AMC 電影院 (AMC) 2016 Q3 法說會逐字稿

Greetings and welcome to the AMC Entertainment third-quarter 2016 conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Merriweather, Vice President, Investor Relations.

Thank you, you may begin.

Thank you, Jessie.

Good afternoon everyone. I'd like to welcome you to AMC's third-quarter 2016 earnings conference call. Before we get started with our prepared remarks, I'd like to remind everyone that, as referenced our press release issued earlier today, we have posted the CFO commentary about the third quarter and nine months ended September 30, 2016, on the Investor Relations page of our website at www.amctheaters.com

Some of the comments made by management during this conference call may contain forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 as amended and Section 21-E of the Securities Exchange Act of 1934 as amended. Forward-looking standards are subject to risks, uncertainties and assumptions and are discussed in our public filings, including our most recent 10K. Statements made throughout this presentation are based on current estimates of future events. The Company has no obligation to update or correct these vestments. Listeners are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk 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 adjusted EBITDA, adjusted EBITDA margin, adjusted 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 our non-GAAP measures to GAAP results in accordance with regulation G, please see our press release issued earlier today and furnished as an exhibit to our Form 8K dated November 7, 2016, which is located on our Investor Relations area of our website.

Please note that the following communication is not an offer to sell or solicitation to offer to buy any securities or solicitation of any votes or approval. We urge investors and security holders to read the registration statement on Form S4, including the definitive joint proxy statement prospectus and all other relevant documents filed with the SEC or sent to stockholders as they become available. 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'll now turn the call over to Adam.

Thank you, John.

Good afternoon, everyone.

This past summer and the year-to-date period are proving once again that the movie exhibition industry is a healthy one and that AMC Entertainment is a stellar performer. After a record 2015 box office, some speculated that 2016 could be a difficult year. They have been wrong. While Star [Wars] will make for a challenging fourth-quarter comp, the very real potential exists that 2016 may exceed last year and represent, yet again, another record box office year domestically in the US and Canada for the movies. That would make it the fifth record box office of the past six years.

Year-to-date as of November 3, the industry box office was ahead of last year by about 3% and those figures do not include the impact of Doctor Strong over the weekend. When we look at the movie slate for 2017 and 2018, we are even more convinced in our belief that this is a great time to be in the movie industry.

That is intentionally a very quick review of our industry strength because I would much prefer to turn more specifically to AMC Entertainment. As an innovator and a Company committed to being the industry's leader, it's a great time to be AMC. I took on the helm of AMC, as you know, just 10 months ago. Then we embarked on a new journey to grow this Company and armed it with a set of key priorities, and we are doing just that.

The speed at which we have moved to position our Company for success has been widely noted. We are accelerating our investments in the theaters of AMC with guest-focused amenities that make movie-going at AMC an incomparable experience among the mass operators. Our marketing activity has really stepped up its game to world-class levels.

Meanwhile, we are simultaneously seeking to boldly expand our footprint, both domestically and internationally. Our expansion in the US and Europe isn't just about acquiring more theaters. It's more about connecting with our guests and creating comfortable, even luxurious, experiences at our theaters both in the US and abroad that translate into additional box office attendance, additional revenue, and additional profit. In 2017 and beyond, literally hundreds of millions of new AMC moviegoers will benefit from our investment and the deployment of our proven innovative guest amenities.

As we prepare for a busy finish to 2016 and an exciting start to 2017, let's recap AMC's strong third-quarter results. Then I will provide an update on the progress we're making on our key priorities and how we believe they position us for even more future growth ahead.

In Q3, AMC set third-quarter records for every revenue segment including attendance, average ticket price and food and beverage for patron, as well as records for adjusted EBITDA, adjusted EBITDA margin, adjusted free cash flow, food and beverage, gross profit per patron, and total gross profit per patron. All told, third-quarter total revenues increased 13.2% to nearly $780 million; adjusted EBITDA grew 32.5% to a record $144.4 million; and diluted EPS increased 158.3% to $0.31 per share, exceeding all consensus estimates for adjusted EBITDA and diluted EPS.

While our adjusted EBITDA and diluted EPS handily exceeded last year and current expectations, our revenue growth, while impressive, warrants a closer look. I will point out a couple of factors that affected our year-over-year AMC and industry comparisons. Before I do, I must point out though to all that we do not manage our Company only for short-term revenue growth. Profitability is what we are in business to deliver, and we certainly delivered profitability in Q3 of 2016.

While revenues achieved record levels, they could've been higher still versus our competitors year over year but for three factors. First, the impact of our Starplex theaters acquired in December 2015. Acquiring Starplex was a great decision, as it added to our profitability as these theaters continue to perform as expected. But as we've reminded investors since we completed the transaction, the Starplex theaters operated with a much lower average ticket price and lower food and beverage per patron metrics because several of the properties are operated as second run theaters. Their overall smaller, more non-urban locations aren't as productive as AMC core urban locations.

As a result, the Starplex theaters dilute our admissions revenue per screen metric relative to comparisons to a year ago and to the industry. If we remove the impact of the Starplex theaters from our consolidated results for the quarter, our admissions revenue per screen metrics were approximately in line with the industry.

Second is the impact on attendance per screen of AMC's outperformance in last year's third quarter. On a per-screen basis last year, AMC outperformed the industry by a somewhat extraordinary 330 basis points, which makes Q3 2016 a harder hill to climb over this year. When we look at things on a two-year basis and again, excluding Starplex, the highs and lows tends to even out; and attendance per screen was generally in line with the industry.

Third, our marketing activity this year has been impressive; but so much of that marketing activity, which we embraced so determinedly in 2016, is geared to kick in only in 2017 and beyond. Cases in point, the national rollout of redesigned AMC stubs loyalty program in July with its staggering almost 80% growth in active membership households in just a few months.

Second, the creation over the summer of a new, highly quantitative and analytic pricing department for AMC, the first ever pricing department for our Company in its 95-plus year history. And third, the expected launch a month from now of our new $11 million website and smart phone app, which we expect to be a game changer and a truly potent selling tool for AMC going forward.

In total in Q3, we accelerated our growth in the third quarter with double-digit and in some cases even triple-digit increases in revenues, adjusted EBITDA, net earnings, diluted EPS, adjusted free cash flow. It was a great quarter. While we are proud of these results, I have to tell you that I take even greater pride in the knowledge of what has taken place here in Leawood, Kansas and across our circuit over the last few months including Q3, to ensure the likelihood that we will continue to drive outstanding results and increase shareholder value creation, not just third-quarter, but far more importantly, for many years to come.

With that image in mind, let's share more color on the considerable progress that we have made in 2016 toward achieving our key priorities and also provide a little insight into what's come.

Let's start with marketing. When last we spoke in August, we were in the early stages of our AMC stubs relaunch, a linchpin of our efforts to leverage world-class marketing to grow demand and increase market share. We expected enrollments to grow of course from our new program, but we've been blown away that new member enrollments have gone through the roof the way they did. Back when we started our pilot testing of the new stubs program, we had about 2.5 million-member households, a figure that had plateaued without significant growth for over three years.

As of June 30, we hit about 2.7 million active AMC stubs household members, with some new membership surges coming in our 37 test market theaters April and June 2016. We rolled out the new AMC stubs program nationally on July 11. By September 20, we had more than 4 million active household members enrolled. Roughly 1.5 million new enrollments from the time of our test market of the new AMC stubs program.

Indeed, new members were enrolling in AMC stubs at a rate more than 11 times the number of enrollments during the same period in the prior year. Clearly, members wanted to be rewarded for their loyalty. New enrollments have continued to pour in. This very week, we can report to you that we have now exceeded 4.5 million active household members; remember we hit 4 million on September 20. And ultimately, we hope to be able to double the active AMC stubs member households again over the next 24 to 36 months.

Not only do we benefit from the inherent loyalty-driving characteristics of AMC stubs, of great importance, we're also creating a much larger and more valuable customer database. With individual purchase histories, we are increasingly able to more efficiently target our marketing efforts to further drive box office attendance. After all, we pelt AMC stubs members with more than one email and/or text each week touting our movie options.

New for AMC, we have designed a so-called recommendation engine, think Amazon and Netflix, so that AMC stubs members will get different weekly messaging customized and tailored for each member individually, based on their own specific past movie purchase histories. Hopefully you agree with what we know to be true, that AMC database marketing efforts have truly now become state-of-the-art.

The following caveat about AMC stubs is a pretty small point, but for those of you who are modeling it, we mentioned on our last call that relaunching AMCs stubs necessitates start-up program expenses in addition to deferring the revenue impacts that account for the redemption of those future rewards. In the third quarter, we recognized about $5 million of the original $8 million to $10 million of adjusted EBITDA that we expected for the last two quarters of the year.

Well, we now have a very high-class problem on our hands. People are enrolling in AMC stubs in number so far exceeding our internal estimates that we're now deferring more rewards costs to future periods. So we now expect AMC stubs ramp-up costs to impact adjusted EBITDA in 2016 by a little more, by approximately $5 million to $7 million in the fourth quarter. As a reminder, that deferred revenue all will return to our income statements in future periods based on the timing of reward to redemption and breakage calculations.

We continue to expect the new AMC stubs program to be generative for revenues and for market share and to be accretive to adjusted EBITDA in 2017. The success of the new AMC stubs effort is just the first feather in the cap for our marketing organization. Wait until you see the new AMC website and mobile app that should launch in phases starting next month. The new AMC website and mobile app promise to offer users a visually and graphically appealing interface. They will contain far more robust content on films, actors, studios and all things movie related.

Fully integrated with the new AMC stubs program, this rich new graphical platform is also expected to simplify the process of finding the movies guests want to see, when they want to see them and where, and with the AMC amenities they want to enjoy. Comfortable powered recliner seats, MacGuffins bars, IMAX and Dolby cinema options, enhanced food and beverage choices, food ordered online in advance of going to the theater, Coca-Cola freestyle machines, all will be promoted much more aggressively on our new website. This is important because already approximately 25% of our tickets are being sold online now.

And more importantly, our website is visited already an astounding 160 million times annually. How many more visits will we get? How much more time will people linger there on our site, and how many more browsers will we convert to ticket buyers with a far more robust website? Some have already seen it described as night and day, direct quote, when compared with our current messaging on the World Wide Web.

There are other positive marketing steps forward that we are taking, the aforementioned new pricing department. We're also upgrading our game in social media, devoting far more resources to increasing our presence and visibility on social media where millennial lives.

We are also increasing the prominence of reserved seating at AMC. In the summer, we introduced reserved seating at all AMC theaters in Manhattan, whether they had been renovated with recliner seating or not. Reserved seating, which removes anxiety from an unknown seat location, was well received and contributed to an increase in online ticket sales and, importantly, to overall guest satisfaction. Deployment of this type of technology also allows us to optimize expense management in our theaters. As online ticket sales increase, we will need fewer box office staff, allowing us to proactively manage staffing levels to mitigate minimum wage increases.

Speaking of our online ticket selling efforts, we're also working more closer than ever before with Fandango. We rolled out Atom Tickets all across our entire theater network in the third quarter of 2016.

Now let's turn to product design and delivery at our theaters. In our last quarterly call, we informed you that we are absolutely committed to driving forward with theater renovations, installing recliner seats, alcoholic bars, better food and drink, and more premium large format screens. That's a winning playbook.

Fully one-third of AMC theaters are now renovated, and we expect to get to the two-thirds mark of the current AMC circuit by the end of 2018. No one else will have as many renovated theaters as AMC. A statement we can say today, a statement we can say tomorrow too.

In Q3, we invested approximately $87 million of capital expenditures net of landlord contributions to improve the guest experience at our theaters. The overwhelming majority of this capital was invested in our recliner renovations, which continue to generate unlevered cash on cash returns in excess of 25%. For the third quarter, our recliner seats generated impressive statistics. Attendance for screen growth of 8.9% and admissions revenue per screen growth of 18.9%. Outperforming the industry by 180 basis points on attendance and 850 basis points on revenue per screen. Recliners continue to drive incremental growth and will continue to garner the majority of our reinvestment capital.

As of September 30, 2016, including at dine-in theaters, we operated approximately 1,550 recliner scene screens. Renovations will continue in earnest and, including dine-in theaters too, we expect that renovated 1,900 screens by the end of 2016; 2,650 screens by the end of 2017; and 3,350 screens by the end of 2018. Those renovations are not only coming in future years; they're coming right now. For the period August to December 2016, we have opened or will open 37 theaters constituting 460 screens, with a full-blown AMC style renovation, especially including reclining seating.

Enhanced food and beverage offerings represent another proven guest innovation that AMC has deployed and will deploy. With innovative new kitchen technology, we are currently testing and evaluating new menu options for theater concession stands that have traditionally been reserved only for dine-in theaters. We believe that both the variety and taste of these new food items, including seven gluten-free snacks for you gluten haters out there, broadly offered at our concession stands across AMC will surprise and delight our guests and challenge what they've come to expect as traditional fare at the movies. Rollout of our new concession stand menus in the US will take place in the first half of 2017.

The popularity of our Coca-Cola freestyle machines, with their 100 different flavors, is also undeniable. We expect to have Coca-Cola freestyle machines available in all of our theaters by the end of 2016, within the next two months. Coca-Cola products aren't the only popular beverages in our theaters, as the appeal of having a beer, glass of wine or cocktail for our over 21 customers has attracted a lot of attention at our MacGuffins Bars.

We currently sell at AMC, alcohol in 158 of our theaters today. That's over 40% of our circuit. We expect to have nearly 170 theaters serving alcohol by year end, and to be doing so at some 250 theaters by the end of 2017. We will continue to add one of our three MacGuffins formats whenever and wherever we can obtain liquor licenses to serve alcohol. As I've repeatedly said, nobody is ever lost money selling alcohol to the American public.

The other area where we've accelerated the rollout of our innovations is in our premium large format screens, PLF for short. Whether through IMAX at AMC or Dolby Cinema at AMC, or in a new private label branded PLF format we expect to launch in 2017 as well, these auditoriums provide our guests with the best in sight and sound experience anywhere. We receive our best customer satisfaction scores in IMAX and Dolby auditoriums, which index revenues at levels two to three times that of a traditional AMC auditoriums.

AMC currently has 154 IMAX screens, and is the largest IMAX provider in the United States with about 43% of IMAX's total US deployments. During the second quarter, we announced an agreement to expand the number of IMAX auditoriums in AMC's US theaters by more than 20% to 185, further reinforcing our position as a largest IMAX exhibitor in North America. The IMAX theaters are expected to be installed now through 2019 at both existing and new-build AMC locations, with the majority of the new IMAX auditoriums opening within the next two years. IMAX is a fabulous partner for AMC, and we're excited about our next growth.

Similarly, during the third quarter, in response to impressive guest reaction and the overwhelming success of Dolby Cinema at AMC in its first full year, we announced that we would be accelerating the deployment of 100 Dolby Cinema at AMC locations a full seven years sooner than originally planned by the end of 2017. We have continued to work on further expanding our Dolby presence, Dolby also being a fabulous AMC partner. I am pleased to share with you that our total commitment to Dolby Cinema at AMC is now 160 screens by the end of 2018.

We believe that the pairing of IMAX and Dolby Cinema is an unbeatable combination for our guests, who are seeking the finest in sight and sound in watching the movies. While I'm getting ahead of myself talking about Odeon, I think you should expect that we'll be taking IMAX and Dolby Cinema with us to Europe.

And finally, in thinking of the strides that AMC has made in 2016, let's talk about our two acquisitions. Indeed we are nearing the anticipated completion of two acquisitions that will literally transform AMC into the largest movie exhibition Company in the US, in Europe, and in the world. In the process, we will introduce our proven innovative guest amenities for the benefits of hundreds of millions of new AMC moviegoers across the globe and change forever how they think about going to the movies. Both of these acquisitions offer AMC unique opportunities, as we grow from approximately 385 theaters to approximately 900 theaters in just a year's time.

Let's start in Europe with Odeon and UCI, Europe's largest movie exhibitor. As we said when we announced the transaction in July, this is truly a once in a generation opportunity. Given the advantageous timing of the currency markets, the pound was at $1.49 when we started talking to Odeon. It's at $1.24 today. The attractive valuation relative to Odeon and UCI's European publicly traded peers that we were able to secure, we paid 9.1 times trailing EBITDA for Odeon. Odeon's two largest publicly traded comps in Europe currently trade for 10.5 times trailing EBITDA and 13.4 times trailing EBITDA, respectively.

The third reason this is so intriguing for us is the fertile environment we have to deploy our theater improvement initiatives across Odeon's theater network. The investment thesis really is the chance to bring what US moviegoers have enjoyed over the past three years to Europe and have a first mover advantage.

We believe the acquisition of Odeon UCI offers us an exceptional growth opportunity for years to come. We reiterate today what we said to you in July, that we believe we can drive a 50% growth in Odeon EBITDA over the next 4 to 5 years. Although to be fair, that will be backend loaded in 2019 and 2020 because we will spend most of 2017 planning theater renovations and getting those theater renovations in place in 2018, 2019.

As for the progress of the transaction, Odeon's sole shareholders already approved it; so no shareholder vote is required. We are currently awaiting regulatory approval from Europe's competition and markets authority, which we expect to receive without incident as we only have one theater today in Europe. We're hopeful that we'll have the results of their review within the next 30 days. As soon as we receive it, we'll complete the deal in a matter of a few days and certainly by year end.

The Carmike acquisition similarly offers AMC a complementary geographic footprint and yet another opportunity to deploy our proven growth initiatives at theaters across a larger domestic runway, including both AMC theaters and Carmike theaters. Importantly too, we reaffirm today that we are confident we can deliver an attractive $35 million in synergy and that we can do so relatively fast.

As for the status of this transaction, Carmike shareholders are required to vote to approve the deal; that vote is scheduled to occur on November 15. After our revised offer to increase the purchase price to $33.06, both ISS and Glass Lewis have recently recommended that shareholders vote in favor of the revised offer. We are confident that the shareholder vote will be positive.

The only other approval we will need before able to complete the Carmike acquisition is that of the US Department of Justice. We have been in active and constructive discussions with the DOJ. As has always been the case, we do expect to divest a limited number of theaters in conjunction with that DOJ review. Even so, we're very optimistic that we will get through the DOJ review successfully. While there is no timeline for when we expect to receive the results of their review, we could close the Carmike transaction as early as December, although closing could easily spill into 2017.

Now let's talk about paying for it all. We launched a debt offering on October 24 and expect it to complete in the next day or so. Based on a huge amount of interest from debt investors, our pricing came in on the tight end of the range, as we reported in this afternoon's press release. As you know, the sellers of the two companies have agreed to take somewhat in excess of $400 million of AMC equity, further making the financing of these two transactions readily possible and with ease.

So in summery, as you can see, we're playing on offense. We're focused on our key priorities; we're taking decisive action; we are generating real results. We've a lot of work to do in integrating three companies into one, but I'm confident in our team, the direction we are headed, and the strategy we are executing to position AMC to take full advantage of the opportunities that lie ahead. Q3 was a great one, wait till you see the years ahead. As always, we thank you for listening.

Operator, let's open it up for Q&A.

Thank you.

(Operator Instructions)

Eric Handler, MKM Partners.

Yes, thanks for taking my questions. Two questions for you.

First, Adam, one thing you've talked in the past about is you have a marketing person in charge of pricing, and wondered if you had any updates along those lines? Secondly, just curious about the Starplex acquisition: given what you're trying to do with improvements at your theaters with the re-seats and all the higher end amenities, does it make sense to still have second-run theaters with Starplex? Yes, they may be profitable, but is that the image you want to portray? And then, I just wondered if you could talk a little bit, with regards to Starplex, have you thus far gone forward with any re-seating of those theaters? And how is that gone in this smaller markets?

Okay. So, in the middle of the Department of Justice review of our Carmike acquisition, I'm not going to spend any time talking about pricing other than to say that the person we hired to be our Vice President of Pricing is very smart. I will be looking at optimizing pricing to generate revenues, which, while it could mean prices may go up in some places it may cause pricing to go down in other places. Always design to charge the right price for the right guest.

In terms of Starplex, as long as the theater is profitable, better to have it than not have it. But we think we've come up with a pretty intelligent way to run AMC going forward, especially in light of the Carmike acquisition. We've said previously that we are going to run AMC with two brands, and that some of our lower visitation, lower price theaters will find themselves in a second brand so that we can better marry customer expectations to the actual product that we offer. And I think you might see that a lot of the Starplex theaters may be going into the brand in which a lot of the Carmike theaters are today, the theaters that have smaller visitation, charge lower prices. And again, we marry customer expectations to reality, and if those theaters are profitable, while they will have lower profits and they will have lower margins, profits are profits and we manage the business for profits. And by having the second brand they don't bring down the mothership AMC brand and we can target our renovations and huge capital investments in the AMC brand.

Now, even though I said a lot of Carmike theaters are going to go into the second brand, a lot of Carmike theaters are going to move up into the AMC mothership brand, and so we expect to be pouring literally hundreds of millions of dollars into some of the Carmike theaters as they come into the AMC brand, because we think we'll be able to drive huge increases in amenities, customer pleasing amenities across the Carmike system. And that's good for moviegoers and we think the Carmike acquisition is a transaction that is designed to make movie-going better for moviegoers at Carmike theaters.

I also don't want to give you the impression that customers will be dissatisfied with the so-called second brand, because we're also putting guest amenities into the second brand that moviegoers at Carmike do not enjoy across the board today. For example, we've talked about Coca-Cola freestyle machines, with self-pour, free refills, and 100 different flavor choices. We are going to put Coca-Cola freestyle machines in 100% of the Carmike theaters by the end of June of 2017, Q2 2017, whether those Carmike theaters are going into the AMC brand or they are staying in the so-called second brand. So we're improving movie-going, and of course all Starplex theaters already have, and all AMC theaters already have Coke machines, by December 2016. So we're improving movie-going at the second brand; we're improving movie-going at the mothership brand.

And the answer to your specific question is no, we have not put recliners yet in any of the Starplexes.

But I would add, we have not at any of the Starplexes; we have re-seated some smaller-market theaters. We are not just focused on the large markets. So we'll oftentimes find that it's probably not as much of an investment because, I think Adam's referenced before, the lift may not be as great, so we have to right-size the capital investment. But we have on a very profitable basis and from a return perspective already re-seated some smaller market theaters.

Right. Thank you very much

Ben Mogil, Stifel.

Hello, good afternoon. Thanks for taking my question.

So two: on the renovation front, when you're looking at the new re-seating opportunities, new venues, venues that are going to be renovated for the first time, are you targeting zones which no operator has touched? Or are you targeting zones where an incumbent has already been made investments and you still feel it's worthwhile to make investments on your front?

The answer is a very simple word: both. Because where we renovate where no one else has renovated, we increase market share. And where we renovate where others have renovated against us already, we regain some of the market share that they may have taken from us. But in any case, we're looking carefully at the investments and we're targeting those theaters where we think we can get a 25%-plus unlevered cash on cash return.

And is 25% still your threshold, effectively?

It is.

I would add, too, Ben, that landlords are also, as you know, very invested in this program; and where we are in a competitive situation, someone may have already opened in a market, but landlords want that traffic. To Adam's point, they want a competitive response and are willing to sometimes invest more than our 30% to 35%, which helps us on the returns as well.

Okay, that's great, thank you.

And then on the Carmike deal, in terms of the scope of divestitures, are you planning on selling mainly legacy AMC or legacy Carmike assets? And curious, just to expedite the whole process, do you want this to be, we're going to offer X and they come back with Y? Or do you want this to be one fast approval, if you will, and possibly offer some more for divestiture?

Well, as I think you can understand, our conversations with the Department of Justice are and will be sensitive until the day we get their signature on a piece of paper. So I think it's better for us not to speculate publicly, but I've already said that we are in constructive and active dialogue with Justice, and we've actually started the process of marketing theaters for potential sale. We have a pretty good handle on where we may wind up and we think it's quite manageable and not all that important with respect to the size of the overall transaction.

And is it your thought that, not just maybe this, but in general, and Craig, I know in particular you've been through a number of asset divestitures over the years that the regulatory put together. In general, do you see that assets trade at about what you ended up buying stuff for on a post-energy basis?

Let's hold the announcement of the details until we have a purchase sale agreement in hand with a buyer. Probably -- we are in negotiations after all. Right?

Fair enough, I appreciate that. Thank you very much.

Barton Crockett, FBR Capital Markets.

Great, thanks for taking the question.

I wanted to get more color on the loyalty program. Could you give us a better sense of the mix of free versus paid? And what you're seeing in terms of attendance uplift and how it's tracking versus what you would have hoped for from the rebound?

Sure, free versus paid: well, all the people who were in the program prior to July 11 have been renewed for a full year as paying members, so that's about 2.7 million. And then of the new members who have enrolled, which is about 2 million, they are enrolling at about 87:13 free versus paid. But lest you get anxious about that, because I certainly am not, you have to get deep into the intricacies of loyalty program designs. The paid program is a 10% generosity program. That means for every $100 you spend, you earn $10 of credit for future AMC movie-going. And we charge to you $12 to join the program and $9 to renew in the program. So the average membership revenue was $10 or $11 per.

The free program is only a 2% generosity program. So every $100 that you spend on AMC movie-going, you earn $2 of discount or credit on future AMC movie-going. Which means that for every $100 you spend in the course of a year, it's costing us $8 less to fulfill your reward, which essentially offsets the giving up or forgoing of the membership fee.

So that's the free/paid story. The economics of the free/paid is basically a wash. We're indifferent whether someone is a free member or a paid member, because the generosity of the free program is so much less. But what's critical is our database has already enlarged from 2.5 million member households, which is close to 10 million people at four per household, to 18 million people, 4.5 million member households, in just a few months' time. And that's that many more people that we have their purchase history tracked, we can email them or text them between 50 and 100 times a year, and now with a recommendation engine, we can email them information about the right movies instead of just movies generally. So the goal isn't to get paid members; the goal is to get members, because it increases our ability to market movie-going to a lot more people.

In terms of the pace of activity, AMC Stubs had been tracking under the old program about 21% of our tickets annually, 42 million on 200 million tickets, where people were actively tracking for credit in the program. And already in early October -- and that number 21% had not grown for three years. Already in October that number had grown to 28%, and that wasn't even three months after the new program had kicked in. And remember, while a lot of you will go to the movies once a month, a lot of people go to the movies two, three, four times a year. So the incrementality of AMC Stubs to kick in was really thought to be a 9- to 18-month period of time. The fact that the tracked patronage is up from 21% to 28% in three months has really blown us away and we think we are easily on track to getting the patronage to double from the 21% to in excess of 40% sometime in the first 24 months of the new program's launch, and that's just fabulous news for us.

We've seen a lot of research that says the incrementality of ticket purchasing has double digit; once people are enrolled in these programs they come to buy from us more often. So you put this all together: more members, bigger database, bigger track percentage of movie purchases, just in the first -- what are we, not even in the first four months yet? These are just really fabulous results. We could not be more excited.

That's really great detail.

And to switch gears a little bit, you did open the door a crack on Justice, can you tell us --

I opened the door only a crack. Go ahead.

Okay. Well, me see if I can put my foot in there and maybe it will get slammed on. But can you tell us, is Screenvision, National Cinemedia, is that part of the dialogue with Justice?

It's part of the dialogue with Justice and beyond that, I really shouldn't say any more.

Okay. All right, thank you.

So I answered the question as you asked it, I just didn't elaborate very much.

David Miller, Loop Capital.

Yes, hi, Adam. A couple of questions.

On the Odeon review in Europe, I know it's pretty clean; could you just refresh the audience on the call today about how the regulatory bodies in Europe tend to go about these things versus the regulatory bodies in the US? Is the process pretty much the same? Are there any hiccups that you think might happen over the next 30 days? And then also, on your cost of goods sold, very nice blocking and tackling on expenses in general, but it looks like cost of goods sold on concessions was way down, at least versus my models. Any explanation for that? Thank you very much.

You bet, thank you David.

You know, I think I'd say that the anti-trust views in Europe are pretty similar to the anti-trust views in the States with one caveat. In Europe, you tend to go through two anti-trust reviews, not one. You have an antitrust review with the EU across the whole of Europe, and then they have the ability to refer a second anti-trust review to a particular country. And similarly, a country has the right to ask for an anti-trust review that's country-based rather than pan-European.

We are on a clock with -- well, we're not on a clock with the Justice Department in the United States; we are on a clock with the European review. And we know the final date at which we can get approval of either through action or non-action. Since we have only one theater in all of Europe, it's really hard to imagine that they could be all that concerned about the anti-trust implications. And should the UK pick it up as well, the worst thing that they could ask us to do, I suppose, is sell a theater in Manchester because there is only one theater where there's overlap in the UK. So we are not worried about anti-trust review in Europe. And we think this transaction will sail forward into, theoretically, in December closing. In the States it's a little more loose with respect to timing, and when we reach agreement with Justice, then we'll go forward with the Carmike deal. Again, assuming a positive shareholder vote that we expect.

In terms of cost of goods sold, Craig will want to talk to that, but I'd remind you that we've been managing expenses well all year, and I think we have a lot of tradition in the movie theater industry, you talk revenue, revenue, revenue, revenue. At AMC we want to talk profit, profit, profit, profit, because we are not in the business of driving revenues; although we in the business of driving revenues, we're the business of generating profit. That's how you all value us. And I would remind you that one of the reasons that our cost of goods margins improved is because our revenues do continue to go up. Of the majors, we have now the highest food and beverage metrics per patron of anybody. The numbers I've seen have us 10% to 20% higher than the other big guys, and that is among the reasons that our cost of goods sold as a percentage of revenue looks good.

That's actually the biggest part of it. The other thing, David, is, we do have some rebates that come into that number, the cost number that we get, that we earn from vendors and that does fluctuate a bit from quarter to quarter. But to Adam's point, it's largely the revenue base has grown so rapidly

But looking ahead and not looking back, I look forward to having Carmike and Odeon in our circuit when we go from 386 theaters to around 900. Many of our vendor deals are global deals, and we think we'll be buying better for the combined circuit than AMC buys today. We also know for a fact, we are going to be able to buy better for Carmike individually and for Odeon individually; not any criticism of Carmike or Odeon's buying, just talking about the benefit of scale. And the fact that if you're a $4 billion player or a $5 billion player, you're going to get a lot better deals on things that you buy than a $1 billion player. And that's part of the thing that's going to allow us to reinvest to improve the quality of the Carmike and Odeon theaters, which is going to be better for moviegoers and cause more moviegoers to want to come to the theaters. It's a nice self fulfilling prophecy of success.

Thank you very much

Sachin Shah, Albert Fried.

Hello, good evening guys.

Aron, so just want to circle back on this shareholder vote that's coming up next week on the 15th. Wanted to make sure that everything was lined up so there's no issues that we've been seeing over the past few months. That's A, and B is, you mentioned a purchase sales agreement. So are we basically waiting for a divestment package to be presented to a potential buyer that the DOJ is going to approve? Is that what we are waiting for? Because sometimes they want to see a buyer, credible buyer, for assets; and if you have a package in mind, that might be the path and just want to understand if that's the case. Thank you.

Thank you.

Let's talk about the shareholder vote. You talked about, let's call it, the friction over the past several months. Actually over the past several months, you haven't actually seen any friction with respect to the shareholder vote. Since the new deal was announced in July, you haven't heard anything negative from one of the large shareholders of Carmike. In fact, one of the large shareholders of Carmike put out a public press release that was voting in favor of the transaction. While you had heard negative recommendations from ISS and Glass Lewis, you've now heard positive recommendations from ISS and Glass Lewis. So the friction that you are recalling with Carmike shareholders was back when the deal was $30 all cash. And what we have heard publicly and privately from Carmike shareholders with the 3306 transaction, 30% stock, 70% cash, leads us to conclude that we will be very pleased when Carmike announces the results of its shareholder vote.

On the issue of the divested theaters, we have been in active dialogue with Justice, so we have some sense of what's in their head. But until the deal is done with Justice, we will not know exactly what's in their head. We have been marketing the theaters that they've indicated to us they are concerned about. And we believe at the end of this all, that when we announce that we have an agreement with Justice and we announce which theaters we divest and when, that you'll all be pleased with that effort with respect to the divested theaters, as we are.

Okay. Next week's shareholder vote, and excuse me, I didn't mean to indicate that there was some friction, just the past issue, I know it's been resolved, but just wanted to confirm it. So no issues on my part, so apologies in advance. But as far as the divestments is concerned, you said, just to confirm, small theaters that you are expecting. And then so shareholder vote next week, DOJ, and then because of the marketing is done for the financing, we could see the deal close, as you mentioned, as soon as end of June, excuse me, end of December, and then if not then, early January timeframe?

You're putting a lot of words in my mouth. So what I want to do is the following. Number one, I would say that you don't have to apologize for anything you said in the first question, I was just making sure we correct the record. Second, I think I'm going to let the comments that I made on the call stand as uttered. I was pretty clear and precise in what I said, so if you go back to the transcript or the repeat of the call, you can get exactly what I said, because I don't want to accept some of the things you said and not challenge others because I don't want people to get the wrong impression. What I said on the call is what I want to stand by.

Okay, fair enough. Thank you everyone, have a good night

Thank you.

Eric Wold, B. Riley.

Thank you. A couple questions, Craig.

One, it looks like, given the pace of remodels you laid out, you go from about 800 re-seats this year to 750 next year, 700 the year after that. Should we assume that CapEx radically declines by that level? Or you start going into certain markets that have a different mix of locations, different construction cost levels, different amenities you might be adding, which may impact that CapEx level versus this year?

You can assume that for the AMC circuit; but remember, we are expecting the Carmike and Odeon circuits are right behind. And just as we have a fertile field for development of the AMC circuit, the Carmike circuit and the Odeon circuit are far less renovated than the AMC circuit. We have a third of our theaters done; between them I think Odeon and Carmike have one theater done. So there's an easy 100 to 200 theaters in the Odeon and Carmike circuits that we could decide to invest and to renovate so as to generate returns. We're not spending money just to spend money, and this is not maintenance CapEx with no return. These are investments we are making we were think we can deliver 25%-plus on unlevered cash on cash returns.

So just on a pure AMC circuit as it stands now, we should expect a similar CapEx spend in 2017, 2018 as this year?

The numbers are coming down slightly; it's just a guesstimate of how they roll out, but yes, they've come down a little bit. Just in line with the number of screens

Expect the cost to be about the same

Okay and then on the loyalty program, can you remind us where the incremental EBITDA impact hits? Is that in one spot or is it spread out based on the assumptions of mix?

No it spreads. We should have, if it all works according to Hoyle, at some point we're going to have more moviegoers going to our theaters, buying food, increasing our market share. And remember, ours is pretty much a fixed-cost business, so small increases in attendance can generate big increases in EBITDA. In terms of when that hits, I think we are looking at second half of 2017, when it really hits. I mean a year after launch it sounds about right to me.

Sorry, I might have misphrased that. My question is around the EBITDA impact of the $5 million you had in Q3 to --

We said $5 million in Q3 and $5 million to $7 million in Q4. But that $5 million in Q3 is already embedded in the results that we announced today, which are very strong. And (multiple speakers)

My question was around what line items those hit in.

So there's about $2.6 million in admissions revenue, about $900,000 in concessions, that's the deferred revenue impact area. And then the expenses, about $1.6 million; just flow-through G&A expense

So can we just [stand up to] deferred revenue is. So as we are banking these either 10% rewards in the free program or the 2% rewards in the -- sorry, 10% in the paid program, and 2% in the free program, these are people who already came in to AMC, spent the money, and we're putting 10% or 2% respectively in the pocket of our balance sheet so that when they redeem their rewards in a future period, instead of marking up freebie in the future, we mark a fully paid transaction in the future. So all this money does return to AMC; it just defers to future periods

Got it, thank you, guys.

Jim Goss, Barrington Research.

Thanks.

To the extent that your focus, your CapEx focus may shift a little more to Odeon and Carmike, do you think that will occupy a lot of your attention rather than considering other international markets as potential further expansion? It seems like you have a much bigger footprint to play with, and does that forestall any push to other markets as well?

We are a company loaded with a rich array of choices ahead of us. First of all, while we are number one in the UK, Ireland, Italy, Spain, we're the number four player in Germany. You could easily imagine us, if somebody came along and offered us a German movie theater circuit, where we could add German theater cash flow without having to add any overhead in Germany, that's appealing. We're in seven European countries, but that means we are not in, at all, a lot of European countries, that's yet another choice.

We have acquisition in Europe, versus investment in Europe, to renovate some of the, especially the Odeon theaters in the UK, where we think we can drive dramatic improvements in profitability. That's a third choice. A fourth choice, it's a big world out there, and right now we're an important player in the US, we're an important player in Europe, we're an important player in the world, but there's a lot of the world that we are not in at all. That's another choice. And we also have investing in our theater circuits in the US. We already said we are going to renovate another third of our theaters in the US, we're going to deploy close to 200 Dolby Cinema and IMAX screens in the United States, another choice.

I think I would answer your question by saying two things. One, we'll make the decisions as we go opportunistically, based on what appears to be the smartest deployment of our capital at that time. If somebody wants to hand us another international circuit at a very aggressive expensive price, we don't need to do it. If somebody wants to give us that same circuit at a bargain price, that might be tempting. So that's the first thing that I would say. The second thing that I would say is, while continued acquisition may be in our wheelhouse, it's far more important to us to be known as a fabulous integrator than a serial acquirer. As a Company we are very mindful that many a merger has made a company great and many a merger has destroyed an otherwise good company. Ask the fine people at Daimler-Benz how much they enjoyed their trip to Detroit owning Chrysler for whatever number of years they owned it.

So our focus is going to be in integrating the three companies into one really well, delivering on these returns that we promised our Board, our shareholders, and all of you, and yet I don't want to preclude more acquisitions because they usually could be in our future. So I'd like to suggest to you that we're smart, focused, we're not knee-deep or waist deep, we are shoulder deep in planning processes to bring Carmike into our Company and bring Odeon into our Company well. And we'll all find out together which of those various choices we make over the years ahead. But whichever one of the choices we choose, or whichever multiple of the choices we choose, I'm optimistic we'll do so well.

Thanks, great insights.

One related item: you mentioned Dolby and IMAX, are you finding those to be a good pair anytime you do make renovations, much less create a new theater?

Well, now we're getting into deep into theater design; but as it turns out, a lot of our multiplex theaters have a lot of small screens, two medium size screens and two very large screens. And pre-Dolby, all we were able to do was put one IMAX theater in one of the large screens, and the other large screen and the two medium size screens were luck of the draw for you as a consumer, whether you got a small screen, a medium screen or big screen. By having IMAX and Dolby, as well as the third PLF, the so-called non-branded house PLF, which we haven't announced the name of yet publicly, but which we will launch in 2017, we have the ability to put some kind of PLF in the two large screens and one or two in the medium screens, so that we can monetize a big screen, at a premium price, because the customer knows on the strength of the brand name of whether it's IMAX or Dolby or our own, that they are getting something more than just a typical screen size in theaters 5 to14.

Now we are not just relying on screen size; we're also putting -- if we're going to put in a PLF, we also put in better sight technology, and better sound technology, and better seats, so the whole of the experience in the PLF is better. And specifically to your question, yes, we have Dolby screens in 30-plus theaters already; a lot of those theaters have an IMAX screen and a Dolby screen occupying the two large screen positions in the complex. There are some theaters where we can't put in an IMAX screen because we are in a geographic area where IMAX may have given a geographic exclusive to one of our competitors, which would be a perfect opportunity put in a Dolby screen; but we still have our own house brand to come because we still have these two or four larger screen sizes to dramatize the consumer to better movie-going experience in a larger auditorium with a larger screen and better sight and sound.

So yes, I think you're going to find Dolby and IMAX side by side in a lot of places; you will see IMAX with our house brand side-by-side in a lot of places; you're going to see Dolby and our house brand side-by-side in a lot of places. And as especially as we go into the Carmike circuit, we may find that the market just isn't affluent enough to afford the higher prices that either IMAX or Dolby screens command, because of the higher investment we have to put in those auditoriums to deliver the IMAX and Dolby technology. So in those theaters we might just go with the house brand all by itself and not have an IMAX or Dolby location at all. And of course, the trifecta will be those theaters in big markets where we have four larger screens, you might see an IMAX, a Dolby, and a house brand all being marketed to consumers.

All right; thanks very much.

Chad Beynon, Macquarie Group.

Hello. Great, thanks for take my question. I'll be quick in the interest of time.

Adam, Craig, you guys did a great job of lying out CapEx; and Adam you just touched on M&A. I believe CapEx, you talked about two, three, four years out, particularly on Odeon. One of questions we continue to get from investors is, what's the policy around the dividend as cash flows will grow as we look forward to 2018, 2019, and 2020. Could give you just remind us how that fits into your capital allocation strategy as you continue to see opportunities to use that cash and get high returns on that investment capital? Thank you.

Sure, I think our priorities on capital allocation will, over the next several years, will remain the same as they have. First priority is capital deployment back into our business. As long as we have these projects, these initiatives that generate well above our threshold 25%, that will be the preference for the free cash flow we generate. Secondarily would be to look at the capital return once we get to that point where we are fully deployed, but that's several years away. We would look at the dividend; probably below that would be debt retirement or -- secondarily would be acquisitions, I should say, and we'll be opportunistic as we go forward there. Third would be to look at the dividend; fourth would probably be a share-back or a debt retirement. That's the priority that I think about

I want to add something, which is to say, while the increase of dividends is probably a few years out because we've got so much runway to deploy these investments in our theaters and generate outsized returns, you can be sure the management team of this Company is very focused on not decreasing the dividend. So you should expect at the very least, dividend stability. And while it's not in your question at all, it's what I think of when I think of dividends, so I'd like to make the point: we think that among the far more important points, at AMC, is not our dividend strategy; it is the size of our public float. With Wanda owning 78% of our Company, we only have 22 million shares that publicly floats, and in our view that's too small for our Company. Because we know that institutions like to amass positions in a stock without moving the market, and they want the ability having nothing to do with the stock but having everything to do with their own fund-balancing dynamics. They want to be able to get out of a stock, if they want to, without moving the market. And so we think it's really important that we increase the size of our floats. And I remind you that by placing $400 million of equity with Terra Firma, the seller of Odeon and with the shareholders of Carmike, we are dramatically increasing the size of our float by more than 50%, I believe. And we think that's a good thing for AMC and a good thing for our shareholders and something that will benefit them every bit as much as a modest change in the dividend.

Thank you, we agree. Appreciate it.

Thank you. It appears we have no further questions at this time, so I'd like to turn the floor back over to Mr. Aron for any additional concluding comments.

Thank you all; you've been very generous with your time. I read all your reports, as does Craig, as does John. We thank you for your interest in our Company. In our view we had a very strong third quarter and as a company looking ahead to 2017, we are on quite a roll. Thank you and good night

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