Shares of AMC Entertainment Holdings (NYSE:AMC) rose 7.5% in early trading Wednesday, building on a volatile week that saw the stock surge 26.8% on Monday before dropping 10.6% on Tuesday. The latest move came as the company reported second-quarter results that beat analyst expectations, though a deeper look reveals a concerning trend: share dilution is accelerating faster than earnings growth.
Adjusted EBITDA surged 69.6% year-over-year to $321.4 million, driven by a 14.2% revenue increase to $1.60 billion and a 13.5% rise in attendance. However, the company's adjusted diluted share count expanded even more rapidly, climbing 79.2% to 776.0 million shares. As a result, adjusted EBITDA per adjusted diluted share actually fell 5.3% to $0.414, compared to $0.437 in the same quarter last year.
The dilution stems from AMC's continued reliance on equity sales to manage its debt load. During the quarter, the company raised approximately $285 million through equity offerings, while also clearing or initiating the clearing of about $282 million in debt. As of June 30, outstanding shares stood at 892.6 million, according to its June prospectus, 15.0% higher than the quarter's adjusted average.
Despite the dilution, headline numbers impressed. Adjusted earnings came in at $0.14 per share, well above the consensus estimate for a $0.06 loss. Revenue also exceeded the $1.47 billion analyst forecast. The company's operating leverage improved, with adjusted EBITDA margin expanding to 20.1% from 13.6% a year ago, even as the average number of screens declined 1.6%.
Cash conversion also strengthened significantly. Free cash flow more than doubled to $190.1 million, and on an adjusted basis, free cash flow per diluted share rose 19.4% to $0.245. As of June 30, AMC held $778.4 million in cash, while principal debt decreased to $3.914 billion from $4.024 billion at the end of last year. Net debt declined 12.8%, partly financed by equity sales.
CEO Adam Aron highlighted the domestic box office's "biggest box office quarter in seven years" and pointed to the preliminary $124 million opening estimate for Christopher Nolan's "The Odyssey" as a positive sign. However, eMarketer senior analyst Ross Benes urged caution, noting that movie attendance still lags pre-pandemic levels and that "strong quarters, like this one, will happen now and again."
AMC projects that yearly interest costs could decrease by an additional $51 million if current leverage and benchmark rates remain unchanged. The company reports no debt maturities before 2029, giving it some breathing room. Nonetheless, with $3.9 billion in principal debt and ongoing equity issuance, the risk of further dilution remains a key concern for shareholders.
Rival cinema stocks also gained on Wednesday, with Cinemark Holdings (NYSE:CNK) rising 2.4% and IMAX Corp. (NYSE:IMAX) climbing 2.1%. AMC's morning session outperformed both peers, trading at $2.37 as of early Wednesday.
The coming quarters will test whether AMC's operating improvements can generate enough cash to outpace the dilutive effect of its equity sales. While the company has bought time with no near-term debt maturities, the market will be watching closely to see if per-share metrics can stabilize or improve as the box office recovery continues.
