4. MAIN RISK & BEAR POINT: OVERLEVERAGED
• AMC levered up from 3.4x (EOY 2015) to 6.9x (EOY 2016) in order to make three strategic acquisitions
• Ended 2017 with leverage of 5.5x EBITDA
• 2017 box office was off to a decent start until lower attendance rates surfaced in 2Q17
• 3Q17 box office finished down -27% YoY; the worst 3Q gross revenue change ever to occur
• Resulted in AMC pushing down annual revisions by about 2.5%
• Cyclically poor 2017 box office performance misinterpreted as structural change in consumer preferences
• Triggered panic and fear among investors, causing significant multiple compression across the industry
• Movie theater attendance has rebounded with 1Q18 box office on track to have a strong performance
• Led by Marvel’s Black Panther
• U.S. movie theater stocks (CNK, MCS) have started to recover, with AMC being the laggard of the peer group
• Market views AMC as overleveraged
• 2017 Carmike circuit underperformance
5. BEARISH CONCERN DEBUNKED
• AMC’s debt is termed out with majority of it due in 2022
• AMC has numerous sources of liquidity if it needs it:
• Expects to sell $100-200 mm non-core assets in 2018
• Could do a sale lease back and generate $200 mm
• Current available liquidity is $522.8 mm ($310 cash)
• Management would utilize a portion of EU IPO proceeds
towards directly paying down debt
• Management could lower growth capex
• Management is targeting leverage of 4.1x and 3.5x by the
end of 2019 and 2020, respectively
• De-levering should cause AMC’s multiple to expand towards
its U.S. based peer group as leverage concerns alleviate
Leverage won’t pose an issue moving forward:
7. STOCK DRIVER #1: 2018 BOX OFFICE WILL BEAT EXPECTATIONS
• Due to disappointing 2017 box office performance, 2018 box
office expectations were revised downwards by 6%
• Lowered from $12.1 B to $11.4 B
• I deem estimates of 2018 box office grossing $11.4 B as being
too low because:
• Market misinterpreted the cyclical poor performance of
2017 box office as a structural change in consumer
preferences and overreacted
• Strong 2018 film slate consists of big franchise films
• Summer 2017 lineup was weak
• If 1Q18 compares reasonably close to 1Q17, set up for
easy year-over-year beat
• 1Q18 performance on track for significant beat led
by Marvel’s Black Panther
I believe 2018 box office receipts will be greater than what consensus expects and perceive a 2018 box office beat as
being one of the main catalysts that cause investors’ negative perceptions of the movie theater industry to soften,
ultimately leading stocks like AMC to experience a warranted multiple expansion.
8. STOCK DRIVER #2: CARMIKE THEATERS ARE TURNING AROUND
• Carmike circuit underperformed overall box office in 2017 and brought down overall AMC margins due
• Management is shifting their attention away from renovating AMC legacy theaters to investing in the Carmike circuit
• Re-branding the theaters, adding more food and beverage choices, and increasing maintenance capex
• Focused on renovating the worst performing screens, i.e., implementing recliner seating in them
• Renovations (recliner seating) generate a +25% return and drives:
• Higher attendance rates
• Higher average ticket prices
I believe that the prior 2017 underperformance of the Carmike circuit relative to the overall box office will not be a
persistent problem in the future and instead I argue that Carmike’s performance will continue to improve as AMC invests
in it and more renovations take place. As a result, I expect Carmike to serve as a tailwind that helps “overall” AMC
performance revert back to its historic mean; implying both top line growth as well as operating margin expansion in
2018 and 2019 towards its pre-2017 average of 7%.
• Due to prior renovations, Carmike’s market share is steadily
increasing and AMC is seeing like-for-like performance between
the legacy AMC theaters and Carmike theaters; renovated CKEC
theaters are performing equally with renovated AMC theaters
13. University of Wisconsin-Madison March 22, 2018
Applied Security Analysis Program
AMC Entertainment Holdings Inc. (AMC)
Consumer Services
Movies/Entertainment
Business Description
AMC Entertainment Holdings, Inc., through its subsidiaries, operates movies theaters. As of
December 31, 2017, the company owned, operated, or had interests in 1,014 theaters with 11,169
screens in 15 different countries. The company was founded in 1920 and is headquartered in
Leawood, Kansas. AMC Entertainment Holdings, Inc. is a subsidiary of Dalian Wanda Group Co., Ltd.
Investment Thesis Summary
Contrary to the main bearish perspective, I don’t see AMC’s leverage as posing an issue moving
forward and thus, I believe that it is currently trading at a major discount relative to its intrinsic
value, allowing for a profitable opportunity to exist. Therefore, I recommend AMC as a buy because I
expect it to experience a NTM EV/EBITDA multiple expansion from about 7.4x to its warranted level
of 8.0x in 2018, which I believe will occur for the following three reasons:
1) 2018 Box office will beat current expectations
-Poor 2017 box office results led to expectations being lowered by 6%
-Strong 1Q18 performance led by Black Panther setting us up for easy 2018 beat
2) Carmike theaters are turning around
-Carmike circuit is gaining market share due to recliner seating renovations
-Renovated Carmike theaters are now performing in line with AMC renovated theaters
-Recliner seating drives 30-50% higher attendance
-AMC charges higher ticket prices at newly renovated theaters after 1 year
-AMC is achieving +25% returns on its recliner renovations
-Management expects to renovate 20 Carmike theaters in 2018
-Implies higher revenues and margin expansion
3) European IPO could unlock “hidden” value
-European markets value movie theaters at double-digit EV/EBITDA multiples:
-Movie-going is popular, EU markets are more densely populated, EU theaters are behind
on upgrade cycles/renovations and thus market is pricing in more growth / positive ROIC
-AMC isn’t seeing these valuation levels for its European assets (Odeon & UCI Cinemas)
-AMC is considering bringing 25-33% of Odeon’s value public on LSE for 9.0-10.0x EBITDA
-Sum-of-the-parts valuation implies a warranted NTM EV/EBITDA multiple of 8.0x
-If market doesn’t catch on, IPO could potentially result in AMC trading at a greater discount
Main Risk and Bear Point: Overleveraged
With box office improving in 2015 and 2016, AMC Entertainment Holdings decided to lever up in
2016 to make three acquisitions (Carmike, Odeon, Nordic) in order to expand its U.S. operations as
well as its footprint in Europe. However, after a disappointing 2017 box office performance paired
with over-exaggerated concerns about premium video on demand (PVOD), investors
misinterpreted these both as signs that the movie theater industry was on its way out (or sooner
than originally expected) and as a result, theatrical exhibitor stocks plummeted as they experienced
significant multiple compression. Since the end of 2017, the discussion surrounding PVOD has
ceased and 1Q18 box office is on track for a significant beat. Because of this, movie theater stocks
have started to rebound (multiples slightly expanding), with AMC being a laggard in its U.S. based
peer group. I attribute AMC trading at a discount relative to its peers to investors perceiving AMC’s
high leverage as a major risk and to some investors viewing the underperformance of the Carmike
circuit as being persistent in the future.
14. University of Wisconsin-Madison AMC Entertainment Holdings Inc.
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Contents
Business Description ......................................................................................................... 3
Main Risk and Bear Point: Overleveraged………..……………………………..………………………….… 3
Investment Thesis ............................................................................................................. 4
2018 Box Office Will Beat Expectations ……..…………………..………………………….……………………….…... 4
Carmike Theaters Are Turning Around …………..………………………………………….…………………………….. 5
European IPO: Sum-of-the-Parts Valuation ………………..……………..………………….…….………...………… 7
Relative Valuation ............................................................................................................. 8
Financial Statements (GAAP) ............................................................................................ 9
Appendix.......................................................................................................................... 13
15. University of Wisconsin-Madison AMC Entertainment Holdings Inc.
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Business Description
Founded in 1920, AMC Entertainment Holdings, Inc., through its subsidiaries, operates in the movie
theater business and is an industry leader in innovation and operational excellence. This is thoroughly
supported by the unmatched levels of investment that have positioned the company to be the leader
in premium comfort seating, better food and beverage offerings, and technical innovation that
enhance the sight and sound; all of which contribute to a more valuable guest experience and it
attracting nearly 400 million guest visits per year. AMC has the largest share of the American theater
market ahead of Regal Entertainment Group and Cinemark Theaters and after acquiring Odeon
Cinemas, UCI Cinemas, and Carmike Cinemas in 2016, AMC became the largest movie theater chain in
the world. As of December 31, 2017, AMC operated 649 theaters and 8,224 screens in the U.S. and 365
theaters and 2,945 screens in its international markets; combined for a total of 1,014 theaters and
11,169 screens spanning across 15 different countries. Lastly, AMC is an indirect subsidiary of Dalian
Wanda Group Co., Ltd. (“Wanda”), a Chinese private conglomerate that owns approximately 59.37% of
AMC’s outstanding common stock.
Main Risk and Bear Point: Overleveraged
With annual U.S. box office falling off in 2014 and then quickly rebounding in 2015 and 2016, AMC’s
management team decided that it would be a good time to lever up and make three acquisitions
(spanning from November 30, 2016 to March 28, 2017) in order to expand both its U.S. market share
as well as its international footprint in Europe. Although 2017 box office was off to a decent start, in
2Q17, lower attendance levels started to show and by 3Q17, attendance had fallen off significantly,
ultimately causing 3Q17 box office to finish down -27% YoY; the worst 3Q gross revenue change ever
to occur.
The poor 3Q17 performance resulted in AMC pushing down its annual revisions by about 2.5% and
immediately following the release of this negative news, investors began to panic as they
misinterpreted the cyclically (and seasonally) soft summer box office results as actually being the
beginning of the end of the movie theater going experience. As a result of this fear and also the
concern regarding PVOD, many investors sold their positions in theatrical exhibition companies,
sending the stocks of AMC Entertainment (AMC), Regal Entertainment Group (RGC), Cinemark (CNK),
Cineplex Inc. (CGX), and Marcus Corp. (MCS) all down tremendously. Since year end 2017, movie
theater attendance has started to rebound and 1Q18 box office is on track to have a strong
performance with Disney’s Black Panther already grossing about $607 million since 2/16/18 (as of
3/19/18). With this recent positive box office news, U.S. movie theater stocks (CNK, MCS) have started
to recover (multiples expanding) and make way towards their prior price/valuation levels, with AMC
being the laggard of the peer group.
The lack of recovery AMC’s stock has made relative to its peers in 2018 can be attributed to investors
perceiving its leverage of 5.6x its 2017 EBITDA as being too much for a company operating in a stressed
industry; one in which they view 3Q17 box office performance as being indicative of a structural
change in consumer preferences that are shifting away from wanting to see movies in the theater.
16. University of Wisconsin-Madison AMC Entertainment Holdings Inc.
Applied Security Analysis Program
4
As a direct result of their assumption, these investors are mistakenly extrapolating the cyclical poor
performance into the near future and thus, view AMC as potentially having to file for bankruptcy
because of its high leverage. Representative of this bearish belief is the 34% short interest on AMC’s
stock and its EV/EBITDA multiple remaining relatively compressed compared to U.S. based peers;
trading roughly 0.8x lower.
Bearish Concern Debunked
Contrary to this bearish perspective, I argue that AMC is not actually
facing a structural end game and I don’t see its high leverage as posing an
issue moving forward. I believe AMC’s high leverage will not be
problematic in the future because AMC’s debt is termed out with majority
of it due in 2022, AMC has numerous sources of liquidity if it needs it
(AMC expects to monetize $100-200 mm of non-core assets in 2018 and it
could do a sale lease back and generate $200 mm as management has
stated on multiple calls), AMC would utilize a portion of the European
IPO’s proceeds towards directly paying down debt, and lastly, management could lower growth capex,
which has been running at all-time highs. Also important to note is that management understands the
need to de-lever, however, because it is achieving greater than 25% returns on the recliner renovations
in the U.S. and recliner returns far superior to that in Europe, and also in the former Carmike theaters,
AMC’s management believes reinvesting free cash flow back into the business is a better “deleveraging
tool” than directly paying down debt carrying about 6% fixed interest rates with stretched out
maturities. Thus, AMC will continue to “de-lever” primarily through EBITDA generation and gradually
move towards its goal of having 4.1x leverage by the end of 2019 and 3.5x by the end of 2020.
Although in my models I don’t forecast AMC paying down its debt in 2018/2019, it is important to note
that de-levering should cause AMC’s multiple to expand towards its U.S. based peer group as leverage
concerns alleviate.
Investment Thesis
Because the concern regarding AMC’s leverage is overblown and has yet to diminish, I believe AMC is
unjustly trading at a discount and that it is currently undervalued relative to its intrinsic value.
Therefore, I argue a profitable opportunity exists and I am recommending AMC as a BUY, with a price
target of $21, supported by my belief that it will experience a warranted multiple expansion in 2018
from 7.4x to 8.0x, ultimately causing the stock price to rise and more accurately reflect the true value
and solvency of the business. In 2018, I see three main catalysts/stock drivers that will cause this
recovery: 2018 box office beat, a strong Carmike performance, and a European IPO of its int’l business.
Stock Driver #1: 2018 Box Office Will Beat Expectations
Because of the disappointing 2017 box office performance, estimates of 2018 box office were revised
downwards by 6%, which I deem as being too low with regards to the strong 2018 film slate consisting
of big franchise films. When considering the relatively low expectations along with the strong 1Q18
performance of Marvel’s Black Panther, I believe 2018 box office receipts will be greater than what
consensus expects and perceive a 2018 box office beat as being one of the main catalysts that cause
investors’ negative perceptions of the movie theater industry to soften, ultimately leading stocks like
AMC to experience a warranted multiple expansion.
17. University of Wisconsin-Madison AMC Entertainment Holdings Inc.
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As shown in the graph on the right, the market currently
expects 3% U.S. box office growth in 2018 versus 2017 box
office of $11.1 B. Although the market is expecting growth,
the new 2018 estimate of $11.4 B represents a 6% decline
from expectations at this time last year ($12.1 B), which
resulted from the disappointing 2017 box office
performance that came in 3% lower than expectations.
Although 2017 box office performance was poor, I deem
the main cause of this being the cyclicality of box office revenues; clearly depicted in the chart above
(two to three positive years are consistently followed by one down year). With this in mind, I don’t
believe that 2017 box office is foreshadowing a structural change in consumer preferences that will
persist in the future but rather see it being representative of the strong dependence box office
revenues have on the quality of the films being exhibited that year. In other words, I argue that
because the Summer 2017 movie lineup was weak (The Mummy Returns, Pirates of The Caribbean 5,
Baywatch, etc.), people simply didn’t go see those movies and as a direct consequence, box office
suffered and secular concerns grew louder. These concerns led to a downward revision of 2018
expectations that I now perceive as being too low with regards to the strong 2018 film slate consisting
of the big franchise films: Avengers, The Incredibles, Jurassic World, Deadpool, Star Wars, and Fantastic
Beasts, that are expected to be released throughout the summer months (2Q-3Q). Because of the
market’s overreaction to the negative 2017 box office performance, I believe the probability of 2018
box office beating current expectations is extremely high, especially considering that if 1Q18 compares
reasonably close to 1Q17, we are set up for a very easy year over year beat. Although the 1Q18 box
office period doesn’t end until March 31, Marvel’s first all-black cast movie, Black Panther, has thus far
grossed almost $1.2 Billion at the global box office and $607 million domestically. Along with the
record-breaking performance of Black Panther, there has also been carryover contribution from
Jumanji, Star Wars, Fifty Shades Freed, A Wrinkle in Time, and Ready Player One. With sell side’s
relatively low expectation of 1Q18 being down 10-15% from 1Q17 and its expectation of Black Panther
grossing only $780 mm worldwide ($350 million in U.S.), Black Panther’s strong performance is already
setting us up for a large first quarter beat and ultimately a strong annual 2018 beat.
Stock Driver #2: Carmike Theaters Are Turning Around
As of the 3Q17 call in November, management informed investors that due to the prior renovations
(recliner seating), Carmike’s market share has been steadily increasing and they are now seeing like for
like performance between the legacy AMC theaters and Carmike theaters; meaning that renovated
Carmike theaters were performing equally with renovated AMC theaters, and that un-renovated
Carmike theaters were performing equally with un-renovated AMC theaters. Along with this, with
fewer un-renovated theaters in the Carmike circuit, the growth of revenues year-over-year at the
legacy Carmike theaters has increased at exactly the same rate as the revenue growth of the legacy
AMC theaters. Although in 2017 the Carmike circuit had underperformed the overall box office, I
believe that this won’t be a persistent problem in the present or future. Instead, I argue that Carmike’s
performance will continue to improve as more renovations take place and ultimately serve as a
tailwind that helps overall AMC performance revert back to its historic mean; implying both top line
growth as well as operating margin expansion in 2018 and 2019 towards its pre-2017 average of 7%.
18. University of Wisconsin-Madison AMC Entertainment Holdings Inc.
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Carmike is a small-town theater chain AMC acquired in 4Q16, which now accounts for about one-third
of AMC’s total domestic screens. Because Carmike had been under-performing the overall box office,
AMC was prevented from capturing market share from early in 2016 through September 2017. AMC’s
management attributes this underperformance largely to the lack of investment in the Carmike screens
immediately prior to them being acquired by AMC (2% of Carmike screens featured recliner seating
versus 40% of the AMC legacy screens). Because AMC is close to finishing the remodeling of its own
legacy theaters, management is now shifting their attention to Carmike theaters and have done a
number of things such as re-branding, adding more food and beverage choices, increasing
maintenance capex, and creating more functional websites and apps. Along with this, management is
now focused on channeling capex dollars towards renovating the lowest performing screens in the
Carmike circuit, which will result in a 10% Carmike recliner penetration rate by year-end 2018 based on
their plans to have 60% of total 2018 domestic renovations be for the Carmike circuit. By year end
2018, management expects a total of 30 Carmike legacy theaters to be renovated- triple of what
currently exists. The process of re-seating a theater network and improving the quality of the customer
experience drives huge market share gains as seen by attendance rates increasing on average 30-50%
the year following a renovation, which also includes attracting larger off-peak (midweek) audiences.
Although AMC doesn’t change ticket prices in the first year after a renovation, in subsequent years
AMC increases ticket prices by amounts well in excess of price adjustments for its non-renovated
theaters, leading its investment in recliner seating to generate very high rates of return (+25%). As a
result, AMC’s renovated theaters continue to deliver impressive outperformance (in both admissions
revenue per screen and attendance per screen) compared with the broader industry. Therefore, when
you consider the Carmike theaters that will be upgraded with recliner seats in 2018/2019 (target is 476
by 2021) and also AMC’s long-term target of having 42% (currently 25%) of its total screens to be
comprised with recliner seating by the end of 2021, I believe that the prior underperformance of the
Carmike circuit will not be an issue and thus, I expect AMC to achieve stronger than expected revenues
and I also expect its operating margin to expand back towards its historic average of 7% (2013-2016).
19. University of Wisconsin-Madison AMC Entertainment Holdings Inc.
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Stock Driver #3: European IPO: Sum-of-the-Parts Valuation
Despite European public markets valuing movie theaters at double-digit EV/EBITDA multiples, AMC
isn’t seeing such valuations for its European assets (Odeon and UCI Cinemas Holdings Limited) at these
levels when they are “buried within AMC”, which trades at a valuation multiple close to its U.S. based
comp group (shown in the table below). Therefore, AMC announced that it is considering an initial
public offering (IPO) in which it would bring its European theaters public on the London Stock Exchange
for 25-33% of Odeon’s value. By listing only a relatively small portion of its European assets on the LSE
and maintaining control and ownership over the remainder, I believe that the market will start to use a
sum-of-the-parts valuation method when valuing AMC (if they don’t already) and will assign a higher
multiple to its European assets, ultimately resulting in AMC’s overall valuation being greater (i.e., the
higher European multiple will bring up AMC’s weighted average EV/EBITDA multiple).
On November 30, 2016 AMC completed the acquisition of Odeon Cinemas, who previously operated
242 theaters with 2,243 screens in four major markets: United Kingdom, Spain, Italy, and Germany;
and three smaller markets: Austria, Portugal, and Ireland. Because movie-going is a popular leisure
activity with high penetration across Odeon’s key geographies (UK reported a record box office last
year of up 5% YoY and overall European admissions were up 3%) and European markets are more
densely populated and operate with fewer screens per one million of population, the Odeon screens
AMC acquired are more valuable. This relatively higher value is represented by AMC’s European public
comps trading for more than 10.0x EBITDA; a multiple much greater than those of U.S. comps. For
example, as of June 2017, Cineworld (CINE) traded at 10.2x its LTM EBITDA and as of December 2017,
Kinepolis (KIN) traded at 17.2x its LTM EBITDA and 14.1x its 2018e EBITDA. Because AMC is not seeing
such valuations for its European business, AMC CEO, Adam Aron, recently stated that, “We are thinking
about having our European theaters go public sometime between July 2018 and April 2019 for 25-33%
of Odeon’s value at the London Stock Exchange. Currently, we are still doing research and preparation
for this IPO.” Public commentary estimates the valuation at $2.1 billion and AMC is currently expected
to achieve roughly $220-230 million in European EBITDA next year. With consensus’ expectation of
European assets generating $230 mm EBITDA in 2018, if AMC were to sell off one-third of its European
business segment at the conservative EU EBITDA multiple of 10.0x, it could bring in $766 million, while
only losing out on roughly $76.7 annual EBITDA. Without valuing AMC using the sum-of-the-parts
method or using a weighted average valuation multiple, this IPO could ultimately present an
opportunity for investors to purchase a U.S. based movie theater trading at an EV/EBITDA multiple
near 7.0x its 2018e EBITDA; a heavy discount relative to both its intrinsic value and its U.S. based peers.
20. University of Wisconsin-Madison AMC Entertainment Holdings Inc.
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Relative Valuation
AMC currently trades at a historically low next-twelve-month EV/EBITDA multiple of 7.4x its consensus
2018e EBITDA. I deem the current valuation multiple as not being fairly representative of AMC’s true
value and long-term solvency, supported by the movies/entertainment industry trading at 10.1x 2018e
EBITDA and its U.S. peers trading at an average NTM multiple of 8.9x, with Cineplex (CGX-CA) having
the highest multiple of roughly 10.0x. European Cineworld’s recent acquisition of AMC’s main U.S.
competitor, Regal Entertainment Group (RGC) was at a 9.6x multiple. Notably on December 6, 2017,
AMC CEO Adam Aron told Bloomberg that the company had received indications of interest from six
different parties over the past three months. With my expectations of 2018 box office beating
relatively low estimates, the Carmike circuit continuing to improve, AMC potentially issuing a European
IPO, and management paying down debt (deleveraging), I believe AMC will experience a multiple
expansion in 2018 that will result in AMC stock being valued at $21 based on it trading at its warranted
NTM multiple level of 8.0x my estimated 2018 EBITDA of $912.50. I arrived at this 2018 warranted
multiple by taking the weighted average (based on their respective
consensus 2018e EBITDA) of my estimates of AMC’s international
markets and domestic markets multiples, which I expect are 9.5x and
7.5x respectively. A 8.0x multiple is 0.6x greater than what it currently
trades at but is still below the average of its peers and its own historic
average of 9.0-10.0x. As was evidenced in 2017, AMC’s leverage makes
its stock price very susceptible to changes in multiple- a one point
EV/EBITDA change has about a 30% impact on the stock price. Thus, this
small 0.6x multiple expansion I am expecting in 2018 represents a 48%
premium to the company’s $14.23 stock price as of March 21, 2018.
21. University of Wisconsin-Madison AMC Entertainment Holdings Inc.
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Financial Statements (GAAP)
25. University of Wisconsin-Madison AMC Entertainment Holdings Inc.
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Quarterly Earnings Model with EBITDA Reconciliation
Estimate Distribution
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Appendix
Industry History
The movie theater industry is mature with limited growth in demand. IBISWorld forecasts that annual
industry revenue will grow 1.3% to $16.9 B in 2018 and will grow at an annualized rate of 1.1% to reach
$17.6 B in 2022. This industry has high barriers to entry as the costs of purchasing and operating capital
equipment such as digital projection systems, screens and speakers are high, as well as the rent and
utilities costs. This industry also has high competition for market share and those businesses
competing must incur expenses to differentiate their offerings or keep prices low to entice demand.
Along with strong internal competition, there is also greater external competition now in this industry
as movie theaters face pressures from online streaming platforms (Netflix, Hulu, etc.), which have
drawn moviegoers away from the theaters over the past five years. As a result of these circumstances,
there is a greater likelihood of declining revenue and lower profits in the future. Despite this, theatrical
exhibitors do benefit from operating in an industry that has tended to not show high economic
sensitivity in past downturns. Lastly, important to note is that in 2017 the threat of PVOD had been
greatly exaggerated and contributed to AMC’s stock price dropping below its intrinsic value. However,
at this point, the discussion of PVOD is non-existent and many believe it won’t be implemented within
the next two years; especially since Disney, who is against PVOD, acquired Fox- the major studio
leading the discussion. (William Blair did an extensive initiation report on AMC that presents a well-
supported thesis of why PVOD will not be implemented and by chance it does, it will not significantly
impact movie theaters. The analyst uses supportive evidence that focuses on the economics of the idea
and why the average American, or most people for that matter, will not be able to/want to pay $30-40
to watch a movie at home when they can watch it in theaters two-three weeks earlier for a lower price
or simply just wait a few more weeks until it comes out on Redbox for a fee of $1.29/night).
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Capital Structure & Free Cash Flow Table
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Interest Expense Forecast
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Comparable Company Analysis
32. University of Wisconsin-Madison AMC Entertainment Holdings Inc.
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MoviePass
“We’re doing great with or without MoviePass. Our view of MoviePass has not changed from the very
first day. We think it’s a great concept. We think their price point is unsustainable. We’ve released data
for prior months that will give you the January number. Our records indicate that several hundred
thousand of their subscribers showed up at AMC theaters. They did so an average of 2.7 times each.
They paid us approximately $11.90 per ticket, which means that MoviePass paid us in excess of $32 per
subscriber that showed up at an AMC theater where they were charging $9.95 a month. We don’t see
how those numbers add up.”
Company Strategy
“We believe the exhibition business is in the early stages of a transition. After decades of economic
models driven by quantity (number of theaters, screens and seats), we believe it is the quality of the
movie-going experience that will define future success. Whether through enhanced food and beverage
options (Food and Beverage Kiosks,
Marketplaces, Coke Freestyle®,
MacGuffins or Dine-in Theaters),
more comfort and convenience
(recliner seating, open-source
internet ticketing, reserved seating),
engagement and loyalty (AMC
Stubs®, open-source internet
ticketing, mobile apps, social media)
or sight and sound (digital projectors,
3D, Dolby Cinema™ at AMC, other
PLF screens or IMAX®), it is the ease
of use and the amenities that these
innovations bring to customers that
we believe will drive sustained
profitability in the years ahead.”
