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Edited Transcript of RGC earnings conference call or presentation 26-Apr-17 8:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Regal Entertainment Group Earnings Call

KNOXVILLE Apr 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Regal Entertainment Group earnings conference call or presentation Wednesday, April 26, 2017 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amy E. Miles

Regal Entertainment Group - Chairman of the Board and CEO

* David H. Ownby

Regal Entertainment Group - CFO, EVP and Treasurer

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Conference Call Participants

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* Barton Evans Crockett

FBR Capital Markets & Co., Research Division - Analyst

* Benjamin Daniel Swinburne

Morgan Stanley, Research Division - MD

* David Walter Miller

Loop Capital Markets LLC, Research Division - MD

* Eric Christian Wold

B. Riley & Co., LLC, Research Division - Senior Equity Analyst

* Eric Owen Handler

MKM Partners LLC, Research Division - MD, Sector Head, and Senior Analyst

* James Charles Goss

Barrington Research Associates, Inc., Research Division - MD

* Julia Yue

JP Morgan Chase & Co, Research Division - Analyst

* Leo Kulp

RBC Capital Markets, LLC, Research Division - Associate

* Michael Ng

Goldman Sachs Group Inc., Research Division - Research Analyst

* Robert S. Fishman

MoffettNathanson LLC - Senior Research Associate

* Walter Anthony Wible

Drexel Hamilton, LLC, Research Division - Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Manny, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Regal Entertainment Group First Quarter 2017 Earnings Release Conference Call, with our hosts, Amy Miles, Chief Executive Officer of Regal Entertainment Group; and David Ownby, Chief Financial Officer of Regal Entertainment Group. (Operator Instructions)

I would 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 the statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties.

Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the Risk Factors contained in the company's 2016 annual report on Form 10-K dated February 27, 2017.

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'll turn the call over to Amy Miles.

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [2]

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Hello, everyone, and thank you for joining us this afternoon. Almost 15 years ago, Regal Entertainment Group began its life as a public company and every quarter since then, we've gathered to report our earnings and discuss them with the investment community. On 7 of those occasions, we reported a new record annual adjusted EBITDA total, most recently in both 2015 and 2016. And on 5 other occasions, 3 in the early years, once in '07, and again, in 2013, we reported new all-time highs in quarterly adjusted EBITDA.

I am happy to report today we will mark the sixth such occasion, with almost $188 million of adjusted EBITDA. The first quarter of 2017 was the single most productive quarter in the company's history.

We believe these results speak volumes about the current box office environment, the impact of our high return investments in improving the customer experience, our continued focus on efficient uses of capital and, most importantly, our ability to deliver more record results for our shareholders in the future.

Let's look at each one in more detail. First, the box office environment. After a record first quarter last year, it would have come as no surprise if the industry box office had taken a step back or at least sideways in the first quarter of this year. Instead, strong carryover from last year's holiday product and a diverse slate of new releases in multiple genres that appealed to a wide range of audiences carried the box office to its fourth consecutive year of first quarter growth and a record total of over $2.9 billion.

As we look at those results, we believe there are 2 primary factors: one obvious and one just coming into focus. And both contributed to record industry box office results in 2015, 2016 and the first part of 2017. First, the obvious one. With each passing year, our studio partners have become more and more diligent in scheduling high-profile releases throughout the calendar year. Titles, once reserved solely for the summer and holiday seasons, are now finding their way to our screens on the Martin Luther King Junior Day, Presidents' Day, Valentine's Day, Spring break and Easter weekends. And the once avoided shoulder season dates in mid-April and October are now home to blockbuster titles, like The Fate of the Furious and The Martian. We firmly believe that the expansion of the release calendar in recent years has given more films room to find their audiences and contributed to the record industry box office results in recent periods.

And while content will always be the #1 driver of our business, it is becoming clear to us that the industry's efforts to improve the customer experience in recent years is reaching a critical mass and beginning to have a positive impact on overall box office results. In the first quarter, over 1/4 of total industry box office revenue was generated at theatres with reclining seats and other luxury amenities. Five of the top 10 U.S. box office markets, New York, Chicago, Dallas, Philadelphia and Atlanta, garnered more than 35% of their growth at recliner theatres. Collectively, total first quarter box office revenue in these markets grew by over 9.5%. That's more than double the overall industry growth rate. While it can often be difficult to isolate the impact of one factor or initiatives on overall box office performance, these broad-based results indicate to us that the industry's commitment to delivering a great customer experience is growing the overall box office. And the same is definitely true for our circuit. With over 1,500 screens now outfitted with luxury recliners and reserved seating, our food and alcohol menus available to more and more customers every day, and the industry-leading Regal Crown Club providing a communication link to our very best customers, our strategy is having a bigger impact on our overall financial results.

For the third consecutive quarter, we outperformed the relevant industry box office per screen metric. Strategic price increases produced an average ticket price growth of 5.5% at our recliner locations in the first quarter, despite significant headwind related to the mix of 3D and large-format screen revenue. The continued rollout of our food and alcoholic beverage menu now available to 55% and 31% of our attendance base, respectively, added roughly $0.08 to the circuit-wide concession per cap in the first quarter. And advanced tickets sold online and mobile ticketing platforms, including our own Regal Entertainment Group app, represented over 23% of our first quarter box office revenue and contributed to double-digit growth in our other revenue streams. Those results don't come without investment. But keep in mind that by utilizing landlord dollars when available and focusing on efficient capital spending, we've been able to generate meaningful growth and high returns while maintaining our industry-leading free cash flow. While many in our industry will experience similar top line results from initiatives just like those we've discussed today, we believe our ability to deliver bottom line growth without overspending will ultimately set us apart from our competitors.

Efficiently allocating capital in ways that best benefit our long-term shareholders has long been a hallmark of our strategy. And you should expect more of the same in the years to come.

On a final note, before I turn the call over to David, in mid-April, we [required] the Houston assets of Santikos theatres. These 2 locations, both of which ranked in the top 200 box office theatres in the country last year, are full-service entertainment complexes, with a myriad of customer amenities, including large-format screens, laser projection, multiple dining options and even a bowling alley. These assets are welcome additions to the Regal portfolio and will be reported in our results beginning in our second quarter.

As you can see, we are extremely proud of our results and the ongoing financial and operational benefits of our key initiatives. We are equally optimistic about the potential for growth and more record results in the quarters and years ahead.

With that, I'll turn the presentation over to David for a discussion of our first quarter financial performance.

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [3]

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Thanks, Amy, and good afternoon, everyone. For the next few minutes, I'll provide a brief analysis of our first quarter results and an update with respect to our balance sheet, asset base and capital structure.

We generated total first quarter revenues of $821.2 million, including $533.2 million of box office revenue, $239.5 million of concession sales and $48.5 million of other operating revenue.

Our admissions revenue for the quarter grew by approximately 3.4% in the aggregate, benefiting from a 3.2% increase in our average ticket price and a slight increase in total attendance. Our average ticket price benefited from opportunistic price increases, particularly at our recliner locations and from a slight uptick in the percentage of attendees that paid our adult evening ticket price.

On a per-screen basis, our box office revenue grew by 4.5% and surpassed the relevant per-screen industry benchmark by roughly 100 basis points, thanks largely to market share gains at our recliner locations.

Our concession revenue increased by approximately 4%, both in the aggregate and on a per-attendee basis. Strategic price increases and the continued success of our enhanced food menu and alcoholic beverage offerings continue to have a positive impact on our concession revenue and helped us achieve the second highest concession per cap in our history.

Other operating revenues grew by over $7 million as compared to the same period last year, driven primarily by an increase in revenues associated with our vendor marketing programs and the continued success of our online and mobile ticketing platforms. In the first quarter, over 23% of our admissions revenue was generated via an online or mobile transactions.

Our film and advertising expense of $283.1 million represented 53.1% of admissions revenue, a 70 basis point improvement versus the same period last year due primarily to a film slate that was somewhat less reliant on a few high-grossing films. Our 87.1% concession margin declined by 40 basis points as compared to the same period last year, but remained in line with the recent historical average. Raw material and packaged good costs remained stable during the quarter, but overall margin was impacted by a decrease in the amount of vendor marketing revenue recorded as a reduction of cost of concession.

Total rent expense of $106.2 million declined slightly versus the same period last year due primarily to net screen closures and the impact of landlord construction allowances. And other operating expenses increased by $4.2 million or approximately 3% on a per-screen basis due to labor cost increases in certain markets and elevated expenses associated with an increase in our first quarter alternative content revenue.

We are extremely pleased that despite the difficult comparison with last year's record first quarter, our strategic and operational execution produced 200 basis points of adjusted EBITDA margin growth and first quarter total revenue and adjusted EBITDA 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 $16.9 million. We continued to actively manage our asset base, opening 2 new buildings with 26 screens and closing 4 theatres and 31 screens to end the quarter with 559 theatres and 7,262 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. We still expect to open 3 to 5 theatres with 40 to 65 screens and close 6 to 10 theatres with 70 to 100 screens during the year. And including the acquisition that Amy mentioned earlier, we expect to end 2017 with approximately 559 theatres and 7,275 screens. As a result of the acquisition, we are also slightly increasing our full-year depreciation guidance to between $240 million and $245 million. And with respect to our capital structure, we ended the quarter with over $400 million in cash and approximately $2.3 billion in total debt. Absent any significant changes in our debt profile, we still 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 the highest quarterly adjusted EBITDA total in our history, and we remain excited about the opportunity for further success as we enter the summer box office season.

Operator, this concludes our prepared remarks. And we will now open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Eric Handler of MKM Partners.

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Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head, and Senior Analyst [2]

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Couple of things. First, wondering if you can talk about how your reseated screens or theatres performed on a year-over-year basis? Secondly, in the other revenue, it seems like you're getting some good increases from the online ticket fees. I wondered if you could give us just the magnitude of those fees. And how they have been growing, at least maybe sequentially? Or how we should think about the year-over-year growth in those fees on the revenue line?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [3]

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So Eric, let's talk about the recliner screens first. And I'm going to give you a couple of statistics here that, just to be clear, these cover all of the recliner screens. Remember that some of those are in their second or third year of operations. So this is not necessarily an indication of growth in year 1, this is the entire portfolio of recliner screens. Some of those are in year 1, some of those are in year 3. But the give or take, I think these are the screens that were completed as of the end of the year. So they were in operation for the full quarter, which is about 1,350 screens, I think. Attendance at those theatres was up 13.5%. Our ticket price was up about 5.5%; I think Amy mentioned that already. Our concession per cap was up almost 6% at those theatres. And our -- kind of our theater level cash flow for those theatres was up about 52%.

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [4]

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Which I think in summary means they performed really well.

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [5]

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And then, Eric, on the other revenue stream, we haven't called out those numbers specifically. I will tell you that the online ticketing fees is a relatively small part of the overall -- of our overall other revenue line. And those -- just in order -- in terms of the percentage increase versus the first quarter of last year, it's -- that number is just a little less than 50% increase versus the first quarter of last year.

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Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head, and Senior Analyst [6]

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Okay. And would you -- I'm just -- out of curiosity, would it be up on a sequential basis from the fourth quarter?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [7]

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Eric, I don't have that number in front of me. But I believe it's pretty even with the fourth quarter of 2016.

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Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head, and Senior Analyst [8]

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Okay. And then one last question. We're seeing a lot of markets that you're in, particularly the larger metro markets, showing very good results from the reseated initiatives. I'm just curious, are you seeing any markets or dynamics where receipts maybe are peaking and certain markets don't make sense now?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [9]

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I don't think we've seen that, Eric. I mean, you have some markets that got into the recliner game earlier than others. So they may be now a couple of years into their transformation. And so the gains, as you would expect, are not as good in year 3 as they are in year 1, but they're still performing at that high level they got too early on.

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Operator [10]

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The next question is from Julia Yue of JP Morgan.

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Julia Yue, JP Morgan Chase & Co, Research Division - Analyst [11]

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It's nice to see that you guys did a small acquisition this quarter. I was wondering, in general, if you're seeing some of the smaller independent circuits upgrading to recliners and premium initiatives as well or not necessarily upgrading their amenities but still benefiting from the overall healthy film slate and the box office strength? And then, broadly speaking, in markets where you do overlap with some of these smaller circuits, are you getting a sense that you're gaining share at all?

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [12]

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I think to answer the question with respect to what's happening in the industry, we gave kind of a big picture number kind of in our earlier comments just indicating that over 1/4 of the total industry box office revenue for the quarter was generated by theatres featuring luxury amenities. Now keep in mind, the majority of that is going to be the larger circuits. So to specifically answer your questions on the smaller circuits, I think it's a case-by-case basis. I don't think there's a global answer that you can say for every one of the smaller circuits. But I still think there's a lot of opportunities with respect to us to further roll out the initiatives in our own circuit. But in the future, as we continue to increase our circuit size through accretive acquisitions, we'll have additional opportunities as we [require] new circuits as well.

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [13]

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And I think it's safe to say, Julia, that with the bigger players in the industry kind of all embarking on a recliner strategy, I think it is safe to say that in many of those markets that we are taking share from some of the smaller exhibitors.

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Julia Yue, JP Morgan Chase & Co, Research Division - Analyst [14]

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Got it. That makes sense. And then on ticket pricing, you had a really impressive quarter, particularly getting the slate with the less [tent pole] heavy. As you move through the rest of the year, it seems like you guys still have a healthy opportunity from price increases at the recliners. And do you think there's potential to benefit, I guess, even on top of that with a more favorable film slate?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [15]

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Well, Julia, as you know, quarter-to-quarter, the mix of premium product has a lot to do with that. And you are correct that, in this particular quarter, the 3D and the large-format product wasn't quite up to the same level as it was in Q1 of last year. So we were happy to get the increase that we got and that again was thanks to that 5.5% increase at the recliner locations. That piece, I think, will -- the recliner piece will be consistent as we move through the year. I think we'll continue to get that benefit. The bit of the wildcard there is how does the premium product perform in each quarter. For that, we'll just have to wait and see.

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Operator [16]

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The next question is from Eric Wold of B. Riley.

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Eric Christian Wold, B. Riley & Co., LLC, Research Division - Senior Equity Analyst [17]

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Couple of questions. One, I know this has been brought up in the past and may be hard for you to track. But anecdotally, the past few times I've been to the theatre in recent weeks, it's been relatively empty until right before the show starts in the reserved ticketing theatres. So I guess, as a major shareholder still at NCM, how do you think about the impact of reserved seating from what you've directly seen in those theatres in traffic? And I know you mentioned the reserved seating fees were not a major driver of other income. So can the reserved seating fees you get from those theatres offset any risk to the preshow?

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [18]

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Yes. I think what we're seeing there -- and different markets are going to vary, so I don't know where you're visiting our theatres. But what we're trying to do as you think about improving the overall theatre experience, in a lot of the theatres where we have recliners and we're featuring the reserved seating, we're also expanding the menu from an alcohol perspective and a food perspective. So what we're also seeing is that patrons are still coming to the movie early so to not interrupt the flow of the movie by taking advantage of the concession and the alcohol service prior to the movie start time. So I think as long as we are continuing to think about how we can have that enhanced offering at the concession stand, which draws that customer in, that offsets some of the late arrivals that you are referring to.

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [19]

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And Eric, just to be clear there, I want to make sure I've said this correctly on the previous answer, but the growth in online ticketing fees was a big driver of the growth in other revenue. It's just that piece -- that the online ticketing fee is not a big part of the overall number, the overall amount of other revenue.

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Eric Christian Wold, B. Riley & Co., LLC, Research Division - Senior Equity Analyst [20]

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Okay. Got it. And then the final question. If you think about where Open Road is right now compared to where it was a few years ago in its infancy, how do you think about your level of enthusiasm now for its outlook and content focus, given what we're seeing from some of the major blockbuster films in terms of box office domination, especially they move more into the shoulder periods that Open Road was somewhat looking to fill?

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [21]

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Yes. Well, David will tell you today Open Road has growth. I think we're getting close to the $700 million mark. Is that correct?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [22]

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Yes.

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [23]

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That would just give you some perspective of what the results have been to date. And from our perspective on the exhibition side, even as the movies are shifting, we're seeing bigger percentage of the overall films from the big blockbusters, that number of films that's generating -- 95%, 98% of our revenues each year is still dependent upon these big-budget pictures filling in not just the shoulder seasons, but the key seasons as well. And those are really important to us. So from that perspective, I still think Open Road plays a vital role in that mid-picture budget area.

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Operator [24]

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The next question is from Robert Fishman of MoffettNathanson.

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Robert S. Fishman, MoffettNathanson LLC - Senior Research Associate [25]

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I have one for Amy and one for David, if I can. Amy, following up on the small Houston acquisition and given the higher trading multiples for the publicly traded exhibitors, have you seen any pickup in activity from family-owned circuits looking to sell to possibly take advantage of the better pricing combined with the record trailing 12-month theatre cash flow? Or do you think many of the smaller circuits are maybe waiting to digest any upcoming changes to corporate taxes before looking to sell?

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [26]

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No. I mean, we've said this before, and so I won't comment on any specific transaction. But as we move forward and we think about another capital cycle as it relates to the reclining theatres and you are seeing some increase in multiples from the public companies. So over time, we still think that accretive acquisitions will be a great way for Regal to grow. So we can't speak to any specific transactions, and it's hard to give what that time line will be. But I think as you look at -- over the next couple of years that we're going to be pleased with the amount of acquisition activity.

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Robert S. Fishman, MoffettNathanson LLC - Senior Research Associate [27]

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Are there any details you can share on the Houston acquisition?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [28]

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Robert, we'll give you some more specific details as we start to report those in our results in Q2. Like Amy said, it's 2 theaters, 41 screens. They really are full-service complexes with -- they've got multiple food concepts, they've got alcoholic beverage service. And if you kind of think about how does that relate to deals we've done historically, this, again, is a very accretive deal for our shareholders. And that kind of post-synergy multiple looks similar to the range you would expect from us historically.

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Robert S. Fishman, MoffettNathanson LLC - Senior Research Associate [29]

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Okay. And David, clearly understand this is a little early without a lot of details from today's tax announcement. But can you just remind us or help us think about how Regal would balance any incremental cash flows from lower taxes, balance between the internal investment, accelerating ramp in recliners versus just higher shareholder returns?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [30]

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Yes, obviously, not a lot of time to evaluate exactly what's there at this point, Robert, but any tax plan that leaves us with more dollars, with more capital to allocate, as Amy mentioned in her prepared remarks that the ability to efficiently and effectively to allocate capital has been a hallmark of our strategy for a long time. And we believe that to the extent we have more capital to allocate, that just gives us more chances to do that extremely well. And if you think about how we've done that historically, that's been a good balance between shareholder return and investing in our asset base. And I suspect that would be a similar approach going forward.

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Operator [31]

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The next question is from Ben Swinburne of Morgan Stanley.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [32]

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I have a couple of questions. David, can you talk about the returns you're seeing on the recliner investments now as you are in, I guess, year 3, and looking forward, I noticed the landlord contributions were pretty healthy in the quarter. It looks like you're run rating at like $100 million this year. Just curious, as that capital gets larger in terms of what you're getting help with on financing, what does that do to the return profile? Is there some additional costs showing up in rent expense? Or any rev share which we should think about? Or how are you thinking about the economics of the upgrades as you move forward? And then just for either of you, I'm just curious, about 23% of the first quarter box buying through the app and driving some other revenue, what's sort of a realistic expectation on your end for how high that number can go? What's sort of your 1- or 2-year objective on that strategy?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [33]

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Yes. So Ben, the returns on the recliner projects, and I'm -- just to be clear here, I'm talking about a pretax internal rate of return here. When you take into account the cost and anything that's offset by the landlord contribution, any additional rent we have to pay to get that landlord contribution and then just the uptick in business, in attendance, in revenue that we see, kind of mash all that together, the sweet spot for that return has kind of been in that 35% to 40% range over time. And it's stayed pretty consistent. Now to be fair, it's actually a big range. Some are a little lower than that, some are much higher than that. And oftentimes, that does depend on exactly what the landlord dynamics look like. We've elected to take the landlord money really from the beginning, because it really makes sense to us from a return perspective, because typically, a landlord there is -- has got an asset they want to improve, and they've been willing to work with us, and we believe that's a very efficient use of our capital and a very efficient use of their capital. So I think it's worked on both sides. And it's certainly worked to improve those returns and help maintain those returns as we've moved through the process. As for the online ticket sales, I'm sorry, go ahead, Amy.

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [34]

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Yes. Now one thing we talk about here internally is, over the next couple of years, we'd like to see that number getting to 50% of our purchases. Now again, how to get that? We're working on communicating with customers, driving offers, figuring out the best way to do that. But it's very advantageous to us for a lot of reasons, if we can strive to get to that 50% number over the next couple of years.

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Operator [35]

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The next question is from David Miller of Loop Capital Markets.

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David Walter Miller, Loop Capital Markets LLC, Research Division - MD [36]

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Just an overall strategic question. As you look out in your -- within your footprint right now domestically, and you look at the sort of a map of the United States, where do you feel like you're oversaturated, if you are? And where do you feel like you're sort of underutilized in terms of your asset base where there might be some acquisition opportunities? And then also, if you're willing to comment on whether or not you feel any differently about acquiring any foreign markets, dipping your toes into foreign markets. I think it was around a year ago I asked you guys that question, you seemed to intimate at that time that you're focused entirely on the domestic circuit. But any comment about any foray into foreign markets would be helpful.

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [37]

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Sure. I'll take the first part of your question first. I can't think of any markets in the U.S. where we would say we were oversaturated. We obviously have certain markets where we have a higher percentage of market share, but still believe that we have a lot of opportunities from a geography perspective. But we don't necessarily think about future acquisitions just from a geography perspective. We're more interested in finding theaters like the Santikos theatres, what I would just call theatres of the future, making investments in theatres that are featuring luxury amenities or theatres where we believe we have a lot of opportunities to grow through luxury amenities. So I think it's more a focus on the movie-going experience and how we think about that in acquisitions more so than it is from a geography perspective. As it relates to foreign investment, we've said before, David, that as we see the opportunity here in domestic, it's probably about another 3,000 to 3,500 screens that would fit the criteria that I just provided. So there's still a lot of opportunity here domestically. Now as it relates to investing internationally, we've just not seen an opportunity that fits our investment hurdles. So for that reason, we haven't pursued international acquisitions. Doesn't mean that we haven't looked, doesn't mean that we wouldn't look. But in order to do it, it would have to meet our objectives from an investment hurdle, and we just haven't seen anything to date that met that criteria.

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Operator [38]

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The next question is from Barton Crockett of FBR Capital Markets.

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Barton Evans Crockett, FBR Capital Markets & Co., Research Division - Analyst [39]

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I was wondering about maybe a little bit more information on the reseat percent of Regal's admissions revenues. You gave us kind of an industry number. Can you give us a sense of where Regal is on that?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [40]

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I think it's pretty similar, Barton. It may be just a little behind that overall industry number, but not terribly different.

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Barton Evans Crockett, FBR Capital Markets & Co., Research Division - Analyst [41]

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Okay. And so you gave us some detail on the performance of your reseated screens. On the flip side, can you tell us how your non-reseated screens have been performing?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [42]

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That's a much broader base of theatres, Barton. So they cover a bigger range probably. I mean, obviously, there's a lot of -- our highest-performing theatres or busiest theatres are not the ones that we've chosen to reseat, because quite frankly, they are too busy to reseat. And then there, obviously, are some smaller theatres in that mix as well in smaller markets. But as a group, I think those theatres are performing up to our expectations.

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Barton Evans Crockett, FBR Capital Markets & Co., Research Division - Analyst [43]

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Okay. All right. I was also curious there's been increasing focus from IMAX and others on virtual reality experiences in theatres, what's you guys' stance about that? What do you think the opportunity is? Have you talked to IMAX about this? How meaningful do you think this could be?

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [44]

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I think it's early from a VR perspective, but we are excited about the opportunity, Barton. We have spent some time talking to IMAX, and we've spent some time touring domestically and internationally to see what others are doing with VR in a theater environment. So I think, first, what you're going to see first is VR probably being introduced, I'm just going to say, in our lobbies. So for example, and you just brought this up, like the IMAX pod. And then as we go through time, I think it's exciting to see how VR will be used as a tool from a storytelling perspective and, again, that will be exciting for cinemas as well. I just think it's probably going to be introduced early on as some type of extended entertainment in our lobbies.

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Barton Evans Crockett, FBR Capital Markets & Co., Research Division - Analyst [45]

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Okay. And any sense of does IMAX seem to have the pole position in terms of working with you guys on that? Or are there others that you might be working with instead?

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [46]

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We are going to participate in the IMAX test. We're just looking today to figure out, with IMAX, where we think the best locations would be.

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Operator [47]

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The next question is from Leo Kulp of RBC Capital Markets.

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Leo Kulp, RBC Capital Markets, LLC, Research Division - Associate [48]

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I had a few. First, the press around premium VOD has quieted down, post CinCon. Can you update us on where you stand with regards to the negotiations with the studios?

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [49]

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I don't really think there's anything to discuss today. We kind of mentioned in our last call that we would continue to have conversations with our studio partners in a time where we believe that there was a tangible model or idea to discuss that we would do that. I would say we're not at the stage yet or currently where there's any type of consensus around the type of tangible models that we could discuss today. So are discussions still happening? Yes. Is there anything new to report? No, there's not.

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Leo Kulp, RBC Capital Markets, LLC, Research Division - Associate [50]

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Got it. And then based on my calculations, you saw almost 70% theatre operating cash flow leverage, which is the best you've seen in at least 5 years. Can you talk about what drove this? Are you seeing easing pressures on minimum wage? Should we expect operating leverage to remain more elevated over the next several quarters?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [51]

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Well, as you know, Leo, the #1 driver of that is the cost out of our business is relatively fixed. So anytime we can get more revenue to the top line, whether that's with attendance increases or pricing increases, and that's going to help that leverage. I think in this particular quarter and in practically every quarter, our managers and our personnel in the field do a great job of controlling those costs and making sure that we get as many dollars as we can to the bottom line. And I think this first quarter was no exception to that.

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Leo Kulp, RBC Capital Markets, LLC, Research Division - Associate [52]

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Okay. And then last one for me. On the acquisition you did, you mentioned that -- it sounds like they were more of an entertainment complex, with multiple dining options, a bowling alley. Is that an area -- going beyond just the movie theatre into more of a broader entertainment complex, is that something that you're broadly interested in? Or is this just more of a kind of a one-off?

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [53]

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Yes. I wouldn't call it a one-off today. I think it's a great opportunity for us to get first-hand experience with different ways of expanding the customer experience. So I wouldn't say that we have changed a strategy there. But this is just a great example of very successful theatres. And these were theatres that were very successful before we started operating them, which will give us a lot of insight on new and different amenities and how those may work with respect to our customer base.

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Operator [54]

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The next question is from Tony Wible of Drexel Hamilton.

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Walter Anthony Wible, Drexel Hamilton, LLC, Research Division - Senior Equity Research Analyst [55]

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I was wondering if you could speak to reserved seating and any intention you may have to take that beyond just the recline auditoriums? And a housekeeping question is on the 2 theatres you're adding, can you comment on whether or not the attendance per screen on those is above or below the current circuit average?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [56]

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I'll take that second one first, Tony. I mean, just -- I think Amy mentioned there, both theatres are in the top 200 in the U.S. from a box office perspective. So I think it's safe to say they're probably north of the overall circuit average.

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [57]

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And with respect to the reserved seating, we have used reserved seating today primarily in what I'm going to call our premium auditoriums: IMAX, RPX as well as our recliner locations. And it's working very well in those specific auditoriums as kind of a differentiation. With respect to rolling out in a greater percentage of the circuits, that's just going to be on a case-by-case and a market-by-market basis. We have some markets where we're watching, doing some testing to see how the customer is responding. And we'll see how these -- those turn out. But right now, it's primarily for us a premium offering.

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Walter Anthony Wible, Drexel Hamilton, LLC, Research Division - Senior Equity Research Analyst [58]

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Great. And with the growth in advanced ticket sales, are you seeing any traction in the preordering of concession items. I know that concept is still pretty new. But it would seem that with the uptick of advanced tickets that you may also see an uptick in that?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [59]

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Yes. Tony, it's still just a little early. If you remember, we turned that on late last year, and that's an amenity that, I think, a customer has to come to the theatre, actually see that it's available. And then remember that the next time they want to come, they want to try it out. So I would still classify that as a little early to really evaluate where we are with that initiative.

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Walter Anthony Wible, Drexel Hamilton, LLC, Research Division - Senior Equity Research Analyst [60]

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Do you have any intention to add that as part of the checkout process with your advanced ticketing to make people aware?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [61]

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I think that essentially already happens on the Atom platform. And it's certainly something we'll consider on the others as well.

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Operator [62]

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The next question is from Michael Ng of Goldman Sachs.

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Michael Ng, Goldman Sachs Group Inc., Research Division - Research Analyst [63]

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The cash distributions from equity investments were a little bit better than I expected at $22 million. Can you tell us how much of that came from the regular NCMI distributions versus other cash distributions like the tax receivable?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [64]

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Sure, Michael. Just under $14 million, I think, came from NCM and the remainder was from our various other equity method investees, that would include DCDC, Fathom and DCIP, I guess.

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Michael Ng, Goldman Sachs Group Inc., Research Division - Research Analyst [65]

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Okay. Did you guys get the tax receivable payment as well this quarter?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [66]

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No, we did not get it in the first quarter. I believe, this year, that will be in the second quarter, Michael.

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Michael Ng, Goldman Sachs Group Inc., Research Division - Research Analyst [67]

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Okay. And then of the 23% of box office from online reservations, how much of that was on Regal's owned websites versus third-party websites? And then just as a follow-up to that, of the $7 million of growth in other revenue, how much of that came from online ticket fees versus vendor marketing and other things?

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David H. Ownby, Regal Entertainment Group - CFO, EVP and Treasurer [68]

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Well, we haven't gotten that granular with our disclosure, Michael. All the platforms performed well in the first quarter, and we were very pleased with how the rollout on our own app went, I will say that. And again, we haven't gotten that granular with the disclosures about other revenue either. The growth you saw in other revenue, I will say, it was -- less than half of that was from online tickets.

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Michael Ng, Goldman Sachs Group Inc., Research Division - Research Analyst [69]

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Okay. That's helpful. And then could you just talk about your willingness to install recliners in IMAX screens and whether or not that makes sense for you guys at all?

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [70]

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We'll test a couple of locations with respect to recliners. You have a couple of options with respect to upgrading the IMAX seats. Kind of these upper-end rockers that -- where you may not have to take out as many of the seats. We're looking at that and testing, because that gives us an ability to not take out so many seats in an IMAX auditorium. And then we're also testing recliners to see how that goes. I think there's opportunity from a seating perspective inside of the IMAX auditoriums as well. And we'll just figure out, based on customer response, which is the best way to go over time.

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Operator [71]

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The next question is from Jim Goss of Barrington Research.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [72]

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Amy, you may have touched on this a little bit in response to Leo's final question. But I was wondering if a logical extension to the value-creation process with recliners, et cetera, is to create almost a sub-brand within Regal for the higher-end experience either through acquisition or internal creation such that it could be used on a perhaps less frequent basis, but it, at least, creates some identity that you can draw from.

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [73]

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We haven't really thought about it that way. From our perspective, having one of our primary goals is to make sure that we are providing the best customer experience that we can to the widest base of our audience where it makes financial sense. That's the driver with respect to our recliner initiative, not necessarily creating some type of branding strategy associated with the recliners.

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Operator [74]

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We have no further questions at this time. And I would like to turn the conference back over to management for closing remarks.

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Amy E. Miles, Regal Entertainment Group - Chairman of the Board and CEO [75]

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Thank you very much for joining us this afternoon, and we look forward to speaking with each of you after our second quarter. Thank you.

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Operator [76]

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