AMC 電影院 (AMC) 2013 Q4 法說會逐字稿

Greetings and welcome to the AMC Entertainment fourth-quarter and year-end 2013 financial conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr Mike Zwonitzer, Senior Vice President of Finance. Thank you, Mr Zwonitzer, you may begin.

Good afternoon. Welcome to AMC's fiscal 2013 and fourth quarter conference call.

This afternoon we will have some prepared remarks by our President and Chief Executive Officer, Gerry Lopez, as well as our Executive Vice President and Chief Financial Officer, Craig Ramsey. Following these remarks, will have a brief question-and-answer session.

Before we begin, I'd like to remind you that some of the comments made by Management during the conference call contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to vary which are discussed in public releases including today's press release and prospectus for our recently completed IPO.

We caution you not to put undue reliance on forward-looking statements. Forward-looking statements made during this call are only as of the date of this call. In addition, some of the comments made on this call may refer to certain measures such as EBITDA and adjusted EBITDA which are not in accordance with GAAP. Management believes these results more clearly reflect the comparative operating performance.

For a full reconciliation of adjusted EBITDA to GAAP, please see today's press release furnished as an exhibit to our Form 8-K dated February 25, 2014, which is located under the Investor Relations area on our website at www.AMCtheaters.com.

I'd like to introduce Gerry Lopez. Gerry?

Thank you, Mike, and thanks, everyone, for joining us this afternoon in our first conference call since returning to the public equity markets. Let me be begin by saying we could have hardly picked a better time to share our success with public shareholders, for 2013 was a record year at AMC in both revenues of $2.7 billion and adjusted EBITDA of $448 million.

This record results were helped by industry box office performance which hit an all-time high of $10.9 billion marking, I'm sure you all know, the second record box office year in a row. But beyond being helped by the solid box office, our record 2013 was a product of continuous focus on guests and innovations and a three-year journey that we've been on to make AMC the customer experience leader in movie exhibitions.

We focus on guests, innovation on the customer experience, because we believe those are the keys to unlocking productivity from our installed assets, the existing fleet, and productivity from each and every customer visit to almost 200 million of them we get every year. Combined, this productivity gains we think deliver the best path to sustained shareholder returns in the years ahead.

The work, itself, as we shared with investors this past December during the road show, has specific action fronts, five of them. First, comfort and convenience; second, enhanced food and beverage; third, guest engagement and loyalty; fourth, premium sight and sound; and fifth, targeted programs. Nothing delivers more comfort and convenience to our customers than our recliner re-seats.

These renovations involve replacing finishes throughout the theater, upgrading the sight and sound experience and most importantly replacing traditional theater seats with plush electric recliners that allow customers to deploy a leg rest and fully recline, all at the push of a button. The process dramatically enhances the theater and its productivity, but typically involves losing as much as 66% of our seating capacity. Yet, the improvements in customer experience add tremendous asset productivity.

On average, we see an 80% increase in attendance and overall guest satisfaction scores that go from 52% to 65%. In 2013, we deployed 28 locations with 327 screens with these recliners and at year-end we are operating a circuit wide total of 35 locations with 396 screens. Given the known pace of landlord negotiations, we anticipate in 2014 the deployment of an additional 15 to 20 locations with these recliners.

We are balancing the new supply demand relationship created by recliner re-seats presents us with two more opportunities to further improve customer convenience and maximize operating results. These are open source internet ticketing and reserve seating. Open-source internet ticketing makes our almost 920,000 seats as available as possible on as many websites as possible.

This is a significant departure from the prior ten-year practice, when tickets to any one of our buildings were only available on one website. We have broken out of that antiquated model, and our tickets are currently on sale all over the internet at both Fandango and MovieTickets.com with more to come.

Now keep in mind in 2013, our internet ticket sales already totalled $20 million, a number we expect will only grow as we rollout integrated digital programs that are mobile apps and for marketing alliances that will make buying tickets easier where the path from wanting to come to a movie and having the ticket in your hand is only shorter. Reserved seating, now fully implemented in 52 of our busiest theaters allows our customers to choose a specific seat in advance of the movie.

It removes anxiety from the trip and increases guest engagement. We like it because our guests like it and believe reserve seating will become increasingly prevalent to the point of being a prerequisite in the medium term.

The second most impactful of our five strategic action fronts is our enhanced food and beverage program. As is the case across the movie exhibition industry, approximately one third of our 200 million annual customer visits do not involve a food or beverage purchase when visiting a theater.

In order to direct more activity from our guest visits we seek to do two things. One, increase the incidence, the percentage of customers purchasing; and two, increase sales per patron. Now to do this, we've developed a toolbox of concepts that expand selections and service offerings. These concepts range from the simple and traditional, like a food and beverage kiosk perhaps to a broader range of post day shopping formats, marketplace and marketplace expresses is what we call them, to liquor -- MacGuffins is the name there, to the vastly innovative and much more complex dine-in theaters.

We made significant strides in our food and beverage business in 2013, deploying 30 food and beverage kiosks, two marketplace expresses and 18 MacGuffinses. This initiative led to a year-on-year increase of 5.7% in our food and beverage spending per patron and, more importantly, a 5.6% increase in food and beverage gross profit per patron. Food and beverage gross profit per patron, by the way a key decision-making metric for us. Gone are the days, we think, when we could just talk about cost as a percentage of sales.

We are already off to a strong start in 2014 on the food and beverage front, having already opened two additional dine-in theaters since the beginning of the year, including one in Dallas, the Mesquite 30. And the introduction of our new red kitchen concept in Denver which emphasizes freshness, speed and convenience. Customers place their orders at a central station and the order is delivered to the customer at their reserved seat. Red kitchen is yet another AMC first innovation in moviegoing for our guests. We think this array of concepts progressively more innovative creates further service and selection differentiation between AMC and its competitors.

The third action front is guest engagement and loyalty. Our brand is already the most recognizable in the business with 80% awareness in the United States according to an [asus] omnibus survey completed in July 2013.

That number is far above any competitor. Leading the way in our goal to attain even higher brand awareness is AMC Stubs, the industry's only pay loyalty program. When coupled with our mobile apps, our website, and our social media outreach, we seek to drive engagement to levels unprecedented in the movie exhibition industry. During 2013, we increased our AMC Stubs membership by 13%, and now have over 2.6 million member households.

Week in and week out these are the loyal customers that represent between 20% and 25% of our total attendance. They are the cream of the crop. We know them, and we know their in theater preferences by heart.

The fourth action front is delivering premium sight and sound. The quality of projection and sound is mission-critical when building a great customer experience. And here again, AMC has been a leader in delivering the most innovative and outstanding enhancements in our movie going -- for our moving going customers.

We are the world's largest IMAX exhibitor and, during 2013, deployed seven additional IMAX screens bringing our total count to 146, all of them 3D enabled, of course. This is nearly twice the screen count of our closest competitor and a full 45% market share in the US for 2013. Besides IMAX, since 2010, we've operated our own private label large-format known as ETX, and, as of December 31, we operated 14 of these screens.

ETX are great, but we are not content leaving well enough alone, and in our ongoing efforts to provide ever better sight and sound experiences to our guests, we developed AMC Prime in 2013. AMC Prime is a concept that further enhances the moviegoing experience on all sensory levels. State of the art sound design, a crisp clear picture and a comfortable power recliner complete with transducers or otherwise named sub woofers that allow the guest to really feel the action.

This second-generation [provy] carry large-screen format takes the best of ETX and makes it even better. Customers' reactions when walking into the Prime auditorium for the first time can only be captured by one word, wow. That's what makes it all worthwhile for us. The site, sound and aesthetic upgrades of AMC Prime including the power recliner command a premium ticket price that is higher than ETX. AMC Prime was introduced in three locations in 2013 and will expand to an additional eight locations during the first half of 2014.

Finally, our last focus area is targeted programming. Obviously, the core of our business, historically and now is Hollywood movies. We play a wide variety of movies across all genres and categories at times that are convenient and inform us of what our customer wants.

The truth is, AMC is the most efficient and effective partner a content owner has as we are the premier per patron per view revenue-generating source for any studio from Hollywood to Baliwood to the independents. This is because our industry-leading average ticket price in a world of percent participations makes us the highest per capita contributor to movie creators anywhere, large or small.

And with out industry highest box office per screen content owners simply get more bang for their BPF dollar in our buildings. Yet, we recognize that the United States is an ever-changing mosaic of tastes and preferences. And increasingly, we are playing movies and other content originating for more and more diverse sources. As such, our ability to target programming for a fragmented audience is more important than ever. Diverse offering of concept is and will always be a hallmark of AMC and is something that we already do pretty well.

We intend to continue operating other sources of content, primarily to our successful AMC independent program and our joint venture with Regal, Open Road Films. I've spent time telling you where we have come from and have accomplished in 2013, and before handing it over to Craig, wanted to spend a few moments talking about the future.

Last December 17, we priced our initial public offering at $18 a share. We began trading on the New York Stock Exchange the next morning, opening over $19 and closed a transaction on December 23 with net proceeds of over $355 million.

We have utilized these proceeds along with our recently completed new senior subordinated debt to continue enhancing our already strong balance sheet resulting in a lower overall debt level and lower overall cost of debt. Craig will get into more details, but suffice it to say, we are well-positioned to reinvest in our business. With a strategic work I've just outlined, you can see that there is no lack of productivity and initiatives where we can use to invest in our solid -- in solid returns.

We have, so far, touched only a portion of our fleet. What we have done is only the beginning. We have tangible results and first mover advantage in driving productivity to improve shareholder value. When we measure ourselves against competition, in a 20-mile radius of each of our buildings, we are seeing about 500 basis points of market share per screen gains, significant proof, we believe, that focusing on the customer experience is the right thing to do for them and for our shareholders.

I would like to turn the call over to Craig Ramsey, our Chief Financial Officer, to briefly review highlights from the quarter and the year. Mr Ramsey?

Thank you, Gerry. For the next few minutes I will provide a brief analysis of our fourth-quarter results with some full year highlights and an update with respect to our balance sheet and asset base.

For our fiscal fourth quarter we generated total revenues of $713 million, including $482.2 million of admission revenues and $197.9 million of food and beverage revenues and $32.9 million of other theater revenues. Adjusted EBITDA for the quarter was $112.9 million, and was adversely impacted by expenses of $3.8 million related to a cash-based long-term incentive plan which was terminated on December 31, 2013. And will be replaced with a stock-based LTIP going forward, and $3.2 million related to a voluntary retirement program in connection with the Company's IPO. Excluding these one time items, adjusted EBITDA would have been $120 million, up 4.5% over the prior year.

Due to our changed calendar year reporting, the prior year quarter had an additional three days. But despite this, our admissions revenues grew by 2.1% versus the prior year compared to the industry, which was down 3.2% for the comparable period. Total attendance declined by 3.2%, while average ticket price increased by 5.5%, primarily due to an increase in IMAX and 3D attendance during the quarter. On a per screen basis, admissions revenues increased at an annualized rate of 2.6% in an industry that declined 0.6% during the same period.

Food and beverage revenues increased 0.3% driven by a 3.7% in food and beverage revenues per patron, offset somewhat by a 3.2% decline in attendance. Our enhanced food and beverage initiatives continue to drive our industry-leading growth rates in this area. Other theatre revenues increased by $5.6 million, or 20% as compared to the same period last year, due primarily to increase in income from gift card sales, internet ticketing fees and AMC Stubs membership revenue.

Our film exhibition cost of $258.2 million, represented 53.6% of admissions revenues, a decrease of 85 basis points as compared to the same period last year. Our 86.2% food and beverage margin decreased by 74 basis points as compared to the same period last year, due to timing of rebate recognition and our food and beverage initiatives, which produced higher revenues per head at a lower margin. Importantly, as Gerry mentioned, we remain focused on gross margin dollars per patron, which did increased 2.7% over the prior period.

Total rent expense of $112.6 million increased 2.5% in the aggregate, due primarily to the additional rents associated with an increase in average screens and normal increases in contractual rent. Total operating expenses of $192.6 million increased by 4.5% in the aggregate, due primarily to a 2.8% increase in average screens and additional premium format costs related to increase in IMAX and 3D product during the quarter. The current quarter also includes a reversal of our deferred tax asset valuation allowance, resulting in a non-cash tax benefit of $266 million. This reversal was determined to be appropriate, based on recent financial results and expected future profitability.

Overall, we are pleased with our quarterly results. We showed solid topline growth despite a slight decrease in quarter-over-quarter attendance. And excluding one-time items, our adjusted EBITDA increased and our overall margins continued to trend in the right direction. And the capital improvements we are making continued to show solid cash-on-cash returns, as demonstrated by our ability to grow revenues despite an industry box office decline of 3.2% during the same period.

The December quarter capped off, as Gerry mentioned earlier, a record year for AMC in terms of revenues and adjusted EBITDA. We are particularly pleased with how our guest experience focused initiatives have contributed to these results. As we compare our results against the prior year, which included two additional high-volume days of December 30 and 31, of 2011, the industry box office was virtually flat.

Yet we grew our admissions revenues during this period by 2.1% and, more notably, our admissions revenue per screen by 1%, while industry box office per screen declined 0.5%. We grew food and beverage per patron by 5.7% to $3.95, which we believe leads the industry both in terms of absolute dollars, as well as year-over-year improvement. Over the last two years, we have grown our food and beverage per patron by over 11%, more than double the 5% growth achieved on average ticket price.

This topline growth has translated to improvements in adjusted EBITDA, as well. Our record adjusted EBITDA of $448 million this year, was impacted by additional expenses of $7.7 million, related to a cash-based, long-term incentive plan which was terminated on December 31, 2013 and will be replaced by a stock-based plan going forward. And $3.2 million related to a voluntary retirement program in connection with the Company's IPO. Excluding these one times item, adjusted EBITDA would have been $459 million, representing a 4.7% increase from 2012, which again was aided by two additional days.

Capital expenditures for the quarter totaled $97.8 million, and we continue -- as we continue to selectively manage our asset base. During the quarter in the US the Company opened one theatre with a total of 12 screens, acquired one theatre with 12 screens and temporarily closed 71 screens and reopened 73 screens to implement our strategy and deploy guest experience upgrades. We expect CapEx for 2014 will be approximately $245 million, $45 million of which we expect to be funded by landlords.

Of the total $245 million, approximately $45 million will be allocated to upgrading technology and our annual repair maintenance programs. The balance of $200 million will be allocated to support our strategic growth pillars with comfort and convenience, recliner reseats and new bills representing approximately 75% of the spend. Enhanced food and beverage initiatives representing about 20% of the spend with the remaining 5% allocated to premium sight and sound upgrade.

With respect to the balance sheet, we ended the quarter with just over $546 million in cash and a total debt balance of approximately $2.1 billion. Pro forma, adjusted for the recent tender offer and issuance of new notes, we have approximately $417 million in cash and a total debt balance of $2 billion with a weighted average interest rate of 6.6%. We expect to call the untendered senior notes this coming June using approximately $142 million of cash. At the end of the quarter, our leverage ratio was 3.5 times net debt to adjusted EBITDA, and the financings recently completed should reduce annual cash interest expense by approximately $30 million.

And with that, I'd like to turn the call back to Gerry.

Thank you, Craig. As you can tell, we are extremely excited about our future at AMC. We have a tremendous amount of talent in the organization, and all of our resources are aligning, continuing to execute on the five pillars of our core strategy. We are seeing a tangible benefit of our previous investments, and we have an enormous amount of potential upside.

We believe continued investment in our circuits will drive outsized returns when compared to our peers in the industry. We are and will continue to be the industry leaders in customer driven experiences.

I would now like to turn it over to the operator for any questions. Thank you for your attention.

(Operator Instructions)

Barton Crockett of FBR Capital.

I wanted to understand a little bit more clearly the comparison between your admissions revenue growth and the industry. And since I think this speaks to the core issue of what you're guys are trying to do with the reseat initiative, which sounds very promising with a lot of the metrics you are quoting.

But I was wondering how you come up with the math. I think you said you were up 2%, and the industry was down 3%. If I look at industry data from something like Box Office Mojo, the industry and the counter basis fourth quarter was up a little less than 1%. I was wondering if you could walk through how you are doing that comparison, which puts you in a more favorable light versus not doing a comparison, which would argue that you are in line with the industry?

Well, I spoke to it during the call. And it does go back to the prior year calendar 2012, where we made a change in our fiscal reporting period. You may recall we changed to calendar -- month-end reporting.

So, as part of that change, and in realigning those reporting periods, we note that the prior year includes 369 days, and the current year -- that was the year of change, 369 days, so four more days, and they are pretty big days. Because they were as I recall, the 30th and the 31st of December 2011, probably two of the biggest box office days in the year.

That benefited the prior year, and we think the best comparison against our financial results would be to lineup the industry box office with the same number of days and the same days, to compare against what we were reporting financially. When we do that, we find that the industry box office from 2012, which included more days to 2013, was relatively flat. If you look at the -- our admissions revenue number, up 3.2%.

Is that -- the same -- in essence, the same applies to the quarter as well. There were extra days in 2012, and we are simply using publicly available information, which is Rentrak in our case, Barton.

We don't use the web-based facilities. We use the actual reported grosses from the theaters that are provided by Rentrak to do the realignment, because we can get them by day and make the appropriate adjustment.

Okay. We can follow up more off-line, but I think that helps conceptually. I was also wondering about the statement about where your plans are in terms of the reseat. Can you give us a sense of what percentage of your attendance was at reseat theaters in 2013, and how you think that attendance might move in 2014 as you rollout your plan here?

Barton, it's Gerry. I will take the first shot of that. We are not -- we don't release specific theatre attendance numbers.

What we do release are the changes. We talked more about the number of buildings where we are already touching.

In my prepared remarks we indicated just under -- we finished up the year just under 40 of them already done. We think that this year will bring about 15 to 20 of them in line, and the about finishing off some of those negotiations with the landlords for their piece of the capital contribution.

The change in attendance that we see on those theaters is dramatic. For the theaters, for the recliner reseats, that have been open a year or longer, we have seen 80% increase in attendance. That's kind of what fuels our fire in terms of moving forward -- moving forward with that idea.

We take a few months, it takes a few weeks after the theaters convert for the attendance to begin to pick up, and that's a result of the construction process that takes place. At the rate where we stand today, it's already a little better.

We're going to be pretty soon at about 10% of the theaters in the fleet. It is somewhat less than that on the attendance. Remember, these are the buildings where the attendance has traditionally been the lower -- the lowest.

These are the theaters where the opportunity to drive that attendance number is indeed the highest. So, 10% of the fleet, it's already converted. It's not been quite 10% of the attendance that we've already begun to affect this way.

It changes every week, and as we can bring better definition, we would like to add more color to the numbers. Did I leave any significant facts out on that one, Craig? Or is there anything you want to add to the attendance numbers on the recliners?

No, I think we are not open the full-year. So while we touched 10%, the attendance is going to be below that, because we don't have a full run rate in the last year. So, I think it might you distortion to say give percentages or attendance numbers at this point, because we are the very early stages of the program.

All right. I just want another point on this, and then I will leave it alone. Conceptually, as you guys -- as a larger percentage of your fleet is reseated, would you expect your performance versus the industry, your growth performance, out-performance versus the industry to grow -- for you guys to outperform the industry by a more noticeable level over time as you do more of these reseats?

I'll address that one first. What we do expect and what we do see, is out pacing, fairly significant outpacing in our local markets. Now, so, would we expect that to also be reflected in growth against the industry? Yes. But it's more dramatic, and frankly more important to us, to kind of measure it on a local basis, to make sure we are, in fact, growing in our local markets, taking business, in some cases taking share, and other cases creating demand.

In answer to your question, more dramatic impact, and we can see it in the local markets as we study them. I think it will continue to grow in scale versus the industry as a whole as we go forward, though.

We track, Barton, pretty closely the 20 mile proximal competitors. Essentially, the theaters that are within a half hour or so, in a half-hour drive time from our own buildings.

In those markets, in those competitive brackets, what we are seeing about 500 basis points of productivity in box office per screen. Now, we are a national chain. We are coast to coast, but not in all the major markets, not in all 50 states, et cetera. It's tough to draw it against the industry.

As Craig indicated we expect an out-performance there, but we are more focused on the 20 mile proximal competitor, that radius, and what we see there is significant enough that you would think it moves the industry. But that's a little bit tougher for us to call that shot.

Okay. Great. Thanks for the time. Appreciate it.

James Marsh of Piper Jaffray.

I want to circle back on that question, Gerry. As you looked at those reseats, you think most of that is just share shift? Or you think you're kind of growing your local markets to some degree?

And if you could just try to track that? Especially on the reseating side, are you seeing anybody trying to respond in any kind by doing reseats as well? Anyone mimicking that strategy of the markets?

Yes. The data that we have so far, the behavior that we've seen from our customers, James, it indicates that about half the attendance gain is share shift and about half is behavior change, people indeed coming more often, people that maybe weren't coming before, now making the trip, the trip to the movies over the weekend. So, it's about half and half, it has been since the beginning and continues to be so.

As the footprint expands, it may shift. We will keep monitoring it. The AMC Stubs program gives us great visibility into their behavior.

So, although it is -- kind of an educated guess, it's based on pretty solid data. And it appears to be the case across the country, where we've now done those reseats.

As to our competitors, that's really a better question for them. I know that when we first began the reseats, there was some questioning as to the wisdom of taking two-thirds of the seats out of the building, in an industry that has for so many years relied on the more seats the better off you're going to be. And we kind of turned that logic on its ear.

They've announced all sorts programs. I couldn't tell you very specifically. I think that's a question that they probably are better prepared to answer.

Okay. Excellent. I just had one final follow-up, here. Do you guys have any idea what percentage of customers are renewing on the Stubs program? They have been there for a year; what kind of renewal rates are you seeing?

We are seeing a little bit under than 55% on the renewal rate. As any loyalty program, there's a lot of churn.

The number, although it has been relatively stable and growing slightly as we remarked in the prepared notes, it's really -- there's a lot of churn underneath that number. Not atypical of some of the other loyalty programs that I've run in the past, that I've been instrumental in executing in the past.

We're pretty encouraged that as people drop, others sign on. It's a question of the value that the customer is seeing in the program.

Our -- AMC Stubs, our program is really targeted at households more than at individuals. It allows you to capture the value faster, and as families move around and circumstances change, things change quickly.

But overall, the behavior data that we are seeing is pretty encouraging. It's a life program. You've got to nurture it, you've got to take care of that customer.

We do exclusive screenings for them. It's not just about the monetary value, but it's about the sense of exclusivity in belonging to the program. People love it.

But when they stop, for whatever reason, coming to the movies as often because of life circumstances change, some drop out and others add up. It's pretty standard, based on the benchmarks from other industries that we've use to look at the program.

Okay. That's very helpful. Thanks again.

(Operator Instructions)

Ben Mogil of Stifel.

A lot of questions on the reseating and the market share, so I'm going to shift gears a little bit. When you are looking at the M&A environment, you have obviously been more internally focused. Some of your competitors are more M&A focused. Can you give us a sense of how you are seeing the environment both in terms of how easy it's been to shake some of the family owned circuits and then more importantly, how you're seeing GOJ, which seems to be more active on these files than previously how you are seeing them within the landscape?

Yes. The M&A environment continues to be very interesting, Ben. The fact -- I think it's fair to say -- there's no reason for us to expect the consolidation in the industry is going to decrease. The fact of life has been with us now certainly for the five years that I've been a part of the business, and it's likely to continue in the years ahead.

The sellers range -- in many cases are private equity owners that were exiting, families, as they sought to monetize the assets that they've built over years, other folks who were trying to avoid the cost of the digital conversion. It's been any number of reasons for the sale.

I think that what you've seen, certainly over the last couple of years, is that the consolidation has maintained its pace. It's going to -- we have no reason to believe it's going to change any. For us, specifically, there's a number of filters that we like to apply.

The first and perhaps more important of all the filters, is strictly financial. It revolves around the assets that are available for purchase or for sale and at what priced and of course, will the transaction result in accretion for our shareholders.

If you don't get past that first filter of transaction that's going to be accretive to our shareholders, there's not going to be a lot of other energy spent in pursuing any one of the specific opportunities. Beyond that, though, in a very specific -- I suspect everybody saw that piece. Just as importantly for us, is the question of what is the nature of the assets, not just the price, now, but the nature of the assets we are acquiring.

Is the circuit or the chain that is for sale, is one where we can take this five strategic pillars that I mentioned, where we can take idea of the reclining reseats, dine-in theaters, enhance food and beverage program, the MacGuffins Bar and Lounge, and deploy those initiatives that we know drive productivity of the assets and drive productivity of the customers into some new buildings, essentially given ourselves a bigger sandbox to play in. We are all for that.

Now, you've got our attention. You've got a transaction that is potentially on a financial front accretive, and on the operational front it can deliver some growth for us. Now, we are fully engaged. One without the other, it's just not going to be as interesting to us.

The government issue, it's always been around. They review the transaction. It is what it is, it's not news. We will deal with that, depending on the specifics of anyone opportunity that comes up.

That's something that's an environmental factor that is dealt with. At the end of the day, it's really the financial analysis, the accretion and the opportunity for growth that is presented by any one opportunity out there that is going to drive our decision as to whether we are going to pursue it or not and how actively we may pursue it. Does that answer your question, Ben?

That's great. Thank you, Gerry. I really appreciate the color on how you guys think about M&A.

Seth Sigman of Credit Suisse.

A question on the reseats. Where are you with ticket prices now? I think initially you discussed minimal price increases, but what's the thought process?

It seems to make sense that consumers would be willing to pay some sort of premium. But what are you seeing out there?

I will take the first stab at the answer, Seth, and ask Craig to keep me busy. What we are seeing on this recliner reseats is that the average ticket price increase a year after conversion has moved about 8%.

Now, that's on an industry number that is typically moving to 2% and 3%. So, the net takeaway for us, is that the ATP increases a year after conversion by about twice, perhaps a little better than twice the industry rate.

Now, some of that is driven because we get a greater percentage of adults coming to the recliner theaters than they did before. So, it is driven by mix of customers. And some of that, is driven because we, indeed, a year after the conversion, have begun to take some pricing.

The trick -- or the learning for us -- has been that consumers, when you change their value equation, are actually quite okay with taking that extra dollar out of their wallet. The bigger issue is when there is no improvement in the experience, and people are asking them to pay an extra $0.50 or a buck.

We have, in fact, seen some of the highest value presentation scores. We do really comprehensive, we call them OSAT, overall satisfaction surveys of our customers.

And our value scores are the highest they have ever been, even though in so many of these theaters, now, the pricing -- the ATP increases that we are seeing are in that 8% range. It's because the feedback we are getting from people is, look, for that theater, I would pay the extra buck.

When the entire building is renovated, when it's not just a seat, but it's the bathroom, a concession stand, and it's a Coke freestyle machine, and it's an opportunity to have a MacGuffins in there. The movie-going evening out, it's just a better experience. For them to spend the extra buck, okay, they get it.

The issue is when you try to do it and there's no -- there's nothing there that is new or better than it was. So, we are quite encouraged by the upside in pricing that these reseats have so far presented and that may yet present in the future.

Okay. That's helpful. If you could just talk about some of the deployment plans for some of your other strategic initiatives in 2014. I think you mentioned 15 to 20 locations for the reseats. How about some of the other enhanced food and beverage efforts, how to model that out for the year?

Well, there is a broad array of -- Gerry use the terminology kit of parts or toolkit, I think in his remarks. So, I could tell you that we are going to touch 205 theaters in 2014, or we are planning to or we expect to, with food and beverage initiatives. But some of that would be duplication, where we might do some digital menu boards or hot foods with the MacGuffins.

So, it's duplication in that respect. We will touch a large percentage of our theaters about the same number that we touched in 2013, with the broad array of food and beverage options.

To drill down a little bit more, though, I think Gerry may have mentioned it, but I will repeat. MacGuffins, probably somewhere between 25 and 30, depending on licensing.

A couple of dozen of them. The big constraining factor there is how quickly can we secure the liquor licenses in the individual jurisdictions. But I think a number in the two dozen range, give or take half a dozen either way, is probably reasonable in MacGuffins.

We have a kind of an in-store concept of self-serve, or more like a convenience store format, that probably is somewhere under 10 locations, but they are pretty big projects. We've got a project going with Coke, and we are installing new technology with that very important vendor that will touch somewhere between 25 and 30 theaters, again next year. So, again and cumulatively, we touch a lot of theatres with a combination of different tools.

We've already opened two dine-in theatres since the first of the year. One of them -- the one in Denver I mentioned in the prepared remarks. We call it Red Kitchen. It's kind of -- I don't know -- if you follow the restaurant business at all, but it's kind of our version of fast casual.

If you think of a concession stand as a traditional QSR, the bulk of the restaurant business is by far the biggest numbers. That's also the case in our business. You can think of the dine-in theatre as a fine dining, perhaps kind of at the other end.

We thought that there was an opportunity in the middle, and that's where this new concept that we call Red Kitchen kind of fits in. It's worked. We learned from those other industries.

We see what they're doing and we wondered how could that deploy inside one of our buildings. We are catering to the same customer at the end of the day.

There's a lot of training that a lot of those other restaurants outside of the exhibition business are doing and not only training people, but setting expectations with them. We learned and apply, and that's what Red Kitchen is all about.

One --that one is up and running, and we think by the end of the year we may have yet another one of them up and running, as well along with a couple of others of the dine-in theaters. Perhaps as many between two and four of the dine-in theatres done this year. Again, two are already open.

Perhaps another two before December 31. That's a lot of permitting and a lot of construction planning that goes into these things. That's why it's kind of tough to commit too far out.

But as we scope the buildings out, we know that the path that we set forth for the next four years across all these initiatives, it's still -- we are still in the early stages, still in the early part of the game. Did that add enough context for you there?

Yes. That's great color. I appreciate it. Best of luck.

(Operator Instructions)

Final question from Jim Goss of Barrington Research.

I was wondering if you could talk a little bit about your success, to date, in moving the needle regarding the food and beverage program? The 32% incidence of people buying concessions, now you are looking at maybe triple the ticket in some of the new initiatives, but something that's more of a package food and beverage and movie evening.

So, what is your success been to date? How are you expecting that to play out?

We are very encouraged by what we have seen in -- practically across the entire spectrum of enhance food and beverage. Some of the executions, this toolkit that we refer to, it's very straightforward and very simple.

We call them the food and beverage kiosks, where we go in and started digital menu board. We may re-fixtures, create some aisle separators by putting some coolers and some racking out front. Even there, we are seeing per patron spends that are better than nickel -- between $0.05 and $0.07 depending on the location, et cetera.

And those are rapidly easy to execute. There is not a lot of capital involved. It's about refreshing the experience, making it a little easier to shop, expanding the range of product that is available, in terms of the candy, the sizes, et cetera, so that it's an experience that appeals to a few more folks. Interestingly, about one-third of the transactions through the box office also see a transaction at the concession stand.

But, to be clear, the transaction size of the concession stand would lead you to believe that about two-thirds of the people are actually consuming some food or beverage. So, the transaction count is about one-third, but the size of ticket would lead you to believe that, in fact, people are buying for two.

So, the opportunity is too large, 30%-some odd of the folks out there walking around without a bag of popcorn or Coke or for that matter burger or without fries or a drink in their hand. But, it's about expanding that availability.

What's encouraging for us, is that as we deploy this toolkit, the numbers are very impressive. If you take a very analytical approach to this business, there are two very distinct segments.

One segment that we drive through the box office delivers a 40 some odd percent in the mid-40%s, high 40%s, kind of gross margin to you. The other segment delivers upwards of 85% gross margin. The ability to drive that 85% gross margin business, we think, is critical, not just because of the financial implications, but because of the better experience that it delivers to the customer.

We hate people having to make a decision regarding their dinner. When you are putting your customer, your guest in a position to pick between seeing a movie and having dinner, dinner has a better chance of winning.

What we are trying to do, with not just a dine-in theatre, but some of the enhanced hot food programs that we've deployed out there, is not give people an either/or. Give people the and, so you can come to the movie and have something that looks like dinner, because God forbid, if it's in a dine-in theater, it is dinner.

That's, we think, where the win is, and the numbers, so far, 13 of these dine-in theatres into the process. 11 of them well-established, the last two we just added, as I mentioned.

We are seeing upwards of $8 on a per patron spend when it's what we call a partial conversion, some of the screens are not yet dine-in. When it's a dine-in theatre across all of the screens in a complex the number is upwards of $14 per head, and that's because they are having a burger and fries and a Coke or a beer.

It's not unreasonable to see those kind of two-digit dollars per patron on the food and beverage. So, both on the feedback, the financial, and then lastly the experience that we are providing to the guest, we think that the notion of using -- of driving the food and beverage program is actually a win for all of us.

I might add a little bit of color to it, Jim, if I might. We talked about it earlier, I think, in the remarks. The food and beverage per patron spend was up 5.7%. About 1.5% of that was, as we looked at it and studied it, was kind of the core traditional fare of concession items.

The balance, which is almost 4.5%, well, is that right? 3.5%, is from these new initiatives, including dine-in theatres and these other tools that we've talked about across the food and beverage platform, that really are accounting for over two-thirds of the growth here.

Okay. Those are great points. I have one other thing I might just ask. The shift in ownership of Fathom events to the AMC Regal Cinemark and the advent of DC-DC, I'm wondering how quickly you feel those elements will expand the alternative programming, and even some live alternative programming?

Let's take them one at a time. Craig, you want to talk about Fathom? I will do DC-DC.

We did just complete the spinoff of Fathom in December. I think as we look at the next year, it's probably going to be quite a bit about getting organized, getting staffed properly and continuing to do work, obviously, in bringing content to our respective screens. But, it is a year of transition from old ownership to new ownership.

New business model and et cetera. On DC-DC, let me just touch on that for a minute. As of the first of the year, kind of December 31, January 1, 178 of our buildings were already connected to DC-DC.

We expect that the entire circuit, 343 buildings will be of DC-DC early summer, kind of like before the Fourth of July, the holiday. There is, of course, weather interferes, and you never know what happens in a building until you show up at the building to install the thing.

But, we are very encouraged by DC-DC offers, and the future of it, tremendous flexibility at our theatres. Reduces the complexity, the operational complexity inside the building by doing this. It's clearly taking advantage of technology, and that just strikes us as being a good idea all the way around.

It's still kind of early. We are literally -- I feel about DC-DC, kind of the way that I felt about digital deployment two years ago. Early stages, all looks good. Stay tuned, more to come, and here we are.

All right. Thanks very much.

You bet.

Thank you. We have no further questions at this time. I'd like to turn the floor back over to Management for any closing remarks.

Thank you, Operator. We are coming up on the top of the hour of the hour. I just want to thank anybody for hanging with us for the entire time.

I appreciate your time and attention this afternoon. Looking forward to connecting with you in the weeks ahead. Thank you, again, everyone.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.