AMC 電影院 (AMC) 2014 Q1 法說會逐字稿

Greetings, and welcome to the AMC Entertainment first-quarter 2014 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

(Operator Instructions)

It is now my pleasure to introduce your conference host, Mike Zwonitzer, Senior Vice President of Finance for AMC Entertainment.

Good afternoon, and welcome to AMC's first quarter 2014 conference call. After our prepared remarks, there will be brief question and answer session. Joining me today on the call are Gerry Lopez, President and Chief Executive Officer and Craig Ramsey, Executive Vice President and Chief Financial Officer.

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 our public releases including our most recent 10-k. We caution you not to put undue reliance on forward-looking statements. Forward-looking statements made during this call speak 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 that are not in accordance with GAAP. Management believes these results more clearly reflect comparative operating performance. For a full reconciliation of EBITDA and adjusted EBITDA to GAAP results in accordance with Regulation G, please our press release furnished as exhibit to our Form 8K dated April 29, 2014, which may be located under the Investor Relations area at our site at www.amctheaters.com.

I would like to introduce Gerry Lopez. Gerry?

Thank you, Mike, and thanks, everyone, for joining us this afternoon. The first quarter of 2014 was an extremely strong quarter as measured by almost any metric. Our revenues totaled approximately $622 million, up 7.8% versus 2013, while adjusted EBITDA $102 million, up 24.2% versus prior year.

We saw growth in every major revenue category. Certainly impressive was our box office, where admissions revenue grew 6.8% in total with an even better 7.3% per screen, a significant outperformance versus an industry that while good, only saw 5.4% per screen. These marks, by the way, the ninth quarter in a row AMC has outperformed the industry on this key comparable store metric and reinforces our focus on driving productivity from the existing asset base.

Shifting to food and beverage for a moment, revenue growth here was an even more impressive 8.2% versus 2013. This was no doubt driven in part by our strategic initiatives in this critical area as we gained traction with dine-in theaters, now 13 up and running, our MacGuffins lounges, now 66 of them across the fleet, and even our revamped concession stands, all together driving per patron spending of $4.05, our highest quarter ever. Perhaps nothing captures the underlying health of our business better than our loyalty program, AMC Stubs, which saw revenue growth an impressive 21.1% versus last year, indicative of the traction and engagement we are building with our most loyal, critical core customers.

When looking at the quarter, it is clear reinvestment in our business and the strategic action fronts we detailed for you in the past are helping great meaningful competitive advantages. More details in a moment. But with average screens comps above 7%, which in a pretty good quarter were better than the industry by 2 full percentage points, I can tell you, we remain committed to the asset productivity and customer experience leadership path we have chosen.

Importantly, we believe these results have longevity. As our results show, innovation has not gone out of style. The customer experience matters. And when we compare it up with asset productivity the way we have, good things happen, not only for our guests in the form of better experiences, but for our shareholders in the form of superior results.

Let me briefly give you update on the significant progress we've made on a few of our strategic action fronts. Comfort and convenience remains a key focus area as we continue with our recliner reseats. Their 410 screens at 37 locations we've deployed to date delivered admissions revenue per screen growth of 63% in the first quarter of 2014. Yes, I said 63% in movie exhibition, only at AMC. As you can tell, the reseats continue to drive tremendous asset productivity. The 63% first quarter bump was driven by attendance per screen gains of 49%, and average ticket price improvements of 10%.

Just as importantly, top box guest satisfaction scores in these locations have risen above 70%, top box. Guests love these reseats, I guess you could say. By the way, that comfort comes with convenience. Quietly, we continue to make progress on our open-source internet ticketing and reserved seating initiatives. Just to give you a sense, during the quarter we sold 5.3 million tickets online, an increase of 78% from the March quarter a year ago. More details in future reports.

Our enhanced food and beverage program continues to drive productivity from our guest visits, and we are seeing strong increases in the percentage of customers purchasing a food and beverage item at 70% in the recent March quarter versus 66% in the same frame last year. And we are continuing to see growth in food and beverage sales per patron, now at $4.05 and better than 2013 by $0.11, or 2.8%.

Food and beverage gross profit per patron, which we would argue is the most important metric in this part of the business was $3.49, a 2.9% improvement over prior year. In the first quarter, we deployed four new food and beverage kiosks, now 122 in total, 1 more marketplace express, now 16 in total, 10 more MacGuffins, now 66 across the fleet, as mentioned a moment ago, and 2 more dine-in theater locations. And the total of 13 now includes our newest concept, Red Kitchen. The concept of this idea, which we call Red Kitchen, is our version of fast casual. And as we refine it, we think it has nice potential to reach even deeper into our circuit.

Our guest engagement and loyalty have never been stronger. We now have 2.6 million AMC Stubs member households. AMC Stubs renewals improved 4 percentage points to the highest levels in the history of the program. These loyal customers represented over 20% of our total attendance during the quarter and continue to be important an important source of revenue for us. We are constantly looking for new ways to engage them based on their individual taste and preferences.

On the premium sight and sound front, we continue to be the world's leading and largest IMAX exhibitor, and during first quarter, we deployed 1 additional IMAX screen, bringing total count to 146, all of them, of course, 3D-enabled. This is nearly twice the screen count of our closest competitor. IMAX sets the bar high, but our premium sight and sound execution goes well beyond.

This quarter we made progress on our AMC Prime roll-out, having grown from two locations to five with plans in the front half of this year alone to grow an additional six. To remind everyone, AMC Prime is a concept that further enhances the sight, sound and anesthetic in-theater experience including power recliners and top of the line JBL speakers. AMC Prime is the next generation large format, and our guests love them.

I would like to turn the call over to Craig Ramsey, our chief financial officer, to briefly review the highlights from the quarter. Craig?

Thank you, Gerry.

For the next two minutes, I'll provide a brief analysis of our first quarter results and an update on our balance sheet and asset base. For our first quarter, we generated total revenues of $622.8 million, including $409 million of admissions revenues, $181.8 million of food and beverage revenues and $32 million of other theater revenue, with across the board increases over prior year in all major categories. Adjusted EBITDA for the quarter was $102 million, up 24.2% quarter over quarter, which was aided by higher attendance, lower G&A expenses, excluding $6.4 million of non-cash stock-based compensation, and a relatively small increase in rent.

Total attendance increased by 5.1% to $44.8 million, and average ticket price increased by 1.7%, primarily due to increases in core ticket pricing and increases at the recliner receipt locations, somewhat offset by the impact of lower IMAX and 3D attendance during the quarter. On a per screen basis, admissions revenues increased at an annualized rate of 7.3% in an industry that increased 5.4% during the same period. Food and beverage revenues increased 8.2%, driven by the increase in attendance and a 2.8% increase in food and beverage revenues per patron.

Our enhanced food and beverage initiatives continue to drive our industry-leading results in this area. As Gerry noted, these initiatives are about driving higher spend per patron and improving profitability. Our 86.2% food and beverage margin was essentially flat with last year, resulting in a 2.9% increase in food and beverage gross margin dollars per patron during the period.

Other theater revenues increased by $5 million, or 18.5% as compared to the same period last year, due primarily to increases in internet ticketing fees, AMC Stubs membership revenue, and gift card and advertising revenues. Our film exhibition costs of $212.1 million represented 51.9% of admissions revenue, an increase of 190 basis points, as compared to the same period last year. This increase was driven by a change in mix to more box office from higher grossing films during the quarter, which delivered higher attendance levels, but at higher film terms.

Operating expenses of $179.7 million increased by 9.4% in the aggregate, due primarily to higher payroll costs associated with increased volume, preopening expenses related to initiative deployment and higher utility costs resulting from colder winter weather conditions. Rent expense of $114.9 million increased 1% in the aggregate, due primarily to increases in CAM, or common area maintenance, associated with snow removal from winter storms.

Overall, we are pleased with our quarterly results that showed solid top-line growth, overall margins that continue to trend in the right direction, and solid cash on cash returns from the capital improvements we are making. All of which delivered revenue growth of nearly 8% in the quarter, exceeding an aggregate industry box office increase of 5% during the same period.

Capital expenditures for the quarter totaled $55.6 billion, offset by $11.3 million in landlord contributions. We continue to selectively manage our asset base. During the quarter, the Company acquired one screen in the US, permanently closed two theaters with 13 screens, temporarily closed 101 screens, and reopened 82 screens in the US to implement our strategy and deploy guest experience upgrades. We expect capital expenditures for 2014 to be approximately $245 million with landlords contributing approximately $45 million, so a net cash outlay of $200 million.

With respect to the balance sheet, we ended the quarter with just over $353 million in cash and a total debt balance of approximately $2 billion. We expect to use approximately $148 million of cash when we call the remaining senior notes this coming June, which completes the financing we initiated in December. Our March quarter operating results benefited from the refinancing with a reduction in interest expense of $3 million that will be further enhanced to yield annualized interest savings of $31 million.

At the end of the quarter, our leverage ratio was 3.5 times net debt to adjusted EBITDA, which is within our comfort range. Our leverage, cash flow generation, and liquidity are in line with expectations. In accordance with our plans to augment shareholder returns through return of capital, AMC's board of directors authorized our first quarterly dividend of $0.20 per share payable June 16 to holders of record on June 6.

With that, I'd like to turn the program back to Gerry.

Thank you, Craig.

As you can tell, we are extremely excited about our future at AMC. We are seeing the tangible benefits of our previous investments and we have an enormous amount of potential upside. We believe continued investment in our core portfolio 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, and we have, so far, touched only small a portion of our fleet.

Another piece to determining our improvement is a metric we track very closely. When we measure ourselves against competition in a 20-mile radius of our buildings, we are seeing about 6 percentage points of box office per screen outperformance versus that competition. We view this as proof that focusing on our customer experience is the right thing to do for them and for our shareholders long term.

I would now like to turn the call over to the operator for questions. Operator?

Thank you. At this time I will be conducting a question-and-answer session.

(Operator Instructions)

Our first question comes from Brian Goldberg, Bank of America Merrill Lynch.

Hello, thanks. Just a couple of quick ones. With respect to your admissions revenue per screen, or per box office outperformance this quarter, is there anything specific driving the outperformance you can actually point to? Are you finding it's a multitude of contributing factors?

Bryan, it is really a multitude of the different factors. The truth is that the buildings in which we have gone after the remodels are clearly outperforming the industry by tremendous numbers and even the balance of our circuit. It is really the capital expenditures kicking in with the remodels, it's really the AMC Stubs loyalty program kicking in, in buildings where we haven't had the remodel. Even in the buildings where we haven't had the remodels, we are taking steps with the concession program, whether it is the MacGuffins lounges where we have 66 of them up and running, whether it is the refresh, our concession stand, where we have 122, 24 of them up and running. It's really the accumulation of all of those things.

That's why we look at that kind of metric where we pinpoint our buildings and then those that are in the 20-mile radius. Because it is really very difficult to try on a building by building basis attribute the outperformance to any one factor, in any one location. Clearly one over the other, but overall, we're finding that it is really the combination. It is the total package that people are reacting very positively to, and we see it in their feedback and we see it in their overall satisfaction top box scores that I mentioned, that's the payoff for us when we see that kind of behavior change.

Actually, if I could drill on a little bit more to a comment you had in your script about your reseats screens, the 410 you have now, 63% growth in admissions revenue per screen. A couple of things, one, you cited data on the last call that suggested that half of the uplift in attendance was coming from share shift, the other half from behavioral change, more movie going.

Are you seeing a similar data trend? And then also, do you have same-store number for the screens that have been reseated for a year-plus now, what do the trends look like in those theaters? And then finally, any updates on competitive response, if there really is share shift going on?

I will answer the question on same-screen or same-store. The 63% that was quoted, I think Gerry was including in his remarks, is across the entire portfolio of reseats. And we break it down further into two groups, those that have been opened over one year which, Bryan, would be your same group -- same-store group.

In the first year for that group, and I think we talked about this on the last call, we saw an 85% attendance increase from the preconstruction period to post after open period. In their second year, they continued to grow attendance on the aggregate for that group, and their second year is about 7% attendance growth.

We are still seeing acceptance in the marketplace and driving additional attendance. In the second year as well, average ticket price is up about 17% on that group. We have talked about our strategy being one to wait for a year after we reseat and reopen and allow local guests to trial, give it a try and experience it before we take any pricing.

And on this -- in this second year, we're now -- feel comfortable, given the high level of customer satisfaction that we are experiencing, that we have room to move prices up. Thus, the fairly stout increase in ATP. And in combination, that's about a 25% admissions revenue growth in that second year.

The new group that are -- the second group that are in their first year, again, this latest group is up about 77% on attendance from their preconstruction, pre-remodel, and their ticket prices are up about 10%. So I think the point is that we are just continuing to see very good, very strong results not only in the first year, but also continuing into the second year.

Yes, it's a two-phase kind of execution that we put behind it, Bryan, where in year one, after the remodel, what we would want to do is get that trial, see the behavior, get the bus going in the local marketplace that we are serving with that asset. It works pretty good, that's why you see the huge attendance increase. We then moderate the price change onto year two.

In year two, the price -- the ATP goes up, the average ticket price then moves up more aggressively. Then of course, now we're reaching capacity utilization in some of those buildings, the attendance doesn't go up as fast. Get the attendance first, get the behavior change, get the trial out there, and then come back with a pricing move later on. Whereas in the newer ones, we want to -- we're going to wait, as we said all along, to do the pricing. So far, it seems to be working pretty well.

That is really helpful. Just one last quick one on the balance sheet. I think if my math is correct, you leverage is about net -- net leverage a little over 3.6 times.

Can you remind me where your comfort currently lies with respect to target leverage and as you grow cash in excess of the dividend and also grow EBITDA, the ratio is going to come down. How are you thinking about incremental capital allocation right now, and where does stuff like special dividends fit into the equation?

Sure. The 3.6, I may have rounded down. I had it at 3.5. But that's --

Three in the middle.

It is pretty close to our comfort range. I think we talked about 3 to 3.5 times really being -- as we think about this business, we feel comfortable at that level.

And the other piece of that I think is important, again mentioned is that the nature of the capital projects that we are involved in, certainly we do some new builds where your capital is in essence is tied up through a lease commitment or certainly the new build commitment. You are tied up for a couple of years, and sometimes depending upon the project, three years, and we don't have a lot of flexibility.

We have got a couple or three theaters in the queue each of the next several years. The majority of our capital deployment though is in these remodel projects that are six months in duration.

The point is, we have more financial flexibility. If something were to happen, we don't expect it, but it something were to happen that we needed to contact and maybe reduce our capital deployment, we feel comparable being able to do that, given, again, the short duration.

In terms of the future and excess cash flows, look, we did institute a dividend; we think that is at a good rate, a nice yield We are not committing for any increases to the dividend. What we are committing to do, however, is as we develop excess -- additional free cash flow over and above our capital deployment and our dividends, we will look at that excess and deploy it in the way we think is going to generate the greatest returns.

If we are getting the -- continuing to get large over threshold returns on capital projects, that will certainly bear, I think, heavily on our decision on how to deploy capital. We will generate returns to shareholders through growing the EBITDA from these good, strong returns from these capital projects.

So, no commitment yet. I think diligence and putting it to good use is where we're -- how we are thinking about the future.

Yes, Bryan, if I could just dovetail into what Craig was saying. The two words that I think about when we think of our capital deployment are really balance and flexibility.

We had much debate during the road show a mere three, four months ago, regarding how much capital to allocate; should we be returning any capital at all in the form of a dividend, et cetera, given the performance the we have seen from these projects, from the reseats, particularly in some of the food and beverage projects. To us, it is really all about the flexibility in -- that we can maintain in the capital structure because of the nature of the projects.

You mentioned -- one of your questions that I think we may have failed to address was regarding the competitive response. Yes, we've heard that some of the competitors are beginning to react. I don't know from the numbers that I have heard, in CapEx, the numbers that I have heard in terms of number of buildings and number of screens, that the level of commitment and the depth of commitment to the customer experience is there when you compare what they are doing to what we are doing, when you compare where they are to where we are.

The truth is, the opportunity to drive these kind of returns in our fleet is still very much in front of us. We think that we are perhaps 25% to 30% done.

So that's going to -- the ability to achieve these kind of numbers and get these kind of returns, and improve the experience for our guests, it's going to be front and center. While also maintaining a balance and staying flexible regarding the dividend and et cetera, but there is a point in time here that we are capitalizing upon.

We're going to go chase it and chase it hard, so that we can maintain growth in that portion of the fleet to the levels that we have seen. Hopefully that answered that part of the question that you had, that I think we might have neglected to address before.

That was great, it's all very helpful. Thank you very much.

You bet. Thank you for calling in.

Next question comes from Barton Crockett from FBR Capital.

Great. Thanks for taking the question. Wanted to drill down a little bit more on the concession per cap. The per cap growth there, I think you said 2.8%. It was slower than I would have thought, with all of the initiatives underway with the dine-in theaters driving up concessions per caps a lot and the bars and the freshen initiatives.

It was a little bit slower than what you did in the fourth quarter, which was, I think 3.5% or so. Can you talk about what is going on there and will we see concession per cap growth accelerate as this stuff gets more traction?

I will give it a try, Barton. Look, we did see -- to parse it out, we did see about $0.04 year-over-year growth in the core circuit. We really didn't take much pricing, nominal pricing. It may have impacted the quarter by about $400,000.

So this is probably the first time in a while that we haven't taken price and on the traditional core concession products, or very much pricing, I guess I should say. I think it is being cautious on our side, and we will look at it going forward and that take pricing as we see fit. But I think the point being fairly conservative on core concession items in terms of pricing.

The food and beverage initiatives drove about $0.10 in the aggregate, when you look at dine-in theaters, MacGuffins and the freestyle. That was, I think, met our expectations for the quarter.

We did have a little bit of a negative impact, I think, as we disclosed in our 10-Q. We kind of set forth how the AMC Stubs rewards program does have and can have some impact on our per heads food and beverage, and they cost probably about $0.02, and that's because we had some growth in the attendance.

Usually when that happens, we will have rewards that might exceed redemptions, as the membership has grown, and that costs us about $0.02. I think it is a combination of no pricing on the core product line or the traditional product lines, and a little bit of a negative impact from the AMC Stubs rewards.

Let me just add, Barton, we are trying to be very thoughtful on our pricing moves, both at the box office and with the concession stand. The truth is that although growth -- the year-on-year growth of the quarter on a per patron basis came in a little bit below $3.28.

We have -- the $4.05 is the highest level we have ever had. Our APP above $9 is the highest level we have ever had, yet our scores on value from our guests are also at the highest levels that they have ever been.

It is a very delicate question we are trying to work where, how quickly do you advance the ATP? How quickly do advance the box office price? How quickly do you advance the concession price, while also maintaining a great value presentation in front of the guest?

We are not going to go -- we're not going to get too far ahead of our skis in one or the other, and then as result of that, as we're deploying all this capital improving the experience, destroy the value image. That is the trick, that's why we the pricing -- we kept our powder dry, frankly, on pricing and concessions, as we are trying to move all of the variables at the same time and together, not take advantage of one over the other.

Okay. Just to follow-up a little bit. As dine-in theater grows as a percentage of the mix, should we expect to see an acceleration in the per cap, just the way you report it? Or is there just not enough expansion in dine-in theater to really change the needle there very much?

We -- it's tough to move the needle across the entire circuit when you are only doing 2 of them a year, so we have 13 dine-in theaters out of a fleet of 343. We see great numbers in those buildings where the dine-in theaters -- where we deploy the dine-in theaters.

In fact, the a dine-in theater per cap in food and beverage is typically 2X, 3X, what you will see on the regular theater, whether it's a partial conversion or a full conversion into the dine-in theater concept. You literally will see between 2X and 3X, so the $4 becomes $8 and change, or in some cases, as high as $12 plus on per cap. You will see it in those buildings. Unfortunately, that does not move the needle across the entire circuit, because there's just not enough of them.

To Gerry's point, dine-in theaters contributed about -- as a group, their food and beverage spend was up 6% year over year, reseats was up 8%. It's just number of units working against a core that is growing at a lower rate.

Absolutely we would expect, as we do more reseats, and in particularly as we do more dine-in theaters, that will have a leveraging impact on the overall circuit. But the numbers just aren't quite big enough to move the needle quickly at this point in time.

Okay. That's great and helpful. Thank you very much.

You bet. Thank you, Barton.

Next from James Marsh from Piper Jaffrey.

This is Stan in for James. Thanks for the question. Wanted to dig in a little bit into competitive reaction here to the Regal announced, those theaters. Wanted to understand if you guys are aware if the reseating is happening in your markets, in other words, as a competitive response in the very same markets? Or are they targeting same markets that wouldn't compete necessarily with your reseats theaters? And I have a follow-up.

We know what you know, which is what was disclosed in the call a few days ago, and that's what we know. It is news, 25 buildings out of 570 some-odd. They are doing what they are doing.

I will tell you that our plan, I cannot for one second even begin to guess what's driving their plan other than, okay, they're seeing our results on the rent track basis and they must -- they feel compelled to take some action. I suppose imitation is the sincerest form of flattery and all those other good things.

Our plans, however, remain unchanged. Our deployment strategy, what we are attempting to do, we are going to stay on course. The pacing, the cadence of these remodels is driven by capacity of our teams, both on the development side and on the training side and on the operational side to absorb the new buildings as we transform them and open them.

The cadence is going to be driven by the lease expiration. The cadence is going to be driven by our capital capacity.

And we are going to continue on that path, which has worked well for us, and pay attention to what is happening in the marketplace, of course, but try to remain true to what we know, to what we know works. It's potentially -- it's the best answer that I can give you.

The reseats work, we got there through innovation. I can tell you that we have already begun to deploy in three buildings already generation two of the recliners. One, where instead of losing on average two-thirds of the seats, we only lose about one-half of the seats.

You are always going to lose some, it's never going to be zero. But we have already moved onto level two, where we now have a solution that can go deeper into the fleet by losing only one-half of the seats instead of two-thirds of the seats. That is the path that we are going to continue on, that's the path that got us here, and we think it's going to work. Craig, I don't know if you want to add any other perspective there?

No. The only thing I would suggest is that this is an industry, if you think globally or the industry as a whole that's -- has a lot of excess capacity. I think there is room for a number of circuits to copy what we have been doing, and solve some of this over-capacity problem that the industry suffers from.

And if they enjoy the 50% creation of new business, if the increase in attendance happens from creating new business, our industry will be much stronger. It could be helpful in the long run for all of us.

To Gerry's point earlier, this is more than just a seat. We're doing more than just a seat in these remodels. It is an envelope for us that we think all of the elements working together create the kind of improvement in numbers that we have been seeing, whether it's our social media program, our AMC Stubs program, our expanded food and beverage program, or the seating program. Clearly the seats are a big element, but all of it working all together is what makes it work for us.

Thanks. Then just a follow-up on ticket pricing. If you guys can help us understand your pricing strategy, if you could can break out core theaters' ticket pricing versus reseats versus dine-in, how they've been tracking year-over-year?

The -- just to give you a general sense, our core theater ticket pricing is just above $9, average ticket price is $9.07. When you move over to the reseats across all of the buildings that we have now reseated, it is closer to $9.20, $9.19 to be more exact. For the dine-in theaters, it's somewhat higher, it's $10.12. That was for the quarter.

You see that $9, $9.05 becomes $9.20, becomes $10.25, or $10.15 in rough terms. That's driven by the number of show times, that's driven by the mix of patrons. The dine-in theater, for example, not all of them -- not all of the dine-in theaters terms do we accept minors, particularly in the state of California, you can't because of the local laws, et cetera. There's a lot of nuances that affect the numbers, but by and large, what you're seeing is ATPs that are very healthy, beginning in a $9 range and moving up to the $10.12 range.

The growth in that average ticket price is just under 1 point for the core circuit. It is 10 points for the reseat component of the circuit and it is 7 points year-on-year for the dine-in theater. Does that help you get some context?

Yes. That is great. Thank you. Appreciate it.

You bet.

Next question comes from James Kopelman from Barclays.

Thanks. I have one question on the initiatives road map and a second one on theatrical windows. First, as you roll through the initiatives, I'm wondering if you're still fairly close to the road map laid out in the S-1 last fall?

Are you seeing a response in the marketplace, positive or negative, that might cause you to shift CapEx dollars from one initiative to another? For example, is it possible that you could substantially increase the numbers of dine-ins that you had built within the five-year timeframe? And then I have a follow-up.

I will start us and Craig will keep me honest. The short answer is no. The path, as indicated a couple of questions ago, is really set by the parameters in our lease expiration dates, is really set by our capital capacity, is really set by our team's capacity to get these things up and running, to get them funded, to get them to sign, et cetera, et cetera, et cetera. At the moment, subject to change in what might happen in the marketplace, the competitive reactions have not steered us away from the path that we chose and the path that we outlined back in the S-1.

We are flattered that people are imitating, we wish them luck. We didn't come up with these things six weeks before the IPO and then decided to go out and deploy them. In fact, some of the concepts we've be tweaking and working and learning from for the better part of our four years, five years. It is good to that four or five-year head start.

I wish some of the guys that are thinking that they can just turn it around in a couple of weeks or a couple of months, good luck. That is not going to work. That is not going to result in the kind of behavior changes that we have seen from our guests. Mr. Ramsey?

I would echo Gerry's comments. Kind of the overall, the five-year horizon that you are referencing in the S-1, really, in terms of where we think it works in our circuit and the order of magnitude of deployment, has not really changed. I will tell you, though, that on a more near-term basis, it has probably changed a little bit. And by that I mean, I think last time we spoke on a conference call, we talked about net CapEx.

Let me start with growth CapEx of about $245 million for the full 2014 year,

was the guidance we gave. We said we'd get about $45 million of landlord money to net that down to about $200 million of net CapEx. Our number remains $200 million of net CapEx, but what has happened since the last time we spoke is we've got landlords that stepped up with another $10 million, and -- which will enable us to accelerate and deploy probably four or five more reseats than we thought we would do this year, and another of our Red Kitchen, which is the fast casual dine-in theater concept Gerry referenced in his remarks, we'll accelerate one of those. Say net number, but because of some landlord money that's become available to us, we have been able to accelerate and hopefully, we will be able to add five more new units this year than what we had originally planned.

The only other thing that I would add, James, is as we continue to innovate -- I made the reference a moment ago to this second generation of the recliner reseats. Craig just mentioned, and I did in the prepared remarks, the Red Kitchen. As we continue to innovate on some of these ideas, over the long term, not in the near term necessarily, but over the long term, we think that innovation will allow us to reach deeper into the circuit than other we might've anticipated.

In other words, more buildings than we thought become eligible when the Kitchen in a -- in the Red Kitchen concept, it's not as expensive in the Kitchen in the dine-in theater, where the labor load in the Red Kitchen concept is not as heavy as the labor load in the full dine-in theater. That allows you to look at a broader set of buildings than you otherwise would have if you had just had the one tool, the one concept, the one idea.

That is very much in play, and that's tough to predict; innovation is not something that you can easily forecast. But that is something that we are going to continue to do.

Thanks. Than just a quick follow-up, Gerry. I'm curious what you think about Jeffrey Katzenberg's comments yesterday, that over time, I think he threw out a long time, like a decade, that theatrical windows would be structured in such a way that you would be able to watch a movie in any platform, I think he said 18 days after release, but you would pay for it based on the size of the device you view it on. Any thoughts there would be helpful. Thanks.

I haven't had a chance to talk to Jeffrey since he made those comment yesterday, and obviously prior to 45 minutes ago or so, I could not share with him some of our own results. Movie going is a growth business for us. When I can look at a collection of 37 some odd -- 37 buildings, 400-plus screens which is, by the way, a medium-sized circuit these days, I think that if we were to stock it up, it may even be top 10 circuit, and I can see 63% growth in that top 10 circuit.

I hear Jeffrey saying -- I see -- now that he's put up his numbers, he was out with his numbers this afternoon as well. I can see where it he's coming from. I can see where his analysis and what has been happening will lead him to that conclusion.

Our numbers, our facts and figures point in a different direction. So Jeffrey is a great friend, I cannot wait to compare notes with them now that we are both out in the public and can stack the numbers next to one another. Trust me when I tell you that we will endeavor to do just that.

But that's what I can -- I haven't really talked to him, I practically only saw the headline. I know he was on some panel, that's all I know.

Okay. Great. Thanks a lot, guys.

You bet.

Thank you.

(Operator Instructions)

Our next question comes from Ben Mogil from Stifel.

Good afternoon. Don't want to beat the issue to death, but more curious on one specific nuance on the competitive side. Are you seeing at all studios on the margin give you some of the better films in competitive zones where you have upgraded? Have you seen studios follow where the customer dollars are going?

Well, they will do that. They would do that historically. It is tough to say, Ben, at this stage of the game that they will engage in any different behavior than in the past.

What I will tell you is that whole re-seat concept, which two years ago, when we had only a handful of buildings up and running, was met with skepticism. Today, on the heels of CinemaCon, which was, what, now a month ago already, that skepticism has completely evaporated.

The studios, by and large, are all very supportive, they are chasing the consumer dollars. As you know, this is no secret, the business arrangement, the revenue share model between us and the studios is based on the percentage. When our average ticket price is higher than anyone else's in the industry, when the capacity utilization in our theaters is higher than anybody else's in the industry, when the receipts are drawing in, sure, some if it is sure shift, but the other half of it is not, it becomes a little bit easier call for a studio in terms of where they're going to allocate the movie.

The truth is that we are not deciding to reseat buildings necessarily because they may be in a competitive zone or not. The decision factors for the scheduling and the sequencing of the reseats, the fact that we may get a movie that otherwise we wouldn't, doesn't really enter into the equation at any kind of significant level.

It's more about the return on investment, it's more about the return on capital, that it's going to be required is more about a team's capacity to observe. It's more about the landlord's contribution and of those kind of metrics than it is about getting any one movie or not.

We have seen some very positive feedback from studios, particularly of late, since we had the time together at the convention, and everybody is very enthusiastic. Frankly, not just about what they're seeing in the numbers from their reseats, but in all candor, from what they are seeing in the data mining and some of the things we can do on the marketing front with AMC stubs. Some of the in-depth knowledge that we now have on these 2.5 million, 2.6 million households that are members of the program, our ability to market to them very, very tight, very narrowly is pressure by the studios, it's value.

So we are seeing our relationship with those guys build on all of those fronts, not just because of the one factor. I don't want to dance around the question, but that's the best answer that I can give you.

That is fair enough. That is great. Thank you, Gerry. Appreciate it.

You bet.

Next question comes from Jim Goss, Barrington Research.

Thanks. I have got a couple, too. First, is the reserved seating initiative one of the instruments you can use to build habits and create a little bit of a competitive moat as you go forward here?

Indeed, it is. Reserved seating, however, I will tell you is two-edged. It's a proverbial two-edged sword.

Adults tend to like it; in fact, adults tend to love it. Certainly for sell out shows where we can anticipate it, particularly on a R-rated title and a movie that is more entered towards adult audience, absolutely. Teenagers, on the other hand, hate the thing.

We have to be very careful about where, when, behind which movies and in which auditoriums. Sometimes it's not the entire theater. Sometimes it's just specific auditoriums, specific show times that we deploy the reserved seating into.

Teenagers have told us in no uncertain terms, in social media, in direct contact, tell our theater management teams all the time, reserved seating is not for us. Adults, on the other hand, love the thing.

As we deploy it into the circuit more and more, you will see us doing that more and more, we are not going to cookie-cutter the thing. We are not going to cookie-cutter our approach. We're going to try to be a little bit more thoughtful, pay a little bit more attention to our guests, and which audience specifically we are tracking to a specific show time before we make that call.

Okay. A couple of other things. One, are you finding that your concession spending per patron is significantly higher in the reseated auditoriums, or do you have anything you can say in that regard?

It is significantly higher in the reseated auditoriums. Just to give you some context, we're looking -- yes, it's about 12%, 14% higher in reseated auditoriums on a pay patron basis than it is in the core circuit. Nowhere is the food and beverage per patron higher, of course, than in dine-in because we have just a much broader menu to choose from, but the menu in the reseat and the menu in the core circuit is very comparable.

What the reseats have is that in that group of 37, there's a greater penetration of the MacGuffins lounge than there is in the core circuit. So that does help the group of reseat theaters to show somewhat better numbers.

But yes, people are more comfortable, people spend happily. Some of that spending comes in the form of a glass of wine or a glass of beer. Yes, that absolute works for us.

And the last question I have is with regards to Stubs. I know it's the -- you get a high percentage for a return customer from the Stubs holders. Is there any effort to, or any strategies for increasing the Stubs membership, either by having a special on the membership periodically or doing something like that, since what you had them in the program, you think you might be able to leverage that membership that much more?

Yes. It is a question of degree. The answer to your question is yes, there is. What there is not, however, is any effort on the books towards making the membership half price.

We have done some of the things in past as we needed to get the program seated. The membership basis has been relatively stable, circuit of 2.5 households, give or take 100,000 either way, for the last few months.

The behavior of that 2.5 million household continues to improve, the renewal rates continue to get better. Their frequency of this continues to get better, their spend at the concession stand continues to get better. So we seeing improved behavior from those guys all of the time.

But in terms of having that internal goal that says, yes, we would like to see that 2.6 become 5.2, not really. This is a program that works well for the most core, most loyal user, and is not necessarily a program that is, in it's current form, not necessarily a program that applies and works for everybody.

There are variants that we may deploy, there are things that we can do, there is tweaks that we can put in place. The future holds any number of possibilities. But at the moment, we are quite happy with this current membership level and the traction that the offer -- not only the basic offer, but some of the other enhancements that we put in place, the way that those are driving behavior from our guests. Craig?

Just to punctuate a couple of Gerry's comments, the frequency of this group is over 6 times, so they're certainly much more avid. The average ticket, of course, across all premium formants and everything blended, the average ticket is about at a [$0.07.5] premium to average ticket price versus the circuit as a whole.

In the concession spend, there's certainly food eaters. There's about a 22% premium for an AMC Stubs member versus the traditional food and beverage per head across the circuit. It is an avid group and it is a group that enjoys eating our products from the concession stand, so we do love them.

All right. Thanks to both of you.

You bet.

Our last question comes from Eric Wold from B. Riley.

Thank you. A couple of follow-up questions on comments made before. First of all, Gerry, on the phase two, or level two of the reseats, is the new seat model that only eliminates one-half the seats versus two-thirds, is that the new norm or there will be a combination of the old version and the new version, depending on the market?

Combination depending on the individual theater.

And is that --

It is not a market-based decision, Eric. It's an individual theater-based decision.

Are you still thinking about the same level of costs and ROI per theater, depending on --

Absolutely. The two criteria that drive our decision-making at the end of day, it's a -- I call it stereo decision making. On the one hand, it's all about financial metrics. What kind of return can we achieve, driven largely, not only by cost of construction, et cetera, but by the but landlord contribution, all those other factors.

We have had, as always, at AMC, very strict financial, very good financial discipline around making sure that all of the hurdles are met. And not just that all of the hurdles are met, in a case like these reseats, that the new theaters that are coming online meet their returns that their peers have already generated. That is the right channel, the one channel.

The other channel, it's all about what is it that we're doing for our guests, for our customers? What is the customer-facing, the guest-facing improvement? What is the total package? Not just the seat. I think Craig made that point a couple of questions or three ago, it's not just about the seat.

You can go to any other suppliers and buy a bunch of seats and rip them out, rip out the old ones out and put the new ones in. Good, have at it, good luck. It's really about much more than that.

It's about Internet ticketing and the Internet ticketing engine, and the ease with which you can buy ticket, it's reserved seating, if indeed you are in the older set and the movie you are coming to see, it's Kevin Costner, as opposed to something for the younger set. It's about the food being right. It's about having not just the traditional Coke and a popcorn, but God forbid, a glass of wine and a beer.

It is about our total package. What is it that the capital deployment that comes from the one channel allows us to do in this other -- in the left channel in terms of what experience we are putting in front of a guest? It's when those two things go hand-in-hand that magic happens.

Do the one, kind of interesting. Do the other, it's kind of all right. It is when you do both that it really works.

The other point I'd make on theater-by-theater decision, there is a certain level of productivity in our existing circuit that the version 1.0 recliner reseat, it was productive enough that it wouldn't generate the financial return. With less seat loss, we raised that bar. There's a group of theaters that wouldn't qualify, wouldn't meet that financial metrics that Gerry referenced with version 1.0 seat; they do become feasible because of less seat loss with the 2.0. That is a group that would be unique to this new chair as well.

Perfect, and then just lastly a follow-up on the price increases. I know you mentioned you are taking it carefully when you are taking price in the reseats and not trying to push it all at once. Two-part question. One, have you tested a range of prices to get a sense of the elasticity on consumers? At the end of the day, if we're looking out a couple of years from now, what do you think the differences in prices on a percentage base between a -- in a reseat theater pre-reseat to after reseat to after we see after you take maybe multiple seats above norm?

A couple of years out, I wouldn't be surprised if the price movement, the average ticket prices moved 15, 20 points a couple of three years out. I'm saying that because we're already seeing 10%, 15% movement. You stretch that out a couple of years.

I don't know that -- it is tough to predict because we are still learning exactly what the elasticity points are, but it is not hard to imagine that 20% ATP advances in some of these remodeled theaters, it's -- I don't know that it will happen entirely across the fleet or across part of the fleet that is being remodeled, but I can see some very specific locations where that will indeed be that case, Eric.

It's a couple of things that are happening. The normal $0.25 or $0.50 annual or every 18 months price increase, now we have the ability to take $1 or $1.25 Particularly if the theater, if we take that first $1, $1.25, and the capacity utilization is up big times, continue to be very high.

That gives us the ability to then come back another 9 or 12 months later, and perhaps take another $0.75 or another $1. We haven't been there yet across enough buildings to know, but it is not hard to imagine that possibility is in front of us.

It allows us to drive a value equation with a guest in a way that we have not had the opportunity to do before. So it is exciting because not only are you driving economics, but you are also driving, in balance, guest satisfaction. That's the trick here. Otherwise, then we'll fall back in the same old routine, and I don't know that that's a game that we want to necessarily play, if that helps.

That's perfect.

Thank you. At this time, I will turn the call back over to management for closing comments.

Thank you, everyone, for joining us this afternoon. As you can tell from the commentary and some of the answers, we're pretty excited about the quarter that we just had, looking boldly towards the future.

We are going to continue on the path that we have shared with you in December during the IPO that you have seen us now execute against, certainly for this first quarter. Thank you, again, and make sure that you go to a movie this weekend.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Thank you, Operator.