Q3 2019 Earnings Call
Greetings and welcome to the AMC Entertainment third quarter 2019 earnings Conference call.
At this time, all participants are any listen only mode.
A question answer session will follow the formal presentation, if and when should require Alfredo since they started conference. Please press star zero on your telephone keypad.
As a reminder, discomfort is being recorded I'd now like to trying to call facility a whole John Merriwether, Vice President Investor Relations. Please proceed sir.
Thank you well Tanya good morning, I like to welcome everyone to AMC third quarter 2019 earnings Conference call with me. This morning about American our Chief Executive Officer, President and Craig Ramsey Executive Vice President Chief Financial Officer.
Before I turn the call over to Adam Let me remind everyone that some of the comments made by management. During this conference call may contain forward looking statements, which are based on management's current expectations.
Numerous risks uncertainties and other factors may cause actual results to differ materially from those that might be expressed today.
Many of these risks and uncertainties are discussed in our public filings, including most recently filed 10-K and 10-Q.
Several of the factors that will determine the company's future results would be on the ability of the company's control or predict.
In light of the uncertainties inherent in any forward looking statements listeners are cautioned not place undue reliance on these statements.
Company undertakes no obligation to revise or update any forward looking statements, whether as a result, no information or future events.
On this call we may reference measures such as adjusted EBITDA adjusted EBITDA margin.
Adjusted free cash flow in constant currency, which are non-GAAP financial measures.
Reconciliation of our non-GAAP measures to GAAP results. Please see our earnings release issued earlier this morning you.
In conjunction with our earnings release, we encourage you to review the supplemental financial from 2019 third quarter. We published this morning on our website in tandem with the earnings Rose.
After our prepared remarks, there will be a question and answer session.
This morning's call is being recorded in a webcast replay will be available any investor relations sections of our website at AMC theaters Dot com later today with that I'll turn the call over it out.
Thank you John good morning, everybody.
Thank you for joining us this morning for a review of AMC strong results for the third quarter of 2019.
Our enormous optimism for the coming six months ahead.
We finished 2019 and start off 2020, both with the Bay.
The progress update on several key initiative in support of achieving the product customer engagement and financial targets that we laid out for you at our investor at El Let's say in April of this year.
The third quarter 2019 was another strong quarter for AMC in Q3, AMC continued to outperform the industry on revenue at attendance per screen.
And so doing we drove significant top line adjusted EBITDA and free cash flow growth versus.
A year ago quarter.
Oh sure I'll share more details our results shortly but first let's start with a quick look at the industry's impressive performance in the third quarter.
The domestic industry box office for the third quarter 2019 came in as most of you know at $2.8 billion, 3.6% higher than last year's third quarter, and 4.1% higher than the average third quarter over the past five years.
Like in the second quarter of 2019, we continued to see a greater number of family friendly films.
But the Lion King, which is as of this moment the second largest movie of the year.
As a reminder family friendly films tend to drive greater attendance at our suburban U.S. theaters.
In Europe .
The industry box office also showed real strength in the third quarter 2019 up 13.7%.
In the country served by Odeon the Nordic.
On a constant currency basis.
All in all the cadence of the industry box office in 2019 is tracking exactly as we at AMC predicted a year ago.
Starting with a weak first quarter.
<unk>, followed by an impressive stretch in quarters, two and three ultimately, culminating in what we expect to be a very strong fourth quarter, which includes the release of a whole host of Super movies, including Star Wars, the rise of Scott Walker.
As always.
Well, we are encouraged by the underperformance in the third quarter optimistic for the fourth quarter.
And note that there should be a significant spillover effect into the first quarter of 2020.
It's important to remember that there are natural fluctuations in the box office at an industry level between weeks between months between quarters.
Therefore, our activity AMC is geared to optimize they are performance relative to our competition, regardless of the ebbs and flows Oh the box office at large.
To that end.
We believe that AMC is extremely well position.
That is behaving as the leader in our industry.
And having assembled the largest network of theaters globally.
In which we have prominently invested and guests enhancement after guest enhancement after guests enhancement.
Combined with World class marketing activity.
And our being in the midst thing last the digital transformation of our company as we increasingly and seamlessly engage with our guests.
Before during and after.
They're visits to our theaters.
So lets turn back to AMC in Q3.
In which we had an impressive performance.
Evidenced by AMC is continuing to well off court for the industry.
In our U.S. markets.
AMC set a new third quarter record in U.S. attendance up 3.8% this quarter to more than 61 million theater visits.
And for the sixth consecutive quarter, we noticeably outperformed the rest of the industry.
The rest of the industry being defined as the approximately three Fortunately industries that excludes AMC.
On an attendance per screen basis, AMC, Indeed beat the rest of the U.S. industry on attendance.
270 basis points.
You as average ticket price grew a healthy 3.3% versus a year ago quarter benefiting both from strategic price increases and a greater mix and IMAX and Dolby cinema attendance.
The result of our continued attendance outperformance.
Along with robust average ticket price growth.
Was that AMC outperformed the industry on admissions revenue per screen for the third consecutive quarter. This time in Q3 by 560 basis points.
Let me repeat that statistic.
AMC beat the pack on admissions revenues in the United States per screen.
By 560 basis points.
The story is similarly, a good one in our international markets supported by AMC. His commitment to an improved guest experience with our proven guests initiatives and theater amenities at our European theaters.
Along with improved marketing activity by our company.
In international markets, our international attendance was up 9.3% compared to last years third quarter.
Incidentally, the almost double digit growth in European attendance combined with a record U.S. attendance.
Also means that we set a global third quarter attendance record for our company. This quarter in Q3 2019 of 87 million guest.
Up 5.4% versus a year ago quarter.
In total.
Q3, AMC admissions revenue globally was up 6.1%.
Up 7.6%.
In constant currency.
They have seen third quarter story is not only bright our admissions revenue.
But also we continue to see strong growth in record setting concession spending.
With third quarter consolidated consolidated AMC food and beverage revenues per patron growing 3.4% to $4.82 and up 4.7% on a constant currency basis.
Breaking this down by region.
Food and beverage revenues in the United States.
Increased in Q3, some 4.7% to a third quarter record for AMC.
Five dollarsthirty five cents per patron.
Higher than any other major operator.
While our international results in constant currency also grew by 7.4%.
$3.77, which was an international third quarter record for us.
In addition to our ongoing food and beverage initiatives. This strength in SMB revenue capture was supported by a sharper focus on innovation in the menu choices, we offered to our theater guests and strategic pricing actions taken in the latter half of 2018 and throughout 2019.
As we've said previously we believe that we're still in the early to middle innings of capturing increased food and beverage opportunities I'd expect to continue improving food and beverage spend in both the United States and in Europe in the years ahead.
On a consolidated basis.
AMC generated 1.317 billion of total revenue dollars, an increase of 7.8% compared to last year and up 9.3%.
On a constant currency basis.
In addition to our going for the gold and driving revenues. We also have been watching our costs and our margins Accordingly, as a result of achieving companywide third quarter attendance records and generating record food and beverage spend and marrying that with cost management.
Our margins did expand.
In Q3.
2019, compared with a year ago, and AMC generated third quarter total adjusted EBITDA of $156.5 million, which is up a healthy 11.4%.
In constant currency from a year ago quarter and up a particularly noteworthy.
33.1% on a constant currency basis after adjusting out the noncash impacts of assay 842 on lease accounting.
Adjusted EBITDA up 33.1% year over year.
So.
In Q3, 2019, AMC generated $56.6 million of cash flow from operations 69.2 million dollar improvement over the year ago quarter again after adjusting for the impacts of ASEAN 42, Likewise adjusted free cash flow grew by nearly fit.
The $1 billion.
Every year.
It really was a very positive quarter for AMC.
I want to take a moment here to note that the third quarter trends to be a seasonally low quarter for both cash flow and ending cash balance as our working capital items are impacted by the timing of certain studio payloads.
We expect these working capital items to normalize in the fourth quarter.
Said another way, we expect Kathy healthy cash flow generation in the fourth quarter of 2019, and a strong ending yearend cash balance.
Add to it a wholly undrawn revolver, we have now and we'll have at year end ample liquidity right in line with the expectation we have previously conveyed.
Again trying to encapsulate for you why AMC continues to Overperform. The competition. We believe that these pretty wonderful Q3 results are directly tied to what we've been calling with you. This year the AMC platform.
AMC is delivering a personalized and targeted end to end experience for our guests leveraging modern technology.
And using data driven insights from our popular AMC stubs loyalty program, which literally this very weak should cross 22 million us member households, totaling over 50 million people on whom we have significant purchase history at our theaters along with our loyalty.
Grams comparable stubs within Europe .
As part of the AMC platform, we're deploying innovative consumer engagement practices and state of the art theater experiences. This all creates a positive flywheel effect that encourages incremental attendance on incremental revenue and which holistically in synergistically drives incremental value for our guests.
For our studio partners.
And for AMC.
Before we turn to your questions.
I'd like to briefly comment on six topics first.
On a FC 842 and lease accounting as we've been telling you for many months we continue to believe.
That a considerable disservice is being done to investors by the rapid confusion in the market for followers of AMC in for the many other companies with a large operating lease portfolio. The data services Bloomberg affects a capital I to continually continue to wildly overstate our debt and are doing so intense.
Similarly, with you a step.
And as some of you have written extensively ASEAN 42 caused us no change in cash no change in interest payments and no change in the operations of our business will continue to work with the data services pushing them to give investors more accurate information in the meantime.
We would encourage investors to take one of two approaches when looking at AMC is leverage and valuation ratios to ensure like for like.
As star comparisons.
Either.
Excluding operating leases should be compared where reported adjusted EBITDA.
Or.
Debt, including operating leases should be compared to our reported adjusted EBITDA, putting adding back into adjusted EBITDA our rent expense.
Our finance and Investor Relations team is happy to discuss this further with any of you. If you want more clarity one on one.
Second.
As we've done in past quarterly calls over the past year, So let's talk about a list.
We are now in the enviable position.
Of being able to give you a superb update.
On the Rip Roaring success.
Of AMC stubs analyst.
We are well aware that owing to the spectacular collapse of some others in this space.
Some investors were feel fearful.
When we initially launched.
What we were convinced would be our sustained the sustainable and successful AMC a less program.
They were not quite as confident.
I'm sorry, so pleased to report to one at all.
What a winner AMC has on its hands with a list.
We continue to have over 900000 members and a list membership is now at an all time high.
This is light years ahead of our original membership goals.
Hey, let's members.
Currently represent about 16% Onesix, 16% of AMC is total us admissions.
Well.
Given our confidence.
And consumer demand for a list.
Earlier this year, we had the intestinal fortitude to increase the list monthly price by 10% to 20%.
Across the country to most of our members.
That price increase went into effect for new members as of January 2019.
But hit the 600000 members who enrolled last year in a list only in the second half of this year.
Last year, when we launched a list we guaranteed no increases the membership pricing for 12 months from date of initial enrollment.
Remember too.
We are charging more than doubled for a list what it cost to join sort of marks movie club.
And that in the summer this year Regally Regal finally launch its own subscription offering.
There were some speculated that the combination of our price increases cinemark continuing to dramatically undercut us on price and a new Regal program could hurt us not the case.
Our membership base is solid loyal to AMC growing and importantly profitable.
As important as are the membership numbers.
Given the fixed monthly price. So two is the frequency of visits to an AMC theater on a per member per month basis.
You will recall the frequency level.
Was 2.86 in the first quarter of 2019.
And 2.848.
In the second quarter.
It was 2.4.
In quarter three.
2.4.
We have previously indicated to you that when combined with all the other consumer behavior dynamics in a list of Incrementality high margin food and beverage spending and take a long tickets at full price the Atlas programs should be handsomely profitable.
If member visitation per month are in the sweet spot of two and a half to three visits per month.
And that's where we are right in the heart.
Of central Sweet spot Bill.
As a result, we can confirm too that we are about 18 months ahead of schedule.
On a list profitability.
The time of the programs launch back in 2018 mid year. We originally postulated that we would break even on the list in 2019 and make money, but on a list, but not do so until 2020.
Now we can confirm that a list was nicely profitable in the just completed Q3.
We also now expect that a list will contribute $15 million to $20 million to full year AMC operating income in 2019.
And we can reaffirm our previous commentary.
The run rate profitability for a list looking ahead on a per member per month basis.
By the end of this year 2019.
What's more.
We are finding ways to significantly enhance the endless program for members.
But without it but doing so without materially increasing our costs.
Just two weeks ago for example, we launch something that we call a list entourage.
We are multiple members, including family and our friends can link their accounts that way one person can make a movie reservation and reserves Pacific seats for all in their entourage in just a single quick and easy booking transaction previously.
Each member had to book on their own.
So before entourage.
If say your spouse strep seat H five for the seven P.M. screening of Paramount's Rocket Man you would separately have had to rush out and then try to grab seat age six.
Our gas being able to book multiple seats at once is so popular.
That already in just the first two weeks more than 60000, a lift members have enrolled in entourage and linked up multiple accounts.
And speaking of more to come in a list just a week from now we will also introduced for the first time a list gifting.
Where someone can buy a three month six months or 12 month enlist membership.
Our family member friend or business colleagues.
Without having to disclose the credit card information of the gift door to the gift D.
It's no accident that we're launching a lift gifting just in time for all those Christmas stocking stuffer needs.
In summary on a list we remain excited.
About the continuing ahead of expectations ahead of schedule positive and profitable performance of a list and the increase loyalty to AMC. It has created it's not the only reason for the surge in our US theater attendance, but it is certainly one of the major reasons.
For the third topic to comment on briefly I'd like to give you some more color on the $50 million profitability improvement program that we announced on the last quarterly call mid summer.
As you might recall at our Investor and Analyst day back in April we set out to you a goal to improve AMC is operating margins by up to 200 basis points.
As a part of our commitment to achieving this target we announced a profit improvement plan.
We believe will contribute $50 million or more of operating income to AMC in 2020 through a combination of revenue and cost initiatives.
There are literally dozens and dozens of identified line items to fund the cost savings and revenue opportunities outlined in our profit improvement plan, let me share with you a few examples to put some meat on the bone.
Of achieving our goal.
During the just completed third quarter.
We took the difficult step of implementing a reduction in force at our corporate headquarters in Kansas City to right size, our corporate headcount by more than 10% to be more consistent with our vision of a leaner, but not meaner AMC.
In Europe .
To cut out costly duplicative above theater overhead, we rationalize seven separate geographic territories, each with their own centralized staff to three geographic regions UK, Ireland based in Manchester Northern Europe based in Stockholm, and Southern Europe based in Barcelona, where any.
Each we already had a large and us to an effective staff presence in place both in the U.S. and in Europe .
Those steps represented significant.
Payroll savings.
Another ingenious example.
Our marketing programs are so pervasive our communications efforts so constant at our mobile technology now so much more and use.
That very quietly we have been successfully able to modestly shrink some of our theater operating hours during the most off peak of off peak times. This appears to be getting us considerable savings on utilities and labor costs at our theaters.
But in the Grand scheme of things not surprising us of revenue.
They are just may be no need to start a movie screening at 11, 10, 10 PM on a Wednesday night.
And ending at 130 am in Oklahoma city or for that matter in New York City.
Thanks to our improving technology and growing brand loyalty. We can now convinced that guest to cheerfully attend a 10 10 PM or 10 40 PM show start for that same movie instead.
But in that illustrative hypothetical of theater gets to close a half hour or a full hour earlier.
That saves us money.
And our staff gets more sleep, which in turn may lead to better customer service over time from more well rested and less stressed theater teams.
In the third quarter, we reduced shows starts by 4.1% in the United States reduced show starts by 4.1% in the United States and yet we achieved an all time attendance record for that same quarter and had the biggest increase.
And reported market share.
Of any change in the country.
This dynamic scheduling cuts both ways, though.
Getting smarter about knowing when to cut showtime's in the off peak means we also were getting smarter about adding show times in the peak. So when Star Wars opens in December you can be sure that AMC will be going around the clock without interruption four days on end.
At major theaters all across the country.
And more examples in the profit improvement plan just by adding.
I'm not a robot security feature to our gift card database.
That's pretty obscure.
It more actively saves us hundreds of thousands of dollars.
Annually.
Putting some of our vendor relationships out for competitive bid.
He is also expected to save us millions.
Without reducing the quality of the goods or services that we procure.
I'll spare you every line item on the province, improving plan, but I can tell you that we are on track to hit and potentially seed the 50 million to our target for 2020.
Fourth topic.
MC continues to be committed to innovation.
But at the start of the just completed two three all of our U.S. theaters in the AMC and AMC dine in.
Third reserved seating, which is immensely popular.
Yes.
At the start of Q3, we also launched our new artisan films concept, which puts a halo an extra marketing around what we're calling contemporary curated films into which were leaning in heavily.
Yes, we show tent Poles.
But there are plenty of really intriguing movies out there that we are especially highlighting yes like universal yesterday Warner's the Joker.
Disney boxes Ford versus Ferrari Sony's once upon a time in Hollywood.
And movie after movie after movie like Judy Bombshells, the good liar and the current or to name just a few of the many artisan films that we are trumpeting.
More innovation in Q3, we started showing professional football games on Sunday afternoons at about 100 of our us theaters.
The early returns on our blockbuster pricing test, which launched on August too.
In four major cities across the country.
Are going very well.
And our experimenting with blockbuster pricing.
We will continue.
As we do in Europe , we are testing charging a small surcharge of 50 cents, a dollar and a dollar and a half depending upon the theater on certain really big movie titles at least for the first week or two of their run.
And again on innovation, just two weeks ago, we introduced on our website and smartphone app AMC theaters on demand the ability for our AMC stubs numbers to rent or by more than 2000 of the latest release movies for home viewing.
We're the first and only you a theater circuit to participate in more of the movie ecosystem.
By allowing us to participate in revenue streams at the home and in the theater.
And we have the enthusiastic support of all the major studios in our doing so.
Leaders lead.
And innovation at AMC, Therefore, we will continue.
In Q4 Q1.
We expect it will start testing home delivery of our own AMC perfectly popcorn and other menu items via Postmates Grubhub lubricants.
What I'm, suggesting with all these various concepts. Many that are just in the design stage. Some that are now being tested and some that are now being widely deployed.
Is that there is real imagination and energy in vitality at work and on display at AMC. There are in fact reasons why our attendance and our revenues are outperforming the competition as I said leaders lead.
Innovation, along with adaptive creative new thinking is part of the very eat those of AMC, especially as we transform ourselves digitally and engage with our guess more and more in offering a quit a central 21st century style movie going experience.
Topic five just it quickly on our Capex plans as you may recall on the last quarterly earnings call.
Being very mindful of our desire to generate adjusted free cash flow and to deleverage.
We introduced new guidance last quarter for 2019, Capex of $415 million down from $450 million. The target that was outlined earlier in the year. We also introduced 2020 capex guidance of only $300 million, which is reflective of.
The natural conclusion of the divested capex cycle and in line with a long term targets, we set out in our April investor and analyst day of $250 million to $300 million over a three to five year timeframe.
We are reaffirming those two numbers for 15 and $300 million today.
Indeed that capex is not expected to exceed $450 million in 2019, nor to exceed $300 million in 2020.
One of the reasons why we're comfortable containing capex. These levels. As we look ahead is that we already have recliner seats installed in 78%.
Of our AMC branded an AMC dine in theatre locations in the United States.
By the very nature of the AMC classic branded theaters with ticket sales usually in the lower end of the range of between 200 to two to 1000 tickets sold per day visitation levels that are these are smaller theaters are simply not high enough to get an attractive financial return from sizable investment in added theater.
Entities, we operate and compete differently among theaters within our classic brand.
So, adding our own capex money monies together with landlord and partner contributions were still able to commit significant resources to continue investing in our technology and to continue to investing in our large theatre network to make our theaters more attractive to consumers.
Actually doing so in Europe , and the middle East as we identified growth opportunity at attractive high ROI returns, we intend to continue to capture them.
And finally topic six.
I want to wrap up our prepared remarks in this call where the salute to two individuals by name.
For whom I have the greatest respect.
This comes in conjunction with a well we were well earned retirement by our CFO Craig Ramsey at the age of mobility Lub. They will let me say his age actually.
Who will hit his 25th anniversary with AMC.
On February one of 2020.
I think the world of Craig as many of you.
Who has a storied history with AMC, having served as CEO of this company for some two decades Craig.
In front of the people, who know you I cannot thank you enough for your Sage Council your confidence in your high integrity.
For your longstanding service and many contributions to AMC over the years Youve. Many friends you will be missed.
Craig and I have been working together on his events will transition for some time as a company understandably given the crucial nature and potential impact of the roll the CFO role if filled well AMC devoted great effort to identify and recruit Craig successor as CFO .
Namely, Sean Goodman, who joins us on December to just a few weeks from now.
Sean is the CEO of Fortune 500, Asbury automotive group like AMC also in NYSE listed public company. He's a SCPA with auditing experience at the light both in South Africa, and in New York and Harvard EMEA. He worked for Morgan Stanley in London, as an investment banker for many years.
There's an led several senior staff finance functions at home depot, Atlanta for many years as well he's a smart a smart can be a keen strategic thinker and a nice person to boot.
I welcome him here to partner with me today, and guiding AMC and especially to help us build back our share price to levels that we believe are far more commensurate with the potential earnings power and the bright future that lies ahead for our company.
Sean and Craig will overlap together for about three months, making for what we all believe will be an easy painless and orderly transition.
Definitely they will get out and about during that time period, and we'll be able to meet with many of you.
In summary, as we conclude.
AMC had a strong third quarter.
We are well positioned for the future.
And operator.
We're now ready for questions.
Thank you at this time, we will conduct a question answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone indicate your line is any question Q.
You May press star too if you like to remove your question from the Q.
So participants you speak we quit it may be necessary to pick up your handset will present. This dark keys once again that star one to ask a question at this time one moment, while we pull for first question.
Our first question comes from David Miller with Imperial Capital. Please proceed with your question.
Hey, guys congratulations great brands.
Question.
I'll get to kind of the Nitty gritty first and then.
Just as an overall philosophical question, Adam or maybe Craig the noncash expense entry on the NCM services agreement looks like a cost you guys about eight cents a share price you guys called that out if you could just kind of stride that entry for us that would kind of help flush that out and then it looks like rent expense was.
Okay.
A 17.2% year over year, how much of that was assay 842, and how much of that was just pure organic.
And then I've a follow up thanks.
Well, we'll have to get back to yet David on the congratulations you stumped us.
Sam noncash I mean, there is some amortization.
We'll have to get into it and look and get back to you on on that that your question about the.
I see 42, the charge and.
The comparable adjustment in 2018 for Asea 42 would have been about $23 million on a consolidated basis.
Probably about 12 that domestically and the balance on the international side.
Okay Fair enough and then Adam.
You still believes that the U.S. box office will and at a record this year versus last year looks like it's going to be very close probably going to come down to star Wars, but you you did I think make that statement, perhaps two quarters ago wondering if you're willing to stand by that.
And then also just wondering if you cut size up the Saudi Arabian opportunity.
At least this looks like a huge multiple expansion opportunity for your stock price and.
Just yet another are massively underserved market around the world.
And if you could just maybe couch some of the population statistics about.
The second it's just a younger audiences they want to go to movies and and so on so forth that would be helpful for us. Thank you.
Thank you.
On the box office.
We're really not you know.
People are trying to forecast.
2020.
Hard to forecast 2021, you still can't quite forecast 2019, and it's hard to forecast. The next two months of 2019, when we're all trying to figure out how next weekend will do.
We're really not going to know where 2019 ends up.
Literally until Christmas new years week.
The the the film volumes are so big in December .
We know the quarters going to be a big one.
I think it's.
Very unlikely the 2019, the domestic box office anyway, we'll finished below $11.5 billion.
I think it's unlikely that will finish above 11 811, nine we had hoped to begin a year. We this might be the first year to $12 billion.
It seems pretty unlikely it will do that.
Where in that range.
11, Fived 11, 911, six to 11 eight it really settles in and really all depends on how individual movie titles gross.
Over the next seven eight weeks.
As for.
The middle East.
I was just there last week.
Im going back in six weeks.
The story has enormous promise for us.
We have a single theater open.
In Riyadh.
It's currently doing.
11 times the revenue.
Have a traditional AMC screen.
In the United States or Europe .
11 times.
The average seat utilization per year.
At that theater in Riyadh is more than double.
The highest grossing theater in the United States.
Which happens to be an AMC theater by the way Empire 25 in times square.
We've signed a joint venture agreement with the public investment fund an affiliate of the public investment fund.
The sovereign wealth funds.
That country to develop at least 40 to 50 theaters over the next four to five years, our second theater at 10 screen Theater will open in mid December .
We expect to have.
Similar tweeted doesn't end 20 theaters open by the end of next year 2020.
Remember this is an affluent country of 33 million people.
It has the twentyth largest economy in the world.
They like going the movies.
They do it now by driving the Bahrain or flying to Dubai.
To see movies, they see movies when they travel outside the country. They see movies at home by satellite dish and as we've proven.
When we opened theaters.
They come to our theaters in huge numbers, we agree with you it's a significant opportunity for us and we've done it in a capital light way most of the capital.
For our expansion in the Middle East is being provided by our sovereign wealth fund partner.
So David I actually.
Now focused on your question second you're back to back to back to the NCM noncash charge really what what's going on there is.
When when the company was form years ago. There were some upfront payments that were collected by the forming partners one of which was AMC of course.
That money was deferred and amortized over the term of our ongoing agreement National Cinemedia.
Last year the account said.
You need to breakout and interest component of that amortization, so really nothing has changed.
Whereas they amortization was formally in our expense category a piece of it is now pull down into interest expense. So there's really no substantial or change of substance. There is just to recap classification and most of that most importantly, it's a noncash item the cash was collected long ago.
Joe This is a noncash charges coming through.
Got it thank you very much.
Our next question comes on Megan Durkin with Credit Suisse. Please proceed with your question.
Hi, Good morning, guys I'm wondering if you've had any very early learnings on the AMC on demand product and why do you think and see can be successful in the space given Walmart as accurate as getting this business.
And then.
I wanted to dig into your comment about around optimizing the box office versus competition, what did a levers you can pull there and how can we have confidence that you will outperform the industry in 2020.
Let me do the second question first.
Why should we opt why should we continue to outperform the competition because weve been outperforming the competition.
Uh huh.
Depending upon which metric you're looking at three quarters in a row or six quarters in a row and if you look at all of the marketing programs that we have.
We're just so out in front of the pack.
Stubbs.
It had two and half million member households, three years ago.
It's going to hit 22, and it wasn't growing either.
We redesigned the program three years later.
It's going to hit 22 million households.
This month.
We used to communicate to our guests.
Yes, emailed in the like 50 to 100 million times year, when I say used to back when stubs had two and half million member households.
We're not communicating to our guests by email text SMS.
Mobile push notifications about a billion and a half times a year.
About half of our total AMC clientele now is enrolled in our loyalty program subs.
And we're making it very easy for them.
To buy our product.
Through our upgraded website on smartphone app.
Under the old web site that was here when I got to AMC three for three and a half years back.
We were being visited.
On the on the web or on our smartphone app.
Just under 100 million times annually.
Depending upon the volume per month.
Our website or smartphone our smartphone apps are being visited.
Between 50, a low of 50 million times, a month and 90 at a high of 90 million times a month, we should be pushing into any 20 somewhere between 750 million in a billion visits.
Through our website and smartphone app.
We're all reserve seating, making it much more convenient for our guests our theater our theatre network.
Is in better shape more theaters have you been renovated more theaters having been.
Installed recliner seats.
I could just go on it on.
But it really is this.
The it's what we've been calling the AMC platform. It is working.
Yes, a list is.
Just doing phenomenally well.
And we're just so out in far in front of our competition.
By the way, it's not easy in an industry. This mature to move market share around and we've had the biggest reported market share gain increased in the country. So.
Thats, what weve been doing.
That's what we'll continue to do well continue do it well, we're working constantly innovating and I believe that all that is going to cause us to continue.
To be out in front of our competition.
As for.
As for.
AMC on on demand.
AMC theaters on demand, we've only been out two weeks, it's a little early to give you any forecast over two weeks, we always thought that we would start out very slowly.
We had very little cash invested in this thing.
A few million dollars to program it.
We're not spending a lot of money marketing it.
We don't quite think were.
Going to scare items or.
Or any of the people in this space already but here's what we do think.
If somewhere between 50 and 90 million people a month.
Our who are interested in movies are already coming to the AMC website at <unk> already coming to the AMC smartphone apps and we can make it really easy.
For them to read or by movies on demand.
For home viewing phone viewing tablet viewing.
Yes, this where the fish are.
And since we got so many people interested in movies already coming to us and exploring our website, we think that just by accident.
We're going to see us a substantial number of transactions on each of which.
We make a positive contribution overhead so.
Thats why we think will be successful and yet we think the business will be very small.
At least that we when we start.
And we'll see how we build.
Over the quarters and year a years ahead, but why not do it was easy for us to do.
And we launched and we and we ask all you just.
Got to be a subsidiary of enrolled but goto our website or go to our smartphone app.
There are used to be two buttons at the top of every page in theaters in coming soon there now three buttons the top of the pace in theaters coming soon and on demand.
We think that what we've designed is really attractive slick looking guest interface. We look every bit as professional as every other major players in this space.
And.
As I said it cost us next to nothing to do it.
We'll see how much revenue and profit at winds of adding to the bottom line.
Okay, Ceos, and lastly, and studios are very happy with us.
Yet because it's just one more player coming in and helping in the ecosystem of their home entertainment business.
We already have great relationships with all of our major studio partners.
To the extent that we can do more things that make their lives better making their lives better ultimately makes our lives better in the long run.
Got it.
Our next question comes from Chad Beynon Macquarie Group. Please proceed with your question.
Hey, guys good morning.
And the Entre Chad Thanks for taking my question.
First you talked a little bit about Regal subscription plan.
Since Regal launched a program have you noticed any attrition in the markets, where you guys compete and then can you talk a little bit about what you're seeing from a labor. We're oh payroll standpoint in cities and do you think thats, putting any pressure on your margin initiatives. Thanks.
On the first question.
Regal.
Regals Unlimited program no we haven't seen any impact really.
Hey list is healthy strong resilient profitable.
How many wonderful additives can I come up with the described a list.
That's driving great Incrementality in movie going.
It's driving great incrementality in food and beverage spending.
Hey, let's members are bringing people along at full price.
We think we learned that we think we know.
We've got a very strong program on our hands.
We also with note.
That while.
Let me put it right. We also note that.
We launched a listed a time.
When.
Other unmentionable people were out there.
We thought we designed our program in a really smart way, we know that we've been managing our program and really smart ways over the past 18 months.
There was a reason why we put into limit of three movies per week.
In the Aeolus program and in the Regal Unlimited program.
There is truly unlimited so if somebody wants to see 25 movies a month they can.
Honestly, when you're only charge in 20 Bucks a month.
Two bucks a month 24 Bucks a month somebody wants to see 20 by movies month, we're happy to give all those people to Regal.
Every single loan.
But to answer your question no theres been no competitive impact on us were strong and were healthy.
As for labor and payroll Craig It may have more detail, but yes, yes, there's no doubt we're at a multiyear trend of.
Of political decisions being made to raise minimum wage all over the country that is costing us money.
But that's one of the reasons why we're looking so hard to drive savings real savings.
Through the profit improvement program and I gave you. Several examples where we are really cutting costs and there are dozens and dozens more examples that I did laboriously take you through.
But.
Net.
We're ahead of the game when you look at cost reduction efforts against labor and payroll expansion efforts, yes, I'd say that.
The wage minimum largely due to the minimum wage changes that Adam referenced was probably somewhere between seven 8% in the quarter I think on a go forward basis, we would expect them to be around 5%. So yes, we're seeing it most notably just not to repeat Adam but I think is example of how we.
Really took a hard look at show starts as an example of optimizing our operating on below without sacrificing revenue because we still outperformed on a revenue basis.
Even in even with some cost pressures, we managed our business smartly and we saw margin improvement and I think thats really the answer yes. There was wage cost we did the right things to manage our business under those circumstances, and we still improved our profitability.
Okay, great. Thank you very much.
Our next question comes on Mickey Mike Hickey The benchmark company. Please proceed with your question.
Yes, Craig John Congrats on the quarter guys.
Craig.
Thanks, a lot.
I guess, just two questions it looks like you're you're adding lifts up sort of help held through the first up price increase I guess is sort of think.
The price increase I guess it later adopters the impact you would expect on.
On the call sub continue to grow that if you expect mild decline.
And then.
Second question on linear partners National Cinemedia.
No change there deal with some of their founding.
Partners, including sent a mark to allow ads post Showtime, which.
I think it's pretty common.
International markets also having happening with a competitor domestically the screen vision and you guys are pretty well.
Local that that's not something that you want to dissipate.
Sort of curious your thoughts.
And why decided not to do that.
Sure So let's talk about Atlas first.
Yes, it's all good for analyst.
We.
The membership growth.
Is way ahead of where we expect to be at this point.
I would expect that we would continue.
To to grow our analysts membership I don't think we've.
Flattened out to a point where will decline in membership.
But I do think that growth going forward is going to be much slower than it was in the first.
Six to nine months when we're in a ramp up phase.
You know the the.
Yes, the price increase.
As a factor competitions a factor I think the biggest factor is how big this market size is.
When we launched the program back in June of 18, I actually speculated that.
With that if we got to a million members would take us two full years, but that we might not ever get to 1 million members because I had size the market.
At about 800000 members for AMC, we're already well ahead of that and they will continue to grow.
But.
But but.
Yes, not not at the exponential pace that we saw in the first nine months as for NCM in advertising.
There were two things that were in the NCM announcement.
One is they're showing ads.
Five minutes after the official Showtime's start.
And the official Showtime start is actually 20 to 25 minutes ahead of when the movie actually begins because theres a big trailer package that shows in.
The 20 minute period prior to a movie star.
And a second issue.
Which is.
One to two trailers before the movie actually begins.
So call it two and after four minutes before movie actually begins they were going to be inserting another 62nd AD.
Right at the middle or the end of the trailer package right before the movie starts.
We don't have any problem really with.
With the showing.
Add five minutes after the Showtime star.
It's a long time before that the theater before the movie begins in theater, but this thing about showing commercials.
Right before.
The movie actually begins the mill the trailer package.
That trailer package is extremely valuable real estate.
And I would so much rather be advertising movies.
Luke.
The value of what we earn.
Both from the paid trailers.
Where we are receiving income from studios and from all the extra tickets that we sell for future coming attractions.
That so much more than what NCM offered us to show an advertiser detergent.
We also think that and know that our customers like seeing movie trailers.
And we think they're going to fight it quite jarring.
To see an AD for an unrelated product.
Just before Showtime so.
It's commonly done in Europe .
But consumers are used to it in Europe .
We don't it's not come lead on the United States.
And we think us consumers are going to react pretty negatively to it so.
As the leader in the industry we passed.
Thank you.
And I just might add.
I'm convinced we're going to make far more money.
From the sale of trailers to studios.
And the sale of tickets to films.
By the way, we deploy our trailer time.
I will make far more money from that than we would make if we accepted what NCM had offered us.
To show unrelated third party advertising in that space.
Thank you we have time for one more question and now question comes from Eric Handler, and Kate and partners. Please proceed.
Good morning, Thanks for taking my question.
Adam you haven't really talk.
Yeah really talk much lately about.
The success of the receipts in Europe , and how those are fair and I think by now we're sort of.
A number of them have sort of anniversaried one year, the one year Mark.
And I Wonder if you just give us some color on how those are performing.
Thank you Eric.
Uh huh.
The receipts in Europe continue to be off the charts successful.
We said on prior calls we were seeing ROI returns of 50% or more 70% or more we're seeing theater revenues go up in half, we're seeing theater revenues double.
There's no new news.
That makes us any less bullish on our investment in theater many programs in Europe .
You'll notice that even.
As we brought capex spending down.
In total for the company.
Please just said over and over again that we continue to.
See significant ROI opportunities, especially in our European and middle Eastern theaters.
I would expect.
We'll do at least.
15 theaters in the UK in 2020 for example, with full full blown theater renovations, including recliner seats.
The the whole investment thesis behind our buying Odeon in the first place.
Was to take us.
Hey.
Circuit with a strong brand name and great physical locations.
But.
But a fleet of theaters that were pretty run down.
And invest significantly and improving the quality of those theaters, bringing AMC style proven guest initiatives.
Over to Europe , that's what we've done.
We got about Cdthirty theaters done we're going to add another 15 more.
Next year.
And we're off to the races. This has been a very successful initiative for AMC, that's made us happy to have grown in Europe .
And.
And it's an all good news story.
Given that we will continue one when the will that will continue in 2020 and beyond.
Great. Thank you and just a quick follow up with the UK market. It seems like view continues to have.
Very irrational low pricing in a number which markets wondered how that's been impacting you lately.
So.
Yes, one of our competitors has been pretty stupid.
In especially in the UK.
We.
Fortunately.
Have been renovated theaters in the UK, so theres been no need to match their lowball pricing.
As weve insulated ourselves somewhat.
By improving the quality of our theaters.
There's a reason why we can charger dramatic premium.
When we launched.
Vendors endgame ability in Leicester square in London.
We have variable seed pricing.
Commonly in Europe .
We were charging.
$40 a seat.
To see OTI vendors engaged with Dougherty Leicester square.
And if you sat in the.
Royal box, which is 24 seats I think 18 sees every how big the ROE boxes were charging $52 a seat.
To watch adventures engaged with the Odeon Leicester square.
So you can differentiate yourself.
While the quality of your theaters.
Not just on price.
But in others of our theaters we.
Got tired of them picking our pockets. So as you look for example, a third quarter pricing internationally, you'll see that.
The price increase we picked up in the states, we did not pick up in Europe .
But are getting down and dirty and slugging. It out with them is one of the reasons why we had a 9.3% increase in attendance.
In Europe .
And.
The end result of it was.
Growing attendance growing theater admission revenues.
Growing EBITDA growing margins.
So we think we got the Formula right, Craig you want to yeah, I might add some context to with a couple of data points that I think we've mentioned that Adam mentioned on his call is his formal remarks at the year Europe , our industry was up a little over 13% our recliner segment.
Of our circuit.
Performed in Europe outperformed by a factor of three times that so that's that they are driving a lot of the growth we're seeing and there's that's clearly a portion of the of our circuit I mean, it's 25, almost 30 theaters. So it's not it's a growing more important piece, it's the fastest growing.
And we're certainly not.
Forestar push to take price.
Reductions there in fact, we're we're optimizing our price because of the big demand that we're seeing on those remodeled reseated theaters, we are matching prices in some of our other theaters, where it makes sense to us strategically to take some lower price.
But not certainly not on the remodel piece folks we know that this is a big earnings season day, there a lot of companies reporting we want to go to let you get off the phone.
Thank you for participating and joining with us today and to sum it all up AMC had a very strong quarter, we are extremely well positioned looking ahead.
We have every confidence in our future and hope that you do too thanks much.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Mm.