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RealD Inc. (RLD)

F3Q13 Earnings Call

February 6, 2013 4:30 pm ET

Executives

Erik Randerson – Vice President, Investor Relations

Michael V. Lewis – Chairman/CEO and Co-Founder

Drew Skarupa – Chief Financial and Operating Officer

Analysts

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

Operator

Greetings and welcome to the RealD Incorporated Third Quarter Fiscal Year 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erik Randerson, Vice President of Investor Relations at RealD. Thank you, Mr. Randerson. You may begin.

Erik Randerson

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.

Even Roger Ebert of the Chicago Sun-Times, a long time critic of 3D film making had high praise for Ang Lee’s use of 3D. Ebert called Life of Pi a miraculous achievement of story telling in a landmark of visual mastery that he compared to Avatar. And the audiences have responded favorably as Life of Pi has surpassed $500 million in global box office receipts. More than 70% was generated from 3D screens, demonstrating that moviegoers are very willing to pay for a premium 3D experience.

It’s gratifying to see Ang Lee, Peter Jackson, and other leading directors embrace 3D film making. 2013 will see a continuation of leading directors making their first films in 3D. Sam Raimi, Baz Luhrmann, JJ Abrams, and Guillermo del Toro are just a few of the prominent directors who will direct their first 3D films this year.

Their prior work includes directing a series of Spider-Man films, Mission Impossible III, Star Trek and Moulin Rouge. Each of these directors have spoken very positively about their initial experiences with 3D, particularly the greater possibilities gained from 3D film making.

Our film slate for the fiscal year ending in 2014 looks very strong highlighted by 10-fold films such as Thor 2, Iron Man 3, Man of Steel, Wolverine, 300: Rise of an Empire, Despicable Me 2, Smurfs 2, Monsters University, Star Trek, The Great Gatsby, and the Hobbit Part 2.

We expect a number of confirmed 3D films for fiscal 2014 to expand in the coming months as more release dates are announced and as studios formally confirmed that certain films will be shown in 3D. Looking beyond fiscal 2014, we were thrilled by the news that Disney acquired Lucas Films, the creator of the Star Wars franchise.

Disney announced plans to release a new series of original Star Wars films beginning with Star Wars: Episode 7 in 2015. Disney’s public statements indicated that future Star Wars films will be in 3D and Disney now plans to release a new Star Wars film every two to three years. Bear in mind that the original Star Wars is the second highest grossing film of all-time when adjusting for inflation. We are very confident in the continuing growth of 3D content in the future both from the major studios domestically, as well as local 3D content created in international markets.

I will conclude my remarks with an update on our continued international expansion efforts. There is no debate that international markets are increasingly becoming the most important catalyst for industry growth, consider that Life of Pi that generated 80% of its box office overseas. In fact, the film generated nearly as much as box office in China as in North America.

Incidentally, RealD’s revenues in China have more than doubled in the past 12 months, as our installed base of active screens in the country has increased from 500 to approximately 1,000 at quarter end. China’s total box office for all films grew more than 30% in 2012, and during the year China officially became a largest cinema market outside of North America.

Eastern Europe has been another key focus of RealD’s international expansion efforts, leading us to establish an office in Moscow last quarter. We recently announced that the largest cinema chain in Bulgaria has initially deployed 44 RealD systems.

The circuit Kino Arena made the strategic decision to replace the competitors’ 3D cinema systems with RealD, demonstrating RealD’s value proposition for exhibitors. More significant, today we announced agreements to equip up to 300 screens with RealD technology across two of the leading cinema chains in Russia.

First, Karo Film will deploy up to 200 RealD screens across its circuit. Of note, Karo expects to expand its theatre footprint by investing $100 million to develop new theater locations during the next three years. Separately, we also announced today that Kino Max will employ up to 100 RealD screens across its circuit. These arrangements are a true validation of RealD’s leading technology especially considering that RealD will replace a large number of 3D cinema systems purchased from our competitors.

The decision to deploy RealD technology will enable these exhibitors to upgrade the movie going experience by offering the industry’s brightest 3D presentation in standard and large format on the frames. The market opportunity in Russia is compelling, particularly considering that RealD’s market share in the country is less than 10%.

In 2012, Russia’s 3D box office receipts ranked highest among 20 foreign countries where tracking of box office was available. 3D films in Russia generated more than 75% of their box office from 3D-enabled screens during 2012, a substantially higher share than in other countries.

With that, I will turn it over to Drew to review our financial results in more detail.

Drew Skarupa

Thank you, Michael. I will begin with a review of our financial results for the third fiscal quarter ended December 31, 2012, and then I will discuss our outlook.

Revenues for the quarter were $46.9 million, a decrease of 4% compared to $49 million a year ago. License revenues were $30.3 million, an increase of 7% compared to $28.5 million from the prior year quarter. Our revenue comparison benefited from the change in quarterly reporting periods that we announced on our last conference call, which added 10 extra days during the quarter ended, December 31, 2012.

License revenues represented 65% of total revenues in the quarter, up from 58% in the prior year quarter. Domestic license revenues were $12.3 million and represented 41% of license revenues. International license revenues were $18 million and represented 59% of license revenues. Product and other revenues were $16.6 million, a decrease of 19% from $20.6 million in the prior year quarter.

Domestic product revenues were $10.9 million and represented 66% of total product revenues. International product revenues were $5.7 million and represented 34% of total product revenues.

Licensing gross margin was 65% in the quarter compared to 68% in the prior year quarter. The decrease was primarily due to higher depreciation in field support costs.

Non-cash depreciation expense included in license cost of revenue was $7.4 million, representing 24% of license revenue, up from $6.6 million, or 23% of license revenue in the prior year quarter.

Field support related costs included in license cost of revenue were $2.5 million inj the quarter, an increase from $1.4 million in the prior year quarter. Product and other gross profit was $1.1 million compared to $4.7 million in the prior year quarter.

Product and other gross margin was 7% versus 23% in the prior year quarter. Importantly, we have just one more quarter of difficult comparisons in eyewear profitability. Beginning in the first quarter of fiscal 2014, year-over-year comparisons become much easier. We still expect to operate the Eyewear business at around break-even and factoring in all associated costs with some variation in eyewear results from quarter-to-quarter.

Total operating expenses for the quarter were $23.8 million, an increase of $1.4 million, or 6% in the prior year. GAAP operating loss was $2.9 million verus GAAP operating income of $1.5 million in the prior year quarter. Income tax expense was approximately $700,000 during the quarter compared to a tax benefit of $2.2 million in the third quarter a year ago.

We expect to incur income tax expense once again in the current quarter ending in March 2013, due to foreign tax with holding. Net loss attributable to common stockholders was $4.2 million, or $0.08 per share compared to net income attributable to common stockholders of $2.8 million, or $0.05 per diluted share in the prior year quarter.

Adjusted EBITDA and non-GAAP financial measure was $12.5 million, a decline of 23% year-over-year. Most of the decline cannot be explained by the decrease in eyewear profitability. Cash flow from operating activities for the nine months ended December 31, 2012 was $63 million and total capital expenditures were $24.4 million resulting in positive free cash flow of $38.5 million.

Moving to an update regarding our stock repurchase program; during the quarter, we repurchased approximately 2,262,000 shares at an average cost of $9.52 per share.

As of the quarter end, $27.2 million remained available under our stock repurchase authorization. Our stock repurchases have led to a decline in our total number of issued and outstanding shares to approximately 50.1 million shares, a decrease of approximately 4.6 million shares over the last two quarters.

Turning to our balance sheet, as of December 31, 2012, cash and cash equivalents were $27.7 million, an increase of $2.4 million from the prior quarter. Subsequent to quarter end, we invested $5.5 million in cash to acquire several patterns in a bankruptcy option, the patterns which had formerly been owned by visual effects company, digital domain, covered 2D to 3D conversion versus consumer electronics application.

From an accounting perspective, patterns will be reflected as a long-term asset on our balance sheet and we will amortize these costs over a five-year period. Total borrowings on our credit facility were $35 million, an increase of $22.5 million from $12.5 million in the prior quarter. The increase in borrowings was primarily to fund stock repurchases during the quarter. Inventory as of December 31, 2012 was $14.1 million, a decrease of $700,000 from the prior quarter. Moving forward, we do not expect inventory to decline from these levels.

Moving on to our key metrics, RealD grew its screen count by approximately 700 screens during the quarter, which includes approximately 300 domestic screens and 400 international screens. This brings our total installed base to approximately 22,200 screens world wide, which includes 12,600 domestic screens at 2,800 domestic theatre locations, and 9,600 international screens at 2,700 international theatre locations.

Box office metrics; in the third fiscal quarter reported today our license revenue of $30.3 million represented 4.7% of the $643 million in the estimated RealD box office world wide for the quarter. For modelling purposes, we continue to believe 4.5% is at appropriate approximation our RealD’s license revenue as a percentage estimated RealD box office world wide.

However, we do expect variation in this percentage from quarter-to-quarter due to film John run other factors. For example, last years third quarter benefited from a very high percentage of admissions from family films. Since our royalty remains, say, and regardless of ticket price, a lower ticket prices from family films provide a higher yield on RealD box office than other film genres.

Today, we also announced estimated RealD box office for January 2013. We estimate that box office on RealD screens for the month of January 2013 was approximately $227 million worldwide, including an estimated $83 million in domestic RealD box office and an estimated $144 million in international RealD box office. I will now talk about our plans to modify our definition of adjusted EBITDA and non-GAAP measure.

We intend to modify our definition of adjusted EBITDA beginning in the first quarter of fiscal 2014 that ends in June 2013. The change will align our adjusted EBITDA definition for financial reporting to the adjusted EBITDA measure as now defined in our expanded credit facility.

As background, RealD’s expanded credit facility defines adjusted EBITDA differently than our prior credit facility and differently than our adjusted EBITDA definition for financial reporting. Specifically, the difference is that our new credit facility definition of adjusted EBITDA does not add back sales in used tax and property tax as part of the calculation.

Streamlining these different definitions ensuring that we will again have one common definition of adjusted EBITDA for financial reporting and debt compliance going forward; beginning in fiscal 2014, we will no longer add back sales and used tax and property tax to calculate adjusted EBITDA for financial reporting services.

Moving on to discuss our outlook for the fiscal year ending in March 2013; we now expect total operating expenses to be in the range of $95 million to $96 million for fiscal 2013. The slight decrease from our prior range reflects operating expenses for the third fiscal quarter that came in lower than previously expected. Assumed in our guidance is share-based compensation expense of approximately $19 million for fiscal 2013. We now expect depreciation and amortization expense to be approximately $33 million for fiscal 2013, which approximately $29 million is included in cost of revenue.

We now expect field support and other costs included within license cost of revenue to be in the range of $9 million to $10 million. Lastly, we now expect the dollar amount of income tax that shown on our income statement in fiscal 2013 will be approximately $6 million for the full year.

I would now like to turn the call back over to Michael for his closing remarks.

Michael V. Lewis

To wrap up, it’s been a challenging year for our financial results. However, we expect to return the growth in fiscal 2014 and beyond. We believe our future growth will result from an increase in the number of 3D films international expansion and longer-term from licensing our technologies and consumer electronics and potentially other markets outside of our core cinema business.

We demonstrate our confidence in RealD’s future by repurchasing an additional 2.3 million shares during the quarter and by increasing our share repurchase program by $25 million to a total of $75 million.

Operator, at this time we would like to begin the Q&A session.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Townsend Buckles of JPMorgan. Please go ahead.

Townsend Buckles – JPMorgan

On the Russian signings, it looks like some great early progress there. You mentioned installations have already begun. So can you say how many of these are existing theaters that should be installed soon versus featuring new builds and should we expect the days of screen installs overall to stay above that sort of days, 500 level for the next few quarters?

Drew Skarupa

Sure, Townsend, this is Drew. We think 500 per quarter is still the appropriate amount. Though the last few quarters have been higher than 500, part of that domestically was, because there were digital projector initiatives to accelerate to rollout digital projectors and hence we had an acceleration domestically.

There are also government initiatives throughout the world that have happened for international projectors. So we see a slowdown there, it’s about 500. As far as Russia goes, as we know, it’s already one of the largest 3D markets in the world. So Russia has a very large build out.

We expect most of these installations to happen over the course of the next 12 months and most of those are existing locations.

Townsend Buckles – JPMorgan

And Drew, could you give an early sense of your SG&A and R&D outlook for fiscal 2014? Last quarter, you talked about moving some plant cost into next year. So any color on how we should think about growth there, that would be great.

Drew Skarupa

Sure. So from our original guidance, we’re about $10 million to $15 million under our original guidance. Actually most of that $10 million to $15 million is pacing and will move into fiscal 2014. Since our year end is March, we’re in the middle of our budget process right now, and we will provide operating expense guidance in June when we file our 10-K

But at minimum, you should expect the bulk of that under guidance to move into the following year, which would imply about $10 million to $15 million increase from the current base line of this year.

Townsend Buckles – JPMorgan

Okay, thanks.

Michael V. Lewis

Operator, next question please.

Operator

Our next question comes from Ralph Schackart of William Blair. Please go ahead.

Ralph Schackart – William Blair & Company, L.L.C.

Good afternoon. First one is for Michael. Michael, can you give us a sense of kind of where you are big picture maybe in baseball innings and sort of the rollout cycle internationally and where we are in the U.S.? And sort of give us a sense sort of your average contract durations please?

Michael V. Lewis

Yeah, sure. On the domestic front, I’d say we’re probably in the eight inning at least at the current time. Obviously, the number of films increases over the next few years, we will probably see an uptick in the domestic side. On the international front and many of these markets where we have low percentages like China, Russia, and Latin America, I think we’re in a very early innings.

And obviously those markets are very exciting for us. We’re seeing just enormous number come out of China and Russia from a 3D box office standpoint. The percentages are very high. And what we’ve been able to demonstrate, we’ve shown in Europe, we’ve shown in China now. Most recently at Russia as when we get boots on the ground in those markets, we’re able to very quickly not only take market share, but take advantage of those markets and a lot of new digital installations that have happened.

Ralph Schackart – William Blair & Company, L.L.C.

Great. And then maybe for Drew, Drew I know the percentage of receipts for domestic bounces around quarter-to-quarter, but this one was around 4.13%. Can you remind us sort of the factors that go into that? And flip side is international is obviously strong in the quarter?

Drew Skarupa

Sure. Relative to royalty and ticket price domestic, we’ll always be slightly lower than international. On an average 4.5% is the right percentage to use. And in various quarters, you’ll see a higher than 4.5% and lower than 4.5% and that’s really generated by film genre. So last year’s quarter, we had quite a few children’s films where the average ticket price is significantly lower and given you have a fixed royalty, you’re going to have a higher percentage last year versus this year.

So we see that bouncing around from quarter-to-quarter and we continue to reiterate 4.5% on an average. And within that 4.5% a little bit lower domestically, higher internationally.

Ralph Schackart – William Blair & Company, L.L.C.

Last one, I’ll turn it over, maybe for Michael. Michael, can you give us a sense of sort of 3D take rates in the quarter if you can breakout international and domestic, it’s sort of tougher for the street to get a hold of those numbers going forward?

Michael V. Lewis

Yeah, it clearly varies by genre and time of year, types of films. But on the international side, it stayed consistent north of 60%. This past month actually we saw it trend upward a few percentage points. On the domestic side, 48% is what we saw trailing. So it seems to be maintaining a pretty steady state in both domestic and international and probably a bit of upside on the international side.

Ralph Schackart – William Blair & Company, L.L.C.

Great, thank you.

Operator

Thank you. Our next question is from Eric Wold of B Riley. Please go ahead.

Eric Wold – B. Riley & Co.

Thank you. I guess just first of all on the success you had in Bulgaria and Russia in kind of replacing some of the competing screens out there. Can you give us a sense when you go into some of these meetings, the sales exhibitors, what pushback are you getting from them in terms of why they would not want to switch from a competitor? Is there anything on the technology or their price side they would want to keep them with someone else beside RealD?

Michael V. Lewis

No, I think what we’ve seen is it’s really matter of having the right people in the country and the lot of these markets where we’re doing business in now are frankly quite challenging and it’s taken us a number of years to really understand the market, what’s unique about them, sort of what the important points are in terms of talking about our technology.

But I think the bottom line is we have a great value proposition and we have a great technology. We have doubled the amount in light of our competitors. We’re able to get on very, very big screens which is probably another growth area. Longer-term, clearly the market is going to premium.

But it takes a while to really understand and get these markets going. But the reward is quite phenomenal. We’ve seen that in China, now most recently in Russia. I mean literally we’ve only been in Russia, I guess officially for the last couple of months. But we’ve been looking at that market for quite sometime. So pretty exciting what’s happening in Russia and China; and Latin America, we’re excite about; we still have more work to do. I would expect on the next call that we’ll talk a bit more about Latin America in our progress down there.

Eric Wold – B. Riley & Co.

Thanks. And then secondly, can you talk about your optimal cap structure. I know you’ve levered up a little bit somewhat to acquire or purchase stock in the market the past couple of quarters. Assuming the level of screen installs or system installs continue to be at these levels and you get greater monetization of those systems through better box office. We should start seeing some nice growth and free cash flow. How aggressive do you want to be in the purchase and how – until that happens and the stock stays at this level, how much leverage you want to take to take advantage?

Michael V. Lewis

Well, I’ll start with just general comment which is we think our stock is undervalued and that’s why we continue the repurchase program. Look, we continue to look at our overall capital structure. We’re very optimistic about the future. We think there are going to be more films this year. We think that 3D trend lines are good. We’re optimistic about the future in the consumer business. So we integrate opportunity to buy the stock at these levels.

Drew Skarupa

Yeah, this is Drew. We continue to buy shares even subsequent to the balance sheet date. When the 10-Q is filed, you’ll see the number of issued and outstanding shares as of July 30 is 49.8 million shares. So you’ll see, we actually continue to buy shares in the month of January.

Eric Wold – B. Riley & Co.

Okay. And then just finally last question. I think you mentioned that the digital domain patents in the beginning part. Just maybe I missed it, but what did you see as the biggest opportunity for acquiring those patents? Is it more so in the exhibitor theatrical world or is there a good usage in consumer electronics?

Michael V. Lewis

Yeah, we bought this the IP for two main reasons; the first is on the cinema sides or on the cinema side, the patents in the wrong hands could potentially affect the production of 3D content for the industry. Currently, we’re a licensing company. We get paid on 3D production and 3D films that are made. So that was reason number one. And reason number two, we think longer-term, on the consumer business, it really strengthens and rounds out our consumer IP and helps when we have those discussions with consumer electronics companies.

Eric Wold – B. Riley & Co.

Perfect. Thank you.

Operator

Thank you. Our next question is from Steven Frankel of Dougherty & Company. Please go ahead.

Steven Frankel – Dougherty & Company LLC

Good afternoon. Drew, could you start by giving us an insight on what the recycle rate was in the quarter and what percentage of mix was children’s glasses?

Drew Skarupa

Sure. So as far – we never actually say our actual recycling rate. We say the percentage of recycled glasses in the mix for the quarter. It was 29% of recycled glasses. That’s higher than last quarter, but not optimal. We need to see that higher. As far as children’s glasses, they were 17% of the mix. That’s a healthy mix. So we want see going forward, a higher mix of recycled glasses.

Steven Frankel – Dougherty & Company LLC

Okay. And maybe an update on the trends outside the U.S. of consumers bringing their own glasses back to the movie after purchasing them once, is that trend accelerating?

Michael V. Lewis

Sure. Steve, we actually – when you look at international product revenues to international license revenues, you’ll see that it’s slightly trended downward to about the 31% area. So that’s a bit down. So we continue to see consumers bring back their glasses and reuse. And we’ll see that trend continue. If you’re trying to model glasses revenue in relation to license revenue, somewhere around 30% to 35% would be about the appropriate percentage to use.

Steven Frankel – Dougherty & Company LLC

Okay. Where is the backlog on the screen side?

Michael V. Lewis

It’s a 3,300 backlog, 1,000 domestic, 2,300 international of which 1,100 are China, 800 are Europe and rest of the world, 400.

Steven Frankel – Dougherty & Company LLC

And for Michael, just a high level question; what do you think the industry can do to try to maybe uptick the domestic 3D take rates a little bit?

Michael V. Lewis

That’s a good question and we’ve been staying there for quite sometime. We are having discussions with all the folks in the ecosystem, the videos, the exhibitors, content producers. And we think there are some things that can be done and we’ll keep you posted on, it might have some more color on that by next quarter.

Steven Frankel – Dougherty & Company LLC

Okay, great. Thank you.

Operator

Thank you. Our next question is from James Marsh of Piper Jaffray. Please go ahead.

James Marsh – Piper Jaffray

Thanks for taking my questions. First, I wanted to follow-up on the digital domain acquisition. Should we expect you guys to kind of follow the strategy at digital domains just to monetize with the patents, I mean finding up licensees and then suing infringes? And then sales I though was paying something to digital domain. Was that a one-time payment or is that a stream of revenues going forward? Then I have a follow-up.

Drew Skarupa

James, it’s Drew. At this time, we don’t feel it’s appropriate to comment on a public forum on our strategy. We do believe there is value in the patents and we’re looking at ways in which we can monetize some. It really strengthened out our consumer IP portfolio as well.

James Marsh – Piper Jaffray

Okay. And then just a quick question related to Disney’s decision not to rerelease in 3D any of the previous Star Wars films, what do you guys read into that or just get trumped by the other films being in 3D. I mean, do you have an opinion on that?

Drew Skarupa

Yeah, I think we answered in the same question, which is we’re clearly excited about the new Star Wars films. Clearly they want to build excitement and heat on those and probably from a marketing standpoint makes sense to show those films in a later date, once the new films get leased. I think overall, in terms of 3D rereleases in general, these films are nice to have. But for us it’s really about tent pole films, that’s what it really drives our business.

And generally on rereleases, the studios use them as the marketing front end to drive downstream revenue when they’re releasing DVDs and Video on Demand and so forth. So we don’t read too much into it. I think they will continue to be reissues from time-to-time, but it’s not what drives our business.

James Marsh – Piper Jaffray

Great, thanks.

Operator

Thank you. Our next question is from Ben Mogil of Stifel Nicolaus. Please go ahead.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Hi, good afternoon and thanks for taking my call. So the first question was Michael, on the 3D percentages that you talked about a little bit about 60 internationally and a little bit around 40 or so domestically, is that opening weekend are you seeing that throughout the entire run?

Michael V. Lewis

We’re seeing on a trailing 12-month basis across the territories, 48% domestic and north of 605 on the international market. We’re actually seeing depending on the film, we’re seeing some upticks Life of Pi, for example, trended higher in 3D after the opening weekend. So it really again is driven by the type of film and when it’s released in genre.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

And it’s sort of a generalization if you will, are you still seeing 3D domestically sort of quit down a little bit in second week in subsequent, but international kind of seeing relatively stable over the course of the running the film?

Michael V. Lewis

Yeah, again, it depends on, one other films are being released at the same time, but I think that’s generally true.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay. And then looking on to China, so when you are given – you’ve given some numbers around what your backlog is and what you installed in the quarter. It looks like you signed around 50 screens in China on the quarter. Is that high or low compared to the last couple of quarters? Can you kind of give us any kind of feel for what you’re seeing in that market vis-à-vis slow down, no slowdown sort of general market commentary on China?

Michael V. Lewis

Ben, it was a $150 million in the quarter for China that we installed. Our revenue from last year’s quarter to this year’s quarter more than doubled. And sequentially quarter-on-quarter, we continue to see our revenue grow substantially in China. So we’re not seeing a slow down. And as we said, we had backlog of 1,100 screens and we continue to install as we speak. So there really is no slow down in China right now.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

I guess it’s more fused with the signings. So when I do the numbers, the 150 installs workout to about 50 signings during the quarter. Are you still seeing like, I get the installation pace is active, which is great. Are you seeing for overall markets, are you still seeing a lot of development sort of for 2014 and 2015 and beyond in that market?

Michael V. Lewis

Yeah, we continue to work on penetrating new customers. No major announced signings recently. But these things take time to sign a large deal again. Our deals are long-term for an entire circuit. So they’re not a product sale. So it takes a while to win over that customer.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

I think that’s it for me. Thanks guys.

Operator

Thank you. Our next question is from Jim Goss of Barrington Research. Please go ahead.

James Goss – Barrington Research

All right, thanks. One thing regarding the Russian signing, the 100 additional, what is the base you have right now? How much of an increment is this?

Michael V. Lewis

Well, on a box office basis, we’re only about 5% of the 3D box office, our market share in Russia. And that’s how we measure it as opposed to number of screens. Again because the other guys are all product sales, there’s not a valid way of measuring your market share in terms of number of screens and we measure it on box office sort of about 5%.

James Goss – Barrington Research

Drew, how fast you think you can grow that?

Drew Skarupa

We’re pretty optimistic about it. Remember, Russia has about 3,000 screens, 2,000 of those are digital. So we have the two signings, we announced, they would essentially its 300 screen total or roughly 10% of the overall screen market. And I think we’re going to be able to grow those markets substantially over the next few years.

James Goss – Barrington Research

All right. And you’ve mentioned the consumer IP from digital domain a couple of times. What sort of IP specifically if you can say, is that? And does anything else come out of CES that was interesting in terms of your ability to begin more penetration at home market?

Drew Skarupa

Yeah, I think at this point, we’ll probably be able to give some more color on that as time goes on. But for right now, we’re not really commenting any further on the patents and the very strategies that we’re going to undertake.

James Goss – Barrington Research

All right. And at this point, the number of films in your list is still, I think in the high 20s. At what point do you think the full schedule is likely to come into greater view?

Michael V. Lewis

Well, as you know Jim, it’s a higher number than that. We see the number of films constantly shift throughout the year. So you see our file 10-Q, the number of pubically announced films by the studios were in the 10-Q, we’ll say 35. However, we all know there are still unannounced films and these are unannounced for competitive reasons. They bring films in, they move films out. So constantly shifts. We believe it’s a larger number than 35 obviously.

James Goss – Barrington Research

All right. And lastly, I know those appear to be a sort of a paucity of 3D product in the current month. But it looks like the year ago month was fairly similar in that respect. Do you think there is likelihood that would be down from last year’s level in February itself before starting to pick-up in March and getting even better in April and May?

Michael V. Lewis

Yeah, that is the answer. On our last earnings call, we talked about tough comps from last year to this year. Again remember, we had films that move from fiscal ‘13 to fiscal ‘14. So we would expect a decline in license revenues from our Q4 fiscal ‘12 to Q4 fiscal ‘13.

James Goss – Barrington Research

Okay, and disparity and domestic versus international in this last quarter is primarily due to the animation category?

Michael V. Lewis

Disparity in terms of percentages or in terms of…

James Goss – Barrington Research

Given the dollar amount, I think that you had quite a bit more internationally than domestic in this latest quarter?

Michael V. Lewis

Yeah, it’s going to constantly fluctuate based on release schedules throughout the world. And then, things like Life of Pi is doing quite well internationally.

James Goss – Barrington Research

All right, thanks very much.

Michael V. Lewis

Thank you.

Operator

Ladies and gentlemen, this concludes the RealD third quarter fiscal year 2013 earnings conference call. You may now access the replay system by dialing 877-870-5176 and entering the access code of 408060. Thank you for your participation and you may now disconnect.

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