As The Box Office Battles Back, Is No. 1 Circuit AMC About To Buckle? Don’t Bet Against Adam Aron…At Least Not Yet – CinemaCon Curtain Raiser

Thank God — with hits like Dune: Part Two, Godzilla x Kong: The New Empire and Kung Fu Panda 4, the domestic box office may finally be shaking off the ashes from the double strikes, now counting close to $1.8 billion, with moviegoing gaining momentum.

We told you quite early – at last year’s CinemaCon — that the strike clouds were bound to send a monsoon on the business, and indeed they did. In fact, at this point in time, 2023 had already passed

Yet, despite the theatrical business’ increasingly robust expectations for late summer and beyond — many peg Marvel Studios/Disney’s Deadpool & Wolverine as the breaking of the dam — things have felt a bit touch and go and there’s been much chatter that exhibition is set for a reckoning; that mid-level exhibitors are bound to fold into each other; even that the No. 1 circuit AMC Entertainment, which is saddled with about $4.8 billion in debt, is bound for bankruptcy. Not so — or not anytime soon

To riff off Mark Twain, the reports of AMC’s death have been greatly exaggerated. Alamo Drafthouse is shopping itself, has been for some months and for a high price, Deadline hears. But no major exhibitors are expected to fold — at least just yet. Studios Bosses were expected shoes to drop by this point in time as circuits do not have the Covid bailout money to account for any losses from the strikes. However, from what we hear, there aren’t any exhibitors behind in rental payments to major studios.

Save unforeseen events, and assuming the release schedule truly revives and the box office cooperates, the industry could emerge on the other side. This not Covid, which pushed Regal parent Cineworld into bankruptcy in the fall of 2022. It emerged last year, a private company, having shed most of its debt and a number of theaters.

“Can you imagine if AMC filed for bankruptcy to do a reorganization of its theaters? The retail investors would riot,” exclaimed one Wall Street insider.

AMC itself should have gone belly up more than once. It survived Covid intact thanks in large part to retail investors, who piled in, making it a meme stock second only to GameStop. CEO Adam Aron did a brilliant job cultivating this group and the company’s shares surged to over $600 in June of 2021 at the height of the frenzy, allowing AMC to sell stock and raise a much needed cash cushion. The stock has long since come back to earth, closing at about $3 Friday, which Wall Streeters consider a fair price. The company continued to raise cash, however, using some to pay down debt, which is its biggest problem (until earnings rise), and to maintain its cushion amid the Hollywood strikes. It said last week it plans to sell $250 million worth of stock.

Retail shareholders, whose stakes gets diluted each time more stock is issued, are disgruntled so that honeymoon is over even though there are still a lot of them holding the stock. Enough that Aron felt he needed to justify his newly reported pay package in post on X today, something other entertainment CEOs never do.

“Our draft proxy shows I was awarded AMC stock in 2023 (that I can not sell any time soon) valued using SEC required methodology at $17.9 million. At yesterday’s closing share price, it is actually worth $1,345,000. So my compensation — valued presently — was $16.5 million less,” he wrote.

Sources generally noted the benefits of bankruptcy to any circuit since it allows them to close underperforming theaters and drop lousy leases. Distribution insiders say AMC could afford to shed 100-150 theaters and it would only help their bottom line. Of course, but there’s a big cost to bankruptcy, a lot of people get hurt, shareholders are wiped out and Aron has proved himself “able to pull rabbits out of hats.” The looming issue for AMC debt-wise is the $2-plus billion that comes due — in 2026. That’s serious, but it’s not immediately. The exhibitor will need to renegotiate with lenders, likely push out the maturity. It has lenders who have been supportive of the company in the past.

“The major point worth making on AMC is that they are hyper-aware of the debt they have coming due. They need to prepare for that. And they have done an exemplary job re-negotiating the terms of a lot of their debt payments,” says Alicia Reese of Wedbush Securities. Any upside in the box office would benefit AMC disproportionately since it has the largest Imax footprint and much of moviegoing is gravitating to premium formats. Like other exhibitors, it’s seeing higher concession revenue and exploring alternative content. It pushed into distribution last year with concert films. Taylor Swift: Eras Tour delivered some $267M to the global box office, a majority of that stateside to a starved theatrical schedule last fall.

So studios bosses might be looking at AMC cockeyed, but Wall Street is more sanguine. “It can certainly “limp along for a while,” says Roth MKM analyst Eric Handler who has a sell rating on the stock. Ratings agencies Moody’s and S&P both seems to agree, although they also both called the debt capital structure untenable in the long term.

AMC reduced the principal balance of its debt by $448 million last year. Free cash flow was negative $149 million for the fourth quarter. After equity raises last year, the company ended 2023 with a $885 million in cash. Plus another $250 million-worth, if it gets it, AMC can pull through to the fourth quarter when strong tentpoles like Joker: Folie a Deux, Venom: The Last Dance, Red One, Gladiator 2, Moana 2, Sonic the Hedgehog 3 and He is a fool arrive. Yes, the recent stock sale spooked the market a bit but Aron has said on numerous earnings calls that in a volatile industry, it’s key to be prudent and he’s kept AMC afloat so far.

Not to say the company and others in the space are worry free — far from it led by the pace of new releases and box office take. One industry insider insists the current exhibition infrastructure is designed for a box office of $11 billion to $12 billion — not the $9 billion high since Covid, calculating 25% fewer wide releases this year than pre-Covid. “It’s either more movies or less screens.”

Ratings agency Moody’s, in a report on AMC earlier this year, called North America over-screened with the current 40-45,00 screens probably needing to shrink to 20-30,000. The pandemic forced theaters to close and consumers to change their viewing habits, “so the industry will eventually have to shrink to bring supply into equilibrium with moviegoing demand.” AMC has reduced its theaters to 904, from 1,000 in 2019, it said. “Most of the industry’s reduction will likely occur in smaller metropolitan markets or among mid-to-lower tier cinema operators as weaker players exit or get acquired by larger operators that consolidate and restructure the industry. As leases on theater properties come up for renewal, we expect exhibitors will exit underperforming locations.” So according to Moody’s, some M&A is still likely.

AMC’s ancillary businesses include branded popcorn sold retail stores, its own branded candy. It invested in a silver mine a few years ago. It continues to get a licensing fee from Saudia Arabia movie theaters it sold in early 2023. These won’t really move the needle. The company’s debt, like Cineworld’s, was swelled by a string of acquisitions. That’s had some wondering if an asset sale might be an option to pay down out a big chunk, like Odeon Cinemas in the UK. Others say yes, there are occasional theater sales, but prices are very low. No one wants to sell at the bottom. But bottom means there’s only up.

In regards to more concert movies, the question remains how profitable they were for AMC. Sources figure a 4% rental on both Taylor Swift: The Eras Tour and Renaissance: A Film by Beyoncethe latter of which underdelivered at the domestic B.O. with a final $39M domestic take despite a notable $21.8M opening.

In terms of the AMC experiment with Taylor Swift’s The Eras Tour release into cinemas, one exhibition exec says, “It’s important to stress that our business is movies, not Taylor Swift concerts. They’re great to have but it did a fraction of what Dune would have done had it stayed on the weekend.”

The insider adds, “Barbie was the biggest Warner Bros movie in 100 years – how much evidence do people need to show that our customers are desperate for movies?”

As more tentpoles arrive on marquees, the anticipation is that theatrical will boom once again.

“The hope is that January and February were the slowest months of the year,” says Reese. March popped a bit. April depends on Civil War which is eyeing a $20M opening. “The rest of the tentpole films throughout the year look really strong. The fourth quarter will be much better, and sail into a really strong 2025.”

Splashed Wells Fargo in a recent note upgrading the third-largest circuit Cinemark to buy from sell: “Movies Are Back.”