AMC Entertainment Holdings, Inc. (AMC) Q2 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to AMC Entertainment’s Second Quarter 2015 Earnings 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] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, John Merriwether, Vice President, Investor Relations for AMC Entertainment. Thank you. You may begin.

Good afternoon, everyone. I’m John Merriwether, Vice President, Investor Relations, and I’d like to welcome you to AMC’s second quarter 2015 earnings conference call. Before we get started with our prepared remarks, I’d like to remind everyone that as referenced in our press release issued earlier today, we simultaneously posted a CFO commentary on the Investor Relations page of our website at amctheaters.com. I’d also like to remind you that some of the comments made by management during this 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 filings, including our most recent 10-K. Statements made throughout this presentation are based on current estimates of future events and the company has no obligation to update or correct these estimates. Listeners are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially as a result of these various factors. We caution you not to put undue reliance on forward-looking statements, and the forward-looking statements made during this call speak only as of the date of this call. In addition, comments made on this call may refer to certain measures such as EBITDA, adjusted EBITDA and adjusted EBITDA margin, which are not in accordance with GAAP. However, management believes these results more clearly reflect our 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 July 29, 2015, which is located in the Investor Relations area of 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. Before we get going with the discussion of the quarterly results, let me just say on behalf of the 20,000 associates at AMC and our families that our hearts, thoughts and prayers are with those affected by the tragic events in Lafayette, Louisiana last week. On behalf of our family of associates, the AMC Cares Foundation has made contributions to the memorials chosen by the victims’ families to honor their memories. We are saddened by what happened, but admire the bravery of those guests, theater personnel and first responders who brought the situation quickly under control. Safety and security has been, is, and will continue to be amongst our top priorities and we will continue to strive to make our theatres as safe as possible. Now onto the quarter. We all added the record meant to be broken was never more evident than in the second quarter of 2015, as the industry box office in general recorded new highs and AMC specifically shattered multiple records. From revenues to adjusted EBITDA, from gross profit to food and beverage, in aggregate and per patron, to guest satisfaction scores, AMC raised the bar higher than ever before as our strategic initiatives took a pretty strong industry box office and made it work even harder for us. As on our boards, let's talk some numbers. Compared to the second quarter of a year ago, AMC's total revenues in Q2 2015 grew 13% to $821.1 million, while adjusted EBITDA grew nearly 20% to $157.8 million. We liked to flow-through those growth rates will imply but wouldn’t, but we like even better than both of these figures are the highest we’ve ever reported for any quarter in our 95-year history. Indeed, this second quarter was AMC’s biggest revenue quarter ever and biggest adjusted EBITDA quarter ever period bar none. Let me break it down a little bit by talking first about admissions revenue. By our count, the industry box office for Q2 was $3.1 billion, in itself the highest industry grossing quarter ever. This $3 billion or so was a 9.4% increase compared to the second quarter over a year ago. That's not bad except AMC performed even better, growing admissions revenue 11.4% to $533.4 million, marking our highest grossing quarter on record and a 200 basis point outperformance to the industry. Our 11.4% admissions revenue growth in the second quarter was fuelled by two things; one, a very strong 7.3% increase in attendance, better than the industry by a 140 basis points; and two, a 3.8% increase in average ticket price, which for us now stands at an all-time high of $9.91. For the circuit, on a per screen basis, the revenue numbers are equally strong, up 10% year-on-year and nearly 120 basis point over performance to the industry’s approximate 8.8% gain. What drove all of this? Well, simply stated, the fast cars, superheroes, and the non-ruling dinosaurs of this quarter were best enjoyed in the premium format for which audiences know and love. Take IMAX for example. Our 150 screens by far the most of any circuit in the world were up 44% for the quarter. The 3D format was also a solid contributor, up 34% in box office dollars. Even our newest format, Dolby Cinema at AMC Prime had positive admissions growth, this in spite of having nearly 6% of the AMC Prime locations offline for conversions and retrofits. But as strong as all of these were in Q2, when it comes to size, penetration and broad impact, once again no one thing and no one format can match the recliner remodels. We now have, as of June 30, far more of these than anyone else with 826 recliner equipped screens in 70 theatres across the country, and boy, did they light it up. Per screen admissions revenue at the recliner remodels was up 20.1%. The industry was up 8.8%, as I said a moment ago, which again is not shabby except the recliners outperformed by 1,130 basis points. By themselves, these screens would be top five circuit in the U.S. and yet they more than doubled their industry’s strong disputed growth in quarter one, proving that guests are driven by more than just the movies slate. Moviegoers discriminate based on experience on what you all know we like to call, comfort and convenience. We are very proud of these results and believe that our business will continue to grow as we continue to invest, and make no mistake, invest we will, as the remodel investments delivered not only the results I outlined a moment ago but they continued to exceed our 25% return hurdle by a pretty wide margin. Just to give you an idea of how we are investing to grow right now as we speak, we have currently 10 theatres in various phases of the recliner reseat renovations and later in August, we expect the units under construction to be at an all-time high maybe into the high teens or more. Short time pain but if bodes well for our future. Of course the success has brought about many imitators. Imitation is after all the sincerest form of flattery. Competition is nothing new though and we believe that the AMC guest experience continues to offer a complete package, a great value that goes beyond just the one idea as good as that idea maybe. This is not a shocker, but our results will support that theory. For example, a little more than a year ago, we knew that to drive convenience, we needed to develop our own proprietary online ticketing engine, which would make AMC tickets available for more websites and will make choosing a movie and buying a ticket to AMC easier than it's ever been before. We've reported on this during our prior calls but here we are now barely a year later with our second quarter internet ticketing revenues up 36% over last year, as we sold 11.6 million tickets online, representing approximately 21% of our total. This compares to 14% of our total tickets sold on the internet a year ago, that's better than 52% improvement. Importantly, our proprietary ticketing engine at amctheaters.com continues to perform well for our guests, accounting for about 38% of our online tickets sold in the second quarter, a 46% increase compared to the second quarter a year ago. All of this improves the overall guest experience at AMC, and it also adds to our ancillary revenues and it gives us greater influence of our guest’s entire movie-going night out. We simply want to make it easier and more convenient to have a great experience at AMC. Of course no experience at any of our theatres will be complete without something to eat and drink while you’re enjoying your latest newly favorite movie. And our record-setting second quarter food and beverage results clearly say more and more guests are enjoying the complete package in more and more of our theatres. For evidence, look no further that our food and beverage revenues, which in the second quarter grew 18.4% versus prior year to a new record of $250.5 million. That's a lot of Coke and popcorn people, and a lot more than just Coke and popcorn, a lot more food and beverage too because to hit those kind of numbers, you need more than just a tried-and-true. To give you an idea of how far we've come with this initiative, let's level set for a moment. Back in 2011, the early days, about 64% of our guests bought something from a concession stand. Although that incidence rate was pretty good it did mean though that about 70 million guests, the combined attendance of all teams during a full season of major league baseball did not buy a thing, and you’ve heard us say that before. Well, what we haven't updated you on but we'll now is that, by the end of 2014 and since, approximately 68% of our guests are buying some food and beverage in our buildings, and those almost 400 incremental basis points of incidence mean that today they are an additional 6.6 million food and beverage consumers in our buildings. Hence the record set of results, and we think that we're just scratching the surface. Our total food and beverage revenues and growth for the quarter were not the only food and beverage record. In fact I'm even more excited about our 10.2% growth in food and beverage revenues per patron to another company record and all-time high of $4.65. That’s sixth consecutive quarters now, every quarter since we've been public that we've reported a record quarter in food and revenues per patron. We are very proud of that track record and inspiration, which confirms the strength and sustainability of our work in the enhanced food and beverage strategic action front. Not to be forgotten is that we achieved our targeted flow-throughs as food and beverage gross profit per patron also grew 10.2% to a new record of $3.99. This performance is a result of successful execution of our strategy to serve our guest and ensure that they have a variety of food and beverage options available to them that are both convenient and satisfying. And speaking of satisfaction, overall guest satisfaction that is, for the second quarter in a row we've set an all-time high with our guest. In fact top-box satisfaction score for the whole quarter was 61.4, the second time we finished a quarter about 60 and 221 basis points higher than prior year, an incredible fee when the customer loads and our billings are growing as they have all year. In the retail service industry, these are world-class numbers. They’re kind unique to build engagement and loyalty with our audiences and credit here goes to our theatre teams without whom there is no magic at the movies. Ladies and gentlemen, the consistent unifying theme in all of these results in one word is innovation. Over the last few quarters, we’ve shared with you many of the ideas we’re experimenting with, testing and are preparing to roll out. Let's take me the better part of this afternoon to give you a recap of all that we have going on and believe it or not I want to get to the Q&A too. So I'll spare you for now. But know this. It goes well beyond recliners where there is new ones are recently announced arrangement with Paramount, our continued work in social media, our aggressive use of guest-facing technology or the deployment of Dolby Cinema at AMC Prime, the list can go on. The point is that at AMC we've made innovation and bold thinking of way of life and our guests have noticed and are rewarding us for it. For that, we are very grateful. Now this seems like an appropriate spot to bring my formal comments to a close and hand the call over to Craig for a few words before we take your questions. As I do that, I'd be lying if I do not confess to mixed emotions. Although the time to move on has come, I am now and will always be very proud of what we have accomplished here over the last 6.5 years. Most of you know the story and I’ll let you be the judges of our work, but most of all, we let our guests decide. They seem to have a point of view and after all it is for them that we actually do all of this. Personally, I could not be more optimistic about AMC's future. We have an innovative culture, which remains in place, and we have a proven guest leadership strategy that has years of runway left. Most importantly, I am leaving AMC in great hands. I am confident that the management team under Craig's leadership will continue to successfully execute on this strategy and I am looking forward to great things to come out of AMC. I have a vested interest. I'll be watching and I know who to call. With that, I'll turn the call over to Craig. One more time, Mr. Ramsey.

Thanks Gerry. These last 6.5 years with Gerry have been incredible and filled with great accomplishment for AMC as we've driven significant value for our guests, our associates and our shareholders. Gerry’s vision for a differentiated growth strategy was exactly what AMC needed when he arrived in 2009. Along the way, he cultivated an enduring guest-centered culture committed to driving results and innovation for many years to come. We are grateful for his leadership and me personally for his friendship, and we thank him for positioning AMC to lead the industry into the future. We are very excited about AMC's future. We've had a record-breaking first half to 2015 and we are continuing to see tangible benefits from our strategic initiatives and investments. When we measure ourselves against the competition within a 20-mile radius of our buildings, we continue to see approximately 6 percentage points of box office per screen outperformance, dating back to April of 2011. This metric shows on a detail per screen level that our customer-centric approach is the right thing for our guests and our shareholders over the long-term. We believe our guest experience leader strategy differentiates us from our peers and our 2015 results bear that out. We will continue to innovate and invest in our core portfolio to drive meaningful returns having touched only a fraction of our circuit thus far and when attractive acquisition opportunities arise, like our recently announced transaction to acquire Starplex Cinemas, we will be acquisitive. We're very excited about the definitive agreement to acquire Starplex. It's a great circuit with theaters in complementary markets and we believe there is value to be unlocked by deploying our strategic initiatives. We expect the transaction will be accretive from a cash flow, EBITDA and EPS perspective in 2016 and beyond, exclusive of any one-time transaction cost. And we look forward to welcoming Starplex into the AMC family of theatres by year-end. So to our guests and shareholders, thank you for continuing to choose AMC. We will continue to focus on being the customer experience leader in movie-going, and in doing so, exceed your expectations and drive greater value. And we look ahead to the balance of 2015, the prospects for a record box office remain intact and our future looks as bright as ever. Thank you for listening. And I'll turn the call back to the operator, so we can take a few questions.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] One moment while we poll for questions. Our first question is from Ben Mogil from Stifel. Please proceed with your question.

Hi, good afternoon, and thank you for taking my questions. And Gerry, I'm sure we all feel the same way. You'll be very much missed on these calls, so look forward.

Thank you, Ben.

So, I wanted to talk to a little bit about the quarter. There is about $16 million increase year-over-year on the other film on the other expense line - other theater operating expense line. Of that increase, how much do you think is tied to the other higher royalties around IMAX and 3D? How much of it is sort of fixed cost? Just trying to get a sense of how much of the cost structure in that line item you see as variable versus fixed?

Well, I'd say the year-over-year impact if you're looking at the total operating expense line is probably about 3% on those premium format - I’m sorry. I was kind of comparing payment processing and premium formats. The premium format is probably about 2%, I think year-over-year increase of the total operating expense.

What I would add, Ben, is we're playing in kind of a new delicate balancing game, where you have some of these other expenses of operating the theatres showing up in the other line and migrating across different lines of the P&L, specifically as we fight some of the increases in labor costs because minimum wage pressure et cetera, while you see us is time to shift around and use technology to defer some of the similar labor costs. Well, technology inevitably is going to come with its own cost. By the way, it also comes with the credit card processing fee, by the way if the movie is going to the premium format, then on top of that you have the IMAX and the Real-D licensing fees you always add. So what you're beginning to see is that as we adapt to the new operating models and new pressures on this cost, you will see things migrating across different lines of the P&L. We'll try to give you guys as much visibility as we can to some of these things but that's where you see us harping on for example the work on the internet and the internet ticketing engine. Every time we sell a ticket on the internet, the processing on the theatre reduces and that reduces our labor load. So lower labor costs there, but now you've got an increase in the credit card processing fees, so there is really a balance across all of the different pressure points in the P&L that we are trying to keep an eye on. At the end of the day, it’s the total operating expense that we are going to try to clamp down on even as customers adjust and we adjust by using technology to fight some of that off.

Okay. So that’s helpful. Yes, absolutely. And then the second question is and it may have just been made, but I'm trying to understand there is really two benchmarks that you’ve refer to 9.4% and 8.8%. Can you just delineate the two different benchmarks on the industry box office?

Well, 9.4% is absolute year-over-year and the 8.8% would be on a per screen basis.

Screen basis, right.

Got it, okay. And that's - was there that much screen growth in the industry in the quarter on a year-over-year basis? I guess, seems like a pretty big divergence?

Maybe about half a point.

Yes, [indiscernible] of a point in screen growth. The fact is new builds continue. We’re not putting out many, but we have seen pretty solid continuation of the new builds. The screen count, it’s up from a weekend track about half a point for the industry. We ourselves were up a little bit better than a point, about a point in a quarter in screen count. Now some of that has to do with the spot acquisitions, none of that includes obviously the Starplex announcement. So yes, it’s perhaps a little more than some other quarters then but it’s a quarter shift, it’s not - I wouldn't call any of the trends that we've seen in screen count and new builds an anomaly from anything that we've seen in years past.

Okay, that's great. Thank you very much.

You bet. Thank you.

Our next question is from Eric Handler from MKM Partners.

Yes, thanks a lot. I wonder if you could just focus on the film rent for a quick moment. Obviously in the last 24 hours, it's been a little bit of a hot pot issue in last 48 hours. I just wonder if you could talk, are you seeing any changes with Hollywood in terms of cyclical pressures of film rents of film just doing so well, you have escalators hitting and driving for much higher or any secular changes?

So Eric, let me be about as direct as I can be. So this is the Wednesday call, not the Monday call. And we are well aware of what you're referring to. The answer is no, we are now. But yes, our film rents expense was up year-on-year for the quarter by about 170 or so basis points because of the concentration on the big films. The fact of the matter is when you step back and look at it, the film rent expense was not out of line for big quarter with big movie. The pressures that puts on the calls that we're seeing with the studios on this front are no different than I've ever seen across my career between a supplier and his retailer. We are the retailer side of things. There are many ways in which we fight back on that pressure points, on that cost item, whether it is by monetizing some of the marketing assets, by shifting some of our pricing strategy when we went some tax on top for example at the box office, there are any number of things that we do to fight it back. So yes, our film rent quarter-on-quarter - year-on-year for the quarter was up and up 170 basis points. The fact of the matter is they are not out of control. They are now out of line. They are on an anomaly. We have not seen an escalation in scales. This is completely, as we would have expected, given the size of the movies and the concentrations on the movie. Perhaps more important of all is that the gross profit for the quarter, okay. The gross profit per screen for the quarter was an all-time high. So yes, sure, as the costs might have gone up, but so was the gross profit. Frankly, if we can keep that costs and soon as I could come up on the control and we continue to drop the profitability on a per screen and per patron basis like we did in this quarter, that’s a tradeoff that we'll go ahead and take all day long. So not quite sure what happened for other folks out there in the marketplace, but for us, it is completely under control and not out of line versus our expectations. Now Mr. Ramsey is going to want - add some color here.

I'd add one point and to Gerry’s point, I’d repeat the gross profit per screen. We watch the percentages and we negotiate with the studios as aggressively as anyone does. We also really focus on that statistic that he gave you, gross profit per screen up 6% over last year in the same quarter and to a record, so another record set. The other thing is it does - see, the movies like this do feed our food and beverage business, but we’re also mindful of that and that's driven our food and beverage per patron up about 10% and our gross profit per patron on that business up about 10% as well. So lot of patrons coming through the door, higher take rate on food and beverage driving higher results on the food side of our business as well.

I’ll closing the point, Eric, by just offering two thoughts looking into the future, although we're not in the business of trying to forecast too much in this volatile industry but the two thoughts. A, the pricing schemes that are in play in this industry today versus those that might have been in play in this industry five, six, seven years ago, I think that you'll find a lot more flexibility and a lot more room for exhibitors to defer some of those costs and pass along some of the cost or some of the more expensive and higher films onto the customers. That trend over the last five or six years I would expect will not at all slowdown in the future. The day where movies will be priced differentially is closer today than it was a year ago and two years ago. You can pretty much take that to the back. I cannot give you specific day as to when it may happen, but we are headed in that direction of that, there is no doubt. The second thought that I'll offer you. New arrangements with the studios. I've said for a while now that there are many touch points between an exhibitor and a studio and new arrangements, like the one you saw us announce a couple of weeks ago with Paramount are indicated of a new emerging relationship with our suppliers where, you know what? Some of these film rents may be deferred or it may be absorbed in different ways when we have all of a sudden a different scheme for some specific genre movie for specific film. So those type of arrangements, I will also expect will continue and grow broader into the future. So I totally understand the point of film rent and it is a big one. It is the single largest expense item in our P&L as exhibitors, but the fact of the matter is that there are many tools and many ways that we can address that cost pressure while driving our profitability as we did in the quarter and as Craig indicated. Does that answer your question? I want to make sure that we [indiscernible].

Very helpful, Gerry. Very helpful. Just as a quick follow-up, in the past you've talked about some of the key drivers of your growth in concessions. I wonder if you could break out how much of the 10% growth was alcohol sales, how much was dine and theatres and if you could just walk through some of those metrics?

Well, I'll give you a little bit of a broader breakdown. About of the $0.43, I think $0.27 of it was pricing and about $.015, $0.16 was related to the initiatives. And the pricing was - it goes back to the tax on top strategy that we implemented and we are still the impacts of that. And we'll, as we go forward, until its run rate becomes kind of a permanent addition for us, but $0.15 from initiatives and that's kind of spread across all the different initiatives fairly evenly. So I hope that's helpful.

Yes. You are quite right, Eric. The single most impactful from a financial perspective of the initiatives are the MacGuffins or loungers, the bars. We're up to 108 as of the end of June and they are adding about $0.37 per patron when we put them into a building. $0.28 of the $0.37 are gross profit. So quite the successful run that we continue, 108. It's about a third of the fleet, little less than that. Of course permitting and all of that is kind of the regulator there because the return on investment on these things is just phenomenal. So you’re quite right in singling that out. That particular initiate has worked well and we expect that it will in the future.

Thank you very much. And Gerry, Best of luck to you.

Thank you sir.

Our next question is from Mike Hickey from Benchmark.

Hi guys. Thanks for taking my questions. Congratulations on awesome quarter.

Thank you.

Curious on recliner installations, if you could provide may be little more insight into your admission growth per screens. It seems like - I guess the two factors, attendance and ticket price growth. It seems given the strength display that maybe this is more ticket price growth in the quarter versus attendance, may be helpful.

Specifically on the recliners? Is that - or across the board, if you could classify.

Yes, the admission growth per screen from your recliner installation is up over 20%. I’m just curious how that balances between attendance and ticket price increases.

The ATP - on the recliner specifically, Mike, our ATP shows about a 4% improvement year-on-year, and the balance then coming from attendance. So that 20% is mostly attendance driven. 15, 16 points of it was attendance-driven and about four points was ATP-driven, average ticket price driven.

Okay, awesome. Thank you. And then just last question. Curious on your partnership with Paramount to accelerate movie to digital. It seem on the service, this is sort of open Pandora box here as it relates to dwindling [ph], of course that’s something that's been aggressively descended historically from your peers. And I just wondered from a risk perspective thinking about the potential of valuation of theater content, but seemingly outweigh maybe the incremental moneys you’d earn from participating in the digital delivery of those movies.

We see it a little differently. The truth is this is a test. This is limited to the two films. It is indicative of our willingness to listen to our studio partners and figure out how to make the pie grow for all of us. We need more films for a studio to feel limited in the genre and the size of films that they can bring out because of the economics that drive their side of the industry. It doesn't really help us either. The fact is that we have, as an industry, as a segment of the industry use this very broad brush to paint all films with the exact same color. Well, we know that's not true. That's just not reality. So to not experiment, to not be willing to listen, to not be willing to strike a new arrangement that financially could be very lucrative not just because of the arrangement for the specific two movies, but what it may imply in terms of product flow in the years to come. We just don't think that was smart. So as we listen and as we try to think of different ideas, it seem to us that it was important to do it. Now to be clear, we talk about the window maybe in the arrangement. The one thing that doesn’t - that hasn’t been said enough, theatrical window continuous to be first and continues to be the single most important. No better window exists for the studio than the theatrical window where every customer pays every time. So it’s just no better quality in any other electronics or home or otherwise delivery method for the studios. The theatrical window continues to be first and the theatrical window continues to be important even with this new arrangement. So that's a point that has been lost in the shuffle as we've all tried to wrap our heads around what does it all mean, okay, number one. Number two, we are in control. We are equal participants with the studio as to what content gets included in this kind of arrangement or not, okay. Number three, there is a screen count threshold on the thing, right. So when you all of this in there, when you add the fact that you need to try to continue to innovate and experiment and find ways, we wish that the economic equation continues to work with the studio and continues to work for us into the years to come. This seem like a very rational, thoughtful approach to try and figure out how window can be shaped differently for different kinds of profit [ph].

Yes, the only thing I'd add is it is - so just to be clear, it is the first time as studios has offered an exhibitor downstream participation post theatrical. So there is give-and-take here. And just to reiterate to Gerry’s point, this is a test and we've always been willing to try different things and a lot of times that proves to be the future and lucrative or profitable for us. We think there is an opportunity here. We'll see as the test results come out.

Does that answer your question, Mike? Does that give you a little bit more context and clarity?

Yes, you answered it. Thanks Gerry and thanks...

Happy to help bud. That’s why we’re here to do.

Our next question is from David Miller from Topeka Capital Markets.

Hi guys. I just have a one quick question. I noticed that - let me know if my numbers are wrong that you added 10 reseated theaters over the last 90 days. Is that generally, Craig, the pace that we should expect over the next, say two, three, four quarters? Thanks a lot.

Look, I think between now and the end of the year as an example, may be a good way to think about it, probably - which is a six month period, probably 15 to 20 is probably a range, and then you look into next year probably 30 to 40. It depends a little bit on the lease. We always talked about the fact that we try to align with the lease life and try to strike the deal with the landlord when it's most opportunistic for us to do so, but I think that that's probably indicative of the go-forward at least pacing.

We’ve been building up towards that. I mean four to six have been more our pace and now we’re stepping up more into the 8 to 10. This is construction. You never know what you're going to find when you rip out the carpet, but that has been our objective to step it up a little bit into that 10 range. That's been aspirational. And then we’ve hit it but it’s 6 to 8 in that range is pretty good cadence for us.

Has the duration at which it takes or in terms of the length of time that it takes to complete the reseat an asset, has that been generally consistent across most of the projects that you’ve done, let's call it, I don’t know, 60 days or something like that, or is it diverse generally based on where you are in terms of location? I’m just curious. Thanks.

The construction timing has been pretty consistent. The thing that drives it more is the number of screens in any given building. When you’re doing like 20 screens versus when you’re doing 10 or 12 obviously, so that may take a little longer. The one variability that we’ve seen, if anything, David, has been that the cost of transforming any one screen has escalated some. Now part of it is because of course we - in some of the markets we’re now doing the remodels, it’s just higher labor cost, higher material cost. And the other piece is the economy is coming along and construction is picking up, so it’s costing more to hire an electrician and the construction labor today than maybe three years ago. So we’ve seen some installation on the cost and some variability there market-to-market more than we’ve seen variability in the actual construction timelines.

Yes, the other thing to keep in mind is these buildings we’re familiar with. We know the bones, and we’re a little more intelligent going in I guess as opposed to a new theater situation.

Got you. No problem. Thank you.

You bet.

Our next question is from Eric Wold from B. Riley.

Thank you, and good afternoon. Couple of questions. Two on the remodels. One, as you look into the remainder part of this year and the next year with what you’ve kind of got planned for the reseats, is there further opportunity to do some acceleration as you did towards the end of last year? And then two, when you think about the landlord contributions, are those fixed is not the word I'm looking for, but those - do you kind of use a same kind of formula going forward as you get better results and better attendance draws out of yours - do you have little more negotiating power as you go back to get that done?

I think the acceleration next year question, we are in our planning process and I quoted, gave you some idea of what we - kind of the range about comes for next year on number of reseats. We’ll look at how our free cash flow develops for this year and build that in into our planning process and consider whether we have an opportunity to accelerate, probably not ready to commit to that at this point in time. The second question was…

Acceleration.

No, we talked about the acceleration.

Well, kind of the landlords.

The amount of contribution.

No, it’s held fairly constant. I will say, we probably did improve our leverage in that negotiation. Each deal is a negotiation, and they’re all different, but there is a trend that establishes as you deal with large numbers. And probably from the early year, those that are now two years old, three years old, since then and since the popularity of the whole concept has gained traction, we probably did gain a little bit of leverage, and we are seeing the contribution to CapEx still averaging around 35%. I don't know that there is necessarily more leverage there potentially, but I think the popularity impact we've already seen, everybody, I think all the landlords - most of all of the landlord community knows the power of remodel and a recliner reseat remodel. So I think we've experienced that basically.

The only other element, Eric, that I would add is keep in mind, these remodels are pretty expensive renovations, right. We go in and essentially strip it down to the bare concrete and go from there, but besides that we’re also building the MacGuffins. We are also doing the Dolby Cinema conversions. We're still looking for appropriate locations in which do an IMAX. So those are not the only projects that our crews are out there executing against. So in balance, although part of us wants to go out and get them all done in the next three months, the fact of the matter is that just wouldn’t be physically possible, and we are not yet prepared to go all out against a single element of the strategy, while abandoning all of the other ones. So it's really a question of moving forward across all of these opportunities and all of these fronts, and we like this balance as I call it that we’ve been able to achieve where we bring all of these different ideas forward at their own pace but not leaving anyone behind and trying to improve through it all. The overall experience of the customer sees when they walk in a door.

Perfect. And then just last question. As more and more of the reseats have kind of meeting their one and two year anniversaries. Has there been any change in the normal extra 10% ticket price hike you kind of take on those anniversaries, or any kind of change in the response of consumers?

No, the trends actually have remained remarkably consistent. We see those big year one after the remodeling fantastic bumps 50%, 60%, 70% year-on-year immediately following the remodel. They moderate in year two. They come back into the teens, and then by year three, they begin to mimic the industry, the attendance strength. The food and beverage per patron continues to escalate. Now part of that is because it's a better experience, part of it is because we install the bars, part of it is because we put in the Coke Freestyle machines. So what we have seen over the last three years even as the assets age, the year-on-year increases of course the numbers bring it down, but the trend has continued remarkably consistent. Frankly not only was a surprise, but it has met and exceeded our expectations for the sustainability on a go-forward basis.

Got it. Thank you guys. Thank you, Gerry.

Thank you.

Our next question is from Barton Crockett from FBR Capital Markets.

Okay, thank you for taking the question. Gerry, I wanted to just hear you out on this one question, which is the timing to leave AMC now. And I was wondering if you could tell us a little bit more about why now when things are so interesting? You can take a bit of victory lap on some of the innovations that you've done there. Why not continue to ride it through, why make this change right now?

So thank you for implying that I could even take a victory lap. The battle is not won, so I'm not sure that a victory lap - but thank you though, Barton. Look, the truth is an opportunity came up. An opportunity that an old friend, an old boss, a guy that I've known for a dozen years called up with, and there is never a great time. There are times that may be better than others. The truth is the company is hitting and is firing on all cylinders. We've had, as you heard us say in the prepared remarks and the press release will underline, we've had the best quarter in a 95-year history to the extent that there is a one-time that is better than the other on top will tend to be one of those times that is somewhat better. The fact is that the team is in place. The fact is that the strategy is in place. The fact is that strategy has got runway left and that the second version of that strategy or what's to come next, that work is now beginning and it would be the perfect timing for a new leader to come in and put his or her fingerprints all over that next iteration, that next version of their strategy. So not going to try and tell you that the timing to do this is great, because I don't know that great timing ever comes, but it certainly and by the appropriate time as I suspect it will ever get, coupled with the fact that what I'm going to do is an opportunity that presented itself and represented itself. It's a friend. He is ready to retire, and wants someone to come in and frankly try to do some of what we have done here over there, and see if this ideas and some of the work that we've done here that we've been engaged in for the last four or six years, does some of that rub off, does some of that translate into a different industry, and it's an adventure. Frankly that's what appeals is that sense of adventure, that sense of potential that exists over there. And doing that while I know that the situation here at AMC is totally solid; strategy, team, the execution, everything is right. I do appreciate for the victory lap. I'm not taking one, because the work is not finished and the battle is not won. We are enjoying the battle but the battle is not won. Thank you though, Barton, for the question. I do sincerely appreciate it.

Okay. And we’ll kind of miss your presence on these calls. It's been very nice.

Thank you.

But I wanted to just switch a little bit, Craig, if I could, to couple of number questions. I think I heard you say that you guys outperformed the industry by 1 percentage point. You outperformed your peers in a 20-mile radius, so about 6 percentage points. And I think in previous quarters you guys have reported similar type of trends. Does this say that your markets are underperforming the industry? What are you seeing there?

No, I don't think so. I think the way we look at the AMC markets in the quarter, they were up 10% - almost 11% as well I think. So I'm not seeing that. And on a year-to-date basis, I think similar as well.

Yes, we are trying to think of some of the geography in the differentials, and that truth is, Barton, we're not really on marks, not really. There are some geographies that we're not competing in that have experienced some nice growth, some of the secondary cities and so on, but nothing that is - we’re trying to think of some of the details. There is nothing that specific.

Yes, maybe what's going on here is the 6 percentage since 2011, that's kind of the base year for that proximal zone. I think now I understand where your question is coming from, the disconnect and they are different time periods.

Okay, all right. That's helpful.

The 6% is that chart that we’ve kept updated and we used during the road show a year and a half ago and it's really the cumulative effect of all of these customer-centric initiatives that we’ve put in place. We began rolling them out in April of ‘11 with AMC stuff, and that 6-point differential that we quote is really a cumulative effect on a per screen box office basis. And it does limit the geography rather tightly to 20-miles around each one of our screens. I was trying to think about the total U.S. and there is really not discernable trend there, but when you think of the specific geographies, we've been very, very specific to our buildings and the buildings around them. We're not even going DMA-wide. We're not even going statewide. We are going building by building to build that chart, and it's a cumulative effect maybe on that five years.

Yes. And so just to be clear, we talked about in the quarter, the industry up 9.4%. We actually looked at our markets and think they were up of about 10.8% and we were up 11.4%. So our markets outperformed the industry and we outperformed both of them, right. That’s how we kind of view it.

Okay, all right. That's helpful. And one other kind of number question. On the operating expenses that were up 11.5%. In a flat box office environment, what would be the growth trend in that line? Is it - how much of that is just driven by the revenue growth and how much of it is just baked in expense inflation?

2% to 3%. I think we've always thought that flat environment on the product, we ought to experience inflationary cost increases, and that's kind of an offset of you’ve got the ACA Act that’s affecting your insurance costs, but you ought to be able to get efficiencies in maybe some of your other variable operating expenses. You’re always trying to minimize and that in a flat environment couple of percent.

Okay, all right. I'll leave it there. Thank you very much.

Thank you, Barton.

Our next question comes from. James Marsh from Piper Jaffray.

Great, thanks very much. I was just hoping maybe you could break down the 10% growth that you guys saw on food and beverage per cap. So that's a big number, but maybe just break it down between maybe how dinings were doing and alcohol versus the freestyle marketplace? Just any particular drivers of that 10% number. Are they all kind of contributing equally?

I'll try to give you a little more clarity. We are talking about the, I guess, that $0.15 to $0.16, bear with me…

10.2% increase.

I’m sorry?

I think it was a 10.2% increase in per cap for food and beverage.

And I had responded earlier that the two big chunks of that are pricing is about $0.27 and the balance is the driven by initiatives the $0.16, the two gives us to $0.43 between change from the prior year, and it is kind of spread evenly. Gerry mentioned that the MacGuffins drives probably a little higher and the freestyle is probably overweighed a little bit as you kind of start breaking apart that $0.15. Those are the two that probably contribute a little bit more, but it is spread across dine and theaters, freestyle, MacGuffins and some of our marketplace concepts, but it's even but maybe a little heavier weighting to the two, MacGuffins and freestyle.

Yes. And it's across the format, James. What we saw in food and beverage spending per patron, the old per head as we used to call it, is sort of consistent is 9 points for the core theaters, it's 9 points for the VIPs and it’s 12 points for the recliners. Of course for the VIPs those 9 points are coming off of a base that is closer to $9 dollars, but the growth has been fairly consistent across all the formats.

Okay, all right. Great. Thank you very much.

You bet.

Our next question is from Jim Goss from Barrington Research.

Thanks. I was curious with the discussion you had earlier about the film rentals but whether the customer service initiatives, the reseating, enhanced food and beverage gave you any greater leverage with the studios such that they might be sufficiently interested in having their products shown in those locations that, that might help you get a little more bargaining power with them and that figure?

Not really. With the studios, it's an aggregate discussion. They leverage that. Their reseat initiates delivered to us is attendance growth. The productivity of their VPF that a studios pays - the truth is they are paying their virtual print fee, that’s VPF - they are paying their virtual print fee with 2,000 people over the course of two weeks, enjoy the movie in that screen or whether 20,000 people, so clearly there rather would be 20,000 and clearly that's what we deliver to them. So greater efficiency in that front, and that does help the negotiations. The truth is when we sit down with these guys, it's about the total package. It's about what we deliver in efficiencies on the virtual print fees, it's about what we deliver in efficiencies in terms of our building, it’s the ability to deliver the big number on the big opening weekend, which as you know drives so much of the value of that product, both for the theatrical life as well as for the ancillary windows. The real leverage comes from the total ability of the company to deliver on that potential growth and the efficiency with which we do it. The trailer showings because of the number of people that we’re bringing, all of that factors in. There is no one element I would tell you that delivers anymore leveraged point than the other. It's really the fact that they know that if they want their movie to open big, they are going to need our help. And we know that if we want to have a big weekend, we are going to need their help. So it’s over clear-eye people over negotiating table. We will strike a deal that works for everybody on all the movies.

Okay. And I don't know if it's too soon to get any early read on Dolby Cinema at AMC Prime. Are there any situations where you’ve had both that and an IMAX in the same theatre, and if it's a particularly hot movie, you might have hit in both places at the same time?

Yes, it really is too early. We only have five of them up and running, five under construction. We are very encouraged by what we've seen. We have some thresholds that we set for ourselves, and we have set with Dolby because this involves their participation. They are deploying some capital into some of the screens with us. And all of the hurdles that we have set for ourselves have been not only met but exceeded. So we are very, very encouraged, but it's way too early to tell, can't really get into anything specific. I will tell you that part of what's muddying the waters is the success of some of the movies that we’ve put in Dolby Cinemas has. When Jurassic World becomes the juggernaut that it becomes, man, it worked on every screen that we put it up, okay. So was it the movie or was it the screen. You know what? It works. That's about it all. So it's going to take us a little longer to sort through. We are highly encouraged. The customer feedback has been phenomenal, both on the technology as well as the seats that we’re installing these things. So that people are really liking it, but it's way too early to tell. The truth is, Jim, we think the future is involves IMAX. We've got 150 of them out there and always looking for an opportunity to add more, even Dolby Cinema when fully deployed over the next 10 years, we are expecting 100. So this is not an either-or, to us it’s an and game. It's IMAX and Dolby Cinema combine to deliver we think the greatest potential for our share - the greatest value for our shareholders.

Absolutely, IMAX was up 45% for us year-over-year, and that was very important to our financial results. So we're excited about Dolby Cinema at AMC Prime. We are also excited about the IMAX relationship.

Okay. And one last thing, Gerry and Craig, with the Starplex acquisition, and maybe it's a model for some others, but you sort of implied that there would be some things you could take advantage of with your customer service initiatives. As you look at potential acquisitions, do you think you would rather have something that could use some extra attentions, so you can put your little magic with it, or would you rather have a theater that would be in perfect running order?

Well, with that all along, Jim, that for us, acquisitions was a three filter or a three test deal. One of course, the financial filter that you would expect us to apply accretive, at what price, multiples, impact of the NCM shares et cetera, et cetera, that we've always had that filter is not going away. It's just important now as they had ever been. The second filter which comes into play more and more is the DOJ. As you know, there has been the investigation that is ongoing and so on and so forth, all of which underlines the fact we've always known and we've always said that any acquisition, we need to be ever more thoughtful, particularly of our size about what kind of scrutiny will it take from the DOJ, how proximal are these theaters to our existing fleet, et cetera. And then the third piece which perhaps is unique to us, but one where the Starplex - this is what makes Starplex such an attractive opportunity for us is the fact that what we do we believe can play well in their buildings. They are well run. It’s a good circuit. They've already begun to do some of the things themselves already. So it's not as we are starting from zero. For example, some other - we are going to add 80 more screens to the recliner but they already have 90 screens that are already reclined. So we’re not starting at zero there. So for us, our analysis is really about putting the potential acquisitions through those three filters. See, this is not an either-or and it's not a multiple-choice exam. You got to get through the whole three filters. And if you get through all three of them in good shape, as Starplex did, then you are going to find us being very acquisitive. While you will not see us do is, let's engage in an acquisition because we have made some statements or we've made some promise that is predicated on screen count or building count or something like that. Our strategy is for some customers and being customer-centric and is supported by the productivity of the fleet, the existing fleet and the fleet that we would add to and the productivity of each visit. When we can add to that productivity by being customer-centric, we will add to the fleet, but we will not do so just because we’re chasing some number. That's just not what we do.

All right. Gerry, good luck to you.

Thank you sir.

Our next question is from Jason Bazinet from Citi.

Thanks so much. If I can just go back to the sort of interplay between a very strong box office and the ticket price increases and the food and beverage per patron. If we enter a period with a more benign box office gross number, I think it's fair to say that the ticket price increases - or year-over-year increases will be more modest because of less IMAX and the like. Is the same thing true on the food and beverage per patron? In other words do you find that consumers are less apt to open up their wallet if they are not going to a movie that they are super excited about, or is it all driven by the initiatives and it doesn't really matter?

Jason, I’ll be honest with you what you're describing has a name, it’s called 2014. It wasn’t a great year for the box office. In fact, it was down year. And what we saw in 2014 was that our initiatives carried the day that the food and beverage spending grew dramatically compared to the box office that didn't. So the scenario that you're describing, we’ve just lived through it, and what we saw was that the consumer when given that better experience of a reclined theater, it will go up. Now we helped it by doing the freestyles. We helped it by doing the MacGuffins and they responded well. So we saw growth even in food and beverage, even though the box office itself was soft. So one of the things that gives us such great buy power behind this initiatives is that when the industry softens up, it’s bound to do any given year, we don't think it's this year. We don't think its 2016 either, but when it softens up, this initiative is still in the gap, the gap rather nicely. Now Mr. Ramsey wants to add some comment to that.

Yes, if you went under the microscope, you'd probably find there is some variation in film genre on spend, family versus action, but I think that probably the most salient point is going forward we think we'll continue to have impact but we’ll continue to have an impact on food and beverage per patron spend is the deployment as we rollout more of our initiatives and cover a greater percentage of our fleet, we’ll not only enjoy the benefits of what we've done already in the higher levels of spend, we'll take it even further, even to higher levels as most theaters get deployed. So not film-specific, I think more related to the pace at which we deploy.

Very good. Thank you gentlemen.

Thank you, Jason.

Our next question is from Chad Beynon from Macquarie.

Hi, thanks for taking my questions. I wanted to go back to some of the details on the Starplex acquisition. You guys keep mentioning that the acquisition is accretive from a cash flow EBITDA earnings standpoint. Wondering if you can provide some more disclosure around the EBITDA, what we see as kind of the price per screen. And then if you cannot, maybe just kind of help us understand how you're thinking about M&A in this space and the returns that you're going to get on $172 million in M&A versus reseating? Just some overall color there. Thanks.

So I could - what I could say about the acquisition is we think that the after synergy after all the different impacts including the National CineMedia piece of this thing. This deal was done between 5.5 and a 6 turn. It ultimately depends on how well the theater has performed when you get to that point, but that's how we think about it from is it accretive. And so I think that should answer the question. Absolutely, it's accretive. The quality of the circuit I think has certainly played heavily on our thinking. And this circuit performs at an attendance per screen basis at about 25% premium to the industry average, and they've got a good mix of urban and smaller market, mid-tiered markets. And so if you take that into account, you would expect lower levels of predictivity, not really the case here. So highly attended theaters which I think sets the stage for us to deploy the food and beverage, monetizing the attendance, providing returns above just the accretion of the base deal and the same for the reseats, which Gerry said they've already probably about half way through their reseat program. So there is more opportunity to reseat. And as what is the return opportunity? No different than really what we’ve seen in the circuit - our circuit. You may have some smaller markets in the Starplex organization. Well, we actually have ourselves reseated some of the smaller markets that we acquired, as an example in the Kerasotes transaction. So we know what that looks like and even in situations where you may not have the major market population, often times these smaller markets don't cost quite as much to perform the work for a lot of different reasons, but we think the return opportunity is really no different in the Starplex circuit than it is in the experience we've had within our own circuit.

Yes, absolutely.

Okay. Craig, that’s super helpful. And going forward, do you expect to continue to see some M&A opportunities in the next 18 to 36 months, obviously keeping the DOJ's concerns in mind? Do you think there are still other circuits were you can implement your strategies and see similar type returns?

Absolutely. Those will be - you never know when they are going to happen, when they are going to come out, but you can try to position yourself, but you really never do know when someone is going to decide to put their circuit up for sale, but we’ll be selective and we will generate lot of free cash flow and we want to put it to work. And we think that get consumers everywhere, who wants the better experience. And so that leads us to believe that they are going to be opportunities to buy circuits and deploy what we do best and that is these guest-centered - guest-centric initiatives that Gerry has introduced and got us well on the way...

There is a word. Chad, there is a word that occurs that we haven't used when thinking about this and that is discipline. And that discipline, you see it in our painting of the remodels, you see in the analysis that we do for the acquisitions, you see it in so many of these things that we’re working against, and where there is a temptation to grab headlines and there is a temptation to raise ahead in order to have something to talk about in an earnings call. The fact of the matter is that something that this organization does very well is that it exercises that discipline financial and operationally to every - and it brings that discipline to everything that it does. And that's what perhaps sometimes makes AMC a little less flashy on a quarter-in quarter-out headline grabbing basis, yet you know what, it allows us to provide we think more sustainable high-quality results. And that's part of what you may be seeing here with some of this M&As is that we’re not going to jump on each and every single one of them, we want to jump on the ones that makes sense to us.

Okay. Thanks very helpful. And Gerry, best of luck, and I'll be speaking with you on your conference calls at your next job.

I'm looking forward to that. Thank you, Chad.

Thanks.

And our final question this evening comes from Leo Kulp from RBC Capital Markets.

Hi. Thanks for taking the question. Just with the 2015 fleets starting to fill out a bit, how are you thinking directionally about the performance of the box office next year?

It's early and I'm the guy that calls - one call ago, went out and predicted $11.25 billion for the industry this year. So I am perhaps the one that is most prone to make predictions about the future. It's too early about 2016 even for me, but I will tell you couple of things. So on the one hand I'm trying to be cautious and on the other hand here I go. I think 2016 is going to be based on what we know a fine year for the industry. Don't know that it would burst through, what I expect will be $11 billion to $11.25 billion in 2015, just don't know enough about that yet, but here is what I can tell you. For AMC, 2015 is shaping up to be another record year. So ‘12, ‘13, ‘14 and ‘15, four record years in a row, given the acquisition which we’d expect will close very late in ‘15 which will give us win in our sales for all of 2016, given the pace of the recliner remodels, which we have escalated up two to three units a quarter. If the box office helps at all, if it’s stable - we don’t even going to need a lot of help from the box office. Even if it's just flat to prior 2016, will be another record year for AMC, even if the industry just holds us up. So I can't give you no numbers because this is just a little too early, but I am very encouraged by what I've seen so far from the industry and extremely encouraged by what I know is coming from AMC between the initiatives on the acquisition and everything that we got cooking. All of those projects are already in the pipe. So these are not betting on the comp. We know when these projects are going to hit. So I think 2016 as at the moment as the fifth record-setting year in a row for this company. So that's about all I can tell you about the year to come.

Got it. Thank you very much, and all the best, Gerry.

Thank you. Leo. Appreciate it. Ladies and gentlemen, thank you for spending the better part of your afternoon with us. It has been an honor and an privilege to lead this organization for the last 6.5 years. It has been a tremendous amount of fun to interact with all of you over the last year and half. Thank you for all of your good wishes just this afternoon. And I know I'll be seeing you down the road. Thank you again.

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