Regal Entertainment Group Management Presents at JPMorgan Global TMT Conference (Transcript)

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 |  About: Regal Entertainment Group (RGC)
by: SA Transcripts

Regal Entertainment Group (NYSE:RGC)

JPMorgan Global TMT Conference

May 14, 2013 4:10 PM ET

Executives

David Ownby – EVP, CFO and Treasurer

Analysts

Townsend Buckles – JP Morgan

Townsend Buckles – JP Morgan

I’m Townsend Buckles, the media analyst here at JP Morgan. And I am pleased to welcome Regal Entertainment to the TMT conference. Regal is the largest US exhibitor with over 7000 screens. With us from the company is David Ownby, the CFO. Thank you very much for being here, David.

David Ownby

Thanks for having us.

Townsend Buckles – JP Morgan

So we will start with the box office. It’s been a slower start to the year against record comps last year. And even Iron Man 3’s great start to the summer season is well beyond Avengers. So how do you feel about the outlook for the rest of this summer and the year? Do you think it’s inevitable to see a bit of a pullback in attendance after last year’s growth or can the box office rebound and kind of catch up?

David Ownby

Well, like you and I am sure like a lot of investors, we watch the box office every week, every day sometimes every hour and to your point this year – when we had some difficult comps in the first part of the year in the box office, it’s a little off from the first part of last year. But we really tried to take a much broader view as we think about managing our business. So if you look at the, for example, for the box office for the last four fiscal years, the industry box office has been somewhere 10.2 and 10.8 billion every year. So from our perspective, longer term and how we make decisions the box office has been pretty stable. When as coming into this year we knew the first quarter comp was going to be our toughest comp of the year. And that’s stayed true through the Avengers week a couple of weeks ago.

It looks like as we are looking ahead now we start to get some easier comps in particular the month of June is probably the easiest comp we have all year. I think if you go back and look historically June has averaged about $1.3 billion at the box office. That’s 2009, ’10 and ’11. In 2012 June box office was about $1.1 billion, so certainly even if we just come back to the average there, that’s a good amount of growth in the back half of the second quarter. Looking to the rest of the year, Q3 is – I would call it a normal comp for us, July was a strong month last year but the rest of the quarter was pretty average. So I think we have good opportunity for box office growth in the third quarter and then as we get to the Q4. Again a strong Q4 in last year but when you look at layout of the film slate I think it compares pretty favoraby to what was there in Q4 of last year.

So again we pay close to attention to it but we try to manage our business much more for the long run, in the long run the box office has been pretty stable and the best thing we can do in that scenario and a pretty stable environment is to try to grow our market share. And I am sure you’re going to ask me about acquisitions later but we’re obviously very happy that we have been able to grow our market share. In the last six months we’ve grown our circuit by about 800 screens, little over 800 screens, and that happened at very accretive multiples.

Townsend Buckles – JP Morgan

I will get to that. The box office (inaudible) predicting box office but how do you feel that you may turn up, do you think it could end up flat or slightly down –

David Ownby

It’s a little early I think to make that call, you ought to not try to get if it’s in the business of predicting box office because I would be wrong more than I was right. But I do think the next six or eight weeks are going to be pretty key and we will probably be a lot smarter about that comparison after we get through that July 4th holiday and we will have much maybe clear picture of how the year is going to shake out.

Townsend Buckles – JP Morgan

And there seems to be a tremendous amount of excitement already for slate in 2015, Star Wars, Avengers, Avatar, a bunch of other big sequels and I know it’s hard enough to predict how the next release is going to do but does ’15 look to you like that year that breaks all records?

David Ownby

I guess the Greg asked me around this past week, so I can’t even look at that far head. You know when we look ahead and we start looking that far out right now you see what you want to see, the key 10-fold franchise pictures that have been scheduled already, you like to see that. To be fair, we have some of those pictures every year. Those big franchise pictures, a lot times what makes or breaks the box office in a given year is not those six or eight key tiles, it's those titles that fill in around that. And those are titles that we do not know a lot about yet for 2014 or 2015. So again we view the box office environment as pretty stable. Fortunately in our industry pretty stable means that every to three years we set a new record for the industry. And certainly I hope that will be the case as we look ahead to 2014 and 2015.

Townsend Buckles – JP Morgan

So back to kind of current trends why not touch on 3-D behaviour, it seems like the take rates are inching down a bit, Iron Man 3 did the lowest 30% of the Marvel film, GI Joe was at the same level as Iron Man 3 and Great Gatsby which I know was unique also a bit low. Are you seeing any less uptick in consumers?

David Ownby

At times very, very rarely do I look at the penetration rate for an individual film and that's not by accident because we obviously play all the films in our theaters and if you look at the penetration rate for the premium products, and I will put them on one bucket, IMAX, our proprietary brand RPX and RealD 3-D. In the post Avatar periods, so since 2010 the premium formats have been a pretty steady part of the box office on an annual basis. So plus or minus about 20% of the box office in each of those years. Now if you look at a quarterly basis or shorter term period you will see some fluctuation, that’s primarily content driven. But from our perspective and as we talk to our theater managers and that operate our theaters, again what we care about and how we program our theaters is in such a way that we can kind of maintain that stable part of the business.

And we don’t really see necessarily a near-term catalyst for the take rates from an overall box office perspective to to jump ahead of what they have been for the last 2-3 years. On the flipside we don’t see a catalyst for them to go the other way either. So we think about managing the business in a way that those are going to be a steady part of the business going forward. We think it's very important that we offer our customers a choice and we don't necessarily force them into one format or the other. So in the vast majority of our theaters you will see a software film in multiple formats, and we think that's key for the consumer and it’s key for maintaining those premiums.

Townsend Buckles – JP Morgan

Will you try to schedule through these showings maybe more favourable higher traffic times in 3D as a percentage?

David Ownby

We may do a little suggestive scheduling, if we have a real prime time show time, we will try to put that one either in our – one of our IMAX or RPX auditoriums or maybe in a 3-D auditorium and maybe schedule the 2D show 30 minutes later. But first and foremost, we do want to make sure our customers have a choice because the one thing we don't want to do is lose a customer over that issue and again we will be suggestive about it but not heavy-handed.

Townsend Buckles – JP Morgan

If you see a movie that is maybe tracking a little lower on 3-D will you adjust scheduling the programming there?

David Ownby

We have a lot of flexibility in terms of auditorium sages and because 40% of our screens are 3-D capable we can pretty easily move content around in the theater to make sure we have the capacity to satisfy the demand that’s there for all the different formats.

Townsend Buckles – JP Morgan

And so on the other formats how do you feel about IMAX and your own large-format RPX performing for you right now?

David Ownby

Well what those formats do is really just again give us another opportunity to offer our customer a premium experience. Not every customer’s going to want that but the combined footprint of IMAX and RPX gives us a lot of options for our customers. We've been operating IMAXs for a long time over 20 years now. So we have a lot of familiarity with how customers react to that brand. Our own RPX brand is newer obviously, it's only a few years old and you haven't had enough time really to build the kind of brand value that IMAX has. But in markets either where we don't have access to an IMAX or where there is heavy demand for premium or maybe in a market that is too small to support an IMAX, RPX has been a great alternative for us.

Townsend Buckles – JP Morgan

So you do see as a place for having an RPX and IMAX in a sense?

David Ownby

We have a handful of those today with theaters where we have both and those are our larger high-volume theaters where there is a heavy demand for that premium experience. And in those situations we've been successful to have them both an IMAX and RPX in the theater yes.

Townsend Buckles – JP Morgan

How do you price them?

David Ownby

There is about a dollar difference between the two. IMAX is about a $1, or maybe $1.50 more than the RPX. So the RPX is the midpoint between the IMAX pros and the 3D pros all Times.

Townsend Buckles – JP Morgan

Do you see IMAX outperforming it consistently or do you sometimes see RPX actually do little bit better?

David Ownby

Sometimes it depends on the film but generally speaking on a high profile film like an Iron Man you would typically see the IMAX still a first. Because simply -- again because there's a heavy brand value associated with IMAX.

Townsend Buckles – JP Morgan

You recently acquired Hollywood Theaters which I don’t think has an IMAX or even premium large-format. Is that something you want to add either of those?

David Ownby

One of the things we like about both the acquisitions that we did recently Great Escape and Hollywood was that neither company had really embarked on a significant premium screen strategy. Great Escape had two IMAX screens, Hollywood had no premium screen. So we looked at that asset base in addition to getting it that asset base for a great price we saw some opportunities to go in there and maybe convert some existing auditoriums to either the IMAX or the RPX platform. And we will be looking to do that over the next call it 18 to 24 months.

Townsend Buckles – JP Morgan

How the CapEx differ between putting on a premium screen versus a regular one?

David Ownby

Well if you're building from the ground up there's not a whole lot of difference. But if you’re going to go in and convert an existing auditorium to IMAX or RPX there is some CapEx involved there. Generally speaking for IMAX it’s about $150,000, IMAX takes care of the rest and obviously expects a share of the profit for that auditorium in return. For RPX auditorium it’s been running about $350,000 CapEx to convert an existing auditorium.

Townsend Buckles – JP Morgan

And do you find that it’s really a certain size in the market that will justify or cause you to have these premium markets?

David Ownby

It’s definitely market by market decision and specifically for IMAX you do need a certain size market to drive the kind of incremental attendance, you need to justify the IMAX JV model. RPX you can go to a little bit smaller market and get a return because there you're not looking to necessarily to generate incremental attendees, you’re just taking the existing attendees that you already have moving them to higher price point.

Townsend Buckles – JP Morgan

You just announced that you will be opening a theater outside of Atlanta next year that will have in-theater dine as well as in the lobby, how similar is this to what AMC has been rolling out in a few markets over the last few years, I assume you have watching them closely?

David Ownby

One of the things it's been great about the industry in the last few years, as I think the industry as a whole recognizes that we need to continue to make sure we maintain the gap between the experience you get in a theater and the experience you get on your couch. And as a result I think we’ve had a lot of good innovations and a lot of good experiments in the industry in terms of customer amenities, expanded food menus at the concession stands. Some theaters with fullout kitchens and restaurants inside, auditorium service for that food. Curt earlier in his presentation mentioned the reserved seating. We’re also seeing some theaters go with more of a luxury seating, even some with a recliner top model. All those are ways that we can continue to differentiate the experience you get in our theater and the theater you mentioned in Atlanta is exactly that, it's an effort to take our newbuild theater – we’ve done some of this already in existing theaters by going and spending a small amount of CapEx. This is the first time we will build theater from the ground up that has these top amenities in it.

It’s in a suburban Atlanta that's a great – it’s going to be a great market for that type of offering. We’ve actually got a couple things going on in Atlanta. We have that new theater and it will have the luxury seating, it will have the dining concept, so a more expanded menu. We've also – we have the number one theater in the market in Atlanta, but it's a traditional theater, but we had some available space right next to the theater to add a couple more screens. So we are actually going to add two VIP auditoriums at the side of that theater. So it will operate with the same back office and support system for the traditional theater but it’s completely segregated area, completely separate area and that will have a ball, it will have alcohol service and it will have the VIP and luxury seating.

So a lot of experimentation going on in the industry, fortunately most of the experimentation is at a relatively low CapEx cost and again I think over the long-term as the industry continues to innovate that way that's going to be good for the future of the industry.

Townsend Buckles – JP Morgan

And how about the on the operating cost side, you’ll be running your own kitchen and you will obviously have some wait staff?

David Ownby

We’ve done some of that already, we do have 60 years that we converted from a traditional theater to bar and restaurant top concepts, we've got some experience getting the payroll model right, getting the cost model right. We do offer our expanded food menu in about 75 locations as well now. So again we have experienced there getting the payroll model right, getting the pricing right and this has just been extension of what we’ve done already.

Townsend Buckles – JP Morgan

So how do you think about the ROI given – it’s a bit of CapEx, it’s bit of overhead?

David Ownby

Same way we always think about ROI, we want to make sure we hit our internal hurdle rates for what we expect to get out of the CapEx dollar and this is -- although the analysis is a little different than in analysing, for example, on newbuild theater the math is still the same. So we still look for those same type of hurdle rates.

Townsend Buckles – JP Morgan

And you will be charging at more premium ticket price.

David Ownby

Yeah I think every market will be a little bit different there, it depends on exactly what the offering is certainly at the Atlantic Station theater where we are adding the 2D auditoriums, there will be a different price in the traditional theater, at the new theater in the northern suburbs of Atlanta where we have the ground up build of the new amenities. Obviously we will have look at how people approach around us but I think in the long run there will be an opportunity for us there to charge a premium for those tickets to the extent customers demand those amenities.

Townsend Buckles – JP Morgan

Are you planning to open more of these theaters?

David Ownby

We’re taking I would call it an experimental right now but certainly we’re keeping an eye on not just how ours do but how others in the industry do as well.

Townsend Buckles – JP Morgan

And you mentioned the M&A environment, you made two acquisitions, everyone else's been making acquisitions and the pricing seems to be pretty favourable. What sort of activity are you seeing now and are we entering into a bigger consolidation?

David Ownby

I think in Q4 and Q1 combined you saw deals announced for about 1700 screens. We got just under half of those. And again at very accretive multiples we got the Great Escape theater for about 5.5 times EBIDA. We got the Hollywood Theaters for about 5.9 times and Townsend to be fair those are the types of transactions that we think are great for our shareholders and we would do as many of those probably as we could find. In terms of near-term activity in the industry we continue to think that the backdrop of the M&A environment is very good, we got get a healthy box office environment. The digital conversion is starting to wind down from an equipment perspective, about 85% of the industry now is digital. But that likely means that in the not-too-distant future studios may look to completely exit the 35mm film business and stop making prints in 35mm. So those companies out there, the circuits out there who still have some 35mm projectors will have to make a decision.

Townsend Buckles – JP Morgan

Are those circuits that you are interested in?

David Ownby

Yeah I think a lot about some of those is circuits at Great Escape. Great Escape was about two thirds digital when we bought it and they did not want to invest the money to get the other third of their circuit digital. So I would say very few circuits out there that we would look at and have no digital today, they probably have enough to show 3D, maybe there is some other things. But they are still some of those circuits that are not fully digital yet. So there will be some opportunities there we believe. A lot of times I think in our industry if you look historically activity kind of breeds activity. So we believe there is going to continue to be opportunities in the relative near-term for acquisitions to be fair. All the stuff that was I guess actively for sale on the last -- recently is now spoken for. But obviously that can change overnight.

Townsend Buckles – JP Morgan

And were those most of kind of private equity circuits or do you still see some out there that could come in the market?

David Ownby

A lot of it, what you would think of is the targets in our industry are probably, they’re private equity owned or they are family-owned businesses. Private equity it's fairly easy to predict with reasonable accuracy, when they now come to market because typically they have a time horizon for that investment. The family-owned businesses are little bit harder to predict simply because oftentimes you are waiting for generational change there before they exit the business.

Townsend Buckles – JP Morgan

And the top floor circuits have about half the screens in the US where do you e think it can go in the next few years as far as consolidation? I mean there some of the mom and pops that maybe will never sell, they will sooner go out of business?

David Ownby

It's hard to look at that and necessarily predict it that way. When I think about the universe of screens that might be attractive to one of those big four buyers I would probably pick that number somewhere around 2500 to 03000 screens that, that would be attractive at the right price. And that's the best – that’s how we see estimate that could be one or the other but when we look out and look down the list and if you think about most of those screens are probably in the not in the top four or maybe the next 30 circuits which range in size somewhere from 1000 screens down to about 100 screens, those are probably the ones that you are looking at, saying okay, those will not be attractive if they were available for right price.

Townsend Buckles – JP Morgan

And is it – are you looking for a certain type of circuit either urban versus suburban, small markets or in geographies or is it really the right price, it makes sense to you?

David Ownby

Geography we care less about. What we care more about is we want to find quality assets, modern assets, and typically that means assets that have been built largely in the stadium seating era, both Hollywood and Great Escape had a high percentage of stadium seating. We want those theatres to be in markets that either stable or growing markets. But in terms of targeting in a specific area of the country, no, I think it’s much about the quality of the asset and the quality of the market itself.

Townsend Buckles – JP Morgan

And there are four kind of large circuits but the fourth one is a lot smaller. Any interest – would you be in interested in something like that, a bigger deal?

David Ownby

Well I mean, we’d be remiss I think in the industry if we hadn’t always analyzed those things and that those things have been analyzed to death overtime. And at this point, no, those transactions have made sense for any of us it seems like, that’s not to say they won’t going forward, but it’s just something that I guess monitor on an ongoing basis and into this point it hadn’t make sense.

Townsend Buckles – JP Morgan

And any limits to leverage your willing to take on to make acquisitions?

David Ownby

Well I think we – generally speaking, we want to stay in our three to four times net debt to EBITDA range, that’s kind of our comfort zone. To the extent that was a deal out there – that was extremely attractive when we had to go outside that to get it. The only way we’d be okay with that is if we saw a very clear path to get back in that range pretty quickly.

Townsend Buckles – JP Morgan

And I have a lot more, but if anyone has any questions in the audience, please go ahead. So aside from M&A, how do you see new build opportunities? It was pretty quite through the recession and it seems to be picking up a bit. How do you – do you certainly look for a certain profile of market to go into?

David Ownby

You’re right, after the credit crisis in 2008, industry building slowed down quite a bit, not necessarily by the industry’s choice, it was more because we relied on real estate developers to build new retail centers so we have places to build theatres. And those real estate developers didn’t have a lot of access to capital in the aftermath of 2008 and early 2009, so industry building slowed down quite a bit. I don’t really see a period here in the near-term where there is like a catch-up year, where we go back and build all those theatres that would have been build in that period.

I have seen it though just kind of slowly return back to normal building rates for the industry. For us, that means probably 6 to 10 new buildings a year, that’s probably in the neighbourhood of 100 to 150 screens a year. Obviously we’ll balance that with reinvestment in our existing asset base, some of the things we talked about earlier, premium screens and some of the other concepts that we talked about. But for us, that seems like the right level of building and a healthy level of – a lot of that is simply just replacing and replenishing our asset base. We’re also going to close probably 75 to 100 screens a year just as natural leases expire, and as theatres get to the end of their useful lives.

So organic building growth, you’re probably – net growth you’re probably talking about 50 screens a year, give or take.

Townsend Buckles – JP Morgan

And the screens that you close – a theatre that ends its useful life, is that because the demographic mix of that market is – if you’re moving into the suburbs or something like that.

David Ownby

Yes, sometimes it’s demographics shifts, sometimes there has been a new theatre built in the market than the latter part of that theatre is lost and because of its age simply can’t compete with the new theatre, so it’s just time to walk way. A lot of times that’s a choice, if we have two older 10-plexus in a market, we may go into that market and build a new 14-plex and close the two older buildings that are much more inefficient and that way we have a much more profitable presence in that market.

Townsend Buckles – JP Morgan

And so to touch on your relationship with the studios, you and your peers recently have a bit of a standoff with Disney over Iron Man 3. I think Disney was looking for a bit larger share in the movie’s box office. Can you talk at all about the outcome there? Did they get better terms?

David Ownby

Well just at a high level, I mean there is really nothing unusual about the negotiation that we had with Disney, we have those conversations with our studio partners, on an ongoing basis. The only thing really unusual about this particular situation was that it made into the press. So the negotiation itself was nothing that we don’t experience from time to time with all our studio partners. And I think you see the results of those negotiations in our – if you look at the long-term trend line in our film and advertising line – film and advertising cost line, you’ll see that’s been a very stable cost for us for a very long period of time.

So good for everybody that our negotiation with Disney got worked our prior to the opening of Iron Man 3. We could both return to focussing on generating the most grossed possible – that the best grossed possible for that film and for future films, and that’s exactly what we should be doing. We don’t generally comment on individual studio negotiations, so I’ll leave it at that in terms of Disney, but again the only thing particularly unusual there was that it made to the press.

Townsend Buckles – JP Morgan

So are you seeing any general pressure on film runs from other studios?

David Ownby

No, I mean I think the model we have in place with the studios is a good one because it rewards them for performance. We have a pay for performance scale, so to the extent the studio is successful and bringing high grossing films to the box office, they have an opportunity earn more, a bigger share of those dollars and that we were in that situation too because more people were coming to our buildings, more of a concession stand. So that we’ve had that model in place for a number of years now, and it’s helped us maintain that very consistent film margin for a long period of time, and certainly we wouldn’t expect anything different going forward.

Townsend Buckles – JP Morgan

Okay. Other studios have talked about trying premium VOD again. I think there was even a panel Cinemacon where Universal was trying to say, let’s all get together and work out something that makes sense. What's your view on that and what could work out to make sense?

David Ownby

I think just maybe taken a broader view, I think what you’ve seen recently obviously in back in 2011 you had the several studios, wanted to try and actually did try some premium VOD offerings. You didn’t hear much about and after they offered them, we took that to mean that probably weren’t very successful from a consumer perspective. And I think what you saw in the aftermath of that, is most of the studios decided that to focus more on the sequencing of all their home windows. What you’ve seen in 2012 was that studios moved away from all or nothing release date in home and they started sequencing some of their home window, so you could – they might have gone to electronic sell-through, a 115, 120 days after the theatrical release date.

Then you had wait another 30 or even in some cases even 60 days to get the movie on Netflix or Redbox and seems like they focussed much more on how to maximize each individual window as opposed to how to jam all the windows together. And from our perspective that’s a good thing. Now obviously Universal is a little bit different boat, because they’re owned by cable company, they have other interests there that they are trying to serve.

From our perspective it’s been to be fair pretty quite in terms of the of premium VOD discussion.

Townsend Buckles – JP Morgan

Okay, got it. But the early sell-though, is that something that you feel is eating it all into the box office?

David Ownby

I mean largely what you’ve seen is that those dates have kind of mirrored the traditional DVD release dates.

Townsend Buckles – JP Morgan

It pushes out the DVD.

David Ownby

Yes, and so you haven’t really seen a big encroachment on the theatrical release window. There may be a week or two in some cases. I think we were pretty open in the last round of discussions about negotiating with the studios on a film by film basis and even allowing the occasional exception to the extent they need to hit a certain retail window. I think that model has worked. And I think the studios generally speaking are pretty happy with that again, Universal a little bit different view that simply because of their ownership.

Townsend Buckles – JP Morgan

A lot of the studios we talk about – and we talk – talk about going to this tadpole model where they have a few big titles every year and that kind of makes you wonder what's left come in the shorter periods. And you’ve obviously done your part in staring Open Road. So if you could talk about the challenge of finding good films to show and this non-blockbuster periods and how Open Road is going for you?

David Ownby

Sure. It’s a little bit deceiving when you talk about the tadpole strategy, you are correct and that they have focussed more on bigger budget pictures, but at the same time they’ve also expanded the traditional what you would think of as the traditional movie seasons. Five, 10 years ago, the movie season really didn’t start until Memorial Day. It probably ended in early August or even before that. Nowadays with high profile releases from Marvel Comics for the last few years in early May, big releases from Disney even in March with Oz and back with Alice in Wonderland. I think what we refer to is the blockbuster season is actually a lot longer than it used to be. Same is true for the holiday period before you that you would classify that as Thanksgiving to Christmas, now it’s been all the way back to the beginning of November.

So the shoulder periods themselves have actually gone smaller which is a good thing. And to the extent we do need content in those periods. There are obviously are some smaller companies out there that fill that role to a certain extent and to your point, one of the reasons that we felt like Open Road was a good strategy for us is it helped us bring people from the theatres in the some of the shoulder season. So maybe really successful with some of the releases in those periods.

The Gray, a couple of years ago, Haunted House this past January, End of Watch in the fall of last year, all Open Road films that kind of clearly filled that need for content in some of those shoulder periods and that’s exactly what Open Road will continue to do. They’ll continue to focus on those periods where lots – we have more screens available, and they can get their product on to a wider number or to a wider audience, excuse me.

Townsend Buckles – JP Morgan

Are you happy with how that studio is been developing?

David Ownby

Absolutely. Open Road has released 10 films to-date that the first one was back in September of 2011. Those 10 films collectively have grossed about $275 million at the box office. A good number of those are films that likely would not have made it to our theatres otherwise, so that’s really found money. All that for a pretty small investment on our part just about a $20 million equity investment so far in Open Road.

Townsend Buckles – JP Morgan

And there is just a little bit of time left. I have to ask about the dividend of course.

David Ownby

We’re still planning one.

Townsend Buckles – JP Morgan

You’re still planning one. Everyone wants to know when you might you raise your regular dividend, when might you decide it’s time to pay another special?

David Ownby

Well we still think about capital allocation in the same way we always have. We want to use our cash in the way that best benefits our shareholders. You’ve seen us do several things. Recently we obviously paid a special dividend at the end of 2012. We also have done two acquisitions in the last six months, both of those great uses of cash for our shareholders.

That combined strategy of focussing on shareholder return, but also focussing some of our cash on growth is the strategy that we believe has worked well for our investors for a very long period of time. If you go back and look at its been, I guess over a 11 years, almost 12 years now since our public offering. And if you reinvested your dividends, if you bought the shares at the IPO, you reinvested your dividends overtime over those 12 years, you would have gotten about a 10% annual return on your shares over that 12-year period. It’s a long period of time.

So that twice the S&P 500 over that same time period, so we’re a big believer in that, I’ll call it a hybrid strategy of using our cash. Now if you think about the near-term for us, we’ve talked a lot about how we believe that the M&A environment could continue to be active. And I think certainly that’s our first priority, acquiring circuits at the multiples that we have recently allows us to grow our cash flow and that provides cash flow for future dividends potentially.

So that will continue to be our near-term priority. We will always evaluate uses of cash in that same manner, what's the best use of cash for our shareholders.

Townsend Buckles – JP Morgan

And in the last few times that you’ve paid a special, I think raised, it’s been toward a year-end, is that a usual process where you know how the year is gone and you make that assessment whether you should return cash?

David Ownby

It’s more of a coincidence than anything because actually we talk to our board about capital allocation. Every single time we see them, we have a board meeting every quarter and we – capital allocation is on the agenda every single time. It just so happened at the last couple of times that we paid a special dividend and it did happen to be at the end of the year. Some of that was particularly in 2010 was a function of the tax environment at the time. But that’s an evaluation that we do on an ongoing basis, not once a year.

Townsend Buckles – JP Morgan

And your gaining shares additional shares of NCM from your acquisitions, how do you think about whether you want to sell some of those. I know you want to keep a core block, but is it, you wait for a specific cash need or you keep an eye on the NCMI share price?

David Ownby

We always view those, to your point what I call the excess share, the analyzed that what that number is but we view those as a source of liquidity to the extent we need it. We’re obviously happy with our investment in NCM. They’ve done a great job with their platform. And we expect that they’ll continue to do that. Once we have the Hollywood shares – I’m sorry, the NCM shares that we’ll get as a result of the Hollywood acquisition we should have about give or take $27 million shares or so I think.

So certainly as we look ahead, we’ll think about – continue to think about those as source of liquidity. But at this point, I think we view it’s exactly that, no immediate plans to the best of those. But we’ll just continue to evaluate that on an ongoing basis.

Townsend Buckles – JP Morgan

Great, we’re out of time. Thank you, David.

David Ownby

Thank you.

Question-and-Answer Session

[No Q&A session for this event]

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