AMC Theatres, the world's largest cinema chain said, today, that there is 'substantial doubt' it can remain in business after it has been ravaged by the global health crisis. The chain said that it expects to report next week that it lost between $2.1 billion and $2.4 billion in the first quarter, despite the fact that theaters were closed for only 2-3 weeks of the 13-week quarter. Revenues for the quarter were roughly $941.5 million, down 22% from $1.2 billion in the same quarter in 2019. Thus far, after nearly 5 weeks in the current (2nd) quarter, the company remains completely closed. Of no surprise to anyone, the company reported in their regulatory filing today that,"We are generating effectively no revenue."

The company expects that things for their industry will be slow to return, stating, "Even if governmental operating restrictions are lifted in certain jurisdictions, distributors may delay the release of new films until such time that operating restrictions are eased more broadly domestically and internationally, which may further limit our operations." AMC is closely monitoring various restrictions by federal, state and local governments with respect to re-opening and various operating restrictions. Similarly, the company's international operations are being affected by government restrictions, globally, and this will continue to be the case in the months ahead.

It is not just governmental restrictions, however, that impact the firm and will likely continue to weigh prospects for its survival. Studios who have pushed back release dates for major films that were anticipated for 2020 have badly damaged the company's outlook for financial progress this year. There remains substantial doubt as to whether those studios will push forward with their plans to release major titles, some like Tenet, Mulan and Wonder Woman 1984 are due in July and August. At the same time, AMC has engaged in a public war of words with studios, namely Universal, in the press, over straight to video releases of major titles like Trolls World Tour, which bypassed theaters altogether. Smaller titles, too, including Artemis Fowl (Disney), Scoob! (Warner) and others have been steadily streaming while theaters have been closed.

AMC and other cinema chains are planning to re-open this summer. Some smaller and independent cinemas have already re-opened and other large chains, including Cinemark, have indicated they may start re-opening as soon as June 19th. Even upon re-opening, though, revenues may not immediately return. Social distancing measures will keep attendance at reduced rates as auditoriums are restricted to 25%, 50% or 75%. Massive new movies may be slow to return, and additional cleaning and sanitation measures will increase costs, further impacting the potential for cinemas to generate profits.

AMC has taken measures, including raising $500 million in a senior secured credit facility and skipping rent payments on leased facilities to try to weather the storm. The company stated in its regulatory filing that it had $718.3 million in cash as of April. The company stated, "We believe we have the cash resources to reopen our theatres and resume our operations this summer or later. Our liquidity needs thereafter will depend, among other things, on the timing of a full resumption of operations, the timing of movie releases and our ability to generate revenues. We cannot assure you that our assumptions used to estimate our liquidity requirements will be correct because we have never previously experienced a complete cessation of our operations."

The company's potential $2.4 billion loss for the quarter seems rather horrifying - especially since theaters were only closed for a few weeks of that quarter - a big part of that loss is due to the impairment charge taken in the quarter due to the health crisis. The adjusted net loss for the quarter (not including the impairment charge) will be around $224.5 million, compared to a loss of $101.8 million in the year ago quarter. The company stating that there is "substantial doubt" that it can "continue as a going concern for a reasonable period of time" is language used, largely by publicly traded companies, to suitably warn current or potential investors that there is increased risk to investing in the company, and doesn't necessarily mean there is imminent likelihood the company will close. It is, however, a reasonable notation that the company could eventually file for bankruptcy or go out of business.

AMC also revealed in its filing today that it plans to execute a debt swap to help provide additional financial flexibility. MKM Partners analyst, Eric Handler, indicated in his report that this means the company's restructuring plan is moving forward - implying that an out of court solution to financial reorganization could stave off the need for a plan in bankruptcy. AMC also said, "If we do not recommence operations within our estimated timeline, we will require additional capital and may also require additional financing if, for example, our operations do not generate the expected revenues or a recurrence of COVID-19 were to cause another suspension of operations. Such additional financing may not be available on favorable terms or at all. Due to these factors, substantial doubt exists about our ability to continue as a going concern for a reasonable period of time."

AMC, controlled by Chinese Dalian Wanda Group and private equity powerhouse, Silver Laker Partners, either laid off (permanently) or furloughed more than 26,000 employees, including its executive staff - all the way up to its CEO, Adam Aron - when its cinemas shut down in March. When the crisis first struck, Wall Street analysts initially expected a bankruptcy filing by the company due to the closure of the circuit and effective cessation of revenues despite the ongoing pressure of high fixed costs. While Dalian Wanda Group's chairman sought to reassure investors in the spring that AMC would not need to seek bankruptcy protection, those assurances may end up empty.

Wanda operates in China where is was recently reported that as many as 40% of all Chinese cinemas may never re-open, which would severely impact the industry, worldwide, as the Chinese market is the 2nd largest in the world. Considering this, there is further pressure on studios planning to release major titles in the coming months, since major international markets, as well as the key U.S. cities including Los Angeles and New York are badly needed to drive the box office results that ensure major titles can make their money back and reach for profitability.

It is this precarious situation with major U.S. market re-openings, especially given recent protest activity and civil unrest, compounded by continued international market closures that may ultimately force Warner and Disney to reconsider at least their July releases of Tenet and Wonder Woman 1984.

This story comes to us via Variety.

Justin Case