AMC's box office success depends on managing its debt.

• Despite the resurgence of the domestic box office, AMC's debt burden is hindering its ability to fully benefit from the recovery.
• The company's long-term debt exceeds $4 billion, significantly impacting its financial performance through interest payments.
• AMC is making efforts to increase its revenue and entice former customers to return to its theaters by offering premium screens and unique popcorn containers.

Despite the domestic box office experiencing its highest third-quarter ticket sales since the pandemic, the world's largest movie theater chain is struggling.

Despite having a larger global presence with 900 theaters and 10,000 screens, AMC has been hindered by a significant debt load, which may be preventing the company from fully benefiting from the theater industry's resurgence.

Adam Aron, who became CEO of the company in 2015, spent his early years in the job acquiring other chains and upgrading existing theaters with luxury seating. By the time the Covid pandemic forced theaters to close and halted Hollywood production, AMC was already $5 billion in debt.

Despite refinancing and extending its maturities to 2029 and beyond, the company's long-term debt of more than $4 billion continues to burden its bottom line four years later.

Eric Wold, an analyst at B. Riley, stated that although they have made efforts to decrease their debt, they still have a significant amount of debt and are paying high interest rates on it.

In the third quarter, AMC's revenue exceeded its expenses, but nearly $100 million in interest payments resulted in a nearly $21 million loss for the period.

Wold stated that it would not be consistently profitable for several years, according to him.

AMC aims to increase revenue and attract back lost customers by improving its movie offerings for 2025 and 2026, but must monitor its cash flow to capitalize on box office trends.

A boost from a blockbuster-filled slate

During the third quarter, the domestic box office generated $2.71 billion in ticket sales, which is about a percent higher than the same period in 2022, according to Comscore data. Despite the slight increase, it's impressive given that the same time frame in 2023 included the cultural phenomenon "Barbenheimer."

The simultaneous release of "Barbie" and "Oppenheimer" was a massive success, earning almost $250 million in the US on the first weekend. The two movies eventually grossed nearly $1 billion in North America and contributed to a nearly $2.4 billion worldwide revenue.

The third quarter of this year was boosted by several successful movies, including Marvel's "Deadpool & Wolverine," which grossed $631 million domestically between its July 26 release and September 30, as well as Universal's "Despicable Me 4," "Twisters," "Beetlejuice Beetlejuice," and "Inside Out 2."

Although the box office results were better than anticipated, AMC experienced a 12% drop in attendance during the quarter. In contrast, Cinemark only had a 2.4% decline in attendance worldwide during the same period.

AMC's decline in attendance was attributed to a Hollywood film slate that didn't resonate as well in Europe as it did in North America, resulting in a 16% drop in attendance in the region. While the majority of AMC's theaters are in the U.S., Europe accounts for around 37% of its footprint, with an additional 1.4% in Saudi Arabia.

The success of "Barbie" and "Oppenheimer" during the same period a year prior made comparisons more challenging.

The decline in moviegoing in urban centers like New York and Los Angeles during the third quarter was likely due to the summer film slate being heavily populated with family-friendly films, which typically draw audiences in more suburban areas, according to Wold.

During the Thanksgiving holiday, Universal's "Wicked," "Gladiator II," and Disney's "Moana 2" will compete for a share of premium large format screens, while Disney's "Mufasa: The Lion King" and the R-rated "Kraven the Hunter" will be released in December, alongside Paramount's "Sonic the Hedgehog 3."

Hollywood production is expected to resume its usual pace of releases in 2025 and 2026, following the disruption caused by dual labor strikes in 2023.

Despite the third quarter of 2024 having 31 wide releases, which is higher than the totals in both 2023 and 2019, the full-year number of wide releases still falls short of pre-pandemic levels.

A majority of upcoming releases in the next year are linked to established movie franchises or well-known intellectual properties, which may attract built-in fan bases to cinemas, but may also result in competition for screening space in premium large format theaters.

The premium push

Nearly half of all U.S. screens are located in AMC theaters, which also house all Dolby Cinema-branded screens in the country. The company has more than 550 premium large format screens worldwide.

And the company plans to invest in even more.

""Our data shows that moviegoers are increasingly drawn to our premium large-format screens, which generate quadruple the revenue of our non-PLF houses. As the saying goes, 'Fish where the fish are,'" Aron stated during AMC's third-quarter earnings call."

AMC plans to invest between $1 billion and $1.5 billion over the next four to seven years to improve its theaters in the U.S. and Europe. This includes adding more IMAX screens, updating existing ones with new laser projectors, increasing the number of Dolby Cinemas, and updating auditoriums with at least 40-feet wide screens to be part of its XL branding and 4K laser projection.

"As AMC approaches 2025 with an improved release slate, they are considering where to allocate funds and invest in the business to enhance it. They discussed new investments and upgrading their theaters, expanding their premium screens, and adding XL screens. This requires a significant amount of capital expenditure (capex). However, Alicia Reese, an analyst at Wedbush, advised AMC to approach this in a balanced way while preserving cash."

Wall Street analysts, including Reese, are suggesting that AMC exercise caution before making these upgrades.

Eric Handler at Roth Capital Markets stated that the upcoming slate of films will enable the company to make much-needed updates, but they must remain cautious.

He advised being cautious with spending money.

More shares, more problems?

To raise cash, AMC has traditionally turned to issuing more shares.

During the Covid pandemic, the company avoided bankruptcy by selling new stock and using the proceeds to pay off its debts and keep its movie theaters operational despite being closed or having limited product to screen to audiences.

AMC's investors, including its most devoted supporters, have historically opposed the company's attempts to issue more stock due to concerns about dilution. At present, AMC has approximately 372 million shares outstanding, as per FactSet.

"Handler stated that they would consider using their equity to fund capex projects. Now, if you're an equity investor, you may be further diluted down to fund these projects. They may issue more shares, and the number of shares are up like 20 times from pre-pandemic. So, equity shareholders have yet to really reap the benefits of the improvements in the business."

Despite recent gains, AMC's stock has fallen more than 43% since the same time last year and is down more than 26% so far this year. The stock has fluctuated between $4 and $5 apiece for months.

AMC has been shutting down poorly performing theaters during lease renewals, allowing them to save money for other investments.

"Reese stated that they are attempting to maintain their market share gains by adjusting their footprint. They are achieving this by increasing revenue per screen and per attendee through merchandising, popcorn buckets, and other similar strategies. As a result, all their metrics are pointing in the right direction."

NBCUniversal, a subsidiary of Comcast, is the distributor of "Wicked."