John C. Merriwether - AMC Entertainment Holdings, Inc. Adam M. Aron - AMC Entertainment Holdings, Inc. Craig R. Ramsey - AMC Entertainment Holdings, Inc..

David W. Miller - Loop Capital Markets LLC Barton E. Crockett - FBR Capital Markets & Co. Omar Sheikh - Credit Suisse Securities (USA) LLC Eric Wold - B. Riley & Co. LLC Christopher Philip Mittleman - Mittleman Investment Management LLC Chad Beynon - Macquarie Capital (USA), Inc..

Greetings and welcome to the AMC Entertainment Fourth Quarter and Year-End 2016 Conference Call. At this time, all participants are in a listen-only mode. An interactive question-and-answer session will follow formal presentation. As a reminder, this conference is being recorded. I'd like to turn the conference over to your host, Mr. John Merriwether.

Thank you. You may begin..

Thank you, Matt. Good afternoon, everyone. John Merriwether, Vice President, Investor Relations. I'd like to welcome you to AMC's fourth quarter and year-end 2016 earnings conference call.

Before we get started with our prepared remarks, I'd like to remind everyone that, as referenced in our press release issued earlier today, we have posted the CFO commentary about the fourth quarter and year ended on the Investor Relations page of our website at amctheatres.com.

Some of the comments made by management during this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Forward-looking statements are subject to risks, uncertainties and assumptions and are discussed in our public filings, including our most recent 10-K. Statements made throughout this presentation are based on current estimates of future events, and the company has no obligation to update or correct these estimates.

Listeners are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainty, and that actual results may differ materially as a result of these various factors.

In addition, comments made on this call may refer to certain measures such as adjusted EBITDA and adjusted EBITDA margin, which are not in accordance with GAAP. However, management believes these results more clearly reflect operating performance.

For a full reconciliation of our non-GAAP measures to GAAP results in accordance with Regulation G, please see our press release issued earlier today and furnished as an exhibit to our Form 8-K dated February 28, 2017, which is located in the Investor Relations area of our website.

After our prepared remarks, there will be a brief question-and-answer period. Joining me on the call today are Adam Aron, CEO and President; and Craig Ramsey, Chief Financial Officer. I'll now turn the call over to Adam..

Enhance, Engage and Expand. First, we continue to be the innovation leader in the movie theatre industry by enhancing the guest experience at our theatres. AMC is investing in innovation and participating in new technologies.

During 2016, we invested more than $420 million in upgrading our theaters, with our landlord partners picking up roughly 30% of the tab, or $125 million of the $420 million.

Recliner seat innovations and recliner seat renovations accounted for the majority of those investments, because nothing delivers more comfort to the guest, all the while generating unlevered cash-on-cash returns for us in excess of 25%.

At the end of 2015, a year back, including our dine-in theater locations, spot acquisitions, new builds, Dolby cinema and recliner renovations, AMC operated 1,235 recliner screens in 115 theaters, accounting for roughly 23% of the circuit.

By the end of 2016, one year later, including 20 Carmike recliner screens, we operated 1,918 screens, compared to 1,235 screens, with recliners in 183 theaters, compared to 115 theaters. That's a 55% growth in recliner screens, a 59% growth in AMC theaters offering recliners – those changes in just one year.

Recliners now represent 35% of the legacy AMC footprint. By legacy AMC footprint, meaning, before the 2016 acquisitions are included. And that's far more recliners than any other U.S. exhibitor. And we are just warming up.

As we told you, announcing the second quarter earnings, we are convinced that the prospect of recliners is great for our guests and for our shareholders.

We now plan to renovate an additional 122 theaters, and an additional 1,560 screens, just in 2017 and 2018, and as long as the financial returns stay as solid as they are now, we expect to continue a blistering pace of theater upgrades in 2019 and beyond.

Enhanced food and beverage offerings represent another AMC proven guest innovation, whether it's the imaginative layout of the concession area, with pick and pay convenience, unique hot food choices, or even the opportunity to enjoy a greater variety of soft drink flavors, and for the more hearty palate, an alcoholic beverage.

We're matching the comfort of our recliners with the convenience, variety and taste of food offerings and beverage offerings that are sure to delight.

With respect to food, we've already made significant progress at our dine-in theaters so now we are turning our attention as well to a general makeover that should literally redefine concession stand offerings at about 90% of our AMC branded theaters.

Rolling out nationally between May and August of this year, AMC theaters universally will offer more food choices that span the spectrum from indulgent to healthy. AMC will be going from one popcorn flavor to four, from one hot dog choice to five, from two doughy pizzas to four choices of stone-fired flatbread pizzas.

We're adding gourmet meat and cheese antipastos and seven choices of gluten-free snacks, up from none today. And these are just some of the improvements that are coming to concession stands at AMC.

Not only are we expanding choice and menu design, we're increasing the convenience with new pick and pay access online and in some of our theater locations expanding food and beverage delivery to seat. Our profit contribution margins on food and beverage exceed 85%.

It's no doubt that we are working hard and creatively to increase their consumer appeal so as to further increase our F&B sales above their now record levels. Another AMC innovation, Coca-Cola Freestyle, is now ubiquitous in place now at essentially all legacy AMC theaters.

With more than 100 different soft drink choices and free refills in their self-pour configurations, Coke Freestyle increases our guest satisfaction, it increases our sales, and it decreases our labor expense. That's a good combo. So we're introducing Coke Freestyle machines to every former Carmike theater as well.

We should be fully deployed and installed throughout the prior Carmike circuit with Coca-Cola Freestyle by mid-year 2017. The appeal for enjoying an adult beverage also appears universal and there are now more AMC theaters than ever before serving alcohol.

As of December 31, 2016, including former Carmike theaters, AMC had 244 locations serving alcohol. That's an 86% increase in locations compared to a year ago. Our MacGuffins Bars continue to be one of our most popular guest amenities and we expect to add at least 44 more locations worldwide in 2017.

We are on trend to open a new MacGuffins Bar just about almost every single week. Looking past seats and nourishment, pleasing moviegoers at AMC is ultimately about delivering the best in visual and audio quality, and nowhere is that experience better than in our premium large format offerings, the so-called PLFs.

Our guests simply love IMAX and Dolby Cinema at AMC and they are rewarding us on average a highly attractive 70%, that is seven-zero, 70% ticket price premium in return. AMC currently operates 194 IMAX screens and is the largest IMAX provider in the United States with 176 IMAX screens in the U.S. which is just under half of IMAX's total U.S.

deployments. Likewise, AMC is the largest Dolby Cinema operator in the U.S. having recently announced the opening of our 50th Dolby Cinema location in Roseville, Minnesota. During 2016 we announced expansion agreements with both IMAX and with Dolby. We'll be expanding the number of IMAX auditoriums in AMC's U.S.

theaters to 185 locations by the end of 2019 including renovations in the coming months at some of the highest grossing theaters in the country in New York City and Los Angeles. We also expect to grow Dolby Cinema's presence to more than 100 U.S. auditoriums at AMC by the end of 2017 and to more than 160 auditoriums by the end of 2018.

Millions of new guests will be wowed by the new laser technology, immersive sound system, and seating enhancements that we're deploying both at IMAX and Dolby locations. I have to tell you that both IMAX and Dolby Cinema are such fabulous companies to work with. They are such fabulous partners for AMC.

We expect to significantly expand each's presence not only in the United States, but also in Europe as well. We also can announce some of the details of our own new proprietary PLF offering that has been in development since mid-year 2016, which will be branded and marketed as Prime at AMC.

Prime is a mid-tier PLF auditorium and our first will open in March. That's March of 2017, next month. For our guests it will offer better seats, better sound, better projection, and larger screens than our traditional screen formats, and should offer AMC a ticket price premium that we won't have to share with a third-party partner.

It's likely to command a lesser price premium than IMAX or Dolby, but it also has a lower upfront investment cost as well.

Prime is designed to play in theaters side-by-side with IMAX and Dolby where demand is sufficient for multiple auditoriums, and to be the lead dog PLF in smaller theaters and in smaller market locations offering our guests a PLF experience, but without requiring of us the same high end PLF investment.

To ensure that our guests know about these amazing movie-going enhancements we turn to the second facet of our strategy, AMC is engaging moviegoers with world-class and industry-leading marketing activities that drive both growth and loyalty.

During the latter half of 2016 we revolutionized our already successful loyalty program, redesigning and relaunching AMC Stubs. AMC Stubs had been locked in with about 2.5 million member households but without meaningful growth in some three years. By contrast, membership in the redesigned AMC Stubs has simply exploded.

AMC Stubs membership has just recently crossed over the 6 million member household mark. Some 5.5 million of these households have purchased an AMC ticket in the past 12 months and all have had some interaction with us in the past 24 months.

With sign-up rates of a stunning 400,000 to 500,000 new member households continuing right now each month, we hope that we can reach 10 million member households in the AMC Stubs program and the AMC customer database some time in 2017.

With an average of roughly three to four family members per household our consumer database has already grown to approximately 20 million known moviegoers and should rise to 30 million to 40 million known moviegoers by later this year, to whom we are marketing one to two times each week to sway them to see a movie, the kind of movie that they individually prefer based on past purchases and to do so at an AMC theater.

I just cannot emphasize enough the value to our company of this consumer data and information. We intend to creatively mine this rapidly growing consumer database to increase sales and otherwise boost loyalty to AMC. Further evidence of our marketing prowess can be found in the relaunch of the AMC website and mobile apps on November 30.

This was not a small undertaking. It took terrific staff time and we invested $11 million in the process.

The new website and new apps are more visually rich and more robust in content and, importantly, improve the ease of use in making seat reservations and the convenience of purchasing tickets and food and beverage items online in advance, essentially converting intent into action.

For the fourth quarter online ticketing represented more than 31% of our total ticket sales. AMC's online presence has experienced phenomenal growth, seeing a 1,000 basis point increase compared to last year in the percentage of online tickets being sold through the website and apps.

More recent data indicates that AMC's mobile app ticket sales and AMC's website ticket sales are up even more. Just last week, movie tickets sold on the AMC website were up 93%, nine-three, 93%. And movie ticket sales from our smartphone apps were up some 77%, seven-seven, 77%, year-over-year. These results embolden us to do even more.

Activity is already underway to heighten our social media presence. We're also starting to test creative pricing concepts, and we have a raft of ideas for new marketing programs and new marketing activity that will be launched in 2017, that we are highly confident will take sway with consumers in AMC's direction.

This brings us to the third E of our strategy, Expand. One of my key priorities, clearly articulated right at the outset on day one of 2016, was to grow our company, both by accelerating the deployment of our proven strategic growth initiatives, as well as through acquisition.

It's been widely noted that AMC has truly been transformed as a company in this past year, and we're serving to transform our place in the entire industry too, through the acquisition of both Odeon and Carmike cinemas, both completed in the latter part of 2016.

And, by our setting in motion, yet again, a third growth opportunity, with Nordic Cinema Group. There's been a purpose and a discipline to our acquisition strategy with an obvious investment thesis behind each transaction.

In short, we're creating a much larger platform upon which to leverage our scale for growth to benefit our guests, associates and especially our shareholders.

The Odeon transaction was a once in a generation opportunity to make AMC the largest exhibitor in Europe, and the world, and it was done post-Brexit, with the pound at an enviable 30-year low versus the U.S. dollar.

We're able to acquire a circuit with a staid history, operating in some of the best locations in cities in the UK and Europe, but with many of those theaters themselves admittedly quite tired and in real need of AMC's theater renovation expertise, which we've done more than 100 times.

Planning to enhance the Odeon circuit began immediately in December, and we intend to deploy our proven AMC-style theater renovations, including recliner seats and PLFs and better food and drink, to many areas across the UK and Europe, that are not accustomed to the comfort and quality that are enjoyed here as the bedrock of what AMC stands for at our U.S.

theaters. As a result, we expect attendance to increase at Odeon theaters such that adjusted EBITDA could grow as much as 50% over the next four years to five years. I want to be clear, though, as we mentioned in the past, 2017 will be a transition year for Odeon and Carmike theaters.

There are startup and transition costs, additionally, since the recliner renovation deployments take on average 6 months to 12 months to complete and although we've already begun the lift from these investments won't be visible until very late in 2017 and well into 2018.

Having said all that, these are absolutely the right investments to make and we are very confident in their earnings power. The Carmike acquisition combined, as you know, the number two and four, number four circuits in the U.S. to create the largest exhibition circuit in the U.S.

Carmike offers AMC – excuse me one second – Carmike offers AMC complementary markets in suburban and rural regions of the country with little market overlap and gives AMC a truly national footprint. We will deploy some of our strategic growth initiatives at every Carmike theater and many will be renovated full-blown with recliner seating.

We have also identified $35 million of cost synergies which we believe will be substantially realized by the end of 2017. We've already begun the integration in earnest, converting point-of-sale systems and vendor contracts and commencing initiative deployments.

We've also reached conclusion and are very excited about our new branding strategies for AMC and Carmike, which I'm happy to comment upon more during our question-and-answer session on this call if it's of interest to you today. As anticipated, we're making solid progress on the required theater divestitures.

We expect to announce something publically in the coming months. It's still looking like 15 theaters, 20 theaters to be divested with immaterial, single-digit annual EBITDA loss to AMC.

We are also currently working well and constructively with both NCM and Screenvision to complete the logistics and timing to satisfy the requirements under the Department of Justice consent decree to sell down our NCM ownership stake and to transfer certain theaters to the Screenvision contract.

2016 was a busy year for AMC with respect to acquisition, and to that end, I would specifically like to go out of my way to call to your attention something noted in the CFO commentary.

2016 M&A costs include $10 million of transaction-related compensation consisting of special bonuses approved by AMC's Board of Directors paid in part to some two dozen members of the AMC management team in recognition of their successful efforts to put into place and to complete the acquisitions of Odeon and Carmike in 2016.

These bonuses were wholly unsolicited by the management. They were funded in 2017 by our largest shareholder, Dalian Wanda, and were recorded as a capital contribution in 2016. Naturally we are grateful. And in 2017 the acquisition momentum continues.

Our most recent announcement on January 23 to buy the Nordic Cinema Group doubles our country count in Europe from 7 countries to 14 countries. Nordic is an extremely well-run circuit and, unlike Odeon, is a theater network that is truly modern and up-to-date.

Nordic's market share is exceptional, exceeding 50% across the system and in three of its countries has a market share exceeding 75%. Nordic is a high-quality operator with attractive growth metrics and operating margins well above Odeon's and, for that matter, even above our own at the legacy AMC theaters.

With a seasoned management team and an attractive 10 theater new-build pipeline the existing Nordic footprint will be expanding, adding confidence to our view of Nordic's near-term earnings growth prospects. As you know, as part of the financing of both the Carmike and Nordic acquisitions we recently completed a successful equity offering.

We raised $640 million of equity prior to underwriter's fees by issuing approximately 20.3 million shares of Class A common stock at $31.50 per share. I believe in putting my money where my mouth is and with so much personal confidence in where AMC is headed I personally purchased $1 million worth of AMC stock as part of the recent AMC offering.

This is the third time in a year that I have bought AMC shares using personal funds. My belief in the future prospects for AMC extends all the way to my right back pants pocket where I keep my wallet. Last January AMC's public float was 21.6 million shares.

The average daily trading volume in AMC stock was about 300,000 shares and our market cap was less than $2 billion. Fast forward a little over a year. Our public float is up some 160%, far more than doubling to 55.7 million shares that liquidly can trade.

Our average daily volume since the offering, excluding that huge first day of trading right after the offering is 1.5 million shares and our market cap now exceeds $4 billion. At AMC we are highly cognizant that our charge is to smartly increase long-term shareholder value.

We clearly focused on that in 2016 and our focus on doing so continues in 2017 and beyond. In 2016, AMC took on the number one position in the U.S., the number one position in Europe and the number one position in our industry in the world. Our future looks bright in 2017 for AMC. And I, for one, think we're in for yet another record year.

Indeed, we have looked through the various securities analysts' reports that have been issued about AMC. And while we don't give traditional guidance per se, we can say that, putting aside outliers, all the reports out there seem to be in the right ballpark, with respect to the revenue and earnings potential for AMC this year.

As always, we thank you for listening this afternoon. Craig Ramsey and I look forward to taking your questions. Operator, to you..

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from David Miller from Loop Capital. Please go ahead..

Yes, hey, guys, congratulations on the stellar results, and on the year, and on all the deals. Adam, if I recall, on your December 20 call, which was the call sort of announcing the closure of the Carmike and Odeon deals, you had talked about a 60-day window with regard to getting those divestitures done, as per DOJ decree.

I think, it was the 15 to 20 theaters, as per DOJ decree, so we're well beyond the 60-day window. Any commentary on that? And then, I have a follow-up, thanks..

Sure. The Justice, if you actually read the consent decree, the Department of Justice gave itself the right to extend the 60-day deadline by another 60 days. And we're in active dialogue with DOJ. We're in very good shape with respect to these divestitures. They will happen.

In our view, they will happen within the timeframe originally conceived in the consent decree..

Okay. Great. And then Craig, I saw the CapEx guidance vis-a-vis the 8-K, the $700 million to $750 million. Just sticking that into my models here, it looks like that would spit out a net cash use number in Q1, followed by free cash flow generation thereafter. Would that be correct? Or are you willing to give that kind granularity? Appreciate it. Thanks..

David, David, before he answers, I'm sure glad you didn't ask that question of me. All I want to say..

Both of you could chime in..

Good. I'll rely on his help as needed. That's probably right. I don't have it necessarily by quarter in front of me.

The thing I would ask you to think about and it's how I think about our CapEx in both 2017 and 2018, is that we will be monetizing some of our National CineMedia stock ownership and we're thinking of some of this CapEx spend, the guidance that we've given for 2017, as actually reinvesting some of those proceeds.

So I'd have – I'd think of it that way as I think about the free cash flow look and characteristics of 2017..

Okay. Wonderful. Thank you very much..

Thank you, David..

Our next question comes from Barton Crockett from FBR Capital Markets. Please go ahead..

Okay. Great. Thanks for taking the question. First, with all of the merger stuff, I know we'll stop asking about this relatively soon, but can you give us a sense of on a per-screen basis for the legacy AMC, what was your box office per screen trend? Was it comparable to the industry or something meaningfully different? That's first.

And then second, there's been this, I guess, reviving of talk about premium VOD windows and suggestions that AMC is perhaps interested in working with some studios on stuff.

Could you talk about the probability in your mind that something happens that's in any way impactful for the industry?.

I'll do the first one, Barton. It's Craig. For the quarter as I look at the industry on an admissions per screen basis, I think, it's down about 5.5%.

If you peel back all of the acquisition activity, including the Starplex that affected the last month of 2015 and all of 2016, if you pull all that back and kind of look at the core circuit that performed those two years, just kind of the same-store look, we were – actually we outperformed slightly in – for the quarter, we were about 50 basis points better than the industry.

And we were right on top of the industry for the calendar year..

With respect to windows, so this is one of the topics that the press has reported both accurately and inaccurately at the same time. They've reported accurately that there are several studios and some third-party players who have floated, are floating, proposals to alter the historic window where theaters have had 75 days to 90 days of exclusivity.

What has not been reported, or at least not widely, is that in all cases, the entities that have been considering those windows changes have been talking about sharing home rental revenue with theaters. And I've already been on this topic for 14 months with multiple players.

And it was widely reported back last spring when Screening Room was first kicking around publicly, that AMC was intrigued by all this.

And the reason we're intrigued by all this is if this is done right and this is done intelligently and our revenue share is significant enough, we believe that we have the opportunity to grow and increase AMC revenues as a result of this activity. And others have portrayed this as a big risk or grave risk. And we think just the opposite.

If we do this right, this is a chance to expand the reach of the domestic box office in that first 90 day period beyond its current $11.4 billion. And we could get paid handsomely in the process. Such that we would enjoy a revenue stream if somebody watches a movie in our theater or if they watch at home.

Now is it imminent? There's no real way of knowing because there are so many proposals floating around, people having different views. A consensus is going to need to emerge for this not to be a one-company, one-studio deal, but more of an industry-wide effort, which I believe was the thrust of your question.

And I could see something happening months from now. I could see us going 14 more months and making no more progress than we made in the last 14 months. So we'll see how the discussions unfold.

But the thing I want to point out to all of you is it's our view that this can be quite additive and productive for AMC, and for movie theaters as a whole across our industry, if the proposals that are taken to market resonate with consumers and if we're compensated fairly in the process..

That's all very helpful. If I could just ask one other question. You talked about using some of the proceeds from selling NCM shares to fund the CapEx. It's important then that you actually get a good price for the NCM shares that you'll have to sell.

I think there's a lot of concern that, that might not be very doable with the amount of shares that you have to bleed out and the float there.

Can you talk about your confidence, your ability to exit those stakes, without killing the share price in the process?.

I'll do my best. First of all, we don't have the definitive number of shares. As Adam alluded to in his remarks, we're in the process of constructing negotiations with National CineMedia. So I'm talking about a bit of a moving target right now.

But putting that aside for a minute, we were thoughtful as we talked to the Department of Justice, and had our back and forth, and settled on 30 months.

And we did that, because we had done some research, and we talked with some of our bankers and other consultants about what might be a reasonable amount of time to move a large block of equity in that company. And so, we do believe it's possible.

In fact, we do believe that the early sales, by building the float of the company, and expanding the ownership, actually could lead to better marketing in the latter half of the 30-month period. So we will be thoughtful. We will have an orchestrated plan. We fully expect to co-operate with National CineMedia.

It does give them an opportunity to expand the float of their company, and improve the trading dynamic in a way similar to that Adam just discussed we experienced, and so, we do think it can be done. And we will thoughtful and prudent in how we go about it..

Great. Thanks for the color..

Our next question comes from Omar Sheikh from Credit Suisse. Please go ahead..

Thanks. Good evening, everyone. Just a couple of questions. Adam, maybe if I could start with the comments you made about Odeon/UCI. Since you completed the acquisition, I wonder whether you could just update us on your thoughts on how you think about those opportunities. And I think that you highlighted when you first acquired it.

And you mentioned in your prepared remarks that you thought that the EBITDA growth that you can see over the next few years could be 50%. I wonder whether you could just tell us what the full year annualized 2016 base for that 50% number should be, just to give us some help in thinking about the growth over the next few years.

And second question is just, perhaps, for Craig. There was just – again, in line with some of your peers, there was some income you recognized as a cash distribution from joint ventures in your adjusted EBITDA. I wonder if you could just give us some color on what that was for, and whether you expect anything more in 2017. Thanks..

Well, let me take the first two and I'll let Craig do the third. In our July press release, I think we're pretty comprehensive about the base level of EBITDA that was inherent in the Odeon network using UK GAAP before we translated to U.S. GAAP. And that's what we think we can grow by 50% and we said we could grow it 50% over four years.

We still think we can do that. The reason that we think we can do that is that those Odeon theaters are in great locations in London and elsewhere, but boy, some of those theaters are tired. Not all. They've got a lot of nice theaters, but they – more than half need enhancement and upgrade.

If there's one thing that AMC knows how to do it's renovate theaters. And at the first 100 theaters that we renovated we saw a, on average, a 53% increase in attendance within a year. And that 53% increase in attendance translated to a 70% increase in theater revenue and you can imagine that EBITDA went through the roof at those theaters as a result.

And that's what we're going to bring to Europe. We're going to renovate some of these tired Odeon theaters and put in recliner seats and put in better food and put in better lobbies. We're going to take IMAX to Europe. They're already there, of course, but in larger size than they are now. We're going to take Dolby Cinema to Europe.

They're already there, but we're going to take them in larger size than they are now. And as we do this and make the product significantly better for European consumers, we have every confidence that market share will move to Odeon in a big way, attendance will rise, revenues and profit will rise. So that's the plan.

As to your third question, Craig?.

As we were thinking about the 50% growth we were actually thinking about it in pound sterling and not adjusted for currency so that's how I'll give it to you. We think the base level was about £85 million to £90 million in the 2016 year for Odeon on a pound sterling basis.

Your next question related to cash distributions that would be reflected in our total EBITDA. In 2016 they aggregated $40 million.

That included NCM, some joint venture entities and, actually, a larger than prior-year distribution from digital cinema implementation partners that was most of the increase from $34 million in total last year, $40 million this year. It's discretionary, but we'd expect it to continue.

That business has operated very much in accordance with their financing model. And so we would expect there to be continuing cash for distribution. But that'll depend upon the management team and the board of that particular company to finalize that and authorize it for next year. But at this point in time, we would expect it..

Okay. That's clear. Sorry. Just if I could just squeeze in one follow-up on Odeon. Adam, I think you mentioned some start-up reorganization costs in 2017. I wonder whether you could maybe quantify those..

Did we? I don't know that we did. I thought we took those – made those changes in 2016..

I didn't hear the question..

What was your question again, please?.

Sorry. There was I think in, Adam, your prepared remarks you mentioned some reorganization or....

No..

Renovation, not reorganization, I beg your pardon, renovation costs in Odeon in 2017. I don't know whether I misheard that or whether there was a number associated with that..

We didn't – no, okay. I thought you said reorganization costs which would imply changes to personnel. What we said was we're going to start renovating theaters. And you can assume that on average a theater renovation is $3 million to $5 million before landlord contribution. There will be some theaters that are less.

There will be some theaters that are more. And sometimes a lot more. Over time I think we're going to be renovating between 50 and 100 of the Odeon theaters in the UK. But I think just a handful of theaters are going to get done soup to nuts in 2017. That where you're going to see most of these renovations start taking place is 2018 and 2019.

So we did not put a number associated with it. But you can use the $3 million to $5 million a theater in a handful of theaters..

And we did, it is included in the CapEx guidance that we've put out there for 2017. And we're not – we never have really disaggregated that into the parts and pieces. So it's in that total..

Okay. Brilliant. That's very clear. Thank you very much..

Our next question comes from Eric Wold from B. Riley & Company. Please go ahead..

Thank you. Good afternoon, guys. Couple of questions, or two questions. One on the remodels, you talked about the benefits you're seeing from the remodels vis-à-vis attendance lift and box office lift.

Can you give a sense of the relative performance of the theaters that have not been reseated or given enhanced food and beverage, so I can get a sense of the potential level of drag those theaters are having on kind of the overall average? And then secondly, including the equity offering earlier this month, assuming Nordic transaction is completed, the planned CapEx, landlord contributions, required NCMI stock, all that (47:07), can you give a sense of where you think leverage ratio could end up at the end of 2017 versus where it was at the end of 2016?.

So I'll let Craig do the leverage. On the first question, what's the difference between the renovated theaters and non-renovated theaters, it's interesting. Many of you have asked this on prior calls. Well, when you renovate theaters, okay, you get a big pop. Does it sort of then like disappear? And the answer is no.

Once we get our big pop, and that tends to institutionalize the renovated theaters doing really well and they stay up there at the renovated – at the elevated level of performance.

Where we're exposed and where I believe our competitor is exposed, is that our renovated theaters – whether they were renovated three months ago or 24 months ago – our renovated theaters as a class are doing extremely well with significant double-digit revenue growth that would kind of blow your mind if we shared that number with you.

But the non-renovated theaters are growing at single-digit growth which kind of blows our mind, because we're the same company, which shows us the power of recliner seats.

So our conclusion is the faster we can renovate theaters, the better off we are, moving theaters from that low-growth metric year-over-year to the high-growth metric year-over-year.

And that's why we've said we're going to renovate another 122 of our theaters this year and next, which is a huge percentage increase of the – call it the 390-theater legacy AMC circuit. And then, I only gave you the 2017 and 2018 numbers; the renovations are going to continue in 2019.

And you'll start to see Carmike Cinemas getting renovated in 2018, but that's probably an 2018, 2019 and – or 2018 and 2019 – or 2018, 2019, 2020 renovation plan. So there's no doubt that renovated theaters are just killing in the marketplace.

Consumers are voting with their feet, and our way to handle that is to have more theaters that are renovated than anybody else, and it'll be by a country mile. We already have a big lead over any other large circuit in terms of renovation. And our plans for 2017 and 2018 are more aggressive than anybody else as well..

So on the leverage question, Eric, I think if you went back and kind of did the math after the Odeon, Carmike transactions and kind of a pro forma basis you'd have leverage at about 4.6, maybe 4.7 times, somewhere in that range.

With the proceeds from the equity offering and the pay down of that bridge and we've put some cash on the balance sheet that we'll utilize in Nordic, the leverage drops to right around four times.

So then roll forward and complete the Nordic financing and the Nordic transactions sometimes here in early 2017 and your leverage goes back up, you've already got the equity taking the leverage down to four times. It's going to go back up to probably the 4.5, 4.6 range. So that gets you kind of into the first half of 2017.

Your question before you look like at the end of 2017, I think you start seeing that coming down by the end of 2017 as you earn more of the synergies and start to realize some of the benefit. It's going to come down to 4.5, maybe 4.4.

So it's not going to drop dramatically but what we do see is visibility to further deleveraging at the end of 2017 and then at the end of 2018 down into the lower four times and as you get further out you can see it dropping below four times again..

Thanks, Craig. Hey, guys. That's helpful..

Our next question comes from Chris Mittleman from Mittleman Brothers. Please go ahead..

Hi, guys..

Chris, before you do, I'm delighted to hear your voice on this call..

Oh, thanks. Thank you..

And I mean that sincerely.

What's your question?.

Thank you very much. Yeah, we did hold on to our AMC shares and we're very happy with the results. So thank you. I just wanted to ask about maintenance CapEx. I know you guys don't break it out specifically but I see you said that more than half of the $297 million of CapEx spent in 2016 was recliner renovations.

I'm just wondering if you would give us the maintenance CapEx number just so I can get a sense of what it is on a percentage of sales basis?.

If you look at and this would – I'd include the technology spend in the number, Chris..

Okay..

And it runs below $100 million. I think it's probably in the $60 million to $70 million range..

Okay..

And the reason – the other point I want to make about it is that a lot, quite a bit of the maintenance gets done as part of these remodels..

I see. So there's an overlap, yeah..

Yeah. And so there's some maintenance spend. You might think, well that's a fairly low maintenance spend, and it is, because there is maintenance that's being taken care of in the remodels..

Okay. All right..

Hey, Chris. Since, you know more about Carmike than just about anybody on this call, why don't I pretend that you also asked me the question, what are we going to do with Carmike branding? Because I'm dying to share it with you all.

Is that okay?.

Yes. I forgot, you guys were going to come up with the new name, so that would be interesting..

We did. So here's where we go. This is not yet announced by press release, although we've told people inside our company, and I don't know how well – when you tell 1,000 people I don't know how well it'll be kept as a state secret. So we're comfortable in sharing with you on this call.

We are going to essentially move AMC from a one brand company to a two-brand company with two major brands. And then we're going to have a sub-brand underneath that essentially will turn us into three brands, depending upon how you look at the size of the brand.

We are going to retire the Carmike name, because we think that the AMC name is more powerful in the marketplace than the Carmike name. And ironically, many of the Carmike theaters were not even branded as Carmike.

They either were generically branded, there was some theaters called Cinema 6, and there were other theaters that were still carrying the brand names of companies that they had acquired, and they had not chosen to even put their own brand on the house, so to speak.

So the two major brands we're going to have are AMC which the brand that we have today. AMC Theaters and AMC Classic – AMC Classic Theaters. The Classic Theaters will go to the smaller theaters, the smaller markets, the less visited theaters.

We're still going to offer what we believe will be a very competitive movie-going experience in those markets, because those markets are not necessarily used to seeing the kind of full-blown recliner renovations that we see in some of our more larger theaters and larger urban markets.

There is going to be a lot of interplay between theaters that were Carmike and theaters that were AMC in terms of which brand they go to. So we are going to move some of the smaller AMC theaters to be AMC Classic. We are going to move some of the theaters that have lower price points to AMC Classic.

We're going to take some of the larger Carmike theaters that have this capability of having a full-blown AMC style renovation with recliner seats, and IMAX and Dolby screens and the whole bit. And we're going to rebrand them as AMC Theaters.

We believe that each of the two brands will stand for quality and that we believe that each of the two brands will have innovations in it, so that people going to AMC Classic will be glad that AMC bought their theater, the Coke Freestyle machine is a classic example of what we'll be putting into the AMC Classic theaters that were not necessarily in the Carmike theaters before.

Then I said there is a sub brand or a third brand, and that's AMC Dine-In Theaters. Between the AMC and Carmike circuits, we have over 50 theaters that are full blown restaurant theaters with kitchens. And so we're going to rename all those theaters AMC Dine-In Theaters, and that essentially will be a third brand.

We're very excited about this for two reasons. Other than the AMC brand is a stronger brand than the Carmike brand, and we believe that we will benefit.

We also believe that since we're going to offer AMC Stubs membership to customers of both brands, the AMC brand and the AMC Classic brand, that having the AMC name and the AMC brand will help us in growing our customer database and help us in growing our consumer information.

But the two things that are I think particularly interesting about this strategy, number one, we can better marry guest expectations with the experience that we can afford to deliver.

And just like Marriott has Marriott Hotels and Courtyard by Marriott Hotels, we're going to have AMC Theaters and AMC Classic Theaters, and we think given that we'll have a substantial quantity in each brand that over time consumers will know what to expect at an AMC Theater and what to expect at an AMC Classic Theater.

The second reason we think this is so important is at some of the AMC – at some of the Carmike theaters, because the visitation was small, the margins were thin, and therefore it's really important to maintain the cost structure and the operating discipline to continue to run those theaters with a keen eye on cost management.

And if left to our own devices, and if we just renamed all these theaters AMC, not only did we have consumer confusion as to what level of guest amenities they could find at a theater, but also I can already hear the middle management of our company saying, well, you know if it's an AMC Theater we've got to do it the AMC way, and that drives extra cost.

Now if you've got 2 million visits at a theater, that extra cost is actually wise to spend because the returns on the investment, whether that's CapEx type investment or labor investment, that's well and handsomely rewarded.

But you can't run a higher cost structure at a low-margin theater that demands very tight and strict cost controls as part of the management strategy. So having this second brand puts an automatic break internally within AMC that just because it says AMC on the outside of the building, which it will say on all the buildings.

We're putting AMC signs up on all 650 of our theaters. We'll manage the AMC Classic theaters differently. We're going to keep a really tight eye on costs and maintaining the integrity of the cost structure of the AMC Classic Theaters. And having a second brand just gives everybody around here pause that essentially we can have two brand standards.

I used Marriott as an example before. Marriott runs Ritz-Carlton Hotels and Marriott runs Courtyard by Marriott Hotels. The guests at both of those chains are very satisfied. They're run with very different cost structures and revenue structures, and having this multiple-brand strategy will put us in a position to operate similarly..

Great..

Thank you. Our next question is from Chad Beynon from Macquarie. Please go ahead..

All right. Great. Thanks for taking my questions. Just wanted to focus on Prime. You mentioned earlier that there's a nice opportunity for your proprietary product to kind of fit in below IMAX or Dolby and you mentioned that IMAX screens command a 70% price premium.

Could you kind of outline your view on Prime? Is that an opportunity to drive attendance? Drive pricing? Or really just have your own product that doesn't pay someone else a piece of the profits there? And maybe just outline the white space for what that opportunity could be. Thanks..

Sure. Chad, the answer to your question is yes, yes, and yes. So we believe that a Prime auditorium can be outfitted at between 25% and 50% of the costs of an IMAX or Dolby Cinema auditorium. So we start with that.

And when I say 25% or 50% it's because Prime at AMC Classic Theaters will be different than Prime at AMC Theaters and we will, instead of putting in full recliner seats, for example, we've got to put in what we call plush rocker seats which are much more comfortable and spacious than existing traditional movie theater seating, and will be the most comfortable chair in that AMC Classic Theater.

But it doesn't necessarily represent full-blown power chair recliner characteristics. The – so we're going to put it in at much less cost than what we would spend collectively with our IMAX and Dolby partners to put in the higher end feel. So that's kind of point one. Point two.

If you look at the design of a lot of multiplex cinemas, you're going to find out that the two center screens are quite large. The next two screens that flank the two center screens are medium sized. And then, all the other screens in the theater are regular sized.

And what we've been doing heretofore is we've just been programming movies to go into the medium-sized theaters, or should I say, medium-sized auditoriums, kind of willy-nilly, based on the number of seats and which movie might fit best there.

The consumer had no way of knowing whether they were getting a regular size screen, or a mid-size screen, even though the screen is probably double in size. And the asset is already sitting right there as a larger screen.

And by investing in better seats, investing in better sight and sound technology, we'll probably make the screen larger even still than it is now, because instead of framing the current screen with skirting, we can go wall to wall and floor to ceiling.

We're clearly going to give the consumer a better experience than the average of our auditoriums today. But it's not going to be to the full-blown degree of IMAX or Dolby. So whereas, we get a 70% price premium from IMAX and Dolby, who knows, we'll find out when we launch. But maybe we'll get a 20% price premium, or a 30% price premium, at Prime.

But realize, we keep it all, because when we give a significant double-digit percentage of our gross revenues to IMAX or Dolby, remember, the studios are taking slightly more than half. And if we give in the teens to somebody else, that's eating out a big percentage of what we have after film rent splits.

So by being able – even though the price premium will be less than Dolby and IMAX, getting to keep it all is quite valuable to us. The other sort of factor in all that – but, well, before I do, we do think that Prime is going to drive greater attendance and greater price than just a regular 2-D auditorium.

But another factor of all this is these prime locations are going to go into theaters, either as the third and/or fourth PLFs in a theater that already has one or two PLFs, or it's going to be the only PLF in a much smaller AMC Classic Theater where this'll be the best product in the marketplace.

So we do think it's compelling to consumers, but if we didn't have it, I think that IMAX or Dolby would be hard pressed to put its product on this medium-sized screen and they may not want to put an additional two – they and we combined may not want to put an additional multi-million dollar investment as an added screen in that location, nor as we start to go to some of the AMC Classic Theaters where they think that returns are high enough to put in the high-end PLF at all.

So this is something that allows us to extend the notion of the big screen, which is drawing consumers both in attendance and in price tag, to more and more places throughout the AMC system. And if you look at AMC in January of 2016, we had about 160 PLF auditoriums.

If you look at us at 2019, if Prime is a success, we'll have 500 of these things, which is an enormous – there was a conversation, there was a discussion earlier about windows and people going to theaters and watching at home and – it'd be nice if they're watching at home that we get paid for it but the best thing we can do to make sure that they want to come to theaters is make our theaters spectacular.

And we're doing that with seating and we're doing that with PLFs and we're doing that with food and beverage, but this whole notion of having mid-tier PLF we think is a very big idea for AMC.

And I'm not going to commit that we're going to have 100 or 200 until we know whether the first 5 or 10 are profitable, but if it works, we'll blow it out because this is an idea that on paper sure sounds good..

Okay. Thanks.

And then my follow-up, just a quick one, the $35 million of cost synergies in the Carmike acquisition, is that $35 million in 2017 implemented or recognized by the end of the year?.

It's run rate. So....

Run rate. Okay..

I think we'll have the full $35 million in hand by the end of the year. We have a huge percentage of it in hand already. But I think you can rely on all $35 million of it showing up in 2018 and a significant percentage of it showing up in 2017..

Okay. Thank you very much..

Thank you. We have no further questions at this time. I'd like to turn the floor back over to management for any closing comments..

Thank you, all. Lots of good movies coming out in 2017. We would be delighted to see you at the movies. And I'll end with one last comment. We intend to do a much better job in 2017 in talking to you all and potential institutional investors in AMC.

Now that our stock float has moved from 20 million shares to 55 million shares, there's a lot of ability for people to get in to the AMC story if they want to.

So we are going to be scheduling at least four investor days between now and year-end – one in New York, one in Boston, one in Chicago, one on the West Coast – where we'll be able to tell the AMC in person probably at an AMC Theater, maybe recliner seat equipped, maybe with an IMAX or Dolby screen, with better concession food, with a bar, and we hope to see you and many of your clients at those sessions throughout the year.

Thank you, all, for joining us today..

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