To The Moon

Summary

• AMC shares are down 17% since our last article.

• Q1-2023 results revealed clues as to why some meme symptoms were back.

• We are altering our timeline and urge management to hit the bid on that share issuance.

Kevin Winter/Getty Images Entertainment

In our last coverage we gave a timeline to the $AMC Entertainment(AMC)$ saga ending.

Every dance to zero has a few steps that go in the opposite direction. This one will be no different. Unfortunately with dilution out of the question at present, AMC's timeline appears in little doubt. We think a filing by Q4-2023 is now virtually certain. We base that on another potential $1.0-$1.2 billion of cash burn by then versus $900 million in current assets. Any short squeezes should be used to exit long positions as we approach the final chapter in this saga. On a scale of 1 to 10, this should be an 11.

Source: Turning A New Chapter In This Saga

While the general trend continues to be favorable for our prediction, the stock has held up better than expected.

Seeking Alpha

We look at key developments and the Q1-2023 results to update our thesis.

Q1-2023

AMC showed an impressive increase in revenues as the strong releases from late 2022 and early 2023 powered theatre attendance. Food and beverage sales were up 30%. Interestingly, in both film exhibition costs as well as in food and beverage costs, AMC's expenses rose faster than sales.

AMC Q1-2023 10-Q

AMC did still manage to get to a lower operating loss versus last year, thanks to depreciation and rent costs trending lower year over year. While this looks exciting here for the bulls that bought into the $70 price in the madness of 2021, AMC is still very far from profitability at the operating level. On a total income level, the loss was still close to a quarter billion dollars. While the bulls may cheer the relative progress, we don't think an annual loss rate of $1 billion is remotely sustainable.

Cash Burn

Often, we have different run rates of losses in the GAAP income statement and losses as depicted by operating cash burn. Here, the two were pretty close with operating cash burn almost the same as net loss for income taxes.

Moving to the balance sheet. We ended the quarter with liquidity of $704 million. This is comprised of $496 million of cash and cash equivalents and $208 million of undrawn credit facilities. During the quarter, net cash used in operating activities was $190 million, and non-GAAP operating cash burn, which represents cash from operating activities after deducting capital expenditures and before both debt servicing costs and deferred rent payback was $139 million. This compares to a non-GAAP operating cash burn of $224 million in Q1 of 2022.

Source: AMC Q1-2023 Conference Call Transcript

Even this $190 million burn was only kept in check, thanks to a $116.6 million non-cash charge.

AMC Q1-2023 10-Q

This charge is likely to be settled in equity, so there is that, but it creates additional dilution for shareholders that will weigh on the share price.

Balance Sheet

There are a lot of key elements to look at in AMC's position and this will get into our timeline adjustment. First off, we will note that AMC's balance sheet took some more hits as the cash burn started making inroads into its defenses. Total current assets dropped $160 million quarter over quarter. The bulk of this was in cash and cash equivalents category.

AMC Q1-2023 10-Q

Current liabilities edged slightly higher and now AMC's working capital is a ballooning to almost a negative $1 billion. Y-charts has not been updated for the most recent quarter but you can see how things have progressed from peak euphoria when working capital was a positive $600 million.

Data by YCharts

We see negative $1.2 billion as the theoretical limit for the company on working capital as vendors will start to get nervous at that point. Now, assuming you think this can be papered over with massive stock issuance ( we will get to that), just examine what this company is worth today.

AMC Q1-2023 10-Q

Excluding goodwill, the equity is worth a negative $5.0 billion. AMC has never held a lot of appeal on this metric but even by its own history, this is getting ridiculous.

Data by YCharts

Share Issuance

The one bright spot for AMC is that the shareholders have approved the dilution that AMC management had been fighting for. The amount of AMC Entertainment Holdings, Inc. DEPOSITARY SHS REPR 1/100TH SER A CONVER issued was stupendous.

During the quarter, we made significant progress in strengthening our balance sheet. We raised $155.4 million of gross equity capital through APE unit issuances. We repurchased approximately $103.5 million of debt at an average discount of 45.4%, and we reduced the principal amount of our debt by an additional $100 million through a debt for equity exchange. The net result of all this in the first quarter is a $208.5 million reduction in the principal amount of interest-bearing debt during Q1 of 2023.

Strengthening the balance sheet is an ongoing priority. And to that end, so far in the second quarter, we have already raised another $34.2 million of gross equity proceeds and we have bought back another $9 million of debt. And during the remainder of 2023, we plan to further reduce the deferred rent balance by another $50 million to $70 million reducing this liability to approximately $50 million to $75 million by the end of this year.

Source: AMC Q1-2023 Conference Call Transcript

That means that the shares outstanding count (not the price) is going vertically faster than you can say "to da moon!"

AMC Q1-2023 10-Q

This 1.373 billion share count is also understating the actual number.

AMC Q1-2023 10-Q

On last check we were approaching 1.5 billion. Good luck!

Source: Seeking Alpha