Despite surging COVID-19 cases and sluggish box office ticket sales, AMC Theatres CEO Adam Aron made it clear last week that he is wildly optimistic about the state of moviegoing and the future of the company that he leads, one that many investors were willing to leave for dead just a few months ago. He’s not delusional, he’s just catering to a new audience of shareholders, one whose populist embrace of all things AMC has created one of the most confounding, unlikely, and downright bizarre stock market rebounds in this or any era.
AMC may have evaded persistent threats of bankruptcy, managing to defy its skeptics and survive the COVID-19 pandemic, but it’s emerging as a very different company. That reality was evidenced last week during the company’s quarterly earnings call, in which the nation’s largest exhibition chain embraced its status as a meme stock and tailored its remarks to appease its new base of young retail investors, many of whom are more interested in sticking it to Wall Street short sellers than they are on rewarding business fundamentals. A significant portion of Aron’s prepared remarks were dedicated to its decision to embrace cryptocurrency and potentially partner with GameStop. The latter was a true instance of chumming the waters given that after first teasing investors with the promise of “more to come” on the prospect of an alliance with GameStop (another meme stock), Aron later admitted that AMC had yet to reach out to the company. But “we intend to do so,” he noted hopefully. Public companies don’t normally tend to offer up information on potential partnerships that are at such a nascent stage.
But Aron, a showman who is known to pepper a Churchill quote or two into earnings calls, has good reason to appeal beyond institutional investors. Thanks to internet frenzy around its stock, AMC has been able to improve its financial situation and renegotiate the company’s massive debt obligations. The exhibitor said it has cash on hand of $1.81 billion and more than $2 billion in liquidity.
“We would like to think that someday when a movie is filmed about AMC and COVID, its title will be one compelling word, ‘Recovery,’” Aron said in a statement. “But, only time will tell.”
Playing to the crowd has been a successful strategy for AMC. The company’s share price has shot up 1,500 percent since January, and while it’s not trading at the $72.62 it was enjoying in June, its current stock price of more than $36 is still untethered from the gravitational pull of traditional metrics like profits and losses. This is a company that is trading on emotion, not data, hence Aron’s pivot. In recent months, AMC has issued more shares to feed demand among retail investors even as financial gurus have remained skeptical about the company’s long-term health. That’s why his earnings call was pitched more at Reddit than Wall Street, with the AMC chief spending the bulk of his time answering questions that had been submitted by shareholders instead of analysts.
“The ownership of the company has changed dramatically,” says Eric Wold, an analyst with B. Riley and Company. “If institutional interest levels have changed because it’s taking over, it makes sense to adjust where you take questions. Clearly they’re shifting the way they run these calls. It’s not usual, or typical, but it’s understandable.”
The picture that Adam is painting of the movie theater business appears to be at odds with reality. Though there have been considerable improvements, the domestic box office remains severely challenged and isn’t close to reaching pre-pandemic levels. On last Monday’s call, Aron said AMC could generate enough money to cover its operating costs by the end of the year if the domestic box office tallies at least $5.2 million. North American revenues have reached 1.7 billion as of Aug. 11, meaning the box office would have to work in overdrive, nearly consistent with 2019 levels, to come close to hitting that benchmark. Box office analysts say Aron’s projections are overly optimistic and believe the final total will be somewhere in the mid-$4 billion range.
And the situation surrounding ticket sales hasn’t improved since Aron offered up his rosy assessment. Ryan Reynolds’ “Free Guy” opened to a better-than-expected $28.4 million, but with a $100 million production budget, it will still have to fight and claw its way to profitability, particularly given the challenging overseas market, where many countries are battling bad outbreaks of COVID. Other recent releases, such as “The Suicide Squad” and Disney’s “Jungle Cruise,” have debuted to lackluster results while premiering simultaneously on streaming services, a pandemic-era concession that is depressing box office revenues. Moreover, consumer confidence surveys by the likes of NRG have shown dramatic fall-offs in audiences’ willingness to return to theaters while the delta variant is ravaging parts of the country. Confidence stood at more than 80% positive about returning to theaters in early July, before falling this week to less than 65%. Most troubling is that the greatest swan dive in consumer confidence is among moviegoers with young children, who are not able to be vaccinated. That could imperil a rebound for family films, which are both popular among consumers and lead to hefty concessions sales.
“When you say you’re crushing it, it seems disingenuous because the box office is floundering,” says Eric Handler, an analyst with MKM Partners. “AMC has a long way to go before it can approach breakeven cash flow. It has a lot of interest payments and landlords to repay. They’re not crushing it. They’re doing what they can. They’ve cut costs and tried to become more efficient, but they are still burning cash.”
As Handler suggests, AMC remains heavily leveraged. It has $5.5 billion in debt, which will require hefty payments over the next half-decade. In 2022, AMC only has $20 million in principal payments and maturities, but that number shoots up to a massive $3.8 billion in 2026. Of course, that debt will likely be renegotiated or rolled over, as Aron and AMC executives have shown a deft hand at managing the company’s balance sheet. But the pesky thing about debt is that it does eventually have to be repaid. That’s to say nothing of interest payments, which AMC shelled out more than $98 million to take care of during the most recent fiscal quarter.
But Aron insists that AMC is in expansion mode. The company has picked up several high-performing leases formerly operated by the defunct Pacific Theatres chain, and the AMC chief bemoaned the fact that he wasn’t allowed to raise even more capital in the market to fuel everything from potentially producing its own in-house movies to buying more competitors. Aron talked about diving into more alternative content, screening UFC fights or hosting gaming conventions. He even entertained the possibility of producing AMC-branded merchandise. His enthusiasm was infectious, but it seemed jarring considering it came as movie studios are looking at the COVID-scarred distribution landscape with dread. In a recent story in the Hollywood Reporter, for instance, an unnamed movie executive admitted that they were reconsidering their decision to release movies theatrically. “If I knew six weeks ago what I know now, I would have moved everything as far out as early next year,” the executive told the publication.
To be fair, just a few months ago in January, AMC’s stock was trading at less than $2. People were worried that the company was teetering on the verge of insolvency. Instead, it has come roaring back, propelled in part on the goodwill that the AMC brand has enjoyed among its customers, as well as by Aron’s miraculous ability to tap the markets for extra liquidity and hammer out better terms for its debt. AMC’s survival was far from assured, so its rebound is miraculous. The problem is that the company that has reemerged from this challenging period still faces challenges.
“It’s a very challenging story still,” says Handler. “They’re not going bankrupt. They talk about record liquidity. Great, that’ll prevent [AMC] from bankruptcy, but what was the price of that liquidity? They diluted shareholders by 80% in getting to that liquidity.”
“I give Adam credit,” Handler adds. “They did everything possible to avoid bankruptcy, but survival came at a high price.”