Shares of AMC Entertainment Holdings Inc. (NYSE:AMC) rose 7.8% to $2.71 in late trading on Tuesday, extending a two-day gain to roughly 19%. The move comes after S&P Global Ratings upgraded the company's credit rating to B- from CCC+ with a stable outlook, citing improved credit metrics and positive cash flow.
The upgrade reflects better operating performance, with AMC reporting strong second-quarter results. Revenue increased 14.2% year-over-year to $1.597 billion, while adjusted EBITDA surged 69.6% to $321.4 million. Free cash flow also improved, rising to $190.1 million from $88.9 million in the prior-year period.
Despite these gains, AMC's financial position remains under pressure from heavy debt and ongoing equity dilution. The company's total shares outstanding have increased 74% since December, while debt principal has declined only 2.7% to $3.914 billion. This dilution has weighed on the stock's recovery, as the market factors in the impact of additional shares on earnings per share.
AMC's adjusted EBITDA margin improved to 20.1% from 13.6% a year ago, but the company still reported a net loss of $11.4 million for the quarter. Operating cash flow for the first half of the year turned positive at $106.9 million, compared to a negative $231.6 million in the same period last year.
Much of AMC's increased cash reserves came from financing activities. The company raised $334.6 million in net equity proceeds in the first half, contributing to cash and restricted cash of $819.5 million as of June 30. However, with debt principal of $3.91 billion, net debt stood at approximately $3.1 billion, compared to an equity value of about $2.4 billion based on Tuesday's stock price.
AMC's box office outlook remains positive, driven by strong performances from major releases. The company noted that 'The Odyssey' achieved the highest IMAX revenue for the opening two weekends of any film, with North American grosses near $286 million and global revenues approaching $640 million. CEO Adam Aron highlighted that AMC's focus on premium-format theaters is attracting customers 'in record numbers,' as the company operates roughly 50% of IMAX screens in the U.S.
AMC's stock outperformed its peers on Tuesday, with Cinemark Holdings (NYSE:CNK) rising 3.2% and IMAX Corp. (NYSE:IMAX) adding 3.6%. The broader theater sector is closely watching upcoming releases like 'Spider-Man: Brand New Day,' which is projected to open with over $195 million, to sustain the momentum in cash generation.
Despite the near-term optimism, skepticism persists. Industry analyst Ross Benes of eMarketer noted that while robust quarters 'will happen now and again,' it remains uncertain whether attendance will fully rebound. AMC faces significant risks, including about $3.2 billion in principal debt maturing in 2029, potential dilution from exchangeable debt, and a softer movie lineup that could quickly reverse recent cash flow improvements.
