Regal Entertainment Group (RGC)

RGC 
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Regal Entertainment Group (RGC)

Q4 2011 Earnings Call

February 13, 2012 05:00 PM ET

Executives

Amy Miles - CEO

David Ownby - CFO

Analysts

Ben Mogil - Stifel, Nicolaus

Barton Crockett - Lazard Capital Markets

James Marsh - Piper Jaffray

Martin Pyykkonen - Wedge Securities

Eric Handler - MKM Partners

Townsend Buckles - JPMorgan Securities

Bo Tang - Barclays

Marla Backer - Hudson Square

Eric Wold - B. Riley

Matthew Harrigan - Wunderlich Securities

Jim Goss - Barrington Research

Joseph Hovorka - Raymond James

Tuna Amobi - Standard & Poor's

Presentation

Operator

Good afternoon. My name is Maddy (ph) and I will be your conference facilitator today. At this time I would like to welcome everyone to the Regal Entertainment Group’s Fiscal Fourth Quarter and Full Year 2011 Earnings Release Conference Call with our host Amy Miles, Chief Executive Officer of Regal Entertainment Group and David Ownby, Chief Financial Officer of Regal Entertainment Group. (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 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 could cause actual results to differ materially from the company’s expectations are disclosed in the risk factors contained in the company’s Annual Report on Form 10-K dated February 28, 2011. All forward-looking statements are expressly qualified in their entirety by such factors.

Now I will turn the call over to Amy Miles.

Amy Miles

Good afternoon and thank you for dialing in to our fourth quarter conference call. For the next few minutes I will provide an overview of industry box office results, some operational and strategic highlights for 2011, a brief review of the 2012 film play. Following my remarks David with highlights our financial results and as always, we will conclude the call with a question-and-answer session.

The fourth quarter of 2011 presented the industry with a challenging box office environment. Despite over $280 million of revenue generated by Twilight: Breaking Dawn Part 1 and a slight uptick in the box office during the historically busy week between Christmas and New Year’s, industry box office generally underperformed expectations and declined by approximately 7% versus the same period last year.

Despite the challenging box office environment, we continue to focus our efforts on maximizing free cash flow and generating meaningful returns for our shareholders. To that end I'm pleased to report the following highlights from both the fourth quarter and fiscal 2011.

First and foremost, our focus on effectively managing the variable portion of our cost structure continued to have a positive impact on our operating results as evidenced by a reduction in other operating expenses of approximately $5 million in the fourth quarter and almost $40 million for the fiscal 2011 year.

Effective cost control combined with our closure of 127 unproductive screens in the last 12 months helped us achieve adjusted EBITDA margin growth of 40 basis points in 2011 despite the difficult box office environment.

Our roll out of premium screens also benefited our bottom line in 2011. While the percentage of total box office revenue generated by premium ticket sales has fluctuated and will likely continue to fluctuate on a quarterly basis, a broader view of industry data indicates that the premium format has evolved into a very stable portion of our business.

We estimate that premium ticket sales accounted for approximately 18% to 19% of industry box office in 2011, just shy of the 20% generated last year despite a difficult comparison with Avatar and Alice in Wonderland in early 2010.

In addition to our premium auditorium rollout, we also made significant progress with our conversion to digital cinema in 2011. As of year-end over 4,700 of our screens were equipped with digital projection systems and just over 50% of our buildings were fully digital. We are already experiencing operating and content management efficiencies as a result of the digital conversion and we look forward to completing the rollout by the end of 2012.

At the concession stand, our per caps increased by almost 5.5% for the fourth quarter and almost 3.5% for the fiscal year. We are particularly pleased that these gains were driven primarily by increases in volume as opposed to price and, furthermore, that items introduced as part of our expanded food menu accounted for over $0.015 of the per cap gross for the year, despite availability at only a limited number of locations. We are encouraged by the early results from our expanded food menu and expect to introduce some or all of these items at additional locations in 2012.

And finally our film distribution joint venture, Open Road Films is off to a great start. To date Open Road has released two films, Killer Elite which generated a total gross of over $25 million last year and The Grey, which opened as the No. 1 film domestically three weeks ago and has since generated a cumulative growth of almost $43 million. And we expect both films to generate a profit as they move through the downstream distribution channels.

In addition, an agreement was finalized in late 2011 under which Open Road will provide distribution services for three to four film district titles in 2012 in exchange for a distribution fee. The agreement allows Open Road to supplement their release schedule without deploying additional capital and effectively leverage their existing overhead. We are pleased with Open Road’s early success and look forward to the films they have scheduled for release for the remainder of 2012.

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