IMAX - AMC Entertainment: Better 2024 Movie Slate Gives Hope

2024-01-21 21:22:24 ET

Summary

• AMC Entertainment generated positive operating cash flow in Q3 and has a more promising movie slate for 2024.
• The company's large debt load remains a challenge.
• The company is a high risk, high reward stock, but the 2024 analyst consensus numbers look too low.

Back in October, I said I thought it was possible that AMC Entertainment Holdings ( AMC ) could de-lever if movie attendance returned to pre-pandemic levels. That hasn’t happened yet, but the company did generate positive operating cash flow in Q3 and the 2024 movie slate looks more robust than it did for 2023.

Company Profile

As a reminder, AMC is a movie theatre operator with venues throughout the United States and Europe. At the end of September, the company had 904 theatres with 10,078 screens. It had 184 IMAX screens in the U.S. and 33 in international markets, while it had 158 Dolby Cinema screens in the U.S. and 7 in international markets. It also had 49 dine-in theatres in the U.S. with 675 screens, and it had 380 U.S. theatres that offered alcohol. In international markets, it had 3 dine-in theatres and offered alcohol in 231 locations.

As a movie theatre operator, the company licenses films from movie distributors. Its biggest source of revenue comes from the sales of tickets, while its biggest expenses are exhibition costs, which are based on a share of admissions revenue. Higher margin revenue comes from the sale of food and beverage sales. It also generates revenue from advertising and its monthly subscription service that allows guests to see up to three movies per week.

AMC also holds 23.4 million units of Hycroft Mining Holding ( HYMC ), a gold and silver development company.

Debt And A Better Movie Slate for 2024

AMC’s biggest issue is its large debt load, which stood at $4.77 billion against $729.7 million in cash and equivalents at the end of Q3. In addition, it has $4.49 billion in operating leases on its balance sheet as well. That leads to nearly $95 million in interest expense per quarter and $225 million in rent per quarter. Since the quarter ended, AMC has entered into a number of transactions in December and January where it has issued stock in exchange for debt, according to a number of 8-K filings ( here , here , here ).

At the same time, the company has struggled to generate operating cash flow, with an outflow of -$137.4 million through the first nine months of the year and free cash flow of -$290.9 million. However, the company did see positive operating cash flow in Q3 of $65.9 million.

AMC reported strong Q3 results, helped by the releases of Barbie and Oppenheimer early in the quarter. The two movies were the #1 and #5 domestic box office releases of the year. This helped the company grow revenue 45% to $1.4 billion, while adjusted EBITDA climbed to $193.7 million versus -$12.9 million a year ago.

The company noted that attendance in the quarter was still -16% below that of pre-pandemic levels, but that contribution per patron was up 30% versus 2019. As a result, revenue was up 6% over the $1.32 billion it reported in Q3 2019, while adjusted EBITDA was up 24% from $156.5 million.

Now AMC’s balance sheet is not much different than it was in Q3 of 2019, when it had $4.6 billion in net debt and $5.4 billion in operating leases. Interest expense is a little higher due to higher interest rates, while its rent is a bit lower.

Pre-pandemic, AMC was able to generate solid operating cash flow, although it tended to spend an equal amount on capex in many years. It should be able to get back to that operating cash flow with a better movie slate that draws in more consumers.

While Barbie and Oppenheimer drew big box office numbers, 2023 overall wasn’t a great year at the box office, hurt in part by the writers’ strike. Only 5 movies grossed over $300 million domestically, and only 7 grossed over $200 million. Compare that to 2019 when 10 movies grossed over $300 million, and 2018 when 6 movies grossed over $300 million, but 14 grossed over $200 million.

However, the 2024 movie slate looks much more promising than 2023. The current year is filled with a number of high-profile sequels, including Deadpool 3 , Beetlejuice 2 , Gladiator 2 , Dune: Part 2 , and Ghostbusters: Frozen Empire . It will also have a number of highly anticipated animated movies including Despicable Me 4 , Kung Fu Panda 4 , Inside Out 2 , and Lord of the Rings: The War of Rohirrim .

However, the film slate is full with a lot of potential beyond those movies mentioned above. While it may not have an Avengers blockbuster, 2024 looks like it has a deep roster of strong movies. AMC will also look to distribute more concert films this year and next, following the success of Taylor Swift's and Beyonce's concert films.

According to a Fandango survey , 81% of respondents polled said they were more excited about the 2024 film slate than 2023. Meanwhile, 71% said they anticipated seeing movies in a premium format, such as IMAX ( IMAX ) or Dolby ( DLB ).

Valuation

AMC currently trades around 26x the 2024 consensus EBITDA of $365.7 million and 16x the 2025 consensus of $602.6 million.

From an EBITDAR perceptive, it trades at about 7.5x 2024 EBITDAR and 6.4x 2024 EBITDAR.

The company is not projected to generate positive net income any time soon.

The company is projected to grow revenue nearly 22% in 2023 to $4.78 billion, and for it to fall by -2.3% in 2024, before growing 10% in 2025.

AMC currently trades at a premium to other movie theatre-related companies.

Taking into consideration its debt and growth prospects, I’d value AMC anywhere from $0-25. That’s a wide range given the number of possible of outcomes the company could see. The low-end valuation is that the company goes bankrupt, while the higher-end range shows the company can generate sustainable free cash flow and moves to a 10x EBITDAR multiple.

Conclusion

At this point, I think the 2024 analyst numbers, which are calling for declines in revenue and EBITDA, are too low. It appears current numbers are looking for the writers' and actors' strikes to have a big impact on the 2024 movie slate, but that does not appear to be the case at present. Currently, it looks like the 2024 movie slate is much more robust than 2023, with a lot of potential hits. Most of these movies are also currently in post-production or complete, with just a few still filming, such as Deadpool 3 and Despicable Me 4 .

With AMC’s stock down a quick -30% to start the year, the stock could be a rebound candidate, as I think 2024 will be better than 2023 and expectations are currently low. However, the company needs to show that it can generate free cash flow and start to pay down debt in a way other than through issuing equity.

A better movie slate leading to more attendance and less capex could go a long way in this regard. Revenue per patron is up a lot since the pandemic, now the company just needs more people in its seats. The company wants to continue to build out its premium offerings, but generating FCF needs to come first.

I will continue to keep a “Hold” rating on the stock, as this is a very high-risk, high-potential reward name.

For further details see: