AMC 電影院 (AMC) 2014 Q3 法說會逐字稿

Greetings, and welcome to the AMC Entertainment third-quarter 2014 conference call.

(Operator Instructions)

As reminder, this conference is being recorded. I will now turn the comments over to Mike Zwonitzer, Senior Vice President of Finance for AMC. Thank you, Mr. Zwonitzer. You may begin.

Good after, and welcome to AMC's third-quarter 2013 conference call. After our prepared remarks, there will be a brief question-and-answer session. Joining me on the call today 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, which are not in accordance with GAAP. Management believes these results more clearly reflect operating performance. For a full reconciliation of EBITDA and adjusted EBITDA to GAAP results in accordance with Regulation G, please see our press release furnished as an exhibit to our Form 8-K dated October 28, 2014, which may be located under the Investor Relations area on our website at AMCtheaters.com.

I'd like to introduce Gerry Lopez. Gerry?

Thank you, Mike, and thank you everyone for joining us this afternoon. Ladies and gentlemen, it is no secret that the third quarter of 2014 was a tough one, due almost exclusively to an underwhelming film slate and industry box office, as well as some very difficult year-ago comparisons. Yet in spite of all the obstacles, we are pleased that we have once again outpaced the industry, this time by a very solid 160 basis points to [onerous] admissions per screen basis. It is clear to us that our five strategic action fronts are driving results and are enabling us to outpace competition, even in periods where the comparisons are tough. As you have heard me say before, the underlying fundamentals at AMC are solid, the strategy works, and we are on track.

Now let's get into a few details regarding our performance and an update on our strategic action fronts. Top of the batting order are admissions revenues, which for the quarter were down 10.6%. On a first-screen basis, they were down 11%, versus an industry that saw a decline of 12.6%. This was a significant out-performance, and it is indeed the 160 basis points that you heard me mentioned a moment ago.

Importantly, extending the view from 3 to 12 months ending September 30, 2014, the out-performance is even stronger at 190 basis points. To us, this admissions per-screen success is proof positive that driving productivity from the existing asset base is absolutely the right thing to do. It is capital and operations efficient, and it works in up and down periods, both. And as you all know, our industry has plenty of both.

These admissions results, we are convinced, are directly tied to our comfort and convenience strategic action fronts. The recliner reseats are the key focal point here, as you all know. Some hard facts. By now, we have deployed recliners and remodels to 550 screens at 48 locations. In those asset group, we have seen admissions revenues first-screen growth of 14% during the third quarter of 2014. To be clear, this solid top-line per-screen growth came in a period where industry admissions revenue per screen were down 13%. That's a 27 points win. Those kind of swings are not accidental, not 27 points.

We believe that this type of growth clearly illustrates a tremendous power of our reseat program, and the customers are not only driven by the slate of movies but also by the experience of seeing those movies in a comfort and style on an AMC theater. For confirmation, as you have heard us say before, we look to our top box guest satisfaction scores, which at 68% remain the highest in our circuits' history and in a class by themselves when it comes to retail enterprises.

While recliner reseating showcases the enhanced comfort we offer our guests, the convenience side of the equation is all about offering them new and easier ways to buy a seat. So open-source Internet ticketing has been and is a focal point for us. Open-source Internet ticketing is the concept that we first articulated during the IPO late last year, and is all about AMC show times and movie tickets being more widely and conveniently available.

The first phase of this initiative was to roll out our own ticketing engine, which we did back in April. And in the process, making tickets to an AMC show now easier and more available in more places on the web than anyone else's. The early success of this initiative can be seen in our guest behavior. Internet ticketing revenues are up 30% year to date. We've sold 17.7 million tickets online, which is 13% of our total tickets sold versus 9% during the same timeframe a year go. Slow box office and weak slate aside, our business on the Internet is booming.

Second in the batting order is our food and beverage, which was once again a performance highlight for AMC. Notably, we posted a 10.3% year-on-year growth in food and beverage revenues per patron to $4.29, a new record and our highest ever. This is the third quarter in a row I've been able to say that. This is nothing but a demonstration of the power of our enhanced food and beverage initiative.

Although to be clear, the attendance numbers did hurt our total food and beverage revenues, which were down 6.2% to prior. The truth is we continue to gain traction with our dining theaters, now 15 up and running; our MacGuffins Lounges, now 75 across the fleet; and even our revamped concession stands. Combined, all this help drive gross profit per patron, which we would argue is the most important metric in this arena, to a record $3.67, a healthy 8.8% improvement over prior year, and again a new Company record.

Third up, customer engagement and loyalty. I am happy to report AMC customers remain loyal to our brand, as evidenced by the fact that we own 8 of the top 10 and 4 of the top 5 grossing theaters in the United States over the last 12 months, including the top three: Empire 25, Lincoln Square 13 in Manhattan, and Burbank 30 in LA. The AMC Stubs program remains the flagship of our engagement and loyalty initiatives. Our AMC top members vote week in and week out by coming to AMC.

Year to date September, they represent 22% of our total attendance, coming to AMC about 6.5 times per year. That's about 30% higher than the national frequency of about 5 times per year. The good news is that they spend more in each visit than average guests do, with over 20% at the concession stand alone. Customer engagement is hugely important in any retail business, and in our case we have built a solid sustainable program, and firmly believe our progress in AMC Stubs will certainly enhance our operating metrics going forward.

Fourth in the batting order, and the last of the strategic action fronts I will comment on this afternoon, is what we call targeted programming. Specifically, I would like to impress on you how our theater, film, and programming teams work together screen by screen, crunching data to schedule more shows more aggressively in our buildings, and in the process deliver greater impact not only for us, but for our studios and content partners as well. Our teams' combined efforts helped us achieve the number one market share for the opening weekend on 6 of the top 10 new films during the quarter, including Dawn of the Planet of the Apes, Lucy, and the Equalizer. On 2 of the top 10 films, Let's Be Cops and No Good Deed, we had the number one share for the entire run of the movie.

In the real world in which we operate, when a seven-screen neighborhood theater in Queens, New York starts than 50 shows in one week and we see more than 1,000 people per seat per year, you get the stunning productivity driving exceptional results. And that is, indeed, the name of our game. Productivity driving results.

In summary, reinvestment in our business and the strategic action fronts we detailed today and in the past are helping create meaningful competitive advantages, and continue to be a key focus for our team. There should be no doubt that we remain firmly committed to the customer visit, asset productivity, and customer experience leadership path that we have chosen.

During the quarter, you saw us announce an acceleration of our CapEx plans to the tune of $39 million. This acceleration will facilitate the opening of two additional IMAX screens and 12 additional MacGuffins Lounges before the end of 2014. Now further in the first quarter of 2015, we will open seven additional reseat locations and one more IMAX screens. All of which will help us better capitalize on the anticipated improved strength of the 2015 film slate. Importantly, we are still in the early stages of these various initiatives, and the results that we have achieved to date fuel our passion to keep after it. We think as 2014 wraps up and we prepare for 2015, the outlook for AMC is bright, very bright.

Now I'd like to turn the call over to Craig, our Chief Financial Officer, to briefly review the highlights from the quarter. Mr. Ramsey?

Thank you, Gerry. Similar to the second quarter of 2014, a 13% decline in third-quarter industry box office provided a challenging backdrop to test the resilience of our strategic initiatives and their contribution to our overall financial performance. In the next few minutes, we will see how resilient they are and how significant their contribution was as we look at third-quarter and year-to-date results, and update you on our balance sheet and asset base.

While revenue performance was challenged, all line items performed well ahead of the 13% decline in industry box office. Admissions revenues totaled $417.4 million, and were down 10.6% versus last year. Food and beverage revenues aggregated $189.1 million, and were down 6.2% year-over-year. And finally, other revenues were flat to last year. All combined to produce total revenues of $633.9 million, down 8.9% versus last year.

Total attendance was 44 million compared to 51.9 million in the quarter last year. Average ticket price grew by 5.3%, primarily due to increases in core ticket pricing, higher ticket prices at additional recliner receipt locations, and improved attendance for IMAX, 3D, and AMC Prime during the quarter. On a per-screen basis, admissions revenues decreased 11%, again bettering industry performance that was down 12.6%.

Our enhanced food and beverage initiatives proved to be a significant difference as well. Food and beverage revenues were down only 6.2%, primarily due to a 10.3% increase in food and beverage revenues per patron that was driven by our enhanced food and beverage initiatives. Whether it be MacGuffins, dine-in theaters, expanded product offerings, or our revamped concession stands, our strategic initiatives continue to drive industry-leading results in this area.

Food and beverage gross margin of 85.6% was flat sequentially and down slightly year-over-year due to the rollout of our newer F&B concepts, which in some cases carry higher percentage cost of goods sold, but produce higher gross profit per patron, a trade-off we will always make. Our gross profit per patron grew 8.8% during the period. Other theater revenues totaled $27.4 million, and were flat to last year, due primarily to contributions from our customer engagement and loyalty initiatives.

The impacts of lower attendance were offset by revenue per patron increases in discount tickets, on-screen advertising, Internet ticketing fees, and our AMC Stubs loyalty program. Strong operating contributions from our reseated theaters, enhanced food and beverage initiatives, and other initiatives were not enough to entirely offset industry box office headwinds, but they clearly had a significant positive impact on our overall revenue performance.

Our film exhibition costs of $220.6 million represented a 52.8% of admissions revenue, an increase of 102 basis points as compared to the same period last year. While overall box office gross was down, the concentration of box office revenues in higher grossing films during the quarter drove the increase in film exhibition costs percentage.

Operating expenses of $174.4 million, excluding certain operating expenses, decreased by 2.7% in the aggregate, due primarily to the effects of lower volume and the negative operating leverage of fixed cost. Our theater teams effectively managed variable operating costs to lower levels, consistent with the reduction in overall attendance. Rent expense of $112.3 million was up less than 0.5%, and on an average per-screen basis was down slightly. Many of our landlords understand the power of our strategic initiatives and are willing to contribute capital to our remodel initiatives. In many cases rental terms are not substantially increased, which in combination with the substantial revenue improvements mitigates the impact of annual rent increases in base lease terms.

Adjusted EBITDA was $90.1 million for the third quarter versus one $118.3 million in the quarter last year. While our strategic initiatives and cost containment initiatives positively impacted adjusted EBITDA, they were not sufficient to offset the negative box office headwinds and negative operating leverage we experienced when revenues decline. Overall, we are pleased with our quarterly results and although our overall margins were negatively impacted by lower volume, we believe in the long term they will continue to trend in the right direction due to our various strategic initiatives and the solid cash-on-cash returns they are delivering and our cost containment efforts.

Capital expenditures for the quarter totaled $62.5 million, offset by $24.7 million of landlord contributions. During the quarter, the Company acquired two theaters with 18 screens, temporary closed 78 screens, and reopened 51 screens in the US to implement our strategy and deploy guest experience upgrades.

As outlined in our September 8-K filings, the Company's Board of Directors affirmed their commitment to our strategic initiatives and approved increasing 2014 authorized capital expenditures by $38.8 million. This will accelerate deployment of our customer experience and food and beverage strategic initiatives, primarily our reseat remodels and MacGuffins concept that have improved operating results at the theaters where they are already deployed. We now expect capital expenditures for 2014 to total approximately $255 million to $275 million with landlords contributing approximately $60 million, resulting in net cash outlay of approximately $195 million to $210 million.

The nine-month year-to-date period mirrored our third quarter results. Again, AMC's strategic initiatives led to industry out-performance. During the period, our box office was down 4.4% versus an aggregate industry box office decline of 5.4%. On a per-screen basis, our out-performance was even larger. The strength of our strategic initiatives, most notably our reseats where total revenue per-screen grew 32% over the same period last year, partially compensated for the lower overall film performance.

Enhanced food and beverage initiatives drove per patron spend to $4.19, a 5.8% increase over last year, limiting the reduction in food and beverage revenue to 1.1%. Other revenues increased an impressive 16.3% and combined, our total revenues only declined 2.6% versus the same period last year.

Adjusted EBITDA for the nine months of the year was $323.9 million, down only [3.4%] on total revenue decline of 2.6%, evidencing that our strategic initiatives made significant contribution, and that theater management teams held operating expenses in line with the volume of business. In addition, G&A expense, excluding stock compensation expense, was down $19.5 million and rent increased only 0.5%, or 0.5% compared to the same period last year.

With respect to the balance sheet, we ended the quarter with just over $155.5 million in cash and total debt balance of approximately $1.86 billion. Our third-quarter operating results benefited from our recent refinancing, with a reduction in net interest expense of $5.3 million that will yield annualized interest savings of $31 million.

As of the end of the quarter, our leverage ratio was 3.9 times net debt to adjusted EBITDA, which is well within our comfort range. Our leverage cash flow generation and liquidity are in line with expectations. And in accordance with our plans to augment shareholder returns through return of capital, AMC's Board of Directors authorized our third quarterly dividend of $0.20 per share, payable on December 15 to holders of record on December 5.

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

Thank you, Craig. Ladies and gentlemen, we are extremely excited about our future at AMC. We are seeing tangible benefits from our strategy and investments, and have a great amount of upside potential as we continue to invest with great focus on our core business. We are confident these continued investments will drive outsized returns when compared to our peers in the industry, especially with what looks to be a truly exciting upcoming box office year in 2015. We are, and will continue to be, the industry's innovation leader in customer-driven experiences, and we have so far touched only a portion of our enviable asset base.

We continue to punch above our weight. Overall, AMC's last 12-month box office share is 22%. This, with only 7% of the screens in the United States. While this is an impressive statistic, we measure ourselves more granularly using a metric we track very closely, and have shared for the past few quarters. The 20-mile proximal first-screen box office market share. That is to say, when we measure ourselves against competition in a 20-mile radius of our buildings, we are seeing 6 percentage points of box office per screen out-performance, dating back to April of 2011. This metric shows on a granular per-screen level that focusing on the customer experience is the right thing to do for them, and for our shareholders long term.

Thank you for listening, and I'd like to turn the call back over to the operator for a Q&A session. Operator?

Thank you.

(Operator Instructions)

Eric Wold from B. Riley.

Hey, good afternoon.

Call from San Francisco. I was hoping you would reschedule the call for tomorrow night since there won't be a game seven to distract us, anyway. I will get to the questions. One, on Regal. Regal commented yesterday they are seeing some pressures on the results from competitor actions to improve customer experiences. Maybe comment on the update of where you see your incremental attendance coming from in terms of competitors' theaters versus your own, and thoughts on your ability to hold onto those customers if the competitors react with upgrades of their own?

One moment.

Hello?

Hello?

Yes, we can hear you.

Great. Where did we leave off?

Did you hear the question, or just the negative comment about the Royals?

We heard both, unfortunately. I'll address the question first, and leave the Royals thing until after the thing is settled, hopefully tomorrow night, not tonight. What we have seen, Eric, on these reseats over the last couple of years, since the first ones date back that far now, is that about 60% of the attendance increases coming from the proximal competitors. That's why we introduced that measure to our system of the 20-mile proximals. The other 40%, however, is coming from sheer behavior change among the customers. That's where the AMC Stubs program really helps us because it improves the value for the customer and encourages that return to that behavior into the reseated theater.

People -- competitors are rushing to the market with this reseats. I wish it was that simple. It's really not. The industry, as you know, has a long, long tail of people copying each other and so on and so forth. What's different this time is that if they are focusing strictly on the physical plant change, the reseat itself, and they are missing out on all of the other elements, the food and beverage improvement, the loyalty program, the aggressive programming, the silent and sound experience, they're really presenting that customer with a half-bargain. And we don't think, to address the point of sustainability that you brought up, we don't think that is sustainable.

We think that the reverse is true, that when people enjoy the comfort, that's great. That's kind of like the price of entry, but then you have to deliver on all these other elements. The convenience of being able to buy your Internet -- your ticket on the Internet in many more places and not be tied up to a single website, the value that AMC Stubs delivers, the better food and beverage program, 75 bars already installed out there, et cetera, et cetera, the list goes on. It's when you present a total package that it becomes sustainable. Changing the seats and cleaning the carpet, it may help for a couple of weeks, is not in our opinion sustainable.

Does that answer your question, before I make a snide remark about the Giants?

(Laughter) one quick follow-up. What percentage of the reseated theaters have you put through price increases, and any -- to date have, you seen any material change in attendance trends once you have?

No. Let me answer your first question. We have talked about this before, and we let it run for about a year. And then in the second year after guests have had an opportunity to experience and take part in the service and the convenience, then we will start moving price. And we've got about, I'd say about 27 of our theaters that of the total 48 that we have, are in that second year, or actually in the third year. And so that's where -- in the first year we see some lift on average ticket price, just because the audience starts to skew a little older. Then in the second and third year, we can start seeing some price movement.

As an example, in the theaters that have been out there over a year, average ticket price is up about 12%. And then you get out over a couple years, they are up almost 13%. We continue to see box office increases into that third year. And so, they are at a declining rate, naturally, as they've been in the market a little longer, because you are starting to cap out a little bit. But we are still seeing growth in attendance and revenues. And so no noticeable impact or negative impact of pricing.

Just to build on that a little bit, Eric. Our thinking when it comes to pricing on these reseats runs in three fronts: depth, perception, and sustainability. The depth is when we do raise the prices 9, 12 months in, by how much? In this industry, normal behavior on a traditional theater would to take perhaps a quarter, maybe if you want to be real aggressive, $0.50. What we are doing, though, in these reseats is we are taking a buck, perhaps a buck and a quarter. We wait those 9 or 12 months, but then when we go, we go and go hard. We go a little deeper; we go a buck, a buck and a quarter.

Second is the idea of sustainability. Can we keep up with that? That has, so far, proven to be the case. And it's because of that third element, which is the perception. When people are showing up at the theater and the experience is that much better, they are okay with it. They're okay with it because the theater is full. They're okay with and they know that, you know what? I am willing to pay that extra buck, buck and a quarter in order to get a seat that I wanted and a showtime that I wanted, because in many of the Friday and Saturday nights we're running into sold out shows in many of the movies that are first released. So it's really that combination that allows us to do what we are doing with the reseat pricing.

Perfect. Thank you.

Good luck tonight.

Thank you.

Kannan Venkateshwar from Barclays.

Thank you. Just a couple of questions. The first is on, you still have some high-cost debt on your balance sheet. And just given the kind of uplift free cash look and see from that, just wanted to understand how you're thinking about that going forward? And just from and M&A perspective, if you can update us on your thoughts, given what Regal announced yesterday and what kind of overlap you had? Obviously the overlap has to be material, but just wanted to get your updated thoughts on that, as well.

Give us a second here, Kannan, while I pay off my bets. I had put the over and under line on how long it would take to hear (laughter) the very first caller. So I owe some people some money. I'm going to let Craig address the balance sheet question, and then we will come back to the M&A.

We are most focused, as you might suspect or would hope. I guess, we are most focused on the 9.75% senior subs, and first call date is December of 2015. And we don't have to wait until December of 2015, depending upon the rate environment. We do the calculations every week, almost. And as we get closer to that first call date, I think, of course assuming what happens in the market with interest rates, but assuming that we've got some continued stability in rates, we will be out there taking care of that, very similar to what we did about a year ago with the -- with that 8.75% senior note, which we did a tender for and then cleaned it up. So that's our plan, and of course it all depends on the interest rate environment going forward. But we would certainly hope to be able to do that here in the next six months.

On the M&A portion of the question, Kannan, let me start with a more global level and reiterate something that we've said during the IPO roadshow and in the months since. We think that there is no reason anyone would expect, certainly we don't expect that the consolidation trend in the industry will come to a halt or stop or decrease in any way.

There are a number of filters at a global level that will apply. Certainly, when I say global I mean at a macro level in the US. Let me be more accurate and more correct. The filter specifically are first financial, does it makes sense? Is the acquisition accretive? Do the numbers work? And that filter has been the number one filter. For many, it is the only filter. For us, it's nothing but the first filter.

The second one is the DOJ filter, and that is, given our size and our scope these days, any transaction of any size that we engage in, the government is going to review. And the government has a very detailed plan and they have a very methodical way they go through the things. They don't look at it market by market. They look it theater by theater, literally trade area by trade area. And as financially accretive as an acquisition may be in total, when you're not careful about what the DOJ may do, you can leak value in the transaction really quick if you're not thoughtful and careful about that second filter.

The third filter, which I think applies perhaps uniquely to us, it's all about what kind of assets are being acquired? What comes with this transaction? Is it a bunch of traditional theaters, in which I am not going to be able to do much with the food and beverage program and the reseats? Or conversely, is it the kind of asset where my reseat initiative, my food and beverage program, my loyalty program plays better? And for us, you've got to -- those three filters got to apply equally for a transaction to make a lot of sense.

Now, the second half, the elephant in the room, is this announcement Regal made yesterday. Let me address it because I suspect it may be in a lot of people's minds. We candidly were surprised by the announcement, as I think everyone seems to have been, based on what we have been reading today. I must confess that we are familiar with the process, having endured it ourselves not that long ago. Regal is a well-managed company with an experienced team. I am sure that they are up to the task of what lays ahead.

To speculate on anything at this juncture, frankly is just that. It's speculation and it is way, way too early. Our perspective is that, hey look, I've got my hands full. I've got a Company to run. Things are working. Our perspective is that we want -- we need a steady hand on the tiller because we have significantly better weather ahead in 2015. So we are going to remain focused, operating the business, executing against a strategy that so far has delivered great results for us. And hopefully that addresses what I suspect would have come up in couple of times regarding Regal.

Thank you. That's very helpful.

You bet.

James Marsh from Piper Jaffray.

Great. Thank you. Two quick questions here. The first relates to your broader large-format strategy, and obviously that's ETX and IMAX. Just wondering if you could give us some sense for the relative performance between the two, and just how you are feeling about both. And then I also just wondered if controversy like the Crouching Tiger day and date thing, does that impact your relationship with IMAX at all? Or are you -- just chalk that up to ordinary business? It seemed a little tone deaf to me, but it's hard to tell from where I sit. And then the second question -- go ahead. Why don't you answer that one, and I will ask the next one.

Let me take them in reverse order. I will do the Netflix piece first, and then we will give you some perspective on ETX, or as we call it now AMC Prime and IMAX. On the Netflix announcement, Crouching Tiger Hidden Dragon et cetera. To be totally honest, we don't know much about the project. What we know about the project is what we read in the press, same press as you have read. We've not been approached by a distributor with any kind of proposal or any kind of deals, because frankly from what we know, the movie doesn't have a distributor. That's weird. So what we know about the project is what's been published in the press.

It strikes me as a made-for-media movie. I said that in the press. There is no Ang Lee behind this sequel. None of the original cast appears to be performing or participating in it. So, I'm a little unclear as to the movie. At the moment have to classify it as a made-for-home, made-for-video movie.

A point of clarification to a lot of what has been written in the press. IMAX does not, not control what plays on our screens, on our IMAX screens. Contractually, we control what plays on those IMAX screens. They know that, I suspect Netflix knows that, everybody in the business knows that, the studios knows that. Just because IMAX agreed to this thing does not force us to play the movie on the IMAX screens if we don't have a deal with a distributor, which again there is no distributor, so there is no deal at the moment.

The business relationship, and this is a point that I constantly emphasize when we have the discussion regarding Windows, which this whole Netflix thing attacks -- goes at that whole point. The business relationship between the distributors and the studios and exhibitors has many, many touch-points. Windows are but one of those touch-points, and to expect that any conversation on Windows will hinge on only that topic and not on any of the other touch-points that exist between the distributor or studio and an exhibitor, it's kind of naive. It hasn't worked and it will not work.

When a complete business proposal is put together, we will evaluate it as such. We have made any number of recommendations on this front in private to distributors regarding this very topic, the Netflix piece and the movie, we will see where goes. What we know about the project right now is not much, and not particularly motivated to exhibit a movie that does not appear to have any upside for our circuit. Hopefully that answers your question on that front.

APX and IMAX and how we view those two, or AMC Prime and IMAX and how we view those two, we see them as largely complementary. In the branded world, and the world that frankly I came from, you need the power of the brand. That brand in large format is clearly IMAX. People drive past other theaters to go to an IMAX screen. The performance of an IMAX movie shot -- particularly if you shot in IMAX with IMAX equipment, it is clearly telling us that the brand matters and it works. We have more IMAX screens, 146 or so at the moment. We have doubled the number of IMAX than anybody else in the world. We believe in the brand. They've been great partners. They are going to continue to be, and we are going to work closely with those.

We see AMC Prime as a complement. The biggest benefit that AMC Prime delivers that IMAX does not is flexibility in programming. For a movie to be shown in IMAX, in needs to be rendered, it needs to be digitally made in IMAX or have to go through what we call a DMR process. For the movie to be shown in AMC Prime, it does not. My flexibility on an AMC Prime screen relative to the IMAX screen is much, much greater. I can switch Friday to Friday, I can switch Friday to Saturday, I can switch from the afternoon to the evening. Not always the case, in fact rarely the case, with an IMAX movie.

Now, can we give Jim --

Yes, give him an idea. Just in terms of the economics. Look, it's not the highest ticket price we have. It's actually the second highest price. IMAX would be the highest. As you think about our $9.48 average ticket price in the quarter, we have a $3 surcharge, and depending upon film, it's for the quarter it was about $13.83 was the average price on our proprietary large-format screens. It turns out to be very profitable, the most profitable ticket we sell in terms of our after-rent, or after film rent, margin. Early in the deployment, after about seven we are continuing to deploy, and as Gerry said, we think they're complementary to the large format of IMAX.

The data base that we have on prime, because we have made the bet on moving forward with IMAX so quickly, Jim, is not really robust to give you a real -- what I will share with you, though, is that like most other things in our business, content drives a lot. When a movie opens in IMAX, Interstellar for example, coming up even during week, this last weekend, those IMAX numbers will blow everything else out of the water during opening weekend. Our ability to flex the prime screen in which three, four and five into whatever movie has just opened will then have us out-performing with Prime in that second week maybe, but certainly by the third and the fourth week versus the IMAX screen. It's a content-driven dynamic more than it is anything else. Does that make -- does that help?

That's extremely helpful. Thank you, it's a lot of good color. Second question was a quick one here. Just relates to the enhanced food and beverage. And I just wondered if it's inherently less volatile than the typical ordinary concessions? It seemed to vary a lot based on what films were playing. Do you get a sense that over time it's going to be less volatile than the ordinary concession business?

Yes. The volatility is driven more by the sheer attendance volume than by anything else. Once we get the people in the door, their behavior is fairly predictable. And in fact, the enhanced food and beverage has taken some of the beta out from the old days. When the number of SKUs, and what you were trying to sell the customer was so limited to essentially popcorn, Coke and candy, the volatility of people get bored of it, there's really no variety in there, and it's kind of like maybe I'll get the popcorn but not the Coke, or the Coke but not popcorn. And it was easy to bypass.

Now with so many more options, whether it's ice cream, whether it is popcorn in more sizes, not just the fountain Coke but all of the other bottled beverages that we make available from Coke. And by the way, beer or a glass of wine or a drink, the behavior is just much more predictable because if people are not doing the one, they are doing the other. That variety provides, although more complex business, it also provides for a steadier behavior on the part of the consumer. And we like it, because it helped us take some of the swing out in the total numbers versus what happens in the crazy box office world that we live in.

Yes, understood. Okay. Thanks very much. Great quarter.

Thank you Jim.

Ben Mogil from Stifel Nicolaus.

Hi, Good afternoon. Thanks for taking my questions. On the concessions number, the plus 10%, can you break it out to what it was at the 48 touch venues and at the rest of the untouched venues?

At the reseats, I don't have a percentage. Actually, the reseats are not the full 48. We don't count in our -- for purposes of this number, it is 37. And it doesn't include those that haven't been open for over three months, but those open over three months is up 8.5% -- I'm sorry, it's up 11% versus the core up 8.5%.

The core was actually -- the core, which have done improvements to but not the same level, it's still growing at a pretty strong level?

Absolutely. You're exactly right. It's got some of the bars that Gerry referenced earlier, the 75 bars. Some of those are in what we call core theaters. There's fryers, there's other enhancements. But certainly more concentrated, reseats have a more concentrated impact from additional food and beverage items.

I think, Ben, we might have shared these numbers in the past. For the quarter, what we're seeing is that in our traditional core circuit, the food and beverage per patron, it is running just under $4, $3.93. In the reseats is running a little hotter, $4.36. And that is driven obviously by the better ambience, the better atmosphere in the theater. Also because the reseats have a greater percent penetration of the bar, of the MacGuffins Lounge. Then lastly in the dining theaters, that food and beverage per patron is running about $10, $10.25.

Pretty strong growth, pretty consistent growth across all three of the formats, as Craig indicated. We like giving people the option, and they respond accordingly. And even when the core is running at $3.93, 8.5% improvement over prior for the quarter. We are fairly pleased with that number, only to see the other two run even hotter, 11% up, 22% up, our numbers are even bigger. To us, the enhanced food and beverage, that whole concession piece, is working across all of the different formats that are in the circuit nowadays.

That's great. And then on Internet ticketing, are you seeing it -- I'm not sure how much you can get a sense of this, but are you seeing it on a cost basis help you, or is it more driving incidents of attendance? And then as a follow-up to that, if you were to see Fandango do a deal with movietickets.com, would that presumably help the system as well?

That's a great question. I had not thought of it. For us, what really moves the needle is the availability of tickets in more websites. The notion that existed in our circuit a couple of years ago that any one building, you can buy the tickets for that building in only one website, that's what was broken. We have now busted through that. And frankly, in my humble opinion, the more places you make the goods available, the more likely you are to increase your sales.

Beyond that, the combination of those guys, we will see. It's really about making the tickets available in Fandango, movietickets, our own website, and others that we're negotiating with. Beyond that, what I will tell you is that the behavior is rather interesting. Just this weekend, just Friday, Saturday, Sunday that we just had, for the biggest movie, the movie John Wick, 28% of our sales were online. For Gone Girl, which has now been out three weekends, 43% of our sales were online. So that tell us you, the customer, the audience matters a lot.

Gone Girl of course, it is more -- it's a different kind of audience than John Wick, even though they're both rated R, et cetera, et cetera. But one clearly appeals to an older audience than the other does. You see that older audience skewing towards the web. Why? Because they don't want to get to the box office and not have a ticket. And they would rather get to the box office with a ticket. Not only that, but it be a reserve seat. Those kind of customers are going to go on the web.

We will see those variations, 28% all the way from 43%, 44% based on the content as well. So for us, it really matters that it's available and the people -- that it's easy and the people can get to it, so that when they feel they are making the plans for weekend and they feel like going to the movies, the conversion to selling them a ticket is immediate and right away.

That's great.Thank you very much. Sorry. What do you think about a larger unified platform, or do think you can do that even without those two third parties merging?

A larger unified platform for Internet ticket sales, you mean?

Yes. If you got Fandango and movietickets together, would you see that as accelerating those trends?

Yes, that would be great. We love it. We are frankly somewhat agnostic to the many different players out there. I want to cut a deal with Flixster. I want to cut a deal with these new super integrated platforms that you are describing. I have deals with Fandango for all my theaters. I have deals with movietickets for all my theaters. Of course on my own website, I have my own ticketing engine as well. We -- to us, frankly they are all sales channels. And the more of those sales channels that we can sell through, I think the better off the industry is. Certainly we think the better off AMC is going to be.

There's got to be some parameters. The thing has got to be up and running. It's got to present the product correctly. You've got to make sure that it's not a fly-by-night outfit. That is going to wind up providing the customer a bad experience. But that's not the case with any of the players that we have mentioned here. So for us, people want to put up more websites or want to consolidate websites and make the experience better for the guest, we are going to be right there. We are going to be right behind them.

That's great. Thank you very much, Gerry.

You bet.

Jim Goss from Barrington Research.

Thanks. Actually I'd like to follow-up first was something Ben just raised in terms of concession barriers. You indicated that the revenues per customer were higher at the reseated auditoriums versus the core. I was wondering how the percent and dollar gross margins vary from one category to another.

Let's see if I can give you that quickly.

I've got it, Gerry. So on the core, it's 13.7%, reseats it is 12.2%. That is the cost.

Okay.

Give dine-ins. Dine-ins, we have talked about, around 25%. It's actually a less. About 25%. Those are the food and beverage costs off of the numbers that we had discussed with Ben. The reseats skew a little lower because there will be a greater percentage, which I don't have the exact number to give you, because the receipt, the 48 reseats have a greater penetration of lounges than the traditional circuit does. In other words, we have as a percentage of the fleet, more penetration on the reseats with bars that we do in the core circuit.

Okay. And also earlier you started to paint an interesting picture where there is the reseats along with the pricing increases complemented one another. And I wondered if you could talk a little bit more about how long from start to maturity of this process, and is the curve in terms of attendance running something like 30% the first year, 8% the second year and then tail off a little? And then it's sort of supplemented with the price increases, as you said, at three-quarters of a year to a year? And then, how many years do you pursue price increases to get to a mature state?

I don't know what the mature state is. I'll give you the numbers, because I don't know that we are there yet. But we see some leveling, I guess. The rate of growth starts to slow a little bit after you get out beyond a couple of years. But look, even in the first year we see -- and this is looking at the year-to-date period when the industry was down 6%.

6% or so, right.

So the reseats that are under a year old, up 33% in revenues. It goes to over 50% in the second year as you are getting into a year older and they've got a full year behind them. And you are still up about low single digits in the third year. In an industry that is down 6%, you're still up a couple, 3% in the third year. Is it slowing down? Yes. But you've had some pretty strong growth over that two- to three-year period.

What we are seeing, Jim, is the first year out their attendant increases are 50%-plus. In the year one to two range, that slows down to the 30%s. And then by year three, and we have now a few of those, then it comes down to single digits. That's what we've seen in year to date September, in an industry, to Craig's point, that was down 6%. We are seeing now in the older one of these reseated theaters, we are seeing 10 points lines of difference between what the industry is performing and what these theater are performing on, of course, a much higher attendance base. In some cases, double the attendant that we used to have in the building prior to the remodel.

So we are encouraged by two things. A, the sustainability. The fact it's not just a new car smell, it is not the shiny new object affect that we are seeing in these things. But that we are actually holding on to those gains in years two and three quite strongly. So we are pleased and encouraged by that behavior.

And you are not seeing that derailed at all, or compromised by reseats by competitors you might respect as being other premium cinema chains?

We haven't had a lot of that yet. We are now, as we mentioned, 48 buildings in, 550 first-mover advantage in a lot of these markets. So we haven't had a lot of people. We've had perhaps a couple or four that we've had people then reseat against us in a theater that we have done the remodel. There is some share steal going on, but frankly not as dramatic as we have seen when it's a traditional theater. We tend to hold on.

That's my point that I made earlier to one of the questions regarding having to present a total package. Once you are an AMC Stubs member, once I got you in that remodeled theater, once you are enjoying the bar, somebody else down the street may remodel, but if they didn't take the entire building. If all they did was change the chairs, if they don't have a strong loyalty program, if they don't have the wine, the beer, the drink for you, if they don't have a better food program for you. Yes, sure they remodel, but you are not going to get the same thing over there that you are getting over here.

So we tend to hold onto those customers. And so far, even those couple that we have seen built out here in the Midwest, frankly we are not experiencing any kind of losses. The trends continue to be positive versus what the theater was doing prior to the remodel. And again, that is very encouraging to us.

One last thing. What signs are you looking forward to, to assure yourselves that the 2015 film slate optimism has been warranted?

What signs?

Everything always looks better next year. I'm wondering --

And particularly this business it does.

Right.

The truth is that when you look at the slate that has been announced and that has been dated, forget all of the stuff that will come later. The stuff that we are already know about, movies that -- some of which were slated for this year that got moved out for whatever reason, we are pretty encouraged. We can argue all day long about what the next Avengers will do, but when the first one did upwards of $670-some odd million, to expect that that movie's only going to do $150 million is probably not -- we're probably under-estimating it right there.

What we think will happen in 2015 is that for the first time the industry will break through that elusive $11 billion mark. To be clear, our expectation is that yes, we will burst through that $11 billion mark that we sell short last year, that we are not going to come anywheres near this year. But if you look at 2012, and you plot out $11 billion dollars into 2015, it's only 1.5 point CAGR. Yes, sure it looks better next year. It always does in this business. But when you then trend it out over more than 6 months or 12 months, or you start looking at 18 and 24 months, it's 1.5 CAGR. 1.5 points CAGR is pretty historically sound. It's not an outrageous expectation for next year.

So that's why we are encouraged that yes, wherever you have 2014 ending, we're looking forward at 2015 and saying that feels a lot like 2012 did. And if we plot it against that and put an $11 billion tag on it, it is 1.5 points. It's not -- we are not banking on home runs here. We will go ahead and take Royal baseball, a couple of hits and a couple of stolen bases, and a couple of guys across the plate.

All right. Thanks Gerry, thanks Craig.

You bet.

Barton Crockett from FBR Capital Markets.

Okay. Thanks for taking my question here. Back to the merger consideration. Is there any strategic benefit you think for combinations of the larger theater companies? We just went through a stage when Fox nearly merged with Warner Bros. (inaudible). Do think its important for the theater chains to get bigger to maybe combat bigger studios over time, or to maybe better capacity (technical difficulties) around the edges (inaudible)

That's a great question, Barton. I'm not sure that I heard it all, but if I -- just to restate. Is there any strategic benefit or any significant benefit to a combination of the largest circuits blending and merging with one another? Size does matter in a mature industry, and we are clearly, clearly that. There are some economies of scale that can be gained by -- through sheer size.

There are some efficiencies that can be had, but in all candor those efficiencies are hard to imagine will come on the studio front. We all to seem to have pretty similar film costs when you look at the publics. So not sure that there will be much synergy in getting bigger on what is really the single largest cost in our P&L. There may be some perhaps with some of the landlords, maybe perhaps. But we got pretty strong relationships there.

Some of the suppliers, Coke maybe. The ConAgra guys with the corn, maybe the oils. It's hard to imagine that there is really a lot of synergies that can be gained by the sheer size. I think that --

G&A.

I'm sorry?

G&A.

Well, G&A clearly there will be some. You would expect some of that. But I think the greater benefit, Barton, really from a combination comes across in deploying a strategy that is clearly working for us into a bigger sandbox. So to me, although there sure there'd be some G&A synergies and perhaps a couple of pennies that can be squeezed out of the cost of a bulb or a gallon of Coke or something. The real gain will come from taking a view -- taking some of the strategies that we've deployed and that are working into a bigger sandbox, into a greater number of theaters and so on. That's where the real win, we think, would come.

It's not a cost play, it's a top-line play. And attempting to bend, frankly, the attendance behavior from guests by deploying the reseats and the food and beverage, et cetera into just more buildings, into more markets. I think that's a real strategic value. Other than that, I don't know. People smarter than I may argue that there are some. I'm all ears, but I don't know them.

Okay. If I could ask one other question. On your balance sheet, how much capacity would you have on your balance sheet to pursue acquisitions? How much more leverage do you think you would be comfortable taking on, what's you max ratio? And do you have the ability maybe to work with Dalian Wanda and use their balance sheet to pursue deals?

I will try the second one first. I mean, I think if you start -- once you start taking -- borrowing capacity or capital from a source, from a large shareholder, you get into this relative value question of how do you split that up because you've got a public segment that's not contributing and you've got a large shareholder. How do you make that whole? It's a relative value fairness thing that you could do. People have done it. It's just got a little bit of hair on it. So is that a possibility? Yes. It's got its own set of complications involved in it. And that's how I think we think of it.

We've talked about in this business on an ongoing basis, you -- we like the 3.5 to 4 times. Look, clearly if you could get a big deal done and take the leverage up to 4, I think you would want to be within 1 turn or a 0.5, 0.75 to 1 turn of your competitors, your comps in the industry, the person that didn't do a deal and stays lower levered. I think you still want to have visibility within 0.75 quarters to 1 turn that you could get your way back, work your way back down in line with that competitor ultimately. I don't know if that helps. I guess it does. Maybe you add 1 turn, but you wouldn't want to find yourself 1.5 turns worse off from a leverage perspective than one of your competitors.

Just to wrap that answer up Barton, I don't know that we would be comfortable levering up without a clear plan to lever back down. So one thing is to look at the hill and say, we can go up there, but unless that path to that hill comes with a path back down, I don't know. That makes me nervous. We like where we are at right now. It's a good place to be. God knows we've run the Company much more levered than this in the private days. I think Craig captured it. We want to be within 1 turn of norm, not be an outlier.

Okay. That's great. Thank you.

Ladies and gentlemen, we have reached the time limit for today's call. I would like to turn it back to Gerry Lopez for closing comments.

Just want to thank everybody for listening this afternoon and your continued attention to our Company and our results. Have a great afternoon or evening, and go Royals.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.

Thank you.