- AMC reported Q2 earnings roughly in line with market estimates. Shares plummeted 10% after hours.
- However, the company also announced AMC Preferred Equity (APE), a special dividend for each existing shareholder which offers share-counting functionality and adds fundamental value for AMC shareholders going forward.
- In a dramatic turnaround, AMC shares soared 30% in the August 5 trading session, after the company’s Q2 info was fully digested by investors.
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AMC's Q2 Earnings in Review
As expected, AMC Entertainment (AMC) - Get AMC Entertainment Holdings Inc. Class A Report reported results that far outpaced last year’s second quarter. In Q2, nearly 59 million moviegoers attended AMC theaters worldwide, which was a 168% increase compared to the same quarter last year and an impressive 34% increase QoQ.
This attendance resulted in revenues of $1.17 billion, about 2.5x higher than Q2 of last year. Big hits such as Top Gun: Maverick and Doctor Strange in the Multiverse of Madness resulted in the strongest North American box office since 2019.
However, those results were not enough to beat Wall Street's most bullish estimates. Forecasters expected revenues nearer to $1.3 billion. On the brighter side, AMC reported a loss-per-share of -$0.20, a slightly lower loss than Wall Street’s expectation of -$0.23 per share. Earnings showed 126% growth compared to the same period last year.
And even though AMC’s Q2 revenues remained below pre-pandemic levels, some other metrics have surpassed 2019. Total revenue per patron, for instance, was $19.73 in Q2 2022, 27% higher than Q2 2019.
Liquidity is also no longer an issue for AMC. In Q2, the company ended the quarter with a $1.18 billion liquidity position, of which $925 million was cash.
For Q3, CFO Sean Goodman said that he expects AMC to return to non-GAAP operating cash burn. He sees a softer overall box office - which is typical for Q3. However, Goodman also expects that, in Q4, AMC will return to a positive non-GAAP operating cash flow.
CEO Adam Aron: “Today We Pounce”
Besides the reported financial results, investors also saw a catalyst for the long-awaited "pounce." CEO Adam Aron had been hyping this pounce for several weeks leading up to Q2 earnings. AMC announced plans to issue, on August 19th, a special AMC Preferred Equity – under the suggestive ticker “APE”. APE will be a one-for-one non-dilutive stock dividend for AMC’s existing shareholder base.
According to AMC's CEO, APE should be one of the company’s most significant developments in 2022. Aron sees the initiative as critical to the company's long-term prospects.
APEs can generate value for AMC by serving as a kind of new currency, and they can reduce short-term risks. If the company decides to do so, APEs can be used to pay down debt, for mergers and acquisitions, and to raise cash.
Also, the APEs could put an end to AMC shareholders’ longstanding questions regarding “fake” or “synthetic” shares. Since the single preferred equity dividend goes only to the company's shareholders, it will also serve "share count" purposes - i.e., it can reveal the existence of fake or synthetic shares.
CEO Adam Aron summarized the AMC Preferred Equity (APE) initiative on Twitter.
The "Pounce" In Action
At first, AMC’s reported earnings made Wall Street turn up its nose. Shares fell almost 10% after hours on the day of the Q2 release, indicating an early victory for the bears.
An initial feeling of "not good enough" prevailed, as reported results were more or less in line with expectations.
But shares then saw a dramatic reversal during the next trading day. After opening the trading session down 10%, AMC recovered and rose another 30% by the end of the trading session on August 5th.
The exacerbated sell-off after hours may have occurred due to investors interpreting the issuance of AMC preferred equity as a sort of dilution of the overall AMC float. But there is no dilution associated with the original stock dividend issuance, as APEs will go only to AMC shareholders and will not be available to the general public.
However, later dilution is possible if the company decides to issue more APEs on August 22.
AMC shares are highly sensitive to the engagement of their online community of shareholders. After digesting the news that there will be no dilution from the AMC preferred equity plan – at least, not immediately – the news was finally well received by AMC shareholders.
So, for now, there is an impression that the meticulously planned "pounce" after Q2 earnings may have been a smart move. The APE plan promises, in theory, to align AMC’s interests and address long-standing shareholder concerns.
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