AMC 電影院 (AMC) 2015 Q4 法說會逐字稿

Greetings and welcome to the AMC Entertainment fourth-quarter 2015 conference call.

(Operator instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, John Merriwether, Vice President of Investor relations. Thank you Mr. Meriwether, you may begin.

Thank you, Rob and good morning, everyone. I'd like to welcome you to AMC's fourth-quarter and full-year 2015 earnings conference call. Before we get started with our prepared remarks, I'd like to remind everyone that as referenced in our press release issued earlier this morning, we have posted a CFO commentary on the Investor Relations page of our website at www.AMCTheatres.com.

I'd also like to remind you that some of the comments made by management during this conference call may contain forward-looking statements within the meaning of section 27A of the Securities Act of 1933 as amended and section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements are subject to risks, uncertainties and assumptions and are discussed in our public filings, including our most recent 10-K. Statements made throughout this presentation are based on current estimates of future events, and the Company has no obligation to update or correct these estimates. Listeners are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainty and that actual results may differ materially as a result of these various factors.

In addition, comments made on this call may refer to certain measures such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, free cash flow and adjusted diluted earnings per share, which are not in accordance with GAAP. However, 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 issued earlier today as furnished as an exhibit to our form 8-K dated February 29, 2016, which is located in the Investor Relations area of our website.

After our prepared remarks, there will be a brief question-and-answer session. Joining me on the call today are Adam Aron, CEO and President; and Craig Ramsey, Chief Financial Officer. I will now turn the call over to Adam.

Thank you, John. Good morning everyone and thank you for joining us. I'd like to begin with a brief overview of our record-setting fourth quarter and our record-setting full-year 2015 financial results and highlight some of our key accomplishments. I'd also like to review with you my first 60 days as CEO of AMC and update you on the key priorities I've already outlined to further increase value for our guests, our associates, and of particular importance, our shareholders.

Before I do though, we could not possibly begin this call without mentioning that we are on the call from Dallas, Texas at our annual conference of all of our movie theater general managers. But just a few short hours ago and one brutal mid-continental redeye flight ago, I was in Los Angeles attending the Academy Awards. There, I had the privilege of watching firsthand that a movie made by Open Road Films, Spotlight, won two Oscars -- one for Best Original screenplay, and one, the granddaddy of them all, the much coveted Best Picture of the Year.

Most of you may know that AMC owns 50% of Open Road Films, and on behalf of AMC, I now serve as Open Roads co-chairman. This is a very proud day for AMC and Open Road.

We are thrilled for our colleagues at Open Road Films. This success with Spotlight gives us a pedigree which we would expect would improve the financial success of Open Road going forward. It certainly increases the value of its film library.

Moving back to AMC, earlier this morning, in conjunction with our 2015 earnings press release, we issued Craig Ramsey a CFO commentary, which provides a detailed review of our financial results for the quarter and the year. Craig is with me on the call this morning, and after my formal remarks, we will open up the call for both of us to take your questions.

Incidentally, speaking of Craig, he would tell you, as I am now, that we have established an instant friendship and a superb working relationship. Accordingly, you should definitely expect real management stability at AMC. We have a truly knowledgeable and proven executive team in place.

So let's get started on the quarter and the year. 2015 was an impressive year for AMC as we set all-time highs across a broad array of full-year financial metrics -- records in every single revenue segment. Record adjusted EBITDA, record average ticket price, record food and beverage per patron sales, and important, above all else, record gross profit indicators and record free cash flow.

We finished 2015 with another strong fourth-quarter effort as both revenues and adjusted EBITDA grew meaningfully compared to last year -- again to record highs for a fourth quarter for AMC. Total revenues increasing 10.1% to $784 million and adjusted EBITDA growing 10% to $154 million. The growth in adjusted EBITDA was even greater, more than 14% when we exclude the nonrecurring $5.1 million California tax refund benefit that AMC recognized in the fourth quarter of 2014.

These operating results translate into $41.6 million of net earnings and $0.42 of diluted earnings per share, both representing fourth-quarter growth of 40% compared to the same quarter a year ago. After adjusting net earnings and diluted earnings per share for financing costs incurred during the fourth quarter of 2015 and that $5.1 million aforementioned California tax refund benefit in 2014, adjusted diluted EPS grew more than 59% year over year to $0.43 per diluted share.

As strong as these year-over-year results are, as you and as we analyze industry-wide results, competitively, our results would have been stronger still but for three issues. First, AMC introduced a tax on top strategy back in 2014, meaning that we added admissions or sales taxes on top of listed retail movie tickets and concession prices.

Many of our competitors copied our lead much later on, doing so only in 2015. So, a price increase that we realized in 2014, they realized for the first time instead in 2015, affecting year-over-year comparability.

Second, as you know, the fourth quarter of 2015 was all about Star Wars, Star Wars, Star Wars. Knowing that it had an unprecedented winner on its hands, Disney licensed more than 4100 theater locations to show Star Wars in North America.

A typical really big movie opens in between 3000 to 3500 theaters instead. Therefore, our so-to-speak capacity share for Star Wars was down somewhere between 15% and 25%.

In that light, it's really quite impressive that our market share for Star Wars fell only 2%. Candidly, that's because where we had it licensed to our theaters, we just played the hell out of that movie. Many of our AMC theaters showed Star Wars continuously, 24 hours per day, literally, for days and days on end without stopping.

And third, our new Starplex theaters acquired in mid-December in the fourth quarter operated substantially lower ticket prices which impacted overall year-over-year pricing comparisons for AMC overall. Even with these three caveats, we are extraordinarily pleased with our fourth-quarter results, and we're energized as we start off in 2016.

It's hard not to be optimistic as we delivered record results in metrics after metric after metric. Taking a look at all four quarters of 2015, for the full year of 2015, total AMC revenues increased 9.3% to a record $2.95 billion, and adjusted EBITDA grew 15.6% to a record $536.5 million.

We are especially proud that this storied growth was driven by our industry-leading -- I might add industry-leading by a country mile -- admissions revenue for Strain of $384,000 and equally impressive food and beverage per patron of $4.62. Again, industry-leading against the majors. These operating results yielded $103.9 million of net earnings and $1.06 of diluted earnings per share, representing growth of more than 62% and 61% respectively compared to the same period in 2014.

After adjusting net earnings and diluted earnings per share, again for those financing costs and gains incurred during 2015 and 2014 and the aforementioned $5.1 million California tax refund benefit in 2014, adjusted diluted EPS grew by more than 98% to $1.13 per diluted share. Importantly, free cash flow for the year ended December 31, 2015 increased approximately $51 million, up more than 72% to a total of $121.2 million, surpassing $100 million for the first time ever in AMC's company history.

There is no way to characterize these results by anything other than saying that these are strong results for AMC and they reflect the health of the movie industry as a whole. It's an industry that's generated three record years in industry box office out of the last four with a 2015 industry box office eclipsing the elusive $11 billion mark for the first time ever.

Our studio partners delivered more than ever before in 2015, as you know, with three titles achieving top 10 status for highest grossing domestic movies of all time, Avengers: Age of Ultron at number nine, Jurassic World at number four. And I'm sure you can guess number one, the highest grossing domestic film of all time in the history of moviemaking, Star Wars: The Force Awakens.

At AMC, we actually are more optimistic about the slate of movies coming out in 2016 than many other observers. Just look at the popularity of Deadpool, for example, which has now become the largest grossing film ever to open in the month of February.

We believe the studios will offer more solid films in 2016, but of course, only time will tell for sure. Having said that, one of the beauties of the movie business is that we have terrific visibility right now into the slate of films coming out in 2017 and 2018. Industry box office projections for 2017 and 2018 are frothy and robust, and within that industry, AMC has quite a enviable market position.

AMC operated the top three grossing theaters in the US: number one, Empire 25 and number two, Lincoln Square, both in Manhattan, and number three, Burbank 16, which I toured yesterday incidentally in Los Angeles. Indeed, AMC with an 18.6% national box office market share operated fully six of the top ten grossing theaters in the United States. We're also number one or number two in box office revenues in 80% of the top 25 largest markets in the United States, including having the number one market share position in the top three US markets of New York, Los Angeles and Chicago.

Now, reflecting back on my first 57 whole days here at AMC, my preconceptions about the Company which made me join it were true and are true. AMC is a strong company both financially and culturally. It's in a glamorous and created industry, and it's a truly fun place to work.

Importantly, for our guests and for our shareholders, the innovation, imagination and excellence heretofore in AMC's guest experience strategy has been immensely successful in producing the impressive financial results I've just described. But, make no mistake, ours is a company that does not want to rest on its laurels.

As such, I would like to talk to you about seven key priorities on which, as a senior management team, we are now all agreed that we believe will drive short-term, medium-term and longer term positive results for AMC. These have the ability to grow our market share to differentiate us from competition, and ultimately to drive even better financial performance for AMC over time. These priorities will receive both my full attention and focus as well as those of our entire executive team.

Number one, we will continue to strengthen our bond with our current and future guests through world-class marketing. I must admit I'm a marketer at heart and know there is readily identifiable low-hanging fruit for AMC here.

As an example, many savvy industry veterans think that our AMC Stubs loyalty program, with its 2.5 million active member households, is already the best loyalty program among all movie theater chains. Of our 200 million tickets sold in 2015, fully 21%, more than 40 million, were tracking their AMC purchases for AMC Stubs credit. But when we look at other industries, more than 50% of their customers in other industries participate in their loyalty programs or loyalty schemes, as the British refer to them with such term.

We have already, as a result of this observation, 21%, greater than 50%, we have already wholly redesigned AMC Stubs to be rolled out nationally in the second half of 2015 after some testing and research to make sure we have it perfectly attuned. We have a goal of more than doubling the participation rates in AMC Stubs within 24 months of launch.

Similarly, we believe that we can triple or even quadruple the size of our avid movie-goer database over the next 36 months. And then we will mine that data to market movies much stronger then we can with a smaller database in place today. The increment in doing so is inexpensive because it allows us to introduce highly targeted marketing to more and more people who are already inclined to be tempted to buy tickets to see movies at movie theaters in the United States.

More on marketing, social media outreach by AMC will continue to grow. We are entirely making over our website in 2016, as we will do this year for our smartphone apps. We're increasing the number of theaters with consumer preferred reserved seating.

All of these programs with a goal of driving increased business to AMC theaters. Our marketing department is also facilitating the increased convenience of being able to buy a ticket online ahead of time and bypassing the ticket counter entirely. This is an amenity that our guests are increasingly choosing.

Our fourth-quarter 2015 internet ticketing volume totaled approximately 14.5 million tickets purchased online, a 65% increase over the fourth quarter last year, representing a sizable 29% of our total AMC tickets being sold online. In Q4 of 2014, online tickets instead accounted for about 18% of our total tickets sold.

And importantly, our proprietary ticketing engine at www.AMCTheatres.com, our website, also continues to attract guests. AMC online sold 65% more online tickets in the fourth quarter 2015 compared to the same quarter last year. These internet ticketing numbers are growing in leaps and bounds, and we expect they will continue to grow markedly in 2016.

In describing all this marketing activity, we believe we can accomplish much of this added marketing activity without appreciably spending additional AMC marketing monies to do so. As studios already spend billions of dollars marketing their movies, by creating more targeted and efficient vehicles to reach avid movie fans, we expect studios will be keen to reach out to those in our loyalty program, to those in our database, and to those who use our website and smartphone apps out of their publicity and advertising monies.

Second priority, two: our commitment to creating spectacular movie-watching experiences in theaters will continue at pace. We are still seeing that reseating projects and food and beverage concessions upgrades continue to drive cash-on-cash unlevered returns exceeding 25%.

As of December 31, 2015, AMC had 1119 screens across 93 theaters with plush power recliners in operation. And AMC's outperformance of the industry at these theaters continues, as attendance at these theaters grew 16.6% and admissions revenue grew 23.2%, outperforming the industry by approximately 1060 and 1210 basis points respectively. We will continue to aggressively pursue more and more reseating and concession enhancements at selected theaters in our system.

Also in the theater innovation front, AMC's IMAX and Dolby Cinema auditoriums simply offer the best, the absolute best in movie watching. They represent 3% of our total screens yet generate more than 9% of our total box office revenues, an index of triple. Therefore, consumers are clearly demonstrating that they're wild about the IMAX and Dolby Cinema experiences.

Fortunately, for us, AMC has more IMAX and Dolby Cinema screens than does any other exhibitor worldwide, and we are in active dialogue with both companies about significantly growing the number of so-called PLF locations, premium large-format screens, at AMC within calendar year 2016 and beyond. We are now also fully engaged in developing a third PLF, private label in-house premium large-format brand to further augment and complement IMAX and Dolby Cinema. All three of these PLF executions will be a major area of growth for AMC in 2016 and the years ahead.

Three, AMC is committed to establishing a much better dialogue with major movie studios. Our program organization has excellent relationships already, but we're approaching studios at the highest levels to further enhance open communication, dialogue, cooperation and trust between AMC and the source of most of our movie content.

The better relationships we can have in a relationship business, the better off AMC surely will be. At the same time though, while we intend to strengthen our major studio relationships, we are also committed to increasing the showcasing of alternate programming including art films, faith-based projects, Asian films, Indian films, Hispanic language films and special events as distributed by Fathom Events, even sports programming.

Four, another important relationship to develop is the potential for increased cooperation with the cinemas operated by Wanda, our largest shareholder. During just my second week on the job, Craig and I flew to China to meet for an entire week with the Wanda leadership.

As the United States and China are the two largest movie markets in the world, we can only benefit from exchanging ideas on best practices and exploring more joint purchasing. As but one example of recent benefit, two distinguished, talented and smart individuals well-known to Wanda have agreed to join AMC's Board of Directors, namely Gary Locke, former governor of the state of Washington, former US Secretary of Commerce and a former US ambassador to China. Also, John Zeng, president of Wanda Cinema Line, both have added immediate value as new AMC directors.

Five, we are committed to creatively exploring, and if wise to do so, participating financially in the intriguing facets of technologic change that will surround the consumers' choices in the entire range of experiences surrounding movie watching. Lest anyone forget, it wasn't so long ago that Blockbuster might have invested in Netflix.

Six, the sixth priority on my list will be to focus on all of you, our shareholders on the broader investment community as a whole. I've said this before and you will hear me say it often again, I am a firm believer that management teams work for the owners of a business. And in our case, that means the shareholders of our company, many of whom are listening this morning.

You and the securities analysts who help you understand our performance and where we're headed are extremely important to AMC, and you're extremely important to me. As CEO, I intend to be visible and transparent with the investment community. I look forward to hearing your ideas for AMC as well as sharing with you mine.

And finally, seven, we are going to grow this company through marketing and product activity surely, but also through acquisition. With the acquisition of the Starplex theaters in the recent rear-view mirror just two months ago at AMC, we believe that we understand regulatory review and how antitrust policy will be applied to the movie theater business.

Speaking of Starplex, that acquisition added about 10% to our theater count, and we did not need to add even one single employee in our corporate headquarters to facilitate that growth. We have built a platform that can absorb well a larger scale than at current, which means that acquisitions of smaller or regional circuits can be added to the world of AMC with great efficiency.

And given that AMC has demonstrated that it's been a forward-thinking and innovative exhibitor, we believe we can offer more varied, high-quality movie-going experiences to the movie going public. Our theater additions therefore will be pro-consumer and pro-shareholder. What's more, given the highly fragmented nature of today's theatrical exhibition industry, we think there are any number of potential transactions that can be accretive in the very first year and pass regulatory muster.

Having said that, and this is pretty important, this will be the last time that I talk about our acquisition strategy. As a matter of new, clear policy, AMC does not now or in the future intend to comment on market rumors or speculative activity. Similarly, since we will not quantify acquisitions into our growth plans and projections until actual transactions are at hand, again, we will be silent on this front until we have something worthy of being said.

As we sit here today, I simply cannot be commenting publicly on whether we will have M&A activity today are not until a year from day or maybe not until the year after that. But do know and do rely on this: at AMC, we will be out there prospecting aggressively. And the instant we know we have a good opportunity at hand, we will then let you know as soon as we possibly can thereafter.

For those of you who tracked my year at the helm of Starwood Hotels, just as I've done here this morning, I laid out clear commitments of activity in my earliest days in the leadership chair, and then showed laser-like focus to make concrete and rapid progress on each. Before I turn the call over to you for Q&A, let me conclude by promising that as AMC did in 2015 and as I did elsewhere in 2015, we will promise that we will continue to work as diligently as it is possible within the purview of management team to deliver meaningful results and to focus on the priorities that I've outlined this morning and others as they may arise to realize the potential that exists for AMC in calendar year 2016 and beyond.

Thank you for listening. We realize it's a long commentary, but this is my first real quarterly call, and I wanted to share with you where AMC is headed. We will now turn the call over to you to take your questions.

Thank you.

(Operator Instructions)

Eric Handler, MKM Partners.

Thanks, a lot.

Craig, is there a way to figure out what a normalized admissions revenue per screen you had after adjusting for Starplex and all those other items, and how your core business compared relative to the industry? And secondly, when you look at your non-reseated theaters, the core so to speak, how are those theaters performing, and what are you doing there, specifically, to ensure that with all of the other reseating going on throughout the industry that their market share is hopefully stable?

Okay.

Well, normalized admissions revenue per screen I think was your first question. And unfortunately, there's not an easy, quick answer because we had -- we saw some things on pricing that Adam alluded to in his commentary that mitigated some of our pricing versus what others achieved in the quarter, whether that the tax on top that we anniversaried in the early part of the quarter, so we did not benefit from that.

We also had the impact of Starplex, which, their average ticket price for Starplex was just above five bucks. We're operating closer to $9. So even though it was only a couple weeks, those were two pretty big weeks that had a pretty dramatic impact on our business.

We were, however, successful in driving a lot of attendance, and on both a total basis and on a screen basis. But Adam alluded to our admissions revenue per screen of about $384,000 per year. I was going to look and see; in the quarter it was about $398,000.

Obviously, Star Wars had a pretty dramatic impact on the upside but, I don't know if that's helpful to give you the range. For the full year, it was about $386,000, and for the fourth quarter it popped up to just under $400,000. That's in a normalized range.

I will say, while I alluded to the dilutive impacts of Starplex, that is an area of opportunity for us to look at as we go forward, take a look at their pricing and see if there's some opportunities to drive more pricing. But, all in all, I don't know that we think that it, in and of itself, will have a large dilutive effect on our -- on the admissions revenue per screen that I just talked about on an annual basis.

And I will take your second question.

All those marketing programs that I talked about, stronger loyalty program, bigger database, more email and texting out to consumers to promote movies, that all applies to the core theaters every bit as much as it does to the reseated theaters. Similarly, AMC has a strategy in the past of really only going after a theater when it could do the whole theater. I think we're going to -- not I think, I happen to know -- we're going to take a more aggressive approach in looking at what we can do to improve the quality of the product, even in our core theaters without necessarily having to spend the capital to reseat the entire building.

There are a lot of things we can do in F&B. I already mentioned there are a lot of things we can do to put in better premium large-format screens, which clearly the public likes a lot. I think you will see a lot of effort not only directed at the theaters that are being wholly redone, but also at all the others in our system, as well.

Just to add a little bit to that.

Certainly, the core, when we split out the reseated theaters, you get a pretty clear view of the core. They did certainly perform, as we said before, we don't expect it to perform as strong as the reseated theaters. It is -- so what can we do to drive the business there? Well, number one, we are chipping away, or I'd say we are working at that circuit to convert as many of those assets to reseated theaters. But we're also deploying the food and beverage initiatives there.

We had some pretty strong growth year over year in the quarter and on a year-to-date basis where the core on a per-head basis actually performed in line or a little better than the rest of the circuit in the food and beverage business. So, while we don't have them reseated yet, we are getting some good lift on the food and beverage side, and will continue to do that moving forward, as well.

Thanks a lot.

Ben Mogil, Stifel.

Good morning. Thanks for taking my question.

On the increased investments you're talking about with Stubs and more database marketing, if the Stubs customers were already big movie-goers, are you looking at this largely as trying to get competitors' patrons? Is there any reason to think that the core avid movie-goer would go anymore if they got more emails effectively?

A quick answer to a good question. Number one, yes. I think we can steal market share like crazy.

Number two, today we have a paid program where our competition has free programs. That puts Stubs at a substantial disadvantage. And many people who would enroll in Stubs who might be splitting their patronage amongst a variety of locations and theaters and circuits, could become much more loyal to AMC if they are in our program. And that's what we're about to make happen.

So is the thought to drop or to lower the payments?

We will most likely keep the paid program, and we're actually going to test raising the price of the paid program, but we will also introduce a free program, as well. For those of you frequent flyer program members out there, think of Advantage and Advantage Gold, United MileagePlus and MileagePlus Premier. We will have two tiers, and we will make sure that our free program is appealing to movie-goers and that our paid program is even more appealing to movie-goers.

Thank you.

And I think it was the 16% attendance growth in the fourth quarter the renovated theaters and 22% box office growth, are those apples to apples? Are those against screens which were renovated in 4Q 2014, or does that include some ones that were renovated during FY15?

No. That's the total group. That's all 93.

If you were to strip out the ones last year that weren't renovated, which presumably obviously got a large lift on a same-store sales, what do you think the numbers would look like?

First year is usually 50% to 60% bump in attendance.

Okay. That's fine. So if you were to strip those out, because I don't know how many you added during the year, if you were to strip those out, were we talking mid-teens revenue growth?

For the rest of the group?

Yes.

Yes. At mid-teens on attendance.

On attendance. And what about on pricing? And high teens on pricing kind of thing?

The pricing's probably going to be in the 6% to 8% on that group. The non-first-year group.

Okay. Great. I think that's it for me. Thank you very much.

Eric Wold, B. Riley.

Thanks. Good morning.

A couple questions. One, on the thought about creating a third PLF brand to complement IMAX and Dolby, you understand the move before we started ETX, which changed the prime machine to Dolby, was to offer a solution to some location and slate restrictions around IMAX to offer consumers another choice. Can you give some sense of how you'd start a third that would still provide a premium option to consumers without cannibalizing IMAX or Dolby, assuming this third option will be at a lower ticket price?

As you know, we give a substantial -- I don't know that we've disclosed the amount, but as you would expect, Dolby and IMAX have a substantial cut in the revenues of their PLF screens. And there are some markets where consumers won't be willing to pay the required up charge that we need to get in order to give Dolby and IMAX their fair share of the revenue at IMAX and Dolby houses.

Right now the solution for AMC has to be that if the markets can't pay admission prices to give Dolby or IMAX their cuts, we can't offer them a large-screen auditorium. But, if it's a private label PLF, totally internal, then there is no third-party split, and therefore we can a charge lower price to the consumer.

Think of secondary or tertiary markets where disposable income is not as high, where consumers are more price sensitive, but still would enjoy a large screen. It may not be as spectacular as a large screen equipped with Dolby Cinema or equipped with IMAX, but it still going to be a significantly larger screen, with sufficient bells and whistles to make it a very good movie-going experience in that particular market.

That's helpful too, to know it's not going to be in a competitive market or the same auditorium or near your other IMAX and Dolby sites. I appreciate that.

I didn't say that. Because there's also the option that within a theater equipped with IMAX today for example, if the market was really robust, we could add a Dolby Cinema to a movie theater where IMAX already exists, as we did at Empire in New York and Burbank in LA.

But you can envision other theaters where there's -- where there will be an IMAX screen or a Dolby screen. Again, where the market can support one PLF at a price lift that might be 50%, 60% higher than a normal ticket price. And the market could probably support another PLF, but not one at as high a price as the IMAX or Dolby Cinema auditorium.

So, again, you could actually find a second PLF going into a movie theater, but -- the experience would be better than 2-D house, not as good as an IMAX house or a Dolby Cinema house. The price would be higher than a 2-D normal traditional theater, but not as high as an IMAX screen.

Again, it's an ability to offer a less expensive PLF, and other major movie chains have private label PLFs that are successful. Just look at the numbers. 3% of the screens, 9% of the revenues, that tells us the consumer is looking for more and more large-screen experiences.

That's helpful. Last question.

As you think about the slate and box office for 2016, it's easier -- if you have a differentiated view from most consensus that 2016 may not be as bad as fears. That being said, even if this year is flattish with last year, can you talk about AMC's ability to at least maintain or possibly even grow margins in a flat box office environment if that happens this year?

Number one, we're going to benefit from the Starplex acquisition, so we will have more screens. And we told you we brought them into our system efficiently. We told you we will do stronger market share that has a stronger marketing ability that has the ability to take market share. And we will see.

As for the slate in 2016, all of you who were forecasting movies in 2016 did not anticipate Deadpool would perform as it has. Disney has a very strong slate of films coming out this year.

We are buffered somewhat. If revenues are more sluggish, film rental costs would come down. And in particular, Star Wars had much higher film rental costs than the traditional movie. So, I wouldn't be surprised if average film rental costs came down in 2016 if we don't have a blockbuster like Star Wars.

We'd rather have a blockbuster like Star Wars. We'd rather -- we'd happily pay the higher costs if we got $1 billion of revenue as an industry in the first three weeks.

Perfect. Thank you.

Barton Crockett, FBR Capital.

Great. Thanks for taking the question. I wanted to ask a little bit around the studio side.

I'm very appreciative of your comment that you're not going to go too deep into M&A speculation. So I will keep this broader into Maddock as much as I can. There is this basically announcement out of Viacom that they're looking for minority investors in their Paramount studio, and you have been successful in the studio business now with Open Road. You have a big partner in Dalian Wanda over in China.

Could you talk about thematically whether this concept of maybe owning a stake in a large major studio as opposed to just a smaller one might be appealing at some level for you or for your partners in China that could help you in some way? Or are there antitrust concerns that make it a non-starter with consent decrees?

Let me say that while we're very close to Wanda, we talk for AMC, and Wanda talks for Wanda. So, I can't speculate on Wanda's interest in anything. But you are free to call them.

As for AMC, I said I wasn't going to comment on M&A activity, so I shouldn't comment on M&A activity. It's a slippery slope, because once you comment on the first one, then you have to comment on every other. But I will say that in the spirit of my remarks, I was talking about adding movie theaters to AMC so that we could bring theaters in efficiently, into our current system as we did with Starplex where we grew our theaters by 10% and did not grow our SG&A by a bp.

Okay. But to push this a little bit, do you see value in potentially owning more studio assets? You've had success with Open Road, or is that really not on your radar screen?

My focus is on making our movie theater network larger. And beyond that, I want to stay out of the business of the speculating about changing the Company's fortunes through acquisition.

I've noticed that others in this industry are talkative about what they might do. But I'd rather under promise then over deliver. And I love to tell you what we're able to have done rather than constantly be speculating about what we might do.

Let's just make sure we're all clear. My priority is to grow the number of theaters in our circuit.

Okay. All right.

On that growing the number of theaters, again, respectful of your desire not to go too far down this road, but also recognizing we're going to get a lot more from you, so I want to understand as best I can: you're new CEO -- where your focus is on the M&A front.

In the past I've thought about AMC as a big city circuit. Starplex got you a little bit away from that. How do you think of your acquisition focus going forward? Is it big city focused, or do you think you need to look, would potentially see opportunities in any range of small to big cities?

It's a pretty simple financial transaction in my head. If we can bring theaters into our system efficiently and where we are rapidly accretive, that's a higher priority than finding the perfect theater and overpaying for it.

Having said that, there are markets where we're not present, where adding theaters would be complementary to our current system. There are other markets where we are present where we may be present in a city, but we're not present in a particular part of the city and we could expand our circuit by filling out the Metropolitan District.

We are wide open as to what we'd look at as long as we can buy it right. And you've heard my definition of buying it right. We bring it in efficiently and we're looking for things that are quickly accretive.

I'd punctuate it quickly, you mentioned Starplex. We also acquired some rural market theaters in the Kerasotes acquisition and have satisfied ourselves that we're capable of operating in those markets as successfully as we do in the major markets.

So, we feel like we can really acquire assets anywhere. But we do have some filters and tests on the right types of assets that we want to buy. We won't shy away from smaller markets.

And it goes without saying that when -- studios like to talk about tent poles. Well in the theater business, we have tent pole theaters, too, because we have theaters with incredibly productive screens.

If you were going to bring in less profitable theaters, you'd have to make sure that you're absolutely maniacal about keeping their cost structure intact, because there are certain theaters that are more thinly trafficked and therefore have to operate with lower cost structure. Again, to me, the secret is buying right, not necessarily what the theater is.

Okay. And then just one small number question. What's your current feeling about your CapEx level for 2016?

So, guidance on the CapEx, we think next year our total CapEx will range from $390 million to a little over $400 million. Gross CapEx, we've talked before about landlords helping us on a number of these projects, willing to invest. We think the landlord contribution based on discussions we've had is anywhere from $120 million to $140 million. That will net down to $270 million, $250 million to $270 million, which is similar to where we were in 2015.

Okay. Thank you.

Jim Goss, Barrington Research.

Thanks. Adam, as a marketing executive, you seem very interested in refinement and nuanced strategies. I know there has been discussion about looking at types of reseats that might not take out as many seats, maybe not recline as much. Could be spaced a little more closely so you don't lose as much potential capacity in the market, or in the theater.

Do you have any thoughts of perhaps involving both the full recliners and the smaller recliners within the same theater complex, in the way that if you -- you know there's only a two-week window usually within a movie in IMAX, and then it will probably move to other screens and then create incentive to get the best seats in the earlier weeks and that sort of thing and have a varied option within a theater complex?

The simple answer to your question is, yes. I think I said in an earlier question, AMC's strategy heretofore has to do the whole theater or don't touch it. There are some theaters where we can't necessarily afford the seat because they are so well trafficked. We can't necessarily afford the seat loss of reseating an entire building, but that doesn't mean you can't reseat an auditorium or multiple auditoriums, but not the whole theater.

Similarly, I think in a world of reserved seating, which is clearly the way movie-going is trending and the way AMC is trending, once you've got reserve treating, I actually don't see any reason why you can't go within an auditorium, and have two different types of seats within an auditorium and a reserved seating context. You'd lose less seats. And if you wanted more comfortable or more spacious or more fully reclining seats, you'd pay a price premium to sit in those rows rather than to sit in the part of the theater that is not having as much density loss. That might be the way to extend the economics of the reseating projects into more and more locations.

Okay. Very interesting.

Also, your discussion about a third PLF; it sounds like you are in some way re-creating the ETX program you had had and that you have all the economics and you'd have more control over everything without having to pay a premium to either Dolby or IMAX.

How many of the original ETX screens wound up shifting over to the Dolby cinema at AMC Prime? How many are left and is that a fair comparison?

I don't think you should worry about how many of the old private label we have left. There are going to be a lot more Dolby Cinemas than there are today. There will be more IMAX theaters than there are today. We will be expanding the Dolbys and IMAXs more quickly than we will be introducing the PLF, the private label PLFs.

There aren't too many ETXs left. It's like 10 or something. My sense is they will be gobbled up pretty soon by either Dolby or IMAX. But still, there's lots of opportunity for us to think about this as we go down the pike.

Okay. Last question. Netflix and Crouching Tiger and the refusal of theaters to play it, which is totally understandable: is this the line in the sand with Netflix, or do you think that's going to be a continuing issue you will be dealing with?

I think it's probably smarter -- I said I'd be honest and transparent and candid, but I don't think it's a good idea for me to make public comments about how we're going to take on a particular competitor. It smacks to me that the Justice Department might be reading the transcript pretty closely.

Let me just say, I wasn't around when the Crouching Tiger controversy occurred a year ago. We actually did wind up as a favor to IMAX showing Crouching Tiger, and I believe four, maybe was a few more, maybe five or six, or a handful of theaters out about 153 IMAX screens. And the language of choice for those few screenings was Mandarin, which, I don't know that any of us on this call speak. But, I will cross and we, AMC, will cross future bridges of competition if, as, and when they arise.

All right. Thanks, very much.

Thank you. Chad Beynon, Macquarie.

Thanks for taking my questions. First, I wanted to go back to capital allocation.

You've dabbled a little bit on the M&A. You spoke about your enthusiasm around the future of the business in the next couple of years. And Craig, you gave the CapEx guidance.

A two-parter on capital allocation. One, just want to understand that the focus is clearly on growth in ROIC on the initiatives versus potential dividend increases and share repurchases.

And then secondly, if there are an inordinate amount of opportunities, Craig, would you and the team be willing to lever up the balance sheet to maybe capitalize on these? Thanks. And then I have a follow-up.

So, capital allocation priorities fairly consistent with our prior message that we will reinvest in growing our circuit internally. Organic growth through the deployment of receipts, food and beverage concepts and other strategic initiatives, that's first and foremost.

Closely behind is acquisitions where we find opportunities to grow. Third, would probably be to look at capital return once we've exhausted the opportunities. But I have to admit we feel we have a couple year runway left on very solid investment opportunities internally. And time will tell what the acquisition opportunities are.

On a leverage basis, we're certainly comfortable where we are today, 3.5 times levered. As I've said before, we'd take the leverage up into over 4 times if we had the right acquisition opportunity. We've operated the business successfully at higher levels.

We would want to see a path, even if we took it above 4, we'd want to see a pathway back down and possibly as an opportunity to use equity at some point to bring leverage down, as well. But, we are comfortable at 3.5, but taking it above 4 times is certainly, doesn't make us uncomfortable as long as we see a pathway back down below 4.

I'd like to add one comment specifically on capital return, because in prior lives, I've been a huge proponent of capital return. I would note that others in our industry pay higher dividends than we do as a percentage yield, so that's something that logically we should look at as we believe we have the balance sheet to permanently sustain a dividend. Because you certainly never want to take a dividend up and ever be forced to take it down.

But the other issue that I think is somewhat new and unique to our Company, and I'm actually curious to what your views are on the subject. I realize this conference call isn't the vehicle where we can do it, but when I hear from you individually I'm sure you will have views. In a normal situation, companies and management teams are recommending stock buy-backs all the time. We are not a normal situation. Only 25% of our shares are in the public float.

And I do think it's important that we have enough shares out there that institutions can come in, as they wish, knowing that there's sufficient liquidity in the stock that they can get out when they wish. And so things that reduce the share count to levels lower than where we are today is something that might actually turn out to be a big negative for AMC, which is counterintuitive because share buy-back is a very popular thing. But we need to make sure that the float is big enough that institutions want to think about us.

Okay. Thanks.

And Adam, you led off the call with the comment that the Open Road team has a new trophy on their mantle and congratulations to that. Can you help us think about what this accomplishment means for that entity?

If it improves the overall brand for consumers? If it will start to see more movies produced and distributed? If you could round out some thoughts on that, that will be helpful. Thanks.

Well, the exhibiting of movies is a fairly stable business. The business of moviemaking is a pretty volatile business. And even though we've invested $20 million of cash into Open Road previously, we've chosen to carry it on our balance sheet conservatively at zero value.

So there's some hidden intrinsic value on our balance sheet in Open Road. You've got to assume -- the way that distribution companies like Open Road make money is, one, if they are successful at it, making money as they show films. And number two, amassing a substantial library of films which have a long-time use for repeat licensing and home entertainment down the road.

So, number one benefit, or not the number one benefit, but the immediate benefit for Open Road is the value of its library just got higher because Spotlight is going to be a very valuable asset in its film library and will generate income for years to come. The other thing though that it should do for Open Road, Open Road has made a number of movies over the past four or five years, and when you have the prestige of having made -- and they just didn't buy this at a film festival, they made this one -- the best picture of the year, that's going to draw more filmmakers to think about Open Road as a place to distribute -- make or distribute good movies. And generally, good movies are more profitable than bad movies.

So, I think what we're going to see is this is just such a shot in the arm of prestige for Open Road that you ought to have a more attractive slate of movies in the years ahead, not necessarily films that are already in the can, and are going to be distributed in two weeks, but films that are going to be made. More artists, and I use the term deliberately, are going to want to associate themselves with the kind of firm that was behind Spotlight. So, it's really good for them, and we own 50% of Open Road, so it's really good for us too.

Okay. Thank you very much.

Thank you. Jason Bazinet, Citi.

You started off talking about the seven main priorities that you have for AMC going forward. My question was this: were there any areas of focus under the, under Mr. Lopez's leadership that you think will get less emphasis going forward?

That is an interesting question. And the answer is no. I think what Jerry was emphasizing to AMC 's great credit was what, I believe, was the second of my seven planks. That is, making the theater experience better and better.

You had close to 100 theaters wholly reseated. We went on a path of 150 plus IMAX theaters, as well as the launch of a pilot for Dolby Cinema, which when you see the product is a great product. It's a wonderful way to watch a movie.

We've had, I think it's close to 100 or 200 MacGuffins bars have been put in the lobbies of our theaters. I've never known anyone to lose money selling alcohol. So I'm not surprised that we are industry-leading in food and beverage profits per patron.

And I'm a fully supportive of those priorities. And if anything, I think they are so well proven that we ought to do more of them faster, and as we said on this call earlier, do partial theater renovations when we can make progress for some screens in the theater, but not necessarily the whole theater.

So, no, I don't want to leave anything of Jerry's on the wayside. He did a fine job leading this company. Having said that, I think there's some more things that we can do in addition, and I laid them out on this call.

Thank you very much.

Anthony Nemoto, Credit Suisse.

Thanks for taking questions. Two if I may. On the January investor call, you mentioned the financial impact of the marketing issues possibly coming through in the second half of 2016 time frame. Just wondering if that would still hold today as you see it.

And then secondly, on the Paramount deal, are there any directional indicators of how that has performed in terms of the downstream monetization and how you might be thinking about future similar deals? Thank you.

Yes, on the earlier call, I said that if we're going to see any financial return from the marketing initiatives, it won't be before the second half, because most of the new marketing activity is going to be worked on in the first half of the year and rolled out nationally in the second half. How quickly it kicks in, we will have to see. It would be nice if it kicks in right away, in which case, we get some benefit in the second half of 2016.

And certainly we know, we've got some targets internally. We have some aggressive targets internally. And we like reporting record results to you, and we will be focus on doing what we can to deliver for shareholders.

On the second question, there's no great learning from the Paramount test. There is a sense it was modestly successful, but no other studios have seemed to rush down that road. The whole issue of Windows is going to be a much larger, longer question that's going to spread into 2017 and beyond.

Got it. Great. Thanks.

Thank you. Please go ahead, sir.

We have more questions, or are we done?

No, we have no more questions at this time.

Good. I wanted to conclude the call by saying that I think I made the longest CEO statement on this call that I've done in 20 years as a chief executive officer. It's only been matched by your questions.

So, the fact that you're still with us an hour and a half into this call, we greatly appreciate your interest in AMC. I promise you that on all future conference calls, I'm going to shoot for 20 to 25 to maybe disastrously 30 minutes of comments, not 50.

And thank you very much for your interest in our Company. We appreciate it. And I hope we get a chance to meet individually between now and the next call.

Thank you. This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.