14.0 million in settlement of the Lao Action. Other expense of $133.7 million during the three months ended March 31, 2022 was primarily due to a loss on extinguishment of debt of $135.0 million related to the full redemption of the $500 million aggregate principal amount of the First Lien Notes due 2025, the $300 million aggregate principal amount of the First Lien Notes due 2026, and the $73.5 million aggregate principal amount of the First Lien Toggle Notes due 2026. See Note 1—Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense (income) and Note 11-Commitments and Contingencies for additional information about our legal contingencies and settlements.
Interest expense. Interest expense increased $13.2 million to $85.7 million for the three months ended March 31, 2023 compared to $72.5 million during the three months ended March 31, 2022, primarily due to:
● the issuance of $950.0 million of 7.5% First Lien Senior Secured Notes due 2029 on February 14, 2022; and
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● the increase in interest rates on the Senior Secured Credit Facility Term Loan due 2026,
partially offset by:
● the extinguishment of $317.6 million of 10%/12% Cash/PIK/Toggle Second Lien Notes due 2026 from May 2022 to March 2023;
● the extinguishment of $500.0 million of 10.5% First Lien Notes due 2025 on February 14, 2022;
● the extinguishment of $300.0 million of 10.5% First Lien Notes due 2026 on February 14, 2022; and
● the extinguishment of $73.5 million of 15%/17% Cash/PIK/Toggle Second Lien Notes due 2026 on February 14, 2022.
Equity in (earnings) loss of non-consolidated entities. Equity in earnings of non-consolidated entities was $(0.9) million for the three months ended March 31, 2023, compared to a loss of $0.3 million for the three months ended March 31, 2022.
Investment (income) expense. Investment expense was $2.0 million for the three months ended March 31, 2023, compared to $63.4 million for the three months ended March 31, 2022. Investment expense in the current year includes $2.3 million of decline in estimated fair value of our investment in common shares of Hycroft Mining Holding Corporation and $2.3 million of decline in estimated fair value of our investment in warrants to purchase common shares of Hycroft Mining Holding Corporation, partially offset by $2.3 million of interest income. Investment income of ($63.4) million in the prior year includes ($28.8) million of appreciation in estimated fair value of our investment in common shares of Hycroft Mining Holding Corporation and ($35.1) million of appreciation in estimated fair value of our investment in warrants to purchase common shares of Hycroft Mining Holding Corporation.
Income tax provision. The income tax provision was $0.4 million and $0.1 million for the three months ended March 31, 2023 and March 31, 2022, respectively. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information.
Net loss. Net loss was $220.4 million and $265.8 million during the three months ended March 31, 2023 and March 31, 2022, respectively. Net loss during the three months ended March 31, 2023 compared to net loss for the three months ended March 31, 2022 was positively impacted by the increase in attendance as a result of the popularity of new film releases compared to the prior year, decreases in rent expense, decreases in depreciation and amortization expense, decreases in other expense and decreases in equity in losses, partially offset by increases in general and administrative expenses, increases in interest expense, decreases in investment income and an increase in income tax provision.
Theatrical Exhibition - International Markets
Revenues. Total revenues increased $27.3 million or 12.3%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Admissions revenues increased $17.1 million or 12.9%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to an increase in attendance of 14.9% from 13.3 million patrons to 15.3 million patrons partially offset by a 1.7% decrease in average ticket price. The increase in attendance was primarily due to the popularity of film product compared to the prior year. The decrease in average ticket price was primarily due to a decrease in foreign currency translation rates, partially offset by strategic pricing initiatives put in place over the prior year.
Food and beverage revenues increased $11.7 million or 20.0%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to the increase in attendance and an increase in food and beverage per patron. Food and beverage per patron increased 4.5% from $4.40 to $4.60 due primarily to the lifting of COVID-19 restrictions on the sale of food and beverage and strategic pricing initiatives put in place over the prior year, partially offset by a decrease in foreign currency translation rates.
Total other theatre revenues decreased $1.5 million or 4.8%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to the decrease in foreign currency translation rates and the decline of theatre rentals as traditional attendance increased.
Operating costs and expenses. Operating costs and expenses increased $5.7 million or 2.1%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Film exhibition costs increased $6.6 million or 12.9%, during the three months ended March 31, 2023, compared to the three months ended March 31,
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2022, primarily due to the increase in attendance, partially offset by the decrease in foreign currency translation rates. As a percentage of admissions revenues, film exhibition costs were 38.4% for the three months ended March 31, 2023 and March 31, 2022.
Food and beverage costs increased $3.5 million or 25.2%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase in food and beverage costs was primarily due to the increase in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 24.8% for the three months ended March 31, 2023 and 23.8% for the three months ended March 31, 2022.
As a percentage of revenues, operating expense was 42.0% for the three months ended March 31, 2023, and 46.6% for the three months ended March 31, 2022. Rent expense decreased 3.3%, or $1.9 million, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to the decrease in foreign currency translation rates. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of COVID-19 on leases and rent obligations of approximately $17.5 million that have been deferred to future years as of March 31, 2023.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $0.0 million during the three months ended March 31, 2023, compared to $0.2 million during the three months ended March 31, 2022.
Other. Other general and administrative expense increased 5.6%, or $1.0 million, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022 due primarily to stock-based compensation expense of $2.1 million related to the February 23, 2023 special award grant accounted for as a modification to the 2022 PSU awards discussed further in Condensed Consolidated Results of Operations and partially offset by the decline in foreign currency translation rates. See Note 7—Stockholders’ Equity in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about stock-based compensation expense.
Depreciation and amortization. Depreciation and amortization decreased $4.4 million or 19.0%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to lower depreciation expense on theatres impaired during years ended December 31, 2021 and December 31, 2022 and the decrease in foreign currency translation rates.
Other (income) expense. Other income of $(8.5) million during the three months ended March 31, 2023 was primarily due to ($8.7) million in foreign currency transaction gains. Other expense was $2.6 million during the three months ended March 31, 2022. See Note 1—Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense (income) and Note 11-Commitments and Contingencies for additional information about our legal contingencies and settlements.
Interest expense. Interest expense decreased $4.5 million to $15.4 million for the three months ended March 31, 2023 compared to $19.9 million during the three months ended March 31, 2022, primarily due to:
● the extinguishment of £147.6 million and €312.2 million ($476.6 million) 10.75%/11.25% Cash/PIK Term Loans due 2023 on October 20, 2022; and
● the decline in foreign currency translation rates,
partially offset by:
● the issuance of $400.0 million 12.75% Odeon Senior Secured Notes due 2027 on October 20, 2022.
Equity in (earnings) loss of non-consolidated entities. Equity in earnings of non-consolidated entities was ($0.5) million for the three months ended March 31, 2023, compared to a loss of $4.8 million for the three months ended March 31, 2022. The decrease in equity losses from the prior year is primarily related to our 10.0% interest in Saudi Cinema Company, LLC that was sold on January 24, 2023.
Investment income . Investment income was $15.5 million for the three months ended March 31, 2023, compared to $0.0 million for the three months ended March 31, 2022. Investment income in the current year includes a gain on sale of our 10.0% interest in Saudi Cinema Company, LLC of $15.5 million.
Income tax provision. The income tax provision was $1.5 million and $0.0 million for the three months ended
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March 31, 2023 and March 31, 2022, respectively. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information.
Net loss. Net loss was $15.1 million and $71.6 million during the three months ended March 31, 2023 and March 31, 2022, respectively. Net loss during the three months ended March 31, 2023 compared to net loss for the three months ended March 31, 2022 was positively impacted by the increase in attendance as a result of the popularity of new film releases compared to the prior year, decreases in rent expense, decreases in depreciation and amortization expense, decreases in other expense, decreases in interest expense, increases in investment income, decreases in equity in losses and decreases in foreign currency translation rates, partially offset by increases in general and administrative expenses and an increase in income tax provision.
LIQUIDITY AND CAPITAL RESOURCES
Our consolidated revenues are primarily collected in cash, principally through admissions and food and beverage sales. We have an operating “float” which partially finances our operations and which generally permits us to maintain a smaller amount of working capital capacity. This float exists because admissions revenues are received in cash, while exhibition costs (primarily film rentals) are ordinarily paid to distributors 20 to 45 days following receipt of admissions revenues. Film distributors generally release the films which they anticipate will be the most successful during the summer and year-end holiday seasons. Consequently, we typically generate higher revenues during such periods and experience higher working capital requirements following such periods.
We had working capital surplus (deficit) (excluding restricted cash) as of March 31, 2023 and December 31, 2022 of $(994.9) million and $(811.1) million, respectively. As of March 31, 2023 and December 31, 2022, working capital included operating lease liabilities of $546.5 million and $567.3 million, respectively, and deferred revenues of $391.7 million and $402.7 million, respectively. As of March 31, 2023, we had $208.1 million unused borrowing capacity, net of letters of credit, under our $225.0 million Senior Secured Revolving Credit Facility. As of December 31, 2022, we had $211.2 million unused borrowing capacity, net of letters of credit, under our $225.0 million Senior Secured Revolving Credit Facility. See Note 6—Corporate Borrowings and Finance Lease Liabilities in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for a further discussion of our Financial Covenants.
As of March 31, 2023, we had cash and cash equivalents of $495.6 million.
Additionally, we continued to lower our future interest expense in the first quarter of 2023 through purchases of debt below par value and debt exchanges for equity and enhanced liquidity through equity issuances. See Note 6 — Corporate Borrowings and Finance Lease Liabilities, Note 7—Stockholders’ Equity and Note 13—Subsequent Events in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information.
We believe our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to fund our operations, satisfy our obligations, and comply with the minimum liquidity covenant requirement under our Senior Secured Revolving Credit Facility for at least the next twelve months. Pursuant to the Twelfth Amendment to Credit Agreement, the requisite revolving lenders party thereto agreed to extend the suspension period for the financial covenant applicable to the Senior Secured Revolving Credit Facility under the Credit Agreement through March 31, 2024. The current maturity date of the Senior Secured Revolving Credit Facility is April 22, 2024; since the financial covenant applicable to the Senior Secured Revolving Credit Facility is tested as of the last day of any fiscal quarter for which financial statements have been (or were required to have been) delivered, the financial covenant has been effectively suspended through maturity of the Senior Secured Revolving Credit Facility. As of March 31, 2023, we were subject to a minimum liquidity requirement of $100 million as a condition to the financial covenant suspension period under the Credit Agreement.
Our current cash burn rates are not sustainable long-term. In order to achieve net positive operating cash flows and long-term profitability, we believe that operating revenues will need to increase significantly to levels in line with pre-COVID-19 operating revenues. Until such time as we are able to achieve positive operating cash flow, it is difficult to estimate our liquidity requirements, future cash burn rates, future operating revenues and attendance levels. Depending on our assumptions regarding the timing and ability to achieve significantly increased levels of operating revenue, the estimates of amounts of required liquidity vary significantly.
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There can be no assurance that the operating revenues, attendance levels and other assumptions used to estimate our liquidity requirements and future cash burn rates will be correct, and our ability to be predictive is uncertain due to limited ability to predict studio film release dates, the overall production and theatrical release levels and success of individual titles. Further, there can be no assurances that we will be successful in generating the additional liquidity necessary to meet our obligations beyond twelve months from the issuance of these financial statements on terms acceptable to us or at all.
Cash Flows from Operating Activities
Cash flows used in operating activities, as reflected in the condensed consolidated statements of cash flows, were $189.9 million and $295.0 million during the three months ended March 31, 2023 and March 31, 2022, respectively. The improvement in cash flows used in operating activities was primarily due to the increase in attendance and decrease in net loss, decreases in working capital used, increased lease incentive receipts, and reductions in rent repayments for rent that was deferred during the COVID-19 pandemic, partially offset by increases in cash interest paid during the three months ended March 31, 2023 compared to the three months ended March 31, 2022. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I in this Form 10-Q for a summary of the estimated future repayment terms for the remaining $123.6 million of rentals that were deferred during the COVID-19 pandemic.
Cash Flows from Investing Activities
Cash flows used in investing activities, as reflected in the condensed consolidated statements of cash flows, were $16.6 million and $54.9 million during the three months ended March 31, 2023 and March 31, 2022, respectively. Cash outflows from investing activities include capital expenditures of $47.4 million and $34.8 million during the three months ended March 31, 2023 and March 31, 2022, respectively. During the three months ended March 31, 2023, cash flows used in investing activities also included proceeds from the sale of our investment in Saudi Cinema Company, LLC of $30.0 million and proceeds from the disposition of long-term assets of $0.8 million.
During the three months ended March 31, 2022, cash flows used in investing activities included investment in Hycroft common stock for $25.0 million, investment in Hycroft warrants for $2.9 million, and proceeds from the disposition of long-term assets of $7.2 million related to one property and other assets.
We fund the costs of constructing, maintaining, and remodeling our theatres through existing cash balances, cash generated from operations, landlord contributions, or borrowed funds, as necessary. We generally lease our theatres pursuant to long-term non-cancelable operating leases, which may require the developer, who owns the property, to reimburse us for the construction costs. We estimate that our capital expenditures, net of landlord contributions, will be approximately $150 million to $200 million for year ended December 31, 2023 to maintain and enhance operations.
Cash Flows from Financing Activities
Cash flows provided by (used in) financing activities, as reflected in the condensed consolidated statements of cash flows, were $68.9 million and $(76.3) million during the three months ended March 31, 2023 and March 31, 2022, respectively. Cash flows from financing activities during the three months ended March 31, 2023 were primarily due to AMC Preferred Equity Unit issuances of $146.6 million, net of issuance costs, partially offset by the repurchase of Second Lien Notes due 2026 for $54.8 million, and taxes paid for restricted unit withholdings of $13.1 million. See Note 6—Corporate Borrowings and Finance Lease Liabilities and Note 7 — Stockholders’ Equity in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information, including a summary of principal payments required and maturities of corporate borrowings as of March 31, 2023.
We or our affiliates actively seek and expect, at any time and from time to time, to continue to seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity (including AMC Preferred Equity Units) or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material and to the extent equity is used, dilutive.
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Cash flows provided by financing activities during the three months ended March 31, 2022 was primarily due to principal and premium payments under the First Lien Notes due 2025 of $534.5 million, principal and premium payments under the First Lien Notes due 2026 of $325.6 million, principal and premium payments under the First Lien Toggle Notes due 2026 of $88.1 million, taxes paid for restricted unit withholdings of $52.2 million, and cash used to pay for deferred financing costs of $17.7 million, partially offset by the issuance of the First Lien Notes due 2029 of $950.0 million.
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