 | Exhibit 99.1 | |
Carmike Cinemas
Third Quarter Fiscal 2016
Management Commentary
November 9, 2016
Please refer to the “Important Disclosures” section of these prepared remarks for important information about our operating metrics, GAAP and non-GAAP definitions, and other important disclosures. Additional financial information is provided in Carmike’s Q3 2016 Earnings Release and 10-Q filed with the SEC on November 7, 2016 and November 9, 2016, respectively. These comments, along with other information, may be found on Carmike’s Investor Relations website at www.carmikeinvestors.com.
Q3 2016 Operating Results
(GAAP)
Operating Results | Management Comments | ||||
$ in millions | Q3 2016 | Q3 2015 | $ Variance | % Change | |
Operating Revenues | |||||
Admissions Revenue | $126.0 | $110.6 | $15.4 | 13.9% | • Industry box office was up 12.1% compared to Q3 2015. • Admissions revenue per screen increased 11.8% from Q3 2015 to Q3 2016. • As a percentage of total admissions revenue, admissions revenue from premium format viewings (3D, IMAX, etc.) decreased from 13% in Q3 2015 to 12% in Q3 2016. • Sundance Cinemas acquisition (Q4 2015) contributed admissions revenues of $3.1 million. • Recognized $0.2 million in gift card breakage in Q3 2016. • Year-over-year per patron spend increased from $7.23 to $7.30. Factors include: o + Tax on Top o + Sundance o - 3D ticket % o - Discounts, including $5 Tuesday promotions |
Concessions and Other Revenue | $83.7 | $69.6 | $14.1 | 20.3% | • Sundance Cinemas acquisition (Q4 2015) contributed concessions and other revenues of $2.7 million. • Recognized $0.1 million in gift card breakage in Q3 2016. • Increase in per patron spend from $4.55 to $4.85, primarily driven by tax-on-top pricing strategy implemented in Q4 2015. • Expanded hot food and alcohol programs continue to generate incremental per patron spend of approximately $0.15 at each location. |
Operating Expenses | |||||
Film Exhibition Costs | $69.7 | $61.4 | $8.3 | 13.5% | • Film exhibition costs as % of admission revenue decreased slightly from 55.5% to 55.3% as concentration of top films remained consistent from Q3 2015 to Q3 2016. |
Concession Costs | $10.2 | $8.9 | $1.3 | 14.6% | • Concession costs as % of concessions and other revenues decreased from 12.8% to 12.2%. • Concession cost as % of concessions and other revenue decreased due to a greater concentration of higher concession margin items as a result of recent promotions, partially offset by the rollout of in-theatre dining locations (including the addition of the Sundance locations) during 2015 as well as expansion of locations serving hot food and alcohol. |
Salaries & Wages Expense | $27.1 | $25.7 | $1.4 | 5.4% | • Salaries and benefits increased in Q3 2016, reflecting higher staffing levels associated with increased attendance, and salaries and benefits associated with recent acquisitions and theatre openings. |
Theatre Occupancy Costs | $26.6 | $24.0 | $2.6 | 10.8% | • Increase in theatre occupancy costs related to 5 theatres and 63 screens (not including acquired screens) opened since Q3 2015, partially offset by impact of closures. • Increase of $0.8 million due to acquired Sundance theatres. |
Other Theatre Operating Expenses | $37.9 | $34.6 | $3.3 | 9.5% | • Other theatre operating costs as a % of total operating revenues decreased from 19.2% in Q3 2015 to 18.1% in Q3 2016. • Increase of $1.0 million due to acquired Sundance theatres. |
Other Income/Expenses | |||||
General and Administrative | $13.0 | $7.0 | $6.0 | 85.7% | • Increase in merger and acquisition fees of $6.7 million, primarily associated with the pending AMC merger. |
Depreciation and Amortization Expense | $15.1 | $14.5 | $0.6 | 4.1% | • Increase resulting from higher fixed asset base due to recent acquisitions. |
Loss (gain) on Disposal of Property and Equipment | $1.6 | ($0.1) | $1.7 | N/M | • Loss in Q3 2016 primarily related to the removal of certain assets in remodeled theatres. • Gains and losses in the 2015 period primarily relate to sales of theatre properties. |
Impairment of Long-lived Assets | $0.4 | $1.4 | ($1.0) | (71.4)% | • Impairment charges in Q3 2016 primarily related to the impairment of 1 theatre. |
Interest Expense | $12.4 | $12.3 | $0.1 | 0.8% | • Minimal increase in interest expense related to higher capital lease and financing obligation balances in Q3 2016 vs. prior year quarter. |
Income Tax Benefit | $1.1 | $2.2 | ($1.1) | (50.0)% | • Decrease in benefit resulting from lower pre-tax loss in Q3 2016. |
Income from Unconsolidated Affiliates | $1.8 | $1.0 | $0.8 | 80.0% | • Amount is largely attributable to our investment in Screenvision. |
Net Loss/EPS | |||||
Net Loss | ($1.4) | ($6.3) | $4.9 | 77.8% | |
EPS (Basic and Diluted) | ($0.06) | ($0.26) | $0.20 | 76.9% | |
Q3 2016 Operating Results
(Non- GAAP)
Operating Results | Management Comments | ||||
$ in millions | Q3 2016 | Q3 2015 | $ Variance | % Change | |
Non-GAAP Performance Measures | |||||
Adjusted EBITDA | $32.7 | $20.1 | $12.6 | 62.7% | • Increase in top-line revenue growth due to favorable box office slate in Q3 2016 and increases in per patrons spending as discussed above. |
Net Debt1 | $367.1 | $352.2 | $14.9 | 4.2% | |
Adjusted Net Income (Loss) | $4.1 | ($4.6) | $8.7 | 189.1% | • Factors noted above combined with non-cash and other non-recurring charges including expenses incurred with the pending AMC merger and non-cash share-based compensation expense. |
Adjusted EPS (diluted) | $0.17 | ($0.19) | $0.36 | (189.5%) | • Factors noted above. |
1. | Prior year net debt of $352.2 million is as of December 31, 2015. |
YTD 2016 Operating Results
(GAAP)
Operating Results | Management Comments | ||||
$ in millions | YTD 2016 | YTD 2015 | $ Variance | % Change | |
Operating Revenues | |||||
Admissions Revenue | $370.8 | $357.0 | $13.8 | 3.9% | • Industry box office was up 4.2% for the first nine months of 2016 compared to the same period in 2015. • Admissions revenue per screen increased 1.9%. • Sundance Cinemas acquisition (Q4 2015) contributed YTD admissions revenues of $8.8 million. • Recognized $1.0 million in gift card breakage in 2016. • Year-over-year per patron spend increased from $7.36 to $7.59. Factors include: o + Tax on Top o + Sundance o - Discounts, including $5 Tuesday promotions |
Concessions and Other Revenue | $249.7 | $226.7 | $23.0 | 10.1% | • Sundance Cinemas acquisition (Q4 2015) contributed concessions and other revenues of $7.3 million. • Recognized $0.7 million of settlement funds related to the 2010 BP oil spill. • Recognized $0.6 million in gift card breakage in 2016. • Increase in per patron spend from $4.68 to $5.11, primarily driven by tax-on-top pricing strategy implemented in Q4 2015, expanded food and beverage options and a greater number of in-theatre dining locations, including Sundance. • Expanded hot food and alcohol programs continue to generate incremental per patron spend of approximately $0.15 at each location. |
Operating Expenses | |||||
Film Exhibition Costs | $208.4 | $202.3 | $6.1 | 3.0% | • Film exhibition costs as % of admission revenue decreased from 56.7% to 56.2%. • Film exhibition costs % decreased due to a lower concentration of top grossing films in the first nine months of 2016 vs. the 2015 period. |
Concession Costs | $29.7 | $26.7 | $3.0 | 11.2% | • Concession costs as % of concessions and other revenues increased from 11.8% to 11.9%. |
Salaries & Wages Expense | $77.8 | $75.5 | $2.3 | 3.0% | • Increase in salaries and benefits due to recently acquired theatres and increased staffing levels reflecting the increase in attendance. |
Theatre Occupancy Costs | $79.4 | $71.4 | $8.0 | 11.2% | • Increase in theatre occupancy costs related to 5 theatres and 63 screens (not including acquired screens) opened since Q3 2015, partially offset by impact of closures. • Increase of $2.5 million due to acquired Sundance theatres. |
Other Theatre Operating Expenses | $106.2 | 99.7 | $6.5 | 6.5% | • Other theatre operating costs as a % of total operating revenues remained consistent with the prior period at 17.1%. • Increase of $2.8 million due to acquired Sundance theatres. |
Other Income/Expenses | |||||
General and Administrative | $36.7 | $25.2 | $11.5 | 45.6% | • Increase in merger and acquisition fees of $11.8 million, primarily associated with the pending AMC merger. |
Depreciation and Amortization Expense | $45.6 | $41.3 | $4.3 | 10.4% | • Increase resulting from higher fixed asset base resulting from recent acquisitions. |
Loss (gain) on Disposal of Property and Equipment | $1.7 | ($3.4) | $5.1 | 150.0% | • Current period losses primarily relate to the removal of certain assets in remodeled theatres. • Gains and losses in the 2015 period primarily relate to sales of theatre properties. |
Impairment of Long-lived Assets | $2.7 | $3.3 | ($0.6) | (18.2)% | |
Interest Expense | $37.1 | $37.6 | ($0.5) | (1.3)% | • Reduction in interest expense primarily due to a decrease in the weighted-average interest rate of its 6.00% Senior Notes compared to the previous Senior Notes, partially offset by higher capital lease and financing obligation balances |
Loss on Extinguishment of Debt | $- | $17.6 | ($17.6) | 100.0% | • Refinanced senior secured notes in Q2 2015. |
Income Tax Benefit | $0.5 | $3.2 | ($2.7) | (84.4)% | • Decrease in benefit resulting from lower pre-tax loss in the 2016 period. |
Income from Unconsolidated Affiliates | $3.4 | $3.0 | $0.4 | 13.3% | • Amount is largely attributable to our investment in Screenvision. |
Net Income (Loss)/EPS | |||||
Net Income (Loss) | ($0.8) | ($7.3) | $6.5 | 89.0% | |
EPS (Basic and Diluted) | ($0.03) | ($0.30) | $0.27 | 90.0% | |
YTD 2016 Operating Results
(Non- GAAP)
Operating Results | Management Comments | ||||
$ in millions | YTD 2016 | YTD 2015 | $ Variance | % Change | |
Non-GAAP Performance Measures | |||||
Adjusted EBITDA | $100.0 | $90.7 | $9.3 | 10.3% | • Increase in top-line revenue growth due to favorable 2016 movie slate and increases in per patrons spending as discussed above. |
Adjusted Net Income | $11.9 | $7.3 | $4.6 | 63.0% | • Factors noted above combined with non-cash and other non-recurring charges including expenses incurred with the pending AMC merger and non-cash share-based compensation expense. |
Adjusted EPS (diluted) | $0.48 | $0.30 | $0.18 | 60.0% | • Factors noted above. |
Other Highlights
• | We acquired 5 theatres and 37 screens from Sundance Cinemas in October 2015. These screens are expected to generate annual revenues and Adjusted EBITDA of approximately $24 million and $5.6 million, respectively. |
• | In January 2016, prior to the announcement of our planned merger with AMC, we acquired two theatres and 22 screens from a subsidiary of AMC Entertainment Holdings, Inc. Since late 2011, we have added 65 theatres and over 800 screens to our circuit. Our acquisition plans are currently on hold given the planned merger with AMC. |
• | Our tax-on-top pricing strategy, implemented in Q4 2015, continued to generate growth in per patron spend in admissions and concessions. |
• | Concessions and other revenue per patron increased 6.6% from $4.55 in Q3 2016 to $4.85 in Q3 2016. This marks the 27th consecutive quarter of year-over-year increases in this important growth metric. |
• | At the end of Q3 2016, 63 locations are serving alcohol while approximately 80 locations are serving hot foods. This is up from approximately 45 locations serving alcohol and hot foods, respectively, at the end of Q3 2015. |
• | We opened a 12 screen theatre in Tulsa, OK in January 2016 and a 9 screen, in-theatre dining complex in Holly Springs, NC in October 2016. We plan to open 3 additional theatres and 29 screens by the end of 2016, all of which will include in-theatre dining. |
• | Our circuit currently includes 56 premium format auditoriums, including 33 of our proprietary Big D auditoriums, 21 IMAX auditoriums and 2 MuviXL auditoriums. |
• | Capital expenditures for Q3 2016 were $17.0 million. The Company anticipates total capital expenditures, net of landlord reimbursements, for fiscal year 2016 to be approximately $45 million to $50 million, primarily associated with theatre renovations, new build-to-suit theatres and maintenance. |
Important Additional Information Regarding the Merger Will Be Filed With The SEC
This commentary may be deemed to be solicitation material in respect of the AMC Merger. In connection with the AMC Merger, a Registration Statement on Form S-4 (the “Registration Statement”) has been filed with the SEC containing a prospectus with respect to the AMC Class A common stock to be issued in the AMC Merger and a proxy statement of Carmike in connection with the reconvened special meeting of Carmike stockholders (the “Proxy Statement/Prospectus”). The proxy statement of Carmike contained in the Proxy Statement/Prospectus replaces the definitive proxy statement which Carmike previously filed with the SEC on May 23, 2016 and mailed to its stockholders on or about May 25, 2016. Each of AMC and Carmike intends to file other documents with the SEC regarding the AMC Merger. The definitive Proxy Statement/Prospectus was mailed to stockholders of Carmike on or about October 13, 2016 and contains important information about the AMC Merger and related matters.
BEFORE MAKING ANY INVESTMENT OR VOTING DECISION, CARMIKE’S STOCKHOLDERS ARE URGED TO READ CAREFULLY THE DEFINITIVE PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS THAT AMC OR CARMIKE HAS FILED OR MAY FILE WITH THE SEC IN CONNECTION WITH THE PROPOSED AMC MERGER, OR WHICH ARE INCORPORATED BY REFERENCE IN THE DEFINITIVE PROXY STATEMENT/PROSPECTUS, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED AMC MERGER.
Carmike’s stockholders may obtain, free of charge, copies of the definitive Proxy Statement/Prospectus and Registration Statement and other relevant documents filed by AMC and Carmike with the SEC, at the SEC’s website at www.sec.gov. In addition, Carmike’s stockholders may obtain free copies of the Proxy Statement/Prospectus and other relevant documents filed by Carmike with the SEC from Carmike’s website at http://www.carmikeinvestors.com.
This commentary does not constitute an offer to buy or exchange, or the solicitation of an offer to sell or exchange, any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, sale or exchange would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. This commentary is not a substitute for any prospectus, proxy statement or any other document that AMC or Carmike may file with the SEC in connection with the AMC Merger.
Participation in the Solicitation
This commentary does not constitute a solicitation of a proxy from any stockholder with respect to the Merger. However, each of AMC, Carmike and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Carmike’s stockholders with respect to the AMC Merger. More detailed information regarding the identity of these potential participants, and any direct or indirect interests they may have in the Merger, by security holdings or otherwise, is set forth in the Proxy Statement/Prospectus. Additional information concerning AMC’s directors and executive officers is set forth in the definitive proxy statement filed by AMC with the SEC on March 15, 2016 and in the Annual Report on Form 10-K filed by AMC with the SEC on March 8, 2016. These documents are available to Carmike stockholders free of charge from the SEC’s website at www.sec.gov and from the investor relations section of AMC’s website at amctheatres.com. Additional information concerning
Carmike’s directors and executive officers and their ownership of Carmike common stock is set forth in the proxy statement for Carmike’s most recent annual meeting of stockholders, which was filed with the SEC on April 15, 2016 and in the Annual Report on Form 10 K filed by Carmike with the SEC on February 29, 2016. These documents are available to Carmike stockholders free of charge from the SEC’s website at www.sec.gov and from Carmike’s website at http://www.carmikeinvestors.com.
Disclosure Regarding Forward-Looking Statements
This management commentary contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs, expectations and future performance, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words, “believes,” “expects,” “anticipates,” “plans,” “estimates,” “seeks” or similar expressions. Examples of forward looking statements in this press release include Carmike’s expectations regarding results from our operating strategies, the completion of new build-to-suit theatres, box office performance, operating results from our recent acquisitions and food and beverage strategies. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on beliefs and assumptions of management, which in turn are based on currently available information. The forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Important factors that could cause actual results to differ materially from those contained in any forward-looking statement include, but are not limited to: the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement with AMC; the inability to complete the proposed merger due to the failure to obtain Carmike stockholder or regulatory approval for the proposed merger or the failure to satisfy other conditions of the proposed merger within the proposed timeframe or at all; disruption in key business activities or any impact on our relationships with third parties as a result of the announcement of the proposed merger; the failure to obtain the necessary financing arrangements as set forth in the debt commitment letters delivered pursuant to the merger agreement with AMC, or the failure of the proposed merger to close for any other reason; risks related to disruption of management’s attention from our ongoing business operations due to the proposed merger; the outcome of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted against us and others relating to the merger agreement with AMC; the risk that the pendency of the proposed merger disrupts current plans and operations and the potential difficulties in employee retention as a result of the pendency of the proposed merger; the amount of the costs, fees, expenses and charges related to the proposed merger; adverse regulatory decisions; unanticipated changes in the markets for our business segments; our ability to achieve expected results from our strategic acquisitions, general economic conditions in our regional and national markets; our ability to comply with covenants contained in the agreements governing our indebtedness; our ability to operate at expected levels of cash flow; financial market conditions including, but not limited to, changes in interest rates and the availability and cost of capital; our ability to meet our contractual obligations, including all outstanding financing commitments; the availability of suitable motion pictures for exhibition in our markets; competition in our markets; competition with other forms of entertainment; the effect of our leverage on our financial condition; prices and availability of operating supplies; the impact of continued cost control procedures on operating results; the impact of asset impairments; the impact of terrorist acts; changes in tax laws, regulations and rates; financial, legal, tax, regulatory, legislative or accounting changes or actions that may affect the overall performance of our business; and other factors, including the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, under the caption “Risk Factors,” and the risk factors related to the merger disclosed in Part II,
Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarterly periods ended March 31 and June 30, 2016. We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.
Non-GAAP Financial Measures
Adjusted EBITDA, adjusted net income, adjusted EPS and net debt are supplemental non-GAAP financial measures used by Carmike to evaluate its operating performance. Adjusted net income is defined as net income plus impairment of long-lived assets, merger and acquisition-related expenses, share-based compensation expense and gain on sale of property and equipment, net of tax. Adjusted EPS is defined as adjusted net income divided by the average number of shares of common stock outstanding during the relevant period on a fully diluted basis. Carmike believes adjusted net income and adjusted EPS is an important supplemental measure of operating performance for a motion picture exhibitor because it provides a measure of core operations. Net debt is defined as total debt less cash and cash equivalents. EBITDA is defined as net income plus income tax expense, interest expense and depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus income from unconsolidated affiliates, merger and acquisition-related expenses, share-based compensation expense, gain on sale of property and equipment, and impairment of long-lived assets. Carmike believes that EBITDA and adjusted EBITDA are important supplemental measures of operating performance for a motion picture exhibitor’s operations because they provide measures of core operations.
Note: We have provided a reconciliation of non-GAAP information in the supplementary tables accompanying our Q3 2016 earnings press release issued on November 7, 2016.