AMC's debt-to-equity, late payments, could be 'red flags,' warns Creditsafe

By James Rogers

AMC reports third-quarter results after market close on Nov. 8

AMC Entertainment Holdings Inc.'s debt-to-equity and late payments could be financial warning signs, according to credit-monitoring and risk-management company Creditsafe.

Citing AMC's (AMC) second-quarter earnings report in August, Creditsafe says the movie-theater chain and meme-stock darling has a total shareholder equity of negative-$2.6 billion and a total debt of $4.8 billion. This brings AMC's debt-to-equity ratio to -186.5%, Creditsafe told MarketWatch. "If you have a high negative debt-to-equity, that's typically considered a high risk," said Ragini Bhalla, head of brand and spokesperson for Creditsafe.

AMC's Days Beyond Terms (DBT), which is how many days past payment terms it typically takes to pay invoices, also deserves attention, according to Creditsafe. Citing information from the Creditsafe trade payment database, the credit monitoring company says AMC's DBTs jumped from 9 days in March to 14 in April. They then dropped slightly over the next two months, before spiking drastically to 21 by August. Typically, a lower DBT score indicates that a company is a more reliable payer.

Related: 'Barbenheimer' may have sparked euphoria, but 'cash is very tight' for AMC, CEO warns

High negative debt-to-equity and growing DBT can be indicators of financial trouble, according to Creditsafe. "We typically call these types of things red flags," said Bhalla. "It will be interesting to see how that [DBT] goes over the next three-plus months," she added.

Creditsafe is not alone in its concerns about AMC. Last year AMC was added to New Constructs' list of "zombie" stocks facing severe cash burn.

However, Bhalla acknowledges that "it's not all bad news," pointing to the company's second-quarter year-over-year revenue growth of 15.6% and the positive impact of summer blockbusters "Barbie" and "Oppenheimer," a cultural phenomenon dubbed "Barbenheimer."

Related: AMC shares rise as 'Taylor Swift: The Eras Tour' sets another record

AMC has not yet responded to MarketWatch's request for comment. The movie theater chain reports third-quarter results after market close on Nov. 8. Analysts surveyed by FactSet are looking for earnings of 26 cents a share and sales of $1.227 billion.

The company's CEO Adam Aron has repeatedly voiced his concerns about cash. In August he said that the company is "killing it at the box office" but faces ongoing liquidity challenges. Shares of AMC underwent a 1-for-10 reverse stock split in late August. AMC also completed the conversion of AMC Preferred Equity units into common stock, part of its ongoing battle to eliminate debt.

In September AMC raised approximately $325.5 million in an at-the-market equity offering through the sale of 40 million shares. AMC has said that the equity offering boosts its cash reserves, addresses current liquidity concerns and fortifies the company's balance sheet.

Related: AMC equity offering is a 'safety net' and a chance to reduce debt balances, analyst says

The company is also set to reap the benefits of Taylor Swift's record-breaking concert film. In addition to showing "Taylor Swift: The Eras Tour" in its theaters, AMC is also the theatrical distributor for the movie.

AMC shares are down 5.4% Wednesday, compared with the S&P 500 index's SPX gain of 0.4%. The company's stock is down 71.2% in 2023, compared with the S&P 500 index's gain of 9.5%.

-James Rogers

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11-01-23 1544ET

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