It might feel like a distant memory, but roughly two years ago, AMC Entertainment Group (AMC -3.37%) was forced to close all of its theaters to the public, devastating the business.
AMC burned through hundreds of millions of dollars each quarter and was in grave danger of running out of cash, but it raised much-needed capital through multiple debt and equity offerings. Thankfully, with effective COVID-19 vaccines rolling out worldwide, people are venturing back to movie theaters. As a result, the company is making significant strides in getting itself on sound footing again.
Image source: Getty Images.
A slew of upcoming blockbuster releases are raising CEO Adam Aron's hopes
When the company reported operating results for the fourth quarter, it revealed an inflection point -- operating cash flow turned positive, surging from negative $357.8 million last year to $46.5 million. Note a business cannot sustain itself in the long run if the aforementioned metric is in the red. Eventually, it'll burn through its cash reserves and run out of borrowing capacity. For that reason, the positive cash flow was a significant milestone in AMC's recovery from the pandemic.
Fueling the turnaround was a massive surge in revenue, which was up over 600% year over year to $1.17 billion for the quarter. A large part of AMC's expenses are fixed, so it enjoyed positive operating leverage as the top line grew. AMC must pay certain costs like rent and interest on debt regardless of whether there are people in its theaters or not. When box office receipts increase, those expenses remain flat.
CEO Adam Aron shared his enthusiasm for AMC's recovery in the earnings press release:
The fourth quarter of 2021 proved once again that moviegoers want to see movies in theatres. We are quite bullish that for the full calendar year of 2022, the industry box office could be nearly double that of 2021, with COVID impacts easing, with more and more major films on the docket for release, and with most major studios coalescing around an exclusive theatrical window of 45 days or more. Bookings are very strong for THE BATMAN, which opens this weekend, and we have movies like TOP GUN: MAVERICK, JURASSIC WORLD DOMINION, BLACK PANTHER: WAKANDA FOREVER, AVATAR 2, and many others that will excite us all this year.
The worst is over for AMC
Given these developments, it's clear the worst is over for the theater chain. Many governments are no longer mandating business closures in response to rising coronavirus infections. Furthermore, judging by the release calendar for the rest of 2022, studios aren't opting to skip the traditional exclusive release format for theaters anymore -- a major risk during the early phases of the pandemic.
With those headwinds behind it, AMC can focus on stabilizing the business. In 2019, AMC generated $5.47 billion in revenue; last year, that figure was down more than 50% at $2.53 billion. The company still has its problems, including a $5.43 billion debt balance and a long-term industry trend of declining ticket sales, but it's moving in the right direction.
