RealD Inc. Reports Financial Results For Third Quarter Of Fiscal 2012

RealD Inc. (NYSE: RLD), a leading global licensor of 3D technologies, today announced financial results for its third quarter of fiscal 2012 ended December 23, 2011.

Third Quarter Financial Highlights

Revenue
  • Revenue was $49.0 million, a decrease of 15% from $57.8 million in the third quarter of fiscal 2011.
  • Net license revenue was $28.5 million, an increase of 51% from $18.8 million in the third quarter of fiscal 2011.
  • Net license revenue for the prior-year quarter is net of $22.0 million in motion picture exhibitor stock option expense (a contra revenue item). All exhibitor stock options vested in fiscal 2011 and RealD does not expect to incur exhibitor stock option expense during the current fiscal year or in future years.
  • Product and other revenue was $20.6 million, a decrease of 47% from $38.9 million in the third quarter of fiscal 2011. The decrease is partially attributable to an increasing number of international consumers returning to the cinema with RealD eyewear purchased at a previous RealD showing.

GAAP Results – Profitability Measures and Balance Sheet
  • GAAP net income attributable to common stockholders was $2.8 million, or $0.05 per diluted share, compared to a GAAP net loss attributable to common stockholders of $16.6 million, or $0.34 per share, for the third quarter of fiscal 2011.
  • Gross margin increased to 49% from 11% in the third quarter of fiscal 2011.
  • The Company’s balance sheet at December 23, 2011 included total cash and cash equivalents of $29.2 million and total debt of $25.0 million. The Company had $25.0 million available on its line of credit as of December 23, 2011.

Non-GAAP Results – Profitability Measures
  • Adjusted EBITDA was $16.2 million, a decrease of 4% from $16.9 million in the third quarter of fiscal 2011.
  • Adjusted EBITDA increased to 33% of net revenue from 29% of net revenue in the third quarter of fiscal 2011.
  • Adjusted EBITDA is defined within the section of this press release entitled “Use of Non-GAAP Financial Measures,” which includes a reconciliation to its most comparable GAAP measure, net income (loss).

“Prudent management of operating expenses enabled RealD to maintain profitability during the third fiscal quarter despite a relatively muted 3D film slate,” said Michael V. Lewis, Chairman and Chief Executive Officer of RealD. “Looking forward, we are excited about the promising slate of 3D films in our fiscal 2013 that begins on March 24, 2012, as well as continued expansion within international markets.”

Key Metrics and International Revenue Statistics

  • International markets generated 60% of gross license revenue in the quarter compared to 58% of gross license revenue in the third quarter of fiscal 2011.
  • As of December 23, 2011, the Company had deployed approximately 19,700 RealD-enabled screens, an increase of 74% from approximately 11,300 screens as of December 24, 2010, and an increase of 1,000 screens, or 5%, from approximately 18,700 screens as of September 23, 2011.
  • As of December 23, 2011, the Company had approximately 11,500 domestic screens at approximately 2,500 domestic theater locations and approximately 8,200 international screens at approximately 2,400 international theater locations.

First Nine Months Fiscal 2012 Results

Revenue
  • Revenue was $196.6 million, an increase of 5% from $187.6 million for the nine months ended December 24, 2010.
  • Net license revenue was $116.1 million, an increase of 70% from $68.4 million for the nine months ended December 24, 2010.
  • Net license revenue for the nine months ended December 24, 2010 is net of $34.0 million in motion picture exhibitor stock option expense (a contra revenue item).
  • Product and other revenue was $80.4 million, a decrease of 33% from $119.2 million for the nine months ended December 24, 2010.

GAAP Results – Profitability Measures
  • GAAP net income attributable to common stockholders was $31.3 million, or $0.55 per diluted share, compared to a GAAP net loss attributable to common stockholders of $16.8 million, or $0.43 per share, for the nine months ended December 24, 2010.
  • Gross margin increased to 52% from 20% for the nine months ended December 24, 2010.

Non-GAAP Results – Profitability Measures
  • Adjusted EBITDA was $86.6 million, an increase of 95% from $44.4 million for the nine months ended December 24, 2010.
  • Adjusted EBITDA increased to 44% of net revenue from 24% of net revenue for the nine months ended December 24, 2010.

3D Theatrical Release Schedule for Second Half Fiscal 2012 and First Half Fiscal 2013 (As of February 1, 2012 – Domestic)
           

Fiscal Q3 2012

Film

Domestic Release Date
(ended 12/23/11) Three Musketeers 10/21/2011
Puss in Boots 10/28/2011
A Very Harold & Kumar 3D Christmas 11/4/2011
Immortals 11/11/2011
Happy Feet 2 11/18/2011
Arthur Christmas 11/23/2011
Hugo 11/23/2011
The Adventures of Tintin 12/21/2011
 

Fiscal Q4 2012

Film

Domestic Release Date
(ending 3/23/12) The Darkest Hour 12/25/2011
Beauty and the Beast 3D (re-release) 1/13/2012
Underworld 4: Awakening 1/20/2012
Journey 2: The Mysterious Island 2/10/2012
Star Wars: Episode 1: The Phantom Menace (re-release) 2/10/2012
Ghost Rider: Spirit of Vengeance 2/17/2012
Dr. Seuss’ The Lorax 3/2/2012
John Carter 3/9/2012
 

Fiscal Q1 2013

Film

Domestic Release Date
(ending 6/22/12) Wrath of the Titans 3/30/2012
The Pirates! Band of Misfits 3/30/2012
Titanic (re-release) 4/6/2012
The Avengers 5/4/2012
Men in Black III 5/25/2012
Madagascar 3: Europe’s Most Wanted 6/8/2012
Prometheus 6/8/2012
Brave 6/22/2012
Abraham Lincoln: Vampire Hunter 6/22/2012
 

Fiscal Q2 2013

Film

Domestic Release Date
(ending 9/21/12) Amazing Spiderman 4 7/3/2012
Ice Age: Continental Drift 7/13/2012
Step Up 4Ever 3D 7/27/2012
ParaNorman 8/17/2012
Resident Evil 5: Retribution 9/14/2012
Finding Nemo (re-release) 9/14/2012
Dredd 9/21/2012
Hotel Transylvania 9/21/2012
 

Sources: Rentrak and imdb.com.

Conference Call Information

Members of RealD management will host a conference call to discuss the Company’s financial results for the third quarter ended December 23, 2011 beginning at 4:30 pm ET (1:30 pm PT), today, February 1, 2012. To access the call via telephone, interested parties should dial (877) 941-4774 (U.S.) or (480) 629-9760 (International) ten minutes prior to the start time and use conference ID 4507345.

The conference call will also be broadcast live over the Internet, hosted at the Investor Relations section of the Company’s website at www.reald.com. An archived replay of the call will be available via webcast at www.reald.com or by dialing (877) 870-5176, or (858) 384-5517 for international callers. The conference ID for the telephone replay is 4507345.

Cautionary Note on Forward-Looking Statements

This press release includes forward-looking information and statements, including but not limited to: statements concerning anticipated future financial and operating performance; RealD’s ability to continue to derive substantial revenue from the licensing of RealD’s 3D technologies for use in the motion picture industry, as well as RealD’s relationships with consumer electronics panel manufacturers and its ability to generate substantial revenue from the licensing of RealD’s 3D technologies for use in the 3D consumer electronics market; 3D motion picture releases and conversions scheduled for fiscal 2012 ending March 23, 2012, their commercial success and consumer preferences; our ability to increase the number of RealD-enabled screens in domestic and international markets and market share; our ability to supply our solutions to our customers on a timely basis; RealD's relationships with its exhibitor and studio partners and the business model for 3D eyewear in North America; the progress, timing and amount of expenses associated with RealD’s research and development activities; market and industry trends, including growth in 3D content; RealD’s projected operating results; and competitive pressures in domestic and international markets. These statements are based on our management’s current expectations and beliefs, as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside our management’s control that could cause actual results to differ materially from the results discussed in the forward-looking statements. The Company’s Quarterly Report on Form 10-Q for the three months ended December 23, 2011 and other documents filed with the SEC include a more detailed discussion of the risks and uncertainties that may cause actual results to differ materially from the results discussed in the forward-looking statements.

RealD undertakes no obligation to update publicly the information contained in this press release, or any forward-looking statements, to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events.

Use of Non-GAAP Financial Measures

To supplement RealD’s financial statements presented on a GAAP basis, RealD provides Adjusted EBITDA as a supplemental measure of its performance. The Company defines Adjusted EBITDA as net income (loss), plus net interest expense, income and other taxes, and depreciation and amortization, as further adjusted to eliminate the impact of share-based compensation expense, exhibitor option expense and certain other items not considered by RealD management to be indicative of the company’s core operating performance.

RealD presents Adjusted EBITDA in reporting its financial results to provide investors with additional tools to evaluate RealD’s operating results in a manner that focuses on what RealD’s management believes to be its ongoing business operations. RealD’s management does not itself, nor does it suggest that investors should, consider any such Non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Adjusted EBITDA is used by management for planning purposes, including: the preparation of internal budgets, forecasts and strategic plans; in analyzing the effectiveness of business strategies; to evaluate potential acquisitions; in making compensation decisions; in communications with its Board of Directors concerning financial performance; and as part of the Company’s credit agreement in which Adjusted EBITDA is used to measure compliance with certain covenants. Because not all companies use identical calculations, the Company’s presentation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as tax and debt service payments.

About RealD Inc.

RealD is a leading global licensor of 3D technologies. RealD’s extensive intellectual property portfolio is used in applications that enable a premium 3D viewing experience in the theater, the home and elsewhere. RealD licenses its RealD Cinema Systems to motion picture exhibitors that show 3D motion pictures and alternative 3D content. RealD also provides its RealD Display, active and passive eyewear, and RealD Format technologies to consumer electronics manufacturers and content producers and distributors to enable the delivery and viewing of 3D content. RealD’s cutting-edge 3D technologies have been used for applications such as piloting the Mars Rover.

RealD was founded in 2003 and has offices in Beverly Hills, California; Boulder, Colorado; London, United Kingdom; Shanghai, China; Hong Kong; and Tokyo, Japan. For more information, please visit our website at www.reald.com.

© 2012 RealD Inc. All Rights Reserved.
                           

RealD Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)
                                     
Three months ended Nine months ended
December 23, December 24, December 23, December 24,
        2011       2010 2011 2010
 
Revenue:
License $ 28,454 $ 18,838 $ 116,146 $ 68,390
Product and other   20,572           38,942   $ 80,435         $ 119,232  
Total revenue 49,026 57,780 196,581 187,622
Cost of revenue:

License(1)
9,202 5,301 30,321 11,660
Product and other   15,870           46,341     64,465           138,099  
Total cost of revenue 25,072 51,642 94,786 149,759
Gross profit 23,954 6,138 101,795 37,863
Operating expenses:
Research and development 4,336 4,347 12,736 10,751
Selling and marketing 6,564 5,813 20,259 15,251
General and administrative   11,513           10,596     29,735           25,195  
Total operating expenses   22,413           20,756     62,730           51,197  
Operating income (loss) 1,541 (14,618 ) 39,065 (13,334 )
Interest expense (227 ) (71 ) (710 ) (873 )
Other income (loss)   (792 )         (431 )   157           6,376  
Income (loss) before income taxes 522 (15,120 ) 38,512 (7,831 )
Income tax expense (benefit)   (2,241 )         1,648     7,170           3,299  
Net income (loss) 2,763 (16,768 ) 31,342 (11,130 )

Net (income) loss attributable to noncontrolling interest
70 181 (9 ) (692 )
Accretion of preferred stock             -               (4,934 )

Net income (loss) attributable to RealD Inc. common stockholders
$ 2,833         $ (16,587 ) $ 31,333         $ (16,756 )
 
Earnings (loss) per common share:
Basic $ 0.05 $ (0.34 ) $ 0.58 $ (0.43 )
Diluted $ 0.05 $ (0.34 ) $ 0.55 $ (0.43 )
 
Shares used in computing earnings (loss) per common share:
Basic 54,524 48,760 54,274 38,689
Diluted         56,385           48,760               56,985           38,689  

(1)
   

The nine months ended December 23, 2011 include $6.8 million in impairment charged to cost of revenue for certain of the cinema systems.
 
 
                         

RealD Inc.

Consolidated Balance Sheets

(In thousands)
                               
December 23, March 25,
        2011                     2011
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 29,180 $ 16,936
Accounts receivable, net 44,015 50,676
Inventories 46,020 54,971
Deferred costs – eyewear 573 49
Deferred income taxes 1,029
Income taxes receivable 139
Prepaid expenses and other current assets   2,040                         1,734  
Total current assets 121,828 125,534
Property and equipment, net 10,970 7,889
Cinema systems, net 142,954 122,226
Digital projectors, net-held for sale 4,360 10,475
Goodwill 10,657 10,657
Other intangibles, net 1,788 1,918
Deferred income taxes 817
Other assets   4,906                         1,448  
Total assets $ 298,280                       $ 280,147  
 
Liabilities and equity
Current liabilities:
Accounts payable $ 26,584 $ 58,713
Accrued expenses and other liabilities 27,457 40,118
Deferred revenue 7,820 14,176
Income taxes payable 3,885
Deferred income taxes 700
Current portion of long-term debt                           2,291  
Total current liabilities 66,446 115,298
Credit facility agreement 25,000
Deferred revenue, net of current portion 14,193 14,106
Other long-term liabilities, customer deposits and virtual print fee liability 3,679 4,533
Long-term debt, net of current portion 19
Deferred income taxes 1,091
Commitments and contingencies
Equity

Common stock, $0.0001 par value, 200,000 shares authorized; 54,468 and 53,570 shares issued and outstanding at December 23, 2011 and March 25, 2011, respectively
305,424 292,904
Accumulated deficit   (118,247 )                       (149,580 )
Total RealD Inc. stockholders’ equity 187,177 143,324
Noncontrolling interest   1,785                         1,776  
Total equity   188,962                         145,100  
Total liabilities and equity $ 298,280                       $ 280,147  
                               
                           

RealD Inc.

Schedule of Non-GAAP Reconciliations

(In thousands)

(Unaudited)

 

Reconciliation of Net Income (Loss) to Adjusted EBITDA
                                     
Three months ended Nine months ended
December 23, December 24, December 23, December 24,
(in thousands)       2011       2010           2011       2010
 
Net income (loss) $ 2,763         $ (16,768 ) $ 31,342         $ (11,130 )
Add (deduct):
Interest expense 227 71 710 873
Income tax expense (benefit) (2,241 ) 1,648 7,170 3,299
Depreciation and amortization 7,406 4,384 20,558 10,428

Other (income) loss(1)
792 431 (157 ) (6,376 )

Share-based compensation expense(2)
4,086 2,980 11,718 5,988

Exhibitor option expense(3)
- 21,960 - 34,008

Impairment of assets and intangibles(4)
1,196 519 9,024 814

Sales and use tax(5)
1,569 1,291 5,076 5,443

Property tax(6)
367 392 1,133 839

Management fee(7)
  -           -     -           175  
Adjusted EBITDA       $ 16,165         $ 16,908             $ 86,574         $ 44,361  
 
      (1)     Includes amortization of debt issue costs, unrealized foreign currency exchange gains and losses and gains from the sale of digital projectors.
(2) Represents share-based compensation expense of nonstatutory and incentive stock options and restricted stock units to employees, officers and directors.
(3) Represents stock options granted to some of our motion picture exhibitor licensees. The amounts are recorded as motion picture exhibitor option expense/contra revenue in the consolidated financial statements.
(4) Represents impairment of long-lived assets, such as fixed assets, theatrical equipment and identifiable intangibles.
(5) Represents taxes incurred by us for cinema license and product revenue.
(6) Represents property taxes on RealD Cinema Systems and digital projectors.
(7) Represents payment of management fees to our Series C mandatorily redeemable convertible preferred stockholder (included in general and administrative expense, which was terminated upon the completion of our initial public offering).

Copyright Business Wire 2010

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