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Carmike Cinemas, Inc. (NASDAQ:CKEC)

Q1 2014 Earnings Conference Call

May 5, 2014 17:00 ET

Executives

Rob Rinderman - Managing Director, JCIR

David Passman - President, CEO

Richard B. Hare - SVP, CFO

Analysts

Stan Meyers - Piper Jaffray

David Miller - Topeka Capital Markets

Jim Goss - Barrington Research

Marla Backer - Ascendiant Capital Markets

Chad Beynon - Macquaire Capital

Kevin Rippey - Maxim Group

Kevin Ruth - Raymond James

Sachan Sapra - Gluskin Sheff & Associates

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Carmike Cinemas 2014 Q1 Results Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded today, Monday, May 5, 2014.

I would now like to turn the conference over to Mr. Rob Rinderman, from Carmike's Investor Relations firm, JCIR. Please go ahead, sir.

Rob Rinderman

Thank you very much Collin and good afternoon everyone. Certain statements by Carmike's management on today's call may constitute forward-looking statements, which are subject to risks and uncertainties and other factors that may cause the company's actual performance to be materially different from the performance indicated or implied by such statements.

Such risks, uncertainties and other factors are set forth in Carmike's Annual Report on Form 10-K for the year ended December 31, 2013, and in other SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements.

Today's call may include non-GAAP financial measures and when required a reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP, can be found in today's press release, which is also available at carmike.com.

Now, I'm going to turn it over to Carmike's President and CEO, David Passman, for his opening remarks. David?

David Passman

Thanks Rob. Good afternoon and thanks for joining us today. In my remarks, I will update you on Carmike's ongoing strategic and operational success among other topics. CFO, Richard Hare will cover our Q1 financials and capital structure. Following our prepared remarks, we will be happy to address your questions.

Before I comment on Carmike's Q1 results, I want to acknowledge the lead story in today's news is about something else. At the risk of diluting other wise good story about continued success at Carmike, I will begin with what I'm certain is top of mind for most of you. Indeed just moments ago, National Cinemedia, the operator of the largest digital in-theater network in North America announced that it has signed a definitive merger agreement to purchase Screenvision, an innovative leader in Cinema advertising, marketing and media solutions.

As you know, Carmike has nearly 20% ownership interest in Screenvision and we are also its largest exhibitor network partner. We are excited about the transaction and believe it creates tremendous value for both exhibitors and advertisers. However, as a minority shareholder in Screenvision and since the transaction is subject to the customary anti-trust review process we are limited in responding to questions regarding the transaction. We appreciate your cooperation and thank you for your understanding regarding this matter.

What I can say, is that we are pleased to be joining the NCM Network in the near term. And we look forward to working with Kurt Hall and the other members of the merged organizations management team. As per details of the transaction, I refer you to the NCM announcement an 8-K filing that we will restate here that the expected purchase price is approximately $375 million comprised of $225 million in cash with the balance of approximately 9.9 million shares of MCM stock. Screenvisions's debt at March 31 was approximately $55 million. Certain transaction costs and other adjustments will be made which of course could increase or decrease the value of the transaction at closing. But, suffice to say Carmike expects to receive a significant gain on its $5.5 million carrying value on the balance sheet.

Now, moving on to the original purpose of today's call, as outlined in our announcement during the first quarter Carmike again, outperformed the industry by achieving increases in box office receipts and attendance of 12% and 9% respectively, which contributed towards our record first quarter total operating revenues. Richard will fill you in shortly on the specifics on our performance.

Carmike's Q1 2014 results were driven by a continuation of several noteworthy and favorable trends. The March quarter is our first for reporting period to include operating results from the Muvico circuit, which has you know closed in November of 2013. Muvico started in 47 screens across 9 locations in top markets made a solid contribution to our top and bottom line results for the period. We continue to be very pleased with the Muvico purchase, which brought us high-quality assets and high-quality associates.

We gained four additional premium large format auditoriums including two IMAX experience screens and a couple of proprietary MuviXL branded locations. Additionally, we acquired two full service Bogart's restaurants, our first motion activated D-BOX seating as well as a premiere VIP experience at select locations including reserve seating.

Inclusive of Muvico, we have integrated over 500 acquired screens on to Carmike's circuit over the past few years. During that timeframe we posted industry leading attendance and box office results. The company also achieved its 17th consecutive reporting period of higher concessions and other per patron spending on a year-over-year basis.

Per caps we are above $4.50 for the first time ever easily surpassing our prior quarterly record in the high four twenties. I'm sure some of you probably have concessions fatigue by now but due to its relatively high margins and contributions to our operational success food and beverage remains a critical part of our business focus. We will continue to concentrate on ways to move the needle in the food and beverage arena, and I believe there is additional runway ahead for further per cap improvements through experimentation and execution.

In theater dinning, expanded concessions menus and the rollout of adult beverages at a number of theaters were all mentioned on last quarter's call. In recent months, we have been granted approximately two dozen alcohol licensees for various locations.

We are taking a close look at the full service Bogart's concept to learn more about in-theater dinning options for certain existing and future theater across our footprint. We are also evaluating and testing other casual food and beverage concepts at select entertainment complexes.

Now, let's switch gears a bit and take a look at theQ1 domestic industry box office performance. Due to a strong movie slate that contained a wide array of quality, well-spaced product, domestic admission receipts rose between 5% and 6% compared to Q1 of 2013 as reported by industry sources.

The top performer with close to $250 million of domestic theatrical grosses was the LEGO movie. Interestingly, the second highest grossing was another family friendly title, Disney's Frozen stayed on theater screens for a very long time following its 2013 Thanksgiving holiday release and it grossed approximately $400 million in U.S. theaters since its debut of which approximately $135 million came in the first quarter of 2014.

Three other releases also generated more than $100 million of box office receipts in Q1 including Ride Along, Lone Survivor and 300: Rise of an Empire.

So far in Q2 Captain America: The Winter Soldier, Rio 2, Noah, Divergent and Heaven is for Real and of course this weekends popular the Amazing Spiderman 2 have all been solid performers, while we are still in the middle innings of Q2, there are several exciting titles yet to come in multiple genres including Godzilla, X-Men: Days of Future Past, Maleficent, How to train your Dragon and closing out the quarter will be Transformers: Age of Distinction.

Now back to Carmike. Carmike management is busy on the M&A front actively exploring potential targets and we continue to believe that expanding our circuit is the most appropriate use of available capital.

Our quarter ending balance sheet remained robust with a relatively large cash balance and an untapped credit line that we can utilize to complete attractive acquisitions that makes sense in this mature, consolidating industry. We are also active of Carmike's new built program with a combination of protecting good markets that we are already in as well as exploring greenfield locations in mid-sized markets that makes sense for us to enter.

During Q1, we announced agreements to open three entertainment complexes in Grand Traverse, Michigan, Fayetteville, North Carolina, and Spring Hill, Tennessee. A few weeks ago, we reopened a newly renovated theater in the Pittsburgh suburbs and we also launched the brand new state-of-the-art Tiger 13 theater in Opelika, Alabama, which is in the vicinity of Auburn University. The Tiger 13 features our 23rd BigD premium large format location with almost 600 seats and a screen that's more than 80-feet wide and 3 stories tall. This is our 38th premium largest format screen with more to come including at least seven more IMAXs under our expanded licensing agreement.

Before I turn it over to Richard, I want to reiterate that we are pleased with Carmike's recent operating and financial performance. But we are more focused on the future than the past. As an organization we are constantly evaluating ways to further improve our results through enhancements about the theater and corporate levels. As you know, we have set a specific growth target for our theater circuit and our Board and senior team have prioritized this as the best use of available capital.

And now for additional color on our Q1 results and an update on our capital structure. Richard?

Richard Hare

Thank you, David, and good afternoon.

As of March 31, 2014, we operated 252 theaters with 2660 screens across 37 states. Our digital footprint is approximately 37% 3D compatible and we are up to 38 premium large format screens including 23 BigD auditoriums, 13 IMAX and two MuviXL screens. As a reminder, the three month period ending March 31st, marks the first full quarter including results from the non-theaters and 147 Muvico screens we acquired last November. Q1 2014 also marks the second full quarter including results from the three theaters and 52 Rave screens we purchased in Mid-August 2013 from Cinemark.

Turning to Q1 results, total operating revenues increased approximately 22.9% to a record first quarter $158.9 million. Carmike's admissions revenue rose 20.4% to $97.6 million and concessions and other revenue grew 27.2% to $61.4 million. On a per screen basis, Carmike's admissions revenue grew 12.2% year-over-year significantly ahead of the overall Q1 industry box office increase of approximately 5.6%.

Quality film product combined with the company's circuit growth and operating success enhanced Carmike's theater performance metrics. Total attendance rose 16.9% to approximately $13.6 million and grew 8.7% on a per screen basis. Average admissions per patron increased 2.4% to $7.19. The per cap increase was primarily due to nominal ticket price increases and the company's expanded presence in more of mid-sized markets due to recent M&A activity.

Average concessions and other sales per patron grew 8.1% to a record $4.52. Muvico made a meaningful contribution to Carmike's strong per caps through a combination of solid concessions in casual food beverage sales including our two Bogart locations and alcohol service options.

Aggregate per patron spending rose 4.5% companywide to $11.71. On the expense side film exhibition costs were $52.9 million or 54.2% as a percentage of admissions revenue compared to $43 million or 53.1% as a percentage of admission revenue in the prior year period. The film exhibition cost increased as a percentage of admissions revenue was primarily due to more box office revenue being generated from higher grossing films during the quarter, which resulted in high attendance but at higher film terms.

Concession cost as a percent of concessions and other revenue for the three-month period ending March 31, 2014 decreased 70 basis points to 11.6% compared to 12.3% in the prior year period. The decrease indicative of the approved gross margin was primarily due to an increase in concession rebate activity from vendors.

As mentioned in this afternoon's earning release to enhance visibility into our theater operating cost, we are now reporting separate line items for salaries and benefits, theater occupancy cost and other operating cost on the company's income statement. These three line items where previously included in the catch all other theater operating cost category.

First quarter 2014 salary and benefits were $21.5 million compared to $18.4 million and theater occupancy cost was $20.4 million versus $15.2 million in the prior period. Other theater operating expenses were $29.4 million compared to $23.8 million in Q1 2013. Combined salaries and benefits, theater occupancy costs and other theater expenses as a percentage total operating revenues increased 40 basis points to 44.8% versus 44.4% in the prior year period.

The year-over-year rise in the aforementioned P&L categories was largely a reflection of the increase in our average screen count including expected rises in theater-level salaries, occupancy cost and utilities expect associated with opening a largest circuit. As a reminder, the comparable 2013 Q1 period does not include the aggregate 199 screens from the Cinemark Rave and the Muvico acquisitions that we completed in the first half of last year.

We operated these Rave and Muvico screens before Q1 2013 period pro forma combined salaries and benefits, theater occupancy cost and other theater expenses for the year ago quarter would have been approximately $67.1 million.

In total, Carmike's consolidated theater operating costs increased $13.9 million to $71.3 million in Q1 2014 from $57.4 million in Q1 2013. Theater cost from the newly acquired Muvico and Cinemark/Rave assets account for approximately $9.7 million of the year-over-year increase. In addition, the operating cost associated with five newly built theaters that opened at the end of the first quarter of 2013 or subsequent to the first quarter of 2013 accounts for an additional $2 million of this increase.

As a reminder, we expect Muvico's total operating cost to be approximately $33 million on an annual pro forma basis based on estimates that I outlined on last quarter's call, depreciation and amortization expense for the consolidated Carmike circuit is expected to total $47 million annually and interest expense is expected to approximate $52 million annually with the inclusion of the Muvico acquisition.

Our Q1 2014 operating results include a full quarter of Muvico and the Cinemark Rave assets. We did not – not operate a Muvico or Cinemark assets in the second quarter of 2013.

G&A expenses increased $1.5 million to $7.5 million for the first quarter of 2014. This increase was partially due to increases in professional fees associated with our M&A opportunities as well as the settlement of certain litigation matters in a normal course of business.

Depreciation and amortization expense increased $1.6 million to $11.8 million for the first quarter of 2014. The increase reflects a larger circuit including recent acquisitions and new builds. Our Q1 2014 interest expense increased 6.7% to $13.1 million versus the prior year. We stated on last quarter's call that we expect interest expense to increase due to our assumptions of long-term lease obligations associated with the acquired theaters.

Operating income increased $8.1 million representing 5.1% of total operating revenue. This compares to operating income of $3.4 million or 2.6% of total operating revenue a year ago. We recorded a small loss for unconsolidated affiliates of approximately $85,000 with majority attributable to Carmike's Screenvision profits interest. In Q1 2013, we recorded a loss from unconsolidated affiliates of approximately $1 million.

Net loss, the net loss was $3.2 million or $0.14 per diluted share taking into account M&A related expenses other non-cash charges and the related tax effect of adjustments to net income, Carmike's adjusted Q1 net loss was $2.6 million or $0.12 per diluted share. We achieved first quarter level, theater level cash flow of $27.5 million and adjusted EBITDA of $20.7 million representing a 13% margin on total revenues.

On a trailing 12-month basis, theater level cash flow was $139.9 million and adjusted EBITDA amounted to $116.9 million. As you know, these are two widely followed non-GAAP measures and reconciliations are provided in the Q1 press release and on our Web site.

Now, turning to our balance sheet cash and cash equivalents was $133.9 million, net debt was $319.8 million reflecting an aggregate of capital leases and long-term financing obligations plus our senior notes. Total debt outstanding including capital leases and long-term financing obligations was $453.7 million. At March 31, 2014, net leverage remained under 3x and our goal continues to be a sub-four times net leverage company.

Our $210 million senior secured bonds continue to trade extremely well and we are pleased with our recent upgrade to B1 from Moody's Investments Service. This reflects further recognition of our continued improvements in our financial position. The company's Q1 capital expenditures were approximately $7.5 million and we expect to incur approximately $40 million of CapEx in calendar year 2014. On an annual basis approximately $9 million of this amount is earmarked for maintenance capital.

Carmike's first quarter top line operating result reflect quality film product, solid attendance levels and continued growth and success in concessions. The successful integration of recently acquired theaters combined with the execution of Carmike's theater level strategies continues to positively impact the company's operating performance.

And finally, with a strong balance sheet and the financial flexibility to facilitate our strategic growth initiatives, we will continue to focus on further expanding our theater circuit through opportunistic acquisitions as well as organic new builds in fiscal 2014.

Dave and I, sincerely thank you for your continued support. Operator, please open the line up to questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) One moment please for our first question, which comes from the line of James Marsh with Piper Jaffray. Your line is open. And please go ahead.

Stan Meyers - Piper Jaffray

Thanks. This is Stan in for James. I have two questions. First to David, can you guys discuss some of your strategy, any specifics related to the various technologies you are using, I think one of the best example is Carmike 15 in Columbus, it has an IMAX screen, a Real-D screen BigD, D-Box, 2D. Can you kind of sort of compare contrast performance across these formats this weekend with opening Spiderman? Thanks. Then I have a follow-up.

David Passman

We won't address the Spiderman opening. We did just open D-Box though at that 15. And we have fairly high hopes for it. As you know, when we acquired Muvico back in November, it gave us an instant partnership with the D-Box folks. And that helped us in facilitating additional D-Box locations. We are doing the 15 here in Columbus, I would say as a pilot or an experiment to see how it works in the traditional mid to smaller markets.

We also are experimenting with side-by-side; I may call large format auditoriums IMAX and BigD. And without giving numbers, I would just say that we were pleased with both IMAX and the BigD in this weekend’s performance. That's about a specific I want to get until we get passed Q2 results.

Stan Meyers - Piper Jaffray

Okay. Well, I mean, I guess it's historically when you start looking in all these various technologies and putting in the right times slots and where have you focused I guess, at the most or you try to spread across all the various technologies?

You mentioned in the past that you have specific time – the best timeslots start up of the day and when you have all these various technologies which one do you tend to pick kind of the most?

David Passman

Okay. Great question. The best way I can respond to that is, we start with the higher margin items, so IMAX would get preferential treatment right behind it would be BigD and right behind that would be traditional.

Stan Meyers - Piper Jaffray

And just one quick follow-up for Richard. On Muvico and I guess Cinemark, just in terms of other theater expenses what kind of synergies that you guys expecting over the next few quarters or its something that will kick in that will take another year to sort of kick-in?

Richard Hare

Yes. That's a – on the Muvico acquisition just like the others we tend to look at slight improvements in purchasing power on the concessions areas and on film rent. With regard to theater operating cost, I would say we typically don't see a great deal of synergies there. And I just remind everyone that during this past quarter, 85% -- approximately 85% of our increase in theater cost is a result of these new theaters either acquired or our new builds. So just need to factor that in on the going forward basis as we look in the future.

David Passman

I want to add to that if I could. Muvico specifically is a little different than some of the prior acquisitions that we have done. Compare and contrasted a bit to the Rave assets all of the 16 theaters that we acquired from Rave year-and-a-half ago now where established theaters in established markets with a very solid history and run rate that we could count on.

Muvico is just a tad a bit different. Muvico in at least three of the nine markets have theaters that are a little bit ahead of the developments in which they are in. And I think I mentioned that when we acquired with our fourth quarter earnings call that because they are in markets that are still in development, we expect Muvico assets to improve over time perhaps much more dramatically than a Rave or traditional asset acquisition would. How quickly those markets develop is in part going to be dependent on how quickly the economy is in those areas and the developers appetite for adding retail and residential.

So Muvico is a bit different and one of the reasons I think we got such a great deal on the acquisition price was that – it was ahead of the market and we have got to have a little bit of patients and wait for that to develop a bit.

Stan Meyers - Piper Jaffray

Okay. Great. Thanks.

Operator

And our next question comes from the line of David Miller with Topeka Capital Markets. Your line is open. Please go ahead.

David Miller - Topeka Capital Markets

Yes. Hey, guys. A couple of questions. David, are you having discussions yet with Disney at all at this point about net rental negotiations vis-à-vis Star Wars, obviously, that event is looming 18 months away. There is a lot of pent-up demand here. Is Disney already try to kind of home run you guys on this one a little bit. And as a related question, do you see any need to kind of bolt up on screen account ahead of that event? And then I have a follow-up. Thanks.

David Passman

I like the second question better than the first one, David. I have not personally had the first conversation with Disney about Star Wars specifically or about film rent. I'm assuming that no one in my organization has or should have heard about it. So that's number one. I guess as aside to number one, we are very excited about what Star Wars is going to do in the future. So just take that as an aside.

Secondly, bucking up for our studio negotiations on film is not part of our strategy. We do want to buck up. We do want to have the increased purchasing power but we see that primary opportunities for that not in film rent per se but rather in concessions and G&A synergies.

We really don't think adding another two, three, four even five hundred screens is going to change the dynamic in film negotiations. I wish it would. But, we are not counting on it.

David Miller - Topeka Capital Markets

Okay. Great. And then with regard to the Screenvision merger, I know you guys are a little ham strong from going into any details just because the deal wasn't closed. Obviously, but could you just maybe talk about topically some of the advantages you see in switching over to NCM versus Screenvision other than scale. What do you see as kind of the strategic advantages here in switching over? Thanks a lot.

David Passman

Yes. You bet, David. And thanks for the question. I'm happy to try to clarify a little bit of that. The way – from my seat at the table, I see two or three things. Number one, alternative content and what that means and I know Fathom has spun off. But, in the alternative content arena, I think the more commonality we have with content providers meaning the fewer content providers consolidating content, the better we and exhibition are going to be.

And even though, Fathom is only partly owned now by NCM, we see that has a strategic advantage for all us in the industry. Second thing that I would say about NCM is in the advertiser world. National contracts, national advertisers want to have ubiquitous advertising. They really want to make sure; they are penetrating both large and small DMAs. And when you are – General Motors and you got a $1 billion plus advertising budget and you are looking at a small segment of the advertising dollars, you really wanted to be as efficient as possible.

So I see this as a huge advantage national advertisers being able to get advertising and movie theaters done a whole more efficiently from their standpoint. And I think that would benefit us all in exhibition as well. Those are the two big…

David Miller - Topeka Capital Markets

Wonderful. Thank you very much.

Operator

And our next question comes from the line of Jim Goss with Barrington Research. Your line is open. Please go ahead.

Jim Goss – Barrington Research

Thanks. David or Richard, with regard to Muvico from the comments you are making, would you say – its fair to say that it’s been – it is dilutive at this stage. And then how quickly well it transition to that more productive rather than less productive from cost versus revenue standpoint?

Richard Hare

Yes. Jim, let me tackle that one first. Muvico is doing exactly what we had forecasted to do what we say, it would do. The first quarter is not a robust quarter in terms of our business. So you got – that asset holding our fixed cost. But it is tracking exactly to the EBITDA levels that we discussed with street. So we could be more pleased with the results at this point.

Jim Goss – Barrington Research

Okay. I also –I know its been – in terms with reverse seating, I'm wondering what the early returns and premiere point of view as to whether that's a good idea should be extended, should be selectively, how are you looking at that this moment?

David Passman

Yes. Let me hit that one. I think it is a very good idea especially in large markets like Thousand Oaks and Chicago and even in South Florida. The one thing that we had hoped for at Carmike four years ago, when we first started talking about reserve seating was whether we could raise incremental revenue by actually charging for it. And I think that has pretty much become a past idea that never will – never reach fruition.

There are plenty of things you can charge for incrementally but reserve seating does not seem to be one of them. Nevertheless, we do plan on having more and more reserve seating particularly in luxury auditoriums are dining auditoriums or as I said the very large DMA auditoriums.

Jim Goss – Barrington Research

Okay. And lastly with what's you began to learn with Bogart's is that inspiring an acceleration of any broaden menu, you have typically been focused a lot more on soft drinks and pop corn. So this is a bit of a departure but these are different markets. So how broadly can it apply in prior to way for yourself?

David Passman

Yes. And the restaurant or dine-in theater concept has a wide variety of versions. The Bogart's is where essentially you even drink in the restaurant and you might take your drinks into the auditorium. But people don't actually serve you in the auditoriums. We are going to be opening hopefully before the end of the Thanksgiving holiday two theaters where we actually serve you in your seats both food and drink.

And Bogart's is another toe into the water of understanding the restaurant business for us and as we experiment with in auditorium theater dining as well as in theater non-auditorium dining, we are learning a lot about food ordering, about food preparation, about health departments and about consumer tastes and demand and we see this as just one more extension of our ability to learn this business before we have to learn it the hard way, which means an unprofitable way.

Jim Goss – Barrington Research

Okay. I do have one last quick thing. Any chance that we get tracking of these expense break downs for some historical quarters just to help with the modeling?

Richard Hare

Well, I think at this point Jim we are going to do that on a perspective basis. We don't really – we are going to go each quarter, we will release the prior year's quarters to break out so that can certainly help you or anybody else you need to help with the breakout on a quarterly basis year-over-year, I have that information be glad to share with anybody.

Jim Goss – Barrington Research

All right. Thank you.

David Passman

Thank you, Jim.

Operator

And our next question comes from the line of Marla Backer with Ascendiant Capital Markets. Your line is open. Please go ahead.

Marla Backer – Ascendiant Capital Markets

Thank you. Couple of questions. Firs of all, with per cap concessions really some numbers, how are you thinking on a go forward basis in terms of with holding the Bogart and the adult beverages. So I'm sure at this point Bogart is so smaller really doesn't have a big impact but Bogart in that per cap concession number and going forward will it be?

David Passman

Yes. It is in that number. Now, here is the good news Marla. Normally when one thinks of food and even alcoholic beverages, the margins tend to get thinner meaning you are not expecting high 80% gross margins on those type things as you can see from our Q1 2014 versus Q1 2013, our gross margins actually improved or increased. And that's all to say that Bogart's did not have a very significant impact on our margins for Q1 of 2014 versus our traditional Q1 of 2013.

When it becomes significant enough, we will start breaking that out for you. But, right now the alcohol sales in the dozen or so locations that we have a few weeks under our belt as well as Bogart's and the other dining options that we have are not material to either our gross margin percentage or our concessions dollars.

What I can tell you is, where we experimenting with rolling out alcohol, we are seeing in those individual locations an average of $0.08 to $0.12 per cap – per patron I mean on the concessions lift.

Marla Backer – Ascendiant Capital Markets

$0.08 to $0.12 per patron on the concessions, that's interesting.

David Passman

Yes.

Marla Backer – Ascendiant Capital Markets

And I'm guessing that it's extremely product mix dependent?

David Passman

Yes. Of course, what you will see is a slight decrease in non-alcoholic beverage consumption. And with the alcohol beverage consumption whether its beer or wine, you get some pretty nice lift.

Marla Backer – Ascendiant Capital Markets

Okay. And then on the product mix, I think traditionally you tended to outperform nicely on some of the family titles and perhaps even on the play space. So can you give us any color on some of the titles that we have seen here today Noah and Heaven is for Real. How you have done vis-à-vis the industry on those kind of products.

David Passman

Yes. I can only do it anecdotally because I don't think we have attracted by title, it's very, very difficult to do when you can't match a patrons ticket purchase to their concessions purchase. But, generally speaking on movies that are very heavily family – I'm going to say the Heaven is for Real kind of movie, we don't do all that well at concessions.

Marla Backer – Ascendiant Capital Markets

Okay. No. That was a good data point. But I was actually (indiscernible) standing whether you had outperformed in terms of the percentage sales, yes, the box?

David Passman

Yes. On family friendly but particularly where kids are involved, we tend to over perform. We also tend to overperform, we really just like that Heaven is for Real. So we like it even though it doesn't help us on concessions. But, LEGO and Frozen, we over performed through the lifecycle of those movies.

Marla Backer – Ascendiant Capital Markets

Okay. Thanks and then last question is, should we expect a summer slowdown on the M&A front as theaters start to get more crowded will sellers decline to sell in advance of the (indiscernible) window here?

David Passman

I hope not – I don't think so. But, that's going to depend on the sellers I guess. If you could see me right now Marla, you would be very disappointed with it or maybe you would be very happy with the dark bags under my eyes. We are running at almost fever pitch and just trying to keep track of, I will say deals in progress. I wish I could announce something. I obviously can't. We don't have anything signed but my phone is used an awful on deals and we are now into the summer. I don't expect that to slowdown at all.

Marla Backer – Ascendiant Capital Markets

Okay. All right. Thank you.

David Passman

You bet. Thank you.

Operator

And our next question comes from the line of Chad Beynon with Macquaire Capital. Your line is open. Please go ahead.

Chad Beynon - Macquaire Capital

Hi. Congratulations guys. Thanks for taking my question.

David Passman

Chad, thank you.

Chad Beynon - Macquaire Capital

Just wanted to follow up on your comment that you just made on the transaction front, I know last quarter Dave, you went into great detail on all the circuits out there, all the opportunities that you are looking at.

I was wondering if you could maybe just talk about any upgrades that you are seeing with these smaller competitors. Are they doing some of the things that you and the big players are doing experiencing with higher end concessions and seating? And when you have your conversations – if not when you have your conversations with them, is this something that could help the deal they see the opportunity there and maybe they realize its another time when they need to sell similar to what we saw on the digital front?

David Passman

I think that's a very astute observation Chad because I do think that the smaller guys are being pinched on capital allocations. And they can't afford to do everything. And some of them can't afford to do anything more than they are already doing. So I do believe, they have an interest in seeing their legacy continued even perhaps in a different name but continued culture. And they – I wouldn't say all but several of them are concerned about what the industry is going to evolve into and whether they can keep pace.

So if anything I would venture to say that increased activity that we have seen as included conversations along the lines. I can't afford to reseat my auditoriums but I know it would be good or I can't afford to convert to theater dining but I think these x number of locations are prime candidates.

So that is very much a part of the conversation and while they haven't said buy my theaters because I can't afford to do it. It's certainly been a part of the conversions that we have been involved in.

Chad Beynon - Macquaire Capital

Got you. Thank you. And then a follow-up on the concessions with the record quarter that you put, I know you went into some detail on the Bogart's mix shift and kind of what you saw there. And this wasn't in the Qs, I'm not sure if you are willing to break it down. Did you see volume increases with some of the legacy properties or was it more pricing and some of the concession mix and then also the film. Just trying to figure out, if this was partly consumer driven or if it was mainly around what do you and your team are doing in the theaters?

Richard Hare

Yes. I would say it's mainly around what our team is doing in theaters on the concession side. The increase rebates. Marginal price increases, we have been trading margin percentage for margin dollars. In this quarter we got both. We got increased margins and increased dollars. So we couldn't be more pleased.

David Passman

And don't forget the pop corn bucket in the first quarter. It's a big, big help to us. We push it really, really hard.

Chad Beynon - Macquaire Capital

Got you, okay. Thank you all and congratulations.

David Passman

Thanks Chad,

Operator

And our next question comes from the line of Kevin Rippey with Maxim Group. Your line is open. Please go ahead.

Kevin Rippey – Maxim Group

Hey, guys. Congrats again on a great quarter.

David Passman

Thanks Kevin.

Kevin Rippey – Maxim Group

You could walk us through a little bit on as far as the Muvico acquisition goes, are there any particular locations that are showing strength or weakness or how should we thinking about that is, I mean you mentioned they might be in some underdeveloped areas with respect to particular locations. Just some color on that would be really helpful.

David Passman

I'll try. There are – I'll give you two examples, I could give you three or four examples but I'll give you two examples. Muvico built a beautiful theatre in Northeast Tampa, Florida. And in that area, there is a developing residential. There are very few what I would call great retail locations that have yet to appear there but many under construction. And as that area develops and by the way it's tracking as a very good asset for us on attendance. But as that area develops, that theatre will be a killer theatre.

The second that I would mention is in a very small community which is a suburb of one of the largest DMAs in America in Chicago. The theatre in Rosemont, Illinois sits literally within a 100 yards at the end of the runway at Chicago O'Hare. And the community, I think is under 5000 residents, but it has and I don't know how many millions but its multiple millions of visitors every year. And it's – the theatre sits adjacent to a very large retail area that just opened in August of 2013 and still has several stores yet to open. We expect big things from that theatre and it's a beautiful, beautiful, very large theatre. It doesn't compete for product or anything.

So we're expecting big things from that one as well. I can basically go down the Muvico list and give you two or three more examples, similar type things where the areas are in development or redevelopment. And there is a great deal of optimism on our part, what we don't have optimism on is timing. And, we just don't know how quickly these things will develop, some as you know, might develop very quickly, some may take a year or two before they are at what I would say peak performance.

Kevin Rippey – Maxim Group

All right. That's really helpful. Thank you.

David Passman

My pleasure.

Operator

And our next question comes from the line of Kevin Ruth with Raymond James. Your line is open. Please go ahead.

Kevin Ruth - Raymond James

Thanks guys. On the interest expense line, is all of that increase related to the cap leases on the acquired theatres?

Richard Hare

It is but exactly what it is. So the last position was for Muvico. So the run rate – I believe I talked about it in the script is reflective of that.

Kevin Ruth - Raymond James

Okay. And then on the admissions revenue per screen, what would that have looked like on a comparable basis? So, would that be acquisitions?

Richard Hare

Without Muvico, it would have been about $0.15 less per hub. What attendance per person up, yes. I don't have the per screen number but the box office per person would be about $0.15 less.

Kevin Ruth - Raymond James

Okay. Okay. That's all I have. Thanks.

David Passman

You bet. Thank you.

Operator

And our next question comes from the line of Sachan Sapra with Gluskin Sheff & Associates. Please go ahead.

Sachan Sapra - Gluskin Sheff & Associates

Firstly, I just want to say congratulations to our team on a very impressive quarter.

David Passman

Thanks Sachan.

Sachan Sapra - Gluskin Sheff & Associates

I was hoping you could help me understand with the NCMI acquisition of Screenvision means for your future as an independent entity. Do you mean the transaction effectively means that a standing member could acquire you until you see the meaningful portion of the acquisition consideration back in NCMI shares, given that Screenvision at NCMI in common currency? Am I correct in my understanding or am I missing something?

Richard Hare

Well, given the primary stages of the transaction, we're not really in a position to go into details, we're going at – I mean our strategy continues to prioritize our acquisitions and our current targets remains to grow to 3000 theaters and over 3000 screens. Our top priority remain circle expansion and we reach our next milestone, we'll evaluate and go from there.

Sachan Sapra - Gluskin Sheff & Associates

Okay. Thanks guys. I appreciate it.

David Passman

You bet.

Operator

And there are no further questions on the phone lines at this time.

David Passman

Okay. Collin, thank you very much. Ladies and gentlemen, again, thank you for joining us today. We know you certainly had a choice of calls to listen in on and we are glad that you joined us. We look forward to speaking to you again following our second quarter results. Have a nice evening. Cinco de Mayo, be careful driving home.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation. Now you please disconnect your lines.

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