AMC Entertainment Holdings, Inc. (AMC) Q2 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the AMC Entertainment Second Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, John Merriwether, Vice President Investor Relations. Thank you. You may now begin.

Thanks, Rob. Good morning everyone. I’d like to welcome you to AMC’s second quarter 2016 earnings conference call. Before we get started with our prepared remarks, we’d like to remind everyone that as referenced in our press release issued earlier this morning, we have posted the CFO commentary about the second quarter and the six months ended June 30, 2016 on the Investor Relations page of our website at amctheaters.com. 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 21 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 uncertainty and that actual results may differ materially as a result of these various factors. In addition, comments made on this call may refer to certain measures such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted free cash flow and adjusted diluted earnings per share, which are not in accordance with GAAP. However, management believes these results more clearly reflect the operating performance. For a full reconciliation of our non-GAAP measures to GAAP results in accordance with Regulation G, please see our press release issued earlier this morning and furnished as an exhibit to our Form 8-K dated August 1, 2016 which is located in the Investor Relations area of our website at amctheaters.com. Please note that the following communication is not an offer to sell or solicitation to offer or buy any securities or solicitation of any votes for approval. We urge investors and security holders to read the registration statement on Form S-4, including the definitive joint proxy statement prospectus and all other relevant documents filed with the SEC for _ available. After our prepared remarks, there will be a brief question-and-answer session. Joining me on the call today are Adam Aron, CEO and President and Craig Ramsey, Chief Financial Officer. I’ll now turn the call over to Adam.

Thank you, John. Good morning everyone. Thank you for joining us to learn more about AMC’s second quarter results and to get an update on the actions we’ve taken during the actions we’ve taken during the first six months of 2016 relative to some of the key priorities that I immediately laid out on my January 4 hiring that we believe will uniquely position AMC for future growth and success in the years to come. As you all know, AMC is coming off an extraordinary first quarter in 2016 in which adjusted EBITDA was up some 51% year-over-year excluding extraordinary items. Turning to the second quarter, the period April to June was in fact much more challenging for AMC for several reasons. First, last year second quarter of $3.1 billion was an all-time industry box office record, making it a tough comp for everyone. Second, film successes industry wide in this year's Q2 were few and far between. Movie after movie disappointed in this year's second quarter and domestic box office grosses were often considerably smaller than what was anticipated across our industry. As far as AMC specifically, we were further disadvantaged in 3 ways. One, this year’s few Q2 film slate successes included more family movies in which AMC tends to mildly underperform and sells more discounted children's tickets versus last year's second quarter, which included films like Jurassic World where AMC tends to over perform and sells more higher priced adult ticket. Two, AMC by far is the largest IMAX operator in North America. Normally, IMAX dramatically over indexes for us, but in the second quarter of 2016, the lackluster industry film slate led even to IMAX movies, a typically showing double digit weakness. And finally, 3 as the industry leader in introducing tax on top pricing a while back, AMC still is in that awkward period where others who march us later are still reaping year-over-year improvements while our tax and comp benefit is included both in Q2, 2015 and Q2, 2016 with no opportunity for year-over-year gain. As a result, in total, second quarter industry wide attendance per screen was down a somewhat stunning 12% year over year, and industry wide box office revenue per screen was down 10.7%. As industry data is probably available, none of the information that I just detailed should be all that new or surprising to you. Against that somewhat dismal industry wide backdrop there are some hopeful signs for AMC. Our second quarter total revenues were down only 7.0%, helped by our Starplex acquisition by our food and beverage revenues per patron rising 4.7%, hitting an all-time AMC record, and reaching levels once again exceeding those of all of our major competitors, and also because so-called other revenues also rose sharply year over year. Included in these other revenues are online ticketing fees, which continue their double digit increases year-over-year. Thinking more deeply into our box office revenues, our attendance was down only 7%, but movie ticket pricing was also down by 2.8% at AMC, almost entirely due to mix changes, resulting mostly from the lower priced Starplex Theaters that were successfully absorbed into our system and the aforementioned softness in our considerably higher priced IMAX products. We're also encouraged that we continue to manage expenses tightly, but even so ours is highly a fixed cost business. So with revenue being down 7%, adjusted EBITDA was also down by 17.9%. Net income was down to $24 million and adjusted diluted earnings per share were $0.24. In looking at these bottom line results, it's very important to note that M&A expenses booked in the second quarter were $5.5 million. Clearly those M&A investments are very good news indeed for AMC over the long haul, but so you have the information, had we not gone after Odeon and Carmike, diluted EPS would have been $0.28 for the second quarter. Essentially the impressive revenue, adjusted EBITDA and diluted EPS growth that AMC posted in the first quarter was given back in the second quarter, but not entirely as year-to-date results ended June 30, 2016 are nonetheless still ahead of 2015. Total revenues for the 6 month period grew 3.8 %. Adjusted EBITDA grew 8.1% after excluding an $18.1 million non-recurring gain in the prior year. And adjusted diluted EPS grew 18.6%, all supporting our belief that the full year 2016 continues to have promise. Fortunately, and I don't think I can stress this enough, the bad news for the overall movie business in the second quarter of 2016 may already be a thing of the past. The early results of the third quarter industry wide box office, show that a corner has been turned. Through July 28, that's Friday, or it’s Thursday I guess, that's Thursday, the industry wide box office in Q3 is up 7.0% and that does not include the full impact of Jason Bourne, the fifth in the Bourne Series, which officially opened on Friday July, 29. As for August, the widely anticipated Suicide Squad is set to open next weekend. We all can utter a sign of relief by the positive start to the third quarter across the industry. And it's widely thought that the prospects that lie ahead in 2017 are for a somewhat spectacular array of films, but in our view, looking past movie-going in April, May and June or for that matter in July and August, the past several months also include activity at AMC that is of far greater importance to ensuring a likelihood that we can drive impressive and enduring earnings growth in AMC’s future. Taken together, the progress that we have made on achievement the key priorities that we laid out at the beginning of the year, is almost breathtaking and portends to change the entire movie theater business in many ways. Let's start with growth through acquisition. As you know on July 12, we hit our stride and announced a definitive agreement to acquire Europe's largest movies exhibitor, Odeon & UCI Cinemas Group for $1.2 billion. Upon the deal closing, AMC will become the largest movie theater operator worldwide. We believe this opportunistic transaction confirms our status as a discipline buyer, given the attractive price we expect to pay relative to comparable, publicly traded, European exhibitor multiples. They trade one to 3 times higher than the LTM 12 EBITDA multiple that we negotiated for Odeon and UCI. Compounding the benefit of that attractive multiple, is the conversion rate of the British pound to the US dollar, now being at 30 plus year lows. AMC was the very first American company to announce a $1 billion acquisition of a UK based company after the Brexit vote and the resulting collapse of the Pound. Surely, we won't be the last. And speaking of good timing, we fully expect to have the Odeon acquisition completed prior to the end of the year given that the sole shareholder of Odeon and UCI has already approved the transaction. The timing of that closing expands our network just as the gangbuster films of 2017 start being released. In Europe, we will be a first and fast mover to renovate theaters, adding guest experience enhancing amenities like recliner seating, enhanced food and beverage and more IMAX and Dolby cinema deployments throughout the Odeon and UCI circuits. We're confident that European moviegoers will flock to more luxurious ways to watch movies and that attractive returns exist in Europe just as they did when we rolled them out in the US. We can't wait to get started. We also got out of the block fast and strong in 2016 with respect to M&A with our announcement to acquire Carmike Cinemas. As you know, some Carmike shareholders thought we got too good of a deal and we’ve just sweetened our buy-out to levels that are still attractive to AMC’s shareholders. Showing considerable backbone and discipline though, we've made it abundantly clear to one and all that this latest merger agreement is on terms that are our best and final offer. As we’ve repeatedly said, we’re fully prepared to move from an impressive plan A in adding Carmike to AMC to a pretty remarkable plan B, in adding instead Odeon & UCI to AMC. Of course we’d still like to acquire Carmike as well, making both acquisitions and are optimistic that their shareholders will agree. As our current offer now includes AMC equity, Carmike shareholders will have stock ownership of the company that will include AMC, Carmike Odeon & UCI. That’s an impressive array of theaters, forging the clear global leader in our industry. Candidly, I shudder to imagine what would happen to Carmike’s stock performance in a standalone scenario if an AMC offer were not artificially buttressing and supporting where Carmike shares now trade, but that is solely in the hands of Carmike shareholders, not in ours and they now will have a real decision to make. M&A is only one area in which AMC has progressed. Our marketing prowess has also been stepped up in a big way. In April through June, in some 40 theaters in 6 cities, we market tested an entire redesign of our already popular AMC Stubs Loyalty program. The test being do successful on July 11, we relaunched AMC Stubs nationwide. It now includes 2 different tiers, a new free tier called AMC Stubs Insider for our loyal guests and an enhanced elite level tier called AMC Stubs Premiere with an increased $15 annual paid membership fee for our most avid movie-goers. Both tiers offer movie-goers loyalty rewards for their spending at our theaters as well as various size upgrades and free refills on certain food and beverage items, special member pricing on certain days, an annual birthday gift, and additional offers and special screenings. For AMC Stubs Premiere members, we will now take it a step further, offering for the first time ever Premiere Service, featuring specially designated and shorter lines at all our box office and concessionaries. Starting this fall, in our reserve seats auditoriums, we also will hold out our best rows of seats exclusively for our Premiere members as well. Premiere members will truly be treated as welcome VIPS at AMC. And our new insider free tier is also crucial, not only because it removes a price barrier for those willing to be incentivized to choose AMC but unwilling to pay for that privilege, but also because in the past we have been turning away as much as half of our active AMC Stubs members each years, because many, for whatever reason fail, to pay to renew. Now those movie goers can stay with AMC and with AMC Stubs. I have no fears about a lessening of paid membership fees while the Premiere tier continues to reward AMC loyalists with 10% in reward generosity, that being a $10 reward for $100 spent. The new free tier structurally carries only a 2% base level of reward payout prior to ad-hoc bonuses and promotions. That savings and reward costs should more than offset any loss in dues. The early returns, we are delighted to report, are through the roof. AMC guests are enrolling in the 2 new AMC Stubs program at a rate 2 to 3 times that of enrollment in our old program. We’ve already grown by 20% in the number of our currently active members in a very short period of time just a few short months and we expect these numbers to continue to rise at a brisk pace going forward. Our hope is to double the number of active AMC Stubs members over the next 24 to 36 months. This increase in the size of the population whose purchase decisions demonstrate an increased loyalty to AMC bodes well for AMC for years to come. It also suggests we’ll wind up possessing a much enlarged consumer data base of potential movie-goers to whom we can market inexpensively and with laser-like targeting. Getting there will take time of course, and much of impact of these efforts won't be felt until well into 2017 as the program ramps up, but the early results are highly encouraging for AMC. I would like to highlight to you all that marketing costs cannot be capitalized, even though this is a program that is designed to produce long term rather than short term revenue growth. Accordingly, adjusted EBITDA for the balance of 2016 will be reduced by the approximately $6 million of program startup costs as well as by $2 million to $4 million for award ramp-up costs, all of this latter amount being deferred revenue that will be returned to AMC’s income statements in future periods. Importantly, we expect the AMC Stubs program to be fully accretive to adjusted EBITDA in 2017 and beyond. Our marketing organization is also hard at work completing a new website and smartphone app which we rolled out during the fourth quarter of this year. The new website and app are being designed to offer a more graphically rich interface, and to feature more robust content, to allow users to find the movie information, theaters, amenities, and tickets that they want, all the while improving the experience for buying tickets and F&B concessions online. We think it will be a game changer, especially as our website in its current state, not nearly as robust or functional, has nearly 150 million unique visitors annually and fully 25% of our total movie tickets are now already sold in advance online, and that number is growing at a double digit pace. Lastly, with respect to marketing activity, I'm pleased to relay to you that on July 15th, our new Vice President of Pricing, highly experienced in pricing issues, has joined AMC. This will be the first time in AMC’s 95 year history that we've formally had a pricing department, a full time professional and analytically inclined staff group. They’ll be dedicated to making decisions across all aspects of pricing, both for movie tickets and for food and beverage. Pricing is such a vital part of revenue generation, it's almost shocking that the movie theater industry has approached the pricing with products so casually heretofore. How can this not reap potentially big dividends for us looking ahead? As a third leg of our stool, we believe that by participating in new technologies, we can attract additional guests, and drive revenues even higher. We are market testing right now in 28 of our theaters, a new functionality for our current website and smartphone app, which will of course be transferred to the new website and new app launching in the fall. In our reserve seat auditoriums, this new market test function allows mobile ordering online of food and beverage, that then is delivered to the guest’s seat at specific time of the guest’s choosing. Initial results here too are encouraging and we would expect broad rollout sometime in the next 3 to 9 months. With mobile being the future, Fandango continues to offer valuable technologies for our guests that we are actively embracing. And in the second quarter we announced our partnership with Atom Tickets, a new smartphone app aimed at making even easier the buying of tickets and food and beverage online. It's potentially especially useful for millennials. As of today, 332 AMC locations have deployed the Atom Tickets technology with full deployment across all our theaters expected by the end of August. And saving perhaps the best for last, AMC continues to blaze new trails and lead the industry in renovating our theaters. During the second quarter, we invested approximately $55 million of capital expenditure, net of landlord contributions to further improve the guest experience at our theaters. The majority of this capital was invested in our recliner renovations, which continue to generate unleveraged cash on cash returns in excess of 25%. As a further indicator of the power of recliner equipped theaters, in the second quarter just concluded, in our recliner seats, attendance per screen declined only 4.7% and admissions revenue per screen actually increased 0.1%, outperforming the industry by 730 basis points and 1,080 basis points respectively. Many of you have asked us to detail our theater renovation plans looking ahead, so this is for you. At year-end 2015, we had 102 theaters that were fully renovated. Today that number is 121. By year-end 2016, it will be 140. We expect the renovated theater count to be at least 185 by the end of 2017 and 230 by the end of 2018. That means that in very round numbers, plus or minus a little, 25% of our theaters were renovated at the end of 2015, 35% will be renovated by year end 2016, 50% will be renovated by the end of 2017, and 65% will be renovated by the end of 2018. The renovated number of screens tells the same story. 1,400 screens were in renovated theaters at the end of 2015. 2,000 screens will be in renovated theaters by the end of this year, 2,750 screens are expected to be in renovated theaters by the end of 2017, 3,500 by the end of 2018. Recliners are just one tool to improve the guest experience. Coca-Cola freestyle machines with their numerous flavors, are widely pervasive across the AMC system today, which should be fully deployed at every one of our theaters by the fourth quarter this year. MacGuffins Bars are also winners. We sell alcohol in 141 of our theaters today, 36.6% of our total theater count. We should have 155 by year end, and we will continue to add one of our MacGuffins formats whenever and wherever we can pin liquor licenses. And then there is the incredible appeal to Premium Large Format screens, PLF for short in industry jargon is now provided at AMC, by both IMAX and Dolby cinema. They index revenues at 2 to 3 times the normal traditional AMC screen, hence we are adding as many PLFs as we can. AMC currently has 153 IMAX screens, and is the largest IMAX provider in the United States with about 45% of IMAX’s total US deployments. IMAX is a very close partner of AMC. As evidence of AMCs continuing commitment to IMAX and vice versa, on June 22 we announced an agreement to expand the number of IMAX auditoriums in AMC’s US theaters to 185, about a 20% increase, further reinforcing our position as the largest IMAX exhibitor in North America. The theaters are expected to be installed now through 2019, at both existing and new build AMC locations with the majority if these new IMAX auditorium opening within the next 24 months. Outside the scope of that US expansion, we also expect to grow IMAX locations considerably at Odeon and UCI theaters in Europe. Likewise we are currently in advanced discussions with Dolby Labs to materially expand our commitment to Dolby Cinema as well. Today we have 20 Dolby Cinema equipped theaters. Our original agreement with Dolby called for reaching 100 locations by the end of 2024. We now envision instead installing 100 Dolby Cinemas by the end of 2017, 7 years forward, quite the acceleration. So as you can see, there's far more going on at AMC than just licking our wounds over the so-so films of April, May and June. We’re taking dramatic action to position AMC for future revenue and earnings growth and solidifying our position as the movie theater industry’s clear and indisputable leader. As always, we thank you for listening and operator, we'd be delighted to open up the call for questions.

Thank you. [Operator Instructions] Our next question is from the line of Eric Handler with MKM Partners. Please proceed with your question.

Yes, thanks for taking my question. 2 questions, first for Craig. One of the items mentioned in ticket pricing in your printed CFO commentary was promotional pricing as something that impacted pricing in the quarter. Is this something new? Is this anything in particular you can discuss with regard to what exactly is promotional pricing? Secondly, with Starplex, where do you stand with the renovations of these theaters and is it too early to say what you're seeing in terms of improvements from when you first acquired them?

Eric, on the first point about promotional pricing, that’s more about kind of looking at a theater, a certain number of theaters, not a large percentage, but a few of our theaters in relation to their market position and pricing at a more of a value oriented pricing structure. It is a fairly small percentage of theaters, but it does have some impact. The Starplex impact is probably more significant in the second quarter, where their average ticket prices run about 50% of the traditional 2D, and then the biggest impact in pricing for the quarter was just the change in IMAX product. I think our total ticket prices, average ticket price is down $0.28. If you volume weight the IMAX business, it accounts for about $0.32 price declines, so it was more a matter of mix. Now, on Starplex, we had talked about 80 to 90 I think total screens being renovated. Those are working their way into the development Q as you might expect. We aren't even a year into having acquired Starplex. We did that last December. We had a full, kind of a full Q of receipt projects already in line. So those theaters that we had targeted for receipting will start getting receipts as you look into the next year 2017. A little too early for them to have a broken into the queue, but we expect that to take place over the next year.

Eric, it’s Adam. If I can just give a little more clarity to the promotional pricing comment. Sometime in the middle of 2015, the company took about 10% of its theaters and lowered prices across the board, putting into place an everyday low pricing strategy. So it's not really new, but it does affect year over year comparisons. The first project assigned to the new vice president of pricing is look at every single one of those 40 everyday low prices theaters and see if it was a smart decision to reduce prices for those theaters in their locales. Hopefully we’ll find some theaters where we can take prices back up.

Thank you very much.

Our next question is from the line of Barton Crockett with FBR. Please proceed with your question.

Okay, great. Thanks for taking the question. I wanted to ask a little bit more about the loyalty initiative here. Could you remind us again how much of your ticket sales come through your current members of Stubs? And give us a sense of what you see now as the revenue lift to come from this? You’re talking about an EBITDA drive from the initial launch, but can you size what you see for the revenue lift to come?

Sure. Historically, like prior to the April 1 market test in those 40 theaters, AMC was tracking 21% of our total guests within the AMC Stubs program. Meaning, approximately 40 million tickets of the 200 million were receiving credit for AMC rewards along with the food and beverage concession purchases of those members. There's been lots of analysis about the incrementality that comes from the loyalty program, and the number that I've seen, that I want to settle on is in the mid-20% range of that purchase activity being incremental, which needless to say makes us quite excited when we see the results of a new loyalty scheme. The fact we got a 20% increase -- 20% surge in the number of new members in just a couple months or just a couple of weeks at most of our theaters, is exciting. The fact that the sign up rate for new members is double to triple where it's been historically as exciting. The fact that we were losing half our AMC Stubs members because they weren't renewing in prior years, now those paid members who don't renew, instead of falling out of our system, will just fall from the premier tier to the so-called insider tier, the free tier. All that leads us to think that we could very easily double the activity base of AMC Stubs over the next 2 to 3 years. That would take that 21% participation rate up into a 40% participation rate. That’s not unheard of. Airlines and hotels have participation rates in their frequent user programs above 50%. And again, if you think about incrementality being in double digits, you're talking about you pick it, 2% to 5% of revenue growth purely incremental because of the existence of AMC Stubs.

Okay, that's very helpful. Now, can you give us a little better sense of the breakdown in this growth between the paid and the free tier? I mean the 20% surge, the doubling, how much is that going to be people paying versus getting the free tier?

I think by the time we're done, all of our paid members still exist in the system. I'm guessing that our paid free mix will probably be about 85/15 over time, 85% free, 15% paid, but as I said in my prepared comments, is that people in the paid program have a 10% generosity in rewards, which essentially is a 10% discount for future purchases, and the people in the free tier have only a 2% reward generosity level, which I'm sure would work up to 3% or 4% as we stimulate them and excite them with ad-hoc bonuses and promotions, but still you're probably seeing the generosity of the program fall by two thirds and that essentially offsets any loss of membership fees. Also remember the old membership fee was $12 and we renewed most people at $9 and the current program now is priced at $15, which is another offset for the free tier. The economics of the free tier are every bit as appealing to AMC as the economics of the paid tier.

Okay, and then if I can switch gears with one other separate question, I was just curious for your perspective on this and it may me unanswerable by you, but you talked about your Odeon acquisition and how you're paying less in the publicly traded theater peers in Europe. My question is this, which is why, why would the owners of Odeon sell to you guys for a lower multiple than they could get if they just took it public? What’s your perspective on that?

Sure. First of all, you have to ask the seller, but I think the other more logical reason is that the seller has been trying to sell Odeon and UCI for a couple of years now with – privately, not publicly, with a much higher price tag than we paid. They didn’t get it for whatever reason and rather than take the company public, they kept on repeating cycle after cycle to sell the asset privately. That occurred again this spring. This is a private equity firm that’s owned Odeon UCI for 12 years, historically private equity funds of a 10 year life, so there probably was some imperative for them to finally monetize the assets, and then came Brexit. We had negotiated a price before June 23 that was higher than the price of Odeon UCI after June 23. So we also were able to convert a significant amount of the purchase price from cash to stock, which saves us a considerable amount of money as contrasted with floating stock publicly and taking underwriter discounts and the like, underwriter fees and discounts and the like. And finally you’ve got the impact of the pound. The pound affects us. It doesn’t affect the seller of course. They could have gone public in the UK market, but basing on where they sold the asset, a private sale is what ensued, and we got a good deal, both in pounds and in dollars.

Let me ask you this way. Is there some reason you think that were Odeon to go public, it would be valued at a discount to these comparables since there are structural problems?

No. To the contrary, because Odeon was founded in the 1920s, it has some of the premier theater locations across the United Kingdom. One of the reasons that we’re keeping Odeon and UCI intact as a wholly owned sub of the company, is so that if we ever chose to take Odeon, not that it’s in our current plan, but if we ever chose to take Odeon UCI public in Europe at European multiples, we would more easily have the ability to do so, which we think augurs to convince all of you that the way you should be looking at AMC as a sum of the parts valuation. We do in10d to report results for our US theaters and our European theaters separately going forward for closing so you can easily track which of our cash flows are US generated and which are European generated. Craig also wants to make a comment.

Barton, I’ve lived through this before when we were private equity owned, and when we ultimately as a company and our owners decided to sell to, in our case, to Wanda, and we had the same debate. And at the end of the day, the immediate realization through a sale of 100% of the company to a buyer was more attractive at that point in time for our private equity owners than a protracted go-public sell 20%, then sell 10, then sell 10, then sell 10. Those are the decisions that investors make, and it has really nothing to do with the company and the company’s prospects. It has more to do with, I’ve been here 12 years. In this case I have an opportunity for 100% realization and I think that’s really what motivated the seller in this case.

Okay, that’s great. Thanks a lot guys.

Our next question is from Mike Hickey with the Benchmark Company. Please proceed with your question.

Hey guys. Hey Adam and Craig. Thank you for taking my questions. I’m curious on your Odeon transaction, if you’ve seen any sort of I guess strategic considerations from your competitive circuits in Europe just thinking about I guess the reaction that the operators have in Europe to your amenity investment and the success you’ve had in that category. I have a quick follow up.

Sure. Already there’s been a reaction to our acquisition of Odeon UCI. You saw that Cineworld just bought five theaters in the UK and paid 10 plus times worth compared to our 9.1 times for Odeon. But I assume the reaction in Europe is going to be similar to the reaction in the United States, which is we’ll go first. We’ll prove that the economic returns are dramatic. We’re in the third or fourth year of this now and the economic returns are still dramatic. I assume they will copy this in some places, because they will also see that more people will go to movie theaters more often if it’s more enjoyable to watch a movie. Your follow up?

Thanks Adam. I guess you touched on it, but since Odeon, what you are seeing in Europe in terms of deal activity now that you’re introduced to the buyer and operator and of course your capital investment strategy, which will obviously stress some of your competitors, if you’re seeing any increase in deal activity or opportunities for you in Europe to grow.

Oh gosh. It was only a couple of weeks ago that we put Odeon to bed. I must say that between Carmike and Odeon, my interest and ability to pull off yet another acquisition is probably about zero. I do think that we’re on a blistering M&A pace so far in 2016. It would be wise to take a breath. We do have -- buying right is important, but we also have to bring these two companies, assuming that they both go forward or the one company, if only Odeon and UCI go forward, we do have to bring them into our system well. The amount of work and emphasis that AMC as an organization will focus on bringing these acquisitions into our system, absorbing the theaters and them monetizing the returns that were inherent in our acquisition models, that is so important. I would like to think at least for the balance of 2016 you’ll see us slow down more acquisitions and instead focus on bringing these 2 massive purchases and wealth and growing, achieving the growth in revenues and earnings that we envisioned that caused the actions in the first place. Having said that, there’ll probably be more circuits brought to our attention and we’ll deal with it as the time comes.

No, I hear you. I guess the presumption was that I didn’t identify in the question would be that Carmike shareholders, for whatever reason, vote against your current deal. I think the theory is that then maybe you have a bigger appetite to grow in Europe where you see maybe a better asset return in the first place.

No, let me -- since you asked the question more specifically, let me respond more specifically. My comments about -- taking a bit of a breath here, assumes that we’re getting both Carmike and Odeon and UCI and that we do have the opportunity to integrate both organizations into ours over the next 6 months plus or minus. If that assumption is not the case, that does free up a billions dollars that we had allocated for Carmike to do something else with. Yes. Our eyes will be much more open if the Carmike transactions does not occur. As you said, there are some people who follow us who think that the Odeon acquisition is more intriguing than the Carmike acquisition because as opposed to just adding more theaters to the states, which is certainly a good thing, it opens up a whole new beach head in an important part of the world with hundreds of millions of people who go to the movies.

Thanks guys.

Our next question is from the line of Eric Wold of B. Riley. Please state your questions.

Thank you, Good morning. I guess one, given that Odeon acquisition is more of a done deal with Carmike, I assume you’ve already been in there. You’ve identified theaters to remodel and improve. Assuming it closed at year end, how quickly can you get in there to make those changes ahead of the 2017 film slate? I have a follow up.

The lawyers are telling us that under EEU rules, we really have to wait until closing before we get too deep into the inside of Odeon and UCI. Fortunately that’s probably only four months from now, so it will happen pretty quick. You are correct. We've already visited over 100 of their theaters. We've already identified, I want to say dozens and dozens, but that would be too small. So whatever a multiple of dozens and dozens is, a lot of sites where we do that, IMAX and or Dolby cinema locations, we've also identified 80 or so theaters that are attractive candidates for renovation. We will start the planning of that effort as soon as we can. Theater renovations, you only get the chance to do it – if you want to get – if all you want to throw in recliner seats, you can do renovation fast, but we don't -- That's not the kind of renovation that AMC has been doing. We've been renovating the entire theater, looking at customers flows, looking at F&B activity, as well as what goes on in the auditoriums. It takes a little longer to plan a more comprehensive theater renovation than just quickly throwing in recliners. So I think at the earliest, you're looking at the third trimester of 2017 for renovations actually to occur in Europe. The renovation strategy really kicks in 2018 and beyond.

Okay and then the follow up question, you laid out the remodel plan for AMC standalone over the next couple of years. Does that indicate that the remodel plans for AMC, Odeon and Carmike get all 2 of those are completed are kind of mutually exclusive and go on their own? Or if you acquire Odeon and Carmike, could that impact your plan with AMC you get to do some trade-off and save on CapEx or to reallocate CapEx?

The former of your 2 assertions. We have the capital to grow the AMC circuit -- don’t want to say grow. I should say to grow revenues and earnings from renovations in the AMC circuit, additionally to do so on the Carmike circuit, additionally to do so in the Odeon and UCI circuits. So the numbers that I laid out in the call today for the AMC circuit are likely to be achieved, highly likely to be achieved, bank on it regardless of whether we also buy Odeon and regardless of whether we also buy Carmike. So actually, if we are successful in buying Carmike, the number of renovated US theaters in total is going to be higher than those numbers. And of course, we are going to buy Odeon and UCI, so the number of renovated theaters in the totality of AMC’s family will be higher than the numbers outlined on the call for of the AMC circuit alone.

Thank you.

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

Hi, good morning. Thanks for taking the questions. You said previously that you can increase the Odeon and UCI EBITDA by 50% over 4 years. Can you provide a little more color on where that's coming from? Is it primarily revenue? Is there expense savings in there? Just if you provide I guess some expectations on where it's going to come from, that’d very helpful.

Sure. We already said that we thought there were at least $10 million of expense synergies over the next 5 years. I think I said it was going to happen in 4 years if my memory is right, that over the next 4 to 5 years, they should have some natural growth anyway, just because most businesses do, but the vast majority of that surge in bottom line EBITDA growth comes from successfully renovating the theaters. So I'd say 20% is expense energy, 20% is natural growth and 60% will come from renovating theaters in Europe.

Got it, thank you. That's helpful and then just one more, if I could. Can you provide some color around the returns you've seen from your more recent receipts in the US relative to the earlier ones?

Yeah, I'm going to give that that mostly to Craig, but I just want to lay in that, having looked at it myself, the recent renovation projects still have huge IRR’s and huge returns on investment. Where we’re seeing painted AMC is not because renovations are less successful than they might have been a few years ago, even though we did do the easiest theaters first. So you would expect that the very first theaters had higher returns than as you get deeper into the circuits, but we’re still above 25% of unlevered cash and cash returns. The real issue is what’s going on in the unrenovated theaters. We are educating the populous to enjoy recliner seats, to enjoy MacGuffins Bars, to enjoy IMAX, to enjoy Dolby Cinema. There’s a double whammy effect going on in our renovations. We’re doing them offensively because the returns are so high and we’re doing defensively because that’s what consumers want. Consumers are making trade-offs to go to renovated theatres over non-renovated theatres. You want to add?

Not a lot to add to that. Adam said pretty it succinctly that even with the new group of our most recently renovated, they’re well in excess of our 25% threshold. We’re not hitting the 70s -- 60s and 70s that we had early on because those were the fast movers and easiest to achieve. Returns are still very strong. I think as important, landlords’ support of the program and their contribution to the capital required to do it, we’re still running at 35% to 40% .When we started out, we actually thought that might tail off, that we might dry up that source. We haven’t really seen that yet. I think that’s a testament to how really strong the concept it. They’re still generating very good returns and we’re still seeing a lot of support from the landlord community to provide capital, which of course only reduces the denominator and makes the returns better. So a very, very attractive return proposition for us.

But just to add on to what Craig just said, when we look to Europe, where the low-hanging fruit theater renovations have not yet been done, returns might be pretty high in Leicester Square.

Guys, thank you both.

Our next question is from the line of Ben Mogil with Stifel. Please proceed with your questions.

Hi guys, good morning. So a couple of different questions. On that Dolby target that you set out or should have accelerated by 6 years or seven years, does that now include with the original targets AMC, only that now at least includes UCI Odeon in terms of that 100 screen by screen by 2017 target?

No, that’s all AMC US. That’s not Carmike either. That’s all AMC US.

Okay, great. Thanks. In terms of where you see the best ROIs, if you had infinite capital, are you still seeing the best ROIs still at AMC legacy theoretically at Carmike or theoretically at UCI Odeon?

The reason I hesitate to answer your question is we’re not inside Carmike or Odeon yet, so I guess we’re going to find out when we do our first ones. But at some point we’re going to have to prioritize which theaters in the Q get done first. Another factor as Craig just pointed out is landlords are paying for a huge chunk of our theater renovations because they want more modern theaters as anchor tenants in their malls or commercial complexes. Another factor in determining who gets renovated first is where the landlords are most cooperative.

Okay, that’s fair enough. And then lastly, and Adam this obviously falls downstairs a little bit with your hotel experience, when you look at the loyalty card program you’re offering, obviously there’s enough of a gap between both the price of the paid one, the free one, and obviously enough of a gap in terms of what each program offers in terms of the 2% versus 10%.When you look at Cineplex, which has done a pretty good -- actually a very good job on their loyalty card program with both a credit card as well as a debit card tying with one of the major banks, given your experiences, why not do the same thing with where you’re at?

So when we have 85 % market share, we’ll do that too. Look, never -- I’ve only been here 7 months and already we’ve totally overhauled Stubs, totally overhauled -- in the works, you haven’t see it, but I have, the website, the smartphone app. We’ve introduced a pricing department. There’s more good stuff coming, but how much can you do in 7 months, especially when you throw in $2 billion acquisitions at the same time? I do think …

I didn't say you weren’t [bossy]. I never said that.

Okay, and actually I’m not actually trying to sound defensive. I'm actually ...

No, you’re not.

I'm actually quite proud of how our marketing organization is, especially our Executive Vice President of Marketing has stepped up this past half year. This may not come as a great shock to you, I'm a pretty tough grader when it comes to giving out grades to the marketing department, because it's something I've done most of my career and even I I’m impressed by how well our marketing organization has stepped up to put really good initiatives on the table. Just go into the lobbies of any of our theaters right now, and you'll see all of our associates wearing AMC Stubs t-shirts. You're going to see point of purchase materials all over our theaters, talking about why you should enroll on AMC Stubs, choosing the right tier for you. We bought hundreds of thousands of dollars of ropes and poles to create all these VIP lines at our box offices and concession stands. And it's an incredibly powerful ego stroking device to tell people that you can stand in that short line over there if you commit to AMC. We just put on screen for the first time ever, a special welcome to AMC Stubs members in the audience just a few seconds before the feature film began. So there’s so much going on here that I think these are four big initiatives that we've talked about Stubbs, website, smartphone, pricing. More good market activity coming in the next six months, the six months after that, and the six months after that. And by the way we're not too proud to copy anybody else's good idea, so if Ellis is doing something smart up in Canada, maybe we’ll do it too.

Okay, that's great, Adam. Thanks again.

Our next question is from the line of Bryan Goldberg with Bank of America Merrill Lynch. Please go ahead with your question.

Thank you very much. I’ve got 2 questions. First, on the on the relative performance of the reseated portion of your circuit versus the industry, I think you mentioned about 700 basis points of out performance on attendance basis.

That 1,100 basis points is on the revenue, 1,080.

On box office. Okay. In the past you cited data that suggests a good portion of the uplift in attendance was coming from either share shift from competitors, or behavioral change, or incremental movie going on the part of consumers, or as you suggested just earlier in Q&A, even possibly cannibalization of your old core given how consumer expectations are changing. I was just curious if you had any updates on these dynamics, and sort of how would you bucket out where the incremental attendance is actually coming from? And then I have a follow up.

Sorry, I’ll come to your follow up in a second. No real updates to what we traditionally have been saying other than this. This film slate in May, April, May and June is really an odd duck. As I look back over the past decade, I don't see too many times when attendance is down 12%. So, especially if you're trying to draw any conclusions from what went on in the second quarter, it's such an anomaly. Hollywood has had 3 or 4 record years in the last 4 or 5 years. It's just such a rarity to see a quarter perform as poorly as this second quarter did. And as I said, there's no indication that that’s continuing. Film going is up in July 7% whereas film going was down 12%. April, May and June. It's just because a lot of movies that were suspected to be big busted out. They got hit hard by critics or consumer reactions. So I don't know what -- I don't know -- I think it’d very tough to try to draw insightful conclusions by what went on in April, May and June. I think what would be more relevant is what went on in the first quarter, the third quarter and then as we look at 2017 and beyond.

Okay, fair enough. And then my follow-up question is I guess around Starplex and just the company’s overall integration strategy towards all the M&A you’ve announced. Craig gave some color earlier on the upgrade strategy at Starplex, but could you just update us on where you stand with Starplex integration form a cost out perspective? And then maybe to help us think about all the integration activity potentially on your plate in 2017, operationally or logistically, what parts of your organization are really going to be flexed in terms of digesting the deals that you’ve announced? And do you have all the resources you need in-house to fully execute all this or if not, where might you need to round things out?

Can you repeat that question? No, I’m just kidding. Look, these are the very points that we’ve all been talking about internally for months and months. With respect to Starplex, boy that was an easy as pie integration. We expanded our theater count by about 10% and we did not add even one single employee at our Leawood, Kansas headquarters location, because the AMC organization was deep enough to be able to absorb that growth in our system, without needing to acquire additional staff. As we said earlier, while we will have renovations of these Starplex theaters, we haven’t had them yet, so we spend very little at their theaters physically. So from a cost standpoint, the Starplex acquisition is a homerun and with all these metrics that we announced in Starplex, the company knew before we bought Starplex they were lower priced theaters. We paid a multiple of their EBITDA and if anything, the EBITDA is pleasing us because we’ve been able to run the Starplex theaters without adding any corporate overhead. With respect to Carmike and Odeon, the integration strategy was different than the Starplex integration. It’s one thing to add 35 theaters to AMC. It’s another thing to add 250 or more theaters to AMC. We are going to have to add staff here in Leawood, but the number of positions that -- And we will be hiring, so that’s good news for people here in Kansas City or Carmike employees who want to make the move to AMC. But we won’t need as many people to run those 250 theaters that Carmike will need as a standalone company, hence the $35 million announcement on synergies that we expect to receive on the cost side for Carmike. It is our plan to, as we did for Starplex, to move most of the functions here to Leawood and have one corporate headquarters location and drive our system from here. With respect to Odeon -- let me stay on Carmike for a second. I don’t think we are deficient in talent anywhere to run 600 plus theaters in the United States instead of 386. It’s just that we may need a few more bodies to do it, because some of our work you’re doing for the whole of the system and others of other of our work is volume related where the workload does depend on the number of theaters we have and the workload will rise as the theater counts rise dramatically. One area where we are quite pleased with Carmike is Carmike has a very able pool of, that you might call theater supervisors. These are directors. They are vice presidents of operations and we are optimistic that most or all of the Carmike directors of operations or heads of operations will join our organization so the Carmike -- so that we AMC will have instant institutional knowledge and memory about what’s going on in the Carmike circuit. And the Carmike theaters will tend to be managed by the same people, as they were previously. That operation score is quite strong at Carmike and most of them are remote out into the -- Locally in their respective markets geographically, so that doesn’t even require relocation to our headquarters. With respect to Odeon and UCI, that’s an expansion that we are going to manage quite differently than either Starplex or Carmike. With respect to Odeon and UCI, while we intend to supply the circuits with capital, and while we intend to change this strategy so as to enable them to renovate theaters that are sorely in need of renovation, it’s not our intent to try to manage from Leawood, Kansas theaters in markets 4,000 or 5,000 miles away. Not as many people here speak English or Spanish -- Sorry, we do speak English -- Spanish or Italian or Portuguese as the country managers for Odeon and UCI do today. So as I said earlier in the call, we’re going to run it more as an independent wholly-owned sub. We will make our mark through strategy change and intensely reviewing their performance theater by theater by theater, but we are going to run it close to the cash register. Meaning, run it from Europe, which also stresses this building less because the current headquarters of Odeon and UCI, which has done a very good job in the past few years, will continue to run Odeon and UCI going forward. In terms of who gets stressed the most, with respect to the Carmike circuit, it’s just general workload across the organization, but it’s not new workload for the organization. The way we manage our 385 theaters today, we will apply that same deep experience and expertise in managing the larger AMC Carmike circuit if their shareholders vote accordingly. We do have to be mindful that the Carmike theaters have lower visitation levels than AMC theaters. As you all know, AMC screens are far more productive. AMC theaters tend to earn more because they’re larger and in more potent markets. That will put -- That means margins are lower in the Carmike theaters. That will put an enormous impetuous into our organization to make sure that we maintain the low cost structure of the Carmike theaters, but that’s a challenge we feel quite up for. With respect to the Odeon circuit, the group in our organization that will pick up the most work will be our, no surprise, will be our development organization that specializes in the renovation of theaters, because there will be a bunch of theaters to renovate in Europe. It just so happens that the head of our development organization in a previous life was the head of our international operations and lived abroad when AMC had international theater locations. So again, we feel very ready, willing and able to step up to that challenge too.

Great. Thank you very much.

Thank you. At this time I will turn the floor back to management for closing remarks.

Thank you all. I guess I end with the points we tried to make in our statement today. We think fabulous things are going on at AMC, whether that’s in what we do in our theaters, what we do to market to guests, our embracing of technology and of course our announced acquisition strategy, which is out there for one and all to see. As we look at 2017, we have a very simple goal at AMC, to be the biggest and best movie theater operator in the world and we are glad you are along with us for that journey. Thank you all. We’ll talk to you all soon.

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