Regal Entertainment Group (RGC)

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Regal Entertainment Group (RGC)

Q3 2012 Earnings Call

October 25, 2012 4:30 pm ET

Executives

Amy E. Miles - Chief Executive Officer and Director

David H. Ownby - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Analysts

Bo Tang - Barclays Capital, Research Division

James M. Marsh - Piper Jaffray Companies, Research Division

Eric O. Handler - MKM Partners LLC, Research Division

Benjamin Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Townsend Buckles - JP Morgan Chase & Co, Research Division

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

Martin Pyykkonen - Wedge Partners Corporation

Ryan Fiftal - Morgan Stanley, Research Division

Robert Fishman - Nomura Securities Co. Ltd., Research Division

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

David W. Miller - Caris & Company, Inc., Research Division

Tuna N. Amobi - S&P Equity Research

Michael Hickey - National Alliance Capital Markets, Research Division

James C. Goss - Barrington Research Associates, Inc., Research Division

Presentation

Operator

Good afternoon. My name is Rhea, and I will be conference facilitator today. At this time, I would like to welcome everyone to the Regal Entertainment Group Fiscal Third Quarter 2012 Earnings Release Conference Call, with our hosts Amy Miles, Chief Executive Officer of Regal Entertainment Group; and David Ownby, Chief Financial Officer, 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 fact 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 annual report on Form 10-K dated February 27, 2012. All forward-looking statements are expressly qualified in their entirety by such factors.

Now I will turn the call over to Ms. Amy Miles.

Amy E. Miles

Good afternoon, and thank you for dialing into our third quarter conference call. For the next few minutes, I will provide an overview of third quarter results for both the industry and Regal, and an update on several strategic initiatives. Following my remarks, David will highlight our financial results and as always, we will conclude the call with a question-and-answer session.

First and foremost, we are extremely pleased that 2012 is shaping up as a great year at the box office. Through last weekend, year-to-date, industry box office totaled just over $8.7 billion, an increase of approximately 4.5 versus -- 4.5% versus the same period last year, and the highest total in the industry's history at this point in the year.

With many exciting titles scheduled for release in the upcoming holiday season, we are optimistic that 2012 will be among the industry's very best box office years.

When looking at the third quarter industry box office on a stand-alone basis, we noted several factors that contributed to an overall decline of approximately 5%.

The quarter got off to a tremendous start as 3 films: Ted, The Amazing Spider-Man, and The Dark Knight Rises drove a record July box office of just under $1.3 million.

However, in the latter part of the quarter, the industry faced a very difficult comparison with a strong August and a record September in 2011, and was likely somewhat impacted in the aftermath of the Aurora tragedy and by the widely televised summer Olympic Games in late August.

Additionally, a decline in box office revenue generated by 3D films had an impact on the industry's third quarter results. While we were somewhat disappointed by the late third quarter results, we are pleased that the downturn was short lived. For the first 3.5 weeks of our fiscal fourth quarter, industry box office revenues increased by over $140 million or 28%, and completely erased the shortfall experienced in the third quarter.

From an operational standpoint, our field personnel once again demonstrated their ability to provide a great customer experience while at the same time, keeping a close watch on our variable cost.

For the third consecutive quarter, our adjusted EBITDA margin exceeded 19%, and on a year-to-date basis, our adjusted EBITDA total of just over $426 million is the highest in our history.

David will provide more financial detail behind our operating results later. But I think it goes without saying that we are extremely pleased with our recent operational execution.

We are also pleased with the results of several ongoing strategic initiatives during the quarter. Our conversion to digital cinema is almost complete. At the end of the third quarter, over 63 of our -- 100 of our screens were equipped with digital projection systems, and over 92% of our buildings were fully digital. The financing and subsequent installation of the new projectors over the last 2.5 years was a significant undertaking for everyone involved, and we are extremely pleased with the seamless execution of the hardware conversion and the revenue opportunities that have been afforded to us in a digital opportunity, and the financial success and stability of DCIP.

We also made significant progress in our effort to offer a premium viewing experience to a larger portion of our customer base. Adding one IMAX screen and 4 RPX screens during the quarter.

We continue to see incremental revenue and returns from our premium auditoriums and as a result, we had elected to expand our relationship with IMAX to allow for 10 additional screens, bringing our full commitment to 87 screens. We expect the rollout of these new IMAX screens and our RPX-branded screens to continue into 2013 and beyond.

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