AMC 電影院 (AMC) 2018 Q2 法說會逐字稿

Greetings, and welcome to AMC Entertainment's Second Quarter 2018 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, John Merriwether, Vice President of Investor Relations.

Thank you, Jeremy.

Good morning.

I'd like to welcome everyone to AMC's Second Quarter 2018 Earnings Conference Call.

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

In conjunction with our second quarter earnings release, we encourage you to review the CFO commentary for the 2018 second quarter that we published this morning on our website in tandem with the earnings release.

After our prepared remarks, there will be a 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 later today.

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

Thank you, John, and good morning, everyone.

What an amazing quarter for AMC in the second quarter of 2018, amazing for AMC, amazing for our industry and amazing for moviegoers, all of which drives value for AMC shareholders.

Obviously, we're very pleased by AMC's record results for the second quarter of 2018, especially given the magnitude of the impressive 20% increase in total revenues and an 80.3% year-over-year growth in adjusted EBITDA for AMC.

Our success was the result of our continued innovation in the design of our marketing programs and the theatrical experience that we offer our guests as well as an intense focus on the disciplined execution of both our operational and our financial strategies.

We'll give you much more color on the quarter and on what AMC has been doing to drive our business forward as we move into this call.

But before we do, I want to emphasize the second big takeaway from the second quarter of 2018, from the first half of 2018 and from the past 10 months, and that is the movie business and the movie theater business and AMC are all thriving, flourishing, strong and healthy.

Start with the domestic industry box office as a harbinger of that strength.

Movie after movie has shattered attendance and revenue records this year.

All Prime overall monthly domestic industry box office revenue records were set in 5 different months out of the past 10.

The second quarter domestic industry box office revenue was up 22.7%, and it was the biggest quarter ever in the more than 100-year history of cinema.

For all who've been predicting since last summer's brief box office slump, the demise of the movie business or of AMC who have been predicting doom and gloom and who have been valuing our business at trough multiples consider this, we have been making enormous progress.

And for the industry, PVOD did not happen.

Other challenges have been dispatched with.

The box office is roaring hot.

For our company, our marketing efforts are producing measurable results.

We have more smartly managed our expenses and improved our margins.

We turned around the fortunes of the acquired Carmike theaters.

Our theater renovation projects and new build theaters are still getting impressive financial returns, especially getting blisteringly good returns in Europe and in the Middle East where we enjoy first-mover advantage.

And to help deleverage and return cash to shareholders, we have monetized some $500 million from the sale of nonstrategic assets in less than a year.

This record second quarter for both AMC and for the industry reminds us that the entertainment marketplace is big enough for AMC and for all in the entertainment space to coexist harmoniously and for each of us to thrive.

In earlier times, the experts absolutely knew that television was going to put the movie theaters out of business.

The VCR was going to put the movie theaters out of business.

Streaming was going to put the movie theaters out of business.

And yet here we are with yet another record quarter on the books.

And I will predict for you today that in full year 2018, we will see a record domestic industry box office and that from a revenue and adjusted EBITDA standpoint, I'll predict that 2018 will also be a record year for AMC.

What's more?

As we look at 2019, we see another compelling movie slate and another superb year in our immediate future.

The medium-term and long-term prospects for AMC are incredibly bright.

So now let's turn back to the highlights of Q2.

April to June, records [fell] at AMC.

In fact, revenue records for the June quarter were achieved in every revenue category, admissions revenues, food and beverage revenues and other revenues.

Total revenues for the second quarter exceeded $1.44 billion, growing 20.0% to become the highest quarter ever in the history of the company.

Likewise, adjusted EBITDA set a new June quarter record, growing 80.3% to $244.8 million, generating 17.0% adjusted EBITDA margins, about 570 basis points better than our margins of last year.

Breaking down our results geographically.

It was an excellent quarter domestically.

AMC outperformed the industry domestically, growing domestic attendance per screen by 21.1% and growing domestic admissions revenue as a circuit by 22.9%.

Importantly, attendance per screen outperformed the industry by nearly 600 basis points and admissions revenue per screen outperformed the industry by nearly 300 basis points.

Contributing to this outperformance were our PLF results.

AMC is the largest operator of premium large-format screens in the United States, and we will be significantly increasing those screen counts in the months and years ahead.

AMC's U.S. PLF admissions revenue or PLF admissions revenue increased 70.3% in the second quarter and was up 54.7% in the first half of 2018.

Likewise, the pricing structures that we've deployed over the last several quarters appear to be working well, charging more in the peaks yet pricing smartly in other ways, too.

We will expect to continue to see more revenue contribution coming from attendance gains as we look to the future as our pricing strategies continue.

This has the added benefit, of course, of continuing to drive F&B revenues, which at $5.29 per U.S. patron in Q2, already now are the highest of any major U.S. operator.

The box-office success we benefited from included in Q2 some truly high-grossing movies, which always increases film rev.

But despite that increase, we managed our expenses extremely well and generated a 93% increase in U.S. adjusted EBITDA compared to the pro forma results from a year ago.

We take special pride in calling out to your attention that adjusted EBITDA margins at our U.S. theaters increased some 700 basis points from 12.7% last year to 19.7% this year.

Europe, however, was a different story in the second quarter.

Beautiful weather crossed Europe for much of the quarter while storms seemed reserved for the passions of national rivalries in the quadrennial FIFA World Cup, which kept some distracted.

In addition, some Hollywood films simply resonated better in the states than overseas.

In total, the European industry box office in the second quarter declined 4.3% in the countries served by Odeon and declined 9.4% in the countries served by Nordic.

That gave us a very tough hand to play in Europe, but relatively, we performed very well.

On a constant currency basis, our total revenues declined by only 2.3%, much less than the industry decline.

And adjusted EBITDA was flat to last year even in the face of a soft industry revenue quarter.

We believe that both on the revenue and expense sides of the income statement, our European management team really delivered and that this was an impressive feat in a down industry revenue quarter.

There are great things coming for AMC internationally, I'm happy to report, but more on that in a moment.

Finishing up on Q2, more detailed financial information can be found in Craig's CFO commentary, which also was issued this morning.

Turning back to the whole of AMC.

While Q2 was one for the record books and as successful as the record quarter -- as the second quarter was financially for AMC, it shouldn't be any surprise really that AMC performed well in a quarter as robust for the industry as was this one.

So I would especially like to highlight 8 things that make us ebullient about what lies ahead for AMC as we position the company for growth and future success in great quarters like this one and regular quarters that also will certainly come.

First, we're continuing to enhance our theaters, making them more appealing to consumers, and we're growing our footprint by adding new theaters as well.

Rewarding us for that effort, we are realizing handsome financial returns on our invested CapEx in the process.

As I mentioned on our last call, we continue to be on pace to renovate about 44 theaters and open 16 new theaters worldwide in 2018.

The vast majority of these 60 theaters will feature our signature recliner seats.

Domestically, as of the end of 2017, we had 247 theaters equipped with recliner seating, representing approximately 38% of the domestic circuit.

We expect that more than 275 domestic theaters renovated with recliners by the end of 2018.

Many of these domestic renovations will occur within the acquired Carmike circuit where we think considerable low-hanging fruit is still quite ripe for the picking.

All in, we continue to expect that our worldwide net CapEx for 2018 will be between $450 million and $500 million.

Second, our thesis for acquiring our European theater network is being borne out to be true right before our eyes.

We have already increased our global scale, including opening new theaters that have been immediately successful right out of the chute.

And our renovation projects are generating fabulous returns, double and triple of the returns that we are seeing currently in the United States.

Helpfully, European mall operator landlords are playing right along with us, chipping in around 40% on average of our renovation project budgets.

That also is higher than what we've historically seen in the United States.

As of yesterday, we had 9 theaters fully operational in the United Kingdom with our signature recliners, with 100% of them serving alcohol and offering premium large-format screens.

By the end of August, that count of 9 should rise to 14, including introducing recliners in the U.K., Germany and Spain.

Including new-builds, we expect to have between 25 and 30 sites in the U.K., Germany, Spain and Italy up and running by the end of the year, offering recliner seats to a public that is responding in big numbers with increased patronage.

The most exciting of those renovation projects will be our flagship Odeon Leicester Square in London, which has been closed since January and which will reopen at year-end.

By all accounts, the Odeon Leicester Square is the most important and most prestigious theater in Europe, and it will literally be a magnificent theater and a magnificent profit driver when it reopens.

Third, all hail the PLF.

At the end of 2015, AMC had about 160 premium large-format screens.

By the end of 2018, 3 years later, we should have closer to 400 with still many more coming in 2019 and 2020.

We also will be upgrading well more than 100 of our IMAX screens and the former Carmike Big D screens with the latest state-of-the-art sight and sound technology.

Not only do our IMAX Dolby Cinema and our [house brand, PLF] screens, over-index in attendance, they also carry massive price premiums, about 70% for IMAX and Dolby and about 45% for our house brands.

Fourth, the success of our U.S. marketing programs is just incredibly impressive.

Let me give you 3 examples among many.

One, online ticketing now represents about 40% of our total tickets sold, with about 3/5 of that coming from our proprietary website and smartphone apps and which has more than doubled over the past year; two, our loyalty program, AMC Stubs, is now up to 15.8 million member households, giving us historic movie-buying habit information on more than 40 million Americans.

We e-mail and text these Stubs members more than 1.3 billion times annually to promote moviegoing at AMC; and three, look at the consumer response to our new A-list, 3 movies per week for $19.95 per month.

Even though we've launched at more than double the prices of 3 different competitors, in just the first 5 weeks of enrollment, we just announced that yesterday morning we crossed the 175,000 mark of paid members.

But my, my, how time flies when you're having fun.

The A-List member count last night at midnight was 181,790.

As we speak at this moment, it is exactly 182,275, which means that in 24 hours, we enrolled more than 7,000 people.

Multiply 7,000 times 365, these are huge numbers.

Now obviously that pace can't continue or we wouldn't think it could continue.

But we did design A-List to compete well in its own right, and it is doing so.

And importantly, because of the price point at which we pegged, we designed it to be profitable for our studio partners, and we designed it to be profitable for us and we designed it to be sustainable for our guests.

What we are now learning also is that AMC and A-List are perfectly positioned to capture new business for us as consumers struggle with constantly changing rules, decreasing movie availability and rising prices from other players in this space.

Fifth, as you know, during the second quarter, we expanded to our 16th country when, on April 18, we opened the first movie theater to operate in Saudi Arabia in 37 years.

We received massive global publicity.

And thanks to having a strong bond with the sovereign wealth fund of Saudi Arabia and with the Saudi government's Ministry of Culture and Information, we are working to expand to 50 to 100 theaters in Saudi Arabia over the next decade.

It may not stay this way across all the country forever.

But right now, our initial screen, the sole screen in our launched theater, is more than 20x more profitable than the typical AMC screen.

Ah, the benefits of pent-up demand.

Over time, we expect that our 16th country will make a material financial contribution to AMC.

Sixth, AMC has been managing our business ever so carefully, marrying costs to business realities and doing all we can to control costs and to increase revenues.

In the U.S., our tight cost controls are one reason why our theater margins have improved from 12.7% Q2 last year to 19.7% in Q2 of this year.

In Europe, our European management team is doing an excellent job in attacking and streamlining the above theater overheads, which are unnecessarily duplicative across the 14 countries in Europe and which can be much more efficient than what it was under prior ownership groups.

On the revenue side, [I sign liquor] license applications all the time, and our F&B teams continue to drive revenue.

At $5.29 per patron in the U.S., that exceeds all other major theater operators.

And our F&B spend per patron is growing even faster in Europe than it is in the United States.

Seventh, I said on our last quarterly call that we really have turned around the performance of the acquired Carmike circuit.

So I said on that call that, that was the last time you're likely to hear about results in the legacy Carmike theaters.

But the Q2 numbers are so compelling, I wanted to share them with you.

Attendance per screen was up 21.1% across all of AMC in the United States.

And even without the benefit of a sizable number of recliner-equipped theaters, attendance per screen was up 20.8% for the former Carmike theaters, 21.1%, 20.8%.

Ticket prices are up 2.0% across all of AMC in the United States.

They're up 2.0% at the former Carmike theaters, too.

F&B spend per patron across all of AMC in the United States was $5.29.

It was $5.25 at the former Carmike theaters.

This is also very close.

The former Carmike theaters are doing just fine.

And finally, eighth, we are committed to managing our balance sheet wisely.

In August of last year, we made a commitment to you that we would return cash to shareholders.

And in addition to continuing a high-yield dividend, we sought $100 million buyback authorization from our Board of Directors for a 2-year period.

As of the end of Q2, we have already purchased 3.7 million AMC shares for $56 million, 500,000 shares of which were purchased in Q2 of 2018.

Further, to help allow us to deleverage over time, we similarly pledged to you in August that we would monetize approximately $400 million in nonstrategic assets over the following 24 months.

As you know, we accomplished all that and more.

Some $500 million in total, 25% ahead of our goal in less than 11 months.

We got there through the profit-generating sale of equity stakes in Open Road Films, NCM, and Screenvision combined with 2 theater sale leaseback transactions.

We do keep our word.

Before I close these initial remarks, I'd like to share a thought with you about the coming 18 months.

Adjusted EBITDA at AMC for the first 6 months of 2018 was up $135.8 million year-over-year.

We've already put a lot of growth for 2018 into the bank, done, in our pocket, completed.

Looking ahead, our best bet is that the second half will only be flat or possibly up.

But if up, only mildly up.

However, some of you think the second half will be materially down.

Similarly, some of you are saying that Q3 will be strong and Q4 will be weak.

We think it is much more likely that it is Q3 which will be the challenging quarter while the fourth quarter will hold up nicely.

But including all the 4 quarters of 2018 together, it is our best judgment that 2018 will be a great 12-month year and the best in our company's history.

And in trying to forecast our collective future, lest anyone forget about the first half 2018 results, which were stellar and dwell only on the second half results of 2018, our early take on 2019 is that it also will be a spectacular year.

In summary, AMC had a superb record-setting second quarter.

Many of the problems that loomed large on the horizon in 2017 loom no longer at all.

Our theaters are more and more appealing by the day.

Our marketing programs are rocking the house.

We're managing expenses and margins tightly.

We are expanding.

We're paying extraordinarily close attention to capital allocation.

And the box office so far in 2018 and perhaps more importantly, what we expect it to be in 2019 appears to be healthier than healthy and stronger than strong.

Thank you for participating on the call this morning.

Operator, let's now turn to Q&A.

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

Two things to ask.

First, Adam, I'm curious to see or curious to understand with A-List, have you seen any material uptake in subscriber numbers since MoviePass has had its issues of going offline and raising prices and just changing the -- a lot of their business model like how much of a benefit do you think that's helping you?

And then second, maybe you could talk about -- it looks like you did a very good job of cost containment in the quarter.

Anything new there and where you're seeing the ability to keep costs flattish to possibly even going lower?

Sure, Eric.

Thanks.

A-List has been running hot from the second we announced it.

It's been -- the enrollments have been proceeding at such a blistering clip, much faster than my expectations.

When we announced the program on a conference call to you guys, I think it was 6 weeks ago, we said that our own internal company forecast would -- if that -- if this was successful like our program was in Europe, remember, we've had a Limitless program in the United Kingdom in Germany for over 3 years, that we would see enrollments of about 500,000 at the end of year 1 and 1 million at the end of year 2. So 500,000 by June in '19 and 1 million by June of '20.

Actually, through last Friday, we've already enrolled 150,000 people in 4.5 weeks.

That's a lot faster pace, 150,000 people in a month, that's a lot faster than 500,000 in a year.

As we look to these numbers internally, we said this can't continue, this has got to slow down.

We can't be enrolling 150,000 a month.

Remember, that other company you've mentioned, whose name I will refrain from using, claims to have hit 3 million subscribers at essentially the 1-year mark, but [their grid] across the whole of United States at more than triple the number of theaters that AMC offers.

But the number I just gave you, 150,000 through last Friday -- was through last Friday, we've added over 30,000 new members since Friday.

So what is that?

Saturday, Sunday, Monday, Tuesday.

That 30,000 in 4 days is a pretty brisk pace.

So yes, I think it does demonstrate what I said in my prepared remarks that we got A-List into the marketplace at a time when we can take advantage of all this demand that seems to be out there for buying tickets the new way in multiples rather than the old-fashioned way of one at a time.

As for cost management, yes, we did manage costs very well in Q2, and I would say that we just really tightened down -- tightened down the hatches.

When we set budget levels for 2018, we scrubbed, and we scrubbed, and we scrubbed.

We told you all actually that we began these cost-containment efforts in June of 2017, and that has certainly continued.

I would say one of the most -- there are a lot of things that we've touched on before in terms of cutting costs.

I'd say one of the more interesting things that we've learned that you haven't heard about yet is marrying operating hours to demand, such that at individual -- a lot of our theaters are open from 8 in the morning until 1 in the morning, and that's exactly as it should be when we see revenues -- industry revenues like we did in the second quarter.

But we've gotten much better skilled over the past year at cranking back opening hours just a little bit.

Maybe a theater opens at 9:30 instead of 8 a.m.

or closes at 12:20 instead of 1:30.

But when you operate fewer operating hours, but you get the same -- you capture the same revenue, that bodes well for profitability.

We will continue to be managing costs very tightly as we go forward, Eric.

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

Just 2 questions for me.

I guess, one, I definitely understand that attendance growth is the more important metric of the two, but kind of thinking about what looks to be relatively muted, 1.9% increase in domestic average ticket price in the quarter, especially given how IMAX screens domestically are up almost 50%.

You had your own price increases.

Anything -- any thoughts there in terms of what may have held back that price increase or the price increase?

Sure.

It was intentional on our part.

And remember, revenue as a function of -- as you said -- I mean you did preface your question with the acknowledgment that revenue is a function of attendance times price, right?

During the quarter, we went -- we institutionalized our $5 Tuesday ticketing program.

Tuesday used to be the lowest day of the week.

It's hard to believe this, but thanks to $5 Tuesdays,Tuesday's now the second busiest day of the week in AMC.

So in addition to that, we did take conscious efforts to raise price at theaters where we could raise price, but we reduced price at theaters where we thought reducing price would generate traffic growth that would exceed the price drop.

So these are conscious decisions we've made.

Overall, our prices are up.

Overall, our revenues are up.

Overall, our studio partners are doing better because what we believe we've done in the second quarter better than ever before is optimize our pricing strategies, charge up in the peaks when we can, price competitively in the shoulders and off-peaks to drive attendance and revenue -- and to drive revenue where we should.

Perfect.

And then...

I would add one thing.

We did have growth in IMAX, growth in Dolby.

The 3D volumes were down pretty substantially.

They didn't fully offset, certainly the growth in the IMAX and Dolby, but we did see some softness in 3D.

Got it.

Great.

And then just last question.

On the Stubs A-List program, I think you had a call before -- maybe a little more color on where you see kind of breakeven in visits per year?

I mean kind of what level is within that 1 to 12 visits per month would start to maybe turn unfavorable?

And then if it was kind of [going] consistently across [a] subscriber universe, obviously [everyone visits] differently.

And then kind of within that, the unnamed competitor has had to raise prices for their own, I think, cash flow issues first and foremost.

What gives confidence that $20 is the right level for AMC?

Let me do the second question first.

What gives us confidence that $20 is the right level AMC -- is, it was more than double what anybody else was charging.

[And well,] they're charging now, and we still had 182,000 sign-ups in 5 weeks.

So the price point seems to be working for the consumer.

Of course, our launch program is our launch program.

We will be carefully monitoring all the various levers within AMC Stubs A-List, and we'll modify those over time to make the most sense for our guests and the most sense for our shareholders.

A point I want to make is I think that we designed our program very intelligently based on a lot of experience.

Remember what I told you on the call 6 weeks ago, that our company has had this program in place for 3 years in the United Kingdom and Germany that I personally watched and sat atop the Colorado ski industry where we transitioned the whole of the Colorado market from day tickets to season passes, with season pass volumes growing up thirtyfold over a decade.

We really do know what we're doing here, and we're off to a great start, and we will continue to manage the program with profitability in mind.

As for your question on the individual metrics, it's only week 5. It's too early to draw conclusions from the first 5-week performance of moviegoing amongst the audience although I can tell you, we -- moviegoing amongst this audience is robust and -- but I'll just repeat now exactly what we said on the call 6 weeks ago, which was true 6 weeks ago and which we believe to be true today, and that is for every 1 million moviegoers -- sorry, every 1 million enrollees in A-List, we believe this program, net of all cannibalization and dilution, net of all the money we pay our studio partners, will generate about $15 million to $25 million of incremental EBITDA for AMC based on 2.5 visits per month and that, that range sweetens by about $10 million for every reduction in the average moviegoing of -- by 0.25 point.

So 2.25x per month instead of 2.5x a month.

We will be managing and monitoring this program extremely closely over the months and years ahead.

And I'd like to add one more thing, Eric.

There are some people who speculated that we did this merely as a competitive response and that we were not wed to it.

Given the compelling enrollments in A-List in just a few weeks, this program will be a permanent feature of AMC.

We do think it's going to be a small program.

Maybe someday, we'll get up to 10% of tickets sold through A-List, like 10% of our tickets sold in the United Kingdom are sold through Limitless.

But we do think that the most of the economics of AMC are going to be sold one ticket at a time in the future, just as it has been in the case in the past.

Our next call comes -- our next question comes from the line of David Miller from Imperial Capital.

Yes.

Craig, what was the free cash flow number unlevered in the quarter?

I just don't see that reconciled in the press release.

And then, Adam, I think it was maybe 3 quarters ago, maybe it was this time last year that you floated up a possibility of an IPO of the European assets on either London or Euronext so as to catalyze debt downward just because there was a lot of criticism about that at the time, and that there's still the residue of that out there.

Where do you guys stand with that because we haven't heard anything about that in the last couple of quarters or so?

I appreciate the update.

David, nice to hear from you again, buddy.

The -- on the European IPO -- I'll do mine first and then Craig will answer his.

On the European IPO, it sort of actually it's exactly what I did say in previous quarters.

What I said on the last quarterly call was that we've made no decision yet on the European IPO.

We are certainly preparing for it and taking all the steps needed to get there if we choose to pull that lever.

That -- on the last call, I said that timing range that we've always given was somewhere between the second half of '18 and the first half of '19.

That's still the timing range, although I think I've said in the last call that much more likely, we would make that decision in the first half of '19 than earlier, and that's exactly where we are now.

It's something we're starting and something we're thinking about, but the timing is still the same timing, but we haven't necessarily made a decision to do it or not.

Let me ask you this, why would you not do it other than what could be less-than-sanguine market conditions in Europe in the future?

What would be a reason that you wouldn't do it?

Well, there are a lot of reasons to do it.

There are some reasons not to do it.

It would return a lot of cash to the parent, which would make many of you very happy.

On the other hand, it would make running our business much more complicated if we had -- because we had public shareholders in Europe, every interplay between our European subsidiary and our parent company was carefully regimented by London Stock Exchange rules.

But I don't want to really go too much into the, should we, shouldn't we yet.

It's too early.

Those are decisions that we're going to look at later in '18, early in '19.

There are very good reasons for doing it.

There are some good reasons not to do it.

I think the important thing is this: whatever we decide to do in Europe, AMC is very committed to deleveraging, AMC is very committed to returning cash to shareholders, AMC is very committed to growing our footprint by adding theaters, AMC is very committed to renovating our theaters and capturing these outsized financial returns we're getting, especially from our theaters in Europe.

We're blending all 4 of those variables all the time.

We did sell $500 million worth of nonstrategic assets to bring in cash.

We did buy back $56 million of stock.

We did maintain yet again a dividend with a significant yield, far larger than what is the norm across U.S. companies these days.

And our leverage level has come down.

At the end of June -- the June quarter, our net leverage level has lowered to 4.7x.

But that's because the cash that came in from the June NCM sale came in, in the first few days of July.

If you add that couple of hundred million dollars back into the June quarter, our net leverage level at the end of the June quarter adjusted would have been 4.5x.

So we're making progress on all the variables of capital allocation, and we are continue to be very committed to hitting the goal in each of the 4 areas where we're deploying capital.

Craig, you want to talk to the free cash flow question?

Yes, just to be clear, David, what we'll disclose at this point in time is it's kind of off the statement, [it] changes net cash provided by operating activities was about $297 million in the quarter.

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

I just had 2 quick ones.

First, MoviePass has had that -- about 5% of the box office.

They represent about 5% of the box office.

Is that comparable for AMC?

And how much of that attendance do you think is at risk with MoviePass raising prices and adding restrictions?

And then the second question, I know it's early, but can you provide some directional color around how we should think about 2019 CapEx?

Should it be down?

Flat?

Up?

Any color there would be appreciated.

On the first one, by the way, on the first one, I really do want this call to be about AMC and not about somebody else, but I will tell you that we are not at all worried.

I'm going to say it again.

We are not at all worried about any falloff in our visitation or revenues because of problems that others have in the marketplace because we did, in fact, launch A-List.

And because we launched A-List and because the consumer response to A-List has been so strong in the first several -- we think we've created a vehicle and put it into the marketplace where we can take defectors, bring them into our fold and have them continue to enjoy moviegoing in the kind of numbers that we've seen recently coming in other places.

So had we done nothing, had we had our head in the sand, we might have been exposed to some risk.

But we took a compelling program to market, and we're right out there now and competing every day and doing way better than our original expectations.

Yes.

On the CapEx, Leo, we guided you this year 2018 to $450 million to $500 million, and I think our 2019 CapEx will be kind of in that range as well.

The next question comes from the line of Michael Ng from Goldman Sachs.

I just have 2. The first is on A-List.

It was encouraging to see the better-than-expected membership.

Theoretically, if you continue at this strong pace and, for example, get to 500,000 or 1 million members by the end of the year, how would that impact your outlook for $10 million to $15 million of losses related to the program in the back half?

Would that go lower or higher?

Or is it all dependent on visitation?

And then I have a follow-up.

Too early to know.

Having said that, it does make sense that the heaviest users come first.

But -- so if you have more heavy users coming first then maybe they go up.

On the other hand, once you get through the heavy users to the medium users, it all comes down.

So I think at week 5, it's just too early for us to predict.

So let's stay with the old numbers that are -- have been out there in place from all of 6 weeks ago.

And when we have real data where we can make intelligent judgments, either positive or negative, we'll certainly let you know.

Okay, great.

And in the press release, you mentioned that you guys still had a lot of confidence about improving the Odeon and EBITDA margins over time.

Could you just talk about bigger picture how you view the Odeon and Nordic markets?

And over the long term, do you expect these markets to outperform the U.S. because Europe is relatively under screened?

Or is there something else going on?

So yes, you're right.

Europe is relatively under screened.

Look backwards 5 years, 10 years, moviegoing in Europe has grown at a faster growth rate than moviegoing in the United States.

So put aside the second quarter of 2018 where the industry box office was pretty anemic in Europe, we would think that big picture, long term, Europe is going to grow faster than the United States from an industry standpoint.

In addition to that, when we go back to the prime reason that we bought Odeon and then Nordic, other than for a global scale, which has its own benefits, at Odeon, we thought we could grow much faster than the industry as a whole because we were going to get first-mover advantage by putting in recliner seats throughout the Odeon network, and that's exactly what's happened.

We're 9 theaters as we speak today.

The results have just been unbelievably strong, as good as they were back in 2012 and '13 for AMC in the United States when the numbers were just off the charts.

So we're already as confident as we can be that because of -- that the market will be good.

It wasn't good in Q2.

But over the next year, 3 years, 5 years, the market will be strong.

And Odeon will be particularly strong because of the recliner renovations.

Within the Nordic circuit, we've all been doing this together now for a while.

I remember many of you were quite skeptical when we bought Nordic, and we said that one of the big reasons that we bought Nordic, other than it was a very well-managed circuit and could give us some increased managerial strength to help us improve the fortunes of our theaters across the Odeon circuit, was that Nordic had this amazing pipeline of new theaters in development.

And I think at the time we bought Nordic, it had 68 theaters that it had operated and 58 theaters it operated in partnership with local municipalities in Scandinavia.

But it had over 10 theaters in its pipeline that were going to open.

Earlier this year in the first quarter, we opened a new theater in Oslo in the Nordic circuit.

It, overnight, became the highest-grossing movie theater in all of Norway and significantly changed our market share across the whole of the country just from this one new theater that's opening.

So like the investment thesis of Odeon is turning true, the investment thesis of Nordic is turning out to be true.

And if you want to be expansive and talk of greater Europe, like Europe like being really big, I don't think we would have gotten into Saudi Arabia if we had not gotten Europe.

Europe gave us demonstrated experience in being able to manage our company well across 15 countries.

So when we met with our potential partners and government officials in the Kingdom of Saudi Arabia, we could say truthfully that our company had a lot of experience being sensitive to local cultures, different languages, different business practices.

We are not just the United States circuit that was trying to expand internationally with no experience under our belt.

And the Saudi expansion is also going to be very profitable for AMC, and our ability to capture that Saudi opportunity is -- a big reason for that is because we went into Europe in 2016.

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

I guess, on the marketing side, obviously, a lot of success here in building out your loyalty program, 16 million, maybe more importantly, 40 million, I guess, you're estimating in terms of uniques or individual moviegoers within that number.

And I'm just sort of curious how aggressive you've been marketing to that group, your Stubs A-List program and sort of what sort of, I guess, if the conversion is sort of in line with what you're thinking originally going into the launch of the program and sort of what opportunities perhaps that huge group of steadies, so to speak, could offer you.

Sure.

Sure, Mike.

Just to give everybody the -- how we get to some of these numbers, the reason we're saying that 15.8 million member households equates to 40 million Americans is because the average household size in the United States is 2.6.

And we do -- and Stubs is a household program.

The reason why it's a household program, spending per year in movie theaters is much less than what you might spend at airlines or in hotels, for example.

So we wanted to gang up some spending, so that people could actually accumulate some sizable enough quantity of points that they could then turn that into rewards, and they would see that as beneficial enough to them to join the program.

I don't think this is unknown to you.

There are 9 people, who back in 1981 and 1982 invented airline frequent flyer programs, and I happened to be one of the 9, and so I've been living with loyalty programs for almost 40 years.

And in coming in to AMC, I thought there was a lot of opportunity to revamp AMC Stubs, which already was the most successful loyalty program in the movie theater business, but make it a lot more successful.

I've got to tell you, I never dreamed in a million years that we would see the success for Stubs that we've seen.

AMC Stubs, as you recall, had 2.5 million members at the and of 2015 when I arrived here.

It had -- that member count had not grown in 3 years, and it's -- we relaunched the program in July of 2016 about 6 months after I got here based on a lot of knowledge that our own people have, knowledge that I brought.

I brought in a consultant who actually created American Advantage in 1981, who helped us design all this.

And we thought we would grow.

But my God, to grow from 2.5 million member households to 15.8 million member households in 2 years, that's stunning.

And it's just -- the growth isn't stopping.

On the AMC A-List call that we did 6 weeks ago, we told you with excitement that we crossed 15 million members.

It's 6 weeks later, we're 15.8 million members.

By next week, we're probably going to be around 16 million members for Stubs.

It just continues to grow and grow and grow.

And whereas about 20% of our total guest activity in the United States was tracking for Stubs points in the original program that was in place at the end of '15, about 40% of all the tickets that we're selling now are tracking for Stubs points.

Number one, that's staggering.

And if you've tracked loyalty programs over the decades like I have, being able to double your point tracking in 2 years is just a terrific accomplishment.

But there's more that can come.

You said like what's the future?

In other industries, these loyalty programs have topped out at around half of the clientele, maybe 55% of the clientele.

The rest -- close to half of the population doesn't seem to like to play the game.

But that means that we could see a 50% growth again from 40% to 50%, possibly more in the amount of people in our universe who are tracking for Stubs points.

So what we've done with the program has been very successful, and there's still a lot of opportunity ahead.

In terms of what we've done to be aggressive in marketing ourselves, I used a number in my prepared remarks that we're sending out about 1.3 billion e-mails and texts a year to AMC Stubs members.

In fact, we are in contact with our Stubs members about twice a week, about 100 times a year, flogging away at what they can go see at our theaters.

And remember, there's interest level amongst our guests in the information that we send them because there are new movies that open every single week.

So we're not just giving them stale information for the 79th time on a stagnant product.

Our product is constantly changing.

And so that the information we're giving them is quite relevant.

And what we're seeing that our open rates are nice and high and that we're not burning out our list at all by continuing to communicate with them frequently because our product is changing so constantly.

So yes, we have a very strong and -- yes, we have a very strong program.

Yes, we're marketing, [too], in a very aggressive way.

I think one of the things within the program that I'm very excited about in the last few months, we really perfected what we call our recommendation engine.

So that the e-mail that we sent to you is different than the e-mail that we sent to Eric or David or Leo or Michael because the e-mail that you get is based on the movies that you've seen before, and the e-mails that they get are based on the movies that they've seen before, very Amazon-like in gearing our promotional messaging to your personal interests.

And, obviously, we continue to make Stubs better and better.

I'm particularly excited that we've put VIP benefits into the theaters, so that our A-list people and our Premiere list people are treated better than our regular Stubs members, and that our regular Stubs members are treated better than our non-Stubs members.

I'm also excited that we continue to refresh AMC Stubs and make it more and more interesting [and relevant] to consumers.

It's no accident that when we launched A-List, we launched it as a VIP tier within our AMC Stubs program as opposed to launching some separate program divorced and outside of AMC Stubs.

So thank you for the question.

I'm sorry for going on so long, but we are proud of how well this has all been going, and it's a reason for not only our success in Q2, but these are going to be reasons for our success over the next 12 months, the next 24 months, the next 36 months, the next 48 months.

These are reasons why AMC is going to be a winner in this industry.

Awesome.

Last question for me, I guess, on the Stubs A-List.

Just curious, when you had the call before, IMAX is obviously a big piece I think of value here that's seen, at this price point, et cetera, and so curious now when you look at early usage clearly, but is that sort of tracking to what you would have expected in terms of sort of a bias towards IMAX?

And I'm also wondering as you sort of scale out your sub-base here.

And, obviously, there's a lot of moving pieces here to the economic puzzle of your relationship with IMAX.

Does that change your thinking maybe longer term, especially when you look at maybe your Carmike circuit.

Do you think maybe more IMAX screens in perhaps markets that didn't have an economic case for it before but now with the Stubs plan and the excitement of seeing IMAX films, if that changes your long-term view?

Sure.

We're week 5 of AMC Stubs A-List, and I already know who should be smiling in the executive suites of companies around the country.

First, the CEOs of every studio out in Hollywood should be smiling because this program is going to drive incremental moviegoing and especially incremental moviegoing amongst millennials, which is an audience that studios have been worrying about for years how to bring them into the theaters in significant numbers.

Second, the CEO of AMC is smiling because we're off to a great start.

Third, Kevin Yeaman at Dolby Labs and Rich Gelfond at IMAX really should be smiling because your supposition that IMAX and Dolby Cinema are doing very well within AMC Stubs A-List is certainly being borne out to be true.

We're very committed to PLFs.

We're committed to more IMAXs, upgraded IMAXs, more Dolby Cinemas, more PRIME at AMCs.

We have something in Europe called iSense, which is our house brand in Europe, more iSense locations.

And this program is one of the reasons why we'll continue to do really well at -- in our PLFs, but it's not the only reason.

Our PLFs were doing well long before AMC Stubs A-List was ever launched.

They overindex by about 3:1 against a traditional screen for attendance, and the price premiums we've been seeing, as I said in my remarks, up 70% for IMAX and Dolby and up 45% for PRIME, our house branded.

Remember, given that we don't have to share any of our PRIME revenues with IMAX or Dolby, a 45% price premium at PRIME, the bottom line economics to us look just as good as IMAX and Dolby.

So I'm sure you're going to continue to see big surges in IMAX count, Dolby Cinema counts and our house brand PLFs counts over the years ahead.

This is, after all, what our consumers want.

Everybody's for years, for decades, people have been talking about going to see the movie on the big screen.

Well, there's no big-screen like IMAX, Dolby Cinema and PRIME at AMC.

And I said we were at 160 PLFs 3 years ago, we're going to be around 400 at the end of '18.

3 years from now, 600 PLFs, 700 PLFs.

A lot of those will be Dolby.

A lot of those will be IMAX.

A lot of those will be house brand.

But this is what consumers want.

They overindex for PLFs in attendance.

They overindex for PLF at -- for price.

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

Going back to the -- even the IPO days, there was a lot of emphasis on recliner reseats, dine-in theaters, all that, and we're still sort of making progress sort of renovating the circuit.

My question is when do you think this will be done?

When do you sort of ring the bell and say, "our circuit is fully upgraded"?

And when that happens, what does the capital intensity of the business look like?

Well, that's a really good question, Jason.

So had we been a static company, meaning we didn't acquire Carmike, and we didn't acquire Odeon and Nordic, we'd be getting to a point where we're pretty close to being done.

We're still going to do another 30-ish theaters this year from within the AMC brand, the legacy AMC Theatres.

And maybe there are 30 more, and that -- maybe they're -- so we're at 250 as we sit here today, maybe that would have grown to 300.

Maybe that -- and we probably would have peaked out about there.

But then we acquired Carmike.

Carmike had no theaters with recliner seats.

So we bought 250 theaters that was completely devoid of recliners.

And when you look at the Carmike circuit, at least half of the Carmike circuit, possibly 2/3 of the Carmike circuit, is never really going to be a candidate for recliner seats.

The theaters are too small.

The visitation is too light.

So -- but there are 50 to 100 theaters within the Carmike 250 that could take recliner seats.

So in essence for Carmike, it's 2011 all over again.

And the same is true in Europe.

There were, I think a couple of theaters that had some partial rows of recliner seats installed in Europe, but basically when we bought Odeon and Nordic and added another 300 theaters to our system, call it 350, there were -- there was essentially no recliner seating in Europe.

And we're going to have 25 to 30 theaters in this by the end of '18 with recliner seats in Europe.

And there's runway in Europe for another 4 years, 5 years of recliner theaters.

So going to your question, when is it all over?

It would have been over about now or maybe a year from now if we hadn't bought Carmike and Odeon.

But I know what that's driving in your head, which is -- so we're spending hundreds -- we're investing hundreds of millions of dollars a year in renovating theaters, putting in recliner seats.

When are we going to stop investing hundreds of millions of dollars renovating those theaters and just come back down closer to maintenance CapEx levels and just put the free cash flow in our pocket rather than turning around and reinvesting in the business?

I would remind you that the investments we're making in these recliner-equipped theaters are producing very high returns.

And so we think the business is already generating dramatic free cash flow, which we're then, in turn, deciding what to do with.

Some of it we're returning to shareholders in the way of dividends, some of it we're returning to shareholders in the way of buybacks, some of it we are deleveraging the company.

But other than that, we are putting back into our business because the financial returns are so attractive.

So I think when I talk with some of you not on these quarterly calls, your hope is that this can all go away, it can end, we can just go down to maintenance CapEx levels, have huge free cash flow generation.

I want to remind -- so the point I'm trying to make is we're already doing that.

We're already getting the free cash flow generation.

But the investments we're making, we're turning around and making because they are going to produce dramatic returns going forward.

So in essence, I think you should be rooting for some of this to continue maybe not where the market is satiated as it is throughout much of the old AMC circuit but in circuits where there's a lot of low-hanging fruit and high returns still to be gained, it should be very appealing to you and us that we have those opportunities available to us.

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

A couple of modeling questions.

Firstly, I think in your prepared remarks, you mentioned that the second half could potentially be flat from an EBITDA standpoint.

Just wondering if you could call out the negative year-over-year comp given the divestitures of some of the noncore assets, DCIP, NCM, et cetera, just what is that in the back half of the year from a headwind standpoint?

So you're asking about the dividend contribution in the last -- it'll take me a second.

I don't have that at my fingertips.

Can we take the next question, and then I'll come back to Chad's question?

Yes, absolutely.

Yes, pretty detailed question and then secondly, no one has touched on film margins in the quarter in the U.S. Overall, your margins expanded, I think, well beyond what we had expected, within the detailed line items, I think film expense was slightly greater.

We all know the concentration of films hurt you, but was there anything else in there that hurt you in the quarter domestically?

Or was that simply how that concentration plays out in a big quarter like this?

So I actually did touch on [my remarks], I mentioned film rents.

The bigger the movie, the higher the rent we pay.

The smaller the movie, the lower the rent we pay.

The second quarter had some huge titles in it.

So film rents went up.

But it was nothing other than that.

It was nothing than other sliding scales at work, and just remind you that our theater margins went from -- in the U.S. went from 12.7% to 19.7%.

You've got to look at the totality of it.

Increasing film rents is not an issue when the movies are as big as they were, driving the kind of revenues they drove, driving the kind of attendance that they drove.

It was right as we expected, and the bottom line result was very positive.

Yes, back on the question about dividends, in the second half last year, we booked about $21 million in both quarters, or the last 6 months, about $21 million, and it looks like it could be around half of that.

That, of course, depends on a lot of things like level of operations of those different businesses.

But that's kind of our projection, about half of that $21 million, we should see this year.

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

A question about the breadth of PLFs and whether you've been noticing any difference in utilization rates for IMAX versus Dolby versus your various house brands.

And also one of the arguments for house brands or at least not IMAX was, IMAX has a set schedule and the others maybe have a greater degree of flexibility in taking the movie du jour to -- go with that, if that's borne out to have any relevance in your utilization rates.

Thank you, Jim.

So I think the question was do we know what's going on, differences between IMAX and Dolby and our house brands?

Like we know so precisely.

We track our numbers so close.

One thing I will say about AMC: we have great management information.

We close our books weekly.

We get an incredible amount of data about our performance theater by theater, format by format, movie by movie.

So we know exactly what the differences are between IMAX and Dolby Cinema and PRIME at AMC.

But in the guise that we love all our children equally, we're thrilled to be partners with IMAX.

We're thrilled to be partners with Dolby Labs.

We're thrilled to have our own house brands, and I think it would be impolitic of me to start comparing each of them against each other.

They're all fabulous partners for AMC.

We are the largest IMAX operator in the United States.

We're the largest Dolby Cinema operator in the United States.

I'd like it to stay that way.

So I'm going to love all my children equally and duck your question a tad.

But remember, we're adding these screens.

We're upgrading these screens with A-List.

We're driving people to these screens.

I believe if you talk to IMAX or Dolby, they would tell you that we've been a very faithful partner to each.

Okay.

That's fair.

And maybe it's hard to beat A-List to death any more than we're probably doing so but I'll give it one more try.

I assume that almost all of the A-List customers came out of the Stubs subscriber list to begin with so given what you just said about how you track everything very closely, I'm wondering, and I know we're only 5 weeks into it, but you have the data analyzed -- like how you go through the frequent users because you know how many movies each person in the Stubs list has seen.

And I'm just wondering what you're sensing about it, the flow of going from the very frequent users already to ones that might become a more frequent user, encouraged by the A-List and help your concession dollars and like how that process seems destined to work out based on the analysis of the data to this point.

So Jim, like you're the only person who's going to get something new out of me on A-List because I do have it.

So first of all, the analogy of beating A-List to death is not exactly the analogy I would use.

I would use the analogy of the proud papa, who's celebrating the arrival of a newborn and is looking forward to years and years of joy coming from the new child.

But the premise of your question, I'm delighted to report, is not correct.

40% of the clientele who signed up for A-List so far were not members of the AMC Stubs program.

That bodes very well for incrementality, and 20% of the people, these are round numbers, by the way, not 40.000, but about 40%, and about 20% of the people who signed up for A-List so far have come from the AMC Insider tier of the AMC Stubs program.

Remember, that preA-List, we had 2 tiers of AMC Stubs: Insider and Premiere.

Insider was the free program.

Premiere was the paid program.

The Premieres were going to about 12 movies a year at AMC.

The Insiders were going to about 4 movies a year at AMC.

So 1/5 of the people signing up for A-List at $20 a month were only going to 4 movies a year before A-List, and 40% of the people coming into A-List are new to our loyalty scheme in total.

These are very good omens.

Those sound like it.

It is more incremental than I thought it would be at this stage of the game.

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

(inaudible) Can you guys hear me now?

Yes, I can hear you.

Okay, great.

And just a quick modeling question for Craig.

How should we think about rent expense going forward because I think there was some lease modification benefits again this quarter.

And then, Adam, given the success of the Saudi theater so far, does that change your thoughts on the cadence there of the rollout?

Or is that schedule pretty set?

And then I understand Saudi's a pretty unique opportunity.

but does that maybe the success there open up your eyes to even more markets internationally over time?

I'll do Saudi first.

No --

Real quick on the --

Let's end on something more exciting than...

Than rent?

Than modeling our rent expense.

It's pretty exciting to me.

So there was a $10.8 million credit against rent in the second quarter that kind of is the final impact of that deal we had previously talked about.

All right.

So Saudi, nothing's on a set schedule.

Yes, we will try to accelerate theater openings in Saudi.

We have been talking about 30 to 40 in the first 3 to 5 years and 50 to 100 by the year 2030, which corresponds with the so-called Vision 2030 program of the Saudi government, His Royal Highness, the crown prince.

You now heard me -- today, you've heard us change the nomenclature to 50 to 100 theaters in the foreseeable future.

We're going to try to move it up faster and increase the theater counts.

They are very profitable.

They will be very profitable.

Having said that, it is going to take us a little while to get going.

We got one theater opened in Saudi Arabia today.

It may end the year at one, maybe 2, more likely probably one.

Next year, there may only be 3 or 4. But once we get into 2020, that's when we could really be cranking 10 theaters a year, 12 theaters a year, 15 theaters a year, possibly more.

Depends on how quickly construction can take place, how quickly landlord negotiations with mall operators across the country can take place.

But clearly, this is an enormous opportunity for AMC, and AMC is way out in front.

We are the only U.S. or European or Asian cinema chain to have been granted a license to operate theaters in Saudi Arabia.

At the moment, there are 3 licenses to operate theaters in the country that have been issued by the Ministry of Culture and Information.

AMC and then 2 much smaller regional chains based in Dubai and Beirut, who are well-established in the Middle East.

But we're the only major operator to have come in from a global standpoint.

You're aware that we're doing this in partnership with the Sovereign Wealth Fund of Saudi Arabia, who is going to put up the lion's share of the capital for our theaters, which also means that our -- while we will have some capital investment in our theaters, it's not going to be anywhere close to the capital investment we would have to have put in if we were opening 50 to 100 theaters from scratch.

So just -- I could not be more upbeat about what Saudi is going to mean for AMC profitability.

Having said that, we're not going crazy looking at other geographic territories at the moment because there's already so much on our plate.

There's so much opportunity for us to choose from within our current world.

We have -- I told you I want to return cash to shareholders.

I want to deleverage.

I want to invest in our theaters.

The Carmike and Odeon circuits, Nordic circuits are capable of sustaining a lot of investment to improve EBITDA from our existing networks without having to take on the burden of increased international expansion.

Saudi's a great opportunity.

Never say never.

But right now, I think we're focused on the 16 countries that we're in rather than looking to find the 17th.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to management for closing remarks.

So I leave you with the following thought, everybody.

It was a superb quarter for AMC, but more importantly, I think this confirms the thesis that our industry is healthy and robust, that the bear case of last summer was wrong and that the future for our industry and for our company over the years ahead is very bright.

Thank you, and I'm sure we'll be talking to you individually in the near term.

All the best.

This concludes today's conference.

You may disconnect your lines at this time.

Thank you for your participation.