AMC’s Q1 results show steady progress, but challenges persist, with slower-than-expected growth and concerns about debt.
- AMC reported a loss per share of 78 cents in Q1 2024, slightly better than expected.
- Total revenue remained stable, with notable per-patron metrics and contribution margin improvements.
- CEO Adam Aron cautioned investors to lower expectations for Q2, projecting slower growth until 2025.
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AMC’s Q1 Earnings Highlights
AMC Entertainment (NYSE: AMC), the movie theater chain, released its financial results for the first quarter of 2024. The company reported a loss per share of 78 cents, slightly better than the projected loss of 79 cents per share.
Key Operational and Financial Highlights from Q1:
- Total Revenue Stability: AMC’s total revenue remained stable compared to the previous year, totaling $951.4 million, close to the $954.4 million reported in Q1 2023.
- Record Per-Patron Metrics: Total revenue per patron significantly improved, nearly 36% higher than pre-pandemic levels in Q1 2019. Additionally, the contribution margin per patron substantially increased, almost 44% above pre-pandemic Q1 2019 levels.
- Strong Contribution Margin: The contribution margin per patron stood at $15.32, marking a 5% increase from Q1 2023 and a significant 54% rise from pre-pandemic Q1 2019.
- International Segment Performance: Despite a 3.6% decrease compared to Q1 2023, the total revenue per patron in the international segment was 27.8% higher than pre-pandemic Q1 2019. Similarly, the contribution margin per patron was down 3.6% from Q1 2023 but showed a notable 30.3% increase from pre-pandemic Q1 2019.
- Liquidity and Balance Sheet Strength: AMC closed the quarter with $624.2 million in unrestricted cash, reflecting strong liquidity. The company has also proactively reduced debt and finance leases, with $707 million repaid through various means, including debt repayments, repurchases, or exchanges. Additionally, $267 million of deferred leases were repaid.
- Operational Initiatives: AMC has successfully raised nearly $1.2 billion in gross equity capital since the beginning of 2022. The second quarter of 2024 saw an additional $124.1 million raised in gross equity proceeds. Moreover, the company closed 169 underperforming locations since the onset of the pandemic while opening 60 new locations.
AMC’s Not So Optimistic Outlook For Q2
According to CEO Adam Aron during the earnings call, investors should again lower their expectations, anticipating the second quarter to differ significantly from Q1.
“The second quarter’s box office, while likely — will be sequentially stronger and bigger than Q1, but it will still to be impacted by the strikes of last year and will fall significantly below last year’s second quarter because last year’s second quarter just happened to be the single strongest quarter in all of 2023.”
The releases of Disney’s Deadpool and Wolverine, and Universal’s Despicable Me 4 and Twisters bring hope for a more robust quarter. However, it is unlikely that this will be a blowout quarter.
However, what likely discouraged most investors was AMC’s projection that box office growth beyond pre-pandemic levels will only come with the box office in 2025.
“We have positioned ourselves not only to survive and troubled waters, but also to thrive as our industry grows. And as we look at 2025, we believe that our industry will again grow. We think the future, therefore, looks very bright.”
The Bottom Line
The positive takeaway from AMC’s Q1 earnings is its continued progress towards pre-pandemic performance levels. Despite the writers’ strike impacting demand, AMC is gradually strengthening its box office, signaling improvement.
However, this progress is slower than anticipated by the market, and we may not witness significant box office growth compared to pre-pandemic levels until late 2025 or even 2026. Another concern is AMC’s debt, which, although lower than pre-COVID levels, still amounts to $4.5 billion, with a portion maturing before 2026. Management’s strategy should focus on selling more equity and renegotiating this debt, although this may lead to further dilution and negative pressure on the share price.
Furthermore, despite AMC shares declining by approximately 50% this year, valuations are still considered unattractive, with AMC trading at an EV/EBITDA of 23x, compared to an industry peer average of 9x.
In summary, no significant catalyst could justify a dramatic turnaround in AMC’s share price currently. Consequently, it’s unsurprising that AMC’s shares dropped by around 5% following the release of its Q1 results.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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