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AMC Entertainment Holdings, Inc. (AMC)

Q3 2018 Earnings Call· Thu, Nov 8, 2018

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Transcript

Operator

Operator

Ladies and gentlemen, greetings and welcome to the AMC Entertainment Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief Q&A session will follow the formal presentation. Please note that this call is being recorded. At this time, I'd like to turn the conference over to John Merriwether. Please go ahead, sir.

John C. Merriwether - AMC Entertainment Holdings, Inc.

Management

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

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Thank you, John. Good afternoon, everybody. We're very pleased that you've joined us for a review of our third quarter results and an update on several key initiatives. Let me begin by simply and clearly saying that we are so thoroughly encouraged by AMC's performance in the third quarter of 2018. Company-wide, we achieved the highest third quarter attendance ever for global AMC driven primarily by an 8.6% surge in attendance at our U.S. theaters. Despite U.S. and European admissions revenue that was essentially flat year-over-year for the quarter, food and beverage revenue globally was up 6.5%, other revenues globally were up 33.5%. This all led to our reporting ahead of consensus adjusted EBITDA for the quarter of $142.4 million. That figure was significantly ahead of our internal expectations going into the quarter. And when combined with our stellar first half results, nine month year-to-date adjusted EBITDA for all of AMC now stands at $665.1 million, which is up a dramatic 24.5% over the first nine months of 2017. $665.1 million of adjusted EBITDA this year so far versus $534.3 million of adjusted EBITDA last year so far, that's an increase of $130.8 million. Can I repeat that figure for emphasis? AMC's adjusted EBITDA is running more than $130 million ahead of last year for the same nine month time period. Accordingly, we can now say with high confidence that from an adjusted EBITDA standpoint, full-year 2018 will be a record year for AMC, the best ever in AMC's 98-year history exhibiting movies. Breaking down our third quarter results by segments, we were pleased with our third quarter results in the United States. Total domestic revenues grew 5.9% to $895.6 million. On our last quarterly call, we highlighted a shift in our strategy to boost attendance, to increase long term…

Operator

Operator

Thank you. We would now be conducting question-and-answer session. Our first question is from Kannan Venkateshwar from Barclays. Please go ahead. Mr. Venkateshwar, please go ahead, sir. We're not hearing anything from that line. Our following question comes from Eric Handler of MKM Partners. Please go ahead.

Eric O. Handler - MKM Partners LLC

Analyst

Thanks very much for the question. Good afternoon. Couple things quick. First, with regards to A-List, I'm just curious what's the impact on food and beverage sales? Are you seeing anything that's different from non-A-List members?

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Yeah. Thanks, Eric. And we'll give you as many follow ups as you want. The – number one, they're buying food. That's a good thing. And since they're coming with such a surge in volume, it is the A-List population that's helping to drive this 8.6% domestic increase in attendance. Not the only program that's driving attendance, but certainly one of them. They are buying food. One of the things that we have figured out quickly is while they're buying food they're not buying quite as much food as the typical more casual AMC guest. Some had speculated that, oh, well, they're not paying anything to get into the theater. So, they can spend more on food because it's less painful on the wallet. As it turns out, in reality that we learned in the first, three or four months. If you're coming two or three times a month to movies theaters, there's just almost so many vats or troughs of popcorn that you can eat. You can only consume so many giant boxes of Raisinets before you just don't want to look at more food. So they're buying food, they're buying food at about $4 a pop instead of $5 a pop. And what that's caused us to do immediately is turn to our F&B organization and get it to focus on what is it that we can sell to this population, who may not want the vast quantities that we traditionally have sold to justify our higher prices. So we're looking at interesting new menu items that we think will appeal and we're pretty sure we can get the spending per head to rise over time. But we're not in the business of just looking at revenues per patron, we're looking at the business of revenues total. And with the increase in attendance, we do have an increase in total F&B sales and that's what we've learned in the first four months.

Eric O. Handler - MKM Partners LLC

Analyst

Great. And then as you think about disparity of prices that you've got, and maybe you can even talk about the AMC Classic versus the standard AMC theaters, are you seeing anything geographically or by market where the membership is working better than other places?

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Sure. So, say hi to Fido for me. I like dogs. Geographically, the biggest surprise to us is that this program is popular all over the United States. We always expected it would be strong in our large urban markets especially where we have high market share, cities and like, New York, where we have in excess of a 40% theater market share in Manhattan, as an example. But it's working all over the country. So that's the first learning. The second learning is that if you take that spread of 50 states and the District of Columbia, we were able to put out a press release that said we were holding the line on pricing because we were not increasing the price in 35 of the 50 U.S. states. Well as it turns out, fully a third of our A-List customers are in the New York area, Boston area and California. New York, New Jersey, Connecticut, Massachusetts, California. Another third are in those 10 states that got the second tier of price increase and a third of our clientele is in the remaining 35 states. And we know that the people who are joining in the 35 states are essentially paying a price per month that is two times, double the price of a single movie ticket in their theaters. In New York, however, where the prices of tickets are so much higher in movie theaters, they're not currently paying two times the price of a single movie admission. They're getting a much better deal. And so, when we looked at how we would price the program, back in June we decided that for simplicity and given the competition we were facing we should just blowout with one national price. And we obviously picked a price point with under…

Eric O. Handler - MKM Partners LLC

Analyst

Okay. And then just one quick thing. The mobile food and beverage ordering, is that only through Atom Tickets or are you doing something on your own?

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

No, no, no, no. We're doing that on our website and our smartphone app.

Eric O. Handler - MKM Partners LLC

Analyst

Got it, got it.

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Just to size all this, because there was enough in my script. I didn't want to bore you with everything. But what's happened to online ticketing in the last two years is phenomenal. If you go back four or five years ago, Fandango was doing 10% to 15% of our total ticketing, AMC was doing 5%; and everybody else combined was doing 1%. Fast forward to today, Fandango is doing 10% to 15% of our ticketing; everybody else, including Atom Tickets, is doing 1% to 2% of our tickets. By the way, we like Atom Tickets. We're an investor in Atom Tickets. But AMC is doing more than 30% of all the ticketing for AMC theaters in the United States, online – either on our website or on our smartphone apps. There's been an explosion of usage of our proprietary website and smartphone app, which we think is a very good thing for us and we make money from it, too.

Eric O. Handler - MKM Partners LLC

Analyst

Thank you very much.

Operator

Operator

Thank you. Our next question is from John Smith (44:18) of CLS. Please go ahead.

Unknown Speaker

Analyst

Hi, guys. Congrats on a great quarter and huge success on the AMC Stubs. One question on the free cash flow, why did you guys not generate any cash this quarter? It seemed almost like $130 million burn and it seems like even though EBITDA was up massively year over year, but our cash flow is significantly down and you barely can pay any dividend and have to sell assets. So what should we be thinking about the cash flow?

Craig R. Ramsey - AMC Entertainment Holdings, Inc.

Analyst

Yeah. It's Craig Ramsey. I would characterize it as you state it, you have to sell assets. But frankly, what if you went back and were to kind of follow our calls over the last year or so, you'd find that we were required to sell – or the biggest asset was – we had sold over this period of time was related to one of our acquisitions and our requirement to sell our investment in National CineMedia. And so we have for several years and including 2018 have been selling to satisfy that DOJ mandate and the idea is we wanted to reinvest the proceeds from the sale of those securities quickly into high return theater level strategic initiatives, most notably, the reclining theaters that Adam talked about. So what you're seeing in the cash flow, I'm not sure exactly what form you are looking at, but you're seeing an elevated amount of CapEx, because we're reinvesting sales of assets that were not required because of the CapEx investments, but were mandated, and as a result of our desire to reinvest those proceeds were the result of that. Is that helpful?

Unknown Speaker

Analyst

Got it.

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

And I'd pop in and say it a slightly different way. In the way, the – you worded the question, it was – I mean, there's nothing wrong in the way you raised the question, but the way you worded the question, the implication is sort of that this situation forced us to do to sell assets or that we couldn't afford to pay dividends. We look at it pretty differently. We began a 12-month period last August saying that we had found assets that were owned by our company that we thought were non-strategic that we could sell without paying. And in fact, we said we found $400 million of them. We actually found $500 million, $550 million, I think, $550 million of them and we're able to sell those assets profitably.

Unknown Speaker

Analyst

You guys have done a great job on the asset sales, full credit to that. But without asset sales, would there be a dividend payment?

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Well, of course, there would be, but let me just remind you of all the things we did. So there were three inflows of cash as you look over the past year, we had $550 million from asset dispositions. Using last year's numbers, $823 million of EBITDA, and then you had $600 million inflow from Silver Lake. The question is what then were we going to do with all of that cash because we only had debt service of about $260 million and cash taxes were pretty small. And this is where we've been allocating capital and trying to allocate capital as wisely as we can. We have done essentially four things. Number one, we've grown our footprint by adding theater locations. That's the smallest use of capital, but we have added theaters. And our plans are to continue to add theaters in the years ahead. Two, we decided to pay a robust dividend. We're not only paying a dividend that's yielding in excess of 4%, which is way more than the 1% to 2% average dividend paid by most other companies on the NYSE. But we also just paid $155 million special dividend just six weeks ago to all shareholders. We also bought back about $500 million – no, about – right around $500 million of stock not only from Wanda, but also through open market purchases in the open market between the September of 2017 and June of 2018. So we returned cash to shareholders. And third, we have so many high ROI projects that we believe we can profitably reinvest the cash flow, the free cash flow that we're generating and reinvest it back in our business and get a much higher return for our investors by reinvesting in initiatives. That's why we're renovating theaters like crazy in Europe. That's why we're redoing the ODEON Leicester Square, that's why we're doubling the number of Dolby Cinema locations in the United States and on and on and on. So that's where – that's the money that's coming in, that's the money that's going out. And in so doing, we're growing the company, we're returning cash to shareholders and we're reinvesting in the business to drive future growth.

Unknown Speaker

Analyst

Thank you.

Operator

Operator

Thank you. Our next question is from Jim Goss of Barrington Research. Please go ahead.

James Charles Goss - Barrington Research Associates, Inc.

Analyst

Thanks. Adam, I was wondering if the comments you made earlier were meant to imply that the concessions uplift has totally offset any obligation to the studios even in the initial pricing and A-List even before you had the price increase?

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Yeah, yeah. Look A-List is already a profitable program, because if you take the $20 that's coming in plus the concession purchases, less the food cost of course, and you deduct out the film rent splits of (51:16) going to theaters. That's a positive number. The issue is not – is it a profitable program? It is a profitable program. The issue is trying to compare that program to what a subset of those consumers might have done, if we didn't have A-List because if we didn't have A-List some of those ticket buyers wouldn't be buying tickets at all. Some of those ticket buyers would still be buying tickets at AMC. They'd be coming less frequently. They'd be buying fewer tickets, but we'll get a higher price per visit. We might get a higher F&B spend per visit. And so our goal isn't just to have a profitable program, it's to make sure that the profitability of that program gives us incremental EBITDA above and beyond what that population would have given us in the absence of that program and that's where we said – this subsidizing of users and stuff again, they're not unprofitable. It's just that compared to what it would have been, if there were no A-List program at all, we might have made slightly more money. Now, we're right in line and we estimated this thing that we're going to take about $15 million in A-List in 2018. Well, the membership is double what we expected, which is a high-class problem, but you could have assumed from that then our acquisition cost would have doubled. But fortunately for us because the members are pouring in so easily and readily, our acquisition cost per member, our subsidy per member is much less than we feared it might be and that the fact that the early usage subsidies are much lower on a per head basis is just happens to neatly offset the doubling of the membership. So I think we're right in line with this program still costing us about $15 million of EBITDA in round numbers in 2018. But that's 2018, come to 2019 which, as I said on the call, we thought this thing was just going to be a breakeven program in 2019. Again, I don't mean breakeven whether it's profitable or unprofitable. I mean breakeven about against what the alternative would have been hypothetically if there was no program and all people were just buying tickets one at a time. We now think because the membership is coming in so fast, that we're going to make money on this thing in 2019. Again, not making money, I'm not new to scribing as whether it's a profitable or unprofitable program. It's already a profitable program. I'm talking about what would those consumers have done anyway. What kind of money would we have gotten from them anyway? Our goal is to get more and not less.

James Charles Goss - Barrington Research Associates, Inc.

Analyst

Okay. And correct me if I'm wrong, but I think initially you had indicated something, that something like 10% uptake of your attendees going into the subscription program would be sort of a normalized eventual percentage in your past history. I'm wondering if it's – is this doing more than what you had expected it to do. And what share of your attendance do you expect will come from A-List members when you get to the point where it levels off? Assuming it levels off.

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Just to show you how – if you want to know why we're optimistic and enthusiastic about this thing. On the call we launched it, we said give us a year, we can get to 500,000, give us two years, maybe we can get to 1 million members. We don't know we can actually get there. And then, based on our experience in Europe, this thing would cap out at about 10% of our clientele and that 90% would come in the old fashioned way one ticket at a time. It's 4.5 months in the program we've already hit 500,000 members. There's no evidence it's going anywhere close to stop anytime soon. So, hard to imagine we won't hit 1 million. When I don't know, but we're sure we'll get there. We're already at almost 10% of our members – sorry, 10% of our guests at our theaters are coming under the guise of A-List, domestically that is. And it's only 4.5 months in the program and they're still signing up in droves. So I wouldn't be shocked if we add members at a rate of 50,000 to 100,000 a month going forward probably more months. I don't know. Could be 3 months, it could be 10 months, it could be 18 months. There's a lot of potential here. So, now where do we think it caps out? I think it's going to cap out between 0.5 million and 1 million members and 10% of our clientele. Now I'm thinking it may cap out between 1 million and 2 million members, and maybe it caps out at 15% to 20% of our clientele. I still think this thing, this program eventually we'll get this program to a point where people are paying about 2 times a normal movie ticket to…

James Charles Goss - Barrington Research Associates, Inc.

Analyst

Okay. Thanks. And one for Craig. Some non A-List question, the change in lease accounting that's coming up, any thoughts on that and any different approach toward property financing that you might have as a result or maybe there's no impact, but what are you thinking?

Craig R. Ramsey - AMC Entertainment Holdings, Inc.

Analyst

Really, Jim, it's really not a third quarter topic. One that we're really looking forward to addressing with you all, as we you know meet for the February/March, early March quarterly call or end of year 2018 call again into next year, then we will be prepared to address all these questions.

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

And we are well aware that this is going to be a subject where we need to do a lot of educating of the Street. But it's a 2019 challenge, not a third quarter 2018 challenge. But intellectually, we're all over this subject and we're thinking hard about it.

James Charles Goss - Barrington Research Associates, Inc.

Analyst

All right. Thanks very much.

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Thank you, Jim. (01:00:47)

James Charles Goss - Barrington Research Associates, Inc.

Analyst

Thank you.

Operator

Operator

Our next question is from Ryan Sundby of William Blair. Please go ahead. Ryan Ingemar Sundby - William Blair & Co. LLC: Yeah. Hi. Thanks for taking my question. I guess, Adam, starting with, I think, you said the 50% less in acquisition and subsidy costs. If we break it apart, is it – are you seeing that more on the acquisition side, the consumers is just more primed than you thought they would be to subscription or is it more on the subsidy side?

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Well, I'd say it's about half and half. First, so many members have poured in that we didn't expect would pour in. That's probably because they were primed to – the concept was not new on June 26, right? I mean, people have heard of this before. Others ran into difficulty. And we didn't expect to have 1 million members in four months. And especially at double the price point of the competition. So, that's a part of the reason. But an equal part of the reason and maybe even more so is we thought it was going to take a full year to get from 3.5 visits per month to 2.5 visits per month and we were prepared to subsidize these people as they went down that curve. And just so we're clear as to why the visitation will come down over time. When you join this program on day one, you are hepped, baby. I mean, this – you are – you're not joining six months before you're going to show up at a theater. You're signing up for the program and you're going tonight or you're going tomorrow night. So, practically within the first 72 hours you've seen your first movie. And most people smile when they come out of an AMC theater. It is a very pleasant experience and they come back. So a lot of people having gone to their first day A-List movie come back frequently. And in the first month, they're practically coming, not quite, but they're practically coming once a week. That's not really reasonable that you're going to keep up that pace over the course of a year. Now some people will, but not all. And what's more common is you'll go every other week. Some will go more, some will…

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Well, I said on the last call that we were going to launch one product with one price nationwide, but then we'd already scoped out internally six different programs. And it's only been 4.5 months and we've already announced that we're going to have three tiers of pricing around the United States. There are so many more creative ideas we have to try to generate more profit for AMC from this population. Here's the but, if you do too much too fast, not talking about price now, I'm talking about complexity of product. If you do too much too fast, all you do is wind up confusing the consumer and therefore limiting your own sales because someone who confronted with a simple offer says yes and they buy. And someone confronted with a complex offers, says, huh, I got to think which one I want and they go off and they don't buy at all. And some of them come back and buy. But some of them never come back. So part of the art of being good marketeer is balancing all the complexity in your brain and my brain anybody else's brain for that matter, with keeping the program simple enough that the consumer can just easily say yes. I get it, that sounds good to me. I want it, I'm buying. And so I think we have got to pace ourselves and not rolling out too much too quick that will confuse the customer. But there is a whole array of stuff that we've been thinking about that's in the works. I mean very quietly in this announcement on Monday, we announced we are lowering the average age from 18 to 16, that opens up the door to younger teens being able to be A-List members. It is…

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

I'll take the first one and then let Craig add on. Sometimes things are just the way they are. A year ago, the box office was struggling in the United States and the box office in Europe was booming. This year, the box office in the United States is booming and the box office in Europe has been struggling. Most of the attendance issues in Europe have been local language films made overseas that have not resonated the same way they did in Germany and Italy in prior years. That's a big factor. Having 2% of our screens out of service while we renovate theaters is a big factor. Some people think the World Cup is a factor. I mean, it probably was. I mean, a lot of people were watching soccer – or I should more properly say football. But you can't look at our company or our industry quarter to quarter. You got to have a more medium/long-term mindset. If you look back last year, Europe was booming. If you look back over 20 years or over 10 years, Europe had been growing faster than the box office had been growing in the United States. We're pretty sure that we made a good bet in Europe because of the long-term growth in market. But more so than that, the other thing that's happening that's starting to drive profitability for us in Europe is the fact that we're bringing recliner theaters online and the revenues at these theaters are going up geometrically. I didn't say arithmetically; I said geometrically, like up. We had seven renovated theaters at the end of 2017. We're going to have 21 renovated theaters at the end of 2018. We're renovating a whole bunch of theaters in 2019. That also is starting to become a compelling reason for EBITDA growth which after all, was the very thesis of why we bought ODEON in the first place. The thesis behind buying Nordic – other than it's a very well-run circuit was all the new build theaters in their queue and those new build theatres have been coming on stream. The theater we opened in Central Oslo at the beginning of this year is already the highest grossing movie theater in the entire country of Norway. So the investment thesis in Nordic is also panning out to be true. I'll come back to the IPO in a second but Craig, do you have anything you want to add on Europe?

Craig R. Ramsey - AMC Entertainment Holdings, Inc.

Analyst

Yeah. The only thing I'd add to that in Europe and it was kind of an idea we had and talked about with the management team at the time of the acquisition. But at some point we felt the need and the opportunity would be there to kind of rationalize their territorial overhead structure above the theater, six territories and could you rationalize that and do some combining of functions and consolidation, you can't eliminate them all because of language and other differences. But we thought they would be up too. This management team has taken it on an very aggressively kind of ahead of schedule is beginning to make actually some – you're seeing some costs being put into the business as part of that structure, we're doing it over time and there's some costs coming in to generate longer-term savings and I think that's helping margins a little bit now. And I think it'll prove to be very beneficial as we get through that restructuring in Europe where those initial investments that we're making out will begin to pay off.

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

Yeah, let me give you a specific example. We had a whole overhead structure running our theaters in Spain where we are the largest cinema operator in Spain. We had a whole overhead structure running our theaters in Italy, where we're the largest cinema operator in Italy. In the last few months, Spain and Italy got merged as to one region, essentially a 50% reduction in overhead. And there's more of this that's coming as Craig described over the next couple of years. On the question of the IPO, there are a lot of good reasons to do the IPO. There are a lot of good reasons not to do the IPO. We've been saying now for a year that we're studying it and the timing was most likely first half 2019. If we made the decision to go, if we hadn't made the decision to go. Well, if you look at our first half numbers in Europe, they're not great. It's just not logical to do an IPO off of mediocre numbers. You're not going to get a very good price for the shares that you sell. Combine that with the returns on the recliner equipped theaters. Seven of them as of December, 17 of them as of now, 21 of them as of December, potentially double that by the end of next year. We're seeing great early signs out of these renovated theaters. But investors in Europe, especially in the London Stock Exchange tend to be a prove-it-to-me investing community, as opposed to we're ready to buy on the dream. So we're hearing over and over again that they'd love to see a full year of numbers coming out of these renovated theaters. And if we want to get paid on the revenue and profitability of these theaters…

Operator

Operator

Thank you. Our final question is from Eric Wold of B. Riley & Co (sic) [B. Riley FBR]. Please go ahead.

Eric Wold - B. Riley FBR, Inc.

Analyst

Thank you, and good afternoon. I apologize bringing it back to A-List. But, obviously, you gave a lot of learnings on the stuff you've learned over the past couple of months of having A-List, admittedly, in a quarter where 3D and IMAX were down significantly year over year. I guess maybe one, talk about what you've seen so far even in this environment in terms of the upgrade choice by your members and kind of what you assume in your kind of profitability outlook for next year in the model, into next year in a slate that looks a lot more compelling for those two formats? And then, I guess secondly, you kind of talked about not wanting to have too many options, too many choices, too many changes that confuse patrons, so if that's the case, kind of announcing the price increases recently would come with a 12-month guarantee for members prior to January 9. Does that lessen your ability to make any further adjustments over the next year should things go adverse to your current planning?

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

That's a lot of questions, Eric. But let me do the last as I try to remember them all with Craig. Let's do the last one first. We gave a 12-month price guarantee on pricing and benefits to the people who joined this year because there were a lot of people who flirted with subscription programs in the United States, and they were really getting whipsawed by their subscription companies with constant change in the program. I mean changes week after week after week. And if you just read the message boards, boy, it was really infuriating to consumers. So we thought that we should act and look like a responsible $5 billion company would act. So we said if you join A-List like relax, you're not going to have your price or your benefits changed to your detriment in less than a year. Just like come to the theaters, enjoy the movies and don't sweat it. But that guarantee that we put in place was only for people who joined by January 9 of 2019. We also announced on Monday that we're – well, we believe, I mean before I say what we announced. We believe that we in fact have achieved in the marketplace exactly what we set out to achieve, that we were reliable, we were predictable, we treated consumers the right way. And they played this back to us over and over again, in all these chat rooms and message boards on these subjects. So mission accomplished. Now, we don't think that you need to give a 12-month guarantee to everybody forever because we've already established the principle that AMC is going to treat the customer fairly the way the customer deserves to be treated. So we announced on Monday that if you joined by January…

Craig R. Ramsey - AMC Entertainment Holdings, Inc.

Analyst

Go ahead, please.

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

We had modeled it – you asked us how do we model it, what were expectations. We had modeled it 22%. So while it's a little higher, not much higher. And going into 2019, as we've done our internal budgets for 2019, we've remodeled the premium formats to rise slightly because there are so many big movies coming in 2019 that are great to watch in a premium format. Fortunately for us, we have so much excess capacity in our premium format auditoriums that the fact that A-List people are showing up for IMAX, Dolby, PRIME, 3D, BigD, we've got plenty of room to handle them. I know there was another question in there but what was it that I missed?

Eric Wold - B. Riley FBR, Inc.

Analyst

No, I think we're good. Thank you.

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

We do think that – it's interesting that still three quarters of the people coming to the 4.5 million movies that they've seen since June, 75% of it is still coming in in regular old 2D auditoriums. So we believe that the current visitation is manageable. Craig, did you want to jump in?

Craig R. Ramsey - AMC Entertainment Holdings, Inc.

Analyst

No.

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

And by the way, I think you're the last question. Maybe there's one more, but while you guys have asked a lot of A-List questions, the fact that we can answer them, I hope you are noticing, we really do know this program cold, we know these numbers cold. We're watching them like a hawk. What you don't know is that we were prepared to make lots of other program changes if we were in trouble going into 2019. If we were in trouble would be, if acquisition costs were too high or subsidy costs were too high, if frequency was too high, if it wasn't ramping down from the mid-3s like we expected to start into the mid-2s. We had lots of roads we could have gone down to make A-List attractive to the consumer and still profitable for us. And we just didn't need to because this program is just a smash hit. And I sure hope we're convincing you of that because we know that to be true. And we know there's a lot of fear out there that since others have stumbled in this area, we too could stumble. That's not going to be the case.

Operator

Operator

Mr. Aron, there are no further questions. Would you like to make some closing comments?

Adam M. Aron - AMC Entertainment Holdings, Inc.

Management

I sure would. Thank you, operator. Thanks everybody in the call. For those of you in the Disney call right now and you're listening to this on a replay, we missed your questions but we know you still listen to the call or read the transcript. Obviously we're around to talk to anybody individually after the call. And we thank you for your time today. But more importantly, we hope you share with us our enthusiasm. 2018 is going to be a record year for our company. 2019 is looking really strong, especially because we have marketing programs like Stubs and A-List which position AMC very well for the future. With that we thank you for your time. It was nice being with you.

Operator

Operator

Thank you. That concludes today's conference. Thank you for joining us. You may now disconnect your lines.