AMC Entertainment Holdings, Inc. (AMC) Q4 2014 Earnings Report, Transcript and Summary

Greetings and welcome to the AMC Entertainment Fourth Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I would now like to turn the conference to your host John Merriwether Vice President of Investor Relations. Please go ahead.

Thank you operator. Good afternoon everyone I am John Merriwether Vice President Investor relations and I like to welcome you to AMC’s fourth quarter and year end 2014 earnings conference call. Before we get started with our prepared remarks I'd like to remind you that some of the comments made by management during the conference call may contain forward-looking statements within the meaning of section 27A of the securities act of 1933 as amended and section 21E of the Securities Exchange act of 1934 as amended. Forward-looking statements are subject to risks, uncertainties and assumptions and are discussed in our public releases, including our most recent 10-K. Statements made throughout this presentation are based on current estimates of future events and the companies have no obligation to update to correct these estimates. Listeners are caution that any such forward-looking statements are not guarantees future performance and involve risks and uncertainties and then actual results may differ materially as a result of these various factor. We caution you not to put undue reliance on forward-looking statements. Forward-looking statements made during this call speak only as of the date of this call. In addition, some of the comments made on this call may refer to certain measures, such as EBITDA and adjusted EBITDA and adjusted EBITDA margin which are not in accordance with GAAP. However management believes these results more clearly reflect operating performance. For a full reconciliation of EBITDA and adjusted EBITDA to GAAP results in accordance with Regulation G, please see our press release issued earlier today and furnished as an exhibit to our Form 8-K dated February 17, 2015, which may be found in the Investor Relations area on our website at www.amctheatres.com. After our prepared remarks there will be a brief question and answer session. Joining me on the call today are Gerry Lopez, President and Chief Executive Officer and Craig Ramsey Executive Vice President and Chief Financial Officer. I'll now turn the call over to Gerry.

Thanks John and thank you everyone for joining us this afternoon. Wow what a year 2014 was record year for AMC on a number of different fronts. Offsetting our old time company hikes for adjusted EBITDA for the fourth quarter and the full year out of $140.1 million and $463.9 million respectively, all by the way achieved both of those in spite of what we all know was a very soft Box Office year. And our improvements in the food and beverage side continue to set records as well. With food and beverage revenues per patron for the quarter up 13.5% to $4.46 the highest in our company’s history, now I know that sounds like a broken record as I have said it in every one of our earnings calls since going public back in December of 2013. We believe these results remarkable as we judge them to be are nothing but the direct result of our focus on guest and their experience in our theaters. We continue to innovate and drive higher value for them and ultimately our shareholders by continuing to successfully implement our five distinctive strategic initiatives to remain as we like to call it the guest experience leader. To us this is exciting stuff and of course I’ll talk more about it in a few moments, but before I get too far ahead of myself let me step back and share with you some of the details and highlights of 2014's fourth quarter and full year. Let’s start with the topline of course, our admissions revenue and attendance for the fourth quarter of 2014 which were down 4.5% and 4.3% respectively given that weekend Box Office we all know about. On a per screen basis, we were down 4.7% which compares to an industry decline of 4.3% an uncharacteristic 40 basis point on their performance that is entirely related to the strong comps that we enjoyed a year ago in our IMAX screens. You have to remember AMC is the largest IMAX subsidiary in North America and lead the world with a 45 share and 150 screens having added three more screens in the fourth quarter alone, so while we love IMAX, their performance, does this proportionally impact us versus the broader market. Last year in the fourth quarter, the strength of Gravity and the inclusion of the Hunger Games as an IMAX offering created a very tough hill to climb for this year’s Interstellar and Mockingjay Part I which was not even in IMAX. Now we judge that to be a momentary blip because we’re not alone in thinking that IMAX and the premium format schedule for 2015 looks incredibly promising. For one this year’s Mockingjay Part II would be in IMAX not to mention titles from Furious 7 in early April to Avengers in May to Terminator Genisys in July to of course Star Wars: The Force Awakens in December. The bottom line that’s an impressive lineup of blockbuster titles and we believe it offers significant upside opportunities for us. Specific formats aside I would argue more comprehensive picture of our circuits stream emerges, if we take a look at admissions revenue per screen for the full 2014 year as we once again bettered the industry by approximately 90 basis points. So while the industry’s admissions revenue per screen were down 5.6% for the year, we outperformed being down only 4.7% net no matter how you cut it. 2014 was another year of industry outperformance for AMC. And that outperformance isn’t by happenstance. We believe it’s clearly a result of the power response to our [indiscernible] convenience strategic initiative. Our recliner re-seats are the center of guest attention and we continue to invest and improve the productivity of our existing facilities. At quarter end and year end, we had refitted or installed recliner reseats across 598 screens in 53 theaters that’s up 51% compare to the prior year. And in terms of increasing productivity at exiting theaters for the fourth quarter to us reseated theaters delivered a 13.8% increase in admissions revenue per screen while the industry came down 4.3%. And the for the year the reseats delivered an incredible 25.3% increase while the industry came back down for a 5.6% that’s an incredible 18 point and 31 point outperformance for the quarter and the year respectively on an approximately two-third fewer seats. Clearly our guest valued us in this innovation and we will keep tweaking the model to further increase the productivity of our assisted assets. But as good as recliner re-seats are we need to make sure which is easy as possible to get a ticket to enjoy all that comfort. Now you’ve heard me say before that if you can buy a lawn mower on Amazon 1-Click you should be able to buy an AMC movie ticket with 1-Click as well and while we’re not quite there yet we are in our way with our own ticketing engine and are making continued progress. Internet ticking revenues were up 21.5% for 2014 as we sold 27.1 million tickets online for approximately 14.3% of our total tickets sold compared to only about 10.3% a year ago. Importantly our profiteer ticketing engine at amctheaters.com accounted for 26.2% of our online tickets sold pretty impressive when you think that a year ago this was nothing but an idea on a drawing board. Also on that drawing board not that long ago was the idea that we would sell our tickets on the internet on an nonexclusive base across many platforms and we’re pleased that today our show times are for sale on more websites than that of any other exhibitor including they're only onsite with Flixster, movietickets.com and Fandango. It is safe to expect continued progress in this area. And while ordering tickets from your phone or tablet for more website to makes life easier wouldn’t it be great to just subscribe to a month of movies for one price and go as often as you like? Well that’s exactly what we announced in the fourth quarter. In partnership with MoviePass we started a subscription service model in two test markets Boston and Denver and for one price you can see a movie every day for a month. We’ll give you an update later this year as to how well it's being received but let me just say that we’re very encouraged what we’ve seen so far. This is all about the convenience side of that comfort and convenience strategic point. To us continuous innovation across the board is the key to success. When you ask us, if we worry about other [indiscernible] imitating us in recliners and we answer it’s just a seat, you need the complete package it is continuous innovation that we are talking about others don’t have it, to us it’s a way of life. Not only our guests enjoying the comfort and convenience of our reseats open source Internet and subscription trials but our enhanced food and beverage initiative is resonating with them as well. Food and beverage is an area where we deployed a meaningful portion of the $39 million of accelerated CapEx that we announced late in the third quarter last year and we did with any time invest in productive assets like 40 new MacGuffins, 20 new Freestyle machines and 44 new digital menu board all of which are designed to run the scope of food and beverage offerings and increase the convenience to our guests. At quarter end and year end we had 16 dinning theaters, 89 MacGuffins up and running representing a 45% and 62% increase in unit count respectively compared to the prior year. This investments contributed to the fourth quarter’s 13.5% increase and record $4.46 in food and beverage revenues per patron I mentioned earlier, proof we believe that guests are undoubtedly enjoying the shows and convenience of a more varied food and beverage menu in our theaters. We have now set company records in food and beverage revenues per patron for every quarter since our IPO, a testament to the muscle of our enhanced food and beverage strategic initiatives. These quarterly improvements have also translated to the year-end results with total growth food and beverage revenues having grown 1.4% to a company record $797.7 million in food and beverage revenues per patron having grown 7.8% to another new company record of $4.26 for the full year of 2014. Small part of the improvement in food and beverage revenues relate to a refund filed with a state regarding the sales tax refund claim primarily related to sales taxes in food and beverage items. During the refund verification process AMC personnel challenged various industry practices and taxability. After several meetings and negotiations as you can imagine AMC was ultimately awarded a $5.1 million refund during the fourth quarter. AMC’s innovation spirit evidently extends even to our tax department. And while improving food and beverage revenue per patron is good that flow through to earnings is even more important. For the fourth quarter we generated a company record $3.86 or approximately 14.2% growth in food and beverage gross profit per patron and likewise for the full year we grew food and beverage gross profit per patron approximately 7.4% to a company record 366. Those records wouldn’t be possible with our guest and their loyalty and engagement with AMC which is the focus of our third strategic initiative. Building the AMC brand have been a top priority over the last couple of years and in today’s social network and always connected environment we must take advantage of technology and seek new avenues to ensure AMC is always top of mind and convenience for our guests. AMC Stubs is our proprietary watch program that is leading that charge with over 2.4 million paid members at year-end. AMC Stub members outpace the average movie goer in attendance by roughly 13% and food and beverage spend by approximately 20%. These are make no mistake the most valuable guests and we are currently exploring new innovations to enhance this program and expand its scope to drive additional utilization in the future so stay tuned for announcement later this year. Not far behind AMC Stubs and gaining fast is our social network outreach through Facebook, Twitter and YouTube with more than 4.6 million Facebook likes and nearly 260,000 Twitter followers AMC has more likes and followers respectively than any of the other three major distributors combined but we’re not satisfied with that. AMC’s December 2014 Facebook post advertising a free popcorn holiday offer included a holiday message from the [minions] which was oh by the way the number one must shared Facebook post for all of 2014 and AMC Movie News our daily YouTube movie channel equates 130 million total views since we launched it. All of these engagement and interaction strengthens the AMC brand and build the loyalty. So when a movie goer has the choice of where to see a movie they want to choose our theaters. And based on Box Office AMC theaters are proving to be indeed the theatres of choice. In 2014, we operated six of the top-ten grossing theatres including the top-three; the number one in 525 and at number three Lincoln Square both in Manhattan and the number two, the Burbank 16 in LA. We're also number one or number two in Box Office revenue in 80% of the top-25 U.S. markets, including the number one in the top-three markets, New York, LA and Chicago. We do like being number one. And in order to stay number one, we have to keep exceeding expectations, embracing new trials to deliver even more great side and sound to our guests and experience all that a movie have to offer. As I mentioned a couple of quarters ago, based on the tremendous feedback from our guests we continued the rollout of AMC's exclusive PLF format, AMC Prime with two additional locations opened during the fourth quarter bringing the total to nine at year-end. Now we think of AMC Prime as the next generation PLF as it addresses not only superior sight and sound, but also comfort and convenience. We believe AMC Prime is complementary to our IMAX offerings as it gives our guests more options and it gives us programming flexibility. With only nine of these screens deployed so far, we clearly have upside opportunity here. Should not surprise you that we are working to take AMC Prime to the next level, not only in technology, but in deployment, so be prepared to be blown away when we announce and launch the next amazing innovation in AMC Prime in a few weeks. To wrap up my initial comments, the results we announced today further solidifies our belief that our strategy is working and it appears our guest are believers too, as evidenced by a top box guest satisfaction score of 58.7 for 2014 which is in a league of its own when it comes to retailers. But we cannot and will not rest in our laurels. We believe being a guest experience leader demand a continued focus on productivity through innovation and investments in our existing assets, sustainable long-term success in this industry hinges non-continued expansionary new builds but on the productivity of the existing fleet and the existing guest visits. Before I hand the call over to Craig, this been our year-end call, I'd like to take a moment to recognize two very important groups who drive our success; our AMC associates and our guests. These results simply would not be possible without the hard work and commitment to excellence; our associates demonstrate 365 days a year, because our theatres are open 365 days a year. From the work taken place here at the Theatre Support Center in Kansas to the general managers, their elusive teams and our crews at our theatres across the nation thank you for everything you do to make smiles happen at AMC. You make us proud. And to our guests, thank you for your continued preference. It is our goal to continue exceeding your expectations. We know you have a choice and we thank you for choosing AMC. Now I'd like to turn the call over to Craig Ramsey our Chief Financial Officer to review the financial highlights from the quarter and the year. Mr. Ramsey?

Thank you, Gerry. I don’t think there's any question that from an industry Box Office perspective 2014 left a lot to be desired. The fourth quarter of 2014's industry Box Office declined 4.5% and contributed to the full year 2014 industry Box Office decline of 5.2%. With that sandbox to play in, AMC performed remarkably well as our innovative guest service initiatives drove revenues and earnings for both the fourth quarter and the year ended December 31st, 2014. For the next few minutes, I'll be talking about the fourth quarter results for 2014 as compared with the same quarter one year ago. Following the same 4.5% decline as the industry, AMC's admissions revenues for the fourth quarter were down 4.5% to $460.3 million compared to a year ago. While food and beverage revenues and other revenues buck the trend growing 8.8% to $215.3 million and 11.1% to $36.6 million respectively, combining all three revenue segments produces total revenues of $712.2 million which were basically flat to last year. Total attendance for the quarter was 48.2 million compared to 50.4 million in the quarter last year and average ticket price declined by $0.03 to $9.54 primarily due to declines in attendance for IMAX and 3D during the quarter. On a per screen basis, admissions revenues decreased 4.7% underperforming the industry by 40 basis points again primarily due to declines in IMAX. Our enhanced food and beverage initiatives truly shine this quarter as we generated a 13.5% increase in food and beverage revenues per patron that was driven by our enhanced food and beverage initiatives. Our accelerated CapEx investment allowed us to deploy of our food and beverage product concepts during the fourth quarter and whether it’d be MacGuffins, dine-in theaters, expanded product offerings or our revamped concession stands, our strategic initiatives continue to drive industry leading results in this area. Food and beverage gross margin at 86.4% is up 20 basis points year-over-year. Our gross profit per patron grew 14.2% during the period as we saw improvement across our entire spectrum of food and beverage initiatives. Now with regard to other revenue as we have discussed in the past because of purchase accounting rules related to being acquired by Wanda, we were previously unable to recognize break each on our packet tickets until this year. During the fourth quarter we recognized approximately $4.6 million of other revenue related to package tickets. The impact of lower attendance was nearly offset by food and beverage revenue per patron, increases in packaged tickets, internet ticketing fees and gift card revenue. Strong operating contributions from our reseated theaters, enhanced food and beverage initiatives and other initiatives were not enough to entirely offset industry Box Office headwinds especially in the IMAX format, but they clearly had a significant positive impact on our overall revenue performance. Our film exhibition cost of $244.3 million represented 53.1% of admissions revenue, a decrease of 40 basis points as compared to the same period last year consistent with film performance and scale effect. Operating expenses of 182.5 million, excluding certain operating expenses, decreased by 3.1% in the aggregate due primarily to the effects of lower volume and the negative operating leverage of fixed costs. Our theater teams effectively managed variable operating costs to lower levels consistent with the reduction in overall attendance. Rent expense of $114.2 million was up 1.4% and on an average per screen basis was up 1.2%. Many of our landlords understand the power of our strategic initiatives and are willing to contribute capital to our remodel initiatives. In many cases rental terms are not substantially increased, which in combination with the substantial revenue improvements mitigates the impact of annual rent increases in base lease terms. Adjusted EBITDA grew 24% to a record $140.1 million for the fourth quarter from $112.9 million for the quarter last year. This translates to a 390 basis point improvement in margin to 19.7% for the fourth quarter. The contributions from our strategic initiatives particularly food and beverage and reseats combined with increase in other revenue and reduction in G&A other expenses gave adjusted EBITDA a significant a lift enough to overcomes Box Office headwinds. Overall, we are pleased with our quarterly results, it really a testament to the strength of our strategic initiatives and our cost control discipline to see the flow through to record adjusted EBITDA. We had some favorable comparisons to last year and a couple of expenses and revenue line items, so I don’t expect the magnitude of the flow through to adjusted EBITDA to continue at this pace, but certainly the returns we are seeing on the accelerated CapEx investment have margins headed in the right direction. Capital expenditures for the quarter totaled $104.4 million including 29.5 million of accelerated CapEx and were offset by 14.3 million landlord contributions. During the quarter, the Company opened two new theaters with 17 screens, we closed 1 theater with 7 screens and we acquired 1 theater with 6 screens. We temporarily closed 127 screens and reopened 12 screens to implement our strategy and deploy guest experience upgrades. During the fourth quarter we were able to accelerate the deployment of our comfort and convenience and enhanced food and beverage strategic initiatives as a result of our Board’s authorization of approximately $39 million of additional 2014 CapEx. We invested approximately 81% of the total accelerated CapEx for the year to develop seven new reseated theaters totaling 94 screens, opened 2 additional IMAX screens and 10 MacGuffins, 20 new free style machines and 44 new digital menu boards, and we believe these food and beverage deployments had a positive impact on our fourth quarter results. Looking ahead to 2015, we expect to invest approximately $320 million to $340 million with landlords expected to contribute approximately $65 million to $85 million resulting a net cash outlay of approximately $250 million to $260 million. And for full 2014 year we saw similar trends as the fourth quarter results however for the year AMC strategic initiatives led to industry outperformance. For the year our Box Office was down 4.4% versus an aggregate industry Box Office decline of 5.2%. On a per screen basis our performance was even a bit larger. The strength of our strategic initiatives continued as admissions revenue per screen for our reseats grew 25.3% over the same period last year and enhanced food and beverage initiatives drove per patron spend to a company record $4.26 a 7.8% increase over the last year, ultimately spurring growth in food and beverage revenue by 1.4%. Other revenues increased an impressive 14.8% and combined our total revenues only declined 2% versus the same period last year. Adjusted EBITDA for the year was a record $463.9 million up 3.5% on total revenue decline of 2% evidencing that our strategic initiatives made significant contributions and that theater management teams helped operating expenses in line with the volume of business. In addition G&A expense excluding stock compensation expense was down $31.7 million and rent increased only 0.8% compared to last year. With respect to the balance sheet we ended the quarter with just over $218.2 million in cash and a total debt balance of approximately $1.9 billion. Our fourth quarter and annual operating results benefited from our recent refinancing with the fourth quarter reduction in net interest expense of $5.7 million that will yield annualized interest savings of $31 million. Looking ahead in 2015, our nine and three quarter percent senior subordinated notes are callable in December of this year so we will be watching the debt markets closely over the coming months for an opportunity to refinance those at a lower rate. At the end of the quarter our leverage ratio was roughly 3.6 times net debt to adjusted EBITDA which is well within our comfort range. Our leverage cash flow generation and liquidity are in line with our expectations. In accordance with our plans to augment shareholder returns to return of capital AMC’s Board of Directors authorized our fourth quarterly dividend of $0.27 per share payable on March 23rd to holders of record on March 9th. And with that I’d like to turn the call back over to Gerry.

Thank you, Craig. Man, what a year. AMC outperformed the industry for 2014 having set multiple company records including among others adjusted EBITDA, adjusted EBITDA margins, average ticket price, food and beverage per patron and gross profit per patron for both food beverage and admissions, all of this during a down Box Office year. In fact for the first time in our history we grew profits and margins in a down Box Office year, we must be doing something right. We believe the results we’ve shared clearly demonstrated our targeted capital investments and guest focus of strategy that we put in place are working well. So well that we continue to punch above our weight with only 8% of the theaters in the United States AMC garnered 21% of the last 12 months Box Office share and while you’ve heard it me say before is worth repeating, when we measure ourselves against the competition within a 20 mile radius of our buildings we are seeing approximately 6% percentage points of Box Office per screen outperformance getting back to April 2011. This metric show on a granular per screen basis, per screen level that focusing on customer experiences, is the right thing to do for them and for our shareholders long-term. Relentlessly innovating is always the right thing to do and being the innovation leader means always thinking ahead. In 2015 we’ll either be launching or testing new guest experience initiatives in pricing, mobile platforms, e-commerce loyalty programs, crowd sourcing and sight and sound all geared to further improve the guest experience and maintain relevance with our guests. Wherever guests are consuming movie information is where we want to be and where they should be able to purchase an AMC ticket. These are initiatives that differentiate AMC from other public and private companies in our sector, initiatives that present the complete package to our guests and build on the success of what guests have enjoyed at last few years at AMC. These were designed to keep our guests again and again to the movies and they are not easy for our competitors to replicate. This is what allows us to deliver results even when the box office does not cooperate. So as we look ahead with a proven strategy and an experienced management team to implement it a runway of opportunities measuring years and a firm financial base we are right where we want to be and are uniquely position to leverage a promising box office in 2015 and beyond. Thank you listening and now like to turn the call back over to the operator. So we can take a few questions.

[Operator Instructions]. Our first question comes from Eric Handler from MKM Partners.

Thanks for taking my question, wanted to focus a little bit on the concessions line. How much of your percentage increase was attributable to the dine-in theaters as well as the MacGuffins I was wondering if you could break that down a little bit. And also did you say I want to make sure I'm interpreting correctly that the $5.8 million sales tax refund claim that was included in your revenue line for concessions and then lastly is that something that’s a permanent change going forward that will improve your concession numbers.

It's Craig. Eric I'll try to be responsive here. So the California sales tax credit did impact our concession revenue line it was booked sales tax would as well so the refund of sales tax was booked to the concession revenue line. Now your question about [forehead] amount is that for the quarter or for the year whichever one if you said I didn’t get.

For the quarter how much of the increase in the quarter was driven by the drive in or the dinning as well as MacGuffins.

Yes so the dine-in theaters contributed about $0.04 on the $0.53 increase. And the MacGuffins about $0.06 on the $0.53 increase.

And then the last thing was done with that sales tax credit is that something permanent going forward that allows you to get a few pennies here and there.

That’s a onetime credit that we wouldn’t expect on a go forward basis we would treating sales tax in accordance with that ruling. So to that extent it's ongoing but we wouldn’t expect another onetime $5 million credit come through that line.

Its fixed for the future but you don’t get the onetime bump that we this one time Eric. So I will think about that’s a one time.

Why don't I go back and provide a little more perspective the $0.53 for 3.93 to 3.46 quarter over quarter you asked about a couple of initiative and full initiative were about $0.25 that includes our free style, MacGuffins, dine-in theaters key off marketplace all of them together you only ask about two of them just to give you a sense $0.25 in total. So the MacGuffins at $0.06 are one of the bigger contributors there and the dine-in theaters are for pretty good size contributors again towards that $0.25 from those initiatives.

Half the lift Eric is coming from the initiatives and the work behind them and the capital being deployed and then the other half is coming from pricing and then the onetime. So that kind of the two big buckets that are helping that $0.50 to $0.53 improvement it's half of its initiative work fuelled by the capital and the menu expansion and et cetera and then the other half is the traditional pricing we always have some of that and then the onetime.

Our next question comes from Ben Mogil from Stifel.

Just following up on the Eric's question so looks like your margin were also significantly better in the quarter and I get that the 5 million sales tax comes effectively with no cost against is that something part of it but we even talk about just on sort of on the core, core no bells and whistles are you seeing some pricing benefits and are you seeing the core, core if you will kind of grow faster than you would have thought given all the other things that you have added?

I'll take the first shot and the answer to question no we're not seeing the core, core grow any faster than we would expect. The benefit is coming pretty uniformly and is really on a building-by-building basis dependent on when we deploy the specific strategy or the specific initiative, for example adding a MacGuffins immediately improves their per patron metrics -- the food and beverage per patron metrics in that building by about $0.30-$0.35 in a matter of like a couple of weekends. So -- and with that $0.35 per patron revenue comes about a quarter maybe even a little better of gross profit per patron, so it's really all related to the initiative going into the building and the timing of it more than anything else. We've also had in some of the jurisdictions in across the circuit, a move towards joining the rest of the retail world with tax on top, so we're now pricing the item like you would in a regular retail environment and then put in the tax on top as we rounded off some of the pricing that gave us a little win in our sales regarding for the quarter as we roll that initiative across the entire circuit. So it's been really the combination of factors and the timing, now Craig has got some more color.

Yes I -- just to follow up on Gerry's point, historically our concession products and frankly our Box Office has been sold at a fixed price that includes sales tax and we always have to kind of back them out and calculate the sales tax. We've gone to -- and in fact what happens every time that a jurisdiction raises their sales tax, if the old way we would get caught bearing the brunt of any sales tax increase. So to Gerry's point we implemented in the fourth quarter a tax on top strategy that gave us some lift in the quarter and will continue to provide benefit going forward, because we in essence like all other retailers now pass on sales tax increases to the guest or to the consumer. So we talked about the $0.25 of the $0.53 being in the quarter being from the initiatives, we got about $0.16 from pricing that -- and a good chunk of that was moving to this tax on top strategy that enabled us to take some pricing while we were implementing the new tax strategy, to sort of Gerry's point I think he made in his comments that our tax department has even got the idea on innovation. That's another indication of those guys thinking as well. Is that helpful?

That's great on all the fronts particularly on sort of the tax on top and lift because of that. More sort of broadly more strategic everyone else now is sort of talking about reseatings and spending more on CapEx, what are you seeing early on from a competitor positioning?

Well we're seeing the same things that you are seeing which is everybody's announcing them and everybody is doing them and it's been interesting for us three years ago, I cannot I don’t think I can use over an open line some of the adjectives and some of the names that we were called for this notion of taking two-thirds of the seats out of an auditorium. And yet today there you have it. I'll be honest with you. I've said this in several meetings, when others -- when we see others copy while we are seeing them copy frankly there's one element which is the seat. Well copying one element in our opinion does not a strategy make? They're copying it by installing the seat. From the numbers that we've seen and some of buildings that we visited, it does not appear to us that some of these re-seats are nearly as transformational as ours are, so we don’t believe that when you half-baked that that you're going to get the kind of result that we're getting in our buildings. You may get a bump perhaps and you can claim it for sure, but you're not -- it's not a transformational change for the guest there's no wow factor when they come back into that building. Third, what I would say is hey if you're copying and it's not transformational watch your focus and you focus I would argue then is copying. That's not innovating. And if that's what you're going to do that's fine, but then you're not focusing on the guest, you're not focusing on the next idea, you're not focusing on the convenience side to us it's really that complete package that I keep talking about right, so it's a fact that it's a better seat, it's a fact that it's reserve, it's a fact that it's from the internet and more site, it's a fact that if you're part of the loyalty program I'm going to send you $10 for every $100 you spend, it's a fact that it's got better food and beverage. So it's all these things and god forbid it's got has got better [Technical Difficulty] now you have a transformational change for the guest driving the kind of 30 point outperformance to the industry, 40 point outperformance to the industry that we've seen. So we've seen what you’ve seen, we're seeing the headlines, we're seeing the announcement, we're seeing some of the construction, great by the time they catch up, we will be onto version 2 and version 3 so.

And to that point Ben I just remind or just I guess emphasize again that we ended the year -- well we started in 2014 with $244 million gross CapEx budget before landlord contribution and as we saw these initiatives really gain traction we went back to the Board got some more money authorized and approved we call that our accelerated another $30 million some so we're going to spend in 2014 about 275 million is the number you’ll see on the statement of changes, 275 million. Our gross CapEx for next year again before landlord contributions $341 million so it’s more -- we're accelerating and being first to market we think is very important establish the habit, establish the presence, establish the your app on the phone we think that’s important as well as to all Gerry added, but I think our reaction just more of it is certainly one reaction.

Ultimately Ben if everybody improves and we'll be going experience the industry is better off and that's all great. I like our chances when we are putting in front of people what we consider to be and what they’re telling us by their behavior is a more complete transformational experience than what others maybe thinking about out there. Hopefully that answers your question.

Thank you. Our next question comes from Barton Crockett from FBR Capital Markets.

Hi, guys, this is Howard line for Barton. Thanks for taking the question. This kind of relates to Ben’s question not to beat the dead horse but so Regal said that it’s not seeing much competition overlap in the theaters that have so far been converted into the reseat format and that it doesn’t anticipate much competition in DMAs where new conversions are planned, so could you give AMC’s perspective on the I guess on the broader industry trend and is that going to include anecdotal evidence I guess what the impact of rising competition whether or not the overall audience pie is growing and whether or not it will be a battle for market share and I guess AMC’s ability to maintain the outperformance?

Yes, it is always going to be a battle for market share. I mean there is no doubt about it although to be clear in these reseats now that we’re three years into this journey what we have seen is that a little bit better than half of the growth comes from market share of shift. The other half or the 40 -- somewhat 45 points are pure organic growth. Now I don’t see -- I haven’t too many things in my time in this industry six years now that can drive that kind of change, 40 somewhat points of growth organically just increased behavior from same pool of guest or an expanded pool of guests, so that’s all to us good news not only for the Company but frankly for the studios and the industry and all the participants in the ecosystem. The geography of these deployments what we have seen so far and certainly from our perspective is driven by the schedule of lease renewals with the landlords and the landlord's wiliness to invest with us and I am sure with some of the other exhibitors. So they’re targeting and they’re scheduling and the cadence of the construction and the site is not being driven by oh gee competitor x did a reseat in market y, rather it’s driven internally by internal factors, capital deployments schedules that are mostly having to do with us and our landlords and not by any kind of competitive activity. We keep hearing that, oh gee, is this going to be another arms race like it was back in the early 2000s or the late 90s or whatever. I won’t hear them so I cannot leant perspective to that but I will tell you that for us there is a clear and sharp focus on productivity, productivity of the existing buildings and productivity of each and every customer visit. So rather than putting up a whole bunch of new buildings out there in a mature industry like ours what we are much more focused on is productivity and the metrics that are associated with it rather than some arms race or doing something because a competitor did it and did so in some sort of land grab that just is not part of our decision making. Now I don’t know Craig if you want to add something.

No, the only thing I’ll add, I was here back in the '95 to through 2000 early 2000s with the Megaplex rollout and that was the CapEx land grab where I guess maybe some are referring too. Those renew bills those were $25 million capital commitments, 3 year projects and I am talking about landlord money and exhibitor money totally different. I think in scope and really direction here with these -- these are $4 million to $5 million remodels. And as well involving landlord money but much more flexible and I just don’t see any parallel to what this industry went through back before. This one focused on improving the guest experience, the Megaplex guest experience but also new store format and reaching out and building new buildings, this a lot different.

The last comment I would add Howard if I may is this is more than a one dimensional move at least for us whereas in the last 90s and 2000s people keep referring to that might have been one dimensional it was about new builds and it was about the stadium seat and the cup holders or whatever. Listen, if you listen to the prepared remarks, right here is the upcoming innovation that we’re hinting at or outright declaring for the next, color for the next 12 to 18 months seat design. We’re ready -- the recliners everybody talks about okay those were versions one, we already have version two in deployment working on version thee, just so that we can continue to share the number of seats that we need to lose whenever we install these new things. Pricing, we unveiled unlimited ticket in the fourth quarter, we talked about subscription already being in test, online ticketing going to more and more sites, mobile e-commerce for the seats for the reserve seats for food and beverage we'll see what comes, sight and sound we think that there are technologies that are literally around the corner that will take the sight and sound experience way beyond what we’ve seen so far to more fully exploit digital. Cloud sourcing, we even talked about that engaging with our guest to figure out which theaters should get for example the best picture showcase which movies should we show in which our recurrence inside a specific theater and the loyalty program a new version of that not too far into the horizon. So it’s not just the seat, it’s not just the one thing it’s actually action on so many of these fronts that we think sets a completely tone now than it did in the year -- there is an arms race, you are now bringing all these bullets to the battle good luck, because it’s going to take more than one trick or two trick, it’s going to take a whole bag of tricks.

Thank you. Our next question comes from Jason Bazinet from Citi.

Thanks so much. Just going back to this lift in the food and beverage, if I understood all the things you said on the call the $0.53 year-over-year lift you said $0.25 was initiative $0.16 from pricing including adding tax on top and then $0.11 roughly from this one-time rebate, is the net take away from that even if we saw oil prices retrace back to $100 a barrel or whatever, you think there would be no impact in other words none of this tailwind has to do with lower energy cost?

Great question, I have honestly not thought about it in the context of what’s been happening at the gas pump. We know by tracking our business through the ups and downs of the economy for the last 24 months as the initiatives began to pick up speed, our deployment of the initiatives begin to pick up speed that we seem to have been traditionally we have been relatively affected by the micro factors in the economy. I’ll be very honest with you Jason, I don’t think the quarter that we are enjoying at the moment will be as strong as it is without American Sniper, without SpongeBob and without Fifty Shades, a gallon of gas would have dropped another $0.30 and in Texas would have been below a $1. I was out in Texas last week and it was $1.37 for a gallon of gas, I couldn’t believe it. So I don’t know that the quarter that we’re in the midst of would be any stronger if the gallon of gas was an extra $0.25, $0.35 cheaper. Sniper is what's doing it, SpongeBob is what's doing it and Fifty Shades is what's doing it, oh by the way I think those three movies quite deliberately not only they are the three largest growing movies so far this quarter, think of the genres and audience that I’m appealing to with those three movies completely different segments of the audience that's part of the trick as well. I think that's what's helping us here more than candidly any one microeconomic factor or another.

Thank you. Our next question comes from Jim Goss from Barrington Research.

Thanks. I’d like to get into facilities management a little bit. I would imagine now you’ve have had the two stages of one third and one half reseats. I’m wondering what the differences and experiences you found there. Also I’m thinking you’re probably getting more frequent sellouts and I know early on you said it’s good if somebody buys the seats ahead of time and even if they don’t show up you at least get the admission price but then you don’t get the -- so do you, can you resell those seats that aren't claimed by the Showtime if the thing is sold out unlike with the one price past you restrict usage in the reseated theaters. How does this all work together?

So several questions embedded in there, I’ll try to take one at a time. First, the facilities management we don’t have a lot of these hybrid houses, when we convert, we convert. So the entire theater all of the auditoriums will go to reseat and we will go to a reserve reseating system, we will hold pricing steady for any number of months to see the behavior to get the trial going and then see price increases nine months, 12 months down the line. So for us the management of the facility itself remains relatively consistent with the way that we manage it in the past, the one trick and you alluded to it is now you get a lot more sellouts we like that, we like it because it creates a sense of scarcity, a sense of scarcity in this kind of fashionable entertainment timing sensitive business that we’re in, a sense of scarcity creates urgency and urgency is good, is good because it pushes people to buy the ticket ahead again as we alluded to it and it pushes people to perhaps come in at different night of the week because they don’t want to risk the ticket or the seat were not being available for them on Saturday evening or a Saturday afternoon when they trying on to buy for Saturday evening so they'll come on a Friday they'll come on a Thursday. What it also does for us again is that it gives us some pricing power. I think we've alluded to it in prior calls it gives us some flexibility in debt for example the traditional $0.25 lift in price now becomes a dollar because people are getting the value. So although they see that dollar their reaction to it is much more positive that’s why we see our overall satisfaction scores that we tracked so carefully remain not only constant but remain actually higher than they've ever been and improving particularly when we remodel at theater people see the value that they're getting for that extra dollar that we are charging them. So for us the facility management frankly remains relatively consistent the sellouts are new experience, not one them was unknown but one that we didn’t have to practice as often we have sell outs now in 30 some odd weekends out of the year in some of these building where we might have it before in a couple of four weekends out of the year. So it's just a different way of thinking about the business for us its different way of thinking about the experience frankly for our guest that’s why we see the increase in internet sales, that we want to make it available to more sites. It ties back together to the notion of it’s a total package, it’s a total experience for the guest you cannot have the number of sellouts without making the ticket more available for them to get at. You cannot have a sellout without having a reserve seat, so that they know where they're sitting before they show up, do one without the other and the guest is now going to feel the log that’s why we keep talking about this complete offering this complete package for the guest. Building management is frankly much trickier in the dine-in theaters because of the complexity that the kitchen brings than it is in any of other buildings that’s why we took our time if you recall developing this, deploying this dine-theaters yes today we have 16 but between number two and number three we took three years four years actually and then once we got rolling with it we got -- we've gone couple of years since then. But it was three years four years between number two and number three and there was lot to learn about how to manage the load in the building. Does that answer your question Jim?

Yes it does it is going to be very complex but it should be tier advantage.

There is no doubt, there is absolutely no doubt that managing in circa with these many formats is much more complex for a programmer for operations people. The trick is that in each individual building you got to maintain the uniformity and interior of that building relatively easier for the crew in that building to manage even if here at headquarters it's more complex at the operating level you do try to keep a straight line of sight to the guest and servicing him or her.

I have time for one further question our last question comes from David Miller from Topeka Capital Markets.

Tell me if I am accurate here in terms of couching poll receding initiatives in the couple of years that you’ve been at it. So it seems like so far from a per cap spend perspective that it's working very well but from an overall margin profile standpoint it's not working as well as you would have hoped or maybe as well as a lot of people may have modeled due the rent situation. You guys are just paying much higher rents than say Regal maybe your core competitor in sort of the black or the bull's eye if you will. Would you say that’s accurate and when can the rents situation get absolved? In other words when is kind of that apex in time where you can start renegotiating some of these rents and we can see some more margin follow through. Thanks very much.

The margin rent issue that you're raising is not a reseat theater issue. I'll come back to that. What we’ve had is a long standing kind guiding principal is that we leased and rent a greater percentage of our buildings we believe and that’s because we believe the operating returns 20%, 30%, 40% depending upon initiative are greater than the returns on the real estate we want to invest our money in the operating side of the business let the land lords own the building and earn their 12% cap rate or whatever. So the fact that AMC EBITDA margins are a little lower then maybe some of the others on your spreadsheet is because we pay rent on more buildings and to some extent we may pay higher per square foot rents because of the locations, high retail, good retail site locations we want to locate it and its primarily due to the fact that we pay rent on more building. Now to second part of your question the margins, let me finish the first part if you looked at margins before rent EBITDAR margin you'd find them to be comparable. Now take that EBITDAR margin on the full circuit 32 ish percent the EBITDAR margins on reseats are 46%. So what's happening in the reseat is not that you have a rear problem in fact what we're experiencing is at the right time on a 20 year base term lease you're 18 years into it you go to your landlord and say this fits well in a remodel strategy a reseat strategy plus these other enhancement that Gerry spent time about today. This is a great location why don’t you co-invest with this why don’t you give us 35% of the $6 million, $5 million of capital we're going to put in why don’t you do that and why don’t you not raise our rent? Every one of these deals 53 of them so far is a negotiation some of them we don’t get any rent bumps we get capital no rent bumps. Some of them we get a small rate bump some of them we don’t get any capital. I mean it's all depending upon site specific conditions and relations with the landlord so on and so forth. But I think what you will find is that the EBIDAR margins and the EBITDA margins are margins of 42% EBITDA margins of 32% is our higher in the reseat in fact because of the volume we’re generating the increases in attended the higher average ticket prices the higher concession spend we're managing the labor cost, the rate cost don’t go up as much in fact that improves the margin profile on those assets.

I think for the last four quarters since we've gone public our year on year rent line increases have been in the 1% range they used to average twice that so…

Yes to Gerry's point, our base lease has a 2% every year 10% over five year bump increases. So you would expect our rent line to grow at 2% it's not and it's because of we're driving reseats we're not getting [indiscernible] full rent bumps on the capital and we’re driving higher. So I think to your question I think we're at an inflection point frankly where we start seeing better EBITDAR and EBITDA margins because of the reseats.

Jay I think that we've gone over time and that uses our allotment time. So let me just than everybody for listening in. Thank you for your continued support of AMC. We look forward to being back with you in about three months' time with a report on the first quarter. Have a good evening everyone.

Thank you, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.