Could AMC become positive free cash flow by 2022?

Things weren’t going so well for AMC

Animations in September. The world’s largest movie company struggled to attract audiences, Covid cases and prices were on the rise, and management’s dreams of bringing AMC to black were a laughable pipe dream.

Yet despite dismal third quarter numbers, the final month of the quarter brought a silver lining to the struggling industry giant. But is this enough for the company to meet its goal of having positive free cash flow by 2022?

AMC’s return

The sudden change began with the release of Shang-Chi and the legend of the ten rings during the Labor Day weekend, which grossed $ 90 million in national theaters alone. Since then, the film has surpassed $ 300 million in worldwide sales.

AMC Entertainment CEO Adam Aron hailed the rise in footfall and profits as a critical step for the company. As Shang-Chi Admission revenues set a new Labor Day weekend record and attendance topped that of the same weekend before the pandemic, Aron noted that “Americans are eager to return to theaters again. movies”.

The next two big releases took place within a week of each other, which once again made Aron and AMC rejoice. The first was Venom: let there be carnage, which opened for $ 90 million at the domestic box office, setting a record in the era of the pandemic and surpassing its 2018 predecessor.

And came No time to die, which saw the biggest opening weekend payout of any James Bond movie, period. Daniel Craig’s blockbuster grossed $ 119.1 million in international markets before racking up an additional $ 62.2 million over four days in domestic theaters.

AMC followed the opening of its banner in October with a press release to tout its stats, boasting that, between Venom and No time to die, the company scored another best post-pandemic performance. CEO Aron succinctly summed up the management position: “The success of these two new blockbuster films… demonstrates the huge pent-up demand we see from moviegoers.

Then, taking on critics of the industry, he added, “It is simply wrong to underestimate the enormous consumer appeal and resilience of movie theaters.

AMC Theater-Level Cash Flow Issue

Of course, for many, it was obvious that movie theaters – and out of necessity, moviegoers – would return. Despite swirling fears about Covid-19 and the pandemic-era standard of direct broadcast, there is something to be said for the dimly lit, popcorn-strewn aisles of the big screen that have captured the world. imagination, time and the wallets of Americans for over a century.

And yet, until AMC’s blockbuster busy weekends, the domestic box office went through a dismal Q3, suffering from a lack of crowds and crowd-pleasing films. September gross ticket sales alone fell 47% from 2019 levels, with the entire third quarter falling more than 51% by comparison.

To bolster its results, AMC raised prices, but this created more problems, such as lower attendance compared to gross ticket sales and reduced concession expenses. When lumped together with the reality of the resurgence of the pandemic, these factors make AMC’s dream of a theater-level positive cash flow in the fourth quarter an implausibility.

Still, management is hoping for a cumulative domestic box office performance of $ 5.2 billion by 2021. But to meet its target, AMC needs to generate $ 2.8 billion in the fourth quarter alone.

Fortunately, Q4 has a number of potential blockbusters lined up to help its cause, such as Spiderman, Dune, West Side Story, Ghostbusters: Afterlife, and Matrix resurrections. Already, the prospect of these crowd pleasures has led to an increase in advance ticket reservations.

But compared to the list of the fourth quarter of 2019, including Frozen II and Star Wars: Episode IX – The Rise of Skywalker, it may not be possible for AMC to achieve near-positive theater-level cash flow in the current quarter. Going forward, that reality alone may be enough to make his dream of becoming positive free cash flow positive once and for all by 2022.

Cash flow and inventory of meme haunt AMC’s comeback

Throughout 2021, AMC aggressively courted its own comeback, achieving second-quarter revenue of $ 445 million for a 2,242% year-over-year increase. However, gross profit came to a negative $ 125 million – although still a substantial improvement over the loss of $ 320 million in YOY.

But even as AMC has drifted into earnings for the first time since 2019, it still struggles with more than a year of consecutive negative cash flow. The longer this trend continues, the longer it will take for the entertainment giant to achieve positive free cash flow, even for a quarter. And it will take a lot longer than that for the company to pay off its $ 420 million in rent deferrals and $ 5.5 billion in long-term debt.

So far AMC has absorbed its losses using its $ 1.81 billion in cash and cash equivalents – but it’s only been so long that the pot can hold. Yet the stress of his once imminent (and still not implausible) bankruptcy did not drag his actions down as one might expect. Instead, thanks to remnants of the “Meme Stock” movement in early 2021, AMC’s “Apes” – bullish retail investors who target heavily short stocks – pushed the company’s shares at a premium. .

Unfortunately, these shareholders appear to be doing more harm than good to AMC’s long-term prospects. Less concerned with current financial data, they wait for the moment when future earnings and underlying technical data will once again skyrocket the stock so they can cash in and out.

Namely, they have already twice rejected the company’s proposals to sell more shares, which would allow it to cover its obligations. The argument they make is simple and simply damaging: more stock equals more dilution – and while a new public offering is good for the company, it is bad for its own bottom line.

Where does that leave AMC Entertainment for investors?

AMC’s recent successes have removed the weight of the argument that the pandemic has forever and irrevocably changed the course of American entertainment consumption. While home streaming services are both cheaper and germ-less than a dark, crowded room, it’s hard to replicate the popcorn-fueled delight of the real movie theater experience. And it is this experience, coupled with the return to film debut, that AMC hopes to send its skyrocketing fourth quarter numbers to a positive free cash flow future to end the year on a positive note.

Yet the market continues to price AMC shares at a premium far above what its financials and fundamentals dictate, driven by price improvements and a handful of monkeys eagerly awaiting their next stock run. memes. But if the company’s retail investors really want the company to excel, they may have to concede management’s desire to inject shares into the market, lest they lose an opportunity to monetize its momentum. current.

That said, the amount of work that the company has to do to achieve its goals is still simply astronomical. And as such, AMC Entertainment is unlikely to achieve a positive free cash flow statement in the near future, with or without the support of its investors.

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