AMC Entertainment Holdings, Inc.
Q3 2016 Earnings Call Transcript

Published: 8 Nov 2016

[Operator:]

Greetings and welcome to the AMC Entertainment Third Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Merriwether, Vice President, Investor Relations. Thank you. You may begin.

[John C. Merriwether:]

Thank you, Jessie, and good afternoon, everyone. I'd like to welcome you to AMC's third quarter 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 third quarter and the nine months ended September 30, 2016 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, adjusted EBITDA margin, adjusted free cash flow, and adjusted diluted earnings per share, which are not in accordance with GAAP. However, management believes these results more clearly reflect 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 November 7, 2016, which is located on our Investor Relations area of our website. Please note that the following communication is not an offer to sell or solicitation to offer or buy any securities or solicitation of any votes or approval. We urge investors and security holders to read the Registration Statement on Form S-4, including the definitive joint Proxy Statement/Prospectus and all other relevant documents filed with the SEC or sent to stockholders as they become available. After our prepared remarks, there will be a brief question-and-answer session. Joining me on the call today are Adam Aron, CEO and President, and Craig Ramsey, Chief Financial Officer. I'll now turn the call over to Adam.

[Adam M. Aron:]

Thank you, John, and good afternoon, everyone. This past summer and the year-to-date period are proving once again that the movie exhibition industry is a healthy one and that AMC Entertainment is a stellar performer. After a record 2015 box office, some speculated that 2016 could be a difficult year. They have been wrong. While Star Wars will make for a challenging fourth quarter comp, the very real potential exists that 2016 may exceed last year and represent, yet again, another record box office year domestically in the U.S. and Canada for the movies. That would make it the fifth record box office of the past six years. Year-to-date, as of November 3, the industry box office was ahead of last year by about 3%, and those figures do not include the impact of Doctor Strange that opened doctor strong not Doctor Strange over the weekend. When we look at the movie slate for 2017 and 2018, we are even more convinced in our belief that this is a great time to be in the movie industry. That is intentionally a very quick review of our industry strength, because I would much prefer to turn more specifically to AMC Entertainment. As an innovator and a company committed to being the industry's leader, it's a great time to be AMC. I took on the helm of AMC, as you know, just 10 months ago, and then we embarked on a new journey to grow this company and armed it with a set of key priorities and we are doing just that. The speed at which we moved to position our company for success has been widely noted. We're accelerating our investments in the theatres of AMC. We've just focused amenities that make movie-going at AMC an incomparable experience among the mass operators. Our marketing activity has really stepped up its game to world-class levels. Meanwhile, we are simultaneously seeking to boldly expand our footprint both domestically and internationally. Our expansion in the U.S. and Europe isn't just about acquiring more theatres, it's more about connecting with our guests and creating comfortable, even luxurious experiences at our theatres, both in the U.S. and abroad that translate into additional box office attendance, additional revenue and additional profit. In 2017 and beyond, literally, hundreds of millions of new AMC moviegoers will benefit from our investment in the deployment of our proven innovative guest amenities. As we prepare for a busy finish to 2016 and an exciting start to 2017, let's recap AMC's strong third quarter results. Then, I'll provide an update on the progress we're making on our key priorities and how we believe they position us for even more future growth ahead. In Q3, AMC set third quarter records for every revenue segment including attendance, average ticket price, and food and beverage per patron, as well as records for adjusted EBITDA, adjusted EBITDA margin, adjusted free cash flow, food and beverage gross profit per patron and total gross profit per patron. All told, third quarter total revenues increased 13.2% to nearly $780 million. Adjusted EBITDA grew 32.5% to a record $144.4 million and diluted EPS increased 158.3% to $0.31 per share, exceeding all consensus estimates for adjusted EBITDA and diluted EPS. While our adjusted EBITDA and diluted EPS handily exceeded last year and current expectations, our revenue growth, while in process, warrants a closer look. And I'll point out a couple of factors that affected our year-over-year AMC and industry comparisons. Before I do, I must point out though to all that we do not manage our company only for short-term revenue growth, profitability is what we're in business to deliver, and we certainly delivered profitability in Q3 of 2016. While revenues achieved record levels, they could've been higher still versus our competitors year-over-year, but for three factors. First

[Operator:]

Thank you. Our first question is coming from the line of Eric Handler with MKM Partners. Please proceed with your question.

[Eric O. Handler:]

Yes. Thanks for taking my questions. Two questions for you. First, Adam, one thing you have talked in the past about is you have, I believe, you have a marketing person in charge of pricing and wondered if you had any updates along those lines? Secondly, just curious about the Starplex acquisition. Given what you're trying to do with the improvements at your theatres with the receipts and all the higher end amenities, does it make sense to still have second run theatres with Starplex? Yes, they may be profitable but is that the image you want to portray? And then I just wondered if you could talk a little bit with regards to Starplex, have you thus far gone forward with any re-seating of those theatres and how has that gone in the smaller markets?

[Adam M. Aron:]

Okay. So in the middle of the Department of Justice review our Carmike acquisition, I'm not going to spend any time talking about pricing, other than to say that the person we hired to be our Vice President in Pricing is very smart, and we'll be looking at optimizing pricing to generate revenues, which while it could mean prices may go up in some places, it may cause pricing to go down in other places, always designed to charge the right price for the right guest. In terms of Starplex, as long as the theatre is profitable, better have it than not to have it. But we think we've come up with a pretty intelligent way to run AMC going forward, especially in light of the Carmike acquisition. We said previously that we're going to run AMC with two brands, and that some of our lower visitation, lower price theatres will find themselves in a second brand so that we can better marry customer expectations to the actual product that we offer. And I think you might see that a lot of the Starplex theatres may be going into the brand in which a lot of the Carmike theatres are today, the theatres that have smaller visitation, charge lower prices, and again, we marry customer expectations to reality. And if those theatres are profitable, while they will have lower profits and they'll have lower margins, profits are profits. And we manage the business for profits. And by having the second brand, they don't bring down the mothership AMC brand and we can target our renovations and huge capital investments in the AMC brand. Now, even though I said a lot of Carmike theatres are going to go into the second brand, a lot of Carmike theatres are going to move up into the AMC mothership brand, and so we expect to be pouring literally hundreds of millions of dollars into the Carmike, into some of the Carmike theatres as they come into the AMC brand because we think we'll be able to drive huge increases in amenities, customer-pleasing amenities, across the Carmike system, and that's good for moviegoers. And we think the Carmike acquisition is a transaction that is designed to make movie-going better for moviegoers at Carmike theatres. I also don't want to give you the impression that customers will be dissatisfied with the so-called second brand, because we're also putting guest amenities into the second brand that moviegoers at Carmike do not enjoy across the board today. For example, we've talked about Coca-Cola Freestyle machines with self-pour, free refills, and 100 different flavor choices. We're going to put Coke Freestyle machines in a 100% of the Carmike theatres by the end of June of 2017, Q2 2017, whether those Carmike theatres are going into the AMC brand or they're staying in the so-called second brand. So we're improving movie-going, and of course, all the Starplex Theatres already have, and all the AMC Theatres already have Carmike – have Coke machines by December 2016. So we're improving movie-going at the second brand, we're improving movie-going at the mothership brand. And the answer to your specific question is, no, we have not put recliners yet in any of the Starplex Theatres.

[Craig R. Ramsey:]

But I would add just, we have not, at any of the Starplex Theatres. We have re-seated some smaller market theatres. We're not just focused on the large markets. So we'll often times find that it's probably not as much of an investment because I think Adam's referenced before, the lift may not be as great, so we have to right size the capital investment. But we have, on a very profitable basis, and from a return perspective, already re-seated some smaller market theatres.

[Eric O. Handler:]

All right. Thank you very much.

[Operator:]

Thank you. The next question is coming from the line of Ben Mogil from Stifel. Please proceed with your question.

[Benjamin Mogil:]

Hi. Good afternoon, and thanks for taking my question. So sort of two; on the renovated front, when you're looking at the new re-seating opportunities or new venues to – or venues that are going to be renovated for the first time. Are you targeting zones which no operator has touched? Or are you targeting zones where an incumbent has already made investments and you still feel it's worthwhile to make investments on your front?

[Adam M. Aron:]

The answer is a very simple word, both. Because where we renovate where no one else renovate, we increase market share. And where we renovate where others have renovated against us already, we regain some of the market share that they may have taken from us. But in any case, we're looking carefully at the investments and we're targeting those theatres where we think we can get a 25% plus on levered cash-on-cash return.

[Benjamin Mogil:]

And is 25% still your threshold effectively?

[Adam M. Aron:]

It is. It is.

[Craig R. Ramsey:]

Yeah. I'd add too, Ben that landlords are also, as you know, very invested in this program. And where we're in a competitive situation, someone may have already opened in a market, but landlords want that traffic to Adam's point, we want a – they want a competitive response and are willing to sometimes invest more than our 30% to 35%, which helps us on the returns as well.

[Benjamin Mogil:]

Okay. Okay, that's great. Thank you. And then on the Carmike deal, in terms of the sort of scope of the divestitures, are you planning on selling mainly legacy AMC or legacy Carmike assets? And sort of curious just to sort of expedite the whole process, would you – do you want this to be sort of we're going to offer X and they come back with (40

[Adam M. Aron:]

Well, as I think you can understand, our conversation with the Department of Justice are and will be sensitive until the day we get their signature on a piece of paper. So I think it's better for us not to speculate publicly. But I've already said that we are in constructive and active dialogue with Justice and we've actually started the process of marketing theatres for potential sale. We have a pretty good handle on where we may wind up and we think it's quite manageable and not all that important with respect to the size of the overall transaction.

[Benjamin Mogil:]

And is your thought that, not just maybe with this but in general and, Craig, I know in particular, you've been through a number of asset divestitures over the years that have been regulatory sort of put together. In general, do you sort of see that assets trade at above what you ended up buying stuff for on a post synergy basis?

[Adam M. Aron:]

Let's hold the announcement of the details until we have a purchase sale agreement in hand with a buyer.

[Benjamin Mogil:]

Fair enough.

[Adam M. Aron:]

We probably – we are in negotiations after all, right?

[Benjamin Mogil:]

Fair enough. I appreciate that. Thank you very much.

[Operator:]

Thank you. The next question is coming from the line of Barton Crockett with FBR Capital Markets. Please proceed with your question.

[Barton Crockett:]

Okay. Great. Thanks for taking the question. I wanted to get a little bit more color on the loyalty program. Can you give us a little bit of a better sense of the mix of free versus paid and what you're seeing in terms of attendance uplift and how it's tracking versus what you would have hoped for from the rebound?

[Adam M. Aron:]

Sure. All right. Free versus paid. Well, all the people who were in the program prior to July 11 have been renewed for a full year as paying members. As for the – so that's about 2.7 million. And then, of the new members who enrolled, which is about 2 million, they're enrolling at about 87, 13 (42

[Barton Crockett:]

That's really great detail. And to switch gears a little bit, you did open the door, a crack on Justice. Can you tell us if...?

[Adam M. Aron:]

I opened the door only a crack. Go ahead.

[Barton Crockett:]

Okay. All right. Well, let me see if I can put my foot in there and maybe it will get slammed on, but can you tell us is Screenvision, National CineMedia is that part of the dialogue with Justice?

[Adam M. Aron:]

It's part of the dialogue with Justice and beyond that, I really shouldn't say anymore.

[Barton Crockett:]

Okay. All right. Thank you.

[Adam M. Aron:]

So I answered the question as you asked it, I just didn't elaborate very much.

[Operator:]

Thank you. Our next question is coming from the line of David Miller with Loop Capital. Please proceed with your question.

[David W. Miller:]

Yeah. Hey, Adam. A couple of questions. On the Odeon review in Europe. I know it's pretty clean. Could you just kind of refresh the audience on the call today about how the regulatory bodies in Europe tend to go about these things versus the regulatory bodies in the U.S.? Is the process pretty much the same? Are there any hiccups that you think might happen over the next 30 days? And then also on your cost of goods sold, very nice blocking and tackling on expenses in general, but it looks like cost of goods sold on concessions was way down, at least versus my models. Any explanation for that? Thank you very much.

[Adam M. Aron:]

You bet. Thank you, David. I think I'd say that the Antitrust Reviews in Europe are pretty similar to the Antitrust Reviews in the States with one caveat. In Europe, you tend to go through two antitrust reviews, not one. You have an antitrust review with the EEU across the whole of Europe, and then they have the ability to refer a second antitrust review to a particular country, and similarly, a country has the right to ask for an antitrust review that's country-based rather than pan-European. We are on a clock with – well, we're not on the clock with the Justice Department of the United States. We are on a clock with the European Review and we know the final date at which we can get approval of either through action or non-action. Since we have only one theatre in all of Europe it's really hard to imagine that they could be all that concerned about the anti-trust implications. And should the UK pick it up as well, the worst thing that they could ask us to do I suppose is sell a theatre in Manchester because there is only one theatre where there is overlap in the UK. So we are not worried about the anti-trust review in Europe and the – we think the transaction will sell forward in December – theoretically in December closing. In the States, it's a little more loose with respect to timing and when we reach agreement with Justice then we'll go forward with the Carmike deal, again, assuming a positive shareholder vote that we expect. In terms of cost of goods sold, Craig would want to talk to that but I'd remind you that we've been managing expenses well all year and I think there's a lot of tradition in the movie theatre industry. You talk revenue, revenue, revenue, revenue. At AMC, we want to talk profit, profit, profit, profit because we're not in the business of driving revenues. Although we're in the business of driving revenues, we're in the business of generating profit. That's how you all value us. And I would remind you that our – one of the reasons that our cost of goods margins improved is because our revenues do continue to go up. Of the majors we now have the highest food and beverage metrics per patron of anybody. The numbers I've seen have us 10% to 20% higher than the other big guys and that's among the reasons that our cost of goods sold as a percentage of revenues look good.

[Craig R. Ramsey:]

That's actually the biggest part of it. The other thing, David, is that we do have some rebates that come in to that number, the cost number that we earned from vendors and that will have – that does fluctuate a bit from quarter-to-quarter. But to Adam's point, it's largely the revenue base is growing so rapidly.

[Adam M. Aron:]

But looking ahead and not looking back, I look forward to having Carmike and Odeon in our circuit when we go from 386 theatres to around 900. Many of our vendor deals are global deals, and we think we'll be buying better for the combined circuit that AMC buys today. We also know for a fact, we're going to be able to buy better for Carmike individually and for Odeon individually, not any criticism of Carmike or Odeon's buying, just talking about the benefit of scale and the fact that if you're a $4 billion player or a $5 billion player, you're going to get a lot better deals on things that you buy than a $1 billion player. And that's part of the thing that's going to allow us to reinvest to improve the quality of the Carmike and Odeon theatres, which is going to be better for moviegoers and cause more moviegoers who to want to come to the theatres. It's a nice self-fulfilling prophecy of success.

[David W. Miller:]

Thank you very much.

[Operator:]

Thank you. The next question is coming from the line of Sachin Shah of Albert Fried. Please proceed with your question.

[Sachin Shah:]

Hi. Good evening, guys. Aron, so I just want to circle back on this shareholder vote that's coming next week on the 15th. Wanted to make sure that everything was lined up, so there's no issues that we've been seeing over the past few months. That's a. And b is you mentioned a purchase sales agreement, so are we basically waiting for a divestment package to be presented to a potential buyer that the DoJ is going to approve? Is that what we're waiting for? Because sometimes they want to see a buyer, a credible buyer for assets and if you have a package in mind that might be the path. Just wanted understand if that's the case. Thank you.

[Adam M. Aron:]

Thank you. Let's talk about the shareholder vote. You talked about, let's call it, the friction over the past several months. Actually, over the past several months, you haven't actually seen any friction with respect to the shareholder vote. Since the new deal was announced in July, you haven't heard anything negative from one of the large shareholders of Carmike. In fact, one of the large shareholders of Carmike put out a public press release it was voting in favor of the transaction. While you had heard negative recommendations from ISS and Glass Lewis, you've now heard positive recommendations from ISS and Glass Lewis. So the friction that you are recalling with Carmike shareholders was back when the deal was $30 all cash. And what we've heard publicly and privately from Carmike shareholders with a $33.06 transaction, 30% percent stock, 70% cash, leads us to conclude that we will be very pleased when Carmike announces the results of its shareholder vote. On the issue of the divested theatres, we have been in active dialog with Justice, so we have some sense of what's in their head, but until the deal is done with Justice, we won't know exactly what's in their head. We have been marketing the theatres that they've indicated to us they're concerned about. And we believe, at the end of this all, that when we announce that we have an agreement with Justice and we announce which theatres we divest and when that you'll all be pleased with that effort with respect to the divested theatres as we are.

[Sachin Shah:]

Okay. Next week shareholder vote and, excuse me, I didn't mean to indicate that there was some friction just the past issue. I know it's been resolved, but just wanted to confirm it, so no issues on my part, Aron. So, apologies in advance. But as far as the divestment is concerned, you said, just to confirm, small theatres that you're expecting. And then, so shareholder vote next week, DoJ, and then because the marketing is done for the financing, we could see the deal close, as you mentioned, as soon as end of June – excuse me – end of December and then, if not, then early January timeframe.

[Adam M. Aron:]

You're putting a lot of words in my mouth. So, what I want to do is the following. Number one, I want to say you don't have to apologize for anything you said in the first question. I was just making sure we correct the record. And second, I think I'm going to let the comments that I made on the call stand as uttered. I was pretty clear and precise in what I said. So, if you go back to the transcript or the repeat of the call, you can get exactly what I said, because I don't want to accept some of the things you said and not challenge others because I don't want people to get the wrong impression. What I said on the call is what I want to stand by.

[Sachin Shah:]

Okay. Fair enough. Thank you, Aron. Have a good night.

[Adam M. Aron:]

Thank you.

[Operator:]

Thank you. Our next question is coming from the line of Eric Wold with B. Riley. Please proceed with your question.

[Eric Wold:]

Thank you. A couple questions, Craig. One, it looks like, given the pace of remodels you laid out, you'll go from about 800 reseats this year to 750 next year, 700 the year after that. Should we assume that CapEx kind of ratably declines by that level or do you start going into certain markets that have a different mix of locations, different construction cost levels, different amenities you might be adding, which may impact that CapEx level versus this year?

[Adam M. Aron:]

You can assume that for the AMC circuit. But, remember, we're expecting the Carmike and Odeon circuits are right behind. And just as we have a fertile field for development of the AMC circuit, the Carmike circuit and the Odeon circuit are far less renovated than the AMC circuit. We got a third of our theatres done. Between them, I think, Odeon and Carmike have one theatre done. So, there is an easy 100 theatres to 200 theatres in the Odeon and Carmike circuits that we could decide to invest in to renovate, so as to generate returns. We're not spending money just to spend money. And this is not maintenance CapEx with no return. These are investments we're making where we think we can deliver 25% plus unlevered cash-on-cash returns.

[Eric Wold:]

So just on the pure AMC circuit as it stands now, we should expect a similar of a CapEx spend in 2017 and 2018 as this year?

[Adam M. Aron:]

The numbers are coming down slightly. It's just a guestimate of how they rollout. But, yeah, they come down a little bit just in line with the number of screens. We expect the cost to be about the same.

[Eric Wold:]

Okay. And then on the loyalty program, can you remind us where the incremental EBITDA impact hits? Is that kind of in one spot or is it going to spread out based on any assumption of mix?

[Adam M. Aron:]

No, it spreads. We should have – if it all works according to (59

[Eric Wold:]

I might have mis-phrased it. My question's around the EBITDA impact of the $5 million you had in Q3...

[Adam M. Aron:]

Oh. We said $5 million in Q3 and $5 million to $7 million in Q4. But that $5 million in Q3 is already embedded in the results that we announced today, which are very strong. And...

[Eric Wold:]

My question was around...

[Adam M. Aron:]

We're not too worried about Q4 either.

[Eric Wold:]

My question was around what line items those hit in.

[Adam M. Aron:]

The line items.

[Craig R. Ramsey:]

So, there's about $2.6 million in admissions revenue. About $900,000 in concessions, that's the deferred revenue impact, Eric. And then the expenses, about $1.6 million, just flow through G&A expense.

[Adam M. Aron:]

So can we just stay on what the deferred revenue is? So as we're banking these either 10% rewards in the free program or the 2% rewards in the paid – sorry, 10% in the paid program and 2% in the free program. These are people who already came into AMC, spent the money and we're putting 10% or 2% respectively in the pocket of our balance sheet so that when they redeem their rewards in a future period, instead of marking a freebie in the future, we mark a fully paid transaction in the future. So, all this money does return to AMC, it just defers to a future period.

[Eric Wold:]

Got it. Thank you, guys.

[Operator:]

Thank you. The next question is coming from the line of Jim Goss with Barrington Research. Please proceed with your question.

[James Charles Goss:]

Thanks. To the extent that your focus, your CapEx focus, may shift a little more to Odeon and Carmike, do you think that will occupy a lot of your attention rather than considering other international markets as a potential further expansion? It seems like you have a much bigger footprint to play with and does that sort of forestall any push to other markets as well?

[Adam M. Aron:]

We are a company loaded with a rich array of choices ahead of us. First of all, while we're number one in the UK, Ireland, Italy, Spain, we're the number four player in Germany. You could easily imagine us, if somebody came along and offered us a German movie theatre circuit where we could add German theatre cash flow without having to add any overhead in Germany, that's appealing. We're in seven European countries, but that means we're not in, at all, a lot of European countries. That's yet another choice. We have acquisition in Europe versus investment in Europe to renovate some of the – especially the Odeon theatres in the UK, where we think we can drive dramatic improvements in profitability. That's a third choice. A fourth choice; it's a big world out there and, right now, we're an important player in the U.S., we're an important player in Europe, we're an important player in the world, but there's a lot of the world that we're not in at all. That's another choice. And we also have investing in our theatre circuits in the U.S. So we've already said we're going to renovate another third of our theatres in the U.S. We're going to deploy close to 200 Dolby Cinema and IMAX screens in the United States, another choice. I think I would answer your question by saying two things. One, we'll make the decisions as we go opportunistically based on what appears to be the smartest deployment of our capital at that time. If somebody wants to hand us another international circuit at a very aggressive, expensive price, we don't need to do it. If somebody wants to give us that same circuit at a bargain price, that might be tempting. So that's the first thing that I would say. The second thing that I would say is while continued acquisition may be in our wheelhouse, it's far more important to us to be known as a fabulous integrator than a serial acquirer. As a company we are very mindful that many a merger has made a company great and many a merger has destroyed an otherwise good company. Ask the fine people at Daimler-Benz how much they enjoy their trip to Detroit owning Chrysler for whatever number of years they owned it. So, our focus is going to be in integrating the three companies into one really well, delivering on these returns that we have promised our board, our shareholders and all of you, and yet I don't want to preclude more acquisitions because they easily could be in our future. So I'd like to suggest to you that we're smart, focused. We are not knee-deep or waist-deep, we're shoulder-deep in planning processes to bring Carmike into our company and bring Odeon into our company well. And we'll all find out together which of those various choices we make over the year ahead. But whichever one of the choices we choose, or whichever multiple of the choices we choose, I'm optimistic we'll do so well.

[James Charles Goss:]

Thanks. Great insights. One related item. You mentioned Dolby and IMAX. Are you finding those to be a good pair like any time you do make renovations, much less create a new theatre?

[Adam M. Aron:]

Well, now we're getting deep into theatre design. But, as it turns out, a lot of our multiplex theatres have a lot of small screens, two medium-sized screens and two very large screens. And pre-Dolby, all we were able to do is put one IMAX theatre in one of the large screens and the other large screen and the two medium-size screens sort of were luck of the draw for you as a consumer whether you got a small screen, a medium screen or a big screen. By having IMAX and Dolby as well as the third PLF, the so-called non-branded house, PLF, which we haven't announced the name of yet publicly, but which we will launch in 2017, we have the ability to put some kind of PLF in the two large screens and one or two of the medium screens, so that we can monetize a big screen at a premium price because the customer knows on the strength of the brand name of whether it's IMAX or Dolby or our own that they're getting something more than just a typical screen size in theatres five to 14. Now, we're not just relying on screen size, we're also putting – if we're going to put in a PLF, we also put in better sight technology and better sound technology and better seats, so the whole of the experience in the PLF is better. And specifically to your question, yeah, we've got Dolby screens in 30-plus theatres already. A lot of those theatres have an IMAX screen and a Dolby screen occupying the two large screen positions in the complex. There are some theatres where we can't put in an IMAX screen, because we're in a geographic area where IMAX may have given a geographic exclusive to one of our competitors, which would be a perfect opportunity to put in a Dolby screen. But we still have our own house brand to come because we still have these two or four larger screen sizes to dramatize to the consumer. It's a better movie-going experience in a larger auditorium with a larger screen and better sight and sound. So, yes, I think you're going to find Dolby and IMAX side by side in a lot of places. You'll see IMAX with our house brand side by side in a lot of places. You're going to see Dolby and our house brand side by side in a lot of places. And especially, as we go into the Carmike circuit, we may find that the market just isn't affluent enough to afford the higher prices that either IMAX or Dolby screens command because of the higher investment we have to put in those auditoriums to deliver the IMAX and Dolby technology. So, in those theatres, we might just go with a house brand all by itself and not have an IMAX or Dolby location at all. And of course, the trifecta will be in those theatres in big markets, where we have four larger screens, you might see an IMAX, a Dolby and a house brand all being marketed to consumers.

[James Charles Goss:]

All right. Thanks very much.

[Operator:]

Thank you. Our next question is coming from the line of Chad Beynon with Macquarie Group. Please proceed with your question. Chad Beynon - Macquarie Capital (USA), Inc. Hi. Great. Thanks for taking my question. I'll be quick in the interest of time. Adam, Craig, you guys did a great job lying out CapEx and, Adam, you just touched on M&A. I believe CapEx, you talked about two, three, four years out, particularly on Odeon. One of the questions we continue to get from investors is what's the policy around the dividend as cash flows will grow as we look forward into 2018, 2019 and 2020? So could you just remind us how that kind of fits into your capital allocation strategy as you continue to see opportunities to use that cash and get high returns on that invested capital? Thank you.

[Craig R. Ramsey:]

Sure. I think our priorities on capital allocation over the next several years will remain kind of the same as they have. First priority is capital deployment back into our business as long as we have these projects, these initiatives that generate well above our threshold 25%. That will be the preference for the free cash flow we generate. Secondarily, would be to look at the capital return once we get to that point where we're fully deployed, but that's several years away. We would look at the dividend, probably below that would be debt retirement or – secondarily, would be acquisitions, I should say. And we'll be opportunistic as we go forward there. Third would be to look at the dividend. Fourth would probably be a share back or a dividend or a debt retirement. That's the priority that I think about going forward.

[Adam M. Aron:]

And I want to add something, which is to say, while the increase of dividends is probably a few years out because we've got so much runway to deploy these investments in our theatres and generate outsized returns, you can be sure the management team of this company is very focused on not decreasing the dividend. So, you should expect, at the very least, dividend stability. And while it's not in your question at all, it's what I think of when I think of dividend, so I'd like to make the point. We think that among the far more important points at AMC is not our dividend strategy, it's the size of our public float. With Wanda owning 78% of our company, we only have 22 million shares that publicly float. And in our view, that's too small for our company, because we know that institutions like to amass positions in a stock without moving the market and they want the ability having nothing to do with the stock, but having everything to do with our own fund balancing dynamics. They want to be able to get out of a stock if they want to without moving the market. And so, we think it's really important that we increase the size of our float. And I remind you that by placing $400 million of equity with Terra Firma the seller of Odeon and with the shareholders of Carmike, we are dramatically increasing the size of our float, up by more than 50%, I believe. And we think that's a good thing for AMC and a good thing for our shareholders and something that will benefit them every bit as much as a modest change in the dividend. Chad Beynon - Macquarie Capital (USA), Inc. Thank you. We agree. Appreciate it.

[Operator:]

Thank you. It appears we have no further questions at this time. So I'd like to turn the floor back over to Mr. Aron for any additional concluding comments.

[Adam M. Aron:]

Thank you, all. You've been very generous with your time. I read all your reports, as does Craig, as John. We thank you for interest in our company. In our view, we had a very strong third quarter and, as a company, looking ahead to 2017, we are on quite a roll. Thank you and good night.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.