AMC Dips 4% Despite Strongest Earnings in 2 Years – The Tokenist

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult ourwebsite policyprior to making financial decisions.

On March 1st, AMC Entertainment released its Q4 2021 earnings along with the years results. With the governments responses to Covid-19 waning, the theater chain is finally seeing the light at the end of the lockdown tunnel. However, the market seems yet to be impressed.

Here is the brief roundup of AMCs gains and losses compared to previous periods:

Overall, the quarterly losses were on the lower end of the spectrum, from last months estimated between $114.8m $194.8m. Notably, for the first time in two years, AMC reached positive EBITDA (earnings before interest, taxes, depreciation, and amortization).

This translated into positive cash, measured by non-GAAP (Generally Accepted Accounting Principles) to over $220 million for Q4 2021. AMCs CEO Adam Aron framed the earnings report as leaving the worst behind.

Our positive recovery glide path from the global pandemic continued in earnest in the fourth quarter

Aron further noted that AMC retail investors were critical in supplying the company with a monetary war chest, stemming from memetics against Wall Street hedge funds. Recently, even Citadel withdrew more of its $2 billion from Melvin Capital after its abysmal performance. Aron noted that right now, its $1.8 billion cash reserve is its greatest asset, taking care on how to invest it across AMCs three core business models:

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According to Adam Aron, AMC is firmly in the hands of retailers, to whom it owes its existence.

If you exclude index funds who have no choice but to own and hold AMC shares, individual retail investors would seem to own more than 90% of our officially issued 516 million shares as of today.

In other words, as Aron often points out on social media, retailers own 90% of the float, which is the total number of shares available for public trade. Given the history of the short squeeze saga and the concern about naked shorting and dark pools, Aron assuaged these fears in the report by saying that:

no reliable information on naked shorting or so-called fake shares or so-called synthetic shares.

However, according to Fidelitys report on AMCs float structure consisting of 516 million shares, 34.4% of the float is in institutional hands.

At the head are the worlds largest asset managers, Vanguard Group and Blackrock, with 9.17% and 8.36% ownerships respectively. All others fall under 3%. Nonetheless, Aron appears to be proceeding with the plan to introduce a number of upgrades to how retailers interact with AMC.

Namely, introducing Dogecoin (DOGE) and Shiba Inu (SHIB) as the biggest meme coins with a $30 billion total market cap between the two.

We expect that our market share among that audience will grow when we can take cryptocurrencies.

Interestingly, despite the high volatility of both dog coins, AMC underperformed both of them after the earnings report, dropping by 4%.

This may be due to the fact that AMCs price moves were already priced in because Aron pre-released unaudited Q4 2021 figures all the way back in January. There is also the matter of AMCs ongoing debt problem. To stay afloat over the last two years, and even prior, AMC had to accrue a lot of debt.

September 2016 was the last period in which AMCs long-term debt was under $2 billion. Ever since, AMCs debt is hovering mostly at over double that, at the current $5.5 billion. In the most recent debt refinancing deal in February, AMC committed to a $950 million bond issuance to pay off maturing debt and its fees.

Unexpectedly, this was almost double from the initial target of $500 million with a 10.5% interest rate. The new $950 will have an interest rate of 7.5% up until 2029. Interestingly, that exact percentage is the current 40-year-high inflation rate the Fed is trying to squash with announced March interest rate hikes.

This will mean that borrowing money will be a lot more expensive for companies, often resulting in taper tantrums and stock market downturns.

Update (8th March 2022, 10:00 am GMT): Changed Citadel Securities to Citadel. Citadel LLC and Citadel Securities are two separate businesses.

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About the author

Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.

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AMC Dips 4% Despite Strongest Earnings in 2 Years - The Tokenist