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RealD Inc. (RLD)
F3Q13 Earnings Call
February 6, 2013 4:30 pm ET
Erik Randerson – Vice President, Investor Relations
Michael V. Lewis – Chairman/CEO and Co-Founder
Drew Skarupa – Chief Financial and Operating Officer
Townsend Buckles – JPMorgan
Ralph Schackart – William Blair & Company, L.L.C.
Eric Wold – B. Riley & Co.
Steven Frankel – Dougherty & Company LLC
James Marsh – Piper Jaffray
Benjamin Mogil – Stifel Nicolaus & Company, Inc.
James Goss – Barrington Research
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Thank you and welcome to RealD’s conference call to discuss our financial results for the third quarter ended December 31, 2012. By now everyone should have access to the earnings press release which was distributed today at approximately 4:00 pm Eastern time. It is available on the Investor Relations portion of RealD’s website at www.RealD.com. Also available on the website is financial highlights presentation that provides a detailed review of our results for the third quarter and year-to-date period. This call is being webcast and will be available for replay.
In our remarks today, we will include statements that are considered forward-looking within the meaning of the United States’ Securities Laws. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management’s current knowledge and expectations as of today February 6, 2013, and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements.
A detailed discussion of these risks and uncertainties is contained in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The company undertakes no obligation to update any forward-looking statements.
We’ll refer to non-GAAP measures that when used in combination with GAAP results, provide us with additional analytical tools to understand our operations. In our earnings press release and in our SEC filings, we have provided reconciliations of these non-GAAP measures to their most comparable GAAP measures.
And with that, I’d like to hand the call over to our Chairman and CEO, Michael Lewis.
Michael V. Lewis
Thanks, Erik. Performance in our industry is driven primarily by the top-grossing films. We are encouraged that studios are increasingly choosing to make their large budget films in 3D as evidenced by several recent announcements of major 3D films heading towards theatrical release.
In fact in fiscal 2014, 3D films slate arguably captures a greater share of 10-fold films than ever before. However, it just wasn’t the case this quarter as 2D films generated an outsized share of the global box office receipts. In particular, Skyfall and Twilight were the highest grossing films in the quarter and both were shown in 2D only. We believe that both of these films would have been great in 3D and would have generated even more impressive box office results, if a 3D version had been available.
With that context, let me briefly review our financial results for the third fiscal quarter. I will then discuss some industry trends and our key growth initiatives. License revenue for the quarter increased 7% year-over-year, GAAP net loss attributable to common shares was $0.08 per share and adjusted EBITDA was $12.5 million.
Our expected year-over-year decrease and eyewear gross profit explains majority of the decrease, operating income compared to last year’s third quarter. Importantly, we operate the Eyewear business is slightly above break-even in the quarter, which was consistent with the outlook we provided last quarter.
For the third consecutive quarter, we generated positive free cash flow as our results are benefiting from a more moderate level of capital expenditures. For the nine-month period in fiscal 2013, we have generated more than $38 million in free cash flow.
Now, let’s talk about some of the key films in the quarter, as well as the films slate going forward. The Hobbit was our highest grossing 3D film in the quarter and is the first of three Hobbit films that will play on RealD screen for the next 18 months. The Hobbit generated nearly 700 million in global box office during the quarter and is now approaching $1 million in global box office, the majority from 3D-enabled screens.
Beyond the success of the box office, The Hobbit marks an important step forward in advancing 3D technology. The success of our industry has benefited from technology innovations that have kept moviegoers coming back to theaters for something truly special. Director Peter Jackson film The Hobbit at 48 frames per second, doubled the standard frame rate that was established nearly 100 years ago. This approach takes full advantage of RealD cinema systems to produce an incredibly crisp, realistic and life like 3D image that brings viewers deeper into the story.
We applaud Peter Jackson of his pioneering efforts and for sharing our commitments to technology and innovation. Another recent film that advanced 3D film making as an art form was Life of Pi. Director Ang Lee’s adaption of the fantasy adventure novel has been universally priced as a stunning cinematic achievement. Life of Pi was nominated for an impressive 11 county awards, including best picture and best cinematography.