AMC Entertainment: Expect More Equity Sales (NYSE:AMC)

After the bell on Wednesday, we received fourth quarter results from AMC Entertainment (NYSE:AMC). While the headline numbers beat as usual and the company’s CEO talked about a lot of progress, the financial situation here remained dire at best. Until the company makes another major dent in its debt pile and the theater business starts to significantly improve, shares are likely to continue lower.

I last covered the name back in November, just after the company’s Q3 report. While the headline results initially looked good thanks to a couple of summer blockbusters, shares tanked when management announced its latest equity offering. I warned investors that things would only get worse, and since then, AMC shares have lost more than 40% while US markets have been rallying to new highs almost weekly.

For Q4, AMC announced revenues of more than $1.1 billion. This number beat the street by about $50 million, but I should note that the company has only missed twice in the past five years. Adjusted losses per share came in at 54 cents per share, beating by 11 cents, and the company has not missed since the final quarter of 2020. Of course, one must realize that the diluted share count more than doubled over the prior year period, which helps spread out the large loss over more shares. Even with annual revenues up more than $900 million year over year to over $4.8 billion, the company reported an adjusted loss for 2023 of almost $319 million.

The main problem for AMC is that the pandemic crippled the theater business. Things have not recovered as quickly as hoped due to the rise in streaming services, allowing consumers to get more content outside the theater. AMC was only able to survive by taking out a lot of debt and selling plenty of shares, and the large losses and cash burn are still ongoing. In Q4, the company burned through about $150 million in cash, although its actual cash balance increased sequentially due to the above mentioned capital raise. In the near term, the balance sheet remains under a bit of pressure, as the chart below shows working capital remains meaningfully in the red.

The company’s CEO in the earnings release touted its nearly $900 million cash pile at the end of 2023 as a sign of strength. However, negative working capital means you have more liabilities coming due in the next 12 months than you have current assets. AMC is also coming off a year where it burned $440 million, and the domestic box office is off to a very slow start due to the writer’s strike and a weak Q1 movie slate.

In addition to the negative working capital situation, AMC finished 2023 with over $4.55 billion of long-term debt on the balance sheet. Almost two-thirds of that comes due in 2026, with no clear path currently as to the ability to repay that debt. Refinancing is certainly an option, but the likely strategy here is continued equity raises. AMC used preferred shares (the “APEs”) previously to help to a point, but the APE to AMC conversion was a key reason why Class A shares outstanding went from about 52 million to 260 million last year. Prior to the pandemic, the Class A count was only around 5 million (adjusting for the reverse split).

In terms of valuation, AMC trades like a distressed asset. The stock went into Wednesday’s report trading at 0.27 times expected 2024 revenues, as compared to 0.87 times for competitor Cinemark (CNK). At the moment, Cinemark has a bit of debt as well, but it also has positive working capital, profits, and positive free cash flow. AMC analysts thought the stock was worth $6.22 going into this week’s report, but that average price target has continued to go lower quarter after quarter.

With another quarter of cash burn in the books and working capital still into the red by more than $429 million, I am continuing to rate AMC shares a sell today. I would expect at least one more major equity sales program in the next couple of quarters, and each one gets more dilutive with the stock near its all-time lows. I cannot consider a hold rating here until the company gets its debt pile down meaningfully and shows that positive cash flow can be generated. In the end, AMC’s Q4 results showed the company’s financial situation is still deeply troubled, and we could easily see new lows and perhaps another reverse split before things are finally back on solid ground.