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- 1 Net Cash flow used in Operating Activities is reduced by 82% from 76.6 to 13.4.
- 2 The liquidity and Solvency of AMC need to be improved to manage the working capital expenses and other short-term liabilities.
- 3 Net Income is positive after a period of five years.
AMC Entertainment Holdings, Inc. is a movie exhibition company based in the USA having 950 theaters (approx.) and 10,500 screens all across the USA and Europe. The Company was founded in 1920, and headquartered in Leawood, Kansas. AMC has brought innovation to the industry with its power recliner seats which deliver enhanced food and beverage choices creating better customer experience and engagement with an increase in loyalty and subscription programs, websites, and mobile applications playing a wide variety of content including the latest Hollywood and independent programming.
Comfortable Recliner seats with added food and beverage options are a key to increasing revenue for AMC
Total Revenue increased by 15.7% from $1,166.4 Million to $1347.9 Million in quarterly comparison from the previous year. Gross profit margin is improved by more than 10% on a quarterly basis as a result of the increase in revenue by more than 40% on a quarterly basis from $954.4 Million to $1,347.9 Million. There are not many changes in operating expenses despite huge increases in revenues. As a result, the net profit margin has improved from -24.68% to 0.64% in a quarter increasing the net profit from a loss of $ 235.5 Million to a profit of $8.6 Million. EPS has also finally become positive after the constant trend of improvement for the last five quarters. Though the amount of EPS is very close to zero if the growth trend continues then it will soon become a significant number. This growth of revenue is majorly driven by the increasing attendance of the customers in the theater after the improvement in situations of Covid across the globe. Attendance has increased by 12% from 59,129,000 to 66,368,000 attendees while other revenue drivers such as the number of screens and the number of theaters in operations are reduced. So if the attendance continues to increase, the company can operate at its full capacity and thus increase the revenue. In the coming quarter of holidays and festivals, this increase in operations will support the growth of revenue.
The company is also trying to increase revenue by providing additional services through improvement in food and beverage options and this is improving overall customer experience leading to loyal customers who are taking repeat services. But this advancement in options of food and beverages has increased the costs as well. Food and Beverages cost is increased by 40% while the revenue from the same is increased by just 23%. So, going ahead company should manage these expenses efficiently and improve their profitability as it is innovation in the services that might turn out beneficial in coming quarters by bringing advancement in consumer preferences.
The liquidity of the company is at risk as it does not have enough Current Assets to pay off all its Current Liabilities as and when it becomes due to pay off these liabilities. AMC might need to raise funds through debt which will increase interest payment and will negatively affect the solvency position of the company. The Current Ratio is close to 0.45x since the last two quarters and to manage the liquidity it should be greater than or equal to 1x. There is a huge improvement in Net cash flow used by more than 45% that is Net Cash Flow used is reduced by 45% from $117 Million to $62 Million. And, if this trend continues in the coming quarters then it will have positive cash flows and this will improve the liquidity position of the company.
The company is almost equally funded by Equity and long-term debt which is a negative signal for the growth of the company as huge profits or cash of the company will be absorbed in paying interest and paying off these debts. Also, the company has been providing shareholders with negative results for the last few quarters. This negative return on Equity for a longer period will not attract new investors and will not lead to price growth of the company. Looking at the Total Debt/ Total Assets Ratio is also close to 0.55x which is 55% of the Total Assets are funded by Debt.
Conclusion
To attract investors or to get a raise in share prices AMC really needs to improve its assets and liabilities as the company has a huge amount of debt and does not have enough cash and cash equivalents to make interest payments on this debt so to pay off these liabilities, it might need to raise more funds through debts which will further deteriorate the financial position of the company. Another factor that could improve the financials of the company is the probability of positive net income and positive Cash flows.
If the trend of positive net income and cash flows continues for a longer period then it could support the financials of the company by having cash and positive return on equity for its shareholders. Risks for the profitability of the company are lack of control over distributors of films, intense competition, growing usage of alternative film delivery such as premium demand videos and other streaming platforms, and same dates of release in theaters or on other streaming platforms. Huge content availability on other streaming platforms is also eating up the footfall to theaters.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
