AMC debt threatens its ability to master box office rebound

On March 29, 2023, a car drove near the AMC Theater in New York City.

Leonardo Muñoz | View News | Corbis News | Getty Images

Domestic box office is rebounding, with the third season hitting its highest record since the pandemic. However, the world’s largest movie theater chain does not have such a solid foundation.

aviation medical center Operates approximately 900 theaters and 10,000 screens worldwide, larger than its main competitors Cinemark and wealthy. Even before the pandemic, however, it faced a heavy debt load that could prevent the company from taking full advantage of the theater industry’s recovery.

Chief Executive Adam Aron, who took the helm in 2015, spent much of his early years acquiring other chains and outfitting existing theaters with luxury seating. When the coronavirus pandemic shut down theaters and shut down Hollywood, AMC had already lost $5 billion.

Four years later, the company still has more than $4 billion in long-term debt on its books. Although the company has successfully refinanced and extended its term to 2029 and beyond, interest payments continue to weigh on its earnings.

“They’ve taken steps to reduce their debt, but they still have a lot of debt and they’re still paying pretty high interest rates,” said B. Riley analyst Eric Wold.

In the third quarter, AMC’s revenue exceeded expenses, but interest payments of about $100 million caused the company to lose nearly $21 million in the same period.

“I don’t think it’s going to be consistently profitable for the next few years,” Wald said.

Meanwhile, analysts told CNBC that AMC is making a big push to boost revenue and lure lapsed moviegoers back to theaters. With an improving and strong slate of movies in 2025 and 2026, there is an opportunity to capitalize on improving box office trends if theater chains can keep a close eye on cash flow.

A boost from a slate full of bombshells

Comscore data shows that the domestic box office in the third quarter reached 2.71 billion U.S. dollars, an increase of less than 1% from the same period last year. This improvement is small but impressive, considering that the same time period in 2023 saw the emergence of a cultural phenomenon called “Bappenheimer.”

double publishing Warner Brothers’ “Barbie” and Universal “Oppenheimer” is a box office smash, grossing nearly $250 million at the domestic box office during its opening weekend. The two films went on to gross nearly $1 billion at the North American box office and were part of a global box office total of nearly $2.4 billion.

Aid for the third quarter of this year disney Marvel’s “Deadpool and Wolverine” grossed $631 million at the domestic box office from its release on July 26 to September 30, and Universal Pictures’ “Despicable Me 4” grossed about $360 million. Universal’s “Twister” grossed $267 million and Warner Bros.’s $250 million. “Beetlejuice Beetlejuice” and Disney and Pixar’s “Inside Out 2,” released in June, earned $183 million.

Despite better-than-expected box office performance, AMC’s attendance fell 12% during the period. By comparison, Cinemark’s global attendance fell only 2.4% in the quarter.

Hugh Jackman and Ryan Reynolds star in the Marvel movie “Deadpool and Wolverine.”

disney

AMC attributed the decline to Hollywood movies not being as well received in Europe as in North America, noting that attendance in the region was down 16%. The majority of AMC’s theaters (about 62%) are located in the United States, while Europe accounts for about 37% of its footprint. Another 1.4% is in Saudi Arabia, according to reports filed in February.

And, it noted, the success of “Barbie” and “Oppenheimer” during the same period a year ago makes for a more difficult comparison.

AMC also pointed to a decline in theater attendance during the third season in urban centers such as New York and Los Angeles, where the company has the largest presence. Wald noted that this may be because the summer movie segment is filled with family-friendly movies that typically attract more suburban audiences.

AMC’s fourth season should be better as Universal’s “Wicked.” Paramount “Gladiator II” and Disney’s “Moana 2” compete for premium big screen share during Thanksgiving. Additionally, Disney’s Mufasa: The Lion King will be released in December with Sony’s R-rated “Kraven the Hunter” and Paramount’s “Sonic the Hedgehog 3.”

Movie posters for “Wicked,” “Warrior II” and “Moana 2.”

Source: Universal Pictures (left), Paramount (center) and Disney (right)

Looking ahead, 2025 and 2026 are expected to be better as Hollywood production, disrupted by twin labor strikes in 2023, returns to a normal release cycle.

While Q3 2024’s 31 wide-release movies (opening or eventually opening in more than 1,500 locations) is higher than both 2023 and 2019 totals, the number of wide-releases for the full year remains low than pre-pandemic levels.

More than half of the movies released next year are related to existing movie franchises or popular intellectual properties, which may draw a loyal fan base to theaters, but may also mean they will compete for time in premium large theaters.

Premium push

AMC Theaters currently owns nearly half of its theaters IMAX American screen and all Dolby American screens under the Dolby Theater brand. It has a total of more than 550 high-quality large-size screens around the world.

The company also plans to make more investments.

“We’re convinced from our audience data that moviegoers are increasingly seeking our premium large-format screens,” Allen said on AMC’s third-quarter earnings call earlier this month. “For example, On average, our PLF screens in the U.S. make about four times more than non-PLF theaters. You all know the saying, ‘You fish where the fish are.’

As part of AMC’s so-called “Go Plan,” the company plans to invest $1 billion to $1.5 billion over the next four to seven years to strengthen its theater presence in the United States and Europe. This includes adding more IMAX screens and updating existing screens with new laser projectors, increasing the number of Dolby Cinemas at AMC locations, and updating auditoriums with screens at least 40 feet wide to be part of its XL brand and 4K laser projection .

On October 10, 2018, the atmosphere was warm at the Imax private screening of the movie “First Man” held at the Imax AMC Theater in New York City.

Lars Nikki | Getty Images Entertainment | Getty Images

“As (AMC) gets closer to 2025, their issuance plans have really improved and they’re also looking at where to spend money, where to invest in the business and strengthen the business where they can,” Wedbush analyst Alicia Reese said. “They talk a lot about new investment, upgrading theaters, expanding premium screens, adding XL screens. It’s a lot of money, a lot of capital expenditure. I just think they need to approach this in a very balanced way. You know, Save cash.

Reese isn’t the only Wall Street analyst to advise AMC to be cautious in making these upgrades.

Ross Capital Markets’ Eric Handler noted that the upcoming slate of movies will allow the company to make much-needed updates, but “they can’t go crazy” and that the company has had to be “very frugal with cash” in recent years.

“They still have to be careful with their cash flow,” he said.

More shares, more questions?

To raise cash, AMC has traditionally turned to issuing more stock.

The company raised billions of dollars during Selling new shares in response to the pandemic will help it pay down debt and avoid bankruptcy while movie theaters are closed or limited products can be shown to audiences.

However, investors, including AMC’s most loyal fans, became concerned about dilution and have rejected the company’s efforts to issue additional shares in the past. Currently, AMC has approximately 372 million shares outstanding, according to FactSet.

“They said they would consider using equity to fund capital expenditure projects,” Handler said. “Here we go again. If you’re an equity investor, you’re probably going to be further diluted to fund these capital expenditure projects. They’re probably going to issue more shares and, you know, the share count is about 20 times higher than before. .

Although AMC’s shares have risen in the last month, they are down more than 26% year to date and more than 43% since this time last year. The stock has fluctuated between $4 and $5 per share for several months.

AMC, meanwhile, has been closing underperforming theaters to save some cash for other businesses as leases need to be renegotiated.

“They’re trying to change their footprint to keep market share growing,” Reese said. “They continue to increase revenue per screen and revenue per attendee through merchandising and popcorn buckets and so on. So all the metrics are moving in the right direction.”