AMC Entertainment Holdings, Inc.
Q4 2015 Earnings Call Transcript

Published: 29 Feb 2016

[Operator:]

Greetings. Welcome to the AMC Entertainment Fourth Quarter 2015 Conference Call. [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. Thank you, Mr. Meriwether. You may now begin.

[John Merriwether:]

Thank you, Rob and good morning everyone. I would like to welcome you to AMC’s fourth quarter and full year 2015 earnings conference call. Before we get started with our prepared remarks, I would like to remind everyone that as referenced in our press release issued earlier this morning, we have posted a CFO commentary on the Investor Relations page of our website at amctheaters.com. I would also like to remind you that 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 risks 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 EBITDA, adjusted EBITDA, adjusted EBITDA margin, free cash flow and adjusted diluted earnings per share, which are not in accordance with GAAP. However, management believes these results more clearly reflect the operating performance. For a full reconciliation of EBITDA and adjusted EBITDA to GAAP results in accordance with Regulation G, please see our press release issued earlier today as furnished as an exhibit to our Form 8-K dated February 29, 2016, which is located in the Investor Relations area of our website. 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 will now turn the call over to Adam.

[Adam Aron:]

Thank you, John. Good morning, everyone and thank you for joining us. I would like to begin with a brief overview of our record-setting fourth quarter and our record-setting full year 2015 financial results and highlight some of our key accomplishments. I would also like to review with you my first 60 days as CEO of AMC and update you on the key priorities I have already outlined to further increase value for our guests, our associates and of particular importance, our shareholders. Before I do though, we could not possibly begin this call without mentioning that we are on the call from Dallas, Texas at our Annual Conference of all of our movie theater general managers. But just a few short hours ago and one brutal mid-continental redeye flight ago, I was in Los Angeles attending the Academy Awards. There I had the privilege of watching first-hand that a movie made by Open Road Films, Spotlight won two Oscars, one for best original screenplay and one the granddaddy of them all, the much coveted best picture of the year. Most of you may know that AMC owns 50% of Open Road Films. And on behalf of AMC, I now serve as Open Road’s Co-Chairman. This is a very proud day for AMC and Open Road. We are thrilled for our colleagues at Open Road Films. This success with Spotlight gives us a pedigree, which we would expect would improve the financial success of Open Road going forward. It certainly increases the value of its film library. Moving back to AMC, earlier this morning, in conjunction with our 2015 earnings press release we issued Craig Ramsey’s CFO commentary, which provides a detailed review of our financial results for the quarter and the year. Craig is with me on the call this morning. And after my formal remarks, we will open up the call for both of us to take your questions. Incidentally, speaking of Craig, he would tell you as I am now that we have established an instant friendship and a superb working relationship. Accordingly, you should definitely expect real management stability at AMC. We have a truly knowledgeable and proven executive team in place. So, let’s get started on the quarter and the year. 2015 was an impressive year for AMC as we set all-time highs across a broad array of full year financial metrics. Records in every single revenue segment, record adjusted EBITDA, record average ticket price, record food and beverage per patron sales and important above all else, record key gross profit indicators and record free cash flow. We finished 2015 with another strong fourth quarter effort as both revenues and adjusted EBITDA grew meaningfully compared to last year again to record highs for our fourth quarter for AMC. Total revenues increasing 10.1% to $784 million and adjusted EBITDA growing 10.0% to $154 million. The growth in adjusted EBITDA was even greater, more than 14% when we exclude the non-recurring $5.1 million California tax refund benefit that AMC recognized in the fourth quarter of 2014. These operating results translate into $41.6 million of net earnings and $0.42 of diluted earnings per share, both representing fourth quarter growth of 40% compared to the same quarter a year ago. After adjusted adjusting net earnings and diluted earnings per share for financing cost incurred during the fourth quarter of ‘15 and that $5.1 million aforementioned California tax refund benefit in ‘14, adjusted diluted EPS grew more than 59% year-over-year to $0.43 per diluted share. As strong as these year-over-year results are as you and as we analyze industry-wide results competitively, our results would have been stronger still but for three issues. First, AMC introduced a tax on top strategy back in 2014 meaning that we added admissions or sales taxes on top of listed retail movie ticket and concession prices. Many of our competitors copied our lead much later on doing so only in 2015. So, a pricing increase of that we realized in 2014, they realized for the first time instead in 2015 affecting year-over-year comparability. Second, as you know, the fourth quarter of 2015 results was all about Star Wars, Star Wars, Star Wars. Knowing that it had an unprecedented winner on its hands, Disney licensed more than 4,100 theater locations to show Star Wars in North America. A typical really big movie opens in between 3,000 to 3,500 theaters instead. Therefore, our so to speak capacity share for Star Wars was down somewhere between 15% and 25%. In that light, it’s really quite impressive that our market share for Star Wars fell only 2%. Candidly, that’s because where we had it licensed to our theaters we just played the hell out of that movie. Many of our AMC theatres showed Star Wars continuously, 24 hours per day, literally for days and days on end without stopping. And third, our new Starplex theaters acquired in mid-December in the fourth quarter operated substantially lower ticket prices, which impacted overall year-over-year pricing comparisons for AMC overall. Even with these three caveats, we are extraordinarily pleased with our fourth quarter results and we are energized as we start off in 2016. It’s hard not to be optimistic as we delivered record results in metrics after metric after metric. Taking a look at all four quarters of 2015, for the full year of ‘15, total AMC revenues increased 9.3% to a record $2.95 billion and adjusted EBITDA grew 15.6% to a record $536.5 million. We are especially proud that this story, growth was driven by our industry leading – I might add, industry-leading by a country mile, admissions revenue per screen of $384,000 and equally impressive food and beverage per patron of $4.62, again industry leading against the majors. These operating results yielded $103.9 million of net earnings and $1.06 of diluted earnings per share, representing growth of more than 62% and 61% respectively, compared to the same period in 2014. After adjusting net earnings and diluted earnings per share, again for those financing costs and gains incurred during 2015 and ‘14 and the aforementioned $5.1 million California tax refund benefit in ‘14, adjusted diluted EPS grew by more than 98% to $1.13 per diluted share. Importantly, free cash flow for the year ended December 31, 2015 increased approximately $51 million, up more than 72% to a total of $121.2 million, surpassing $100 million for the first time ever in AMC’s company history. There is no way to characterize these results by anything other than saying that these are strong results for AMC and they reflect the health of the movie industry as a whole. It’s an industry that’s generated three record years in industry box office out of the last 4 years, with the 2015 industry box office eclipsing the elusive $11 billion mark for the first time ever. Our studio partners delivered more than ever before in 2015. As you know, with three titles achieving top 10 status for the highest grossing domestic movies of all time

[Operator:]

Thank you. At this time we will be conducting question-and-answer session. [Operator Instructions] Our first question is coming from the line of Eric Handler with MKM Partners. Please go ahead with your question.

[Eric Handler:]

Yes. Thanks a lot. Craig, I wonder if you could – is there a way to sort of figure out what a normalized admissions revenue per screen you guys had after adjusting for Starplex and all those other items and how your core business compared relative to the industry. And then secondly, when you look at your non-reseated theaters, the core, so to speak, how are those theaters performing and what are you doing there specifically to ensure that with all of the other reseating going on throughout the industry that their market share is hopefully stable?

[Craig Ramsey:]

Okay. Well, normalized admissions revenue per screen I think was your first question and unfortunately, there is not an easy quick answer because we had – we saw some things on pricing that you – that Adam alluded to in his commentary that mitigated some of our pricing versus what others achieved in the quarter, whether that be the tax on top that we kind of anniversaried in of the early part of the quarter, so we didn’t benefit from that. We also had the impact of Starplex, which their average ticket price for Starplex was just about $5. We are operating closer to $9, so even though it was only a couple of weeks of two pretty big weeks that had a pretty dramatic impact on our business. We were however, successful in driving a lot of attendance and the – on both total basis and on a screen basis. But Adam alluded to our admissions revenue per screen of about $384,000 per year, I was going to look and see in the quarter is about $388,000. So obviously, Star Wars had a pretty dramatic impact on the upside, but I don’t know if that’s helpful to kind of give you the range for the full year, it was about $386,000 and for the fourth quarter, it popped to just under $400,000. So, that’s kind of in a normalized range. I will say what I alluded to the dilutive impacts of Starplex that is an area of opportunity for us to look at as we go forward, take a look at their pricing and see if there is some opportunities to drive more pricing. But all-in-all, I don’t know that we think that it in and of itself will have a large dilutive effect on the admissions revenue per screen that I just talked about on an annual basis.

[Adam Aron:]

And I will take your second question. All those marketing programs that I talked about, stronger loyalty program, bigger database, more e-mail and texting out to consumers to promote movies, that all applies to the core theaters every bit as much as it does to the reseated theaters. Similarly, AMC has had a strategy in the past of really only going after a theater when it could do the whole theater. I think we are going to – not I think, I happen to know, we are going to take a more aggressive approach in looking at what we can do to improve the quality of the product even in our core theaters without necessarily having to spend the capital to receive the entire building. Lot of things we can do in F&B. I already mentioned, there are lot of things we can do to put in a better premium large-format screens, which clearly the public likes a lot. I think you will see a lot of effort not only directed at the theaters, are being wholly redone, but also at all the others in our system as well.

[Craig Ramsey:]

Yes. Just to add a little bit to that, certainly, the core, when we have the reseated theaters, you get a pretty clear view of the core. And it did certainly perform, as we have said before, we don’t expect it to perform as strong as the reseated theaters. It is – so what can we do to drive the business there? Well, number one, we are chipping away or let’s say we are working at that circuit to convert as many of those assets to reseated theaters, but we are also deploying the food and beverage initiatives there and we had some pretty strong growth year-over-year in the quarter and on a year-to-date basis, where the core on a per head basis actually performed in line or a little better than the rest of the circuit in the food and beverage business. So, while we don’t have them reseated yet, we are getting some good lift on the food and beverage side and we will continue to do that moving forward as well.

[Eric Handler:]

Thanks a lot.

[Operator:]

Our next question is from the line of Ben Mogil with Stifel. Please go ahead with your question.

[Ben Mogil:]

Hi, good morning and thanks for taking my questions. So, on of the increased investments that you are talking about with stubs and more database marketing, I mean the stubs customers were already kind of big moviegoers. Are you looking at this largely as trying to get sort of competitors’ patrons? I mean, is there any reason to think that the sort of core avid moviegoer would go anymore if they got more e-mails effectively?

[Adam Aron:]

A quick answer to a good question. Number one, yes, I think we can steal market share like crazy. Number two today we have a paid program where our competition has the free programs that puts stubs at a substantial disadvantage. And many people who would enroll in stubs who might be splitting their patronage amongst a variety of locations and theaters and chain and circuits could become much more loyal to AMC if they are in our program and that’s what we are about to make happen.

[Ben Mogil:]

So, is the thoughts are to drop or to lower the payment?

[Adam Aron:]

We will most likely keep the pay program and we are actually going to test raising the price of the paid program, but we will also introduce a free program as well. So, for those of you frequent flyer program members out there, think of AAdvantage and AAdvantage Gold, United MileagePlus and MileagePlus Premier will have 2 tiers and we will make sure that our free program is appealing to moviegoers and that our paid program is even more appealing to moviegoers.

[Ben Mogil:]

Okay, thank you. And then sort of the, I think it was 16% attendance growth in the fourth quarter renovated theaters and 23% box office growth, are those apples-to-apples like were the – sorry, those again screens which were renovated in 4Q ’14 or does that include some ones who were renovated during fiscal ‘15?

[Craig Ramsey:]

No. That’s the total group. That’s all 93.

[Ben Mogil:]

So if you were to look – if you were to strip out the ones last year, the ones renovated, which presumably obviously get a large lift on sort of same store sales, what do you think the numbers would look like?

[Adam Aron:]

First year, it’s usually 50% to 60% bump in attendance.

[Ben Mogil:]

Okay, that’s fine. So if you were to strip those out like – because I don’t know how many you added during the years, like if you were to strip those out, which we are sort of talking sort of mid-teens revenue growth?

[Adam Aron:]

For the rest of the group?

[Ben Mogil:]

Yes.

[Adam Aron:]

Yes, mid-teens on attendance.

[Ben Mogil:]

On attendance. Okay. And what about on pricing? And then what about I mean sort of high-teens on pricing kind of thing?

[Adam Aron:]

The pricing is probably going to be in 6% to 8% on that group, the non-first year group.

[Ben Mogil:]

Okay, great. I think that’s it for me. Thank you very much.

[Operator:]

Our next question is from the line of Eric Wold with B. Riley. Please go ahead with your question.

[Eric Wold:]

Thanks. Good morning. Couple of questions, one on of the thought about creating a third PLF brand to complement IMAX and Dolby, you understand that the move before when you started ETX, which changed the prime machine to Dolby was to offer a solution to some location and slate restrictions around IMAX to offer consumers another choice, can you give us some sense of how you have started third that would still provide a premium option to consumers without cannibalizing IMAX or Dolby, assuming this third option is going to be the lower ticket price?

[Adam Aron:]

Sure. As you know, we give a substantial – we haven’t – I don’t if that we have disclosed the amount, but as you would expect, Dolby and IMAX have a substantial cut in the revenues of their PLF screens. And there are some markets where consumers won’t be willing to pay their acquired up-charge that we need to get in order to give Dolby and IMAX their share of the revenue in IMAX and Dolby houses. So right now, the solution for AMC has to be that if the markets can’t pay admission prices to give Dolby or IMAX their cut, we can’t offer them a large screen auditorium. But if it’s a private label PLF totally internal, then there is no third party split and therefore we can charge a lower price to consumers. So think of secondary or tertiary markets where can – disposable income is not as high, where consumers are more price sensitive, but still would enjoy a large screen. It may not be as spectacular as large screen equipped with Dolby Cinema or equipped with IMAX, but it’s still going to be a significantly larger screen with sufficient bells and whistles to make it a very good movie-going experience in that particular market.

[Eric Wold:]

It’s helpful, good to know it’s not going to be in a competitive market or the same auditorium or near your other IMAX or Dolby side. I appreciate that.

[Adam Aron:]

I didn’t say that. Because there is also the option that within a theater equipped with IMAX today for example, if the market was really robust, we could add a Dolby Cinema to a movie theater where IMAX already exists as we did at Empire in New York and Burbank in LA. But you can envision other theaters where there will be an IMAX screen or a Dolby screen, again where the market can support one PLF at a price lift that might be 50%, 60% higher than the normal ticket price. And the market could probably support another PLF but not one at a high price as the IMAX or Dolby Cinema auditorium. So again, you could actually find a second PLF going into movie theater, but the experience would be better than a 2D house, not as good as an IMAX house or a Dolby Cinema house, the price would be higher than a 2D, normal traditional theater, but not as high as an IMAX screen. So, again, it’s an ability to offer a less expensive PLF. And other major movie chains have private label PLFs that are successful. And just look at the numbers, 3% of the screens, 9% of the revenues, that tells us the consumer is looking for more and more large screen experiences.

[Eric Wold:]

No, that’s helpful. And then last question, as you think about the slate in box office for ‘16, it seems you kind of have a differentiated view from most consensus that ‘16 may not be as bad as Sears. That being said, even if this year is flattish with last year, can you talk about AMC’s ability to at least maintain or possibly even grow margins in a flat box office environment that happened this year?

[Adam Aron:]

Well, number one, we are going to benefit from the Starplex acquisition. So, we are going to have more screens. And we told you we brought them into our system efficiently. We told you we are going to do stronger market share that has a stronger marketing activity that has the ability to make market share and we will see. As for the slate in ‘16, all of you who are forecasting movies in ‘16 did not anticipate Deadpool would perform as it has. Disney has a very strong slate of films coming out this year. We are buffered somewhat if revenues are more sluggish, film rental costs would come down. And in particular, Star Wars had much higher film rental costs than the traditional movie. So, I wouldn’t be surprised if average rental film cost comes down in 2016 if we don’t have a blockbuster like Star Wars. Of course, we would rather have the blockbuster like Star Wars. We would rather – we would happily pay the higher costs if we have got $1 billion of revenue as an industry in the first three weeks.

[Eric Wold:]

Perfect. Thank you, guys.

[Operator:]

Our next question is from the line of Barton Crockett with FBR Capital. Please go ahead with your question.

[Barton Crockett:]

Okay, great. Thanks for taking the question. I wanted to ask a little bit around kind of the studio side. And I am very appreciative of your comment that you are not going to go too deep into M&A kind of speculations. So, I will keep this kind of broader and dramatic as much as I can, but there is this basically announcement out of Viacom that they are looking for minority investors than their Paramount Studio and you guys have been successful in the studio business now with Open Road. You have got a big partner Dalian Wanda over in China. Could you talk about thematically whether this concept of maybe owning a stake and a large major studio as opposed to just a smaller one might be appealing at some level for you guys or for your partners in China that could help you in some way or that kind of anti-trust concerns to make that kind of a nonstarter with the consent decrees?

[Adam Aron:]

Well, let me say that while we are very close to Wanda, we talk for AMC and Wanda talks for Wanda. So, I can’t speculate on Wanda’s interest in anything. But you are free to call them. As for AMC, yes, I guess, I said I wasn’t going to comment on the M&A activities. So, I shouldn’t comment on M&A activity, because the slippery slope is once you comment on the first one, then you got to comment on every others, but I will say that in the spirit of my remarks, I was talking about adding movie theaters to AMC so that we could bring theaters inefficiently into our current system as we did with Starplex where we grew our theaters by 10% and didn’t grow our SG&A by a bit.

[Barton Crockett:]

Okay. But to push this a little bit, I mean, do you guys have – do you see value in potentially owning more studio assets. You have had success with Open Road or is that really not on your radar screen?

[Adam Aron:]

My focus is on making our movie theater networks larger. And beyond that, I want to stay out of the business of speculating about changing the company’s fortunes through acquisition. I have noticed that others in this industry are talkative about what they might do, but I would rather under-promise and over-deliver and I would love to tell you what we are able to have done rather than constantly be speculating about what we might do. But let’s just make sure we are all clear. My priority is to grow the number of theaters in our circuit.

[Barton Crockett:]

Okay, alright. And then on that kind of growing the number of theaters, again respectful of your desire not to go too far down this road, but also recognizing we are not going to get lot more from you, so I want to understand as best I can, your new CEO, where your focus is on the M&A front. In the past, I thought about AMC as kind of a big city circuit, Starplex kind of got you guys a little bit away from that, how do you think of your acquisition focus going forward, is it big city focused or do think you need to look at – would potentially see opportunities in any range of small to big cities?

[Adam Aron:]

It’s a pretty simple financial transaction in my head. If we can bring theaters into our system efficiently and where we are rapidly accretive, that’s a higher priority than finding the perfect theater and overpaying for it. Having said that, there are markets where we are not present, where adding theaters would be complementary to our current system. There are other markets where we are present, where we may be present in a city, but we are not present in a particular part of the city or and we could expand our circuit by filling out a metropolitan district. We are wide open as to what we would look at as long as we can buy it, right. And you heard my definition of buying it, right. We bring it in efficiently and we are looking for things that are quickly accretive.

[Craig Ramsey:]

I will just punctuate it quickly. You mentioned Starplex, we also acquired some rural market theaters in the Kerasotes acquisition and have satisfied ourselves that we are capable of operating in those markets as successfully as we do in the major markets. So we feel like we can really acquire assets anywhere. But they – we do have some filters and tests on the right types of assets that we want to buy. But we will shy away from smaller market.

[Adam Aron:]

And it goes without saying that when studios like to talk about temples, where in the theater business, we got temple theaters too because we have got theaters with incredibly productive screens, you would – if you are going to bring in less profitable theaters, you would have to make sure you are absolutely maniacal about keeping their cost structure intact because there are certain theaters that are more thinly traffic-ed and there therefore have to operate with lower cost structure. But again, to me the secret is buying right, not necessarily what the theater is.

[Barton Crockett:]

Okay. And then just one small number question, what’s your current feeling about your CapEx level for 2016?

[Craig Ramsey:]

So our guidance on CapEx, we think next year, our total CapEx will range from $390 million to $400 million – a little over $400 million gross CapEx. We have talked before about landlords helping us on a number of these projects willing to invest. We think the landlord contribution based on the discussions we have had is anywhere from $120 million to $140 million. And that will net down to $270 million – $250 million to $270 million, which is kind of similar to where we were in 2015, maybe up a little bit.

[Barton Crockett:]

Okay. Thank you.

[Craig Ramsey:]

Yes.

[Operator:]

Our next question is from of the line of Jim Goss, Barrington Research. Please go ahead with your question.

[Jim Goss:]

Thanks. Adam as a marketing executive, you seem very interested in refinement and nuance strategies and I know there has been discussion about looking at types of receipts that might not take out as many seats, maybe not reclined as much, could be spaced a little more closely, so you don’t lose as much potential capacity in a market there in the theater. Do you have any thoughts of perhaps involving both the full recliners and the smaller recliners within the same theater complex, sort of in the way that if you – you know there is only a two week window usually within a theater or a movie in IMAX and then it will probably move to other screens and then sort of create an incentive to get the best seats in the earlier weeks and that sort of thing. And have a varied option within a theater complex.

[Adam Aron:]

The simple answer to your question is yes. And I think I said in an earlier question, AMC’s strategy heretofore has been do the whole theater and don’t touch it. And there are some theaters where we can’t necessarily afford the seat, because they are so well trafficked. We can’t necessarily afford for the seat loss of reseating an entire building, but that doesn’t mean you can’t receipt an auditorium or mobile auditoriums, but not the whole theater. And similarly, I think in a world of reserved seating, which is clearly the way movie-going is trending and the way AMC is trending, once you have got to reserved seating, I actually don’t see any reason why you can’t go within an auditorium and have two different types of seats within an auditorium in the reserved seating context and you would lose less seats. And if you wanted more comfortable or more spaces or more fully reclining seats, you would pay a price premium to sit in those rows rather than to sit in that part of the theater that is not having as much density loss. That might be the way to extend the economics of the reseating projects into more and more locations.

[Jim Goss:]

Okay, very interesting. Also your discussion about a third PLF, it sounds like you are in some way recreating the ETX program you had, had and that you would have all the economics and you would have more control over everything without having to pay a premium to either Dolby or IMAX. How many of the original ETX screens Wanda shifting over to the Dolby Cinema at AMC Prime, how many are left and is that a fair comparison?

[Adam Aron:]

It’s – I don’t think you should worry about how many of the current – of the old private label we have left. There are going to be a lot more Dolby Cinemas than there are today. There maybe more IMAX theaters than there are today. We will be expanding the Dolbys and IMAXs more quickly than we will be introducing the private label PLF. There aren’t very many ETXs left, it’s like 10 or something and my sense is they will be gobbled up pretty soon by either Dolby or IMAX, but still there is lots of opportunity for us to think about this as we go down the pike.

[Jim Goss:]

Okay. Last question, Netflix and Crouching Tiger and the refusal of theaters to play it which is totally understandable, is this the line in the sand with Netflix or do you think that’s going to be a continuing issue you would be dealing with?

[Adam Aron:]

I think it’s probably smarter – I said I would be like honest and transparent and candid, but I don’t think it’s a good idea for me to make public comments about how we are going to take on a particular competitor. It feels it smacks to me that the Justice Department might be reading that transcript pretty closely. So, let me just say I wasn’t around when the Crouching Tiger controversy occurred a year ago. We actually did wind up as a favor to IMAX showing Crouching Tiger and I believe four or maybe there is a few more, maybe it’s 5 or 6, but it was like a handful of theaters out of our 153 IMAX screens and the language of choice for those few screenings is Mandarin, which I don’t know that any of us on this call speak. But I will cross and we, AMC, will cross future bridges of competition if, as and when they arise.

[Jim Goss:]

Alright. Thanks very much.

[Operator:]

Thank you. Our next question is from the line of Chad Beynon with Macquarie. Please go ahead with your questions.

[Chad Beynon:]

Hi, thanks for taking my questions. First, wanted to go back to capital allocation, you have dabbled a little bit on the M&A. You spoke about your enthusiasm around the future of the business in the next couple of years and Craig, you gave the CapEx guidance. So, two-parter on capital allocation, one, just kind of want to understand that the focus is clearly on growth and ROIC on the initiatives versus potential dividend increases and share repurchases. And then secondly, if there are an inordinate amount of opportunities, Craig, would you and the team be willing to lever up the balance sheet to may be capitalize on these specs? And then I have a follow-up.

[Craig Ramsey:]

So capital allocation priorities fairly consistent with our prior message that we will reinvest in growing our circuit internally, organic growth through the deployment of receipts food and beverage concepts and other strategic initiatives, that’s kind of first and foremost. Closely behind this is, acquisitions where we find opportunities to grow. And third, we would probably be to look at capital return once we have exhausted the opportunities. But I have to admit we feel we have a couple of year runway left on very solid investment opportunities internally. And time will tell what the acquisition opportunities are. On a leverage basis, we are certainly comfortable where we are today, 3.5x levered. As I have said before, we would take the leverage up into over 4x if we had the right acquisition opportunity. We have operated the business successfully at higher levels. We would want to see a path even if we took it the above 4x, we would want to see a pathway back down and there possibly is an opportunity to use equity at some point to bring leverage down as well. But we are comfortable at 3.5x, but taking it above 4x is certainly it doesn’t make us uncomfortable as long as we see a pathway back down below 4x.

[Adam Aron:]

And I would like to add one comment specifically on capital return because, in prior lives, I have been a huge proponent of capital return. I would note that others in our industry pay higher dividends than we do as a percentage yield, so that’s something that logically we should look at as we believe we have the balance sheet to permanently sustain a dividend, because you certainly never want to take a dividend up and ever be forced to take it down. But the other issue that I think somewhat unique to our company, and I am actually curious to what your views are on this subject. I realize this conference call is the vehicle where we can do it, but when I hear from you individually, I am sure you will have views. We are – in a normal situation, companies and management teams are recommending stock buybacks all the time. We are not in normal situation. Only 25% of our shares are in the public float. And I do think it’s important that we have enough shares out there that institutions can come in as they wish knowing that there is sufficient liquidity in the stock that they can get out when they wish. And so things that reduce the share count to levels lower than where we are today is something that might actually turn out to be a big negative for AMC, which is counterintuitive because share buyback is a very popular thing. But we need to make sure that the float is big enough that institutions want to think about us.

[Chad Beynon:]

Okay, thanks. And Adam, you led off the call with the comment that the Open Road team has a new trophy on their mantle and congrats to that, could you kind of help us think about what this accomplishment means for that entity if it just kind of improves the overall brands for consumers, if it will start to see more movies produced and distributed, if you could just kind of round up some thoughts on that, that would be helpful? Thanks.

[Adam Aron:]

Well, the exhibiting of the movies is a fairly stable business. The business of moviemaking is a pretty volatile business. And even though we have invested $20 million of cash in Open Road previously, we have chosen to carry it on our balance sheet conservatively at zero value. So, there are some hidden intrinsic value on our balance sheet in Open Road. You have got to assume the way that distribution companies like Open Road make money is, one by – if they are successful at it, making money as they show films. And number two, amassing a substantial library of films, which have a long time use for repeat licensing and home entertainment down the road. So number one benefit for – or not the number one benefit, but the immediate benefit for Open Road is the value of its library just got higher, because Spotlight is going to be a very valuable asset in its film library and we will generate income for years to come. The other thing though that it should do for Open Road, Open Road has made a number of movies over the past 4, 5 years. And when you have the prestige of having made and they didn’t just buy this at a film festival, they made this one, the best picture of the year, that’s going to draw more filmmakers to think about Open Road as a place to distribute, make or distribute good movies and generally good movies are more profitable than bad movies. So, I think what we are going to see is this is just such a shot in the arm of prestige for Open Road that you want to have a more attractive slate of movies in the years ahead, not initially films that are already in the canon are going to be distributed in 2 weeks, but films that are going to be made, more artists and I use the term deliberately are going to want to associate themselves with the kind of firm that was behind Spotlight. So, it’s really good for them and we own 50% of Open Road. So, it’s really good for us too.

[Chad Beynon:]

Okay, thank you very much.

[Operator:]

Thank you. Our next question is from the line of Jason Bazinet with Citigroup. Please go ahead with your questions.

[Jason Bazinet:]

I just had one question. You started off talking about the seven main priorities that you have up for AMC going forward. My question was this were there any areas of focus under Mr. Lopez’s leadership? Do you think we will get less emphasis going forward? Thank you.

[Adam Aron:]

That is an interesting question. And the answer is no. I think what Gerry was emphasizing to AMC’s grade credit was what I believe was the second of my 7 planks. That is making the theater experience better and better. You had close to 100 theaters wholly reseated. You have got – we went on a path of 150 plus IMAX theaters as well as the launch of a pilot for Dolby Cinema, which when you see the product, it’s a great product. It’s a wonderful way to watch the movie. We have had I think it’s somewhere between the 100 and 200 MacGuffins bars of input in the lobbies of our theaters. And I have never known anyone really to lose money selling alcohol. So, I am not surprised that we are industry leading in food and beverage profits per patron. And I am fully supportive of those priorities. And if anything, I think they are so well proven that we ought to do more of them faster and as we said on this call earlier do partial theater renovations when we can make progress for some screens into theater, not necessarily whole theaters. So no, I don’t think we are leaving anything of Gerry’s on the wayside. He did a fine job leading this company. Having said that, I think there is some more things that we can do in addition and I laid them out on this call.

[Jason Bazinet:]

Thank you very much.

[Operator:]

Our next question comes from the line of Anthony Nemoto with Credit Suisse. Please go ahead with your question.

[Anthony Nemoto:]

Thanks for taking the questions. Two if I may. On the January investor call, you mentioned financial impact to the marketing initiatives possibly coming through in the second half of ‘16 timeframe. I am just wondering if that would still hold today as you see it? And then secondly on the Paramount deal, are there any directional indicators of how that has performed in terms of the downstream monetization and how you might be thinking about future similar deals? Thank you.

[Adam Aron:]

Yes, on the earlier call, I said that if we are going to see any financial return for the marketing initiatives, it won’t be before the second half, because most of the new marketing activity is going to be worked on in the first half of the year and rolled out nationally in the second half. How quickly it kicks in? We will have to see. It would be nice if it kicks in right away. In which case, we get some benefit in the second half of ‘16. And certainly, we know what our – we have got some targets internally and we have some aggressive targets internally and we like reporting record results to you and we will be focused on doing what we can to deliver for shareholders. On the second question, there is no great learning from the Paramount test. There is a sense that it was modestly successful, but no other studios have seem to rush down that road. And so the whole issue of Windows is going to be a much larger longer question that’s going to spread into ‘17 and beyond.

[Anthony Nemoto:]

Okay, great. Thanks.

[Operator:]

Thank you. Please go ahead, sir. I am sorry.

[Adam Aron:]

Do we have more questions or are we done?

[Operator:]

No, we have no more questions at this time.

[Adam Aron:]

Good. I wanted to conclude the call by saying that I think that I made the longest CEO statement on this call that I have done in 20 years as a Chief Executive Officer. It’s only been matched by your questions. So the fact that you are still with us an hour and a half into this call, we greatly appreciate your interest in AMC. I promise you that on all future conference calls, I am going to shoot for 20 to 25 to maybe disastrously 30 minutes of comments, not 50. And thank you very much for your interest in our company. We appreciate it and I hope we will get a chance to meet individually between now and the next call.

[Operator:]

Thank you. This concludes today’s conference. You may disconnect your lines at this time. And we thank you for your participation.