AMC Entertainment Holdings, Inc. (NYSE:AMC) Q2 2023 Earnings Call Transcript

AMC Entertainment Holdings, Inc. (NYSE:AMC) Q2 2023 Earnings Call Transcript August 8, 2023

AMC Entertainment Holdings, Inc. misses on earnings expectations. Reported EPS is $0.01 EPS, expectations were $0.05.

Operator: Good afternoon, ladies and gentlemen. And welcome to the AMC Entertainment Second Quarter 2023 Earnings Conference Call. At this time, all lines are in listen-only mode. And following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. This call is being recorded on Tuesday, August 8, 2023. I would now like to turn the conference call over to Mr. John Merriweather. Please go ahead.

John Merriwether: Thank you, Kelsey. Good morning. I’d like to welcome everyone to AMC’s Second Quarter 2023 Earnings Webcast. With me this morning is Adam Aron, our Chairman and CEO, and Sean Goodman, our Chief Financial Officer. Before I turn the webcast over to Adam, let me remind everyone that some of the comments made by management during this webcast may contain forward-looking statements that are based on management’s current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. Many of these risks and uncertainties are discussed in our most recent public filings, including our most recently filed 10-K and 10-Q. Several of the factors that will determine the company’s future results are beyond the ability of the company to control or predict.

In light of the uncertainties inherent in any forward-looking statements, listeners are cautioned against relying on these statements. The company undertakes no obligation to revise or update any forward-looking statements whether as a result of new information or future events. On this webcast, we may reference non-GAAP financial measures, such as adjusted EBITDA, constant currency, free cash flow, operating cash generated, among others. For a full reconciliation of our non-GAAP measures to GAAP results, please see our earnings release posted in the Investor Relations section of our website earlier this morning. After our prepared remarks, there will be a question-and-answer session. This morning’s webcast is being recorded, and a replay will be available in the Investor Relations section of our website at amctheaters.com later today.

With that, I’ll turn the call over to Adam.

Adam Aron: Thank you, John. Good afternoon, everyone. And thank you for joining us today. When I think of our second quarter 2023 results and our start to the third quarter, I want to share this with all of you. In plain English. AMC blew it out of the water in the second quarter of 2023. And I might add that the third quarter of 2023 is starting out to be roaring hot too. Around here, the metaphors we often use to describe our circumstances involve famous movie quotes. Our recent results in Q2 and so far in Q3 of 2023 brings, to my mind, Bruce Willis as Lieutenant John McClane in the Die Hard movies, when he would say, Yippee-ki-yay. He would then add a colorful expletive that I cannot repeat on this call. I think the closest I can get to it would be Yippee-ki-yay, mother ducker.

So, yeah, that’s the second quarter of 2023. Without being too dramatic, the stakes are high and we’re surrounded by some uncertainties and risks. But it’s certainly encouraging for us all to take a moment this afternoon and celebrate our immensely positive results in the most recently completed quarter. AMC’s results in Q2 2023 were well ahead of last year second quarter and well ahead of the market’s expectations. Indeed, AMC exceeded consensus market expectations across the board, generating post pandemic records for revenue, adjusted EBITDA, net income and earnings per share. We now have posted three consecutive quarters of positive adjusted EBITDA. And this quarter, for the first time since Q2 of 2019, that’s four years ago, we generated positive earnings per share, yet another milestone in our path towards ongoing recovery.

While we still have much work ahead of us on this front, AMC’s glide path to eventual recovery continued with significant pace in the second quarter of 2023 as our results set new records and represent AMC’s strongest second quarter in four full years. Following an impressive start to the year in the first quarter of 2023, the second quarter yet again showed great progress. AMC saw more than a 12% growth in attendance, more than a 15% growth in total revenue, and a 71% increase in adjusted EBITDA compared to the second quarter of 2022 last year. Indeed, adjusted EBITDA in the second quarter of 2023 was $182.5 million, the highest such quarterly figure for AMC since the fourth quarter of 2019. Our ongoing progress is obvious and ever so encouraging.

Combining AMC’s commitment to innovation with a notable increase in both the number and the quality of movie titles from our studio partners, movie theaters are once again captivating audiences and driving an audience and attendance back to theaters in general, and especially at AMC, we’re driving audiences that attendance back to AMC theaters. Our theaters across the globe welcomed more than 66 million guests in the second quarter of 2023, up 12.2% over the prior year’s Q2. And it was our highest quarterly attendance number also since the fourth quarter of 2019. Let’s use the second quarter domestic industry box office as a proxy for the size and the improving health of our industry overall. Looking at domestic industry box office for the second quarter, ticket sales grew by nearly 15% compared to the same quarter last year, benefiting from six movies that grossed more than $100 million each, anchored by Super Mario Bros.

and franchises such as Guardians of the Galaxy, Spider Man, Fast and Furious, Transformers and The Little Mermaid. These titles provided compelling movie going experiences. Year-to-date, through today, in 2023, 19 films crossed the $100 million mark in gross ticket revenues compared to only 12 during the same period in 2022. That is a 58% increase. And the total number of wide release films grossing more than $5 million dollars also continues to rise from 24 in Q2 of 2022 to 36 in Q2 2023. That’s a 50% increase. One area that has far exceeded pre-pandemic norms has been AMC’s per patron revenue. AMC movie goers are consistently seeking out the most immersive sight and sound experiences, especially important to AMC, as we offer more premium large format screens than any other exhibitor.

You know what premium large format screens are, IMAX Dolby cinema and our various house brands including Private AMC and iSense in Europe, among others. Demonstrating how significant these premium large format screens are to AMC’s success, the so-called POS represent only 5.3% of our total screens globally, but an astounding 19% of our second quarter ticket revenues. AMC’s imaginative offerings at our concession stands and in our dining theaters also helped AMC to generate in the second quarter for food and beverage revenues per patron $7.36 ahead. That is within $0.01 of our all-time high watermark for food and beverage spending per patron. Considering the enormous operating margins in our food and beverage business, this is contributing meaningfully to AMC’s improving profitability.

But. to me, perhaps the most surprising second quarter statistic of them all is this one. Because of our determined and sustained pandemic era cost reduction efforts, along with ticket pricing initiatives, and soaring food and beverage revenues, comparing Q2 2023 to Q2 of 2019, four years ago, pre-pandemic, AMC’s overall profit per patron after the cost of goods sold improved by an impressive 40% in the United States and 22% internationally in constant currency. Put those together, that’s a 36% total global increase in our profitability per patron in constant currency. And if the Q2 domestic industry box office wasn’t enough to lift our spirits and bolster our path to recovery, the month of July, the first month in Q3, was the highest grossing month for AMC in 12 years.

And it was the second highest grossing box office month ever in our 103 year history. As you know, this performance in July was driven by the resounding success of titles such as Sound of Freedom, Mission: Impossible – Dead Reckoning Part One, Oppenheimer, and for all of you dressed in pink, Barbie, among other titles. In the United States, the July box office represented a 5.8% increase compared to the pre-pandemic July of 2019 and a 20% increase compared to last year’s July. For AMC globally, these milestones translated into July of 2023 being the highest revenue month for our company in our entire 103-year history. The first week of August is continuing with an incredibly strong showing, with the domestic industry box office about double that of last year.

This all speaks to what we at AMC have said time and time again. Studios are masterful at storytelling. And when they have great stories to tell, they are best showcased – in the words of Nicole Kidman – as damned dazzling images on our huge silver screens. Here at AMC, those stories are perfect and powerful. And audiences are flocking to our AMC theaters in the United States and our Odeon cinemas in Europe, in our AMC cinemas in the Middle East as a result. Looking forward to the rest of 2023. We have a slew of exciting movies yet to be released this year. They’re coming. And barring complications to the timing of film releases due to the uncertainties arising from the writers and actors strikes currently well underway unfortunately, we have good reasons to believe that the second half box office will continue to show real strength this year.

Even so, we will not get to 2019 pre-pandemic levels for this full year 2023, but there is a clear trajectory upwards. Our hope is that COVID-19 is but a bad ancient memory by 2024 or 2025 even though as much as some of you hate it when I say the word COVID, we are still dealing with the aftermath of that pandemic. Now, at this point, I’ll pass the webcast over to our CFO, Sean Goodman, to provide more details on our financial results, after which I’ll return to talk about some of our ongoing initiatives and AMCs plans for the future, as well as taking some of your questions. Sean?

Sean Goodman : Thanks, Adam. Thanks, everyone, for joining us this afternoon. So before I begin my comments on our second quarter financial performance, I would like to just take one moment to provide a little bit of context behind our earnings release and 10-Q issuance this morning rather than our customary after to the market issuance. As you know, the Delaware court is currently in the process of reviewing our proposed shareholder litigation settlement. A ruling by the court prior to the issuance of our 10-Q could constitute a post balance sheet event that might require an adjustment to our financial statements, and thereby a possible delay in our regulatory filings and earnings release. So to avoid any such risk of a delay and the possibility of thereby missing filing deadlines, we decided to release our results for the second quarter before the market opened this morning.

Okay, so now on to our results for Q2, our strongest quarter post pandemic and a clear sign of our ongoing recovery. 2023 has continued to see box office recovery, $1.7 billion in Q1 and now $2.7 billion in Q2. For the first half of 2023, the box office is now up approximately 20% from the same period last year. Remember, the first half of 2022 was up almost 4 times from same period in 2021. With attendance growth of 12.2% and revenue growth of 15.6% compared to the second quarter of 2022, we grew our adjusted EBITDA by 71% to a post pandemic record of $182.5 million. This illustrates the operating leverage that is inherent in our business model. For the quarter, we achieved positive earnings per share for the first time since Q2 of 2019. Now granted, it’s a small positive number.

But for those of us who have been working tirelessly for AMC to recover from the depths of the pandemic, it is yet another milestone along our recovery. In the North American business, total revenue increased by 19.8% compared to Q2 of 2022. This was driven by an attendance increase of 15%, admissions revenue per patron increase of 2.2%, and food and beverage revenue per patron increase of 9.2% to a record all time high of $8.22, surpassing the previous record that was set just last quarter and an amount that is 47.3% above pre-pandemic Q2 2019. In the international business, on a constant currency basis, total revenue increased by approximately 1% compared to Q2 of 2022. This was driven by an attendance increase of 4.6%, admissions revenue per patron decrease of 1% and food and beverage revenue per patron increase of 6.5%.

International food and beverage revenue per patron for the quarter was 34.5%, above pre-pandemic Q2 of 2019. So worth noting in the international business that, during the quarter, we saw a 27.6% decline in other revenue. This decline is associated with relatively high levels of gift card and package ticket expirations and also relatively high theater rental income, all in the prior year period and associated with the impact of the COVID-19 pandemic on our business. As the industry box office continued on its recovery trajectory, our revenue growth in the quarter was enhanced as guests responded favorably to our targeted marketing campaigns and increasingly adopted our industry leading app. In addition, our create a food and beverage option, such as movie themed cocktails and unique collectible items, encouraged frequent visits to the concession stands or contributing to both revenue growth and our overall profitability of the business.

Furthermore, visually stunning and action packed films inspired audiences to experience our premium large format offerings. Premium large format revenue including 3D represented 30.1% of domestic admissions revenue in Q2 of 2023 compared to 26.7% in the second quarter of 2022. And in our international markets, Premium format revenue represented 16.3% of admissions revenue compared to 15.7% in the second quarter of 2022. Moving to the balance sheet, we ended the quarter with liquidity of $643 million, comprised of $435 million of cash and cash equivalents and $208 million of undrawn credit facilities. Operating cash generated – this is a non-GAAP measure representing cash from operating activities after deducting capital expenditures and before both debt servicing costs and deferred rent payback – was a positive number of $100 million for the quarter.

This is almost double the operating cash generated in Q2 of 2022. Our top two capital allocation priorities remain, one, liquidity and, two, strengthening the balance sheet. During the second quarter, we continue to make progress in this regard. We raised $34.2 million of gross equity capital. We repurchase $42 million of debt at an average discount of 34%. And we repaid $27.1 million of deferred rent. The deferred rent balance at the end of the second quarter was $96.5 million, and we plan to reduce this balance by another approximately $40 million by the end of this year. So this year, to date, we’ve raised $189 million of gross equity capital. We’ve lowered the principal value of our debt by $245 million through debt repurchases or exchanges of debt for equity, and we have repaid $61 million of deferred rent.

Adding that all up, we’ve reduced our liabilities by $306 million thus far in 2023 and a total of $689 million since the beginning of 2022. In addition, we began the third quarter of 2023 with a purchase of yet another $24 million of debt during the month of July at a discount of approximately 28%. CapEx for the quarter net of landlord contributions was $46.6 million, and we expect net capex in 2023 to be in the range of $150 million to $200 million. During the second quarter, we also continued to actively manage our theater portfolio. We added two new theaters and we closed 16 theaters. So this brings the total number of locations closed since the pandemic began to 152 locations, and the total new locations opened to 57 for a net reduction of 95 locations.

And note that the combined 57 new locations continue to outperform the 152 closed locations prior to their closings. The pandemic almost crippled our business. Since then, we have made enormous progress in enhancing the movie going experience at AMC. This has resulted in very meaningful improvements to our per patron profitability metrics. At the same time, we have also maintained strict cost and capital expenditure discipline. And because of our actions and a rapidly recovering industry box office, our revenue and adjusted EBITDA have shown strong growth. And we have also been very active in the capital markets. We’ve taken opportunities to strengthen our balance sheet and to prepare AMC for a bright future. With the post pandemic record breaking second quarter behind us, our recovery to date is clear.

However, we’re not yet ready to declare victory. The box office remains around 16% below pre-pandemic levels. And there’s some downside risk with the ongoing screenwriters and actors strikes. And with our fixed cost structure and relatively high debt servicing costs – these exacerbated by interest rate increases over the last 17 months – we continue to burn cash on the bottom line. Based on what we know today, we’re optimistic about the remainder of the year. And we believe that the 2023 box office could exceed 2022 by more than 20%. However, if the strikes are prolonged or if our ability to access the capital markets is constrained, then our ongoing recovery glide path and our ability to continue to take the necessary actions to strengthen our balance sheet and to ensure a full and sustained recovery may be in jeopardy.

And now, I’ll hand the webcast back over to Adam.

Adam Aron : Thank you, Sean. I’d like to give you all a brief update on seven specific items related to some of our thinking, as well as our exciting ongoing initiatives and our current plans. First, on liquidity. We’ve made many public statements throughout this year and again in recent weeks that AMC has skillfully charted our way through turbulent waters at a time when several of our most important competitors failed, and that we watch our liquidity position very closely. We’ve made it clear that our strategy first is to survive and then to thrive. Of course, we are heartened by the fact that we had $643 million of liquidity at the end of the second quarter of 2023. But some who follow us closely, nonetheless, underestimate the potential for cash burn in the seasonally weaker winter months.

This is especially true given the uncertainties of the writers and actors strike since no one knows when they will end. We intend to make sure that AMC does not run out of cash by continuing to seek the flexibility to raise fresh capital on the best possible terms. Our highest obligation to stakeholders is to avoid the pitfalls that sank others in our industry into financial ruin. Second, on balance sheet management. In the second quarter, we methodically raised $34 million of equity and retired $42 million of debt. Sean, in his remarks, gave us a lot of other statistics, various timeframes of how much equity we raised and how much debt we retired. I am particularly intrigued by this statistic, which I haven’t heard yet on the call. Since the creation of the APE preferred equity units in August of 2022, about a year ago, AMC raised $418 million of equity and retired $548 million of debt, including deferred rent.

Needless to say, this is very helpful as we contemplate our current liquidity profile. Third, on so called PLF screens, premium large format screens. As I mentioned earlier, a PLF screen grosses about four times a regular non-PLF screen. So it’s kind of obvious that we’re happy that we have more PLF screens than any other movie theater company in the world. And assuming that we have sufficient cash reserves to invest in growth initiatives in a big way, which, at the moment, we do not, but we could, looking a little further forward. Assuming we have sufficient cash reserves to invest in growth initiatives, we would intend to add a significant number of additional premium large format auditoriums to our system. Fourth on innovative theater programming.

Over the past two years, we have experimented with sports programming, and it featured great musical artists on our big screens. We will continue to look for opportunities to expand those innovative efforts. Fifth, on popcorn. Our new lines of ready-to-eat and microwave popcorn for the home are literally flying off the shelves at Walmart stores throughout the United States and on walmart.com. They were launched in March and April of 2023, and we would describe sales as being brisk and pleasantly ahead of our expectations, so much so that we are now looking seriously to expand into other grocery chains and other retail outlets. Once we get to a full national rollout in multiple channels, which could take a while to be fair, but based on the early results so far, I would not at all be surprised if this turns out to ramp up perhaps becoming up to $100 million per annum revenue source for AMC Entertainment.

Next on premium gourmet candy. Our popcorn line has been so successful that we are now confident that we should keep going in the area of food. So much so that I expect that, later this year or early next, AMC will definitely introduce a private label line of various AMC Theaters branded premium gourmet chocolate candies and gummies. I’m eating some samples right now as we speak on this call. The taste and the packaging are wonderful, in my opinion. And speaking of the taste, these chocolate covered pretzels are like to-die-for good. Like, John [ph], like move them away. I can’t – no more. Calories, calories, calories. We believe we will be successful with the candy lines as we’ve been successful with the popcorn line. It goes without saying, of course, that we will still sell Hershey’s and Nestle products in our theaters.

But just as a year or so back, we asked the late Orville Redenbacher to make some room on shelves for our popcorn. So too, we will ask the long gone Milton Snavely Hershey and the long gone Heinrich Henri Nestlé for their understanding that premium AMC candies coming to AMC Theaters are now in the works as well. And the last item on merchandise. Early in the period where retail shareholders took control of AMC, which basically started in earnest in January 2021, through suggestions that came in on Twitter and other channels, retail investors directed our attention to the possible profits that can come from the sale of movie themed merchandise and AMC branded merchandise. We’ve had meaningful successes in this area, especially with our collectible popcorn vessels sold almost weekly in quantities of between 25,000 an d100,000 units almost each weekend at prices that have ranged from about $20 to about $65 each.

We plan to significantly expand our merchandise efforts in 2024 and beyond, with a greater variety of items and a larger available quantity of items for sale. It is not uncommon today for us to sell out of some of our movie themed merchandise in the opening weekend of a movie’s release. Movies run a lot longer than the first 72 hours. And I think our merchandise business would expand if we have greater supply to sell. In closing these remarks, I’d like to address directly the millions of our AMC shareholders, so many of whom pay attention to what I say on Twitter and to these earnings calls. In a tweet yesterday, I expressed my sincerest possible gratitude for all of your support. If you read my Twitter feed, though, as I do, you’ll see there’s a lot of light, but also a lot of heat directed my way.

That’s okay. I have broad shoulders. And the variety of views comes with a territory when there are so many voices and so many opinions. As I read these inbound comments, I see that some who care about our company deeply still don’t get the nuance of our current circumstances or wish that I would just cheerlead only the good news. But that’s not what CEOs are supposed to do. The success we have seen this year in our theaters, especially including Q2 and Q3 results so far is what makes us optimistic that we are on the right road and that, by 2024 2025, we will look back on the decade of the 2020s with amazement and pride as to how well, at AMC, we dealt with the most challenging hands of cards ever directed our company’s way in the century plus of its long existence.

But despite that medium term confidence, in the short term, and some of you don’t like to hear this, but in the short term, AMC has some serious liquidity issues to solve. We should not oversimplify that it will be easy to overcome the obstacles and hurdles in our path. However, this AMC management team has proven over the past few years that AMC is highly able in liquidity management. So I have every confidence that we will continue to execute well to do what is needed. To the extent humanly possible, I am determined that, at AMC, we will arise to every and to any challenge. Thank you for listening. Sean, let’s now move to questions both from shareholders and from industry analysts on the call.

Q&A Session

A – Sean Goodman: So quite a few questions from shareholders. First question relates to our strategic direction. And the question is, what are the top priorities for AMC both today and in the future? Are we considering M&A opportunities?

Adam Aron: Some of you have asked me on Twitter. Like, why are we still talking about COVID. And that’s because – we are because, in the movie theater industry, the industrywide box office, which is the basic size of our industry, is still below 2019 levels. And that’s a lingering problem because if you look at the box office 2017, 2018, 2019, this industry was sized for about $11.5 billion box office. And in 2020, it was $2 billion. 2021, it was $4.5 billion. 2022 is $7.5 billion. This year, I hope it hits $9.5 billion, might hit more, might hit less. We won’t really know till the end of the year. Going to be a lot more than 2022. But we’re still down below pre-pandemic norms. I remember when we shut our theaters in March of 2020 and people were predicting we’d be back in normal in four to six weeks.

Our theaters were shut for five and a half months. Some of our theaters were shut for almost a year. And the box office fell by more than 80% that year. And it still was way below pre-pandemic levels. Even now, three full years later. So we’ve had to adjust our strategy because the movie theater industry has come back slowly, and so our strategy has become survive, then thrive. We have had to take the steps to make sure this company survives. And not all companies in our industry can say that. Other companies with big brand names, both big chains, chains that you would recognize, and small chains that had a cult following in some markets in Texas and California, they went bankrupt and a lot of their theaters didn’t reopen. So, first, we have to survive.

And as I said, we like the results. And April, May, June, July and August this year, fabulous. So I think we’re going to start to move from the survive phase to the thrive phase. To make sure we get there, and you’ve been hearing me say this as a broken record for two years now, but especially in the last year, we must be able to raise capital if we need to. Because the dumbest thing we could ever do as a company is run out of cash. And other companies in this industry have run out of cash. And some of the armchair quarterbacks on Twitter, who give me advice every day, if I follow their suggestions, we would have run out of cash a long time ago. Or if I follow their suggestions now, we’ll run out of cash soon. So the most important thing, as part of the strategic direction this company, is make sure that we have ample cash reserves to outlast the aftermath of the pandemic.

Because I’ve already said in 2024, 2025, it’s going to look pretty bright. But if we were to run out of cash before we get to 2024 or 2025, that would be a disaster. And that’s a disaster that I simply will do everything in my power to make sure that this company avoids. So when we talk about strategic direction, I think that we’ve got to make sure that we put this company in a position to be able to raise capital. That’s what the shareholder vote on March 14 was all about. Next, as we have sufficient cash to survive to the glory days of 2024 and 2025, there are a lot of things that we can do with that cash. Because right now – Sean said we’ve taken our CapEx spending down to $150 million to $200 million a year. Three or four years ago, we were investing $500 million of CapEx a year in our business.

Right now, it’s prudent to husband cash, to save cash, so that we don’t run dry. But there will be a time that we have much more cash reserves than we have currently, either because we will generate it from operations or because we’ll raise it. And then the question is, what do you do with that cash? And here’s my list. First, we need to spend some money to affect what I’ll call deferred maintenance on some of our theaters. We pulled our CapEx spending way down during the COVID impacted years. And we’ve seen examples of leaking roofs and breaking air conditioners and boilers that provide heat in the winter that are towards the end of their lifecycle and they’re just breaking, they need to be repaired. We have thousands of our screens where the movie projectors are getting towards the end of their useful life.

And we’re going to need to invest capital to replace those projectors. The good news of that, however, is we’ve already made the decision that when we replace these projectors, we’re putting in laser screens or laser projectors and laser lighting, it’s a much brighter, sharper picture on the screen. And it’s quite an environmentally friendly initiative too. Next, there are growth initiatives within our theaters. I’ve already mentioned on this call premium large format screens. In the State of New York, until just recently, like in the past 12 months, it was illegal for movie theaters, most movie theaters to sell alcohol. The New York legislature recently changed that law. But that means that we have a whole bunch of theaters where we probably should build full alcoholic bars into our theaters.

One of the things I’m interested in is putting more variety of food items into our concession stands, which might – because our food and beverage sales are at a record high, that might require putting in $10,000 to $20,000 of equipment in the concession stand. $20,000 doesn’t sound much, like much, until you realize we’ve got to put it in 575 theaters. All of a sudden, it’s $10 million. Next, we’ve had some circumstances where we’ve been able to add theaters to our network and we were able to bring them into our system very inexpensively. When I say very inexpensively, I’m saying we’ve been all-in, purchase price, transition costs. We’ve been able to bring some theaters into our system at three to four times expected EBITDA. That is such a bargain.

We’ve got to do that all day long if we can find opportunities to bring good theaters into our network inexpensively. There’s M&A opportunity. And there are two kinds of M&A opportunity, right? There’s just buy some movie theater chains, if we can do so. And I want to emphasize this, if we can do so at a bargain basement price. I have no desire to pay up to bring movie theater chains into our network. But if we get a cheap price, that’s value creation for our shoulders. And we’re going to raise a lot of cash. Maybe we can do some transformative M&A as well where we can look to expand and being something more than just a pure movie theater play. So that’s sort of the strategic roadmap of where we might invest our monies if we have more money than we have today.

Sean Goodman: I think that addresses that question very nicely. There’s some questions here about our theater footprint. What are the expansion opportunities of that footprint, both US and internationally? And what are the opportunities to continue to close theaters, underperforming theaters and improve our overall profitability? And also, how does premium large format fit into those plans?

Adam Aron: On the theater footprint, we’ve managed this like maniacally over the last three-and-a-half years. You gave the stats earlier that we opened 50 something theaters, we closed 150 something theaters. We didn’t open any of the 50 lightly, we didn’t close any of the 150 lightly. When you look at a company that has almost 1,000 theaters globally, we’ve got some theaters that are brand new, we’ve got some theaters that are 25 years old. We’ve got some buildings in great shape. We’ve got some buildings sort of at the end of their useful lives. We’ve got theaters where we’ve got great rent deals with landlords. And we’ve got theaters where we have terrible rent deals with landlords. We’ve got some theaters in unbelievably successful malls and other theaters in unbelievably unsuccessful malls.

And so, we have a whole department here, our real estate department, our development department that’s paying attention to every single one of these theaters, every single one of our landlord relationships. And where the theaters are successful, we cheerfully pay the rents. Where the theaters are not successful, we enter into cooperative dialogue with the theater landlord to see if they’re willing to lower our rent to keep us around and continue to drive traffic to their other properties nearby. And in many cases, we’re quite successful in getting landlords to adjust rents. In addition to that, I would say we have spectacular relationships with all of the large mall operators in the United States, the Simons, the Brookfields, the Westfields, and a whole slew of other theater owners, and I could name another probably 10 REITs, who have anywhere from 5 to 50 of our theaters.

I think we maintain excellent relationships with each. And one of the things, because our relationships are so good, as they build new malls, they often want us to come along for the ride. Westfield just opened up a beautiful new mall in Topanga to the northwest part of Los Angeles. And that theater that we opened there is already one of the 20 most profitable theaters we have in the United States. It opened in the past year. Year-and-a-half back, I think it’s two years back now, we brought into Grove an Americana brand in LA and in Glendale in Southern California at Rick Russo’s retail establishments. The Grove is now the third most 3profitable theater in the entire United States for AMC. So that’s an example of a theater that we brought into the network just in the past two years.

And we continue to talk to landlords all over the place that we’re ready, willing and able to bring theaters into our system if we can do so on good economic terms. As an example of that, literally just in the last two weeks, we brought a theater into our system in Redding, Pennsylvania, not exactly as big a market as downtown Los Angeles. But that’s a theater where the seats were already reclined and that theater enjoyed a 65% market share of your surrounding communities. And we got a very attractive price that brought that theater into our system quite reasonably. So we are continuing to look at pruning our system downwards, where we have underperforming theaters and can’t renegotiate rents. We’re looking to keep our theater network the same sizes today by renegotiating rents, and we’re looking to grow our theater network as our theater landlords want to take us where they go.

And then, of course I mentioned there’s always M&A opportunity as well, but there’s nothing immediately on the horizon report on that front.

Sean Goodman: Let’s talk a little bit about food and beverage. There are for quite a few questions about that because it’s been enormously successful for us post pandemic. Question here about plans to potentially expand the menu offering at theaters or plans to open restaurants at a theater or take food orders directly from the seats.

Adam Aron: This is a subject near and dear to my heart. I’m an eater. Any of you have seen me sideways, I’m not the slimmest guy around, although I weigh a lot less than I did 20 years ago. And yeah, no more chocolate or pretzels. All the chocolate covered almonds are pretty good. Anyway. I think AMC was leading the way before the pandemic in having the biggest variety in our concession stands. Remember, we introduced something called feature fair all across the system here in the United States, where we made a lot of progress in variety. We put in as a brand standard for all AMC theaters in United States, Coke Freestyle machines. I counted more than 140 flavors come out of those Coke Freestyle machines. I think that’s an enormous advantage for us over theater chains, which still are offering 8, 12 or 14 flavor choices.

Those Coke Freestyle machines don’t come cheap. But I think that was a very smart investment for us. But then COVID hit. And when we came out of COVID, we came back with a very limited menu, which we tried to grow back to sort of the feature fair levels. But then came supply chain shortages. And then came labor shortages. And all of a sudden some of our more complicated items were difficult for our staff at the concession stands to execute, which then would slow down delivery, which would lengthen lines at the concession stand and you’re always trying to balance variety of items against speed of purchase in a concession stand because no one wants to wait in a long line. I don’t blame him for that. And I’d say where we are today is we’re back up to about 80% of the feature fair variety at the height of where we were in 2018.

And in talking with our food and beverage department, they’d like to see our variety of items expand up to feature fair levels within 12 months of today. But that was just talking about variety of menu items. But when you look at the success of our food and beverage effort, remember – let’s use United States numbers – pre-pandemic, in 2019, we were doing $5 ahead in per patron food and beverage spending. In the United States, we’re doing over $8 of food and beverage spending today per head. That is a staggering increase when you realize that, if you take out only cost of goods sold, so this isn’t the labor at the concession stand and not the capital cost equipment stuff, but just like the cost of the syrup and the cost of the corn and the cost of the hotdogs and the rolls and the nachos and all the stuff [indiscernible] we saw, like, we have more than an 80% margin in our food and beverage business.

And for our food and beverage business, to be up as much as it is, $7.36 was the number globally in the second quarter, this is a staggering success for us. So I really want to compliment our F&B department led by a guy named Hank Green. We’re just hitting it out of the park in F&B spending. And that’s what’s driving such a big increase in per patron profitability for AMC. Remember the stat I gave. Our per patron profit – this isn’t just food and beverage, this is total per patron profitability. It’s a combination of expense reductions, ticket price initiatives, food and beverages success. Our profit per patron is up 40% in the United States. It’s up 22% internationally. These are stunning numbers.

Sean Goodman: Adam, our shareholders are uniformly very excited about the retail popcorn sales and our initiatives there. And so, their questions about, do we plan to expand this further? And are there other potential revenue streams similar to retail popcorn that can help grow the business?

Adam Aron: I couldn’t be more excited about the popcorn success. We spent over a year in our food and beverage department working on the right recipe for home corn. Whether it was in the bag ready to eat or microwave pouches that you microwave at home, we wanted it to taste just like it tastes in the movie theater. And by the way, there’s a secret to our popcorn. Not all popcorn is created equal. There are different grades of corn. And we buy the best there is. So one of the reasons why our popcorn is so good at AMC Theaters, is we buy the best corn. It’s like graded. And so, our corn at home tastes great. And the sales – like, Walmart can barely keep it on the shelves. And they keep on reordering and they keep on selling out.

So, yes, we gave Walmart a six month exclusive because they gave us so many store locations. We rolled out the AMC popcorn in like 2,600 Walmart stores. Very few brands get to roll out on day one in 2,600 Walmarts. Normally, you’d get a fraction of that. And you prove your way. But they believed in our brand. And it’s been a big success. And we’re happy to give them the full exclusive. But, yeah, as soon as the exclusive is up, we will have conversations with all the major grocery chains with all the major retail outlets in the country. It’s taken a while, but I’d like to see AMC popcorn on every shelf where you can buy stack products. There are other things too. I’ve already talked about the candy products. That’s next. And there are a whole host of other ideas that we have to grow revenues for the company.

But in the interest of time, I’ll either save those for another nice earnings call or for Twitter.

Sean Goodman: Final question here about the trading of our shares. And there’s a few questions here related to – can you comment, Adam, on the very high level of failures to deliver AMC securities?

Adam Aron: Yeah, I can sort of. There’s a limit to what I’m supposed to say on this subject. But I can say some things. I know it’s maddening for so many of our shareholders. I read my Twitter feed, guys. I know what you think. I know what you say because I get thousands of messages a day. For those of you who didn’t send Elon Musk his $8 a month for a blue checkmark, since you’re limited to a couple hundred characters, you can read a tweet pretty fast, I know you’re really frustrated by the high number of FTDs. And as many of you – not all, as many of you know, an FTD is a failure to deliver a share within the normal trading, closing cycle, which is within two business days of the trade. And so, if someone never delivers a share, they’re breaking the law.

But if they deliver the shirt three days late, instead of – one day late, which is on the third day, they show up as an FTD in your eyes, but the trade did consummate. A little slow, but it consummated. If more than 0.5% percent of our trading volume is in an FTD status, then we would go on something called the threshold list. And we’ve been on and off the threshold list many times in 2023, and for that matter, in 2022 as well. And this drives some of you like out of your minds because I read what you say. And I say out of your minds in a nice way. I don’t mean in a nasty way. But you’re angry about it because you think there’s something wrong going on. And again, I’ve got to be very careful what I say legally, but I can tell you this. On multiple occasions, even multiple occasions this year, we have gone to the New York Stock Exchange at very high levels to make them aware of our status on the threshold list.

And similarly, we have gone to FINRA, which is the regulatory body of the public markets. And we are voicing your concerns. Unfortunately, I know many of you would like to see the results of what they send us back. It’s not so easy for us to share that information with you. But we’re aware of the concerns. We’re aware of them ourselves. And we are taking them to the appropriate regulatory bodies.

Sean Goodman: Kelsey, that’s going to do it for the prepared questions from the internet. Can you give the instructions for Q&A, please?

Operator: [Operator Instructions]. At this time, there are no questions. You may proceed, Mr. Merriwether.

Adam Aron : We are after 5 o’clock, which is supposedly our cut off. So I’m going to thank everybody for joining us today and leave you with a couple of thoughts. One, we had a fabulous quarter in the second quarter of 2023. And July was gangbusters. And August is gangbusters so far. And for those of you around the country who are listening in the United States, it’s really hot in United States right now. Most of our theaters are quite cool and they have some really good movies on the screen. So, if you haven’t gone to see Sound of Freedom or Mission: Impossible – Dead Reckoning Part One or Oppenheimer or Barbie or Haunted Mansion, or all the other wonderful movies that are out, go to an AMC Theater near you. We’d love to see you in our theaters. Thank you for joining us today.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines. Have a great day.