AMC 電影院 (AMC) 2017 Q2 法說會逐字稿

Greetings, and welcome to the AMC Entertainment Second Quarter 2017 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, Investor Relations for AMC Entertainment.

Thank you, Mr. Merriwether.

Please go ahead.

Thank you, Bob.

Good morning, everyone.

I'd like to welcome you to today's call and those of you listening on the webcast to AMC's Second Quarter 2017 Earnings Conference Call.

With me here this morning is Adam Aron, our Chief Executive Officer and President; and Craig Ramsey, Executive Vice President and Chief Financial Officer.

Before I turn the call over to Adam, let me remind everyone that some of the comments made by management during this conference call may contain forward-looking statements, which are based on management's current expectations.

Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today.

Many of these risks and uncertainties are discussed in our public filings, including our most recently filed 10-K and 10-Q.

Several of the factors that will determine the company's future results are beyond the ability of the company to control or predict.

In light of these uncertainties inherent in any forward-looking statements, listeners are cautioned to not place undue reliance on these statements.

The company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events.

On this morning's call, we may reference measures such as adjusted EBITDA, adjusted EBITDA margin and constant currency, which are non-GAAP financial measures.

For a full reconciliation of our non-GAAP measures to GAAP results, please see our second quarter earnings release issued earlier this morning.

In conjunction with our second quarter earnings release, we encourage you to review the CFO commentary for the second quarter of 2017 that we published on our website with the earnings release.

After our prepared remarks, there will be a brief question-and-answer session.

This morning's call is being recorded, and a webcast replay will be available on the Investor Relations section of our website at amctheatres.com.

With that, I'll turn the call over to Adam.

Thank you, John.

Good morning, everyone.

We do intend to cover a lot of ground on this call today.

And as part of that effort, after my prepared comments, Craig and I will try to answer as many questions as you have as long as that takes.

In an attempt to add more clarity and be more transparent, we will be discussing information and sharing our perspective on a wide array of topics that should be helpful to you as you think about AMC and better allowing you to further shape your own opinions about us.

As virtually all of you know, these week on Tuesday, after the market closed, AMC thought it appropriate to issue a preview of our disappointing results for the second quarter of 2017 in advance of the long-scheduled formal earnings announcement and quarterly earnings call planned for Monday of next week after the market close.

We were every bit as much frustrated as you were that we were, therefore, precluded from talking with you directly over the past 2.5 days and, potentially, could not talk with you for another 3.5 days still to go to share more color on the quarter just completed and on the choices that we've made that we believe will enable us to deliver better numbers and to increase shareholder value in the years ahead.

So we moved Monday afternoon call to today, Friday morning, and here we are.

Also, on Tuesday, AMC filed an 8-K with the SEC that, for the first time, gives you pro forma information on each of the 4 movie circuits: AMC, Carmike, Odeon and Nordic, in U.S. GAAP, with purchase accounting applied quarter-by-quarter as if we had owned all 4 circuits on January 1, 2016.

This will make it possible for you to make year-over-year comparisons with 2017 and future years, both for our domestic and for our international operations, having each quarter in 2016 and full year 2016 as a historical base case.

Last night, we issued 2 more press releases related to returning monies to shareholders.

One, declaring a $0.20 per share quarterly dividend payable in September.

That is the same dividend we have previously been paying.

But given our new low share price and marking to market using last night's closing price as the denominator, the AMC annualized dividend, based on last night's close, represents a 5.3% yield.

While boards only formally declare dividends quarter-to-quarter, we expect to continue our current dividend in the future without change.

The other release last night announced that the AMC board, at its meeting yesterday, has authorized the initiation of a $100 million share buyback program valid over the next 24 months.

As we said in the release, our board and management thinks that there's a disconnect between the current share price, essentially now near an all-time trading low, and our ability looking forward over the next several years to generate increasing earnings.

We're under no illusions that mere words they will be sufficient.

We know it's only if we actually generate improving financial results that more of you will share our bullishness on AMC's future prospects.

Still, the new buyback effort tangibly expresses the company's confidence in itself, and our view, that AMC shares represent a compelling investment.

Importantly, we will not increase our debt leverage in doing so, but instead, we'll fund the buyback from having recently identified about $200 million in nonstrategic assets that we believe it may be possible to monetize, none of which include the NCM shares that we also are expecting to sell at some point or points.

In that same buyback release of last night, I also expressed my own personal confidence in AMC, and that in this upcoming trading window that begins next week and ends in late September, I again will be buying AMC shares in the open market using personal monies.

Of course, I have to do so under the advice of counsel so as to properly follow the strict rules associated with my being aside the company's buyback program.

It is my current intention to purchase approximately $500,000 in AMC shares by end September.

That is in addition to previously having invested $1.8 million in personal monies on shares purchased in the open market above and beyond receiving AMC share grants as part of my compensation.

We do think and act like shareholders because we are shareholders.

Which takes us to this morning's earnings press release announcing Q2 2017 financial results with total revenues of $1.2 billion, adjusted EBITDA of $135.8 million and a net loss of $176.5 million, which included a $203 million impairment charge related to our National CineMedia investment.

These results are in line with the preliminary preview we issued just a couple of days back.

However, to say that we're disappointed in these results would be an understatement.

The quarter was simply a bust for AMC and was so for 4 reasons.

First, as you know, we took a $203 million pretax impairment charge on our 38 million owned shares of National CineMedia, a company AMC helped found more than a decade ago.

Purchase accounting marked those shares to market back in 2012.

And on May 4, 2017, when NCM issued a somewhat bleak earnings report, their value fell by more than 1/3 immediately in just a matter of days.

Putting this impairment charge in perspective, this write-off is about $2.20 per AMC share pretax, less, of course, after the tax benefits kicked in.

So the real cost to an AMC shareholder is more in the range of about $1.50 per AMC share after tax.

Still, we are far from happy about it, and we can talk more about NCM during Q&A, should you wish.

Second reason.

The domestic industry box office was weak in the second quarter.

Industry demand for movie-going in the last 8 weeks of Q2 were down.

Going into the quarter, expectations were high all around that the second quarter film slate would feed off the first quarter's momentum and drive the box office to well above last year's second quarter levels.

Just to take us back in time, a few months, as you will recall, the Q1 2017 domestic industry box office was up 4.5% and an all-time record.

And the month of April was up 4.0% in box office admissions, on an industry basis, also an all-time record.

But the May domestic industry box office was down by an abysmal 10.7%.

June was minus 2.8%.

The quarter fizzled out.

The North American box office, which includes Canada, therefore, was down approximately 3.3% for the second quarter.

But AMC doesn't have any theaters in Canada, so it is far more relevant to us is that the United States industry box office actually declined by even more, down by 4.4%.

As the movie theater business is a high fixed cost, low variable cost business, and that is true for AMC as well, when revenues rise, our margins rise even faster.

But when revenues fall, similarly, our margins fall even faster.

And revenues in the United States, on an industry basis in Q2, were falling.

Of course, we were pleased that our European box office was roaring hot to the good in Q2, up a double-digit percentage, and validating our view that a European diversification made great sense for AMC.

Indeed, in Q2, the Odeon circuit's total revenues, movie admissions as well as food and beverage were up 11.9%, 11.9% up over the pro forma year-over-year 2016 base case, in constant currency.

And total revenues in Scandinavia through Nordic were an especially strong 20.9% year-over-year.

On a constant currency basis, the international segment increased adjusted EBITDA by 47% year-over-year to $23.5 million compared to the pro forma results for the second quarter of 2016.

It was a big percentage, but smaller dollars, because Q2, seasonally, is often the smallest quarter of the year in Europe.

We are so confident about our coming success in Europe, in part, because we've already started the renovation projects that are a crucial element in the investment thesis that took us across the Atlantic in the first place.

At least 7 theaters in the United Kingdom, renovations and new-builds should be in service, featuring reclining seating, by the end of 2017 or before, and 30 more such theaters should be completed in 2018.

We are well on our way in Europe to implementing our strategy that we are highly confident will generate growth.

However, as good as Europe was in Q2, the United States represents about 4/5 of our business and Europe represents only about 1/5.

So the gains in Europe were more than counterbalanced by the weak American results in Q2.

Reason 3 out of 4 in Q2, we had margin pressure.

Like many of you, we expected a strong Q2.

In fact, on May 8, we were on the phone with most of you doing our first quarter call and talking about the record January to April and with seemingly big titles coming out often over what was then the next 7 weeks.

But as we all know now, those big titles simply did not deliver.

Realizing that, we moved to look at creative ways to strip out costs and raise revenues.

Peak day price surcharges were released into over 100 of our theaters over Memorial Day weekend for all of the summer, for example.

Some Carmike theaters were wholly reconcepted, from so-called sub-run houses to first-run theaters instead.

We took open job positions in our corporate headquarters, and we left them unfilled.

Those are just 3 ideas out of many, many, many.

We formed task forces to find extraordinary ways of profit improvement, some through cost cutting, some through revenue generation.

And those task forces found some $30 million of benefit that we believe will be realized within the year 2017, but most of the benefits from those initiatives will show up in July to December rather than show up in June.

It's true that our total operating costs in Q2 were held flat year-over-year in the United States, but that also means that the substantial savings we had in film exhibition costs were all absorbed by and offset by higher operating cost.

Part of that higher cost, ironically, was because we specifically chose to make certain theater upgrades, for example, installing Coke Freestyle machines, more PLF auditoriums, training our new staff during the very second quarter because it was billed to be a blockbuster quarter, rising revenues, rising margins, that seemingly illogical time when we could cover some additional costs.

But that was not the case.

A record April became a hard May in just a matter of a few days, and margin pressure immediately became evident.

And then there's the fourth reason that explains Q2.

Our legacy AMC theaters, the so-called -- legacy theaters are those that were in the AMC circuit prior to the acquisition of Carmike.

Our legacy AMC theaters were stars, outperforming the industry, but our acquired Carmike theaters, most of which were only just coming into our AMC brand existence and network during the second quarter, were not stars.

In Q2, against that U.S. industry box office that was down 4.4%, admissions revenue at legacy AMC theaters, by contrast, were down only 3.1%: legacy AMC down 3.1%, overall industry down 4.4%.

That means that the legacy AMC theaters admissions revenue decline was 29.6% favorable to the U.S. overall average decline.

By contrast, the newly-acquired Carmike theaters had a revenue decline of 11.3%: down 3.1% at AMC, down 4.4% across the country, down 11.3% at the acquired Carmike theaters.

Clearly, that's worse than both the U.S. average and the legacy AMC performance.

This is exactly as it was in Q1 of 2017.

Remember, Carmike was acquired on December 21, 2016.

In Q1, industry box office was up 4.5%.

Legacy AMC admissions revenues were up 6.2%, a growth rate that was 37.8% faster than the industry average.

But also in Q1, the acquired Carmike theaters were well below the normal level of industry admissions nationally, a big difference in performance between the theaters we've had for a long time and the theaters we've just gotten our hands upon.

We can discuss what's going on at the theaters within the Carmike heritage in far greater detail with you during Q&A.

We have a lot of insight as to what's driving the difference in the legacy AMC theaters and the Carmike theaters.

We have cross-departmental teams established and in place, wholly focused on improving the state of play within the former [role] of Carmike.

But it is true today, as it was on the first quarter call, when we told you that we thought it might take the better part of a year, perhaps well into 2018, to turn Carmike around.

Enough for now about Q2.

Let me turn to the full year 2017.

We do not want to hit you all with another earnings surprise, ever I might add, but especially not now in 2017 when many of you are predicting, and for good reason, that the domestic industry box office for Q3 is going to be a challenged one.

Many of you are predicting that it could be down by more than 15% year-over-year across the entire industry.

Fortunately, in this quarter, Q3, we are ahead of the power curve on reducing costs because we started back in the May-June time period.

And our diversification to Europe again comes at a time when things are looking big for European movie-going in Q3.

And then Q3 will end, and we will have Q4.

The fourth quarter looks to be as strong, if not stronger than Q3 looks to be challenging.

One great title after another after another after another is coming to the marketplace in the fourth quarter of 2017.

Now there's complexity of turning 4 circuits into 1. And this year, there are clearly big swings between strong quarters in the first and fourth quarters this year contrasted against rougher quarters in the second and the third quarters this year.

So for clarity and transparency, for the first time ever, AMC on Tuesday in our release formally issued earnings guidance for 2017.

AMC has not done that before and is not the norm amongst publicly listed theatrical exhibitors.

And for now anyway, we don't expect to continue issuing guidance in future years.

But for this unusual year, you now have our viewpoint laid on your table.

At a time when getting it right between us is critical, you don't have to guess what we're thinking and we won't have to struggle with a wide array of predictions in a world of Reg FD where it's difficult for us to set the record straight.

Now completely changing gears.

Over the last 60 to 90 days, we've met with and spoken to numerous investors and analysts.

Those interactions have been very enlightening to us, and we've learned so much and have a much better sense of what intrigues you and what concerns you about AMC.

And again, on this call, unlike in any way we have tried to do so far, we're going to speak quite openly, hopefully, briefly, but quite directly to reflect on 7 issues and some misperceptions related to AMC that seemed to be of the highest interest to you.

Number one, the long game.

We have built a company with global scale of fabulous product and marketing activity that resonates.

We're working our tails off to perform.

Even so, the trauma of Q2 pains us and Q3 will be no picnic, although, thank goodness, Q4 appears that it might just wind up saving everyone's bacon for calendar 2017.

But even so, you should know that we are ever so confident of the prospects for AMC to create and deliver shareholder returns as we look ahead.

We know how important it is for AMC to deliver earnings in 2018 and 2019 and 2020 so that, one day, we will not have to again endure the agony of our stock's recent declines.

At the end of the day, it'll be delivering those numbers that will win the game for us and for you as owners or potentials owners of our company.

Item two, reducing leverage.

We said all along that while we were willing to lever up for the right reason, and did so in our view, we were also then committed to deleveraging back -- right back down, first, to 4x EBITDA and then all the way down to 3.5x EBITDA.

We said this is a clear priority for AMC, realizing that an especially artful balance needed to be struck with many attractive reinvestment opportunities with high returns, especially in renovating theaters staring at us within our business.

But in talking to so many of you in the last few months, we think some of you doubted that we meant it.

We mean it.

In recent weeks, not because of increased uses of capital but because estimates of our EBITDA have been lowered, simple math means that our leverage is rising modestly.

It is among our highest priorities to delever.

That is one of the reasons we've identified some $400 million of nonstrategic assets, which includes those NCM shares, capable of being monetized in a reasonable time frame.

As a result, we now expect that we will get down to 4.1x leverage by the end of 2019 and down to 3.5x leverage by the end of 2020, and nothing would make us happier than to see if we can beat these time tables.

Item three, acquisitions are paused.

We are literally thrilled by the company that we've built over the past 1.5 years, and built it was in major part through acquisition.

However, to acquire anything else of size right now would require us taking on more debt, which conflicts with our absolute need and desire to delever.

And at the current share price, we simply cannot, will not use our stock as a currency.

So for those of you who wonder, acquisition activity is on dead stop at the moment.

We recognize that our plate is full with the 3 recent acquisitions and our focus and our energy is being concentrated on their continued integration and the deployment of our recliners and other growth initiatives at our newly-acquired theaters.

Issue four, Wanda.

Our major shareholder, Wanda, has over the past 5 years been an extraordinarily smart, supportive and responsible investor in AMC.

I cannot say enough how sincere we are in saying how grateful we are for their professionalism, their intelligence and their friendship.

However, AMC operates as a standalone company with its own balance sheet and its own management team.

We fund billions of dollars of theater makeovers and acquisitions, and have done so without once needing to seek capital from Wanda.

There has been so much misreporting and wild speculation in recent weeks.

So I'd like to say this.

As to the governance and self-sufficiency of AMC, by far, the most likely outcome is the status quo.

Issue number five, the power of recliners.

Why legacy AMC theaters been relatively so strong?

There are many factors, including the consumer loyalty program, we introduced AMC Stubs, now with some 9.3 million member households, strong and growing at a brisk pace.

But clearly, among the biggest reason of them all is that about 2/5 of legacy AMC theaters are equipped with recliner seating, far more recliner-equipped theaters than any of our major competitors.

Recliner-equipped legacy AMC theaters in Q2 of 2017 saw admissions revenues up 5.1% when the national average for admissions revenue across the country was down 4.4%.

Even more intriguing and enlightening, while the AMC recliner-equipped theaters saw admission revenue up 5.1% in Q2, AMC theaters not equipped with recliners saw admissions revenue down 8.3%.

That's a 1,340 basis point spread between the recliner-equipped theaters and the non-recliner-equipped theaters, and that's all within the same family of theaters, all branded AMC, AMC DINE-IN or AMC Classic.

We've been saying for years that recliners are the secret sauce.

Many of you believed us.

But in listening to you in all these meetings and phone calls we've been having over the past many weeks, we can hear that some of you are doubters.

And if you're not doubters in the U.S., then perhaps, you're skeptical for European deployment.

So at a time when we think it's imperative that we reestablish with you our credibility, we are releasing today, on this call, the most granular data we have ever released on recliner seat performance.

We feel that if you were sitting where we're sitting with access to all the data that we see, you'd be just as eager to reinvest in recliner seating renovations as we are.

The results are so compelling in driving growth and returns.

So we published a couple of slides with today's earnings call, and I direct you to Slide #1 now.

This table shows the average theater's growth in attendance and operating cash flow in the 12 months right after renovation was completed compared to the 12 months just before the renovation started.

You'll see it broken out year-by-year for each of the 6 different project years from when we did our first theater to the end of '16.

And there's no cherry-picking going on.

The methodology for this table is shown on Slide 2. The data in this table represents almost half of all our theaters renovated between 2011 and 2016, and they've been carefully chosen to best reflect all of the theaters.

We did this by picking theaters from 3 different tranches.

Those theaters that had higher growth, that had medium growth and even had lower growth arising immediately after the theater's renovation.

On average, each of our renovated theaters, you can see it here, over the course of the last 6 years, saw attendance growth rising by 57% on average and operating cash flow going up by 225% on average.

Even in the 3 most recent project years when some of you might think that the low-hanging fruit had already been plucked, average attendance was up 33% and operating cash flow was up 157% in the first year upon a theater's recliner facelift and redo.

There are so many ways we're going to try to prove to you what we constantly see, what we've been saying to you for years now, that upgrading our theaters continues to generate immediate and sizable growth.

Item six, maintenance CapEx, free cash flow and investment CapEx.

When you look at our CapEx program, you need to know that only about $160 million of our annual capital expenditure outlays are for maintenance CapEx spending, which leaves hundreds of millions of dollars of free cash flow within AMC's business each year.

The question is then, what's the way -- the best way to use those monies to maximize the returns for our shareholders?

There are many options.

But we've been choosing to reinvest those monies back in our business optionally because there are such attractive financial returns available to us with theater renovations and the installation of recliner seats, as we just demonstrated.

If at any time those attractive returns do not continue to materialize, and in any case, just a few years from now, once the most obvious returns in the virgin Odeon and the virgin Carmike circuits have been mined, we can nimbly reallocate free cash flow to uses other than reinvesting in our theaters in ways that are those that are produced the best creation of value for AMC shareholders.

Seven.

We clearly said there's maintenance CapEx and there's investment CapEx, and they have -- and that their uses have been different and can be different.

In fact, our investment capital expenditures are ample, no doubt about that.

But right now, they are being prudently reduced.

Realizing that the expected sale of NCM shares will likely to bring in some $100 million less cash than envisioned at the start of the year, we have reduced our 2017 CapEx spending by that same $100 million figure.

We have accomplished these reductions after a disciplined approach to call through lesser-priority projects.

It also demonstrates that should it be wise to reallocate capital to other missions, including as, but one example, a return to the monies to shareholders, AMC can turn on a dime to do so.

Our current CapEx guidance for calendar year 2017, including maintenance CapEx, but net of landlord contributions, which continue to be robust, is between $500 million and $550 million.

For the first time today, we're also providing net CapEx guidance for calendar year 2018.

We're expecting net CapEx for 2018 to be between $450 million and $500 million.

Again, this reflects spending approximately $100 million less than we might otherwise have planned had the expected proceeds from NCM share sales been correspondingly higher.

That's it.

Thank you for participating on this call.

We hope that we've given you new and useful information and given you our perspective as to our thinking and our priorities in a clear and decisive way.

With that, operator, let's please turn to questions.

(Operator Instructions) Our first question comes from the line of Eric Handler with MKM Partners.

I actually got 2 questions for you.

First, let's look at your expenses in the second quarter.

Your rent expense was about $200 million, and that's about a $17 million sequential increase from the first quarter.

So was all of that attributable to Nordic?

And is that a good go-forward number to use in subsequent quarters?

And then along with that, it looks like the other line in G&A of $46 million, that's up about $12 million sequentially.

And what accounted for that?

Was that all Nordic or were -- there were some investment spending?

Or what can you do with regards to that line?

And then for my second question, when you look at $400 million of nonstrategic assets, so you've got National CineMedia, press reports have Open Road getting sold.

I'm just curious, beyond that, are you considering any of the Carmike assets possibly selling some of those underperforming or maybe small market theaters?

Or how are you getting to that $400 million number?

So thank you.

I'll take the second question, and we'll get Craig on the numbers associated with your expense questions.

On the monetizing of what we're calling nonstrategic assets, about half of it is the NCM shares.

They -- I can neither confirm nor deny what was printed on The Wall Street Journal.

But if it were to happen, that would obviously bring cash to the door.

Similarly, I think many of you, especially those of you who also cover hospitality, appreciate the fact that being asset-light is a smart thing to do and that it's better to lease the real estate than own the real estate as a public company.

It turns out that we found out that we've got about -- out of 650 theaters, we've got about 40 that we own which is under 10%.

Depending upon how many of those we might sell and then lease back, so we would keep the theaters and not lose the screens, but we would sell the underlying real estate, that could bring in as much as $100 million or more.

And then there are lots of other items that we found.

Some of them are on the confidential side, and we're better off not to talk about them until we can figure out a way to most intelligently monetize them.

But that gives you a couple of the biggest items, Eric.

Okay.

On the rent, the run rate, Eric, for the remaining 2 quarters is between 195 and 200 each quarter.

So it is the impact of the final -- of bringing Nordic in to the -- to those results, and of course, we'll experience those fully in the last 2 quarters of the year.

G&A is high, a little high in the second quarter due to some -- we had some onetime legal cost and some other consulting.

But it's somewhere in the $37 million to $40 million is a good range for each quarter going forward, at least for the third and fourth quarter.

Okay.

And then just as a quick follow-up then.

As you look at the cost structure, are we pretty much -- to what extent are all those cost synergies reflected in the numbers?

Or are there some cost synergies still left to go?

On the synergy side, there's more left to go.

We had estimated about $35 million for Carmike and $10 million for the Odeon Nordic Circuit on a full run rate basis, so $45 million in total.

As we're tracking it, it looks like our capture of the $35 million in 2017 will be somewhere in the range of $22 million to $26 million and most all of the 10 -- so we'll have more to -- that'll be in the full 2017 year.

There'll be more of the Carmike remaining to pick up in the 2018 year, and then most of the Odeon falls into 2018.

Our next question comes from the line of David Miller with Loop Capital Markets.

Two questions.

So what was the blended admissions revenue per screen in the second quarter?

Clearly, Carmike was an issue, yet again, with admissions revenue per screen down 11.3%.

I don't know, maybe I was wrong.

I had thought that you guys had kind of ameliorated that problem intra-quarter?

I'm just wondering why it's bringing numbers down yet again.

What exactly is going on there, Adam?

Is it a slate issue?

Do you think it was a slate issue in the second quarter?

What's going on operationally at the ex-Carmike stuff that you think that you can ameliorate this issue in the near term?

And then I have a follow-up.

Sure.

Q2, it's such a -- I mean, I am sure as I was trying to say in my prepared remarks, Q2 was such a weird quarter.

April was up 4% and a record April, and May is off 11% and horrible.

So the theaters all -- so the theaters just performed so differently in April than they did in May.

And then you have the vagaries of various titles, which, do -- some, as you know, play much better in AMC markets and some play much better in Carmike markets.

And it's actually one of the reasons we found Carmike attractive, because we thought that across the whole of the circuit, no matter what was playing, it would be attractive to some part of our more national clientele.

In terms of -- so that's why I think that what you're calling the intra-quarter performance look like it went left turn, right turn in the same quarter.

That is how the whole quarter acted.

But having said that, we mentioned this a little bit on the first quarter call, as we went back and looked, in 8 of the 12 months in '16, Carmike, as a circuit, had declining market share, including 3 of the past -- 3 of the 4 months between September and December, it had declining market share.

When you look at what Carmike as a company did between April and December to modernize its circuit after it put itself under contract to be sold, it didn't do very much.

And so the circuit essentially went on dead stop around April-ish of -- remember, we put them under contract in March, April-ish of '16, and we didn't get to change that until December of '16.

What we found is that we've already gone through each of the several hundred Carmike theaters one by one with this -- across the top -- departmental team that I've told you about, and there are literally 6 different reasons that tend to come up most often as to what's going on in a particular theater.

And the reasons are quite different from each other, and the solutions, therefore, are quite different from each other.

I mentioned in a little comment about May that we've moved 5 Carmike theaters from sub-run to first-run, which means you can take the price up from $3 to $8 or $3 to $9, and lo and behold, it was successful.

And so by July, we had moved 10 more Carmike theaters in -- from sub-run to first-run.

So just that one issue fixes 15 of the Carmike theaters.

I'll give you another.

When Carmike was handed over to us on December 21, only 200,000 individuals from their loyalty program joined our loyalty program.

Even though

-- even though, at the same time, AMC has over 9 million people from our loyalty program coming -- stemming out of the -- by then, it would have been about 7 million in the loyalty program.

So we've had to start the loyalty program essentially over from scratch.

And I'm happy to report that we're like at 0.75 million now.

We now have more members of the loyalty club, who enrolled in a Carmike theater in, whatever it is, 6 months, 7 months, than Carmike's had in years and years of operation of its loyalty program.

But those are 2 examples of many and there are many.

And it's going to take us a good year to essentially turn around Carmike.

So I do think this is going to continue with us until '18.

And Craig wanted to add something.

Yes, David.

The point I would make on the AMC circuit, as Adam talked about earlier, was tracking better than the industry, Carmike clearly didn't.

One of the things that affected the Carmike results is there was less family-oriented product in the market.

Certainly, last year with Jungle Book and Finding Dory, really played strong for them in the second quarter of '16.

And you just didn't see that type of big-play, family-oriented tiles in 2017.

So that had a pretty big impact on the Carmike circuit as well.

Okay.

And then just a follow-up, on PVOD right now, it just feels like this thing is going to die a slow death.

I mean, there's just no consensus amongst the major studios on when the window would start.

There's no consensus on which films are going to be involved.

There's no consensus on what the pricing structure is going to look like, what the splits are.

Disney has already said that it doesn't want to participate.

Adam, in your discussions with your studio partners, do you feel like anyone else wants to opt out or may opt out?

Or what does it feel like to you?

Thank you.

Thank you, David.

So we had a series of investor meetings and lunches in mid-May, especially in New York and Boston, because we were so troubled that our share price was falling despite having released Q1 earnings where we beat The Street by 20%.

And we literally, days and days, devoted to meeting with investors.

Those conversations, from our perspective, were less about marketing the AMC story and they were more about trying to listen to the people we were meeting with to understand what was on their mind.

And there is no doubt that was on their mind was PVOD, PVOD, PVOD.

And it was driving investors bonkers that there was uncertainty on this topic and they didn't know it yet -- they didn't know the outcome.

We took that quite seriously.

And I requested emergency meetings with a lot of studio CEOs.

And over the past 8 weeks, I personally have had one-on-one meetings with 5 different studio CEOs solely dedicated to the issue of PVOD.

And I can tell you categorically, there is -- no one is close to resolution on this matter.

There are not 2 studios who agree on what should be done.

Obviously, we can't talk to our competitive movie theater circuits, so we don't.

But there is -- as you just described, there is no industry consensus.

This thing has been under discussion now since -- I've been at it since December of '15, so I'm in 18 months already.

Based on the conversations I've had, if I had to make a bet or if I had to give you my assessment, I would say that the odds of whatever happening being good for exhibitors has a higher probability of happening than whatever happens being bad for exhibitors.

Now that's a professional judgment based on this.

And people change in their mind and do different things and say different things tomorrow than they said yesterday.

But there is one thing, I think, I can say categorically.

I do not expect that this issue is going to be resolved in 2017.

And I don't think you're going to see PVOD occur in the United States in 2017.

I say that with a caveat that, of course, I could be wrong.

But that is our view based on being in the room over and over and over and taking this matter very seriously.

So how it ends up?

We will never know until -- "It ain't over until it's over," right, Yogi Berra said.

But it's clearly not moving to a speedy implementation, which has been the fear of several people that we talked to a few months back.

Our next question comes from the line of Eric Wold, B. Riley.

A couple of questions.

One, I guess, Craig, I want try to connect the dots a little bit between kind of capital allocation with the CapEx plans, the buyback announcement.

So I can understand you're cutting the CapEx guidance for this year basically by the amount of lost proceeds from NCMI and kind of making that similar comment into next year, especially given that the $200 million of incremental nonstrategic assets beyond NCMI, the timing of sale of those is always going to be uncertain and probably less near term.

But kind of the decision process in it, too, if you move into next year and you can get the $200 million of non-NCMI proceeds and kind of see that come in, what is the thought between upping CapEx for next year versus doing a buyback, given what you can see as the returns from that and just how much you're praising the benefits of these recliner reseats and the long-term benefits that drives the company?

So I'm actually going to take that one because I've been associated with companies who bought back a lot of stock over the years.

And both as a director and as a CEO, we did not announce this initiative to buy $100 million worth of stock lightly.

And I grant you that I think I used the word artful.

We have to have an artful balance between going after growth when we see projects in front of our eyes that can generate growth and increase our returns.

But we are expecting to spend $450 million, $500 million.

That's a serious chunk of change even it is reduced from what it might otherwise have been.

I suspect that we will be investing more in our theaters than anyone else.

But the artful balance is that there are 2 other things that we think are important for AMC to do.

It's not just that we renovate theaters.

We think it is extraordinarily important to delever.

And so we will make sure that we do that as we outlined on this call.

And we think it is also extremely important that, given how attractive the investment returns will be, in our opinion, if we can buy shares in AMC at the levels where they are trading now and where they traded at recently, we also think that we can get very compelling returns and very strong returns on investment by buying our stock.

And so being smart in how you balance those 3 things, because they are conflicting objectives.

But we do believe that we will succeed on all 3, that we will continue to renovate more theaters than anybody else, getting the growth returns from -- that we laid out on this call.

It's just stunning what we see when we can get into the correct theater with the correct renovation and pull it off.

But at the same time, we're going to get the buybacks accomplished.

And at the same time, we're going to delever the business.

Fortunately, we found some liquidity opportunities to fund it all because we found, as we said, $400 million of assets that we think we can sell.

Okay.

On the CapEx, I guess, for this year and for next year, can we get a sense of what the, I guess, broad allocation is between legacy AMC, Carmike and Odeon?

Is there a plan to shift more to Carmike to try to correct the ills that you're seeing there?

Or is it better to push more towards legacy AMC, where you know that it's working?

So there will be some legacy AMC theaters that get renovated, we're not stopping.

But if you look at that chart that we gave you on the recliner seats, even though the returns are -- and these aren't -- this is not ROI percentage, this is actually literally growth in attendance and growth in operating cash flow.

The numbers are currently stunning.

But if you look back in the first year, they were even higher.

And that's because when you do the first ones, if you have a brain in your head, you'd do the theater where you could think you're going to get the best return.

And so we have 2 virgin circuits.

I call them virgin circuits because they have no recliner seat auditoriums in any quantity.

And so yes, we are moving monies from the AMC circuit to the Carmike circuit and the Odeon circuit because the biggest eye-popping returns may come out of the first theaters that we do in each of those circuits if we pick the right theaters.

And so it is a strategy to go after the lowest-hanging fruit in the Carmike and Odeon circuits rather than chase the 173rd AMC theater, where there -- it may be a little harder.

The other issue is that you've seen that some -- that recliner seat theaters outperform non-recliner seat theaters.

And in buying Odeon and in buying Carmike, we thought that we could improve the performance of those circuits.

And one of the ways we thought we could improve those circuits was by going to theaters that had high potential but weren't actually realizing their potential, renovate the theater and turn it in -- we'd give you a technical industry term, turn it from a pig to a superstar literally on the strength of a renovation.

So yes, to answer your question, strategically we're not stopping the renovation of AMC-branded theaters.

But we will move a lot of monies into the Carmike and Odeon circuits.

With respect to the Carmike theaters, you should also remember that about 150 of them have already been rebranded as AMC theaters.

So even though they came to us as Carmike theaters and we or you may describe them as legacy Carmike theaters or former Carmike theaters, to the consumer, they're actually AMC theaters now.

And so the consumer is actually going to continue to see us renovating AMC theaters in quantity.

And I can further say that the only theaters we're likely to renovate within the Carmike circuit would be those that are either in the AMC brand or the AMC DINE-IN brand, not the ones in the AMC Classic brand.

Our next question comes from the line of Ben -- Stan Meyers with Piper Jaffray.

So I wanted to dig a little deeper into reseats.

Obviously, your core legacy AMC has done extremely well.

But then your non-reseated theaters weren't -- I guess, underperformed industry as well.

Are you seeing that as a result of competition?

I know many chains are -- your competitors are accelerating the reseats.

Maybe you can talk to what is happening in those specific DMAs and maybe what's driving the underperformance of your core non-reseated AMC theaters.

It's very similar to what we saw when we introduced the new theater format in 1995.

We were the first.

Ultimately, the industry copied the format, stadium seating.

And the attendance gets redistributed as more new theaters came onboard.

The same thing is happening here and we're seeing it as well.

We were a first mover.

And so what's happening to the portion of the circuit that is not improved, that hasn't been touched yet, is that they are competitively impacted by theaters that have been reseated by competitors in the local market.

That's the primary factor.

The performance of films is what it was and what it has been.

What's changed is that there has been a reseated theater come into the market, thus the emphasis on continuing to reseat and where we can to be a first mover.

Our next question comes from the line of Chad Beynon with Macquarie.

Just one on the filing the other night, which was super helpful for us to understand the seasonality, particularly for the international business.

Was there a reason why you weren't able to disclose this?

Or did you kind of just gather the information?

Just trying to get a better sense of why this was just kind of released when it was released.

And then I have a follow-up.

Okay.

Well, let me take a bit of a historical perspective here on what we provided to the market and start by saying there are 2 things at work in these underlying pro formas.

One is purchase accounting.

Any time you do an acquisition, you revalue the assets.

That's typical of all this type of transactions.

Second, in this case and unique to this case, is taking, in the case of Odeon, U.K. GAAP financial statements and recasting them into U.S. GAAP for every quarter and for the full year.

And that's a considerable effort.

Likewise, for Nordic, the restatement of their formally issued IFRS financial statement GAAP into U.S. GAAP.

So you've got 2 things going on that took a considerable amount of work.

The first pro forma that we put out back in October of 2016, we did put out a U.K. GAAP to U.S. GAAP version of the Odeon financial statements for the 2 quarters ended June 30, 2016.

We filed Article 11 pro formas on Odeon on November 30.

And that was again both purchase accounting and the reflection of the conversion from U.K. to U.S. GAAP.

The November pro formas included 3 quarters ended September 30, 2016.

We updated those pro formas in February of 2017, when we completed the Carmike acquisition.

There was no GAAP restatement there.

But certainly, with the pro forma of their financial results into those GAAP financials, and that was for 9 months ended 2016.

And then we issued Odeon U.K. GAAP to U.S. GAAP and Carmike for the full 2016 year.

We issued those pro formas on March 13, 2017.

Now to your question, what happened with Nordic.

Once again, we had to convert IFRS to U.S. GAAP and we had to do the purchase accounting.

We received the reports from our -- the consultants we were using to make those GAAP conversions.

And remember, the transaction closed on March 28, and we received the fair value accounting report from our consultants on June 30.

So we then recast internally all of those pro forma statements.

And it wasn't until Monday of this week that all of that work had gotten completed and gotten through the review by our accountants that looked at the quarterly financial statements that put us in a position to issue the full pro forma statements.

So it was really a matter of getting the work done, recasting their GAAP to our GAAP, in the case of Nordic, having the experts that we use on the purchase accounting, getting their report, recasting it, having it reviewed.

It was available to us on Monday and -- not available to us, it was available June 30.

We worked it, it was available and scrubbed and reviewed and available for us to release on Monday.

We did it as quickly as we possibly could.

Wow, great, okay.

Craig, that's super helpful.

And just sticking on that topic, I know when you guys originally had the Nordic conference call, you talked about some minority interest or JV theaters that would also maybe be confusing.

Could you kind of flush that out if those are included in your annual guidance for 2017 or if the profits will come below the EBITDA line?

And that's all for me.

Sure.

The statements that you're talking about are -- the entities that you're talking about are around -- it's about 50 theaters at Nordic.

And these are theaters that we own 49%.

They don't qualify for consolidation into our financial statements, so they're not included in our revenues and the expenses.

But there is an equity in earnings, non-consolidation equity in earnings accounting.

But those assets, it's very close to consolidation.

We have representation on the board.

We approve operating budgets.

There are a number of other things that, in essence, give us control to where we feel that's appropriate to include them in our financials.

And they add pretty significantly to our market share in those countries.

In the case of Sweden, they take us from 70% to 90% market share; Finland, 65% to 70% -- 75%; and over 25% in Norway.

So we think it's justified to include our share of adjusted EBITDA.

You'll see that -- in the pro forma statements, you'll see that each quarter coming in as attributable EBITDA.

And as we thought about the guidance that we gave, it's also included in the guidance that we gave.

Our next question comes from the line of Jason Bazinet with Citi.

One, I'd like to go back to the buyback question.

I think if I am doing the math right, the CapEx guidance that you gave was about $1 billion over 2 years and the maintenance portion over 2 years was about $400 million, so $600 million being allocated towards growth initiatives.

Maintenance will be $320 million -- no we said maintenance was $160 million so that's $320 million.

Okay, $320 million.

So let's call it $700-ish million, $600 million, $700 million of capital married up against the $100 million 2-year buyback target.

So let's call it $6, $7 of growth CapEx for $1 of buybacks.

The reason that confuses me is that the -- maybe 5 years ago, when you guys first talked about these recliner reseats, you talked about 100% cash-on-cash return.

I'm assuming that assumes that no competitor comes in and follows your efforts to do a recliner reseat, which I think would diminish those returns.

And then your stock was 100%, it's what, $16 now.

It wasn't that long ago when it was $32.

So 100% cash-on-cash return.

And the reason that's happened is because the market, the capital markets, have essentially taken the EBITDA miss and capitalized it at 7x EBITDA as if it's a permanent impairment as opposed a one-time undulation.

So if I was on the board, I would be allocating $6 or 7 to my buyback for every $1 of growth CapEx.

I'd almost do the mirror image of what you just articulated today.

So if you could answer that, that would be helpful.

My second question is -- yes, go ahead.

Well, I'll let Craig give you the professional answer and I'm going to give you the flip CEO answer.

It seems what happened is that the investment banker I use of choice is Citibank.

And I got in a rip-roaring argument sometime over the past month saying, "Why don't we have a higher buyback program, even if we have to cut back CapEx to do it," and your own institution just given me hundreds of pages of paper and hours of reasons why we're doing it the right way.

And the biggest argument against what you just said, because I was making the same arguments to your institution that you were just making to our institution, is that it's not enough just to buy back your stock, you also have to deliver growth.

And when you have opportunities that are as attractive as we have to upgrade our theaters, we should take those opportunities.

That's in a nutshell.

Now listen, what's the more dignified CFO answer?

I don't know if it's more dignified.

Jason, the early returns were a 1-year payback.

And as we've said, on an ongoing basis, we didn't expect them to stay because -- at those levels because we knew that others would...

Come in, right?

Would come in.

And so what's happened is returns had declined.

But they're still well above our threshold of 25%.

And particularly when we look at, as Adam called them, the virgin territory or the highest opportunity that's available in our Carmike circuit and certainly in the Odeon, we don't expect 100% returns in those situation, because in certain of the Carmike markets, they've already had some reseats.

And I think there will be fairly fast copy in Odeon as well going forward, but we'll have a first-mover advantage.

So we're not thinking of 100% return, but we are thinking of certainly over the 25% return that's our basic investment threshold.

We think that's also the case today and going forward for a stock buyback, the math that we do around it.

Now as the price changes, our thinking will change.

But as we see -- yes, go ahead.

No, that's my point.

I mean, I have no idea when you had conversations with any banking team.

But I would think that it wasn't at $15 or $16 a share.

I mean, it was 2 days ago, you were trading in the low 20s.

2 months ago, you were trading in the mid-20s.

So I'm just saying this is a dynamic situation.

It strikes me as a very rare opportunity to buy back your stock at a low price.

But it's up to you, I appreciate the color.

Let me ask...

Jason, I promise you, we were on the phone with the banking teams after the stock fell down to $15 a share.

And by the way, it might have been at 11:00 at night because I -- it did catch our attention where our stock was trading.

This is our first buyback.

Not my first buyback.

I know.

But it's the company's first buyback, Jason.

And there's always an opportunity to alter the program.

But this is the first one.

And so we said we thought it'd be appropriate, first step was $100 million.

And Craig said there's an opportunity.

Obviously, he's right.

He means there's an opportunity to upsize the program if that makes sense to do as we go down the road.

Okay, helpful.

Let me ask a sort of a strange question.

Have you ever been approached by a financial institution?

Or have you ever asked a financial institution to essentially price some sort of derivative based on the box-office volatility such that if the box fell, the institution would pay you money?

And if the box was ripping, you'd pay them money and there would be some fee associated with that, but it would sort of smooth out the volatility, similar to the merits of the Carmike acquisition that you cited earlier but doing it across whole circuit?

I will give the flippant CFO answer.

I actually have a letter in my files from a company that years ago wanted to do exactly that.

It's on their letterhead, I'll send it to you.

It was Enron.

I mean, I'm serious.

I haven't been approached on that recently, but there -- I do you have that letter, and we didn't act on it.

But I haven't had anyone inquire of recent.

By the way, I love Citibank.

And I wasn't trying give you or your bankers a hard time.

Whether it's coming from you or them, we have gotten great advice from Citibank.

Ladies and gentlemen, our next question comes from line of Lawrence Dann-Fenwick with Crédit Suisse.

Actually, it's Omar from Crédit Suisse.

Just I've got 3 questions, a couple for Craig and one for Adam if possible.

Craig, just want to clarify the comments you made about CapEx for next year.

Were you saying that the reduction in CapEx that you've guided to, is that -- are you -- can you just kind of clarify whether or not that is in non-recliner investment?

I just want to make sure that you aren't reducing recliner investment in 2017 and 2018.

That's the first question.

And second is on the $30 million of incremental EBITDA you're guiding to the rest of 2017.

Could you just kind of say how much of that is revenue and how much of that is cost, and then how much of that will roll forward into 2018?

That would be helpful.

And then the last questions are for Adam.

And that's on 2018 box office.

I mean, Adam, you -- obviously, the slate this year is very strong, includes Star Wars at the end of this year.

I'm just wondering what gives you confidence that 2018 will be up versus 2017, given that obviously you won't have a main Star Wars film, which could be, I don't know, 2% or 3% of the entire year in 2017 and why you won't have a step-down in U.S. domestic box office next year?

Your first question was about how the -- what kind of a composition of the guidance.

And we didn't give specific by-category guidance.

We think the maintenance for next year will still be around the $160 million of the $450 million to $500 million.

We're pushing out kind of some CapEx from all initiatives, whether it's our large format, some recliner and some food and beverage.

So it's kind of pushing out.

I'd say we are reducing some of the maintenance from a technology perspective and signage.

We actually had some rebranding.

It's probably a good portion of it, some rebranding in the Carmike circuit that we're pushing out.

The other point I would say is that we are moving some U.S. recliner deployment and reallocating to Odeon and again the Carmike circuit because again we think that the return opportunity is better in those 2 situations versus what we originally thought.

So it is kind of across the board.

There is some recliner, but the biggest chunk, I guess, would be the branding piece.

With respect to the box office in '18, since people couldn't predict accurately in April what's going to happen in May of '17, I don't know that we can say with certainty that we know how '17 or '18 is going to do.

But when you look at the titles that are coming out in the fourth quarter of '17, and it's far beyond Star Wars, even though Star Wars is Star Wars, it's the gift from heaven.

But there are so many great movies coming out in the fourth quarter.

We have to feel bullish about the fourth quarter.

And hopefully, it will be big enough to match the weakness in the third quarter.

For the people who do this for a living, whether it's the executives of studios with whom our people talk every day or our own people, we have a staff department of about 60 people who do all of our film buying, when we talk to them, they are very excited, both the people at studios and the experts here, on the whole array of titles that are coming out in '18.

I haven't heard anybody tell me with absolute certainly whether '18 will be even with '17, ahead of '17 or slightly behind '17.

And as I remind you, people in April couldn't accurately predict May.

So I think some of this is going to turn out to be, as movies are released, are critics and consumers, excited and thrilled and delighted?

Having said that, from what we see, '18 is going to be a very strong year.

There was a -- you also had a question about the $30 million.

And I think we clarified it in the press release quote that...

That it's $30 million for the year.

It's $30 million this year in the last 6 months.

And so there'd be another, we think, $30 million in the first half of next year, so...

Yes, I think his question was what percent of -- revenue versus cost.

Yes, we didn't provide a lot of detail on that.

But the largest percentage of it is on the cost side.

Our next question comes from the line of Leo Kulp with RBC Capital Markets.

First one, as we look out, given your lower CapEx spending and continued Carmike issues, how should we think about your ability to close the performance gap relative to the U.S.?

I mean, do you think the underperformance will continue for the foreseeable future?

At what point does that change?

Is this about on the former Carmike's [move]?

Well, just I mean, in general, the relative domestic box-office performance, when do you think, as a whole, that will subside?

Well, it's among the highest priorities for our marketing organization to get revenue in the Carmike theaters.

And as I said, there have been many identified issues.

And they got to be knocked down one at a time.

And as we looked at the issues that were floating around the Carmike circuit, about 40% of the attendance issues in the Carmike circuit was because somebody came into town and put a recliner theater near a Carmike theater and Carmike never responded.

And in an earlier answer to a question, we said that we're going to move some capital dollars into the Carmike circuit for those theaters that have been rebranded AMC and have the highest potential to benefit.

Those projects kind of take 4 to 6 months so -- and they haven't really started yet.

So that sounds like a first half '18 issue for the things that have to get solved that way.

Another issue for Carmike is it had 2 of its biggest, most successful theaters that were closed for renovation.

And the theaters were closed for over a year.

And they're just coming back on stream this summer.

So we're going to get a material bump theoretically by 2 of their biggest, strongest and best-performing theaters finally reopening and coming back online.

And it's literally issue-by-issue.

Do we have a loyalty club, an identified clientele for a theater?

So if I had to forecast, we bought the company on December 21.

It was probably about the end of May that all of their theaters have been rebranded into AMC and put in the AMC system.

Can we turn this circuit around in 9 months?

So is it January to March of '18?

Or is it taking us 12 months and it's January to June of '18?

Or does it taking us slightly longer than that?

I don't know.

But I'm hopeful that we can get it sorted out and turned in the first half of '18.

And the first half of '18 starts 6 months from now.

So it's clearly not going to happen in the third quarter because -- of this year because if the whole of the movie industry is challenged, that's not a time when you're going to -- with a lackluster demand, you're going to see a big turn in the performance of theaters that have been troubled.

So I guess -- but I'll bet you all those Carmike theaters are going to be full when Star Wars is playing.

So let's just say end of fourth quarter to second quarter of '18.

And that's kind of the range when I would love to know that we're actually delivering better numbers.

Got it.

And then thank you also for the recliner data, that year 1 attendance uplift is really impressive.

But can you talk about the performance in subsequent years for the earlier tranches?

Have you seen those performance declines as others have reseated against you?

Yes, because I want to put it in the release and somebody argued with me and said, "We're giving you too much data and it will confuse you because we're drowning you in data." The answer is that in the second and third year, it gets even better, not by much because you get the first big pop, then you get word of mouth.

And then over time, you're able to raise price because more and more people know that it's there and it's wonderful and they've shifted their loyalty over.

So by far, the biggest pop is in year 1. But in years 2 and 3, it doesn't weaken, it strengthens.

Got it, okay.

And then last question on my end.

Can you talk about in your guidance of how you're thinking about the 4Q box office from a growth perspective?

I think if you assume a 13% (sic) [15%] decline, it implies like a 9% increase in 4Q.

Is that correct?

And how should we think about downside to the guidance if the box office doesn't meet expectations?

Did you say that your third quarter estimate is down 13%?

15%.

15%?

You're on the low side of the prognosticators.

That doesn't mean you're wrong and they're right.

I'm just telling you that your number puts you among the optimists for the third quarter.

So that would imply an even better 4Q number, I guess?

Yes.

And I was going to say that I think your fourth quarter number is also light.

So I think you're more pessimistic.

But I want to say I think you're light.

I'm not saying based on what I know you're light.

I'm saying amongst all the people who are predicting, I think your prediction for the fourth quarter is on the lighter end of that spectrum.

So I think you're more bullish than others on the third quarter and you're more bearish on us than others on the fourth quarter.

And if I had your job, I'd be a bear in the third quarter and a bull in the fourth quarter because just look at the movies that are coming out.

And the fourth quarter has a lot of great titles.

Our next question comes from the line of Jim Goss with Barrington Research.

A couple of quicker ones, I think.

Do the -- I was wondering with Odeon, are you treating that as a self-funding entity?

Or are you grouping it with the domestic product as well in terms of financing of reseating and that sort of thing?

Yes, we are looking to them to generate the cash flow to fund their CapEx program.

Jim, because obviously until the tax code changes, you don't want to repatriate cash.

So if we have sourced the cash from abroad, we get to keep the cash abroad.

Okay, excellent.

And so none of this should affect what's going on there, given that the box office is doing pretty well in Europe right now?

Yes.

The second thing, do the financial issues create any detour from any other strategies, whether they're the multiple PLFs or the food and beverage programs, or anything else?

Food and beverage programs are rolling out full-bore, full-speed ahead, June to October across the whole of the system with the AMC brand getting the full enchilada and the AMC Classic getting modified because they don't actually have enough space in the AMC Classic theaters to put some of the equipment you need for the full-blown menus.

With respect to PLFs, we've been going at a breakneck speed.

We were actually beating our contractual commitments to IMAX and Dolby.

We may just be meeting our contractual commitments to IMAX and Dolby.

But if you were asking, and I'm not talking about you personally, but if one was asking the question from Dolby, it may be a huge deal to Dolby whether they're at 100 or 110; from AMC's perspective, it's not a huge deal whether we have 100 or 110 PLF screens.

So if the margin could -- could we -- I said food is not going to get pulled back at all.

Is it possible that PLFs could slow?

A tad, just a little bit.

But talking about a good investment, we're getting 70% price premiums in our IMAX and Dolby Cinema auditoriums.

So we have every incentive to continue to roll these things out.

And as I said, we intend to live up to our contractual commitments to IMAX and Dolby to get there.

Okay.

And the last thing, just on the rebranding, is that sort of a positive, a neutral or even a negative initially as you do this...

Which rebranding?

Are we -- are you talking about the Carmike?

The Carmike to AMCs, yes.

It's a positive because what we've seen -- and again, it talks to the operator that we bought.

They had very low participation in their loyalty club.

They had no self-capability for online ticketing to be sold.

They didn't have automated box offices, kiosks in their theaters.

For a huge percentage of the Carmike theaters, they didn't even have the Carmike name up on the exterior wall of the building.

It might say something, a non-branded descriptive like Cinema 6. So I think as what we've seen is as we bring the AMC brand and the AMC marketing programs into the Carmike network, we are helping ourselves considerably.

Our next question comes from the line of Mike Hickey with The Benchmark Company.

Curious on the recliners, obviously you shared a lot of data.

I haven't got a chance to go through it.

But do you have any specific conclusions, I guess, that, say, the attendance gains is more than just a share shift?

And I guess, with the backdrop this year that we had what was -- should be compelling product, obviously, we have, as an industry, I think domestically, a material contribution from recliners and enhanced food and beverage, and of course, we've seen weak attendance.

So that sort of dislocation is somewhat troubling, so any thoughts would be great.

And I have a follow-up.

Well, 4 of the past -- recliners started being installed in 2011.

Four of past 5 years have been record domestic box office in the United States and Canada.

January to March, then April, was record industry box office in domestic industry box office.

So the industry has, in fact, until May, been getting people to pay more dollars to go see movies in the United States.

And I've got to think that some of that is because we and -- I hate to give them credit, but our competitors, are making movie theaters nicer and the experience is something that's causing people to buy more of it.

So I don't think it's all share steal, and remember, we don't just compete against ourselves, right?

There are other forms of entertainment that are competing against the movie industry and movie theaters every day.

And so to the extent that people are still buying tickets, and I have heard so many of the people who have jobs like the people on this phone call and I don't just mean the people asking the questions, but also the buy-side who have been more listeners on the call than questioners.

Yes, there is something called Netflix, and there are things called televisions.

And there are other things one can do with one's discretionary dollar like go out to dinner at a restaurant instead of going to a movie.

I think moviemaking and movie-going has held up nicely, and I'm going to give you once stat that kind of blows me away.

This year, 2017, AMC is going to sell more tickets for people to go to an AMC theater in the United States than all the tickets that are sold for all the NFL games, for all Major League Baseball games, for all National Hockey League games, for all National Basketball Association games across the entire country, all season long, all 4 major sports, by a factor of 2.5x.

That makes me think we're doing a very good job competing for the discretionary dollar and getting people to go to the movies.

And hopefully, as we look to fourth quarter, when we've got some great titles coming out of '17, of '18, of '19, of '20, as we continue to make movie theaters nicer, as we continue to upgrade the size of the consumer databases that we have so we can market movie-going to a lot of people a lot of times.

On average, we're marketing about 80 times a year to the typical AMC Stubs member.

A year ago, we had 2.5 million member households, now we have 9 million -- 9.3 million member households a year later.

I think these things all bode well for continuing to drive record industry box office.

And so -- but it's also true that there's going to be a lot of share steal going on within the industry, depending upon how the local market situations play out in terms of what theaters are renovated, near or far to others.

Last question for me.

Obviously, IMAX has been a great partner for you, a great partner for Wanda.

And clearly, you have contractual obligations in terms of continuing to roll out.

Just curious, I mean, obviously, before recliners, you would create primarily a premium movie-going experience by adding an IMAX screen, and after doing that, you would see a big lift in attendance, which, of course, makes sense because you're sharing in that ticket, an IMAX ticket with your partner, IMAX.

Now it seems like, obviously, you've had great success in creating a premium moviegoer experience by adding recliners, food and beverage, alcohol, all the things that you have done so great.

So I'm curious, is that move to recliners has sort of dislocated to the IMAX premium experience that moviegoers used to have?

And as you think about longer-term, is POS be sort of more recliner and more centric with what people are choosing in terms of that recliner experience?

Well, those are very good questions, and you're talking to the world's biggest fan of both IMAX and of Dolby Cinema.

We've added a lot of POS within AMC over the past, whatever it is, 19 months that I've been here, and we'll continue to add a lot of POS.

The -- when titles are right, seeing it in a wonderful IMAX experience or seeing it in a wonderful Dolby Cinema experience is very powerful for consumers.

We're not only benefiting with attendance gains, we're benefiting in price gains.

And as I said, we are, on average, getting about a 70%, 7-0, 70% price premium for people to see movies in either the IMAX or Dolby Cinema experience.

All of our Dolby cinemas do already now have reclining seats, and we are testing at a couple of IMAX locations.

We have 180, I think, IMAX locations now in the AMC system in the United States.

We're testing some recliner seats to see how they will do in the IMAX format.

And we're doing that test jointly with IMAX, and we're both watching closely to see how consumers respond.

So I can't answer your question yet until we get the results of the recliner seat test, where we're doing it.

It sure is popular in the Dolby auditoriums, we know that.

But whether IMAX stays non-recliner or moves to recliner, and I'm sure that the -- our friends at IMAX, Rich Gelfond and Greg Foster, are going to have some strong opinions on the subject.

I'd just remind you, it was only 2 weeks ago that Dunkirk opened up, and it opened up big in IMAX auditoriums.

And IMAX just killed in terms of the market share of guests seeing Dunkirk doing so in an IMAX auditorium.

Similarly, AMC outperformed on Dunkirk.

So it may just be, as is often is the case, part of it's the theater -- the secret here is part of it's the theater and part of it's the movie.

And that's why we are not only rooting for AMC to make great theaters and to have great partners like IMAX and Dolby Cinema, but we're also rooting for all the studio partners to give us great product because we succeed the best when they put fabulous product out in the marketplace that consumers want to see.

Our next question comes from the line of Kannan Venkat with Barclays.

Adam, just a follow-up on Jason's question a little bit but from a different perspective, which is you mentioned during the call that there isn't a lot of visibility even a month ahead in the box office.

But when you look at your leverage right now and you give us a leverage guidance out to 2020, why not focus more on reduction of leverage rather than the discretionary CapEx, [simply said], at this point of the cycle when you don't have too much visibility?

And secondly, I have a question on one, and this may not be a fair question because it's more related to the liquidity situation there, but it does impact you.

How much visibility do you have into the liquidity position at Wanda and how that might affect you, guys?

Okay.

So let's do the Wanda question first.

I talk to Wanda as -- all the time.

We just had a quarterly board meeting for a few days in Los Angeles, where Wanda was importantly represented.

And I don't need to know what Wanda's liquidity is because in the 5 years that they've owned our company, they have not been a source of capital for AMC.

We source all our own capital, equity and debt, on the strength of AMC's balance sheet and have been very successful in raising equity at good prices when we wanted to do so and been very successful in securing debt at favorable interest rates when we've wanted to do so.

Turning to your other question, there was a really important phrase that you used in your question, and it was at this point in the cycle, which sort of implies that maybe we're coming to an end of a good time.

If you look at the jobs report that came out this -- was it yesterday morning or this morning, the days have been blurring given what's been going on with us since earlier this week.

The economy's roaring hot.

If you look at movie-going in Europe right now, movie-going in Europe is roaring hot.

When you look at the industry box office for 4 of the past 5 years through April of this year, records were being set.

When we look ahead, we don't see a lot -- there are some good movies coming out in August and September.

You should go see Kingfisher 2. It's going to be fabulous -- oh, excuse me.

Kingsman 2. It's going to be fabulous.

But the big -- the fourth quarter is going to look really good.

So -- and meanwhile, the dollar is at an all-time high.

And so I don't think we should accept the premise that this is a bad time in the cycle where movie-going is going to suddenly slow down.

I think as we look ahead, we could be looking at many, many good years of movie-going, and that is certainly our hope.

So we've tried to marry what we call the conflicting objectives of -- the conflicting objectives of still investing in our circuit to generate growth and increasing financial returns for our shareholders, the goal of buying back stock and the goal of delevering.

And just on this very call, there has been a very smart person who has said we should delever more.

There's been a very smart person who said we should buy back more shares.

And there's been a very smart person who said we should be investing and going after that growth with higher CapEx investment.

So it just goes to show you, it's not quite a science, it's a little bit of an art, about trying to optimize all 3 of those objectives in ways that work well symbiotically.

Fair point.

Just one more follow-up.

Could you just also help us with your tax situation, and when do you expect to be a cash tax player -- payer, sorry?

Yes.

There's about $500 million to $600 million of NOLs, cash taxes.

Let me get to the right tab.

I think probably get pushed out a year.

Really, they're nominal, nominal really even end of 2020, right, at this point in time.

And that assumes current tax rates.

So if the current tax rate were to lower, because that's clearly a priority of the White House and the Congress, that means that the NOLs could go out even further.

Yes.

We do have some tax obligations related to state and local, but they stay fairly small and level and through 2020.

Our next question comes from the line of Peter Padula (sic) [Vito Padula] with BlackRock.

I have just one very quick follow-up on the Q3, and apologies if it was covered before.

Vis-à-vis, the $30 million reduction in costs and revenue enhancement initiative by the end of the year, I just was wondering whether you anticipate to achieve any of those and which proportion you expect to shift in the next quarter to mitigate like the softer box office, expectation.

We acted fairly quickly in the work to get positioned.

It will affect, be early, beginning in August.

It wasn't from the first day of the quarter.

So there will be kind of pro rata over the next 5 months, the $30 million.

We think it's fairly even though, so there will be some impact here in the third quarter and a little more in the fourth.

And would there be any costs associated with the implementation of these initiatives?

No.

No.

We're not laying -- we have no plans of laying anybody off that would cause severance payments or anything like that.

This is literally where we can stop spending money.

I'm just going to give you 2 examples.

We have 50 open positions in our corporate headquarters that were budgeted and approved.

And they are not currently filled, including because we have normal attrition and people leave, and generally, 2 months after somebody's left, there's somebody new sitting in their workstation.

We're not going to fill any of those open positions unless we absolutely have to.

So that's an example of saving some money, and that doesn't cost us any money.

There are theaters that have a lot of showtimes.

And if industry box office is down, pick whatever number you are estimating, you may not need to have as many showtimes.

So if you don't need as many showtimes, instead of opening a movie theater at 11 in the morning, maybe you'll open it at 1 in the afternoon and you'll save 2 hours of electricity and 2 hours of air-conditioning.

And some of the part-time workers who are staffing that movie theater, instead of reporting to work and punching in at 11, they will punch in at 1. So -- and the list of things that we're doing, it's pages and pages long, but -- so we can't give you all examples on the phone, but to answer your question exactly, no, we don't think we're driving any cost to save these costs.

Our next question comes from the line of Ryan Sundby with William Blair.

Is there a risk that maybe Q4 is too overcrowded or too many titles and so that could maybe get people to shift some of their viewing into Q1 and that could maybe impact your guidance?

There's always a risk, I guess.

But we pick those guidance ranges very carefully because we do not want to go through in the fourth quarter what we just went through this week.

So hopefully, we pick the guidance range well, and we're all going to find out together.

Okay.

And then any thoughts on -- or color you can provide on why we're just seeing so much better performance in Canada and Europe, especially, Europe, I guess, without having recliners in place there?

Just kind of surprising to see such a divergence between those markets and the U.S., so any color would be great.

Well, let me talk about Canada first because there's a real easy answer for Canada.

The huge movie last year was Captain America, which did not play well at all in Canada for obvious reasons.

And so when they were comping Guardians of the Galaxy -- Wonder Woman against Captain America, it looked really good.

We had a better performance with Captain America in the United States.

So when we comp those movies, they didn't look as good year-over-year.

That explains Canada.

What seems to be explaining Europe is Europe was not all that strong last year.

And especially -- no, I'm not saying -- Germany is not the only country, but Germany, last year, I believe, had a World Cup and nobody was going to movies in Germany and they're all watching the World Cup.

Like, really, like I mean, in the double-digit, we're not going to movie theaters, we're watching our, what they would call, football and we would call soccer matches.

There's no World Cup in Germany this year, so the German theaters are booming on a year-over-year basis.

But literally, if you look at our performance in Europe, we're in 14 countries in Europe.

And if I'm not mistaken, we are down in one and booming in 13.

So across-the-board, it's Europe -- Europeans are going to the movies this summer.

Our next question comes from the line of Alejandro Luciano with MFS.

I just had a couple of quick questions.

First is with the $400 million that you announced of asset sales up, how much EBITDA do you lose because NCMI does pay dividends to you guys, and then you have integration payments that you make back.

And then does that include kind of the DOJ theater divestments and again, EBITDA loss that once you sell those as well?

Well, that's -- the guidance includes our projection on -- certainly includes the effect of the divestitures as well as the effect of the NCM sales that we would have to take in here in the last part of this year.

So it's in the guidance.

Okay.

And then just -- I know someone asked about cash taxes.

So then what would be cash taxes for this year?

Less than $50 million.

We're at the end of our time for today and have no further questions.

I'd like to turn it back to management for closing comments.

If there's anybody still on this phone call because we've gone 2 full hours, thank you very much for the time and attention that you devote to AMC Entertainment.

We'll see you at the movies.

This concludes today's teleconference.