Greetings, and welcome to the AMC Entertainment Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, John Merriwether, Vice President of Investor Relations. Please proceed sir.

Thank you, Latanya. Good morning. I like to welcome everyone to AMC's third quarter 2019 earnings conference call. With me this morning 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 the 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, adjusted free cash flow, and constant currency, which are non-GAAP financial measures. For a full reconciliation of our non-GAAP measures to GAAP results, please see our earnings release issued earlier this morning. In conjunction with our earnings release, we encourage you to review the supplemental financials for the 2019 third quarter that we published this morning on our website in tandem with the earnings release. After our prepared remarks there will be a question-and-answer session. This morning's call is being recorded and a webcast replay 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.

Thank you, John. Good morning, everybody. Thank you for joining us this morning for a review of AMC's strong results for the third quarter of 2019, our enormous optimism for the coming six months ahead as we finish 2019 and start off 2020 both with a bang, and a progress update on several key initiatives in support of achieving the product, customer engagement, and financial targets that we laid out for you at our Investor and Analyst Day in April of this year. The third quarter of 2019 was another strong quarter for AMC. In Q3, AMC continued to outperform the industry on revenue and attendance per screen. In so doing, we drove significant top line adjusted EBITDA and free cash flow growth versus the year ago quarter. I’ll share more details on our results shortly, but first let’s start with a quick look at the industries impressive performance in the third quarter. The domestic industry box office for the third quarter of 2019 came in as most of you know at $2.8 billion, 3.6% higher than last year’s third quarter and 4.1% higher than the average third quarter over the past five years. Like in the second quarter of 2019, we continue to see a greater number of family friendly films led by the Lion King, which is as of this moment the second largest movie of the year. As a reminder, family friendly films tend to drive greater attendance in our sub urban U.S. theatres. In Europe, the industry box office also showed real strength in the third quarter of 2019, up 13.7% in the countries served by Odeon and Nordic on a constant currency basis. All in all, the cadence of the industry box office in 2019 is tracking exactly as we at AMC predicted a year…

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from David Miller with Imperial Capital. Please proceed with your question.

Yes. Hi guys, congratulations on a great [indiscernible]. A few questions, I’ll get to kind of the nitty-gritty first, and then, add just an overall philosophical question. Adam, or maybe Craig, the non-cash expense entry on the NCM services agreement looks like it cost you guys about $0.08 a share. Surprised you guys didn’t call that out, if you could just kind of describe that entry for us that would kind of help flush that out? And then, it looks like rent expense was up 17.2% year-over-year, how much of that was ASC 842 and how much of that was just pure organic, you know, inflation? Then I have a follow-up, thanks.

Well, we’ll have to get back to you, David on the…

Congratulations, you stumped us on the first one.

Yes, on the NCM non-cash, I mean, there is some amortization. We’ll have to get in to it and look and get back to you on that. Your question about the ASC 842, the charge and – the comparable adjustment in 2018 for ASC 842 had been about $23 million on a consolidated basis, probably about 12 of that domestically in the balance on the international side.

Okay, fair enough. And then, Adam, do you still believe that the U.S. box office will end at a record this year versus last year? It looks like it’s going to be very close, it’s probably going to come down to Star Wars, but you did, I think make that statement perhaps two quarters ago, wondering if you’re willing to stand by that again. And then, also just wondering if you could size up the Saudi Arabian opportunity? To me at least, this looks like a huge multiple expansion opportunity for your stock price and just yet another massively underserved market around the world, and if you could just maybe count some of the population statistics about, you know, the fact that it's just a younger audience and they want to go to movies and so on so forth that would be helpful for us? Thank you.

Thank you. On the box office, we’re really not – you know people are trying to forecast 2020. It’s hard to forecast 2020 when you still can't quite forecast 2019. And it’s hard to forecast the next few months of 2019 when we’re all trying to figure out how next weekend will do. We’re really not going to know where 2019 ends up literally until Christmas New Year’s week. The film volumes are so big in December. We know the quarter is going to be big one. I think it's very unlikely that 2019, the domestic box office. Anyway, we’ll finish below $11.5 billion. I think it's unlikely that will finish above $11.8 billion, $11.9 billion. We’d hoped at the beginning of the year, this might be the first year to hit $12 billion. It seems pretty unlikely it will do that. We’re in that range, $11.5 billion to $11.9 billion, $11.6 billion to $11.8 billion, it really settles in. It really all depends on how individual movie titles grows over the next seven, eight weeks. As for the Middle East, I was just there last week. I'm going back in six weeks. The story has enormous promise for us. We have a single theatre open in Riyadh. It’s currently doing 11 times the revenue of a traditional AMC screen in the United States or Europe. 11 times the average seat utilization per year at that theater in Riyadh is more than double, the highest grossing in the United States, which happens to be an AMC theater by the way, Empire 25 at Times Square. We signed a joint venture agreement with the public investment fund, and an affiliated public investment fund, the sovereign wealth fund in that country to develop at least 40 to 50 theaters over the next four to five years. Our second theater, a 10-screen theatre, will open in mid-December. We expect to have somewhere between a dozen and 20 theaters open by the end of next year 2020. However, this is an affluent country of 33 million people. It has the 20th largest economy in the world. They like going to movies. They do it now by driving to Bahrain or flying to Dubai to see movies. They see movies when they travel outside the country. They see movies at home by satellite dish, and as we've proven, when we open theatres, they come to our theaters in huge numbers. We agree with you, it's a significant opportunity for us and we've done it in a capital light way. Most of the capital for our expansion in the Middle East is being provided by our sovereign wealth fund partner.

David, I actually – now focused on your question a second.

You’re back to NCM?

Yes, back to the NCM non-cash charge, really what’s going on there is when the company was formed years ago, there were some upfront payments that were collected by the forming partners, one of which was AMC of course. That money was deferred and amortized over the term of our ongoing agreements and financial in the media. Last year, the accountant said, you need to break out an interest component of that amortization. So, really nothing has changed whereas the amortization was formally in our expense category, a piece of it is now pulled down into interest expense. So, there’s really no substantial or change of substance there. It’s just a reclassification, and most importantly, it's a non-cash item. The cash was collected long ago. This is a non-cash charge that’s coming through.

Got it. Thank you very much.

Our next question comes from Meghan Durkin with Credit Suisse. Please proceed with your question.

Hi, good morning guys. I’m wondering if you had any very early learnings on the AMC on-demand product. And why do you think AMC can be successful in the VOD space given Walmart is exiting this business? And then, I wanted to dig into your comment around optimizing the box office versus competition. What are the levers you can pull there? And how can we have confidence that you’ll outperform the industry in 2020?

We’ll do the second question first. Why should we – why should we continue to outperform the competition? Because we've been outperforming the competition depending upon which method you’re looking at, three quarters in a row or six quarters in a row. And if you look at all of the marketing programs that we have, we’re just so out in front of the pack. Stubs, you know, it had 2.5 million member households three years ago. It’s going to hit 22 million and it wasn't growing either. We redesigned the program. Three years later, it could hit 22 million households this month. We used to communicate to our guests, you know, emails like 50 million to 100 million times a year, when I say used to, back when Stubs had 2.5 million member households. We’re not communicating to our guests by email, text, SMS, mobile push notations, about 1.5 billion times a year. About half of our total AMC clientele now is enrolled in our loyalty program, Stubs and we’re making it very easy for them to buy our products through our upgraded website and smartphone app. Under the old website, that was here when I got to AMC three years, 3.5 years back, we were being visited on the web or on a smartphone app just under 100 million times annually. Depending upon the volume per month, our website or our smartphone apps are being visited between 50 – a low of 50 million times a month and 90 – in a high of 90 million times a month. We should be pushing in 2020 somewhere between 750 million and 1 billion visits to our website and smartphone app. We’re all reserved seating, making it much more convenient for our guests. Our theater network is in better shape, more theaters having been renovated, more theaters having been installed with recliner seats. I could just go on and on, but it really is this – it’s what we’ve calling the AMC platform. It is working. You know, A-List is just doing phenomenally well and we’re just so out and far in front of our competition. By the way, it’s not easy in an industry that’s mature to move market share around, and we’ve had the biggest reported market share gain increase in the country. So, that’s what we’ve been doing, that’s what we’ll continue to do. We’ll continue to do it well. We’re constantly innovating and I believe that all that is going to cause us to continue to be out in front of our competition. As for AMC on-demand…

Yes.

…AMC theaters on-demand, you know, we've only been out two weeks. It’s a little early to give you any forecast over two weeks. We always thought that we would start out very slowly. We have very little cash invested in this thing. A few million dollars to program it. We’re not spending a lot of money marketing it. We don't quite think we’re going to scare iTunes or any other people in the space already, but here’s what we do think. It's somewhere between 50 million and 90 million people a month who are interested in movies, are already coming to the AMC website and are already coming to the AMC smartphone apps, and if we can make it really easy for them to rent or buy movies on-demand for home viewing, phone viewing, tablet viewing, you fish where the fish are, and since we’ve got so many people interested in movies already coming to us and exploring our website, we think that just by accident we’re going to see a substantial number of transactions on each of which we make a positive contribution over it. So, that's why we think we’ll be successful, and yet, we think the business will be very small, at least when we start and we’ll see how we build over the quarters and years ahead. But why not do it, it was easy for us to do, and we launched and we ask all of you, just – got to be Stubs are enrolled, but go to our website or go to our smartphone app, there used to be two buttons at the top of every page, in theaters and coming soon, there are now three buttons at the top of the page, in theaters, coming soon, and on demand. We think that what we’ve designed is a really attractive slick-looking guest interface. We look every bit as professional, as other major players in the space, and as I said, it cost us next to nothing to do it. We’ll see how much revenue and profit it winds up adding to the bottom line. Studios are – by the way, and lastly, and studios are very happy with us doing it because it's just one more player coming in and helping in the ecosystem of their home entertainment business. We already have great relationships with all of our major studio partners to the extent that we can do more things that make their lives better, making their lives better, ultimately makes our lives better in the long run.

Got it.

Our next question comes from Chad Beynon, Macquarie Group. Please proceed with your question.

Hi, guys, good morning. This is Aaron Lee on for Chad. Thanks for taking my question. First, you talked a little bit about Regal subscription plan, since Regal launched the program, have you noticed any attrition in the markets where you guys compete? And then, can you talk a little bit about what you’re seeing from a labor or a payroll standpoint in cities? And do you think that’s putting any pressure on your margin initiatives? Thanks.

On the first question, Regal’s unlimited program, no, we haven't seen any impact really. A-List is healthy, strong, resilient, profitable, you know, how many wonderful adjectives can I come up with to describe A-List. It’s driving great incrementality in movie going, it’s driving great incrementality in food and beverage spending. A-List members are bringing people along in full price. We think – we know we’ve got a very strong program on our hands. We also would note that while – we also note that we launched A-List at a time when other unmentionable people were out there. We thought we designed our program in a really smart way. We know that we’ve been managing our program in really smart ways over the past 18 months. There is a reason why we put in a limit of three movies per week in the A-List program, and in the Regal unlimited program, theirs is truly unlimited. So, if somebody wants to see 25 movies a month, they can. Honestly, when you’re only charging $20 a month, $22 a month, $24 a month, somebody wants to see 25 movies a month, we’re happy to give all those people to Regal, you know, every single one of them. But to answer your question, no, there's been no competitive impact on us, we’re strong and we’re healthy. As for labor and payroll, Craig may have more detail, but yes, there’s no doubt. We’re in a multi-year trend of political decisions being made to raise minimum wage all over the country. That is costing us money, but that’s one of the reasons why we’re looking so hard to drive savings, real savings through the profit improvement program, and I gave you several examples where we are really cutting costs and there are dozens and dozens more examples that I did laboriously take you through. But net, we’re ahead of the game when you look at cost reduction efforts against labor and payroll expansion efforts.

Yes, I’d say that the wage minimum, largely due to the minimum wage changes that Adam referenced was probably somewhere between 7% and 8% in the quarter. I think, on a go-forward basis, we would expect them to be around 5%. So, yes, we’re seeing it. Most notably, just not to repeat Adam, but I think his example of how we really took a hard look at show starts as an example of optimizing our operating envelope without sacrificing revenue because we still outperformed on a revenue basis. Even with some cost pressures, we managed our business smartly and we saw margin improvement, and I think that's really the answer. Yes, there was wage cost. We did the right things to manage our business under those circumstances and we still improved our profitability.

Okay, great. Thank you very much.

Our next question comes from Mike Hickey with The Benchmark Company. Please proceed with your question.

Hey, Adam, Craig, John, congrats on the quarter guys, and Craig you’ll definitely be missed, but best of luck. I guess just two questions, it looks like your A-List stock sort of held through the first price increase. I guess the price increase I guess with some late adopters the impact you would expect on the total sub, if you can continue to grow that? Or do you expect a mild decline? And then the second question on one of your partners, National CineMedia, you know, changed their deal with some of their founding partners, including Cinemark to allow ads post showtime, which I think is pretty common and international markets also, I think, happening with the competitor domestically, the Screenvision, and you guys were pretty vocal that that’s not something that you want to participate in, so I’m just sort of curious your thoughts there and why you decided not to do that?

Sure, so let’s talk about A-List first. Yes, it’s all good for A-List. We – the membership growth is way ahead of where we expect it to be at this point. I would expect that we would continue to grow our A-List membership. I don't think we’ve flattened out to a point where we’ll decline in membership, but I do think the growth going forward is going to be much slower than it was in the first, you know, six to nine months when we’re in a ramp up phase. You know, the price increase is a factor, competition is a factor. I think the biggest factor is just how big this market size is. When we launched the program back in June of 2018, I actually speculated that we – that if we got to 1 million members it would take us two full years, but that we might not ever get to 1 million members, provided size of the market at about 800,000 members for AMC. We’re already well ahead of that. I think we’ll continue to grow, but, you know, not at the exponential pace that we saw in the first nine months. As for NCM and advertising, there were two things that were in the NCM announcement. One is their showing ads five minutes after the official showtime start and the official showtime start is actually 20 minutes to 25 minutes ahead of when the movie actually begins because there's a big trailer package that shows in, you know, the 20-minute period prior to movie start. And a second issue, which is one to two trailers before the movie actually begins, call it 2.5 minutes to 4 minutes before a movie actually begins, they were to be inserting another 60 second ad right at the middle…

Thank you.

I might add, I’m convinced we’re going to make far more money from the sale of trailers to studios and the sale of tickets to films. By the way, we deploy our trailer time, we’ll make far more money from that than we would make if we accepted what NCM had offered us to show unrelated third-party advertising in that space.

Thank you. We have time for one more question and our question comes from Eric Handler with MKM Partners. Please proceed.

Good morning, and thanks for taking my question. Adam, you haven't really talked, excuse me, you haven't really talked much lately about the success of the re-seats in Europe and how those have fared? I think by now we’re sort of – a number of them have sort of anniversaried one year – the one-year mark, and wondering if you can just give us some color on how those are performing?

Thank you, Eric. The re-seats in Europe continue to be off the chart successful. We said on prior calls, we were seeing ROI returns of 50% or more, 70% or more. We’re seeing theatre revenues grew up in half. We’re seeing theater revenues double. There's no new news that makes us any less bullish on our investment in theatre amenity programs in Europe. You'll notice that even as we brought CapEx spending down, in total for the company, we’ve said it over and over again that we continue to see significant ROI opportunities, especially in our European and Middle Eastern theatres. I would expect we’ll do at least 15 theatres in the UK in 2020, for example, with full-blown theatre renovations including recliner seats. The whole investment thesis behind our buying Odeon in the first place, was to take a circuit with a strong brand name and great physical locations, but a fleet of theatres that were pretty run down, and invest significantly in improving the quality of those theatres bringing AMC style, proving guest initiatives over to Europe, that’s what we’ve done. We’ve got about 30 theatres done, we are going to add another 15 more next year and we’re off to the races. This has been a very successful initiative for AMC. It’s made us happy to have grown in Europe and it’s an all good news story. One that will continue, one that will continue in 2020 and beyond.

Great. Thank you. And just a quick follow-up with the U.K. market, it seems like you continue to have very rationale low pricing in the number of its markets, wondered how that’s been impacting you lately?

So, yes. One of our competitors has been pretty stupid, especially in the UK. We fortunately have been renovating theatres in the UK, so there has been no need to match their lowball pricing. As we've insulated ourselves somewhat by improving the quality of our theatres. There is a reason why we can charge a dramatic premium, you know when we launched Avengers: Endgame at the Odeon Leicester Square in London, we have variable seat pricing in commonly in Europe. We were charging $40 a seat to see Avengers: Endgame at the Odeon Leicester Square. And if you sat in the row box, which is on 24 seats, I think. 18 seats, I think, I don't know how big the row box is. We are talking $52 a seat to watch Avengers: Endgame at the Odeon Leicester Square. So, you can differentiate yourself via the quality of your theatres not just on price. But in others of our theatres, we got tired of them taking our pocket. So, if you look for example, our third quarter pricing internationally you will see that the price increase we picked up in the states, we did not pick up in Europe, but are getting down and dirty and slogging out with them, is one of the reasons why we are at 9.3% increase in attendance in Europe, and the end result of it was growing attendance, growing theatre admission revenues, growing EBTIDA, growing margins, so we think we got the formula right. Craig, you want to add?

Yes, I might add some context to – with a couple of data points. I think we mentioned, Adam mentioned on his call, his formal remarks at Europe, our industry was up a little over 13%. Our recliner segment of our circuit outperformed by a factor of three times that. So, that’s the – they are driving a lot of the growth we are seeing and there is, that’s clearly a portion of our circuit. I mean it is 25, almost 30 theatres. So, it’s not – it’s growing more important piece, it is the fastest growing and we’re certainly not forced or pushed to take price reductions there. In fact, we are optimizing our price because of the big demand that we are seeing on those remodeled reseated theatres. We are matching prices in some of our other theatres where it makes sense to us strategically to take some lower price, but certainly not on the remodeled piece.

Folks, we know that this is a big earnings season day. There are a lot of companies reporting. We want to let you get off the phone. Thank you for participating and joining with us today. And to sum it all up, AMC had a very strong quarter. We are extremely well-positioned. Looking ahead, we have every confidence in our future and hopefully you do to. Thanks much.

This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.