AMC 電影院 (AMC) 2017 Q3 法說會逐字稿

Greetings and welcome to the AMC Entertainment Third Quarter 2017 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, John Merriwether. Thank you. You may begin.

Thanks, Devon, and good afternoon, everyone. I'd like to apologize for the technical difficulties that we've experienced here this afternoon as we get started. I'll read this a little slower so that we can get -- hopefully get more people on the call.

I'd like to welcome everyone to AMC's Third Quarter 2017 Earnings Conference Call. With me this afternoon 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 the 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 call, we may reference measures such as adjusted EBITDA, adjusted EBITDA margin, which are non-GAAP financial measures. For a full reconciliation of our non-GAAP measures to GAAP results, please see our second -- our third quarter earnings release issued earlier today. In conjunction with our third quarter earnings release, we encourage you to review the CFO commentary for the 2017 third quarter that we published on our website in tandem with the earnings release.

After our prepared remarks, there will be a question-and-answer session. As we did last quarter, we will stay on the phone until we've answered your questions. This afternoon's call is being recorded, and a webcast replay will be available in the Investor Relations section of our website at amctheatres.com later today.

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

Thank you, John, and good afternoon, everyone. I intend to take the next few minutes today to provide you with a high level review of our results for the third quarter but focus the majority of my formal remarks updating you on the progress we've made at AMC on the key priorities that we outlined on our last earnings call in early August as well as announce new initiatives you'll be hearing about for the first time. There's more detail about our third quarter performance in the CFO commentary that we also issued today.

On our last call in early August, I remarked that Q3 would be no picnic, and that prediction was spot on. You are already aware of the softness of the third quarter industry box office in North America with fewer big movies, fewer wide releases and several movies that did not resonate with audiences, leading to an industry-wide 14% decline in the U.S. and Canadian box office, the most difficult third quarter in about a decade. Across the industry, July was down 12%. August was down an almost unimaginable 36%.

But there were also 2 industry-wide bright spots. First, September set a record as the best industry box office for September ever, up 16%, fueled by the $325 million domestic gross of Warner Bros.' IT. We saw yet again in September as we did earlier this year with Beauty and the Beast and Wonder Woman and Dunkirk and Get Out, when filmmakers make appealing movies, consumers pour into theaters in huge numbers. Second, hundreds have been arguing that teens and millennials are shunning theaters for mobile devices, but a recent Forbes article and Piper Jaffray survey both concluded that, in reality, teens and millennials are increasingly more likely to see movies at theaters because of the better immersive experiences now being offered like those provided by AMC's luxurious recliners; reserved seating options; unique food and beverage menus; for those 21 and above, our almost 270 MacGuffins bars; and for all moviegoers, our approximately 270 IMAX Dolby Cinema and PRIME at AMC premium large-format sight and sound U.S. auditoriums. AMC is the largest provider of IMAX and Dolby screens in the United States.

So turning back to IT, the big box office grosser of September. Who drove IT to such record heights? In fact, it was millennials who made up more than 60% of the audience for IT, debunking the idea that millennials aren't going to the movies anymore and proving that millennials really do choose the movie theater experience when there's a movie out that appeals to their tastes.

Moving from the industry to AMC. We reported Q3 results of nearly $1.2 billion in total revenues, $147.4 million in adjusted EBITDA and a loss per diluted share of $0.33. As a high fixed cost, low variable cost business, our performance by definition will be less than inspiring in an environment where industry-wide revenues are declining by double digits. Having said that, we are encouraged that for the third quarter AMC exceeded consensus analyst estimates for revenue, for adjusted EBITDA and for diluted EPS.

We're also pleased that in so many fronts we outperformed the industry. On a pro forma basis, our combined domestic circuit, including the legacy AMC and the legacy Carmike theaters, outperformed industry box office by approximately 90 basis points. And on a per-screen basis, our combined domestic circuit outperformed by approximately 60 basis points. Our legacy AMC circuit, excluding those theaters acquired in the Carmike transaction, outperformed even better by approximately 180 basis points, and those legacy AMC theaters equipped with recliner seats outperformed better still by 350 basis points. That our entire domestic circuit did well reflects that we made real progress in both the AMC and Carmike circuits. More on Carmike in a minute. But within the legacy AMC circuit, as you look through our Q3 operating metrics, we are pleased that you'll see data point after data point after data point where AMC outperformed the industry and our principal competition.

We're especially pleased too with our performance as the largest European exhibitor with theaters in 14 countries. Both the Odeon and Nordic circuits outperformed in their countries of operation. With a similar slate of Hollywood movies that we had in the U.S., pro forma third quarter 2017 versus pro forma 2016, European revenues were down less than 1%, much better than in the U.S. and adjusted EBITDA actually increased by about 1% with adjusted EBITDA margins up slightly year-over-year but up significantly when compared to Q2 of 2017.

Let's now discuss the important progress we've been seeing and the important advances we've been making since we last spoke in August. I'm going to briefly highlight a dozen items before turning to your questions. One, the box office is coming back and with a roar. Yes, box office revenue was admittedly a mess with double-digit declines in May, July, August and October, but 4 months does not a trend make. We expect moviegoing through year-end will be robust. Thor opened to $121 million weekend domestically Thursday to Sunday, and on opening night, Friday, given how well Thor played in IMAX, we experienced significantly better market share than is the norm. Indeed, on Friday night, AMC had 8 of the top 10 grossing theaters in the United States for Disney and for Thor Friday eve. Justice League and Star Wars: The Last Jedi are 2 more of many intriguing films that are coming before year-end. We may not know precisely how much Q4 will be until sometime between Christmas and New Year's Eve, but we could be close to another record year.

The 2018 and 2019 movie slates are also compelling. As you look back, Netflix, smartphones and iPads were all around in 2015 and 2016, which were record years for movie theater revenues. 2017 opened big and should end big. In our view, 2018 and 2019 box offices could be truly strong as well. The evidence simply does not speak to a secular decline in our industry. There were some tough months in 2017 but the trend looking backwards and our forecast looking forwards lead us to be highly optimistic.

To the contrary of the thesis of secular decline, domestic movie theaters in the U.S. and Canada right now sell more than 1.2 billion movie theater tickets each year. Think of the popularity of professional sports in the United States. 1.2 billion movie tickets is more than 65x the annual attendance of all 32 NFL teams combined. It's 9x the combined attendance of all the teams of the National Football League, Major League Baseball, the NHL and the NBA combined.

Item 2, we continue to work diligently to improve operations at the former Carmike theaters, and we expect that the actions we've already taken are paying some dividends now in the fourth quarter. I'm pleased to report that after much dedicated effort this year, we are seeing that the Carmike ship is on a clear path to being righted. We've already taken many actions on the Carmike circuit: rebranding the theaters; reconcepting many of the theaters; improving the food and beverage product across all the theaters; addressing deferred maintenance issues; signing up new loyalty program members in droves; benefiting from a more functional, attractive website and app; repricing many of the Carmike theaters; and training all the local theater management teams.

Here's the result. And this is important, and it is good news. Like for like, Carmike theaters are now performing exactly like comparable AMC Theatres. We compare the market shares of the AMC and Carmike theaters January to August 2017 to the same January to August time period of 2015. Why 2015? We want a data from when the Carmike executive management team was fully engaged and similarly wanted to ignore the year when Carmike as a company may have been distracted by all the merger hullabaloo.

Here's what we found. Like for like, the market share changes of the recliner-equipped AMC and the recliner-equipped Carmike theaters were growing by double-digit percentages and were identical. Similarly, the market share changes of the AMC and Carmike theaters that were not equipped with recliner seats also were identical. The difference between the 2 circuits is now that some 41% of the legacy AMC circuit has been reclined. By contrast, less than 2% of the Carmike circuit has been reclined. So that's the next major step, and that's why we picked up the pace on identifying the best opportunities to renovate theaters in the Carmike circuit full AMC style with recliner seating.

By the end of 2018, we expect at least 25 of Carmike's largest theaters will be fully renovated in full AMC style, 10% of that circuit in theater count but much more than that in their percentage of legacy Carmike theater revenues. As has been the case with AMC, Carmike landlords are pitching in mightily on the renovation efforts with us. And since these are among the very first Carmike theaters to be done, the low hanging fruit, if you will, we are expecting ROIs way above our hurdle rate, 25% plus returns. So we have reprioritized our CapEx investment plans across the United States to grab those high-return Carmike theater renovation opportunities.

Item 3, Europe, Europe, Europe and Europe. We have an enormous winner on our hands. By next week, 3 Odeon theaters will have completed recliner renovations. By year-end 2017, just 2 months from now, 7 Odeon theaters will have completed recliner seat renovations. By year-end 2018, we will have at least 25 Odeon theaters equipped with recliner seats, including arguably the most prestigious theater in all of Europe, the almost 2,000-seat Odeon Leicester Square.

The first such renovated Odeon theater opened a few weeks ago in East Kilbride, Scotland. The very early results are stunning, comparable to the early attendance gains and returns we witnessed when we introduced recliners in the United States 6 years ago. From what we are already seeing at East Kilbride, we believe that theater-level EBITDA will double in the first 12 months post renovation. That makes -- that also makes us keenly excited to see the results of the next Odeon renovated theaters coming down the pike over the next 8 weeks.

And for those of you who have been wondering where we could generate growth in our Nordic Cinemas acquisition, in 2018, Nordic will add 7 new-build theaters across Scandinavia and the Baltics. On a base of 68 self-managed theaters currently, that represents double-digit growth. And one of those new theaters in Oslo is almost certainly going to be the highest grossing movie theater in all of Norway.

Four, speaking of growth in the Nordic countries, we're actually growing again everywhere. In 2018, we now anticipate adding approximately 10 new-build theaters and spot acquisitions in the United States and adding 12 new-build theaters and spot acquisitions in Europe, 22 new theaters in total for AMC globally. Our net CapEx investments in 2017 -- in 2018 should be at least $50 million below 2017 levels but still will range between $450 million and $500 million for the year. In addition to adding the new-build theaters and spot acquisitions I just mentioned, in our CapEx expenditures, we will fund normal maintenance spending plus make significant IT systems upgrades. But importantly for us, in 2018, we also expect to renovate about 55 theaters, about the same number as in each of 2016 and 2017 but in 2018, with 1/3 of those projects being in Europe and 2/3 in the United States. Of the U.S. theaters to be renovated, former Carmike locations will comprise about 3/5 of the renovation projects. This should take us up to more than 200 renovated theaters throughout our global network, more than any other exhibitor.

Item 5. Over the summer, we spent considerable time discussing with investors the need and our determination to better control our costs, which were high in the second quarter. We did institute a $30 million profit improvement program, a small portion of which was reflected in our Q3 results and which will continue to kick in during the fourth quarter. Showing that we already are seeing some improvement sequentially compared to the second quarter of 2017, in Q3, adjusted EBITDA margins in the U.S. remained exactly flat with Q2 despite a $61.7 million decrease in revenues, indicating that we did a better job adjusting our expenses to our revenues in Q3 than was the case in Q2. We also expect that margins will continue to rise in the fourth quarter of 2017 as our revenues rise and as we still tightly manage our costs.

Item 6. To strengthen our liquidity position and to put us in a position to delever, in August, we told you that we turned on a dime and had reduced our CapEx plan for 2017 and 2018 by some $200 million. Those savings, in fact, have been realized in our budgeting. In addition, we told you that we identified some $400 million of non-strategic assets that we could sell over the course of 2 years to generate cash. Within the first 6 weeks after that announcement, we consummated, as you know, 4 transactions that brought in more than $235 million, and we did so profitably. By the August 2018 first anniversary of having given you that information, I wouldn't be surprised if we haven't already realized the monetization of some $350 million of that original $400 million 2-year target.

Item 7. As we look to balance our capital allocation in the face of what we believe is a significantly undervalued stock, in August, our board authorized a $100 million share buyback over 2 years. As of Friday, we have already bought just more than $30 million of AMC stock at an average price of $14.68 (sic) [$14.86]. We will continue to invest in high-return strategic initiatives, move to delever while prudently continuing share repurchases given the value opportunity inherent in AMC stock at the moment.

AMC was not the only recent buyer of AMC shares. Many of you on this call have been buying, too, and I said in August that I would personally buy $500,000 of AMC stock in September. Well, my third AMC share purchase this year, I actually did buy $550,000 of AMC stock as promised.

Item 8. As you would expect, we are absolutely driven to create long-standing shareholder value. It has not escaped our notice that even though European public markets value movie theaters at double-digit EBITDA multiples, we are not seeing such valuations for our European assets at these levels when they are buried within AMC. Especially with the encouraging early returns for European theater renovations, we are currently seriously exploring the idea of an IPO of our European theaters on the London Stock Exchange sometime between July of 2018 and April of 2019. Remember that we've intentionally structured the Odeon and Nordic to run as a wholly owned but independent subsidiary of AMC, so this should be something, a public listing in Europe that can be readily accomplished. We would still retain full majority control of Odeon and Nordic but could sell between 1/4 and 1/3 to the European public. That could generate multi hundreds of millions of dollars of cash for AMC, which could either be used by AMC to delever or to return cash to shareholders as we would decide at that time based on the then current circumstances.

We share this idea with you because we expect it will happen. However, we also know that many of you are insatiable about wanting detailed information as soon as possible. So I must emphasize, it is still early in our explorations of this issue. I hope you can understand, therefore, that we will not be making any other comment publicly or especially privately in detail about this strategy anytime soon beyond what we've already mentioned in these remarks today. Even so, you can now see that there is a way to ensure that AMC shareholders receive fair value for our success in Europe.

Item 9. Our marketing activity continues to be one of our great strengths. As one example of several, AMC Stubs, our loyalty program, was quite the hit. We had some 2.5 million member households in mid-2016, a figure that was static without growth for 3 years. It's not even 18 months later, and we're now at about 10.8 million household members; at the U.S. average, 2.6 people per household. That means that AMC now has, in our consumer database, the movie purchase histories for some 28 million Americans. Our compactible database is also precious to us in Europe. We have e-mails and other contact information for some 6.7 million European moviegoers.

As to more of our marketing activity, now fully 30% of our U.S. ticket buying is done online in advance of showtime with more than half of that coming through our own AMC Theatres' website and smartphone apps. Our new pricing department, created just a year ago, has had one win after another. Very quietly, for example, we have instituted a $1 Friday and Saturday night surcharge at about 150 of our 450 AMC and AMC DINE-IN branded theaters. In Europe, we already charge an approximate 10% ticket price premium for a limited number of big so-called blockbuster movies each month, something that may be similar to what Regal announced they will be experimenting with in the United States in the near term.

Item 10. AMC is now the largest player amongst exhibitors in the U.S. movie industry ecosystem, 20 million guests flowing through our theaters in the United States each month, 15 million plus sessions on our U.S. website each month, 10 million households plus in our U.S. AMC Stubs loyalty database. We think that AMC, therefore, can participate in a bigger slice of movie-related revenues in this country. Accordingly, we now have strong studio support to sell movie-themed merchandise at our theaters when impulse buying may be at its peak. In 2018, we will test merchandise sales at 35 of our theaters. If successful, we will roll it out throughout our system nationally later in the year.

Similarly, we also have strong studio support to be participants in the significant home entertainment business where various websites sell movie streaming, movie downloads and physical copies of movie DVDs. We are announcing today that in 2018 we will add this capability to the AMC Theatres website, giving AMC an opportunity to further grow our other revenues. We will do this through partnering on a white label basis with existing entrants in home entertainment, so development costs will be minimal. We're not suggesting that premium video on demand will actually happen, but if it does, having this capability already on our amctheatres.com site means that AMC will be perfectly situated to sell high-margin premium video content as a result of this initiative as well.

Item 11. Given the August and October industry-wide revenue weakness, today, we lowered our guidance range for full year 2017 from the previous $860 million to $900 million of adjusted EBITDA to a new range of $810 million to $865 million of EBITDA. As we've said on this call, the fourth quarter will still be a big one, but we will not exactly know how big until the very end. Having said that, consensus analyst estimates for AMC adjusted EBITDA for the full year 2017 are already below the low end of our previous guidance range. Therefore, we think that guidance change announced today is a reflection of what the market is already aware of.

And finally, item 12. In September, we announced an investment in virtual reality through Dreamscape Immersive and our plan to launch 6 Dreamscape locations at or near our U.S. and U.K. theaters by 2019 in addition to our currently envisioned IMAX VR deployments. We think virtual reality done well at our theaters could be an intriguing traffic generator. The executives behind both Dreamscape and IMAX are masters at creating spectacular and mind blowing content that once again will put AMC on yet another innovative and intriguing path.

So in conclusion, here's our take looking back at Q3 and more importantly, looking ahead. For some considerable time, we have been predicting weakness in the third quarter and through box office due to the quantity and subject matter of the films that were scheduled to be released. Not surprisingly, our foreshadow is accurate. At the same time, however, we consistently have been bullish about the fourth quarter movie slate. Among many other hit films this year, movies like IT in September, Thor in November and soon Star Wars: The Last Jedi in December demonstrate for all to see what we know to be true. When Hollywood and international moviemakers offer appealing movies, Americans and Europeans will pour into our theaters in huge numbers and pay top dollar to do so. We believe that the naysaying arising from the May, July, August and October box office is misplaced, especially coming immediately after 2.5 years of record box office performance and just before what we expect will be strong and robust consumer demand throughout year-end. We are similarly confident, excited and optimistic about the film slate that's coming in 2018 and again in 2019. Accordingly in our opinion, those bearish investors who have been doubting the viability and strength of the movie industry generally, the movie theater industry generally and of AMC specifically, are betting the wrong way. We could not be more optimistic about our ability to deliver strong financial results in the coming years.

Thank you for participating on this call this afternoon. Operator, let's now turn to questions.

(Operator Instructions) Our first question is from Eric Wold with B. Riley & Co.

Couple of questions. I guess, first of all, maybe help understand kind of what was behind the reduction in the 2017 guidance because on kind of thinking back to the Q2 call, you were kind of talking people down to a Q3 box office decline as much as 20% and kind of predicted a weakness in Q3. It was weak. It possibly was a little bit less weak than expected, but now you're lowering guidance for the year. Is there -- is that based solely on what you thought or included around Q3 or also kind of lower expectations in that guidance for Q4?

Well, we already know what happened in October, Eric, and as you know, October was down 18%. Blade Runner was a disappointment in the month of October. Not the only film but it was important. We note that if you look at consensus analyst estimates for the full year, they were around $850 million or so of adjusted EBITDA, which was below the lowest end of the guidance range that we put out in the August call for the year. So a combination of where analysts were with October, it just seemed prudent to us to make sure that the guidance that's out there is reflective of what you all believe and what we believe.

Okay. And then second question is on -- last question on Carmike. You obviously have been talking about in the past reallocating some of the capital towards the Carmike and you want to have 25 of the largest one's done by the end of next year. I guess, one, is there a way to kind of -- I know you no longer kind of talk about Carmike so much even more. They're kind of getting rebranded or have been. But is there a way to think about the Carmike locations you acquired in terms of how many definitely need to be remodeled, those that definitely do not and those that may or may not be remodeled and kind of get a sense of what the opportunity is there? And what is the average cost of a Carmike remodel? And is the contributions you're getting from landlords in line with what you've seen from legacy AMC or higher or lower?

Eric, I made a big mistake. I did not write down each of the sub questions. So I'm going to do it from memory, and if I -- the landlord contributions are right up there with what we've always been seeing out of AMC. 35% or more of the cost coming from landlords. Because some of the -- not all, because some of the Carmike theatres are smaller, I think we're seeing that the renovation cost per theater is a little lower than what we saw in the AMC circuit historically. I think you're looking at $3 million to $5 million to renovate a Carmike theater, would be a good gross number prior to landlord contribution. The -- in terms of the number of Carmike theaters that we can do, the -- my guess is that we'll top out at around 50 to 75 theaters over time, 25 of which will be done by the end of '18. And -- but it's also true that, I would think, 150 of the Carmike theaters would never be candidates for renovation. And those 150, you talked about our rebranding of the theaters, have been put into our so-called AMC Classic brand. Our AMC brand, which includes legacy AMC Theatres, not all of them, many of them went into the AMC Classic brand, too, but which primarily include legacy AMC Theatres and a significant number of Carmike theaters, are the candidates. We have about 400 AMC-branded theaters. Those are the candidates for recliner renovations. For the AMC Classic theaters, about 200 of our theaters or so, we don't anticipate seeing renovations in the AMC Classic circuit. And I talked on the call about our growing focus on expense management and tightening the way we run the company and heightening margins. I think what you're going to see over time is that our -- just like Ritz-Carlton is run by Marriott International but so too is Courtyard by Marriott, different brands can have different strategies and different price points. I think our AMC Classic brand is going to be a low-price, low-cost, low-CapEx brand and should be quite profitable as we look ahead, as we clamp down the cost structure and improve margins within AMC Classic. So that's a quick take. But again, I want to come back to the summary conclusion of it all, that what's really going on now, after all these action steps we took to improve our fortunes within Carmike, is the renovated Carmike theaters, there aren't many of them, but they are performing just like the renovated AMC Theatres and the non-renovated Carmike theaters performing just like the non-renovated AMC Theatres, which means that, in our view, we have cracked the code on sorting through the Carmike acquisition. We've already taken a number of steps to improve performance, and now the last major step is to renovate the high return opportunity theaters in the Carmike system to drive the kind of significant returns that we've seen throughout the AMC circuit.

Our next question is with David Miller with Loop Capital Markets.

A couple questions. Adam, one sort of stat or metric you didn't call out, which I'm kind of surprised you didn't, is film rents. Film rent's just outstanding here in the third quarter, 48.4% of admissions. Clearly, your size is allowing you to have an advantage in terms of buyer and supplier power over the studio system. What can you say, if anything, about film rents in the fourth quarter and going forward into '18? And I'm going to have a follow-up.

So a, you're right. B, it was reassuring to us to see that performance. Part of that 48.4% number is because film rents in Europe are so much less than they are in the United States. But even in the United States, our FEC costs were 50.6%. Our principal competition all reported in the past few days, you can compare our FEC costs, film exhibition costs, to how others are doing, and AMC is doing well. Some of you may have seen The Wall Street Journal article about Disney in tough terms. You didn't see AMC whining to The Wall Street Journal about either Disney or Star Wars. I think I was good in that article saying that Star Wars is going to be God's -- a gift from heaven for American movie theaters and for AMC. We have, we think, great relationships with our studio partners. We -- in most cases, we have long-term contracts associated with film rent splits, and we are quite encouraged by where we sit in the competitive hierarchy.

The one thing I'd add, too, David, just to keep in mind that, that line item for us does also include some credit back, I guess, you'd say, as we kind of think we do a good job of working with the studios to market their films through our loyalty program as an example and to use other media assets that we have, and certainly, they're willing to compensate us for that. So it's not just what we pay for the film. There's also some cooperation and being a good partner with the studios to work together to market their films. And we benefit from that as well. And I think our scale is important to the studios in that regard also.

Right. And then, Adam...

I think we're -- David, before you ask the follow-up. So with respect to better film costs, because of what Craig said, it's just not a negotiation between studio and exhibitor about who gets what. It's also that we're earning our keep because we're delivering for the studios, and therefore, they're investing back in our media assets. Go ahead.

Okay. And then on Friday, as you know, Cinemark printed their Q3, and Mark Zoradi on that call, I think it was an answer to another analyst question, basically said that there is "no advancement whatsoever" in any kind of PVOD initiative or PVOD talks. Your comments were -- seemed to kind of -- were a little hedgy. I -- it seemed like you're hedging that a little bit. Your tone seems to be sort of, if it happens, here's what we will do. Am I reading you correctly? Or would you agree with Mark Zoradi in terms of his tone?

I'm sort of somewhere in a more, how do I say it, nuanced position, and let me tell you what that is. We are aware that investors have been generally worried about talk from studios this year about PVOD and its potential impact on theaters. I've been in forums where investors early this year categorically told me that studios would have implemented PVOD by now and that they would have done so in ways that are highly detrimental to the earnings capability of theaters. What we've -- it's very hard to box against shadows. Of course, PVOD has not happened yet, but -- and what we've been saying all year is as the largest exhibitor in the world, we got a seat at the table as all this is being discussed. Based on what I know now, I've never been more convinced than what I'm about to say. I believe that the outcomes are that either PVOD simply will not happen in the United States anytime soon or if it does happen, it will happen only in a way that is agreed to by AMC and is profitable for AMC even after taking into account any potential cannibalization from people watching films in other places other than theaters. So I guess, my prediction is either it doesn't happen now in the U.S. or if it does, it will actually be beneficial, profitable and a revenue opportunity for AMC.

So you're saying that if it happens, which we're skeptical that it'll happen at all, but if it happens, there is a possibility that you might even come out ahead financially all of the variables being equal. Am I reading that correctly?

Mostly correctly but I'm going to change a couple of words. Not that there's a possibility that we're going to come out ahead, that there would be a probability and perhaps even a certainty that we would come out ahead. We're not -- I said this way back in March or April. We're not going to sign on to anything that's bad for AMC shareholders, period, end of story. So I think it's either not going to happen or it's going to happen in a way where we make money from it happening, not in a way where we get hurt.

Our next question is with Chad Beynon with Macquarie Group.

Wanted to go back to your -- I guess, how the October weakness ties into your guidance for the year. Were you referring simply to the domestic box? Or did we also see that weakness international? Just because it appears that the operating leverage is actually higher internationally, so for this quarter, that would kind of be the swing factor. Just a little bit more clarity on that, please.

So we did -- in the CFO commentary today, I think we -- or in the press release, we suggested that whereas in August, we were calling for industry box office in North America to be $11.2 billion, we're now calling for it to be $11.1 billion. So that's part of the weakness. But you are correct that what we saw in the United States, we also saw internationally. The film titles in October were weak in Europe just as they were weak in the United States. We expect that the film titles in Europe are going to be very strong in November, December, just as we expect they're going to be strong in the United States in November, December. But it is both a domestic issue and an international issue.

Okay, great. And then on the $30 million of saves, is there anything left internationally that you could do to help those margins? Or is most of that domestically? I know you've outlined the synergies from the prior international acquisitions. But is there anything left over there that could help the margin profile? And that's it for me.

Thank you. Well, the $30 million profit improvement, admittedly, some of that was revenue. Not all of it was cost. But that was a domestically focused $30 million if you go back to when we talked about it previously. I will tell you that you all did a very good job beating us on the head and shoulders about costs as from August, when we all started talking about it. And we got religion. We are zealously focused on cost containment within the company and so much so that as we look at the AMC Classic brand, I think, as I mentioned earlier, looking forward not a week or a month or a quarter, but looking ahead over the next 24 months, we're going to make sure that we keep investment in that circuit tight, that we keep cost controls in that circuit tight, which will allow us to charge lower prices, which is important because as more and more theaters get renovated, the theaters that are not renovated have a product disadvantage. Therefore, they better have a price advantage. So I'd say the whole company has been moving on to a war footing with respect to cost controls. And that's not only true in the U.S. That's also true in Europe. Our management teams there are very focused on weaning out efficiencies in the European system. The dirty little secret of what we acquired in Europe is that Odeon, when we bought it, was managed really as a collection of, call it, a confederation of 4 separate territories: U.K./Ireland, Germany/Austria, Italy and Spain/Portugal. There was a terrific amount of overlap in duplicative costs as work was done in each of the 4 territories that could have been done centrally. Then we went and acquired Nordic, which added a fifth territory to the system. The senior management team of Odeon has as one of their largest priorities for 2018 and 2019, rationalizing the expense management of that -- of the European theaters because there's no reason to do something 5 times that we could do once.

Our next question is with Eric Handler with MKM Partners.

A couple items for you. First, just curious, on a pro forma basis, can you give us the percentage of tickets sold online versus -- on a year-over-year basis? And then secondly with regards to Carmike, you went from severe underperformance in 2Q to in line on possibly a little ahead of the industry in 3Q. How much of that was switching some of the second-run theaters to first-run theaters? How much was a reflection of those 2 theaters that you had closed for upgrades and renovation coming back online?

So Eric, I just don't know that I can dissect all the Carmike changes item by item by item. They all contributed. The theater openings occurred towards the end of Q3 and therefore, will impact Q4 more than they impacted Q3. The -- but there is no doubt that we've been taking advances -- we've been making advances within the Carmike circuit in many different ways. We had a double-digit price increase in average ticket price -- sorry, not double digit, almost double-digit price increase in the Carmike circuit in Q3. That was encouraging to us. In part, that's because of our pricing organization, which really has, I think, been a superstar little staff group within AMC, has been driving smarter thinking about how to price our theaters. We saw food and beverage levels at -- in the Carmike circuit rise to new highs. That, in part, is a result of having installed Coke Freestyle machines in all of the Carmike theaters between March and June of 2017. So I mean, we go step after step after step. We made a lot of improvements, and they all add up. As for online ticketing sales, it's just over 30% of tickets sold currently, and year-over-year, that number is up about 20-ish percent compared to last year. But what's more relevant to us is the third-party sites like Fandango and MovieTickets, they've been around. They were in the base case year of '16 and the base -- and the current year of '17. If we look at AMC's participation in generating online ticket sales, AMC is now generating more than half of our own ticket sales at our own website, our own smartphone apps, and that number is up about 50% year-over-year compared to last year. And we think these numbers are going to continue to grow. What's really interesting to us, for example, is that if you look at ticketing on our smartphone app, our app store, we got an Android and an Apple app, over 90% of the tickets that are being bought on our smartphone apps are being bought by AMC Stubs members. That -- the fact that the membership in AMC Stubs is quadrupling and that AMC Stubs members like to buy their tickets online in advance, that's all a good thing. Those numbers that I gave you, by the way, were not pro forma. I don't have in my head the pro forma counts. What I do know, however, is that, in the Carmike system, they sold very few tickets on their website and online, if any at all. I think that their -- they use Fandango as their source of ticketing. So they subbed it out through a third party. Whereas, we're happy for Fandango to sell as many tickets as they can for us, but we're also selling a lot on our own directly.

Great. And then just as a quick follow-up. So we've seen Regal announce it's doing some type of partnership with Atom Tickets. Who knows what that will end up being? Cinemark is going to launch a subscription service by year-end. Just curious how you're thinking of various pricing initiatives or subscription type services.

Sure. Well, number one, as I said on this call, we very quietly introduced weekend surcharges in the United States at 1/3 of our AMC-branded and AMC DINE-IN-branded theaters. We're already charging blockbuster pricing in Europe. That's something that we will consider in future. But I think as we look to what most intrigues us as the next major pricing initiative for AMC will probably be to bring, let's call it, legitimate theater, I think is what Broadway calls themselves, legitimate theater saw pricing or sport stadium style pricing to movie theaters, which is to say charging a premium for the most -- a small premium, not a large premium, a small premium for the most desirable seats and a significant price reduction for the least desirable seats. We know for a fact that the first row or first 2 rows of most AMC auditoriums are almost always empty. So that clearly represents an off-peak product, so to speak. We shouldn't be charging a premium price for a product that people only buy as a matter of last resort. So I would say that's the next major initiative that you'll see coming from AMC. I would expect you would see it in 2018. I would love to drop the price by a material amount in the first row. It doesn't cost you any money to cut the price of something that you never sell any of, and it might give us an opportunity to make moviegoing affordable for consumers who are willing to make the tradeoff to sit in those seats. As for subscription, it's been a hot topic in the movie industry, generally. We have a -- since August, we do have a subscription program that's quite active in Europe right now called Limitless. It's in the United Kingdom and in Germany. MoviePass clearly launched itself with a new concept in August. We've actually only made one public comment so far about MoviePass. We did it on the very first day of their announcement, and we said that, generally, AMC likes the idea of subscription. However, we also pointed out that, in our view, that MoviePass' $9.95 price point was below what it costs to make good movies and to operate quality theaters and that, in our view, the MoviePass price was unsustainable. Nothing has changed in our view. I would point out that they're charging $9.95 a month for -- on a limited number of movies, 1 per day, I guess, that's the limit, but for 1 per day, a full month's worth of potential movies. And yet in September, MoviePass paid AMC, according to our records, $11.88 for each and every ticket that it purchased for our mutual guests. That's quite a gap, $9.95 a month versus $11.88 a visit. I must point out, that's very gracious of them, and we appreciate their business. But I think it's also important to make clear that we, despite claims they've made to the contrary, AMC has absolutely no intention, I repeat, no intention of sharing any, I repeat, any of our admissions revenue or our concessions revenue with MoviePass.

Our next question is with Ben -- Stan Meyers with Piper Jaffray.

Just wanted to dig a little deeper into your industry box office outperformance. Seems like it largely came through pricing. Maybe you can parse out some of the parts there. You have film mix in the quarter. You have IMAX POS. Sounds like a lot of weekend surcharges. Maybe you can kind of parse out various categories for the quarter.

Look, we've given you the admissions revenue, and there are product changes year-over-year, quarter-over-quarter. We think our attendance performance was in line. Certainly, we had some strong pricing versus the industry. But as we think about it over a longer period of time, we think our attendance and our pricing is really in line with the industry, and it kind of shows itself that we're performing, in total, ahead of the industry. And you can talk about the individual pieces, but we're performing, in total, ahead, and that's probably how we want to leave it.

Our next question is with Jim Goss with Barrington Research.

I've got a couple. Adam, you've always been very emphatic that even though Wanda owns a majority interest in AMC as AMC is a -- manages itself as a U.S. company, if you do perceive there's an IPO of Odeon, would the management team at Odeon be able to make that same claim? Or do you expect a more, say, collaborative management process?

Well, you're right that Wanda had let us manage the company from Kansas City. It's been a fabulous shareholder, I got to tell you. They are supportive of us as they possibly could be, and they leave us alone to run the company and deliver results. I don't know that our European management team is going to be able to say quite the same thing about how hands off we are. The -- we are trying to let Odeon manage Europe from its London headquarters, and we're not trying to, how do I describe it, get hyper involved in the detail because we don't want to paralyze -- from Kansas City, because we don't want to paralyze management action. I've always believed that the smartest way you can manage an organization is get decision-making as close to the cash register as possible. But it is true that we are -- so while we are delegating day-to-day decisions of Odeon to Odeon, it is also true that we are very involved and in very close contact with the senior leadership group at Odeon, especially from the senior officers here. I was in London last week. I'm going back next week. The -- but rather than getting mired in the detail of what's going on in Europe, what we've tried to do is impact through broad brush strategy change and resource allocation, what Odeon's all about. And I can't begin to tell you how excited we are with the theater renovations that are going on throughout the Odeon system and the new -- the -- we have -- I told you we got 1 done, and we have 2 more that are going to finish next week. But those 2 that have -- going to finish next week have been partially open during construction. And we were seeing revenues at those theaters stay stable even though half the theater was closed and half the auditoriums were closed, which makes us think that when we open the full theater and open all the auditoriums, we're going to see the same kind of revenue surges that we've already seen in East Kilbride. Similarly, our plans with Odeon Leicester Square are just stunning, a major transformation of the most important theater in the United Kingdom. The fact that we're going to have 25 Odeon theaters reclined by next year is important. And these are decisions that are -- that we're driving from here because, obviously, our company is very experienced with theater renovations and heretofore Odeon hadn't done any. It's also true that we're giving the Odeon team much more in the way of resource than they had under the prior ownership. Even though our European theaters are about 20% of our revenues across the system, more like 35% of our total CapEx investment in 2018 will be going to Europe. So we're putting our money where our mouth is. We believe there's great opportunity in Europe. We believe that we're getting it already, that we will get more as the theater renovations come onstream. And so I guess, a final answer to your question, Jim, we're not going to be quite as hands off with Odeon. Even after an IPO scenario, we're still going to own 2/3 or 3/4. We won't be as hands off with Odeon as Wanda has been with us, but we're still going to let decisions make -- decisions get made in Europe and not paralyze decision-making by centralizing it here in Kansas.

Okay. And just one other area, premium pricing. IMAX has been pushing more in the direction of 2D versus 3D, thinking there's a greater preference of people seeing that. I'm wondering how -- what your view is on any shift away from 3D, which could, I guess, compromise some of the premium pricing you had and whether you've seen a significant difference in the blend of PLFs versus IMAX that you've been running within your chain.

So let's do 3D first. Let's do 3D outside the world of IMAX, and then we'll do 3D inside the world of IMAX. The -- we have seen a small decline in 3D patronage in the non-IMAX circuit, and that is something that's very important to us because we get a $3 or $4 price premium for 3D compared to 2D in our regular auditoriums. We have a meeting later this week with 3D here in Leawood, Kansas at the highest levels, including CEO to COO and all of our support teams underneath, to see what ideas we can institute to make progress on building back 3D demand across our system. Within the world of IMAX per se, we only charge a $1 premium for IMAX 3D compared to IMAX 2D, and essentially, half of that -- slightly more than half of that goes to the studios and the other half of it goes to the cost of providing the glasses. So we don't make any extra money from 3D versus 2D within an IMAX auditorium, so we're actually quite indifferent as to whether the IMAX screens perform in 2D or 3D. As for -- but I want to come back to the overall 3D comment. It is more than 10% of our total ticket buying, and we -- just as we put the A team on the Carmike theaters, we're going to put the A team on 3D and see what we can't do to stimulate 3D patronage at AMC. With respect to the blend of the different PLFs, we could not be more excited with our 2 partnerships with IMAX and with Dolby Labs. We have more than 150 IMAX screens. We have more than 80 Dolby Cinema screens. We're the largest IMAX guy in the United States. We're the largest and only Dolby exhibitor in the United States. We're seeing about, on average, about a 70% price premium in our IMAX and Dolby auditoriums compared to our non-PLF auditoriums. IMAX and Dolby are both performing very well, similar -- quite similar to each other, actually, within whiskers of each other and it kind of goes -- it's kind of a horse race that goes down to the wire. It's neck and neck, and it changes month to month to see who's outpacing the other by 1%. But they're both huge, 70% price premium compared to what we see regularly. We also have launched our first private AMC PLFs, what we called, essentially, more of a mid-tier PLF, won't command the same kind of price premium that Dolby Cinema or IMAX command. On the other hand, the investment cost to upgrade the auditoriums to put those in is much less as well, and we get to keep 100% of the revenue rather than sharing any of it with a third-party partner. So we think our PRIME at AMC auditoriums are also a big opportunity for us.

Our next question is with Mike Hickey with The Benchmark Company.

Just 2, I guess. Curious, Europe, what you're seeing in Europe in terms of the competitive response to your [recliner] initiatives. And then secondly, obviously, this could be a delicate topic, but as we sort of model out Q4, [obviously], Thor was good. We're still sort of down double-digit domestic. Justice League looks like it's shaping up well. But in terms of Star Wars, how should we think about modeling that? Should we think about 2 years ago? Or do you have any evidence in terms of pre-ticket sales that this year is some -- can compete with that level?

So in Europe, we either see no competitive response or are in a very few theaters, very few, handful. People are putting in a row of recliner seats or 2 rows of recliner seats and calling it a day. That's a very different look to the consumer compared to what we're doing to enhance the overall feel and appeal of our theaters. We do think we're going to pick up considerable first-mover advantage in Europe and that, that first-mover advantage will be sustained for a significant period of time. With respect to Q4, everything you said is accurate. I think we're going to let it play out before starting to handicap each title, title by title. I don't think any of us would have called $325 million for IT in September for example. We do think Star Wars is going to be huge. We think it's going to be the biggest movie of the year. Whether it gets all the way to the level of Chapter VII - The Force Awakens or not, I don't know that anybody is calling for that, but we do -- we know it's going to be a very big movie, so probably under The Force Awakens and more than anything else you've seen this year. And with those numbers, I'm not talking about the 2017 calendar gross. I'm talking about the full run of the movie as it extends into January and beyond. But one more Star Wars comment though. AMC leaned into Star Wars: The Force Awakens 2 years back. We had theaters that were running 24 hours a day, 4 and 5 days in a row. We're going to lean into The Last Jedi every bit as aggressively as we did 2 years back with Star Wars. We're going to have a lot of show times. We do -- we believe that maybe for the second half of December, you can rename our company. It won't be AMC Entertainment. It'll be called Star Wars: The Last Jedi Entertainment. We'll be leaning into it in a big way, and we're expecting success.

Our next question is with Jonathan Jenson with Imperial Capital.

Just firstly as it relates to the updated guidance, can you help us bridge the implied EBITDA in Q4 based on your updated guidance? Is it a function of pricing or cost? Could you just help us there?

We lowered the guidance on both. I mean, our -- there is some pricing, and there's some cost associated with it with the new guidance. I guess I'm not...

Well, there's just -- there -- I mean, look, there are so many variables going on in fourth quarter activity. One of which is that the film rent splits on a movie like Star Wars are going to be more favorable to studios than on the kinds of titles that we're playing in the third quarter. So our highest grossing film in Q4 is going to probably give us -- not probably, will give us more residual money than we've had for any other film in Q3, but the percentage of revenues will be lower than what it was for any movie in Q3. Prices are going up in a lot of theaters. In other places, we're hyper promotional. We had $5 Tuesdays in the fourth quarter on -- which is typically a very low demand period in the month of October and November. So there's just so much going on. You know what our EBITDA is 2 or 3 quarters. And you know what the guidance range is, high to low, for Q4, and you can take it from there as you model.

Right. The implied EBITDA would be around $300 million. I'm just trying to see if it's more attendance or if it's mainly a function of pricing. But yes, that's pretty helpful. And then just my last question as it relates to liquidity. Can you just let us know the RC amount that's outstanding and available?

Revolving credit line.

Yes. There was about $60 million at the end of the quarter outstanding.

And then...

And largely because we had some LIBOR contracts we didn't want to break.

And the size of the revolving credit line is?

It's $225 million.

So we have a tremendous amount of liquidity available to us.

Our next question is with Ryan Sundby with William Blair.

Adam, I know you just -- you touched on AMC Prime. Just curious to see -- also, at the same time, Feature Fare, how that rollout's gone. And then with both, are you kind of happy with the performance so far today? And I guess, any expectations that's performing better or worse? That'd be great.

So Feature Fare, we're like thrilled, thrilled beyond thrilled beyond thrilled. We rolled it out in 300 of our 400 AMC brand theaters. And you will note that we reported F&B revenue per patron in the third quarter, up 8.7% to a level above $5 of spend per patron. That is higher than, if you look at -- not necessarily looking at 15 theaters or all restaurant Dine-In Theatres, but if you look against our major competition, we got the highest food and beverage spend per patron of any of the majors. And one of the reasons for that, of both the high level and the significant growth, is because Feature Fare has been a hit at our theaters. And I must say, I've eaten our Feature Fare in many states, and it's much improved, much more imaginative, much more fulfilling. So good for us. More bars, more freestyle, better food, that's a big part of the strategy of making AMC more appealing to consumers.

Yes. No, great to see it kind of show up in the numbers there. And then with merchandising, that seems like a pretty logical step to make. Can you just talk about maybe how that came up? Is that something your consumers are asking for? And then, I guess, from a margin standpoint, does that look something more like food and beverage? Or is there some kind of a licensing component there that may take margins down?

So where did it come from? It came from having our eyes open and realizing that if you go into any sports stadium, there's one store after another that's selling jerseys and team gadgets. If you go to any concert tour, that's the same. If you look at the Harlem Globetrotters, they've always figured out a way to get every kid in the stadium to buy a basketball for the third quarter. This is not a new concept, and we know that the studios have a tremendous amount of licensing deals where they're selling merchandise in retail stores around the world. And yet, in a venue where you would think the enthusiasm would be highest, in a movie theater on your way out the door, we do nothing. And I must say, this is one of the areas where we've actually learned something from Wanda. On one of my trips to Beijing, I walked to one of their theaters and saw a store literally embedded, like a small little logo store. But think of all the restaurants who have been selling merchandise as you go out the door. Wanda is doing that in a lot of their theaters in China. And so I think some of our learning was best practices within our own sister network of theaters in Asia. And so we're going to try it in the states. The big debate was do we just roll it out to 400 theaters or do we test it first, and we thought it was prudent to test it first. But we're optimistic it will be successful, and therefore, we're expecting it to roll out much bigger beyond the initial test. Having said that, this is a low-margin business. Selling movie-related physical merchandise is -- does not have the profit margins of popcorn or soda or liquor. And so I don't think you should think this is going to be a huge change for us in other revenues, but we can pick up $0.20, $0.30, $0.40, $0.50 a head and -- from merchandise sales. When you multiply that against 0.25 billion visits over the course of a year, it adds up to real money.

We will now be taking our final question from David Hargreaves with Stifel.

I was just was looking at the bond covenants and trying to figure out where your restricted payment capacity is at the moment. It looks to me like your accumulated builder is probably something in the order of $880 million. There's an excluded amount of $327 million under the tighter set of covenants and then another carve out of $400 million. That would get us to about $1.6 billion. I'm wondering if that's more or less what you guys think the number is.

About close to $2 billion.

$2 billion. And so now the last $30 million you guys bought was at $14.86. Given where the shares are now, we're just wondering if you're going to be more aggressive with share repurchases and if you have -- you mentioned that you have a lot of liquidity right now. I'm wondering if that means you could issue senior secured debt that you might use to fund equity purchases. Or perhaps you mentioned the IPO proceeds in Europe. I'm wondering what potential sources there might be for buying back more shares.

.

Well, let me remind you that the -- all the talk about an IPO in Europe is second half '18 or first trimester of '19, so I don't -- and while that could be a source of capital for us to buy back shares, inherent in your question, I think, is will we move a lot faster than second half of '18. The -- so that would not be an option. We have no intention of borrowing money right now to buy back stock. One of the things that our investor base is very sensitive to is our leverage level. And by -- if you borrow to buy back shares, you're only going to increase the leverage level, which I'm not sure would be all that acceptable to a lot in our shareholder base. Having said that, we did announce a $100 million buyback over 8 quarters, and we got 30% of it done in 1 quarter. I'm not going to make any comment about the pace at which we will continue to buy back shares, but I will point out that we believe our stock is undervalued. The -- a major studio chieftain told me a month ago that our stock is a screaming bargain. I agree with him. I was buying. Our company's been buying. It's even more of a screaming bargain today than it was 2 weeks ago, so we will continue to implement our buyback program as announced.

I really appreciate those comments. And the other thing was, in your prepared remarks, you talked about millennial spending, and I'm curious if you could elaborate a little bit on how they're spending relative to your other demographic categories, where they're focusing -- are they doing as much in the food and beverage category? And I'm just wondering if there's any peculiarities of what you're seeing there.

So I don't have, at the top of my fingertips, what millennial food and beverage buying is compared to other demographic groups. I can tell you that there has essentially been a war going on all year between the bulls and the bears about the movie theater industry. On -- the bulls point to 2.5 years of record performance and a big slate of movies coming in '18 and '19. The bear -- and the bulls point to the fact that when Hollywood makes movies for -- that appeal to millennials like IT, they show up in big numbers and are an active and vibrant part of our customer base. The bears look at these 4 bad months in 2018 -- sorry, 2017, May, July, August and October and are trying to predict that the future of interest in moviegoing is going to play off the May, July, August, October numbers. We believe the bears are wrong. It's our job to deliver financial results to prove them wrong, and that's what we are absolutely committed to doing.

So I think, operator, you said that was our last question. We'd like to thank you all for joining us today. And 2017 will turn out to have been a tale of 2 cities. The first 4 months were strong. September was strong. November, December is going to be strong. May, July, August, October, were weak. But you take it all together, we think AMC is extremely well positioned to compete in this industry, to thrive and to prosper. Thank you one and all.

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