AMC is gaining market share, but debt sparks analyst concern

By James Rogers

AMC's market share is rising, but 'profitability is elusive,' according to Wedbush analyst Alicia Reese

AMC Entertainment Holdings Inc. narrowed its quarterly loss amid market share gains when it reported first-quarter results after the bell Wednesday. On Thursday, analysts focused on the company's debt load.

Wedbush analyst Alicia Reese sees potential for more market share upside, but warns that AMC (AMC) still has plenty of challenges in its path.

"AMC expanded its market share in 2023 and can expand further from its 22.5% market share with its vast network of premium large-format screens and concert movie distribution," Reese wrote in a Thursday note. "AMC also has an opportunity to drive revenue growth from its European circuit with theater upgrades that would boost per-screen averages. However, it is unlikely to do so until it works through balance sheet right-sizing over the next two years."

AMC shares are down 6.7% Thursday, putting the stock on pace for its biggest daily percentage decline, since an 11.1% fall on April 29.

Related: AMC's Q1 loss narrows and 'better times are ahead' says CEO Adam Aron

During the conference call to discuss the results, AMC CEO Adam Aron said that the movie-theater chain and original meme stock has about $4.5 billion of debt, with "huge maturities" coming in 2026.

AMC's debt burden looms over the company's market share gains and potential to drive European revenue, according to Wedbush's Reese. "The company's heavy debt load and lack of dividends overshadow these positive factors, but AMC is focused on alleviating its debt," she wrote in Thursday's note. "Since the beginning of 2022, AMC has paid down nearly $1 billion of its debt but still has $4.6 billion remaining." Reese noted that some $2.9 billion of AMC's debt is due in 2026.

"AMC continues to raise cash from equity sales and plans for substantially more share issuance to raise capital in the coming months," the analyst added. "AMC's shareholders continue to resist AMC's share repurchases. But AMC must cover its interest payments and conserve cash while it posts losses." Wedbush maintained its neutral rating, but lowered its AMC price target to $3.50 from $4.

Related: AMC debt extension would be 'key' as company looks to clean up balance sheet, says Wedbush

Last month Bloomberg reported that a lender group to AMC advised by law firm Gibson Dunn & Crutcher made a proposal to the company that would push back its near-term debt maturities.

"We've been working with our board of directors and our investment banks for almost a year now in discussing the smartest ways to extend the maturities of our 2026 debt into future time periods," Aron said during the conference call about AMC's first-quarter results. "The good news is that we have lender syndicates who generally like AMC, have worked with us before, are working with us now. I'm hopeful that we will come to some conclusion. That will allow us to push out the debt maturities from 2026 into future periods."

There's no announcement imminent but the issue has AMC's "highest attention," according to Aron. "We know about our obligations going forward," he added. "We intend to refinance, if at all possible, and we're hopeful that we can do so on attractive terms."

Of seven analysts surveyed by FactSet, four have a hold rating and three have a sell rating for AMC.

Related: AMC and Cinemark yet to reclaim 'pre-COVID glory' as foot traffic still well below pre-pandemic levels, research finds

Benchmark analyst Hickey noted that AMC successfully reduced its debt principal by $17.5 million through the exchange of debt for 2.5 million shares of Class A common stock during the first quarter. "AMC continued its efforts to bolster its cash reserves post-quarter-end by raising $124.1M in gross proceeds from the sale of 38.5M common shares," he added.

Since the beginning of 2022, AMC has raised nearly $1.2 billion of gross equity capital, according to Aron. "We've lowered the principal value of our debt and finance leases by $707 million through debt repayments, repurchases or exchanges of debt for equity, and we've repaid $267 million of deferred leases," he said during Wednesday's conference call. "This all for a total reduction of debt and deferred leases of $974 million." The debt reduction has also lowered AMC's annual cash interest expense by approximately $60 million, he added.

Benchmark's Hickey said he is confident in the movie-theater chain's plans to deal with its debt burden - and last year's Hollywood strikes were only a blip for AMC.

Related: AMC's Q1 loss narrows and 'better times are ahead' says CEO Adam Aron

"The company is actively pursuing strategies to manage its debt portfolio, with a specific focus on extending the maturities of its significant debt obligations due in 2026," Hickey wrote in a Thursday note. "We remain optimistic that AMC will successfully navigate its current challenges, supported by a resilient management team dedicated to finding creative solutions for their debt issues."

"We believe that box office growth will accelerate in the second half of 2024 and beyond, as recovery momentum picks up," Hickey added. Benchmark maintained its hold rating for AMC.

The company's stock has fallen 51.4% in 2024, compared with the S&P 500 index's SPX gain of 9.1%.

-James Rogers

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05-09-24 1307ET

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