AMC may have been a meme darling, but weakness in some key areas has put the company on shaky ground

By James Rogers

AMC’s financial health remains a concern, according to RapidRatings, a firm that rates the finances of public and private companies

AMC has had a roller-coaster few years that have taken the movie chain from a beleaguered pandemic victim to a meme-stock phenomenon. So what’s the next step?

AMC Entertainment Holdings Inc. (AMC), which describes itself as the world’s largest movie theater company, operated 1,004 movie theaters before Covid. But the pandemic hit the company hard, forcing the closure of movie theaters across the United States in March 2020. As Covid-19 raged, AMC scrambled to raise funds and with the possibility of a bankruptcy weighing on the company, its stock reached an intraday price. minimum of $1.91 on January 5, 2021.

But a few weeks later, AMC, like GameStop Corp. (GME), has been caught up in the social media trading frenzy that has turned it into a “stock meme” phenomenon. AMC used the surge in its share price to tap into the equity and debt markets, raising $917 million in January 2021. At that time, AMC Chief Executive Adam Aron said the new funding meant any talk of impending bankruptcy “is completely irrelevant”.

Just a month earlier, AMC secured $100 million in debt financing from Mudrick Capital as the company tried to bolster its liquidity.

The status of AMC’s meme stock ultimately allowed the company to raise a $1.8 billion war chest for investments, though some aspects of its strategy have left observers scratching their heads.

Watch now: AMC stuns investors with investments in gold and silver mine as it puts $1.8 billion war chest to work

Earlier this year, AMC surprised Wall Street by earning $27. 9 million investment in Hycroft Mining Holding Corp. (HYMC), a gold and silver miner that operates well outside of AMC’s core business.

“It was really surprising,” Everett Millman, precious metals expert at Gainesville Coins, told MarketWatch this week. “What’s interesting about investing in Hycroft is that gold mining companies are considered riskier than owning gold.”

While AMC’s decision seemed to come out of left field, it kept the company in the spotlight. “I think it’s such a bizarre thing that it would almost certainly get people’s attention,” Millman said. “Getting the headlines, there’s clearly a benefit to this for a meme stock.”

Could we see more AMC mergers and acquisitions making headlines? In March, AMC CEO Adam Aron told CNBC that Hycroft bore a stark comparison to the theater chain a year prior. “He had great assets…but he had a cash crunch, he had a cash problem,” he said, noting that AMC is an expert at fundraising. The theater chain wants to use its war chest to find “transformative” acquisition opportunities, he added.

Still, much of the shine in AMC’s stock has worn off since the heady days of 2021. The company’s stock, which trades around $15.35 on Thursday, fell 57.4% over the past 12 months, compared to the 14% decline in the S&P 500. AMC has plunged 43.6% this year, outpacing the 21.4% drop in the S&P 500.

See now: AMC CEO Adam Aron’s total compensation in 2 years during the pandemic was higher than the previous 4 years

Granted, AMC is a more streamlined company than it was at the start of the pandemic — the company now operates 950 theaters, according to its website. There have also been staffing changes. According to its 2021 annual report, AMC ended the year with a total of 31,198 employees in 10 countries, of which approximately 21,392 were based in the United States and 9,806 internationally. Some 3,046 employees were full-time. As of 2020, AMC had a total workforce of 25,019, including 3,449 full-time. However, the 2021 total was down from the company’s total of 38,872 employees in 2019, including 3,952 full-time employees.

Consumers are also returning to theaters and studios have ramped up blockbuster releases. During its recent fiscal first quarter results, AMC reported better-than-expected revenue and a lower loss. “AMC is no longer on its heels,” said CEO Aron.

Thanks in part to Sony Pictures’ Uncharted (6758.TO) and Warner Bros.’ (WBD) AMC’s “The Batman” had its best quarter in two years, according to Aron. During the first quarter, AMC welcomed 39 million guests to its theaters, compared to 7 million in the same period last year.

Since then, AMC’s stock has received a boost thanks to the box office success of “Top Gun: Maverick.”

However, the fiscal first quarter results also marked the company’s 11th consecutive unprofitable period.

Opinion: Horror Movie: Flee AMC Stock Like Your Life Depended On It

AMC’s financial health remains a concern, according to data from RapidRatings, a company that rates the finances of public and private companies.

“When you look at AMC, they’re weak on our two fundamentals for evaluating companies,” James Gellert, CEO of RapidRatings, told MarketWatch. Gellert pointed to RapidRatings’ Core Health Score, which assesses medium-term sustainability based on operational efficiency and competitiveness, and its Financial Health Rating, which measures short-term default risk.

RapidRatings’ system evaluates financial statements and processes them through an algorithm to produce a financial score.

AMC’s financial health score was an “unimpressive” 30 out of 100 for the four quarters ending March 31, 2022, according to a recent RapidRatings report on the company. The Theater Channel’s Core Health Score was 25 out of 100.

While AMC has posted adequate earnings results, the company is showing low leverage and liquidity and has negative cash flow, according to RapidRatings. “AMC Entertainment Holdings Inc. posted negative cash from operations over the past year-end period,” it said in its report. “As such, the company has not been able to cover any portion of capital expenditures or debt balances from internally generated cash flow.”

See it now: AMC’s stock rises again with ‘Top Gun: Maverick’ record boost

AMC had net operating cash flow of $615 million at the end of 2021, compared to net operating cash flow of $1.06 billion at the end of 2020 and $579 million at the end of 2021. end of 2019.

The company ended 2021 with $1.62 billion in cash and long-term investments, up from $320 million at the end of 2020 and $276 million at the end of 2019. However, FactSet data shows that ‘AMC had $10.12 billion in long-term debt at the end of 2021, compared to $10.74 billion at the end of 2020 and $9.74 billion at the end of 2019. Earlier this year, The Wall Street Journal reported that AMC was in talks to refinance some of its high-yield debt, as part of an effort to reduce interest payments and lengthen maturities.

The company also faces fierce competition from streaming services such as Netflix Inc. (NFLX) and Walt Disney Co.’s Disney+ (DIS). Streaming has been “like a tidal wave” for the company, according to Gellert. “They didn’t rise to the competitive challenge before Covid, let alone during Covid,” he added.

If AMC has had access to capital in recent years, that could change in an uncertain economic environment, according to Gellert. “Those evaluating them should be extremely cautious about the environment in the futures capital markets,” he said. “It will be very difficult for companies of this quality to raise capital in the future.”

AMC had available cash, including cash, of nearly $1.38 billion at the end of March.

See now:Why cinema will survive the coronavirus pandemic

Gellert says AMC’s cash position should be good for 2022, but warns the company could run into problems next year. “The market could start to see them as a risk in 2023,” he said, adding that their “lifespan” was burning. “If they spend too much money before they can fix all the operational issues with their business, then bankruptcy becomes a real risk.”

-James Rogers


(END) Dow Jones Newswire

07-16-22 1027ET

Copyright (c) 2022 Dow Jones & Company, Inc.

Comments are closed.