AMC CEO Adam Aron joins Yahoo Finance Live to discuss investor interest in the company’s new dividend class, Wall Street skepticism, the impact of streaming on theaters, pre-pandemic volume ticket sales, wage increases, and the outlook for theaters.
- AMC saw a large swing in its financial fortunes for the second quarter as moviegoers returned to watch top flicks like "Top Gun 2." The company is now using that momentum to launch a new class of stock it dubs APE Shares. Of course, that pays homage to the retail traders known as Apes that have powered AMC's stock throughout the past two years.
Let's welcome in AMC President and CEO Adam Aron. Adam, great to see you here this morning. We've been talking about your stock all morning long. It was momentarily halted. What's it like on a day like this for you where your stock gets halted and you see the stock ripping higher?
ADAM ARON: Just another day in paradise, Brian. So I got to tell you, it's nice to be with you at Yahoo Finance. Yahoo Finance is the app I use on my iPhone to check stock prices. So I'm on Yahoo Finance every day in my life, probably just like you.
- Oh yeah, Adam. Welcome home. All right, so look.
Let's talk about these ape shares. I saw your tweet storm over the weekend on Saturday really explaining what they are, what they aren't. Why is this good for AMC investors?
ADAM ARON: Well, we actually thank the creation of APEs, which is short for AMC Preferred Equity, preferred shares, preferred stock, we think this is one of the most important developments of the entire year 2022 because what this does is it allows AMC to raise cash. It's well-known that we survived this pandemic because we sold a lot of our common shares and raised money-- more than $2 billion worth back in 2021. But we ran out of shares. It's that simple. We ran out of shares.
And now that we have a new security, a new class of security, and preferred stock, that gives AMC the ability to raise capital at will. And what that does for our shareholders is many things. Number one, it takes survival risk off the table in the near term because we can raise cash if we need it.
That certainly is good for our shareholders, and if it's good for our shareholders, it's bad for the people who wish us harm. And there are a lot of people out there who wish AMC harm. Much to their chagrin, we've created this preferred stock.
The other thing it lets us do is raise capital to grow. It lets us raise capital for M&A activity, lets us raise capital to pay down debt. These are all good things for AMC. That combined with an improving box office, a recovery from the horrible pandemic of 2020, early '21, these are good days for AMC.
- So break this down for us, Adam. It's Julie here. So how will this allow you to-- walk us through how this allows you to raise cash because the first issuance of these shares will be to existing shareholders, correct? So that doesn't raise cash for you. It would be if there was a wave at some point where you would actually sell shares, correct?
ADAM ARON: What you just described is accurate. So what we are doing in the creation of preferred equity is we're doing what I guess you would-- it's called a stock dividend, but it operates like a stock split, so to speak. In a stock split, you have a common share.
It's split. You've got two common shares, a two to one stock split. In our case, you'll get one preferred APE unit and a common share for the old common share. So that doesn't raise any cash to the company. That just puts APEs into circulation in the hands of our shareholders.
Having said that, the authorization that we received from shareholders back in 2013 is that we could theoretically-- not that we ever would, but we could theoretically issue up to 5 billion of these things. Now, it would be foolish to do that.
The market wouldn't support that. Our shares are precious things. We treat them as such. We'll only take what we believe is smart, wise action. Having said that, part of that smart, wise action, down the road, when we wish to, we could sell more APEs into the market. In addition to the 517 million that go out on day one in terms of this stock dividend.
- And also, at some point, these preferred shares could be invertible into the common shares of the company. Now earlier this year, your shareholders said they didn't want you to issue more common shares. What do you think would make those circumstances change, and would you be able to convince shareholders at some point to convert those shares or to issue more common stock?
ADAM ARON: Well, this is really important, Julie. The shareholders didn't say, no, that they did not want us to issue more common stock. It was last summer-- May, June, July. We had it out for a shareholder vote.
The vote was split. It was actually running favorable in favor of a stock issuance at the time. But it was my opinion, my decision. I pulled the vote. I pulled the tabulation. I took the question off the table.
And the reason I did that back then is while we were winning the vote, it was close, and I didn't think that on something this important, we should do it at a time when the shareholders were not for it in big numbers. What's changed since then is I think that we've proven they back in January of 2021, when we were issuing shares, our share price went up. Back in May and June when we issued shares, our share price went up.
When we stopped issuing shares in July of 2021, our share price started a gradual decline. And I think we've been able to make the case to our shareholders that this new class of preferred stock, it's in their interest. It's in the company's interests. And as you can see, the market reaction to our announcement has been very positive.
- Adam, we're getting some viewer feedback here, maybe a friend or a follower of AMC. They are curious on when you think you'll be able to de-lever your company.
ADAM ARON: Well, we actually started delivering the company in the second quarter. We bought back $72 and 1/2 million of debt for $50 million in cash. That was up 31% discount. That's a very attractive way to retire debt.
In the summer of 2020, we retired $555 million of debt on a very sophisticated equity for debt exchange. But to survive the pandemic, where our theaters were shut for months on end and our revenues simply disappeared. We did have to borrow more money. So we de-levered the company, but we levered back up. We are going to get on a path relatively soon to deleverage some more. I think you can say relatively soon means starting this year and certainly in significant numbers in 2023.
- Hey, Adam. Brad here. When you think about some of the raising capital that you were talking about for M&A purposes, how aggressive do you expect that AMC will be with its own interest to go after other acquisitions in this near term?
- Look, our company's been built on acquisitions. We've been buying up movie theater chains for decades and decades. And when I first got to AMC back in 2016, I did three major acquisitions in the span of 15 months.
Even coming through this pandemic just in the last whatever it is, 10 months, we bought basically a third of the Arclight Pacific circuit, which did not reopen from the pandemic. We bought 5/8 of the Bow Tie circuit mostly in Connecticut, upstate New York, and Maryland. So we have an appetite, but we'll only buy if we can get attractive prices, if the deals are accretive for our shareholders, if it's obvious to one and all that we made a very smart decision to use this new currency, APE, for the benefit of our shareholders.
- Now Adam, you mentioned earlier that there are people who wish the company harm. And certainly, there are a lot of sort of critics out there. But there's also, I think, maybe some deserved skepticism out there.
They might not wish the company harm, but they have questions about this quiet little movie theater chain that has done sort of some creative things, so to speak. And you're a very traditional business guy, right? You've been in this world for quite a long time. So sort of how do you view that skepticism or address that skepticism?
ADAM ARON: Well, look. There's a difference between people who are skeptical and people who wish us ill. There are securities analysts whose livelihoods depend on being accurate in forecasting stock prices who've called for our share price to fall to a penny or $1 or $2.
They don't want to see our stock go up. At last count, there were 100 million short shares out there. I don't think they want to see our stock price go up.
Now, that's different from people who are just skeptical. But what I say to the skeptics and people who don't necessarily have an economic interest in our doing poorly is people have been underestimating AMC and underestimating movie theaters for years and years and years. You know, back in 2018 not to do ancient history on you, but it was the conventional wisdom that theaters were an anachronism and people were all going to watch movies on their couches, and they were going to watch on their TVs and their tablets and their small telephones.
Well, if the pandemic taught us anything, imprisoned, literally imprisoned in our houses and apartments for the better part of a year without being able to go out or see friends, people do want to get out of the house. They do want to go out. They do want to do things.
They do want to be with friends. And going to a movie theater, you know, it's a cheap date. You can get a movie theater ticket in much of this country for $10 to $15 apiece for 2 to 3 hours of really high quality entertainment.
And so we just think the conventional wisdom is often wrong. And you know, it was just six months ago, people were again hollering to the heavens that streaming was the future of the world. Those people weren't expecting "Top Gun-- Maverick" to do $1.3 billion of ticket sales in movie theaters. They weren't expecting to see "Jurassic World-- Dominion" do-- closing in on between half a billion and $1 billion of ticket sales. Theaters have a bright future because people want to go out the theaters.
- That said--
ADAM ARON: That's my answer to the skeptics.
- All of that said--
ADAM ARON: --theater forever and ever.
- All of that said, a lot fewer people are going to the theaters than they used to, right? And it's also less of a cheap date than it used to be. And that's why you guys did well last quarter-- because ticket prices have gone up.
But volume is still not there. I think you guys sold 43 and 1/2 million tickets in the second quarter in the US, but that compares to almost 72 million tickets sold in the second quarter if you go back to 2019. Do you think we'll ever get back to those volume numbers that we saw pre-pandemic?
ADAM ARON: Well, guess what? In the first two weeks of July-- that's pretty recent-- we were running 15% ahead of where we were running in July of 2019. So look, we did have a pandemic. People stopped going to theaters.
It's been a glide path back up to full recovery. If you look at our ticket sales in the second quarter of this year, it was more than 2 and 1/2 times what it was in the second quarter of last year. It's building back.
When do we cross the line? When do we hit pre-pandemic levels? Probably-- well, I don't want to say-- I never want to say certainly. So I'd like it to be 2023. I would probably think it can't be later than 2024.
But as you said, at the same time that we're building our volumes back, we've also raised prices. We've also streamlined our costs. And one other little magical little gift from the heavens-- we have a very high margin food and beverage business. And people have been spending at record numbers at the concession stands at our theaters.
Our concession revenues are up basically by a third. Our concession revenues per patron are up basically by a third over what they were in pre-pandemic levels. So there's the ability for AMC to be nicely profitable in all this.
But I do believe, and the numbers bear me out, you know, we had a nice, healthy attendance pre-pandemic. It went to zero. It's been building back ever since, and it's continuing to grow.
- Adam, I was a former stock analyst for about 12 years. You get on these conference calls. You fall asleep.
You publish a research report the next day, and you keep it moving. So I continue to marvel how you do things differently with these earnings calls, speaking directly to your retail investors. What made you do this, and is something still very wrong on Wall Street and investing? Because I don't see anybody else by and large adopting what you have adopted.
ADAM ARON: Well we decided to do it because retail shareholders bought control of our company. Most companies are 80% owned by institutions. Our company, starting in March and April and May of 2021, we came to 80% owned by individuals.
And I think the reason companies do these earnings calls, these quarterly earnings calls, is so that they can talk to their investors. And they had to do that through securities analyst. Well, when I learned, much to my amazement, that 10,000 people were listening to our earnings call via webcast-- 10,000 people!
Back in the good old days when we were institutionally owned, we didn't have 100 people on our calls. Well, all of a sudden, we had 10,000 people on our calls. So it made sense to talk directly to our shareholders in a forum where they were listening.
And then the other thing that happened-- you said, Brian, that you were a securities analyst. One of the things that's quite amusing is the questions we're getting from our retail shareholders are better than the questions we're getting from analysts because the questions we were getting from analysts were really to help them build their models. It was, well, can you tell me what depreciation--
- Yeah, nobody cares about that. Nobody cares about that. Nobody cares.
ADAM ARON: --upside down, backwards, and forwards. And on May 9, as if it's a big thing, what our retail shareholders are asking us on these calls is about our strategy and our innovation and the trends that we see And where are we taking the company. Those are the important questions that we as a management team need to know the answers to and that we need to share with our investors.
- Adam, lastly, while we have here, I just went to an AMC. Watched "Nope" opening weekend, and one thing I remember about the experience is there was really only one employee that I interacted with throughout that entire experience from the time I purchased the ticket to seeing and then leaving and thinking about the movie even more so after that. And so with all of this in mind, when you think about the number of people that work within an AMC who might be calling into those earnings calls as well as shareholders, what do you look at when you think about the headcount right now that's necessary to run what is a much more digital-focused experience that AMC has right now?
ADAM ARON: Well, even though you only saw one person, I hope that person was smiling--
- They were. They were.
ADAM ARON: That's good. That's good. Look, we still have 25,000 employees in the United States alone for our 600-ish theaters.
But it is true. We've automated. And one of the reasons we've automated is because our wages have gone up by about 30% since 2018.
Now, our wages going up 30% is not something I'm unhappy about. You know, our company hires a lot of people for a first job, fresh out of high school, fresh out of college.
They stay with us six months to a year and then they move on to something else in their career. They need to eat. They need to earn a living.
I'm glad that we're paying higher wages to our people. But when you're paying higher wages to people, that does put a stress on your cost structure. And so if we can automate some things, that helps offset the rising wages to the people who are working for us.
- Adam Aron, it's been a pleasure to have this conversation with you, and thanks so much for taking the time with myself, Julie, and Soz here today. Adam Aron, AMC CEO.