Transcript of Regal...

Trading Under the Symbol: ISDR

Transcript of

Regal Entertainment Fourth Quarter 2016 Earnings Release Conference Call

February 9, 2017

Participants Amy E. Miles - Regal Entertainment Group David H. Ownby - Regal Entertainment Group

Analysts

Julia Yue - JPMorgan Securities LLC Benjamin Mogil - Stifel, Nicolaus & Co., Inc. Robert Fishman - MoffettNathanson Eric Wold - B. Riley & Co. LLC Chad Beynon - Macquarie Capital (NYSE:USA), Inc. Tony Wible - Drexel Hamilton LLC David W. Miller - Loop Capital Markets LLC Zack Silver - FBR Capital Markets & Co. James Charles Goss - Barrington Research Associates, Inc. Matthew J. Harrigan - Wunderlich Securities, Inc. Leo Kulp - RBC Capital Markets LLC Omar Sheikh - Credit Suisse Securities (USA) LLC

Presentation Operator Good afternoon. My name is Tim, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regal Entertainment Group Fourth Quarter and Full Year 2016 Earnings Release Conference Call, with our host Amy Miles, Chief Executive Officer of Regal Entertainment Group; and David Ownby, Chief Financial Officer of Regal Entertainment Group. All lines have been placed on mute to prevent any background noise. After management's remarks, there will be a question and answer period. [Operator instructions]. I'd like to remind our listeners that this conference call contains 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. All statements, other than statements of historical fact, communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause the actual results to differ materially from the company's expectations are disclosed in the Risk Factors contained in the company's 2015 Annual Report on Form 10-K dated February 29, 2016. All forward-looking statements are expressly qualified in their entirety by such factors. Today's call and webcast may include non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release and on the company's website, www.regmovies.com. Now, I will turn the call over to Amy Miles.


Transcript: Regal Entertainment

Fourth Quarter 2016 Earnings Release Conference Call

February 9, 2017

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Amy E. Miles - Regal Entertainment Group Hello, everyone, and thank you for joining us this afternoon. One year ago on this same call and on the heels of a record industry box office in 2015, you heard us reference annual all-time highs in practically every metric commonly used to evaluate our performance and our industry. I'm happy to report that one year later our message will be very similar. Once again, an impressive slate of films delivered record industry box office results. Once again, our efforts to improve the customer experience had a meaningful impact on our key financial metrics. And once again, we delivered record annual adjusted EBITDA and meaningful growth in our adjusted EBITDA margins. Needless to say, we're very thrilled with those results. I'll let David discuss our fourth quarter financial results a bit later in the call. They're impressive in their own right given the difficult comparison with last year's record fourth quarter. But before I turn the call over to David, I'd like to spend a few minutes giving a more in-depth look at the long-term impact of our strategic initiatives. While we consistently provide relevant quarterly updates and statistics, it may be difficult for investors to fully discern the big picture impact of these projects as they layer into our financial results over multiple quarters or even years. To best demonstrate that impact, we went back five years to fiscal 2011. Back then we were in the midst of the industry's conversion to digital projection, our most important consumer-facing initiative was the rollout of IMAX, RPX and 3D-equipped screens, and our concession per cap growth rate was at one of the lowest points in the last 10 years. For the fiscal 2011 year, our 212 million attendees produced adjusted EBITDA of just under $486 million. Now fast-forward to 2016. The difference is remarkable. Premium amenities, luxury seating, large format screens, robust concession offerings, and alcoholic beverages are available to more of our customers and at more of our theaters than ever before. Our industry-leading loyalty program has almost 12 million active members. Our average ticket price and concession per cap growth rates are at the high end of the historical range. And most importantly, a very similar attendance base of approximately 211 million people produced adjusted EBITDA of just over $630 million. That's $144 million of adjusted EBITDA growth over a five-year period in what is generally described as a mature industry. Again, we are very thrilled with those results. The key components of that growth are as follows. Over $65 million came from box office revenue net of film and advertising costs. Our investments in large format screens and luxury seating has allowed us flexibility to raise our average ticket price and drive incremental adjusted EBITDA while still providing a great value to our customers. And win/win revenue shares arrangements with our studio partners ensured that both parties benefited from our investment in the theatrical experience. An incredible $202 million came from concession revenue growth, net of concession cost. Our rollout of new menu items and alcoholic beverage offerings, combined with a continued focus on strategic price adjustments, has resulted in concession per cap growth of 32%, or just over $1 since 2011; all of this growth, while keeping a close eye on our costs and improving our concession margin by 80 basis points. And not to be overlooked, our other revenue streams contributed over $70 million of growth over the past five years. Revenues from our vendor marketing arrangements, our gift card and bulk ticket programs, and our advanced ticketing platforms all experienced high growth rates with very little impact on our cost structure. All told, our total revenue, net of variable cost, has grown by approximately $339 million since 2011 as compared to an increase of less than $200 million in our operational and administrative cost over that same time period. The resulting $144 million increase in adjusted EBITDA represents a compound annual growth rate of approximately 5.5% and margin expansion of 160 basis points, all achieved without a meaningful change in our attendance.




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We highlight these accomplishments for one simple reason. We believe that our strategic initiatives and operational discipline combined with our proven track record of effectively allocating capital in ways that best benefit our long-term shareholders all contributed to our success over the past five years. And we are optimistic that these positive trends will continue to benefit our customers and our shareholders well into the future. Our studio partners' commitment to and investment in theatrical content is robust and the film slate looks very solid for the foreseeable future. Our customer amenity initiatives, both at the auditorium and at the concession stand, still have room to run and we'll bring them to more and more customers over the next several years. Our customer engagement strategies through the Regal Crown Club, our mobile app and our ticketing partners have the potential to increase frequency and spend among our very best customers. And all of these contribute to our expectations for continued success and should produce meaningful upside for our shareholders for the next several years. We're obviously proud of our past results and it should be noted we are equally optimistic regarding our future. With that, I'll turn the presentation over to David for a discussion of our fourth quarter financial performance. David H. Ownby - Regal Entertainment Group Thanks, Amy, and good afternoon, everyone. For the next few minutes, I'll provide a brief analysis of our fourth quarter results and an update with respect to our balance sheet, asset base and capital structure. We generated total fourth quarter revenues of $812.6 million, including $514.9 million of box office revenue, $227.1 million of concession sales and $70.6 million of other operating revenue. Our admissions revenue for the quarter fell by approximately 5.5% in the aggregate, as an average ticket price increase of 1.7% simply couldn't offset the industry attendance decline in the face of last year's record-setting film slate. That difficult comparison was most evident at our large format IMAX and RPX auditoriums, which saw per-screen revenue fall by over 32%. Excluding these 182 screens, our per-screen box office revenue fell by only 2.1%. Our concession revenue decreased by 5.8% in the aggregate, but grew by 1.6% on a per-attendee basis. While the per cap continued to benefit from both strategic price increases and the continued rollout of our expanded menu and alcoholic beverage offerings, overall unit volumes for both beverages and popcorn declined slightly in the face of a very difficult comparison and limited our fourth quarter per cap growth. Other operating revenues grew by over $9 million as compared to the same period last year, driven primarily by an increase in revenues associated with our gift card and bulk ticket programs and the continued success of our online and mobile ticketing platforms. Over the course of 2016, almost one-fifth of our admissions revenue was generated via an online or mobile transaction. Our film and advertising expense of $275.3 million represented 53.5% of admissions revenue, a 100 basis point improvement versus the same period last year due primarily to a film slate that was somewhat less reliant on one or two high grossing films. Our 87.1% concession margin declined by 80 basis points as compared to the same period last year, but remained in line with the recent historical average. Normal increases in packaged goods and raw material costs and minor changes in product mix both contributed to the quarter-over-quarter increase. And both rent expense and other operating expenses remained relatively flat in total, but increased by approximately 1% on a per-screen basis, the former due to normal inflationary increases and the impact of landlord construction incentives, and the latter due to minor increases in theater-level payroll costs. We are extremely pleased that despite the difficult comparison with last year's record fourth quarter, our strategic and operational execution produced 50 basis points of adjusted EBITDA margin growth and fourth quarter total




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revenue adjusted EBITDA and adjusted earnings per share that are well ahead of consensus Wall Street estimates. As for our asset base, capital expenditures net of asset sales and landlord contributions for the quarter totaled $40.9 million, bringing our full-year total to $138.2 million, and we continued to actively manage our asset base, opening two new auditoriums at an existing theater and closing four theaters and 45 screens to end the year with 561 theaters and 7,267 screens. In light of our ongoing focus on premium customer amenities, we expect our 2017 capital expenditures, net of asset sales and landlord contributions, to be between $130 million and $145 million. In the coming year, we expect to open three to five new theaters with 40 to 65 screens and close 6 to 10 theaters with 70 to 100 screens, which would result in ending counts of approximately 557 theaters and 7,234 screens for 2017. In addition, given our current asset base and capital expenditure guidance, we expect full year depreciation expense of between $235 million and $240 million in 2017.

And with respect to our capital structure, we ended the quarter with over $246 million in cash and approximately $2.34 billion in total debt. Absent any significant changes in our debt profile, we expect interest expense of approximately $124 million in 2017. In closing, we are pleased that our strategic and operational execution, our investment in premium amenities, and a healthy box office environment led to a solid fourth quarter and a record year in 2016 and we remain excited about the opportunity for more of the same in 2017. Operator, this concludes our prepared remarks and we can now open the line for questions. Question-and-Answer Session Operator Thank you. Our first question comes from the line of Julia Yue of JPMorgan. Please proceed with your question. Q: Thank you. I was wondering if you could talk a little bit more about what drove the big increase in other revenues this quarter against the very tough comp last year. How much of this was from the higher advanced ticketing sales that you mentioned? And should we expect them to remain elevated for the next couple quarters as well? David H. Ownby - Regal Entertainment Group Thanks, Julia. The biggest component of that relates to our gift card and the revenues associated with our gift card and bulk ticket programs. Those programs have, particularly the gift cards, have continued to grow over the last few years. And really two things that kind of impact the revenue that we recognize in a given period: one is our sales history, and the other is the redemption pattern, and both of those have been in our favor for this past year and particularly in this quarter. A smaller piece of that, you mentioned the advanced ticketing platforms, it was another great quarter from an advanced ticketing perspective. I think about 25% of our sales in Q4 were via our online or mobile platforms, and that number has continued to grow. Really the trend line has been that number was kind of in the low teens for the first part of 2015. Obviously, it spiked up in Q4 of last year with The Force Awakens. First three quarters of this year, it was kind of in the mid-to-high teens, 17%, 18% of our sales, and then jumped up again to about 25% in Q4. And certainly we'd expect that number to continue to grow in the future, as we roll out more and more recliner screens.




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Q: Got it. And I was also hoping to get some clarity on the recent expanded deal that you signed with IMAX, particularly are these screens being installed mostly in markets that don't have any PLS offerings, are they more add on? And I also think the screens are supposed to be installed in a mix of both new and existing theaters over the next couple years. Any clarity on what that mix is and what the expected pace of installation is supposed to be would be really helpful. David H. Ownby - Regal Entertainment Group Yeah, Julia. I don't have those specific numbers in front of me, but you are correct. It's a mix of new theaters and existing theaters, and same thing, a mix of some markets that will be getting their first IMAX screen and others that already have some other IMAX or PLS screen in the market. That arrangement we felt was a win/win for us and for IMAX. It expanded our footprint, made some minor changes to the economics in the deal that I think in the long run benefit both of us. And so yes, we were excited to get that signed up. Q: Okay. Great. Thank you so much. Operator Our next question comes from the line of Ben Mogil of Stifel. Please proceed with your question. Q: Hi. Good afternoon. Thanks for taking my question. So, Amy, thank you very much for sort of that overview and giving a sense of where all the growth has come from. So there's two questions sort of tied to – or one question tied to CapEx. Given that you're seeing very good returns on the recliners in terms of concession buys, online ticketing, etc., wondering why you don't sort of accelerate the CapEx in 2017? Amy E. Miles - Regal Entertainment Group Ben, if you go back and you look at this over time as it relates to our plans for 2017, just a couple of things. We expect to meet our initial goal of being to 30% of the circuit by the end of 2017, which we announced several years ago, as well as we're proud to recently announce that we felt like that we had probably an incremental 10% to 15% of the circuit from an opportunity perspective. So let's call that more like 40% to 45% as we start into 2019. But one of the key things with respect to our rollout, it's dependent upon some of the landlord financing that has made a lot of these investments very accretive, and so we just want to make sure that we also have the time to work with our landlord partners to make sure that we continue to do, or make these investments in a very accretive and prudent way. Q: Okay. That's great. Thank you. And then sort of the good news obviously is you're getting much more EBITDA per patron, but the patronage is flat. What do you think can help grow patronage again, either Regal or the ecosystem in general? I mean, clearly studios are putting out lots of movies and are doing lots of things. What do you think helps grow the patronage number, not necessarily this year, but from a longer-term perspective?

Amy E. Miles - Regal Entertainment Group Ben, I think one of the great things for the industry today, as we speak, is you're seeing really a focus on changing the consumer experience. And that's not just happening at Regal, but that's happening across the industry. Now we're at a point where I'm not sure exactly what the number is today, but it's probably less than 15% of the screens in the United States, so let's call it 15% to 20% feature the luxury amenities. So as we continue to invest and upgrade the experience, I think that's going to go a long way to growing the overall industry pie. And I guess the way that we think about it at Regal is even if the industry pie stays flat over time, we're going to be very successful. We demonstrated that from just in our results from 2011 to 2016. A lot of that is going to be an acquisition strategy that we believe we're going to be able to execute, coupled with our own investment in




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premium amenities across our asset base. So I do believe there's upside in attendance, but even if that doesn't happen I think we're going to be very successful with our own initiatives getting a bigger piece of that industry pie. Q: Okay. Thank you. And I just wanted to follow-up on something you mentioned with the landlords and working with them to be supportive. For landlords who have malls that have a lot of department stores which have clearly been under a lot of pressure from a traffic perspective, are you seeing those landlords be sort of extra interested in talking to you? Are you seeing any kind of traffic loss at venues where the department stores are really under pressure and you're still enforcing kind of collateral damage with that? Kind of curious if you're seeing sort of a similar kind of divergence or any kind of trends you can talk about? Amy E. Miles - Regal Entertainment Group You know, what's interesting there, Ben, and this has been true for a long time, a lot of times what you see in these developments is theaters are drivers of traffic, not necessarily beneficiaries of traffic. So where you're seeing some of the decline from a retail perspective, we're not feeling that in our mall locations. Just if we compare our mall location to another theater in the same market, we're not seeing a negative impact. On the luxury side where we are seeking landlord investment with respect to investing in the luxury or premium amenities, that excitement has not waned at all. So we've been doing this now, 2014 through – and we have our deals in place for 2017 and there's still a robust marketplace for landlord participation. These are just theaters they would like to have in their sites. Q: And even in malls where there are some challenges, you're still seeing no lack of interest from them? Amy E. Miles - Regal Entertainment Group That's correct. Q: Okay. That's great. Thank you very much. Operator Our next question comes from the line of Robert Fishman of MoffettNathanson. Please proceed with your question. Q: Hi. Good afternoon. One for Amy, and one for David, if I can. Amy, given Kevin Tsujihara's comments on the Time Warner earnings call earlier this week about making a lot of progress on the PVOD window conversation, can you just update us, from your perspective, how the conversations have been going with Warner Brothers or other studios on the window changes? Amy E. Miles - Regal Entertainment Group You know, I guess, just to put it in context. Well, I guess, some may believe this is a public discussion or negotiation, I think we think it's best to address it privately with our studio partners, and when there's something tangible to disclose, we'll do that, but today there just isn't anything tangible to disclose. Now that being said, we do continue to believe that it's in the best interest of exhibition as well as our studio partners to develop a strategy with respect to any changes in distribution for the ancillary market that's mutually beneficial. And I think it is worth noting that we've heard that same sentiment from not just one but several of our studio partners. And just to be clear, our position hasn't changed. We've said many times that we were open to any idea or potential changes in the model that: one, have the potential to grow the overall pie; and two, any kind of




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associated economic arrangement would provide us with appropriate long-term financial participation. That hasn't changed, from our perspective. And the only thing I'll add, and I know I'm stating kind of the obvious here with this add-on comment, but as we've just rolled off or completed two phenomenal box office years, and you think about the next several years they look great from a theatrical perspective, what I am confident about is that our studio partners are not looking for ways at all to denigrate that theatrical box office or that experience. Q: Okay. Thank you. David, can I just follow-up on Amy's earlier comments on the landlord contributions. For your full year CapEx guidance, can you share with us the underlying gross CapEx expectations? Or just broadly speaking, if you expect landlord contributions to increase compared to last year? David H. Ownby - Regal Entertainment Group I think, Robert, and to be fair, we're still working out some of those deals, particularly for the latter part of this year. But it will look somewhat similar to this year, where we had I think about $75 million, $78 million of landlord contributions on top of our $138 million of net CapEx. So that's what, $210 million, $220 million of total dollars in the ground. Q: Okay. Thank you very much. Operator Our next question comes from the line of Eric Wold of B. Riley Financial. Please proceed with your question. Q: Thank you. Good afternoon. Two questions. One, follow-on on the last question around the studio discussions of windows, I know Amy mentioned that it's not something you want to discuss, kind of, publically, but kind of thinking kind of larger picture conceptually, I know you've talked about maybe one of the more attractive opportunities is tackling that dark period between the main theatrical window and the initial home video window. And thinking about your comments that no one wants to do anything to negatively impact theatrical box-office, all the tests so far that have been done by the studio, kind of on early releases have been done, one could argue, maybe with movies that no one really wanted to see anyway. And so maybe they're not kind of legitimate tests, if you will, in terms of demand. How does someone take that leap, either the studio side or the exhibitor side, to test a major film or a very attractive property not knowing what's going to happen and not risking damaging kind of that theatrical window or kind of consumer's perception? Amy E. Miles - Regal Entertainment Group Yes, Eric, I could just step back and say broadly to answer that question is, that's why I think you see both sides approaching this discussion and any potential tests, or whatever you want to call it with respect to the distribution model, very prudently and very methodically. Because what no one wants to see happen on either side is, like I said, any kind of denigration in box office, particularly when you're in a period where you're seeing such high performance and high growth from a theatrical perspective. So just given that backdrop, I do think that you're going to see conversations around potential solutions that are very mindful of ways to try to grow the overall pie and not cannibalize the existing theatrical business. That doesn't make economic sense for either one of us. Q: Okay. And then just one follow-up question on the re-seat initiatives. Now that you've kind of committed to kind of getting to that 40%, 45% level by the end of 2019, as you've looked at other opportunities and identified the theaters that could fit the mold and hybrid theaters and whatnot, kind of bridge this gap. So AMC, in their filing the other day for the offering, they mentioned they want to get to 63% of their original legacy AMC theaters, 63% to be re-seated by the end of 2018. And I don't want you to speak for them, but is that merely a timing issue in that




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they started this process earlier than Regal and others? Or is there a market difference in terms of strategy in terms of where you'd want to go, what theaters you think are reasonable return hurdles, whatever may be, that would not allow you to get even close to that 63% and 45% is more of your ceiling? David H. Ownby - Regal Entertainment Group Yeah. Eric, obviously I can't speak for AMC, so I can't necessarily address what their strategy is and exactly how it compares to ours. Obviously there's difference in our asset bases; there's difference in our geographies, so that very well could be some of the difference. I think from our perspective, it will strictly be a return decision. If we get to the end of our 45%, and we believe there are still opportunities out there to generate a return, then certainly we will continue to do that. Looking ahead three years right now, I think we feel very confident that that number is at least 45%. I would probably continue to think about that as a floor and not a ceiling though. Q: Okay. That's helpful. Thank you. Operator Our next question comes from the line of Chad Beynon of Macquarie. Please proceed with your question. Q: Hi. Good afternoon. Thanks for taking my questions. First, I wanted to talk about capital allocation. Your payout ratio, David, has been in the low 30’s and you gave guidance for CapEx for 2017 which is pretty manageable, and you also gave us your cash balance. So how should we think about payout ratio, given fairly low CapEx needs for 2017, a good cash position, and a pretty good outlook for the business for 2017 and 2018? David H. Ownby - Regal Entertainment Group You know, Chad, we won't think about capital allocation any differently. You know our history there. We've done, I think, a good job of balancing investing in our circuit via CapEx and acquisitions, with also providing a meaningful shareholder return. I think that'll continue to be our plan long term. Obviously, right here in near term, we believe that we have a lot of high-return, quick payback projects at our disposal, and we want to make sure we avail ourselves of those. We believe those will create immediate value for our shareholders and obviously, they also serve to help us generate more cash, which is clearly a high-class problem, because then we have more cash to allocate. But over the long term, that philosophy you've seen us employ over the last 15 years or so as a public company will continue to be our philosophy going forward. Q: Okay. Thanks. And then on the acquisition profile, Amy, you mentioned that you do still have a plan to acquire more assets. Has anything really changed in terms of the synergies that you're underwriting internally when you look at some of these assets? Given National CineMedia's stake or I guess just kind of thinking about how synergies have changed over the past 10 years in the space, anything that would cause you to be more cautious on the multiples that you are seeing these assets listed at? Amy E. Miles - Regal Entertainment Group No. I mean, I think when you think about the historical synergies we would expect to be able to repeat those in the future. The only thing that I can say we do believe has changed is obviously to the extent that we add screens to the asset base, it allows us the opportunity to bring the premium amenities to a wider base of theaters, so I would say that would be my only perspective of change in synergies since maybe our most recent acquisitions with Hollywood and Great Escape. Q: Okay. Thanks. Congrats on the record year.




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Amy E. Miles - Regal Entertainment Group Thank you. David H. Ownby - Regal Entertainment Group Thank you. Operator Our next question comes from the line of Tony Wible of Drexel Hamilton. Please proceed with your question. Q: Thanks. I had two questions. One, is it conceivable that you guys may participate in any kind of early VOD window that's being discussed? I mean, is that something that's in the realm of possibility? And the second question is, I guess you guys have been shrinking the theater count now for about three years. When would you expect that to stabilize and start to go the other way? And as part of that, when you guys are closing, is there any kind of recapture at neighboring theaters, or are these theaters so spread apart that it's difficult to recapture some of those patrons from a closed theater? Thanks. Amy E. Miles - Regal Entertainment Group I'll take the window question first. I wouldn't speculate today on our participation on any kind of theoretic. Any idea that's presented to us, again, we would evaluate it, and we've spelled out the criteria that we think are important, but other than that there's no way I could speculate on any kind of just theoretics. David H. Ownby - Regal Entertainment Group And Tony, as for the theater count, you are correct, it has declined a little bit over the last few years. Some of that is simply the fact that we've focused most of our CapEx dollars on refurbing existing theaters, as opposed to our new build pipeline. I think this year we said we'd open three to five new theaters with about give or take 50 screens or so. Offset that with just a few more closures than that. So that, I guess, decline rate is slowing. As we get to the recliner initiative, or at least the meaty part of the recliner initiative between now and 2019, you will see some of those dollars revert back to new builds, and at some point I would expect that you'll see the screen count either flatten out or start to grow. And of course I am speaking here organically obviously to the extent we signed accretive acquisition opportunities then we have historically grown our screen count in bunches through acquisition. Q: And are you closing screens that are close enough together [indiscernible 0:35:44.9]? David H. Ownby - Regal Entertainment Group Yes, Tony, it's market-by-market. Certainly that does happen sometimes where we can close an older theater and drive traffic to one of our other locations, but that's a very market-specific or local market-specific question. Q: Great. Thank you.

David H. Ownby - Regal Entertainment Group Thank you. Operator Our next question comes from the line of David Miller of Loop Capital Markets. Please proceed with your question.




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Q: Yeah, thanks for taking the question. Dave, just a question on M&A, just if you can answer it as best you can. Obviously, you may know that AMC, per DOJ decree, has to sell between 15 and 20 theaters as part of the agreement with the Department of Justice vis-à-vis its Carmike acquisition. My understanding from the AMC side is that they have a choice in each of these markets to sell either the AMC asset, or I guess it would be the ex-AMC asset, or the ex-Carmike asset. If they choose to sell all ex-AMC assets rather than the ex-Carmike assets, is that something that you would take a look at? Or is that something that you feel your theater count is pretty full right now, just given your CapEx guidance that you talked about in your prepared remarks? Thanks a lot. David H. Ownby - Regal Entertainment Group Yeah, David, I think you know our history. Obviously we try to look at anything and everything that's out there and available. As for this specific transaction I couldn't comment one way or the other on it. Q: Okay. Fair enough. Thank you. David H. Ownby - Regal Entertainment Group Thank you. Operator Our next question comes from the line of Barton Crockett of FBR Capital Markets. Please proceed with your question. Q: Hey, guys. This is Zack Silver on the line for Barton. I just had two questions. The first one, I was wondering if you could comment on your potential interest in NCMI shares to be sold by AMC as part of its Carmike acquisition and also your commitment to holding on to those shares that you have? And then, I guess, the second one is a bit of a housekeeping question. I was wondering if you could just give the ticket prices this year, last year for IMAX 3D and standard. Thank you very much. David H. Ownby - Regal Entertainment Group Yeah, Zack, I'll take that second one first. In the fourth quarter our 2D average ticket price was $9.31. That's up 3.6% from a year ago. Our IMAX average ticket price was $16.59. That's up $0.07 from a year ago. And our 3D ticket price was $13.02 and that's up from $12.63 a year ago. Amy E. Miles - Regal Entertainment Group I'll go ahead and take the question with respect to National CineMedia. We've talked a lot today about all the opportunities that we have to invest our capital in what we think are very accretive projects, so it's hard for me to imagine that the opportunity with respect to the purchase of National CineMedia would outpace some of the other opportunities, or maybe a better way to say that, would come ahead or outperform some of the other opportunities that we have with respect to our capital today. Q: Okay great, thank you very much. That's very helpful. Operator Our next question comes from the line of Jim Goss from Barrington Research. Please proceed with your question.

Q: Thanks, a couple of them. One, I know, David, you've told me a lot of times that there are plenty of opportunities in the U.S. for acquisitions so you wouldn't really be thinking of outside the U.S., but Amy earlier on you were talking about the benefits you've gained in your existing operations despite attendance being sort of




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flattish over the period of time. And there are a number of international markets where attendance is actually more on a growth curve. I wonder if there would ever be any thought of reconsidering that position. David H. Ownby - Regal Entertainment Group Jim, I think our position there really hasn't changed. Obviously, we're a known acquirer in the business and in the industry, and we look at opportunities both here and abroad. When we think about how we prioritize those uses of capital – obviously we talked a lot today about the high-return, high-payback projects that we have in front of us with the recliners – obviously you've historically seen us acquire theaters in the U.S. and we get a great deal of synergy value out of those acquisitions and we certainly still believe there are more of those to be done in the U.S. And then of course there the acquisitions you talked about around the world. But when we prioritize those, we're always going to prioritize those based on return, and the dynamics that go with each individual opportunity are going to determine where we place our efforts and where we place our priorities. And to-date we've had plenty of opportunities and quite frankly believe we still have plenty of opportunities to generate a very high rate of return here in the U.S. We'll always look, and we'll always be interested in those opportunities around the world, but we'll always prioritize those based on return. Q: Okay. And then the other area I'm wondering about is your loyalty program and the information you would get from the loyalty program since that seems to be the key benefit. Just wondering if the information has provided any surprises or any key takeaways you might talk about. And are there any actions you've taken that have resulted as from your taking a look at your loyalty program information? Amy E. Miles - Regal Entertainment Group I can't speak to any surprises. The one thing I will say, I think it's made us much more effective with respect to how we target and speak to our most loyal, most frequent customers. One thing I can say is several years ago, we shifted away from communicating based on demographics, and communicating and providing offers based on your actual movie-going habits, which may not necessarily match your demographic profile. So, I think the best learning from the loyalty program has been a more efficient marketing platform with respect to the customers that have an affinity for the Regal brand. Q: Okay. Well, that is a pretty interesting takeaway, I think. So thanks very much. Amy E. Miles - Regal Entertainment Group Thank you. Operator Our next question comes from the line of Matthew Harrigan of Wunderlich Securities Incorporated. Please proceed with your question. Q: Thank you. Two things. One, can you comment on Atom ticketing and any possibilities for dynamic pricing over a period of time? I mean that seems like something that could be pretty interesting in the longer term. And then secondly, this is a really hypothetical question, but even though you're not involved in international markets, I'm sure you monitor what goes on there, what windows and distribution. And I guess in a lot of these markets, I mean, you're not going to see any innovation in Germany or Italy or something like that, but if you really look at the Chinese market and maybe the composition of the studio revenue fee is very different, more oriented towards streaming, less oriented towards box office over time, and possibly that's providing an alternative template, do you see any developments there? And do you think there could be any flow-back into the U.S.




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market in terms of how people look at the proposition of windows? I know it's kind of a fuzzy question, but I thought I'd ask it anyway. David H. Ownby - Regal Entertainment Group Matt, I'll take the question about Atom Tickets. Obviously, we're excited about our partnership there, and as we are with our other ticketing partners. And right now, I think their focus is very clearly, as it should be, on customer acquisition and trying to grow their business, and make sure they can participate in the overall growth of the online ticketing market. Any other discussions about different pricing models and whether it's dynamic pricing or whatever the model may be, I think those are probably well in the future for those ticketing partners. As I said, right now, they're just very focused on customer acquisition and making sure they can participate in the growth of that market. Amy E. Miles - Regal Entertainment Group Matthew, I'll follow up with respect to the second half of your question. Being a large exhibitor here in the United States we obviously have a lot of international contacts, and have good relationships with a lot of the international operators of theater circuits. So our team does spend a lot of time trying to evaluate best practices, not just here in the United States, but other opportunities that may present themselves from a global perspective as well. So there's nothing that I have to disclose today with respect to those specific initiatives, but we do spend a lot of time from an overall Regal perspective considering enhancements to the movie going experience, and we don't limit our perspective to just what we're seeing here in the United States. Q: Thanks, Amy. Thanks, David. Congratulations on the numbers. Amy E. Miles - Regal Entertainment Group Thank you. David H. Ownby - Regal Entertainment Group Thank you. Operator Our next question comes from the line of Leo Kulp of RBC Capital Markets. Please proceed with your question.

Q: Thank you. Good afternoon. And thanks for taking the questions. I just had one for Amy, and then two quick ones for David. Amy, going back to your comments about the strength of the box office, do you have any insight into what's driving it? Is it really just a slate? Or have you seen some evidence that the investments that the industry has made in improving the experience is driving attendance growth across the board? Amy E. Miles - Regal Entertainment Group I think it's a combination of both. We've obviously had a very solid film slate with a lot of films that were commercially appealing over the past couple of years. I think that's going to continue on into the future. And as we've looked at our investment with respect to the premium amenities, we've continued to be pleased with the results that we're seeing. And we do have, not many markets today, but several large markets, Boston is a good example, where today over 40% of the box office in Boston is generated by theaters with premium amenities. So for a big market in a big city 40%, that's a solid number. And what we've seen in Boston is an outperformance in the Boston box office as compared to the national average. So that gives us a lot of comfort that these investments and premium




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amenities not only are appealing to customers, but they are providing incremental growth in box office and attendance. David H. Ownby - Regal Entertainment Group I'll just add to that, and as I said, this has evolved over the last several years, but I think now more than ever before, the studios have been willing to utilize almost every part of the calendar for their releases. And I think that's been a positive overall for box office trends as well.

Q: Got it. Thank you. And then David, two quick ones for you. First, can you talk about the contribution margin on the Other Revenue? I would imagine that's pretty high. And then also could you give a little color around the drivers of concessions per cap growth? David H. Ownby - Regal Entertainment Group The contribution margin, you are correct, on Other Revenue is pretty significant. A lot of those revenues, you’ll remember the big items there are vendor marketing revenue, the revenue that's associated with our gift card, and our bulk ticket programs, revenue from our ticketing platforms, a lot of those don't have, I guess, significant below the line costs associated with them. So anytime we are able to grow those revenues, it's very accretive to the bottom line, and I think Amy mentioned some of that in her prepared remarks, how the growth rate we've experienced there over the last five years, and that has been meaningful for us. On the per cap growth for the quarter, typically we break that down into three buckets for you, and I think I talked a little bit about those in the prepared remarks too, but just to put some numbers to it. The pricing on our core items got us about $0.08 of per cap growth. The food and alcohol rollout got us an additional $0.07, and then that was offset as I mentioned by a bit of a decline in our beverage and popcorn volume, that offset was about $0.08 to get you to the net of $0.15. And that decline in the volume really I think is just related a little bit to the film slate. We had a really monster volume in Q4 of last year, and that oftentimes happens when you have a real event picture like The Force Awakens, and I think this year it was just tough for the per cap to keep pace with that.

Q: Got it. Thank you very much. David H. Ownby - Regal Entertainment Group Thank you. Operator Our next question comes from the line of Omar Sheikh of the Credit Suisse Group. Please proceed with your question. Q: I nearly got the name right. Good evening, everyone. I've just got three questions, a couple for David and one for Amy, if possible. David, first of all, I just wondered if I could just look at the adjusted EBITDA reconciliation which you put into the release. There is a number of about $12 million for cash distributions and other non-consolidated entities. I wonder whether you could just explain what that is. I haven't seen that before. That would be helpful. And then secondly for David, you've talked before or both of you talked before about the IRRs you've been getting on the recliner and food and beverage investment on the new theaters that you are refurbishing. I wonder whether you could just sort of comment on the trends that you've seen in the last quarter on that front.




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And then, if I could just add one for Amy, going back to the premium VOD issue; I don't know whether you might be able to just give us some sense of how broad-based the discussions with studio partners are at this point, because obviously we've heard from three of the studios, but obviously notably Disney hasn't really been very public about this, and I just wondered whether specifically you'd be able to confirm or not that Disney are also included in the conversations? Thank you. Amy E. Miles - Regal Entertainment Group No, there's nothing that we could confirm or disclose today because, just as I tried to convey in my beginning comments, there's not a tangible model that we could discuss for you today. So any kind of proposals that are just out in the marketplace, we're not going to provide any comments. David H. Ownby - Regal Entertainment Group And Omar, with respect to your other two questions, the $12 million that you noted in the reconciliation of adjusted EBITDA, we have multiple joint venture partners: Fathom, DCIP, DCDC, and from time to time we do get cash, I'll call them cash dividends or cash distributions, returns on our equity investments, in those ventures. And when we receive those in cash, we include those in adjusted EBITDA and that's the number you're seeing there for the fourth quarter. And then as for the IRRs on the recliner project, I think we've talked about before that they cover a big range, and that depends a lot on what the landlord involvement is. I think the range over time has been somewhere – the low end has been about 30% IRR at the pre-tax IRR number, the high end has been north of 100%. The sweet spot is kind of in that 40% to 45% IRR range. And that number has been pretty consistent from the time we started the recliner project a couple of years ago up through this most recent quarter. Q: Okay. That's clear. And sorry, just on the cash distributions again, are you expecting any material number in 2017? David H. Ownby - Regal Entertainment Group I expect over time we will continue to get distributions from those different joint venture entities. The exact timing of those is tough to pinpoint. Q: Thank you very much. Operator There are no further questions over the audio portion of the conference. I would now like to turn the conference back over to management for closing remarks. Amy E. Miles - Regal Entertainment Group Thank you for joining us. And we look forward to speaking with you after the results of our first quarter. Thank you.

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

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