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AMC won't be free cashflow positive ‘until 2024 at earliest’: Analyst

B. Riley Securities Senior Analyst Eric Wold joins Yahoo Finance Live to examine AMC's path to erase its debt by converting APE shares to common stock, while also discussing the chain's outlook amid studios' investments in theatrical releases.

Video transcript

SEANA SMITH: All right, we want to take a look at another trending ticker, and that's AMC trying to make a comeback. The company trying to bring its debt down to zero by converting its preferred equity APE units to common stock, which would bring the total outstanding AMC shares, 524 million, 550 million. Joining us now we want to bring in one of the analysts here following this story. It's B. Riley Securities senior analyst Eric Wold. Eric, it's great to see you here. So certainly a couple of proposals here under consideration. Big question-- what do you see this if it does impact fast-- it pass-- what does it do to its business?

ERIC WOLD: Well, as the domestic box office industry continues to recover, the biggest focus of AMC and others in the space is to make sure they're there for the recovery. And AMC is sitting on a pretty healthy debt balance, over $5 billion of debt, with some maturities in the coming years.

So they need to do what they can to have access to capital to address that debt balance if necessary. And this is one of the, I think, the best ways for them to convert these eight preferred units over to common stock, get an authorization for additional issuance of AMC common stock if they need it, and then have that ability to issue more capital and hopefully eliminate that debt balance.

DAVE BRIGGS: So, break down the short-term implications versus what this does for the long-term.

ERIC WOLD: So the short-term for the next two months-- or sorry, about a month and a half until the vote, is to make sure they have the support of the shareholders and the unitholders to get that vote through. Nothing much happens in between then. There's no debt maturities, no issues to worry about.

What needs to happen is get the one-for-10 reverse split voted in favor of, and then also this small increase in authorization of common shares. If that happens, then all of the APEs convert into AMC. And that security, the APE security is eliminated, delisted from the market. At that point, you're back to a more simplified cost structure. And they will have the ability to issue more AMC shares in the market, something they haven't been able to do for quite some time.

SEANA SMITH: Eric, obviously, so lots of questions just about the fundamentals of this business, what exactly the roadmap looks like for AMC down the line. Does this at all change those question marks, or how do you see that impacting that longer term view?

ERIC WOLD: No, no change to that. The industry has been recovering. The biggest issue the industry has faced is a lack of content. We've seen consumers come back to the theaters when there's been quality films. Three of the top 10 films of all time have been released into theaters since the pandemic. So there clearly is content attracting consumers.

The problem is last year, they were 50% less films released in the theaters than there were in 2019. There's been a supply chain issue. There's been delays in production, a lot of this stuff impacted from the pandemic. As that continues to get corrected in the coming years and the box office recovers, we're projecting the box office to get back to 2019, kind of pre-pandemic revenues by 2025. If that happens, then the leaders such as AMC Cinemark, IMAX, those out there will benefit from that recovery.

And so AMC's biggest job right now, or the management, is to make sure they're there in place and ready for that, and they need to have a better capital structure and a cleaner balance sheet in the process.

DAVE BRIGGS: So just try to survive, stay afloat, until it turns around? Is that the concept right now? And why are you so bullish about theaters coming back to pre-pandemic levels ever?

ERIC WOLD: Yeah, that is the focus, the first part, I mean, in surviving. So right now, we're not projecting AMC to be free cash flow positive until 2024 at the earliest, more likely '25. And so they need to have some cushion to have that safety net to get them at that point. And while we're bullish on the box office, I think what we saw during the pandemic is a lot of studios experiment with different options, releasing films straight to the streaming platforms, releasing them simultaneously in theaters and streaming.

And what worked the best was releasing it straight to theaters. I think a lot of the experimentation at the beginning was those streaming companies, those studios, trying to boost up the subscriber accounts initially and drive some awareness, drive some interest, get that subscriber count going. Now that they've done that, and that's stalling a little bit, we're seeing a resurgence of interest back in the theaters and seeing that if you release a movie there, consumers will come, and that's where you can make the biggest bang for your buck, is releasing that into the theater.

DAVE BRIGGS: I'm picturing Leonardo DiCaprio and Rose floating out there in the ocean, and only one of them is going to survive. Can they stay? Just the way my mind works. Eric Wold, good to see you. Thanks, man.