Key takeaways
- AMC Entertainment’s share price plunged on Wednesday after announcing it was selling more common shares
- According to the securities filing, the move is to shore up AMC’s financial position
- The cinema chain’s stock has undergone a series of changes in recent months, upsetting shareholders
Cinema chain and memestock star AMC saw its stock crater again this week after announcing plans to sell more of its common shares. The embattled company is looking to pay off sizeable debts, but recent moves like reverse stock splits and converting equity have left shareholders diametrically opposed to AMC management.
Despite a strong latest quarterly earnings beat, AMC is still struggling to stay afloat – and is being pretty open about its financial woes. That hasn’t helped the share price recover, nor does it look set to do so anytime soon if AMC plans more share sales. Let’s get into the details.
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What’s the latest with AMC?
The beleaguered cinema chain AMC Entertainment has announced plans to sell more of its common shares. The ‘at the market’ offering program will sell up to 40 million shares of class A common stock, with Citigroup Global Markets, Barclays Capital, B. Riley Securities, and Goldman Sachs facilitating the sale.
The sale could represent as much as 7.7% of the 519.2 million shares outstanding. The securities filing from AMC confirmed the sale would “bolster liquidity, to repay, refinance, redeem or repurchase its existing indebtedness (including expenses, accrued interest and premium, if any) and for general corporate purposes”.
The embattled cinema chain clearly needs the cash. Last month, AMC’s CEO Adam Aron released a statement on X stating the goal for the company was “Do not let AMC fall into financial ruin, ensure that AMC survives, put AMC on a path to eventually thrive”. Heady stuff.
AMC previously reached memestock status in 2021 when Reddit retail traders bought up the stock while it was heavily shorted. Since then, AMC has capitalized on the stock’s newfound notoriety by regularly issuing new shares to raise capital. That attitude helped AMC survive the pandemic, but now, investors have had enough.
What else is happening with AMC stock?
A more straightforward question to answer might be, what isn’t happening? Before this week’s announcement, a flurry of activity in AMC stock in recent weeks has left investors uneasy.
In August, it was announced that the struggling cinema chain had successfully converted its preferred equity units, called APE shares (after the 2021 AMC memestock craze, believe it or not), into AMC common stock. The plan was initially shared back in March, quickly drawing the ire of AMC shareholders and sparking litigation.
The units had only been publicly traded on the New York Stock Exchange for a year, and the conversion only went ahead after a settlement was reached with its shareholders. Under the agreement, AMC will provide an estimated $129 million of stock to common shareholders to nix any legal claims about the stock conversion plan in the bud.
As part of the equity distribution agreement approved by the courts, AMC can sell about 390 million new common stock shares worth about $3.4 billion. AMC has also completed a reverse stock split that left shareholders with one share for every ten they previously held. The logic behind this is that increasing AMC’s share price through the split gives the struggling cinema chain more wiggle room to prop up its balance sheet.
What was the market reaction?
AMC shares closed at a record low on Wednesday, plunging 37% to hit a price of $8.62. That’s on top of a 35% share price slide that happened after AMC converted its stock in August, taking AMC’s share price down 83.7% since the start of the year.
Wednesday’s drop was the biggest one-day sell-off AMC stock has seen since February 2021. The previous record-low stock price close was $10.73, seen in January 2021, with Wednesday’s close considerably under that.
The news also wiped out a 20% rally seen earlier in August after optimism over a surge in cinema footfall after smash hits like the Barbie movie and the announcement that AMC would be the theatrical distributor for Taylor Swift’s new concert movie. Womp womp.
What were AMC’s latest earnings like?
If anyone thinks AMC wants to get into a litigation fight with its shareholders over conversion plans and stock sales for fun, they’re wrong. It’s all being fought to pay off some of AMC’s considerable debt mountain, which Bloomberg puts the figure at $9.5 billion. The cinema has previously used the now-defunct APE shares to pay off $548 million in debt.
AMC’s latest earnings report for the second quarter was a bright spot against a dismal performance for the stock. AMC reported earnings of 1 cent per share on revenue of $1.35 billion, far surpassing analyst expectations of a loss of 4 cents per share on $1.29 billion revenue.
It was the first time the company made a per-share quarterly profit since 2019, and revenue climbed 16% year over year, while AMC also recorded a third consecutive quarter of positive EBITDA, arriving at $182.5 million for the quarter and smashing Wall Street forecasts of $153.3 million.
However, AMC’s free cash flow was cause for concern. At $435.3 million for the second quarter, that’s down 12% year over year and has plummeted 75% in the last two years. In short – it makes sense why AMC is still forging ahead with its share sale plans despite a relatively positive earnings beat.
The bottom line
Things are looking up for AMC after a strong quarter ahead of the summer blockbuster, which should be reflected in its Q3 results later this year. But the company would prefer to risk the wrath of Wall Street than stop its plans to sell shares to raise some much-needed cash to fix its liquidity problems.
Ironically, the stock price plunge might boost short interest and start the memestock cycle all over again. It’s all fun and games, but AMC has to get serious about fixing its free cash flow or risk bankruptcy.
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