Regal Entertainment Group (RGC)
Q3 2011 Earnings Call
October 27, 2011 4:30 pm ET
David H. Ownby - Chief Financial Officer, Executive Vice President, Principal Accounting Officer and Treasurer
Amy E. Miles - Chief Executive Officer and Director
Tuna N. Amobi - S&P Equity Research
Benjamin Swinburne - Morgan Stanley, Research Division
Richard Greenfield - BTIG, LLC, Research Division
Martin Pyykkonen - Wedge Partners Corporation
Alexia S. Quadrani - JP Morgan Chase & Co, Research Division
James C. Goss - Barrington Research Associates, Inc., Research Division
Anthony Wible - Janney Montgomery Scott LLC, Research Division
Barton E. Crockett - Lazard Capital Markets LLC, Research Division
Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division
Marla S. Backer - Hudson Square Research, Inc.
Benjamin Mogil - Stifel, Nicolaus & Co., Inc., Research Division
Eric O. Handler - MKM Partners LLC, Research Division
James M. Marsh - Piper Jaffray Companies, Research Division
Anthony J. DiClemente - Barclays Capital, Research Division
David W. Miller - Caris & Company, Inc., Research Division
Previous Statements by RGC
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Good afternoon. At this time, I would like to welcome everyone to the Regal Entertainment Group Third Quarter 2011 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 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 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 E. Miles
Good afternoon, and thank you for dialing in to our third quarter conference call. For the next few minutes I will provide an overview of industry box office for the third quarter, an update on the results of operational and strategic initiatives and a brief review of industry box office expectations for the remainder of the year. Following my remarks, David will highlight our financial results. As always, we will conclude the call with a question-and-answer session.
As the record summer box office period comes to a close, we are extremely pleased to report another quarter of significant adjusted EBITDA growth and margin expansion. The key drivers of our success in the second quarter were also present in the third quarter: a healthy box office environment, the continued success of premium format films and our focus on managing the variable portion of our cost structure. These key drivers enabled us to grow our adjusted EBITDA by over 25% and expanded our adjusted EBITDA margin by 300 basis points in the third quarter.
Benefiting from increases in both pricing and attendance, industry box office receipts for our fiscal third quarter increased approximately 7% versus the same period last year. With the combined gross of over $665 million during the quarter, Harry Potter and the Deathly Hollows Part 2, and Transformers: Dark of the Moon, helped push industry box office near the $2.9 billion mark, the highest quarterly total in the industry's history.
Premium format films were once again an integral part of the quarter's box office success and contributed to an estimated 3% to 4% increase in industry ticket prices during the quarter. An increase in the number of films released in a premium format and the number of screens deployed industrywide, continue to have a positive impact on box office results, as 5 of the top 10 films were presented in 3D this quarter as compared to only 3 of the top 10 in the same period last year. Based on our review of industry sources, we estimate that over 20% of the overall industry box office was generated through premium ticket sales during the third quarter.
In addition to increased pricing, attendance growth was again a key driver of industry box office performance in the third quarter. Based on our review of industry sources, we estimate that the industry achieved its highest quarterly attendance total since the second quarter of 2009, with an increase of approximately 2% to 4% as compared to the same period last year. Increased attendance clearly had a positive impact on our adjusted EBITDA margins, and we are particularly pleased with industry attendance growth for the second consecutive quarter.
In addition to the benefits associated with a healthy box office environment
We were again happy to see tangible results from our focus on cost control. As has been the case for the last several quarters, our ability to control the variable portion of our cost structure was a key component of our adjusted EBITDA and free cash flow growth during the quarter.
Looking now at our strategic initiatives. We are pleased with the results of several ongoing operational and strategic initiatives during the quarter. We continue to focus our efforts on providing a high-quality premium experience for our customers. For the past several years, that effort has been directed at utilizing IMAX, RealD and Sony 4K Digital technology to enhance film presentation in our auditoriums. As the rollout of new technology nears completion, we have shifted our efforts to providing a premium experience from the moment a customer walks into our theater. To that end, earlier this year, we began introducing expanded concession menus, mobile ticketing and reserved seating at various theaters throughout the country. While these amenities are currently available in only a limited number of locations, we are encouraged by the early results and are optimistic they will provide opportunities for revenue growth in the future.