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
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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 from current levels to levels in line with pre-COVID-19 operating revenues. 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 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 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, streaming platforms, or other forms of entertainment;
● the risk that the North American and international box office in the near term will not recover sufficiently, 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;
● risks relating to motion picture production, promotion, marketing, and performance, including labor stoppages affecting the production, supply and release schedule of theatrical motion picture content, including but not limited to the Writers Guild of America strike that began on May 2, 2023 and ended on September 27, 2023 and the Screen Actors Guild – American Federation of Television and Radio Artists strike that began on July 14, 2023, which remains ongoing and the duration of which cannot be reasonably predicted;
● 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 distributors, 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, streaming platforms, 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;
● 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;
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● limitations on the availability of capital or poor financial results may prevent us from deploying strategic initiatives;
● an issuance of preferred stock could dilute the voting power of the common stockholders and adversely affect the market value of our outstanding Common Stock;
● limitations on the authorized number of Common Stock shares could in the future prevent us from raising additional capital through Common Stock;
● 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;
● our ability to recognize certain international deferred tax assets which currently do not have a valuation allowance recorded;
● 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, including the AMC Preferred Equity Unit Conversion;
● the market price and trading volume of our shares of Common Stock has been and may continue to be volatile, and purchasers of our securities could incur substantial losses;
● future offerings of debt, which would be senior to our Common Stock for purposes of distributions or upon liquidation, could adversely affect the market price of our Common Stock;
● 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
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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 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 throughout 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 September 30, 2023, we owned, operated or had interests in 904 theatres and 10,078 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.
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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
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
IMAX®
184
186
33
36
Dolby Cinema TM
158
155
7
9
Other Premium Large Format ( “ PLF ” )
57
56
78
80
Dine-In theatres
675
727
13
13
Premium seating
3,574
3,482
540
598
Seating Concepts and Amenities
U.S. Markets
International Markets
Consolidated
Nine Months Ended
Nine Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
2023
2022
2023
2022
2023
2022
Recliner screens operated
3,574
3,482
540
598
4,114
4,080
Recliner theatres operated
361
360
80
93
441
453
Dine-In screens operated
675
727
13
13
688
740
Dine-In theatres operated
49
51
3
3
52
54
Number of theatres offering alcohol
380
351
231
238
611
589
Loyalty Programs and Other Marketing
As of September 30, 2023, we had more than 31 million member households enrolled in AMC Stubs® A-List, AMC Stubs Premiere™ and AMC Stubs Insider™ programs, combined. During the nine months ended September 30, 2023 our AMC Stubs® members represented approximately 45.9% of AMC U.S. markets attendance.
We currently have approximately 16 million 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 September 30, 2023, approximately 1.6 million shares of our Common Stock were directly registered with our transfer agent by 15,130 stockholders. The balance of our outstanding Common Stock was held in “street name” through bank or brokerage accounts.
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.
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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 nine months ended September 30, 2023.
Debt Repurchases. The below table summarizes the cash debt repurchase transactions during the nine months ended September 30, 2023, including related party transactions with Antara, which was a related party from February 7, 2023 to August 25, 2023:
Aggregate Principal
Reacquisition
Gain on
Accrued Interest
(In millions)
Repurchased
Cost
Extinguishment
Paid
Related party transactions:
Second Lien Notes due 2026
$
75.9
$
48.5
$
40.9
$
1.1
5.875% Senior Subordinated Notes due 2026
4.1
1.7
2.3
0.1
Total related party transactions
80.0
50.2
43.2
1.2
Non-related party transactions:
Second Lien Notes due 2026
89.7
51.3
54.3
2.2
Total non-related party transactions
89.7
51.3
54.3
2.2
Total debt repurchases
$
169.7
$
101.5
$
97.5
$
3.4
Additional Share Issuances Antara. On December 22, 2022, we entered into the Forward Purchase Agreement with Antara pursuant to which we agreed to (i) sell to Antara 10,659,511 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 9,102,619 AMC Preferred Equity Units. On February 7, 2023, we issued 19,762,130 AMC Preferred Equity Units to Antara in exchange for $75.1 million in cash and $100.0 million aggregate principal amount of our 10%/12% Cash/PIK Toggle Second Lien Notes due 2026. We 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 nine months ended September 30, 2023, we raised gross proceeds of approximately $114.5 million and paid fees to the Sales Agent and incurred other third-party issuance costs of approximately $2.9 million and $8.7 million, respectively, through our Preferred Equity Offering of approximately 7.1 million shares of our AMC Preferred Equity Units. We paid $11.5 million of other third-party issuance costs during the nine months ended September 30, 2023. We no longer have any authorized AMC Preferred Equity Units available for issuance under the Preferred Equity Units Equity Distribution Agreement. Furthermore, the AMC Preferred Equity Units ceased trading on the NYSE on August 24, 2023 and were converted to Common Shares on August 25, 2023.
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 238,959 Common Stock 2022 PSUs and 238,959 AMC Preferred Equity Unit 2022 PSUs. This was treated as a Type 3 modification (improbable-to-probable) which requires us 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 $14.9 million and $5.3 million, respectively. During the nine months ended September 30, 2023, we recognized $20.2 million of additional stock compensation expense related to these awards.
NCM Bankruptcy. On April 11, 2023, National CineMedia, LLC filed a petition under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of Texas. NCM is the in-theatre advertising provider for the majority of our theatres in the United States. Under the Chapter 11 Plan, NCM has assumed its agreements with us. As part of the Plan, on August 7, 2023, NCM issued 16,581,829 common units that were owed to AMC as part of the annual common unit adjustment. But under the terms of the Plan and the restructuring of the equity of NCM thereunder, the NCM Common Units were immediately cancelled upon the efficacy of the Plan. We have filed appeals with the United States District Court for the Southern District of Texas, objecting to, among other things, certain terms of the Plan, including modification of the terms of the exhibitor services agreement with other parties that were not granted to us and appeal of the court’s order to approve cancellation of the NCM Common Unit issuance. We do not expect its bankruptcy to
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have a material impact on the Company.
Shareholder Litigation. Two putative stockholder class actions were filed in the Delaware Chancery Court that assert a breach of fiduciary duty against certain of our directors and a claim for breach of 8 Del. C . § 242 against those directors and us, arising out of our creation of AMC Preferred Equity Units, the transactions between Antara and us that we announced on December 22, 2022 and the Charter Amendments.
This litigation prevented us from immediately implementing the Charter Amendments. On April 2, 2023, the parties entered into a binding settlement term sheet to settle the litigation and allow implementation of the Charter Amendments. On August 11, 2023, the Delaware Chancery Court approved the settlement and on Monday, August 21, 2023, the Delaware Supreme Court confirmed the ruling of the Chancery Court. Pursuant to the settlement term sheet, record holders of Common Stock at the close of business on August 24, 2023, after giving effect to the Reverse Stock Split, but prior to the conversion of AMC Preferred Equity Units into Common Stock, received a payment of one share of Common Stock for every 7.5 shares of Common Stock owned by the Settlement Payment Recipients. On August 28, 2023, the Company made the Settlement Payment and issued 6,897,018 shares of Common Stock. See Note 11—Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information regarding the litigation and settlement.
Common Stock Equity Distribution Agreement. On September 6, 2023, we entered into a Common Stock Equity Distribution Agreement with the Common Stock Sales Agents, to sell up to 40.0 million shares of our Common Stock, from time to time, through a Common Stock Offering. Subject to terms and conditions of the Common Stock Equity Distribution Agreement, the Common Stock Sales Agents will use reasonable efforts consistent with their normal trading and sales practices, applicable law and regulations, and the rules of the NYSE to sell Common Stock from time to time based on our instructions for the sales, including any price, time or size limits specified by us. We intend to use the proceeds from the sale of Common Stock pursuant to the Common Stock Equity Distribution Agreement to repay, refinance, redeem or repurchase our existing indebtedness (including expenses, accrued interest and premium, if any) and otherwise for general corporate purposes. On September 13, 2023, we announced that we had completed our Common Stock Offering.
During the nine months ended September 30, 2023, we raised gross proceeds of approximately $325.5 million and paid fees to the Common Stock Sales Agents and incurred other third-party issuance costs of approximately $8.2 million and $0.5 million, respectively, through our Common Stock Offering of 40.0 million shares of our Common Stock. We paid $0.1 million of other third-party issuance costs during the nine months ended September 30, 2023.
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Operating Results
The following table sets forth our consolidated revenues, operating costs and expenses:
Three Months Ended
Nine Months Ended
(In millions)
September 30, 2023
September 30, 2022
% Change
September 30, 2023
September 30, 2022
% Change
Revenues
Admissions
$
797.7
$
545.3
46.3
%
$
2,075.9
$
1,640.1
26.6
%
Food and beverage
482.7
333.3
44.8
%
1,299.6
982.5
32.3
%
Other theatre
125.5
89.8
39.8
%
332.7
297.9
11.7
%
Total revenues
1,405.9
968.4
45.2
%
3,708.2
2,920.5
27.0
%
Operating Costs and Expenses
Film exhibition costs
398.5
263.2
51.4
%
1,027.8
781.7
31.5
%
Food and beverage costs
90.1
58.5
54.0
%
243.2
165.7
46.8
%
Operating expense, excluding depreciation and amortization below
449.8
400.6
12.3
%
1,245.0
1,147.6
8.5
%
Rent
224.3
223.2
0.5
%
650.8
668.8
(2.7)
%
General and administrative:
Merger, acquisition and other costs
0.7
0.3
*
%
1.5
0.4
*
%
Other, excluding depreciation and amortization below
54.4
40.6
34.0
%
184.8
161.2
14.6
%
Depreciation and amortization
88.7
96.9
(8.5)
%
279.1
293.0
(4.7)
%
Operating costs and expenses
1,306.5
1,083.3
20.6
%
3,632.2
3,218.4
12.9
%
Operating income (loss)
99.4
(114.9)
*
%
76.0
(297.9)
*
%
Other expense:
Other expense (income)
(12.8)
(1.0)
*
%
(4.7)
91.6
*
%
Interest expense:
Corporate borrowings
93.4
85.1
9.8
%
276.1
246.6
12.0
%
Finance lease obligations
0.9
1.0
(10.0)
%
2.8
3.2
(12.5)
%
Non-cash NCM exhibitor service agreement
9.4
9.6
(2.1)
%
28.5
28.6
(0.3)
%
Equity in (earnings) loss of non-consolidated entities
(3.1)
(2.8)
10.7
%
(5.3)
3.3
*
%
Investment expense (income)
(3.0)
18.3
*
%
(11.4)
12.2
*
%
Total other expense, net
84.8
110.2
(23.0)
%
286.0
385.5
(25.8)
%
Net earnings (loss) before income taxes
14.6
(225.1)
*
%
(210.0)
(683.4)
(69.3)
%
Income tax provision
2.3
1.8
27.8
%
4.6
2.5
84.0
%
Net earnings (loss)
$
12.3
$
(226.9)
*
%
$
(214.6)
$
(685.9)
(68.7)
%
* Percentage change in excess of 100%
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Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
Operating Data:
2023
2022
2023
2022
Screen additions
—
—
—
37
Screen acquisitions
8
19
15
129
Screen dispositions
33
70
381
224
Construction openings (closures), net
(17)
17
(30)
14
Average screens (1)
9,781
10,138
9,885
10,128
Number of screens operated
10,078
10,518
10,078
10,518
Number of theatres operated
904
943
904
943
Screens per theatre
11.1
11.2
11.1
11.2
Attendance (in thousands) (1)
73,576
53,177
187,565
151,381
(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
September 30,
September 30,
September 30,
(In millions)
2023
2022
2023
2022
2023
2022
Revenues
Admissions
$
587.5
$
417.6
$
210.2
$
127.7
$
797.7
$
545.3
Food and beverage
382.8
272.4
99.9
60.9
482.7
333.3
Other theatre
93.6
63.3
31.9
26.5
125.5
89.8
Total revenues
1,063.9
753.3
342.0
215.1
1,405.9
968.4
Operating Costs and Expenses
Film exhibition costs
309.2
212.0
89.3
51.2
398.5
263.2
Food and beverage costs
65.1
43.6
25.0
14.9
90.1
58.5
Operating expense
339.5
300.4
110.3
100.2
449.8
400.6
Rent
166.4
169.1
57.9
54.1
224.3
223.2
General and administrative expense:
Merger, acquisition and other costs
0.6
0.3
0.1
—
0.7
0.3
Other, excluding depreciation and amortization below
37.2
26.6
17.2
14.0
54.4
40.6
Depreciation and amortization
69.2
77.1
19.5
19.8
88.7
96.9
Operating costs and expenses
987.2
829.1
319.3
254.2
1,306.5
1,083.3
Operating income (loss)
76.7
(75.8)
22.7
(39.1)
99.4
(114.9)
Other expense (income):
Other expense (income)
(25.8)
(2.0)
13.0
1.0
(12.8)
(1.0)
Interest expense:
Corporate borrowings
78.7
67.9
14.7
17.2
93.4
85.1
Finance lease obligations
0.1
0.1
0.8
0.9
0.9
1.0
Non-cash NCM exhibitor service agreement
9.4
9.6
—
—
9.4
9.6
Equity in (earnings) loss of non-consolidated entities
(1.6)
(3.5)
(1.5)
0.7
(3.1)
(2.8)
Investment expense (income)
(2.4)
18.4
(0.6)
(0.1)
(3.0)
18.3
Total other expense, net
58.4
90.5
26.4
19.7
84.8
110.2
Net earnings (loss) before income taxes
18.3
(166.3)
(3.7)
(58.8)
14.6
(225.1)
Income tax provision
0.6
0.4
1.7
1.4
2.3
1.8
Net earnings (loss)
$
17.7
$
(166.7)
$
(5.4)
$
(60.2)
$
12.3
$
(226.9)
U.S. Markets
International Markets
Consolidated
Three Months Ended
Three Months Ended
Three Months Ended
September 30,
September 30,
September 30,
2023
2022
2023
2022
2023
2022
Segment Operating Data:
Screen additions
—
—
—
—
—
—
Screen acquisitions
8
10
—
9
8
19
Screen dispositions
33
60
—
10
33
70
Construction openings (closures), net
(11)
16
(6)
1
(17)
17
Average screens (1)
7,356
7,652
2,425
2,486
9,781
10,138
Number of screens operated
7,396
7,712
2,682
2,806
10,078
10,518
Number of theatres operated
567
591
337
352
904
943
Screens per theatre
13.0
13.0
8.0
8.0
11.1
11.2
Attendance (in thousands) (1)
51,524
38,329
22,052
14,848
73,576
53,177
(1) Includes consolidated theatres only and excludes screens offline due to construction.
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U.S. Markets
International Markets
Consolidated
Nine Months Ended
Nine Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
(In millions)
2023
2022
2023
2022
2023
2022
Revenues
Admissions
$
1,560.6
$
1,229.6
$
515.3
$
410.5
$
2,075.9
$
1,640.1
Food and beverage
1,052.4
793.7
247.2
188.8
1,299.6
982.5
Other theatre
242.8
201.0
89.9
96.9
332.7
297.9
Total revenues
2,855.8
2,224.3
852.4
696.2
3,708.2
2,920.5
Operating Costs and Expenses
Film exhibition costs
817.7
619.4
210.1
162.3
1,027.8
781.7
Food and beverage costs
181.2
120.1
62.0
45.6
243.2
165.7
Operating expense
930.4
836.8
314.6
310.8
1,245.0
1,147.6
Rent
485.0
502.5
165.8
166.3
650.8
668.8
General and administrative expense:
Merger, acquisition and other costs
1.4
0.9
0.1
(0.5)
1.5
0.4
Other
130.9
111.3
53.9
49.9
184.8
161.2
Depreciation and amortization
218.7
229.0
60.4
64.0
279.1
293.0
Operating costs and expenses
2,765.3
2,420.0
866.9
798.4
3,632.2
3,218.4
Operating income (loss)
90.5
(195.7)
(14.5)
(102.2)
76.0
(297.9)
Other expense (income):
Other expense (income)
(1.8)
92.9
(2.9)
(1.3)
(4.7)
91.6
Interest expense:
Corporate borrowings
232.1
192.7
44.0
53.9
276.1
246.6
Finance lease obligations
0.2
0.4
2.6
2.8
2.8
3.2
Non-cash NCM exhibitor service agreement
28.5
28.6
—
—
28.5
28.6
Equity in (earnings) loss of non-consolidated entities (1)
(3.8)
(2.7)
(1.5)
6.0
(5.3)
3.3
Investment expense (income)
4.7
12.3
(16.1)
(0.1)
(11.4)
12.2
Total other expense, net
259.9
324.2
26.1
61.3
286.0
385.5
Net loss before income taxes
(169.4)
(519.9)
(40.6)
(163.5)
(210.0)
(683.4)
Income tax provision
1.6
0.7
3.0
1.8
4.6
2.5
Net loss
$
(171.0)
$
(520.6)
$
(43.6)
$
(165.3)
$
(214.6)
$
(685.9)
U.S. Markets
International Markets
Consolidated
Nine Months Ended
Nine Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
2023
2022
2023
2022
2023
2022
Segment Operating Data:
Screen additions
—
12
—
25
—
37
Screen acquisitions
8
120
7
9
15
129
Screen dispositions
244
181
137
43
381
224
Construction openings (closures), net
(16)
6
(14)
8
(30)
14
Average screens (1)
7,429
7,646
2,456
2,482
9,885
10,128
Number of screens operated
7,396
7,712
2,682
2,806
10,078
10,518
Number of theatres operated
567
591
337
352
904
943
Screens per theatre
13.0
13.0
8.0
8.0
11.1
11.2
Attendance (in thousands) (1)
133,909
107,622
53,656
43,759
187,565
151,381
(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 September 30, 2023, Adjusted EBITDA in the U.S. markets was $150.6 million compared to $1.2 million during the three months ended September 30, 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. During the three months ended September 30, 2023, Adjusted EBITDA in the International markets was $43.1 million compared to $(14.1) million during the three months ended September 30, 2022. The year-over-year improvement was primarily due to an increase in attendance as a result of the popularity of new film releases compared to the prior year, partially offset by a decline in government assistance. During the three months ended September 30, 2023, Adjusted EBITDA in the U.S. markets and International markets was $193.7 million compared to $(12.9) million during the three months ended September 30, 2022, driven by the aforementioned factors impacting Adjusted EBITDA.
During the nine months ended September 30, 2023, Adjusted EBITDA in the U.S. markets was $336.3 million compared to $52.2 million during the nine months ended September 30, 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. During the nine months ended September 30, 2023, Adjusted EBITDA in the International markets was $47.0 million compared to $(20.1) million during the nine months ended September 30, 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 rent expense, partially offset by a decline in gift card and package ticket expirations and theatre rentals for meetings, and decreases in government assistance. During the nine months ended September 30, 2023, Adjusted EBITDA in the U.S. markets and International markets was $383.3 million compared to $32.1 million during the nine months ended September 30, 2022, driven by the aforementioned factors impacting Adjusted EBITDA.
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The following tables set forth our Adjusted EBITDA by reportable operating segment and our reconciliation of Adjusted EBITDA:
Three Months Ended
Nine Months Ended
Adjusted EBITDA (In millions)
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
U.S. markets
$
150.6
$
1.2
$
336.3
$
52.2
International markets
43.1
(14.1)
47.0
(20.1)
Total Adjusted EBITDA
$
193.7
$
(12.9)
$
383.3
$
32.1
Three Months Ended
Nine Months Ended
(In millions)
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Net earnings (loss)
$
12.3
$
(226.9)
$
(214.6)
$
(685.9)
Plus:
Income tax provision
2.3
1.8
4.6
2.5
Interest expense
103.7
95.7
307.4
278.4
Depreciation and amortization
88.7
96.9
279.1
293.0
Certain operating expense (1)
3.8
4.3
4.0
10.5
Equity in (earnings) loss of non-consolidated entities
(3.1)
(2.8)
(5.3)
3.3
Cash distributions from non-consolidated entities (2)
2.2
3.4
3.9
5.0
Attributable EBITDA (3)
1.4
0.1
1.6
0.1
Investment expense (income) (4)
(3.0)
18.3
(11.4)
12.2
Other expense (income) (5)
(14.1)
6.2
(1.4)
110.9
Other non-cash rent benefit (6)
(8.4)
(6.6)
(27.0)
(20.6)
General and administrative — unallocated:
Merger, acquisition and other costs (7)
0.7
0.3
1.5
0.4
Stock-based compensation expense (8)
7.2
(3.6)
40.9
22.3
Adjusted EBITDA
$
193.7
$
(12.9)
$
383.3
$
32.1
(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.
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Three Months Ended
Nine Months Ended
(In millions)
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Equity in (earnings) loss of non-consolidated entities
$
(3.1)
$
(2.8)
$
(5.3)
$
3.3
Less:
Equity in (earnings) of non-consolidated entities excluding International theatre joint ventures
(2.1)
(3.5)
(4.7)
(3.1)
Equity in earnings (loss) of International theatre joint ventures
1.0
(0.7)
0.6
(6.4)
Income tax provision (benefit)
0.1
0.1
(0.1)
0.1
Investment expense (income)
(0.2)
—
(0.1)
0.2
Interest expense
0.1
—
0.2
—
Impairment of long-lived assets
—
—
—
4.2
Depreciation and amortization
0.4
0.7
1.0
2.0
Attributable EBITDA
$
1.4
$
0.1
$
1.6
$
0.1
(4) Investment expense (income) during the three months ended September 30, 2023 primarily includes appreciation in estimated fair value of the Company’s investment in common shares of Hycroft of $(0.1) million, deterioration in estimated fair value of our investment in warrants to purchase common shares of Hycroft of $0.8 million and interest income of $(3.7) million. During the three months ended September 30, 2022, investment expense (income) included deterioration in estimated fair value of our investment in common shares of Hycroft of $11.8 million, deterioration in estimated fair value of the Company's investment in warrants to purchase common shares of Hycroft of $7.7 million, and $1.6 million decline in the estimated fair value of our investment in NCM Common Units, partially offset by interest income of $(2.8) million.
Investment expense (income) during the nine months ended September 30, 2023 includes deterioration in estimated fair value of our investment in common shares of Hycroft of $5.4 million, deterioration in estimated fair value of our investment in warrants to purchase common shares of Hycroft of $5.4 million, a $(15.5) million gain on the sale of our investment in Saudi Cinema Company, LLC, and interest income of $(8.5) million. During the nine months ended September 30, 2022, investment expense (income) included deterioration in estimated fair value of our investment in common shares of Hycroft of $10.8 million, $11.1 million decline in estimated fair value of our investment in NCM Common Units, partially offset by appreciation in estimated fair value of our investment to purchase common shares of Hycroft of $(7.4) million and interest income of $(3.3) million.
(5) Other expense (income) during the three months ended September 30, 2023 includes a non-cash litigation adjustment of $(16.1) million, income related to foreign currency transaction losses of $12.8 million and gains on debt extinguishment of $(10.8) million. During the three months ended September 30, 2022, other expense (income) included foreign currency transaction losses of $6.3 million.
Other expense (income) during the nine months ended September 30, 2023 includes a non-cash litigation charge of $99.3 million, partially offset by a gain on debt extinguishment of $(97.5) million and foreign currency transaction gains of $(3.2) million. During the nine months ended September 30, 2022, other expense (income) included loss on debt extinguishment of $96.4 million and foreign currency transaction losses of $14.7 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.
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Segment Information
Our historical results of operations for the three and nine months ended September 30, 2023, and September 30, 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 September 30, 2023, Compared to the Three Months ended September 30, 2022
Condensed Consolidated Results of Operations
Revenues. Total revenues increased $437.5 million, or 45.2%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Admissions revenues increased $252.4 million, or 46.3%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to an increase in attendance of 38.4% from 53.2 million patrons to 73.6 million patrons and a 5.8% increase in average ticket price. The increase in attendance was primarily due to the popularity of film product compared to the prior year. The increase in average ticket price was primarily due to higher ticket prices, increased attendance for IMAX content, and increases in foreign currency translation rates partially offset by higher frequency of use by subscribers to our A-List program.
Food and beverage revenues increased $149.4 million, or 44.8%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to the increase in attendance and an increase in food and beverage per patron. Food and beverage per patron increased 4.6% from $6.27 to $6.56 due primarily to increases in average prices, the percentage of guests making transactions, and increases in foreign currency translation rates, partially offset by a decline in units purchased per transaction and higher frequency from our AMC Stubs loyalty members.
Total other theatre revenues increased $35.7 million, or 39.8%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to increases in ticket fees due to the increase in attendance, the number of tickets purchased online and increases in foreign currency translation rates.
Operating costs and expenses. Operating costs and expenses increased $223.2 million, or 20.6%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Film exhibition costs increased $135.3 million, or 51.4%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 50.0% for the three months ended September 30, 2023, compared to 48.3% for the three months ended September 30, 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 $31.6 million, or 54.0%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. The increase in food and beverage costs was primarily due to the increase in food and beverage sales and increases in product costs. As a percentage of food and beverage revenues, food and beverage costs were 18.7% for the three months ended September 30, 2023, and 17.6% for the three months ended September 30, 2022.
As a percentage of revenues, operating expense was 32.0% for the three months ended September 30, 2023, and 41.4% for the three months ended September 30, 2022. Rent expense increased 0.5%, or $1.1 million, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to increases 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 $74.2 million that have been deferred to future years as of September 30, 2023.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $0.7 million during the three months ended September 30, 2023, compared to $0.3 million during the three months ended September 30, 2022.
Other. Other general and administrative expense increased 34.0%, or $13.8 million, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due primarily to increases in
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stock-based compensation expense of $10.8 million related to higher expectations of performance versus goals in the current year compared to the prior year and increases 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 $8.2 million, or 8.5%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to lower depreciation expense on theatres impaired during the year ended December 31, 2022, partially offset by accelerated depreciation related to the replacement of digital projectors and permanently closed theatres.
Other income. Other income of $12.8 million during the three months ended September 30, 2023 was primarily due to $15.3 million of income related to the settlement of the Shareholder Litigation comprised of $16.1 million of non-cash income for the decrease in estimated fair value as of the date of the final Delaware Supreme Court order of settlement shares issued to holders of Common Stock on August 28, 2023 and partially offset by $0.8 million of contingent insurance recovery costs, gains on extinguishment of debt of $10.8 million related to the redemption of $24.2 million aggregate principal amount of the Second Lien Notes due 2026 and partially offset by $12.8 million in foreign currency transaction losses. Other income of $1.0 million during the three months ended September 30, 2022, was primarily due $7.0 million in government assistance related to COVID-19 and partially offset by $6.3 million of foreign currency transaction losses. 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 income.
Interest expense. Interest expense increased $8.0 million to $103.7 million for the three months ended September 30, 2023, compared to $95.7 million during the three months ended September 30, 2022, primarily due to:
● 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:
● the extinguishment of $383.8 million of 10%/12% Cash/PIK/Toggle Second Lien Notes due 2026 from May 2022 to September 2023; and
● 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.
Equity in earnings of non-consolidated entities. Equity in earnings of non-consolidated entities was $3.1 million for the three months ended September 30, 2023, compared to $2.8 million for the three months ended September 30, 2022.
Investment expense (income). Investment income was ($3.0) million for the three months ended September 30, 2023, compared to expense of $18.3 million for the three months ended September 30, 2022. Investment income in the current year includes $3.7 million in interest income and $0.1 million of increase in estimated fair value of our investment in common shares of Hycroft, partially offset by $0.8 million of decline in estimated fair value of our investment in warrants to purchase common shares of Hycroft. Investment expense in the prior year includes $11.8 million of decline in estimated fair value of our investment in common shares of Hycroft, $7.7 million of decline in estimated fair value of our investment in warrants to purchase common shares of Hycroft and $1.6 million decline in estimated fair value of our investment in NCM Common Units, partially offset by interest income of $2.8 million.
Income tax provision. The income tax provision was $2.3 million and $1.8 million for the three months ended September 30, 2023, and September 30, 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 earnings (loss). Net earnings (loss) was $12.3 million and $(226.9) million during the three months ended September 30, 2023, and September 30, 2022, respectively. Net earnings during the three months ended September 30, 2023 compared to net loss for the three months ended September 30, 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 depreciation and amortization expense, increases in other income, increases in equity in earnings and decreases in investment expense, partially offset by increases in rent expense, increases in general and administrative expenses, increases in interest expense, increases in income tax provision and increases in foreign currency translation rates.
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Theatrical Exhibition — U.S. Markets
Revenues. Total revenues increased $310.6 million, or 41.2%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Admissions revenues increased $169.9 million or 40.7%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to an increase in attendance of 34.4% from 38.3 million patrons to 51.5 million patrons and a 4.6% increase in average ticket price. The increase in attendance was primarily due to the popularity of film product compared to the prior year. The increase in average ticket price was primarily due to higher ticket prices and increased attendance for IMAX content, partially offset by higher frequency of use by subscribers to our A-List program.
Food and beverage revenues increased $110.4 million, or 40.5%, during the three months ended September 30, 2023, compared to the three months ended September 30, 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 $7.11 to $7.43 due primarily to increases in average prices, the percentage of guests making transactions, partially offset by a decline in units purchased per transaction and higher frequency from our AMC Stubs loyalty members.
Total other theatre revenues increased $30.3 million, or 47.9%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to increases in ticket fees due to the increase in the number of tickets purchased online.
Operating costs and expenses. Operating costs and expenses increased $158.1 million, or 19.1%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Film exhibition costs increased $97.2 million, or 45.8%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 52.6% for the three months ended September 30, 2023, compared to 50.8% for the three months ended September 30, 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 $21.5 million or 49.3%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. The increase in food and beverage costs was primarily due to the increase in food and beverage sales, increases in product costs, and product mix. As a percentage of food and beverage revenues, food and beverage costs were 17.0% for the three months ended September 30, 2023, and 16.0% for the three months ended September 30, 2022.
As a percentage of revenues, operating expense was 31.9% for the three months ended September 30, 2023, and 39.9% for the three months ended September 30, 2022. Rent expense decreased 1.6%, or $2.7 million, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. 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 $67.8 million that have been deferred to future years as of September 30, 2023.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $0.6 million during the three months ended September 30, 2023, compared to $0.3 million during the three months ended September 30, 2022.
Other. Other general and administrative expense increased 39.8%, or $10.6 million, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due primarily to increases in stock-based compensation expense of $9.7 million related to higher expectations of performance versus goals in the current year compared to the prior year. 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 $7.9 million, or 10.2%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to lower depreciation expense on theatres impaired during the year ended December 31, 2022, partially offset by accelerated depreciation related to the replacement of digital projectors and permanently closed theatres.
Other income. Other income of $25.8 million during the three months ended September 30, 2023 was primarily due to $15.3 million of income related to the settlement of the Shareholder Litigation comprised of $16.1
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million of non-cash income for the decrease in estimated fair value as of the date of the final Delaware Supreme Court order of settlement shares issued to holders of Common Stock on August 28, 2023 and partially offset by $0.8 million of contingent insurance recovery costs and gains on extinguishment of debt of $10.8 million related to the redemption of $24.2 million aggregate principal amount of the Second Lien Notes due 2026. Other income of $2.0 million during the three months ended September 30, 2022 was primarily due to government assistance related to COVID-19 of $1.6 million. 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 income and Note 11—Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this form 10-Q for additional information about our legal contingencies and settlements.
Interest expense. Interest expense increased $10.6 million to $88.2 million for the three months ended September 30, 2023, compared to $77.6 million during the three months ended September 30, 2022, primarily due to:
● the increase in interest rates on the Senior Secured Credit Facility Term Loan due 2026,
partially offset by:
● the extinguishment of $383.8 million of 10%/12% Cash/PIK/Toggle Second Lien Notes due 2026 from May 2022 to September 2023.
Equity in earnings of non-consolidated entities. Equity in earnings of non-consolidated entities was $1.6 million for the three months ended September 30, 2023, compared to earnings of $3.5 million for the three months ended September 30, 2022.
Investment expense (income). Investment income was $(2.4) million for the three months ended September 30, 2023, compared to expense of $18.4 million for the three months ended September 30, 2022. Investment income in the current year includes $3.1 million in interest income and $0.1 million of increase in estimated fair value of our investment in common shares of Hycroft, partially offset by $0.8 million of decline in estimated fair value of our investment in warrants to purchase common shares of Hycroft. Investment expense in the prior year includes $11.8 million of decline in estimated fair value of our investment in common shares of Hycroft, $7.7 million of decline in estimated fair value of our investment in warrants to purchase common shares of Hycroft and $1.6 million decline in estimated fair value of our investment in NCM Common Units, partially offset by interest income of $2.8 million.
Income tax provision. The income tax provision was $0.6 million and $0.4 million for the three months ended September 30, 2023, and September 30, 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 earnings (loss). Net earnings (loss) was $17.7 million and $(166.7) million during the three months ended September 30, 2023 and September 30, 2022, respectively. Net earnings during the three months ended September 30, 2023 compared to net loss for the three months ended September 30, 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 depreciation and amortization expense, decreases in rent expense, increases in other income and decreases in investment expense, partially offset by increases general and administrative expenses, increases in interest expense, decreases in equity in earnings and increases in income tax provision.
Theatrical Exhibition—International Markets
Revenues. Total revenues increased $126.9 million, or 59.0%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Admissions revenues increased $82.5 million, or 64.6%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to an increase in attendance of 48.5% from 14.8 million patrons to 22.1 million patrons and a 10.8% increase in average ticket price. The increase in attendance was primarily due to the popularity of film product compared to the prior year. The increase in average ticket price was primarily due to increases in foreign currency translation rates and higher ticket prices.
Food and beverage revenues increased $39.0 million, or 64.0%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to the increase in attendance and an increase in food and beverage per patron. Food and beverage per patron increased 10.5% from $4.10 to $4.53 due primarily to increases in foreign currency translation rates and average prices.
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Total other theatre revenues increased $5.4 million, or 20.4%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to increases in ticket fees due to the increase in attendance, the number of tickets purchased online and increases in foreign currency translation rates.
Operating costs and expenses. Operating costs and expenses increased $65.1 million, or 25.6%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Film exhibition costs increased $38.1 million, or 74.4%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 42.5% for the three months ended September 30, 2023, compared to 40.1% for the three months ended September 30, 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 $10.1 million, or 67.8%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. The increase in food and beverage costs was primarily due to the increase in food and beverage sales and increases in product costs. As a percentage of food and beverage revenues, food and beverage costs were 25.0% for the three months ended September 30, 2023, and 24.5% for the three months ended September 30, 2022.
As a percentage of revenues, operating expense was 32.3% for the three months ended September 30, 2023, and 46.6% for the three months ended September 30, 2022. Rent expense increased 7.0%, or $3.8 million, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to the increase 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 $6.4 million that have been deferred to future years as of September 30, 2023.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $0.1 million during the three months ended September 30, 2023, compared to $0.0 million during the three months ended September 30, 2022.
Other. Other general and administrative expense increased 22.9%, or $3.2 million, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due primarily to increases in stock-based compensation expense of $1.1 million related to higher expectations of performance versus goals in the current year compared to the prior year and increases 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 $0.3 million, or 1.5%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to lower depreciation expense on theatres impaired during the year ended December 31, 2022, partially offset by the increase in foreign currency translation rates.
Other expense. Other expense of $13.0 million during the three months ended September 30, 2023, was primarily due to $12.8 million in foreign currency transaction losses. Other expense of $1.0 million during the three months ended September 30, 2022, was primarily due to $6.3 million of foreign currency transaction losses, partially offset by $5.4 million in government assistance related to COVID-19. 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 decreased $2.6 million to $15.5 million for the three months ended September 30, 2023, compared to $18.1 million during the three months ended September 30, 2022, primarily due to:
● the issuance of $400.0 million 12.75% Odeon Senior Secured Notes due 2027 on October 20, 2022,
partially offset by:
● 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.
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Equity in (earnings) loss of non-consolidated entities. Equity in (earnings) loss of non-consolidated entities was $(1.5) million for the three months ended September 30, 2023, compared to $0.7 million for the three months ended September 30, 2022.
Investment income. Interest income was $0.6 million for the three months ended September 30, 2023, compared to income of $0.1 million for the three months ended September 30, 2022.
Income tax provision. The income tax provision was $1.7 million and $1.4 million for the three months ended September 30, 2023, and September 30, 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 $5.4 million and $60.2 million during the three months ended September 30, 2023, and September 30, 2022, respectively. Net loss during the three months ended September 30, 2023 compared to net loss for the three months ended September 30, 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 depreciation and amortization expense, decreases in equity losses, decreases in interest expense and increases in investment income, partially offset by increases in rent expense, increases in general and administrative expenses, increases in other expense, increases in income tax provision and increases in foreign currency translation rates.
Results of Operations—For the Nine Months ended September 30, 2023 Compared to the Nine Months ended September 30, 2022
C ondensed Consolidated Results of Operations
Revenues. Total revenues increased $787.7 million, or 27.0%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Admissions revenues increased $435.8 million, or 26.6%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to an increase in attendance of 23.9% from 151.4 million patrons to 187.6 million patrons and a 2.2% increase in average ticket price. The increase in attendance was primarily due to the popularity of film product compared to the prior year. The increase in average ticket price was primarily due to increased attendance for 3D content partially offset by higher frequency of use by subscribers to our A-List program.
Food and beverage revenues increased $317.1 million, or 32.3%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 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 $6.49 to $6.93 due primarily to an increase in average prices, the percentage of guests making transactions, and the lifting of COVID-19 restrictions on the sale of food and beverage in certain international markets, partially offset by lower units purchased per transaction and higher frequency from our AMC Stubs loyalty members.
Total other theatre revenues increased $34.8 million, or 11.7%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to higher ticket fees due to the increase in the number of tickets purchased online, increases in advertising and retail sales, and partially offset by lower income from gift cards and package tickets and lower income from theatre meetings.
Operating costs and expenses. Operating costs and expenses increased $413.8 million, or 12.9%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Film exhibition costs increased $246.1 million, or 31.5%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 49.5% for the nine months ended September 30, 2023, compared to 47.7% for the nine months ended September 30, 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 $77.5 million, or 46.8%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 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 18.7% for the nine months ended September 30, 2023, and 16.9% for the nine months ended September 30, 2022.
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As a percentage of revenues, operating expense was 33.6% for the nine months ended September 30, 2023, and 39.3% for the nine months ended September 30, 2022. Rent expense decreased 2.7%, or $18.0 million, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 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 $74.2 million that have been deferred to future years as of September 30, 2023.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $1.5 million during the nine months ended September 30, 2023, compared to $0.4 million during the nine months ended September 30, 2022.
Other. Other general and administrative expense increased $23.6 million, or 14.6%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 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 238,959 Common Stock PSUs and 238,959 Preferred Equity Unit PSUs. 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 Common Stock PSUs and AMC Preferred Equity Unit PSUs of $62.30 per unit and $22.20 per unit, respectively, during the nine months ended September 30, 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 $13.9 million, or 4.7%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to lower depreciation expense on theatres impaired during the year ended December 31, 2022, partially offset by accelerated depreciation related to the replacement of digital projectors and permanently closed theatres.
Other expense (income). Other income of $(4.7) million during the nine months ended September 30, 2023 was primarily due to a gain on extinguishment of debt of $95.2 million related to the redemption of $165.6 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 $3.2 million in foreign currency transaction gains, and partially offset by, $110.1 million of expense related to the settlement of the Shareholder Litigation comprised of $10.8 million of estimated legal fees and contingent insurance recovery costs and $99.3 million of non-cash expense for the estimated fair value as of the date of the final Delaware Supreme Court order of settlement shares issued to holders of Common Stock on August 28, 2023. Other expense of $91.6 million during the nine months ended September 30, 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, the $73.5 million aggregate principal amount of the First Lien Toggle Notes due 2026 and $14.7 million of foreign currency transaction losses, partially offset by a gain on extinguishment of debt of $38.6 million related to the redemption of $72.5 million of aggregate principal amount of the Second Lien Notes due 2026 and $18.9 million in government assistance related to COVID-19. 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).
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Interest expense. Interest expense increased $29.0 million to $307.4 million for the nine months ended September 30, 2023 compared to $278.4 million during the nine months ended September 30, 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:
● the extinguishment of $383.8 million of 10%/12% Cash/PIK/Toggle Second Lien Notes due 2026 from May 2022 to September 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; and
● 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.
Equity in (earnings) loss of non-consolidated entities. Equity in (earnings) loss of non-consolidated entities was ($5.3) million for the nine months ended September 30, 2023, compared to a loss of $3.3 million for the nine months ended September 30, 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) expense. Investment income was $(11.4) million for the nine months ended September 30, 2023, compared to investment expense of $12.2 million for the nine months ended September 30, 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 $8.5 million, partially offset by $5.4 million of decline in estimated fair value of our investment in common shares of Hycroft and $5.4 million of decline in estimated fair value of our investment in warrants to purchase common shares of Hycroft and $1.8 million of expense for NCM Common Units. Investment expense in the prior year includes $10.8 million of decline in estimated fair value of our investment in common shares of Hycroft partially offset by $7.4 million of appreciation in estimated fair value of our investment in warrants to purchase common shares of Hycroft, and an $11.1 million decline in estimated fair value of our investment in NCM Common Units partially offset by interest income of $3.3 million.
Income tax provision. The income tax provision was $4.6 million and $2.5 million for the nine months ended September 30, 2023, and September 30, 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 $214.6 million and $685.9 million during the nine months ended September 30, 2023, and September 30, 2022, respectively. Net loss during the nine months ended September 30, 2023 compared to net loss for the nine months ended September 30, 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 investment expense, partially offset by increases in general and administrative expenses, increases in interest expense and an increase in income tax provision.
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Theatrical Exhibition—U.S. Markets
Revenues. Total revenues increased $631.5 million, or 28.4%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Admissions revenues increased $331.0 million, or 26.9%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to an increase in attendance of 24.4% from 107.6 million patrons to 133.9 million patrons and a 1.9% increase in average ticket price. The increase in attendance was primarily due to the popularity of film product compared to the prior year. The increase in average ticket price was primarily due to increased attendance for 3D content partially offset by higher frequency of use by subscribers to our A-List program.
Food and beverage revenues increased $258.7 million, or 32.6%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to the increase in attendance and an increase in food and beverage per patron. Food and beverage per patron increased 6.6% from $7.37 to $7.86 due primarily to an increase in average prices and the percentage of guests making transactions, partially offset by lower units purchased per transaction and higher frequency from our AMC Stubs loyalty members.
Total other theatre revenues increased $41.8 million, or 20.8%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to higher ticket fees due to the increase in the number of tickets purchased online, advertising and retail sales, and partially offset by lower income from gift cards and package tickets and lower income from theatre meetings.
Operating costs and expenses. Operating costs and expenses increased $345.3 million, or 14.3%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Film exhibition costs increased $198.3 million, or 32.0%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 52.4% for the nine months ended September 30, 2023, compared to 50.4% for the nine months ended September 30, 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 $61.1 million, or 50.9%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 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 17.2% for the nine months ended September 30, 2023, and 15.1% for the nine months ended September 30, 2022.
As a percentage of revenues, operating expense was 32.6% for the nine months ended September 30, 2023, and 37.6% for the nine months ended September 30, 2022. Rent expense decreased 3.5%, or $17.5 million, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 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 $67.8 million that have been deferred to future years as of September 30, 2023.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $1.4 million during the nine months ended September 30, 2023, compared to $0.9 million during the nine months ended September 30, 2022.
Other. Other general and administrative expense increased $19.6 million, or 17.6%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, due primarily to stock-based compensation expense of $18.1 million related to a 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 $10.3 million, or 4.5%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to lower depreciation expense on theatres impaired during the year ended December 31, 2022, partially offset by accelerated depreciation related to the replacement of digital projectors and permanently closed theatres.
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Other expense (income). Other income of $(1.8) million during the nine months ended September 30, 2023 was primarily due to a gain on extinguishment of debt of $95.2 million related to the redemption of $165.6 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 and partially offset by, $110.1 million of expense related to the settlement of the Shareholder Litigation comprised of $10.8 million of estimated legal fees and contingent insurance recovery costs and $99.3 million of non-cash expense for the estimated fair value as of the date of the final Delaware Supreme Court order of settlement shares issued to holders of Common Stock on August 28, 2023. Other expense of $92.9 million during the nine months ended September 30, 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, partially offset by a gain on extinguishment of debt of $38.6 million related to the redemption of $72.5 million of aggregate principal amount of the Second Lien Notes due 2026 and $2.7 million in government assistance related to COVID-19. 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 $39.1 million to $260.8 million for the nine months ended September 30, 2023 compared to $221.7 million during the nine months ended September 30, 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
● the increase in interest rates on the Senior Secured Credit Facility Term Loan due 2026,
partially offset by:
● the extinguishment of $383.8 million of 10%/12% Cash/PIK/Toggle Second Lien Notes due 2026 from May 2022 to September 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 of non-consolidated entities. Equity in earnings of non-consolidated entities was $3.8 million for the nine months ended September 30, 2023, compared to earnings of $2.7 million for the nine months ended September 30, 2022.
Investment expense. Investment expense was $4.7 million for the nine months ended September 30, 2023, compared to investment expense of $12.3 million for the nine months ended September 30, 2022. Investment expense in the current year includes $5.4 million of decline in estimated fair value of our investment in common shares of Hycroft, $5.4 million of decline in estimated fair value of our investment in warrants to purchase common shares of Hycroft and $1.8 million of expense for NCM Common Units, partially offset by interest income of $7.9 million. Investment expense in the prior year includes $10.8 million of deterioration in estimated fair value of our investment in common shares of Hycroft and $7.4 million of appreciation in estimated fair value of our investment in warrants to purchase common shares of Hycroft and a $11.1 million decline in estimated fair value of our investment in NCM Common Units offset by interest income of $3.3 million.
Income tax provision. The income tax provision was $1.6 million and $0.7 million for the nine months ended September 30, 2023, and September 30, 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 $171.0 million and $520.6 million during the nine months ended September 30, 2023, and September 30, 2022, respectively. Net loss during the nine months ended September 30, 2023 compared to net loss for the nine months ended September 30, 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, increases in equity in earnings and decreases in investment expense, partially offset by increases in general and administrative expenses, increases in interest expense and an increase in income tax provision.
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Theatrical Exhibition—International Markets
Revenues. Total revenues increased $156.2 million, or 22.4%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Admissions revenues increased $104.8 million, or 25.5%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to an increase in attendance of 22.6% from 43.8 million patrons to 53.7 million patrons and a 2.3% increase in average ticket price. The increase in attendance was primarily due to the popularity of film product compared to the prior year. The increase in average ticket price was primarily due to higher ticket prices.
Food and beverage revenues increased $58.4 million, or 30.9%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to the increase in attendance and an increase in food and beverage per patron. Food and beverage per patron increased 7.0% from $4.31 to $4.61 due primarily to an increase in average prices and the lifting of COVID-19 restrictions on the sale of food and beverage in certain international markets.
Total other theatre revenues decreased $7.0 million, or 7.2%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to the decline in gift card and package ticket expirations and lower income from theatre meetings, partially offset by higher ticket fees due to the increase in the number of tickets purchased online, advertising and retail sales.
Operating costs and expenses. Operating costs and expenses increased $68.5 million, or 8.6%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Film exhibition costs increased $47.8 million, or 29.5%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 40.8% for the nine months ended September 30, 2023, compared to 39.5% for the nine months ended September 30, 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 $16.4 million, or 36.0%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The increase in food and beverage costs was primarily due to the increase in food and beverage revenues and increases in product costs. As a percentage of food and beverage revenues, food and beverage costs were 25.1% for the nine months ended September 30, 2023, and 24.2% for the nine months ended September 30, 2022.
As a percentage of revenues, operating expense was 36.9% for the nine months ended September 30, 2023, and 44.6% for the nine months ended September 30, 2022. Rent expense decreased 0.3%, or $0.5 million, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. 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 $6.4 million that have been deferred to future years as of September 30, 2023.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $0.1 million during the nine months ended September 30, 2023, compared to $(0.5) million during the nine months ended September 30, 2022.
Other. Other general and administrative expense increased $4.0 million, or 8.0%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, due primarily to stock-based compensation expense of $2.1 million related to a 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 $3.6 million, or 5.6%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to lower depreciation expense on theatres impaired during the year ended December 31, 2022.
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Other income. Other income of $2.9 million during the nine months ended September 30, 2023, was primarily due to $3.2 million in foreign currency transaction gains. Other income of $1.3 million during the nine months ended September 30, 2022, was primarily due to $16.2 million in government assistance related to COVID-19 and partially offset by $14.7 million of foreign currency transaction losses. 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 decreased $10.1 million to $46.6 million for the nine months ended September 30, 2023, compared to $56.7 million during the nine months ended September 30, 2022, primarily due to:
● the issuance of $400.0 million 12.75% Odeon Senior Secured Notes due 2027 on October 20, 2022.
partially offset by:
● 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.
Equity in (earnings) loss of non-consolidated entities. Equity in (earnings) loss of non-consolidated entities was $(1.5) million for the nine months ended September 30, 2023, compared to $6.0 million for the nine months ended September 30, 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 $16.1 million for the nine months ended September 30, 2023, compared to investment income of $0.1 million for the nine months ended September 30, 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 $0.6 million.
Income tax provision. The income tax provision was $3.0 million and $1.8 million for the nine months ended September 30, 2023, and September 30, 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 $43.6 million and $165.3 million during the nine months ended September 30, 2023, and September 30, 2022, respectively. Net loss during the nine months ended September 30, 2023 compared to net loss for the nine months ended September 30, 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, increases in other income, decreases in interest expense, decreases in equity in losses and increases in investment income, partially offset by increases in general and administrative 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 deficit (excluding restricted cash) as of September 30, 2023, and December 31, 2022 of $(571.1) million and $(811.1) million, respectively. As of September 30, 2023 and December 31, 2022, working capital included operating lease liabilities of $512.3 million and $567.3 million, respectively, and deferred revenues of $411.0 million and $402.7 million, respectively.
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 September 30, 2023, we had cash and cash equivalents of $729.7 million.
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Additionally, during the first, second, and third quarters of 2023 we continued to lower our future interest expense 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 and 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 further information.
We believe our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to fund our operations and satisfy our obligations. We also believe we will comply with the minimum liquidity covenant requirement under our Senior Secured Revolving Credit Facility through the end of the covenant suspension period. Pursuant to the Twelfth Amendment to the Credit Agreement, the requisite revolving lenders party thereto agreed to extend the suspension period for the secured leverage ratio 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 September 30, 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 to levels in line with pre-COVID-19 operating revenues. North American box office grosses were down approximately 16% for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2019. 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 increased levels of operating revenue, the estimates of amounts of required liquidity vary significantly.
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. Additionally, the effects of labor stoppages, including but not limited to the Writers Guild of America strike that began on May 2, 2023 and ended on September 27, 2023, and the Screen Actors Guild – American Federation of Television and Radio Artists strike that began on July 14, 2023, cannot be reasonably estimated and may have a negative impact on the future film slate for exhibition, the Company’s future liquidity and cash burn rates. 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 $137.4 million and $595.2 million during the nine months ended September 30, 2023 and September 30, 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, 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 nine months ended September 30, 2023 compared to the nine months ended September 30, 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 $74.2 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 $116.4 million and $153.7 million during the nine months ended September 30, 2023, and September 30, 2022, respectively. Cash outflows from investing activities include capital expenditures of $153.5 million and $129.7 million during the nine months ended September 30, 2023, and September 30, 2022, respectively. During the nine months ended September 30, 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 $8.6 million.
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During the nine months ended September 30, 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, acquisition of theatre assets for $17.8 million, partially offset by proceeds from the disposition of long-term assets of $10.8 million and proceeds of $11.4 million from the sale of securities in conjunction with the liquidation of a non-qualified deferred compensation plan.
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 $175 million to $225 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 $355.3 million and $(135.5) million during the nine months ended September 30, 2023, and September 30, 2022, respectively. Cash flows provided by financing activities during the nine months ended September 30, 2023, were primarily due to equity issuances of $492.4 million, net of issuance costs, partially offset by the repurchase of Second Lien Notes due 2026 for $99.8 million, and taxes paid for restricted unit withholdings of $14.2 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 September 30, 2023.
Cash flows provided by financing activities during the nine months ended September 30, 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, repurchase of Second Lien Notes due 2026 of $50.0 million, and cash used to pay for deferred financing costs of $19.3 million, partially offset by the issuance of the First Lien Notes due 2029 of $950.0 million and net proceeds from AMC Preferred Equity Unit share issuances.
We or our affiliates may, 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 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.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.