AMC Entertainment Holdings, Inc. (AMC) Q1 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to the AMC Entertainment First Quarter 2018 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.

Thank you, Devin. Good afternoon. I'd like to welcome everyone to AMC's first quarter 2018 earnings conference call. With me this afternoon is Adam Aron, our Chief Executive Officer and President and Craig Ramsey, Executive Vice President, Chief Financial Officer. Before I turn the call over to Adam, let me remind everyone that some of the comments made by management during this conference call may contain forward-looking statements, which are based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. Many of those risks and uncertainties are discussed in our public filings, including our most recently filed 10-K and 10-Q. Several of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict. In light of the uncertainties inherent in any forward-looking statements, listeners are cautioned to not place undue reliance on these statements. The Company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events. On this call, we may reference measures such as adjusted EBITDA, adjusted EBITDA margin, and constant currency, which are non-GAAP financial measures. For a full reconciliation of our non-GAAP measures to GAAP results, please see our first quarter earnings release issued earlier today. In conjunction with our first quarter earnings release, we encourage you to review the CFO Commentary for the 2018 first quarter that we published earlier today on our Web site in tandem with the earnings release. After our prepared remarks, there will be a question-and-answer session. This afternoon's call is being recorded and a webcast replay will be available on the Investor Relations section of our Web site at amctheatres.com later today. With that, I'll turn the call over to Adam.

Thank you, John, and good afternoon, everyone. As we sit here today in early May of 2018, I could not be more pleased with the results that we’re seeing at AMC and the results that we’re seeing across the entire movie business generally. In the first quarter of 2018, we continued to build on the financial and strategic progress we made in the fourth quarter of 2017 and for that matter, the third trimester of 2017, both of which you recall were strong. Q1 '18 was another quarter of some records for the industry box office and another quarter where AMC set some records as well. Although, we were together on our last call, only 60 days ago, we have accomplished much in that short time since. And in so doing, we now have high confidence that AMC should perform well for the second quarter 2018 and beyond. I would like to start this call by reflecting on the robust nature of the domestic industry box office since so many naysayers interpreted last summer’s box office slew as a secular and permanent change that somehow signaled the end of theatrical exhibition. Simply put and as we said then and since, they were wrong. When Hollywood makes movies that people want to see, they flock to our theaters and they do so in huge numbers. From an industry perspective, the first quarter of 2018 far exceeded most everyone's early expectations, declining only 2.6% from the record-setting first quarter of a year ago. Q1 of 2018 ended as the second highest March quarter ever behind only last year. Just about all you know this already but it's worth repeating. Many forecasted a double digit decline in box office for this year's first quarter based on the strength of the tough comp, represented by last year's Beauty and the Beast. But there are plenty of superb movies that ran from Thanksgiving through January and then praise be to the King of Wakanda, as Black Panther drove the domestic industry box office to a record February up of stunning 28% year-over-year. Black Panther, as you know, has a fifth highest opening of all time in the United States and Canada, and is now finishing up as the third highest grossing domestic film of all time. It’s particularly encouraging to us that AMC’s marketing and programming teams really leaned into Black Panther, and that we outperformed our national market share on this important film. To add to the encouraging news, Black Panther got the shine in the sun for all of about 10 weeks, because in April the success of Avengers Infinity War was just mind numbing. Avengers as you know opened as the biggest grossing domestic movie of all time. The April domestic box office was up an incredible 26% and surpassed $1 billion for the first time ever again. Again AMC performed ever so well in addition. On each of the opening Friday, the opening Saturday and the opening Sunday, Avengers closed to the highest AMC box office for a single film in AMC’s 98 year history. We now know that each of the following months of September 2017, December 2017, February 2018 and April 2018, all had the biggest domestic box office ever for any September, any December, any February or any April that came before. The facts simply do not support the overblown fears emanating from the admitted weakness last summer. And that's just the beginning. Over the course of the next few months, AMC theaters will be showcasing movies from incredibly successful franchises, including Star Wars, Jurassic World, Deadpool, The Incredibles, Mission impossible and in all-female tapered in Ocean's 8. The potential in this lineup is amazing, and making it even more amazing is the fact that AMC is the largest U.S. operator of IMAX and the largest U.S. operator of Dolby Cinema. Two years ago, AMC had about 155 PLS, premium large format screens. Thanks to our continuing capital investment program, today in the U.S. and Europe, we have more than 300 IMAX and Dolby Cinema screens and telling our private label PLS with about 400 in total, up from the 155 two years ago. Naturally as a result, we are looking forward to welcoming our guests to enjoy this late of big films in the next few months as they were meant to be seen on big screens and with big sound. And here is some more good news. Across all its brands, Disney with its obvious very hot hand released 13 films in 2016, but only eight in 2017. Happily for us, Disney is scheduled to release 10 films in 2018 and 12 films in 2019. Our take from all of this is that theatrical exhibition is alive and well. AMC is also alive and well too. So let's take a look a closer look at our first quarter 2018 results. For the sixth consecutive quarter, we have set records in each and every revenue category with $875 million in admissions revenue, $406 million in food and beverage revenue and $103 million in other revenue. In total, AMC generated $1.38 billion of revenue, the highest first quarter ever in the history of our Company. Likewise, adjusted EBITDA also saw record levels, growing 10.7% to $278 million, generating adjusted EBITDA margins of 20.1%. Contributing to these results of course was our acquisition of Nordic Cinema Group in March of 2017, and the tailwind from attractive foreign exchange rates. But even on a constant currency basis, we set revenue and adjusted EBITDA records as a company for the first quarter. For full transparency, I am going to mention some slightly negative numbers about the first quarter. But given the tough comp from last year’s Beauty and the Beast and the low expectations heretofore for Q1 of '18, even these numbers are encouraging to us, especially so given the movie slate that comes immediately thereafter from April through July of this year. On a pro forma basis, in-constant currency for the first quarter total revenue across all of AMC declined approximately 1.6% and adjusted EBITDA decreased 0.9%. Importantly though, again on a pro forma basis for our domestic circuit, admissions revenue declined only 1%, outperforming the industry at large by approximately 160 basis points. It's also worth pointing out that included in the domestic adjusted EBITDA is $24 million reduction in rent expense in the quarter related to a lease modifications. But less you discount that gain, we are actively in the business of lease management and adjust dozens and dozens of leases each and every year. With the financials as presented, the adjusting domestic EBITDA margin was a healthy 21.2%. But even if you adjust out all of the lease modifications benefit in U.S., which you shouldn't, domestic adjusted EBITDA margins were still an impressive 18.8% in a down revenue quarter. We are still very much focused on controlling our costs as you can see, and we are especially encouraged by our film exhibition costs, which performed well on a year-over-year basis. Let’s move to Europe for a moment. Our international circuit performance in the first quarter was not as strong as it was in 2017, and has been recently. From an industry perspective, it was bit of a bifurcated quarter across our European countries. The countries served by Odeon experienced a 6.7% decline in industry box office, a result of the enormous success of Beauty and the Beast last year paired against a lack of family product this year and a very American Black Panther, which did not play as well in Europe. In addition, in the Odeon circuit, we saw softer contribution from local language titles in Spain, Italy and Germany this year. In contrast, for the Company's served by Nordic, AMC box office was up approximately 3.4% in the first quarter and conversely due to -- primarily to stronger local language content this year, especially in Sweden. On a pro forma basis, adjusted for constant currency, total international revenues declined approximately 6.8% for the first quarter, adjusted EBITDA on a pro forma basis, again, adjusted for constant currency declined approximately 20%. Despite solid growth in average ticket price and food and beverage per patron and lower film exhibition costs, attendance in Europe was impacted by three things; one, the weaker film slate and industry box office in the Odeon served countries; two, screen closures related to recliner renovation projects now thoroughly underway across Europe; and three, some competitive pricing impact. Keep in mind signature recliner renovation is now underway. The Odeon's massive 2000 seat flagship theater in London's Leicester square has been closed since mid-January undergoing a complete got to the Stubs full renovation. We can't wait to get it reopened by year-end with our signature recliners and truly impressive and upgraded aesthetics that will surely appeal to European moviegoers. We are not at all concerned that Europe had a soft quarter, and don't think that you should be either, because we are still totally bullish on our long-term prospects internationally. I’ll part you on that a little later in my remarks. More detailed financial information can be found about Q1 in Craig Ramsey, CFO commentary, which was posted to our Web site this afternoon. In the remainder of my remarks, I will share with you briefly nine reasons why we see that the recovery of AMC from the painful death of last summer is now seemingly in full swing. First, as I mentioned in some detail just a moment ago, the industry box office is roaring hot. Second, again as I briefly mentioned a second ago, we are managing our costs and our margins tightly. Third, you'll recall that many investors last summer were, to put it bluntly, terrified of the prospect that studios intended to take movies in the home at 17 days after theatrical release that dreaded PVOD, premium video on demand. Just as we said on the last conference call, everyone seems to sense now that PVOD is no longer on any kind of near term horizon. Fourth, as we mentioned on the last two quarterly calls, we have successfully turned around the Carmike circuit. Yet another affirming piece of data on this point came in just last week in the first week of Avengers, in which AMC’s domestic box office more than tripled. At the legacy AMC theaters, the box office was up 220%. At legacy Carmike theaters, it was up 271%. Similarly, at the AMC branded theaters, most but not all of which came from AMC, the box office was up 234%. And at the AMC classic theaters, most but not all of which came from Carmike, the box office was up 233%. Like-for-like AMC and Carmike theaters are performing similarly, and we still have significant opportunity ahead as we introduce recliner seats deeply into the former Carmike circuit. Fifth, as we discussed in our last call, reinvestment in our theaters is a crucial strategy for AMC to maintain and expand market share, to help drive attendance, to increase ticket prices, to sell more food and beverage, and to generate increasing adjusted EBITDA. We established guidance for our net count backs after landlord contribution for 2018 to be between $450 million to $500 million, and that the bulk of that CapEx will be spent on theatre renovations, including the installation of our signature recliner seats. We are on pace with those expectations, and believe we will renovate about 55 theaters worldwide in 2018. As of March 31st, we had nine theaters with our signature recliners operational in Europe, a 100% of them serving alcohol and all operating premium large format screens. By year-end, we expect to have 25 sites in total, including newbuilds, up and running across Europe with recliner seats. This is so promising because of the early results. Although, these initial nine refurbished theaters in Europe have only been open a few months, we are very pleased with the initial attendance, ticket pricing lift and food and beverage sale lifts. They are very similar to what we saw here in the United States at the advent of recliner installations back 567 years ago. And run rate ROIs now in Europe for these renovations are averaging far, far, far in excess of our 25% hurdle threshold. Domestically, as of the end of the first quarter, we had 183 theaters with recliners, including five of these 183 being former Carmike bidders. We expect to have an additional 39 theaters renovated with recliners by the end of the year in United States, about half of which are from former Carmike theaters. This is low hanging fruit coming to us from the former Carmike circuit. Speaking as I did a moment ago about newbuilds and for that matter spot acquisitions, we are on track to add approximately 20 new theaters globally this year in 2018 with a little more than half of that coming in Europe. You may recall that it's robust newbuild pipelines was one of the big reasons that we acquired Nordic. Its new theater in Central Oslo just opened during Q1, and that theater is already the biggest movie theater in Norway. In total by the end of 2018 globally, we should have well over 200 theaters operating with our upgraded signature recliners. Six, AMC's commitment to premium large format screens is larger than that of any other exhibitor worldwide. Our IMAX and Dolby some the screens carry roughly 70% price premium when compared to a traditional ticket. We expect to install another 30-plus Dolby cinema screens during the remainder of this year, and plenty more still in 2019, 2020 and beyond. And just last week we announced an important agreement to install new more luxurious seating and IMAX’s new groundbreaking laser projection and 12 channel IMAX sound system in 87 of our highest performing IMAX locations around the United States over the next five years. Seven, capital investment to achieve significant financial returns is only one of the choices we’re making to smartly allocate capital. We are thoroughly mindful of deleveraging, which remains a key objective. Similarly, we believe in return in capital to shareholders. Our 20% per quarter dividend has continued for several, several years now, offering a media yield at our current share price. And in just the first five months of a two-year share buyback authorization, we bought back almost fully half the $100 authorization given to us by our Board of Directors. Eight, AMCs marketing activity and success continues to dazzle. AMC Stubs, our loyalty program, just hit 13.7 million member U.S. households. You may remember that we had only about 2.5 million member households only two years ago. At the U.S. average of 2.6 people per household, that means that our current database contains the recent film buying habits of far more than 35 million Americans. We fully respect and take very seriously the privacy of our members. But with their permission, we do actively market new movies one to two times per week to these avid moviegoers much to our benefit and to theirs. Another part of marketing is the traffic and ticket buying is occurring on our now 16-month-old new Web site and new smartphone app, which continues to climb markedly. Just last week fully 47% of our guests in the United States bought their tickets online in advance, 27 points of those 47 points were done AMC's proprietary Web site and that more than 15 points came of our active partnerships with Fandango and Atom Tickets, movie tickets and others filled out our growing online presence. More on marketing, our relatively new pricing department is certainly pulling its weight too. Very quietly, AMC has introduced $1 weekend surcharge, which is now in place at approximately 200 of our theaters in the United States. But we’re always evaluating our pricing relative attendance, recognizing that optimizing price, both up and down, is the goal rather than just maximizing it. To that end to stimulate demand on our weakest traffic day, we are now offering $5 Tuesdays to all AMC Stub members every week, and it’s bookable in advance online. We have also started to test a more simplified lower pricing structure designed to drive increased attendance at about 50 of our leased traffic AMC classic theaters where visitation is too small to justify a capital investment to install recliner seating to drive attendance instead. And finally, the nice reason. It was with great pride that we have taken steps to dramatically expand our international activity. On April 18th, AMC had a gala opening of the first movie theater to operate in Saudi Arabia in 37 years. We opened with Black Panther and are now already showing Avengers. Tickets have been on sale to the general public for a couple of weeks now and often we find the box office selling out on tickets opened up for sale in less than a minute. We owe this all to the daring vision of his Royal Highness Crown Prince, Mohammed Bin Salman, from whom I have heard directly how important it is to his country for cinemas to reemerge as an entertainment option for the 32 million affluent Saudi people. We've done so working ever so closely at the highest level with our just fabulous partner, Saudi Arabia's Sovereign Wealth Fund, the Public Investment Fund, and its wholly-owned entertainment subsidiary. We also did so working hand-in-hand with the Saudi Ministry of Culture and Innovation and Information under the leadership of its bold and talented Minister, Awwad Alawwad. There are many AMC theaters that come across the Kingdom of Saudi Arabia, at least 30 to 40 in 15 cities in the first five years. And I for one would not have all be surprised if we get to 100 theaters or more in Saudi Arabia over time. For those of you building models, it’s probably helpful to note that most of these theaters will open in 2020, 2021 and 2022. But I can tell you as clearly as we can see that we expect this to be a very lucrative opportunity for AMC and for our shareholders. In conclusion, we’ve never been more confident in our industry or in the direction we’re taking our company; 2015 generated record results at AMC; 2016 generated record results at AMC; 2017 started big and ended big, but a stormy summer through a solid curve; reassuringly, now the sun is out again, and 2018 looks to be bright; the 2019 movie slate looks to have great consumer appeal as well, but that's a subject for another day. Thank you for participating on the call this afternoon. Devin, let's now turn to question-and-answers.

[Operator Instructions] Our first question is with Eric Handler with MKM Partners. Please proceed with your question.

Just focusing a little on the international operations, on a pro forma basis, you had a weaker margin. Now understanding when attendance declines, your margins also decline. But I’m just curious, are you seeing any impact because you're taking out or your closing some of your more profitable Odeon theaters and until those start opening again, we’re going to have a similar situation like we had with Carmike and maybe talk about when those start coming back online?

First of all, it’s just like United States. It’s a high fix cost, low variable cost business. If revenues are declining, remember industry demand was down 6.7% in Western Europe across the Odeon countries. If industry demand is declining, our margins are going to fall and our EBITDA is going to fall. But the converse is also true. When revenues improve margins improve, and EBITDA improves. As to the theater renovations, it was a reason that our revenues might've been down, but it's not our most profitable theaters that we were taking out of service in the UK, for example. It’s actually some of our least profitable theaters. Those were the best candidates for recliner renovation, because we could take a theater that was quite tired in a really good location and in just a few months, somewhere between three and six, we could turn that theater into one of our best. What I said about lesser square theater was not that is our most problems -- I said, it was one of our largest theaters. The lesser square theatre is a massive reconstruction. And it’s going to be out of service for nine or 10 months, but that's the only theater that I know of in Europe where the renovation is going to take so long. Most of these renovations we can get in and out pretty fast, three, four, five months.

And I'm also curious -- the follow up question. U.S. box office is up quarter-to-date something like 25% 26%. I wondered if you have any perspective on how Europe is performing quarter-to-date at this point?

I don't actually, to be honest. Craig might.

No, we don't really get interim visibility on those. Actually there is so much local product that they have to roll up and track. So we don't get a lot of inter quarter...

…industry share. We do know Avengers is playing well in Europe. And maybe just to go back to your first quarter, Black Panther is a very American movie. It’s not going to play as well in Europe as Beauty and the Beast did last year. That’s probably -- that’s the local product there, probably the biggest explanations of Q1. But I just can't say it enough. With the returns that we’re seeing from these early recliner renovation projects and the number of theaters that we’re going to do in 2018 and 2019, nobody should get spooked because Europe had a soft quarter. And if you take our international activity in total, if we had not purchased Odeon and Nordic, I don't think we ever would have the opportunity to go into Saudi Arabia. And the profitability that we’re going to enjoy in Saudi Arabia -- okay, admittedly not in the first year where we have one theater, I mean it will be profitable but it’s not going to change our fortunes as a company. By the time we get 30, 40, 50 a 100 theaters opened in Saudi, the profitability in Saudi Arabia is going to be a big lift to our international profitability overall. And that’s a direct result of our having gone into Europe and becoming the largest exhibitor in Europe in 2017.

So just as a one last follow up then. The financial performance from Saudi Arabia, when that starts to kick-in more meaningfully. Is that fully consolidated, is that considered a JV? How is that going to flow through the P&L?

Eric, it’ll be a joint venture, so equity and earnings.

Our next question is with Leo Kofman with RBC Capital Markets. Please proceed with your question.

I have just got two. Based on my numbers, it looks like you have performed in the industry on both attendance and ticket pricing domestically. And I’m just trying to understand the drivers. Did you see a benefit from the slate weighted more heavily toward ten folds like Black Panther? Carmike, sounds like a few quarters ago, it was driven -- the underperformance was driven by a lack of recliners, but sounds like Carmike is still under index there. So can you just provide a little color around to how the Carmike issue is fixed? Was it primarily pricing or what happened there?

So remember the numbers just for last week in Avengers. Legacy AMC was up 220%, legacy Carmike was up 271%. So it's not just that we’re performing well in big cities. This company is performing well on all cylinders, period. On the Carmike circuit, I have talked about in earlier calls it wasn't one answer for the Carmike circuit as a circuit. We did a tremendous amount of analysis and work. We rolled up our sleeves. We got into a theater by theater. And we really found more than half of dozen different reasons that explain this pocket of Carmike theaters and that pocket of Carmike theaters, and that pocket of Carmike theaters and attacked each issue one-by-one. And we saw Carmike's market share flattened out in October and start to grow again in November. And as we said in the last quarterly call, we saw plenty of data that suggested Carmike is doing really well. And you heard the numbers earlier in my remarks that Carmike theaters are doing really well. It is also true when you said that not breaking down AMC versus Carmike, but looking at the entirety of the AMC circuit. We hit very well attendance. We did very well on price. We so leaned in the Black Panther. We so leaned in the Avengers. At Black Panther, we had a theater in Atlanta, one theater in Atlanta played Black Panther 83 times Thursday to Sunday. You only get five show times a day out of the auditorium. For Avengers, we had three theaters that stayed open 24 hours a day and ran nonstop for several days. We had 74 AMC theaters that set all-time attendance records for Avengers. I could go on and on. I said in my remarks, with the Friday night for a single film that AMC ever had, it was a biggest Saturday night for single film that AMC ever had, it was a biggest Sunday night for single film that AMC ever had but this four months have not been driven only by Black Panther, and by Avengers. Although, clearly they were -- they more than carry their weight. But there are a lot of good movies out that opened in November, December and in January movies like Jumanji and Greatest Showman. They played well in the January there were lots of smaller interesting movies Darkest Hour, Molly's Game, All the Money in the World. We went out that I love that I saw, I don’t remember why it was. There have been a lot of good movies out recently. That was not the story last summer. And we just think the message is very clear. When Hollywood makes movies that people want to see, they like to come out to theaters; September biggest September ever; December biggest December ever; February biggest February ever; April biggest April ever. Last I checked, Netflix is around September; Netflix is around in December; Netflix is around in February; and I heard Netflix is around in April too. The world is big enough for Netflix and AMC to coexist harmoniously. This is not a zero-sum game. It's not either/or. The Bears and the cynics of the naysayers who were out in full, local trial last summer, were incorrect and the data that we've been posting since September and we will post in May and June will prove it.

And then just one follow-up please. You’ve got some moving parts in the domestic rent expense including sale leaseback and lease modifications benefits. If we add back the lease modification benefit, this implies domestic rent expense of about $157 million for the quarter. Going forward, is that a good run rate for the rest of the year?

Let me check your math. Yes, that looks to be. Net-net you would have the full quarter of the sale-leaseback and as you say you just the 20 plus million for the one lease amendment fee, so 157 should be a reasonable domestic number.

Our next question is with Jason Bazinet with Citi. Please proceed with your question.

A lot of the -- since we’re talking about the bears. A lot of bears are focused on the declining attendance, offset on ticketing prices. But what struck me on the quarter was the other revenue. It was at least much stronger than we expected. And I know there's quite a few items in there from ads to Internet ticketing fees, and gift cards. But my one question was, is MoviePass -- if MoviePass sends you money, does that go through other or is that booked as just normal ticketing revenue?

It’s booked as ticket revenue. And you are right that the other revenue -- so to be clear, MoviePass tickets are tickets, and they are in our admissions numbers, both for attendance and revenues, and the price we charge. But going back to the other revenues for second, yes, they were wonderful. And I particularly enjoy that online ticketing revenues are so high. Think of it, 47% of our tickets in last week were booked online in advance. This is another benefit of AMC introducing recliner seating in more and more theaters, because when we do we have advanced reservations by seat. And we also do that in Manhattan. We’re looking at doing that in other cities as well. People find this to be a great benefit, because it takes a lot of the anxiety of the movie going. You don't have to show up 45 minutes and stand in a line outside in inclement weather to make sure you’re going to get good seat on Saturday night. And so it’s a great service that we offer. It's obviously one that consumers like, 47% of our tickets being booked online. And to put that in perspective, about four years ago five years ago maybe, that number would've been 20%. And four or five years ago, that number would've been 15% Fandango and 5% AMC proprietary channels. And now we're seeing -- and Fandango has been better than 15%, but little better. But AMC has marched up from about 5% to 27% a week ago of our total ticket sales as being booked on our Web site or on our phone app in advance the show time. These are very good numbers for us. And we're way out in front of a lot of people in this industry who don’t have that capability. For example, in the Carmike circuit, they didn’t even have a proprietary way to book tickets online through the Carmike Web site or Carmike phone app. All they use was Fandango. They had nothing in addition to fandango. Obviously, we still have Fandango as a great partner of us. We work very closely to Fandango. We’re happy every Sunday selling more tickets, but we have our own proprietary site and app as well.

Our next question is with Chad Beynon with Macquarie and Company. Please proceed with your question.

Nice quarter and certainly one that put the trajectory, I think of estimates in a better place. So with that in mind, could you update us in terms of what's on the table off the table in terms of the non-core assets? And I am not sure if you’re willing to say anything on the potential IPOs. So if you're not, maybe just an update on the on the non-core assets. What your view is on selling or monetizing the remainder of that given your appetite of share repurchases?

So we did $250 million of non-core asset sales last year. I think we called the non-strategic, you call it non-core. We still have a lot of NCM shares that we need to sell. We could sell and we need to sell by the end of 2018 that will certainly occur. We like to comply with the law. And we had some quite successful theater sale-leasebacks in 2017. I wouldn’t be surprised to see more of those in 2018. This is a much better business for us to be leasing our theaters rather than owning our theaters. Just like the hotel industry has gone asset like over the past decade, theater chains too are smarter not on real estate but to lease it. And less than 10% of our theaters were owned and some those were not our biggest. But there is some significant value still to be had and sale-leaseback possibilities. I do think that we will hit -- we said we’d hit $400 million of asset sales in the first two years. I wouldn’t be surprised if we do that in the first 18 months or even less, and possibly significantly less.

And then if you're willing to comment on the status of the European…

On Europe, there is no new news and nothing has changed. We said it’s increasing, something that we are looking at, studying, preparing for, if we decide to do it. I can’t say that no decision has been made yet whether to go or no go. The timing hasn’t changed. We said in the last call there will be second half ’18 or first half ’19, if we do go. I think all those comments from before are still operative. There's nothing new to report today.

And then on that CapEx, I think during prior calls, you said that about a third of the CapEx dollars would go to Europe, and two thirds in the U.S., given the returns that you're seeing in Europe. Does this change your view on how those CapEx dollars are allocated, or the outlook maybe beyond 2018? And that’s all for me. Thanks.

So European is depending upon the quarter 20 to 25% of AMC and we allocated more than 35% of our CapEx to Europe. So we already were biasing in favor of Europe. Yes, the returns are pretty stunning there. But let’s see how we do with the Carmike theaters, because like the Odeon circuit had essentially nothing in any quantity recline, the Carmike circuit had essentially nothing in any quantity recline. So when we start renovating 20 Carmike theaters this year, that’s approximate number. We're expecting -- as I said that’s flowing through domestically, we’re expecting to see pretty high returns out of some of the Carmike theaters. So the good news is we don’t have to decide 2019 projects until the last pass due with third to a quarter of 2018. So we’ve got some time to make those decisions. And clearly, we’ll be taking into account what the results are from our efforts in 2018. There were -- many of you who follow us when we started talking recliners in Europe, said that we were a Show-Me story, which I think is probably pretty relevant for a company that’s based in Kansas City, outside the Kansas and Missouri the Show-me state. But the early return is that the recliner projects are showing quite, quite handsomely, and that’s something that has us on.

Thanks, nice results.

And by the way, I can't -- thanks for saying that. And I just can't say again, when all the Odeon Leicester Square opens up next fall, it is going to be something to the whole and I have seen the plans. This is going to be one gorgeous theatre and big and successful.

Our next question is with Michael Ng with Goldman Sachs. Please proceed with your question.

I have one for Adam, one for Craig and one for whomever would like to take it. Adam, you mentioned that AMC outperformed its natural market share on Black Panther. I was just wondering if you get -- if you could help us understand the magnitude of that outperformance whether that was 10s of basis points or 100s of the basis points, or any detail you can provide. And whether you're seeing a similar level of outperformance for Avengers to-date?

It was a significant outperformance of Black Panther, and we’re doing just great on Avengers. And we don’t release numbers on a title-by-title basis. And if we did with 400 movies coming out a year, it would drive all of us crazy you and us. So I think I'll just leave our comments that on a little day, good on the two biggest movies a year, AMC crushed it. By the way, two biggest movies of the year so far, we got a lot of good movies coming.

Yes, that’s definitely true. I guess, Craig, just on the film rents. The film rents were much better than I had expected. I think you had -- film rents were 210 basis points on a pro forma basis. I was just wondering if you could parse out how much of that was due to box office mix and whether or not you’re still seeing incremental cost synergies year-over-year from the Carmike deal?

There’s probably two pieces and we’ve talked about it before. We do start to work with the studios wherever we can to help promote movies, whether it’d be through trailers or other access to our media assets like our mailing list. And we've seen increases in the monetization of those assets, the studios will pay us for that kind of access. And that's probably a good piece of it. I don't know if it's half of it, but it’s meaningful. And then the other second factor is just film mix, as you suggested. And it's really, in not the top five titles, which I think on a film cost basis putting aside the monetization for a minute, the film cost was fairly consistent top to top five last year. It was the 6 to 10 and 11 to 15 titles where we saw fairly significant year-over-year decline. And I think that's just mix of product, and different studio involved and so two factors, the combination of the monetization and also just mix of products. Carmike, most of the synergy was realized early on last year was in the quarter last year. So that wouldn't be a big factor in the current year.

And then lastly, I just want to follow-up about some of the comments you guys made about the lease modifications. I just wondering if you could offer a little more color about that, and what do you see as the biggest negotiation or leverage points that give you the ability of getting these modifications from your landlords. And do you expect some of these lease modifications to continue into the future? Thank you very much.

Well, we modify leases all the time. We’re constantly working with our landlord partners as we look at individual assets. Some of those modifications, and we talked about the numbers of recliners, some of those are for improvements or receding. And generally speaking, those don’t -- those would result in maybe some rent adjustment or some, as we talked about 35%, an average of capital that landlords are willing to contribute. And those modifications wouldn't typically run through the operating statements. There are occasionally those, it’s not uncommon, but you do have some where just the structure and the terms are set to go through the operating statements. And that was the case here. So it's not uncommon, and we do a lot of lease modifications. As you might suspect 607 some theaters, a majority of those are under a lease. So we’re constantly in modification mode, I guess you would say, so it’s not uncommon.

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

Just curious I guess at Q1 your attendance per screen on a pro forma basis, international looks like it was down 12.5%, we heard the slate in screen closures, I get that. You also said competitive pricing impacts. Just curious if you can give more color on that, and it feel like that could be an ongoing impact through 2018 on international market. And then I have a follow up.

As a circuit view, in particular, took some pricing actions in Q1 which look to some of us internally at AMC as unusual. And we -- obviously, we have no way of knowing what their plans are for the remainder of the year.

Mike, there was about 1% decline in streams as well. So it's not 12, I've got 11. It doesn’t really change the question or Adam's answer, but just to clarify.

And then I guess just to clarify something else. The mission -- I guess in the domestic market, your missions per screen look to be down about 2.6%. I think the market was down 2%. I don’t know if you have with the market for screen, benchmark that performance. But it's not -- it looks like you underperformed the domestic market by a little bit, just curious …

Yes, but look at the average price that we charge in the first quarter. It was up 5.5% to 978 a ticket that's very strong performance. And as we said earlier, if you look at our performance domestically, we outperformed the industry by 160 basis points. You can’t just look at volume, you got to look at volume-times price and multiply them together.

So I don't -- again, we work the numbers off-line. I've got the industry on admissions revenue, is that what -- you're looking at missions…

It was just attendance.

So I was looking at admissions per screen down 2.55% in the quarter?

For the industry…

For you guys…

I don't have that. I've got it down about 1.5 % for AMC domestic. So again, the screens were down 1%.

Look like I had screens 8,100 to prior year 8,000, that's screen count.

Average?

Yes…

Well as you and Craig work on that offline, let me just make an important point. We all knew in March of 2018 that Avengers was opening April 27th. The industry box office was down about 3.5% on year-to-date on April 26th and by April 30th, it was up 3.5% year-to-date. Just those four days in April reversed the entire slide of the almost four full months before. And as we sit here today, May 7th, the industry box office is up 4.6% year-to-date. So I do want to emphasize you should be very careful about trying to use January to March numbers to give us an indication of how the box office is performing, because the box office Jan 01 to April 30 is very different than the box office Jan 1 to March 31.

Mike, you’re looking at pro forma?

So the screen difference is what -- that would now include the vested screens with Carmike, would be the difference between the straight up 2017 screens and the pro forma. And that could well in fact drive the productivity down. Those are some of the lowest performing screens in the circuit that we've sold off. And frankly, I would look at the 2017 as adjusted.

Our next question is with Ryan Sundby with William Blair. Please proceed with your question.

Just I guess probably Eric had most questions a little differently. Is there any reason to think why Europe would either outperform or underperformance this next set of movies come out here from April through July, so today’s skew more American, or is there even the potential? I think we don't have a lot of history here, but it does seem like Q2 is relatively small quarter in Europe. Does that limit some of the upside potentially? Just any thoughts there would be great.

So we do think the slate -- you are right that Q2 is a small quarter in UK. The big quarter in the UK is fourth quarter, its right around Christmas. We do half of our profitability for the full year in the month of December. But the films that are coming, big ones like Jurassic World and Deadpool and Solo with the Star Wars and Incredibles, and Mission Impossible and Ocean’s 8, I guess Avengers too if I didn’t put that in the list, they all performed pretty well in Europe. But about 20% to 30% of our product in Italy, Spain and Germany is not made in Hollywood, its local language product made in Italy, Spain and Germany, and in Sweden for that matter. And there is no rhyme or reason as to how big or the slate will be or not in Q2 in the local language product.

And then I guess I hate to be the one to go here, but I am surprised we haven’t hit on subscription this late into the call. Any color you can provide on what subscription services going to add to the quarter? And then any thoughts on how you see that evolving now that we see a new entrant into the subscriptions game as well, I guess?

I have been waiting for that question the whole call. So thank you for asking it. We have had a very successful subscription program for three years in the United Kingdom, called Limitless in the Odeon circuit. And our views about subscription have not changed 1iota since the August press statement that we put out on the first day of movie passes, in my opinion, ridiculous price reduction. We said go back and look at our statements. We said that there's nothing wrong with subscriptions programs. They can be quite positive actually if they’re done rationally and intelligibly. But they have to be done at a price that is sustainable. And it was our view that 995 for up to 30 or 31 movies a month is not enough money to spread around MoviePass, Hollywood studios and theater operators, so that Hollywood can make quality movies and theaters can operate quality theaters. Fast forward to today, in March and April, MoviePass paid AMC $12.02 per ticket on hundreds and hundreds and hundreds of thousands of tickets each month, hundreds of thousands of their subscribers came through AMC theaters to enjoy our product. They did so at a frequency of 2.62 times in March and 2.75 times in April. Now, I took the calculator out and I multiplied 2.75 times $12.02, and I got to a number that was considerably larger than 995. So just as we were hearing that -- the MoviePass price point was unsustainable in August, we have the same questions today. And apparently we’re not alone in that view. Our doubts are now shared and articulated by MoviePass's orders.

We have time for one more question, from the line of…

Operator, we’re willing to go long if we don’t want to cut questions off.

Our next question is with Jim Goss with Barrington Research. Please proceed with your question.

I’d like to take this as a next step then. To the extent that Limitless is priced well and seems to work for you. Why are you not considering doing that within the Stubs program in the U.S.?

We have given a tremendous amount of thoughts to this issue, as you might expect. We've have lots of conversations with Hollywood studios on this subject. And when we have the ability to tell you more about our thinking in detail, we will do so at that time. But it’s not something that we should foreshadow as to what, how or when. I will say this, whatever we do if we ever do it, needs to be done rationally and intelligently and profitably.

Can you say then whether or how it's working within Limitless? Is it priced appropriately relative to the issues you get, and is it page in advance so that there is a flock involved or at least some obligation, so that you come out whole on it and then some.

I could go into it in detail. But what we do in London may not, or in Germany, may not be one. We wind up doing the United States. So I don't know that you should draw instant conclusions that what is being done in the UK is what we might do in the U.S. someday. We’ve given this area a tremendous amount of thought. So again, I don't know that what's going on in UK is what would go on the United States. What I can tell you is there's a lot of learning that occurred in the UK. We not only have the usage data month-by-month for MoviePass dating back to September, but we have the usage data for Limitless dating back three years, and we have torn all this apart as you might expect. This is still a small part of our business. The subscription numbers are under 5% of our ticket sold, but the whole subject is intriguing one and it has our attention.

And just one other thing. Have you further thought on dynamic pricing as it might apply here markets share, I know you’re a marketer?

Yes, thank you, Jim. We’ve given a lot of thought to it and you can only do so many things at once. We've already put in essentially a 10% weekend surcharge on average. In Europe, we charge more for the best seats. In Europe, we charge more for the biggest two movies a month that’s come out. If you go back and -- what I want to call is what’s called Ec10, economic 10, introduction to microeconomics, you’re supposed to charge more in the peak and less in the off peak. So guess what, AMC is now charging more on Fridays and Saturdays, and we just lowered prices to five bucks on Tuesday. If we were to put in higher prices on the best seats in the house, they’d say if not when. It might be a good idea to lower prices in the worse seats in the house. It’s called optimizing pricing, right. And then there are still many ideas that you could think of, but it’s generally not a good idea to speculate about pricing going forward, Justice Department usually love that. And even so you can't -- to say we can get a small price premium for this and a small price premium for that, and a small price premium for this and a small price premium for that, but if we do it all at the same time, it’s not a small price premium anymore. So you do have to spread these initiatives out. And that’s what we will be doing. And as I said, I like the go up on the stuff that's being sold to capture more revenue on the most popular items and go down on the stuff that’s not being sold to see if we can spurn increased demand by making parts of AMC available to more price-sensitive guests.

Our next question is with Robert Carlson with Jenny Montgomery Scott. Please proceed with your question.

Congratulations on the call, and let me say it’s appreciative that you guys stayed on the call with the last guys on the bust getting answer and as far as question. And most of my questions have been answered. But I was just wondering when you do a renovation, do you find it’s that the same people that come back or do you get a total new crowd, more affluent crowd versus…

Our research from our mailing list suggests that we attract some new moviegoers, and we see increased avidity from existing moviegoers. So it’s a combination. You mentioned more affluent. We do try to strike a balance in what the author and what we charge, so that we maintain movie going as something that's available for the mass audience, and maybe not everyone. But certainly we are not trying to striving in our remodels to be a high end experience. We wanted to be high quality and enjoyable entertainment, but affordable. So I wouldn’t say necessarily we see a more affluent guest. We certainly see attracting new people that we haven't seen before, and we’re seeing increased stability from our long-time moviegoers who like the experience much better to go one or more times a month than they did before.

Again, thank you for the call.

So we’re going to wrap it up with a following comment. I’ve talked a lot about -- that we think AMC is very much in recovery mode and we gave you lots of reasons why, we gave you some data, turned in a good performance that was better than all of us expected. And we’re obviously quite bullish about second quarter. But let me tease you with a Christmas movie instead of talking about Mission Impossible and Jurassic World, and Deadpool one more time. Disney knows some about making movies, and they're coming out with what looks to be a fabulous sequel for Mary Poppins coming out in Christmas time. Mary Poppins grossed $102 million at the box office in 1964. Adjusted for inflation, that would translate to a box office today of $716 million. I can't wait to see Mary Poppins at Christmas. And I bet I won't be alone. Thank you for joining us today. We will certainly look forward to the second quarter call and hope to see many of you before then. All of best.

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