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Regal Entertainment Group (NYSE:RGC)

Q3 2011 Earnings Call

October 27, 2011 4:30 pm ET

Executives

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

Amy E. Miles - Chief Executive Officer and Director

Analysts

Tuna N. Amobi - S&P Equity Research

Benjamin Swinburne - Morgan Stanley, Research Division

Richard Greenfield - BTIG, LLC, Research Division

Martin Pyykkonen - Wedge Partners Corporation

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

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

Anthony Wible - Janney Montgomery Scott LLC, Research Division

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

Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division

Marla S. Backer - Hudson Square Research, Inc.

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

Eric O. Handler - MKM Partners LLC, Research Division

James M. Marsh - Piper Jaffray Companies, Research Division

Anthony J. DiClemente - Barclays Capital, Research Division

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

Operator

Good afternoon. At this time, I would like to welcome everyone to the Regal Entertainment Group Third Quarter 2011 Earnings Release Conference Call, with our hosts Amy Miles, Chief Executive Officer of Regal Entertainment Group; and David Ownby, Chief Financial Officer of Regal Entertainment Group. [Operator Instructions]

I would like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. All statements, other than statements of historical facts communicated during this conference call, may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the Risk Factors contained in the company's annual report on Form 10-K dated February 28, 2011. All forward looking statements are expressly qualified in their entirety by such factors.

Now I will turn the call over to Amy Miles.

Amy E. Miles

Good afternoon, and thank you for dialing in to our third quarter conference call. For the next few minutes I will provide an overview of industry box office for the third quarter, an update on the results of operational and strategic initiatives and a brief review of industry box office expectations for the remainder of the year. Following my remarks, David will highlight our financial results. As always, we will conclude the call with a question-and-answer session.

As the record summer box office period comes to a close, we are extremely pleased to report another quarter of significant adjusted EBITDA growth and margin expansion. The key drivers of our success in the second quarter were also present in the third quarter: a healthy box office environment, the continued success of premium format films and our focus on managing the variable portion of our cost structure. These key drivers enabled us to grow our adjusted EBITDA by over 25% and expanded our adjusted EBITDA margin by 300 basis points in the third quarter.

Benefiting from increases in both pricing and attendance, industry box office receipts for our fiscal third quarter increased approximately 7% versus the same period last year. With the combined gross of over $665 million during the quarter, Harry Potter and the Deathly Hollows Part 2, and Transformers: Dark of the Moon, helped push industry box office near the $2.9 billion mark, the highest quarterly total in the industry's history.

Premium format films were once again an integral part of the quarter's box office success and contributed to an estimated 3% to 4% increase in industry ticket prices during the quarter. An increase in the number of films released in a premium format and the number of screens deployed industrywide, continue to have a positive impact on box office results, as 5 of the top 10 films were presented in 3D this quarter as compared to only 3 of the top 10 in the same period last year. Based on our review of industry sources, we estimate that over 20% of the overall industry box office was generated through premium ticket sales during the third quarter.

In addition to increased pricing, attendance growth was again a key driver of industry box office performance in the third quarter. Based on our review of industry sources, we estimate that the industry achieved its highest quarterly attendance total since the second quarter of 2009, with an increase of approximately 2% to 4% as compared to the same period last year. Increased attendance clearly had a positive impact on our adjusted EBITDA margins, and we are particularly pleased with industry attendance growth for the second consecutive quarter.

In addition to the benefits associated with a healthy box office environment

[Audio Gap]

We were again happy to see tangible results from our focus on cost control. As has been the case for the last several quarters, our ability to control the variable portion of our cost structure was a key component of our adjusted EBITDA and free cash flow growth during the quarter.

Looking now at our strategic initiatives. We are pleased with the results of several ongoing operational and strategic initiatives during the quarter. We continue to focus our efforts on providing a high-quality premium experience for our customers. For the past several years, that effort has been directed at utilizing IMAX, RealD and Sony 4K Digital technology to enhance film presentation in our auditoriums. As the rollout of new technology nears completion, we have shifted our efforts to providing a premium experience from the moment a customer walks into our theater. To that end, earlier this year, we began introducing expanded concession menus, mobile ticketing and reserved seating at various theaters throughout the country. While these amenities are currently available in only a limited number of locations, we are encouraged by the early results and are optimistic they will provide opportunities for revenue growth in the future.

With our 3D rollout complete and our digital rollout progressing at a steady place -- pace, we have begun to realize additional benefits of operating fully digital theaters. During the third quarter, we were able to easily accommodate a crowded 3D film slate particularly in the latter part of July when many theaters were playing up to 4 3D films at the same time. We continue to believe our strategy of offering films to our customers in a variety of formats is the best way to maximize screen utilization. A full complement of digital and 3D-capable screens affords us the ability to make unencumbered programming decisions and, therefore, maximize box office revenues.

And finally, Open Road Films, our new distribution company joint venture with AMC, released its first film, Killer Elite, in late September. Today, the film has generated approximately $25 million of box office revenue, and we expect the film to generate a profit for Open Road, as it moves through the various downstream distribution channels.

We continue to believe that Open Road has a unique opportunity to fill a gap in the marketplace by marketing smaller-budget films in a cost effective manner, and we look forward to their next film, the Liam Neeson action adventure, The Grey, scheduled for release in January of next year.

Turning now for the film slate for the remainder of the fiscal year. The holiday movie season officially starts this weekend with the release of DreamWorks Animation's Puss in Boots, and we look at potential box office success in the final 2 months of the year, and we are encouraged by several factors.

First, the fall holiday film slate includes a number of significant titles that will be presented in multiple formats. A total of 9 3D films and 4 IMAX films are scheduled for release between now and the end of the year in addition to numerous 2D-only titles.

Second, the film slate for the final 9 weeks of the year includes more titles and, therefore, more opportunities for box office success. In total, 26 films are scheduled for wide release as compared to only 23 films in the same period last year.

And finally, while last year's holiday box office season was disappointing, it provides a relatively easy comparison period for the upcoming fourth quarter. With a film slate that includes known franchise titles like Twilight, Sherlock Holmes and Mission Impossible, and stories that are new to the big screen, we are optimistic about the potential for continued box office growth in the fourth quarter. While box office success for the remainder of the year will ultimately depend on the audience appeal of each individual films scheduled for release, we believe that these factors will have a positive impact of box office results in the coming months.

In summary, we are extremely pleased with the record summer and third quarter box office results, and with our ability to leverage those results into meaningful growth in adjusted EBITDA and free cash flow. We look forward to a strong upcoming holiday film slate and box office success during the remainder of 2011.

I'd now like to turn the presentation over to David to discuss the company's financial performance.

David H. Ownby

Thanks, Amy, and good afternoon, everyone. Today, I'll provide additional analysis of our third -- fiscal third quarter results and an update with respect to our balance sheet and asset base.

For our fiscal third quarter, we generated total revenues of $743.6 million including $514.9 million of box office revenue, $197.2 million of concession sales and $31.5 million of other operating revenue. On a per screen basis, our admissions revenue grew by almost 8%, well ahead of the industry box office increase that was approximately 7% reported by Box Office Mojo. The increase in our admissions revenue was driven by attendance per screen growth of 5.9%, combined with a 1.9% increase in our average ticket price.

Our concession revenue this quarter increased by 7.8%, due to the previously mentioned attendance growth and an increase in our concession per caps of 3.4%. Improvements in popcorn and beverage sales volume, price increases in certain beverage items -- on certain beverage items, were the primary driver on our per cap increase. To a lesser extent, the expanded concession menus that Amy mentioned earlier also contributed to the increase.

Other operating revenues during the quarter increased 15.4% over the comparable period last year. Increased attendance help drive additional vendor marketing and advanced ticketing revenue, and summer kids programs provided an additional revenue boost. While we are always pleased to see improvements in the top line, it is incumbent on our management team and field personnel to make sure increased revenue translates into increased adjusted EBITDA and free cash flow. And as with the case in the second quarter, we were extremely pleased with our third quarter operational execution.

Our film and advertising expense of $273.5 million represented 53.1% of admissions revenue and was 70 basis points higher than the 52.4% experienced in the same period last year, our lowest ever for the third quarter. While we always prefer to see improvements in our film and advertising margins, we are encouraged by the fact that our cost for the current quarter remained below the historical third quarter average by approximately 20 basis points.

Our 86.4% concession margin increased to 60 basis points as compared to the third quarter last year, primarily as a result of the improvements in popcorn and beverage sales volume and price increases on certain beverage items mentioned previously. Total rent expense of $95.5 million declined by 1.2% in the aggregate, due primarily to theater and screen closures in the last 12 months. On a per screen basis, rent expense increased by 0.7%. And as has been the case for the last several quarters, our focus on cost control continued to benefit the bottom line.

Total other operating expenses of $195.7 million declined by $1 million or just over 0.5% as compared to the same period last year. A reduction in theater level payroll and decreases in non-rent occupancy cost as a result of screen closures were the key component of the decrease and were partially offset by increased IMAX and RealD fees associated with the increase in premium format revenue this quarter. We believe that the reduction in other operating expenses is particularly noteworthy given the 4% increase in attendance we experienced this quarter.

We are extremely pleased that our box office outperformance, the increase in our concession per caps and our continued focus on cost control helps generate significant improvements in total revenues, adjusted EBITDA and adjusted earnings per share, all of which were well ahead of consensus Wall Street estimates.

As for our asset base and our balance sheet. Capital expenditures net of asset sales for the quarter totaled $17.2 million. Based on our development schedule for the remainder of the year, we now expect full year net CapEx to be between $70 million and $85 million, slightly below our previous guidance.

During the quarter, we continue to actively manage our asset base, closing 6 theaters and 48 screens to end the period with 528 theaters and 6,605 screens. In the fourth quarter, we expect to open 2 theaters with 31 screens and close 4 to 6 theaters with 25 to 35 screens to end the year with approximately 525 theaters and 6,606 screens.

As with other parts of our business, we always seek to manage our asset base in a way that maximizes profitability and cash flow. Since the beginning of the third quarter last year, we have permanently closed 20 theaters and 184 screens. While these closures had a negative impact on our top line reducing box office revenue for the third quarter by roughly $4 million, they had almost no impact on our adjusted EBITDA or free cash flow. As always, we encourage analysts and investors to model and evaluate our business on a per-screen basis, and want to emphasize that our projected fourth quarter screen count is approximately 1.4% lower than the same period last year.

With respect to the balance sheet, we ended the quarter with just under $180 million in cash and a total debt balance of just over $2 billion. Our adjusted EBITDA growth for the quarter, combined with the refinancing transactions we completed in the first quarter of this year, again, had a positive impact on our debt covenant calculations. As of the end of the quarter, our leverage ratio, as defined by our senior credit facility, totaled approximately 2.6x, well below the covenant limit of 4x.

In closing, we are again very pleased with our results for the quarter and are optimistic regarding the potential for box office success for the remainder of the year. This concludes our prepared remarks, and we will now open the lines for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Alexia Quadrani of JPMorgan.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

A couple of questions. First one, on the impressive attendance growth, it's been a couple of quarters now that you've seen this positive attendance growth. Do you have any, I guess, more color on what you think is really driving it? Do you think the weak economy has any influence at all on that? And any, I guess, commentary or color about attendance growth so far on the fourth quarter?

David H. Ownby

Nothing specific, just like what we've talked in the past about some of the geographic markets that affect our circuit. Nothing dramatic there. California was just maybe slightly behind the industry, but that was more than made up for by the fact that a lot of the Northeast markets we operate in and, in particular, Florida, we're very strong from an attendance perspective this quarter. Also, I think the higher percentage of revenue that was generated from premium format films was certainly helpful to our attendance given that we have a large footprint format of both IMAX and 3D screens. But other than that, no, nothing unusual that stood out to us.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

And so far in the fourth quarter, any sense if it's also tracking a little bit ahead?

David H. Ownby

I obviously don't want to comment on the fourth quarter yet, but remember most of the quarter's business is in the last 2 much of the quarter. I think historically October only represents about 25% of the quarter.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Okay. And I may have missed it, but did you give -- did you comment on 2D pricing on the quarter?

David H. Ownby

Our 2D ticket price, Alexi, was actually down just slightly. It was $8.15. In the third quarter last year, it was $8.08. And just a little more color on that. Remember, when you think about that 2D ticket price that we sell tickets at a variety of price points. For example, adult ticket, matinee tickets, children's tickets, senior citizen tickets. And those price points at most of our theaters can vary by as much as $3. So over a short-term period, like a quarter, the makeup of the film slate can have an impact on the mix of tickets that we sell and, therefore, on our average ticket price. In this particular quarter, the movie, The Help, which was the fifth highest grossing picture of the quarter, and a film that's skewed to a much older audience, actually had an impact on average ticket, our 2D ticket price. Almost 30% of our attendees for The Help were seniors, and on average, a senior citizen ticket is our lowest price point.

Operator

Our next question comes from Eric Handler of MKM Partners.

Eric O. Handler - MKM Partners LLC, Research Division

Two questions for you. First, just looking at your website, it looks like next year you've got about 126 screens that are going to be opening, so a nice reacceleration of your screen growth. I'm just curious, what are you seeing with the overall real estate environment now, and where are you seeing the most opportunities there? And then secondly, when I look at this year's fourth quarter, it does seem like there is a larger-than-average number of family films. And just curiously, how you're thinking about this relative to what you're results could potentially be as this was a little bit of an issue up a couple of quarters ago when you underperformed the overall industry?

Amy E. Miles

I think, Eric, first of all, with respect to the rebound in the real estate, it's good news as we look to 2012. We have said before that with the slowdown that the real estate environment was experiencing in 2010 and 2011, we would expect that to rebound. And we're seeing that when you move into 2012. It's hard to say that it's any particular region. If you look at the mix of those 126 screens, you see they're in the East Coast and West Coast, so they're in various markets throughout the United States. I think it's more just a general rebound on the financing market than any one geographic region improvement.

David H. Ownby

And, Eric, in terms of the film slate for the fourth quarter, I think you are correct, there are a good amount of family films there. I think there's also a good amount of films there for lots of different audiences. In fact, I believe, Amy said there are actually more films in total for the last 2 months of the year, 26 this year versus 23 last year. So I don't think at this point we think about that as either a positive or a negative for us. We're going to play all of those films, and certainly we'll likely have different market shares for each. But when we think about the factors that are going to drive our attendance, we like the mixed film slate and we like the fact that there are lot of films in the premium formats, which is -- has been a positive for us in the past.

Operator

Our next question is from David Miller of Caris & Company.

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

Amy or David, either of you, we were hearing from sort of the angle of DreamWorks Animation that the Puss in Boots film really raises the bar in terms of overall quality of the 3D experience. I'm sure you guys are aware that back in May and June, 3D sales sort of disappointed for Kung Fu Panda 2, even though the film grossed $660 million worldwide, and the company was under pressure and continues to be under pressure to really blow everyone away with the 3D experience. And the word is that, that they've really done that with this movie. Do you concur with that? Have you seen the film? And number two, do you see perhaps maybe lowering 3D premiums for maybe the first couple of weekends or the first 3 weekends or so just to drive volume?

Amy E. Miles

Yes. Just to answer first with respect to the quality of Puss in Boots. I would argue that the quality of every one of the DreamWorks Animation pictures, 3D and 2D, have been very high, so I would expect that Puss in Boots will continue that trend. I can tell you that when an extended version of Puss in Boots was shown at CinemaCon there is a lot of positive audience response. So as for all of these pictures, we'll have high hopes for Puss in Boots. And I'm sorry, what was the second part of your question?

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

Just do you see -- with this higher level of 3D quality, do you see perhaps lowering the 3D premium to drive volume? Or can you even do that as per year contract with RealD?

Amy E. Miles

There's nothing contractual with respect to pricing, but, no, we do not anticipate we will be lowering our 3D premiums.

Operator

Our next question comes from Anthony DiClemente of Barclays Capital.

Anthony J. DiClemente - Barclays Capital, Research Division

Just wondering, David, if you could talk us through use of cash a little bit more as you look out into the acquisition market. Are there opportunities for consolidation? I mean, as you look at your leverage, where do you feel comfortable in terms of leverage? And then as you look at potential for incremental revenue and special -- or sorry, regular and special dividends, maybe you could just talk a little bit and update us on your thoughts on use of cash.

David H. Ownby

Sure, Anthony. And really, our thoughts on uses of cash haven't changed. As you well know, historically, we've used our cash for really one of 2 or 3 things. We've grown the business the old-fashioned way. That's by buying or building theaters and, certainly, we'll continue to look to do that. We've also grown the business in more, what I'll call, nontraditional ways most recently with our investment in Open Road Films, and we'll continue to look for those innovative ways to grow our business. And then, certainty, we've been able historically to combine with those strategies a healthy dividend policy. And certainly, today, returning value to shareholders is a key part of our strategy, and it will continue to be going forward.

Operator

Next question comes from James Marsh of Piper Jaffray.

James M. Marsh - Piper Jaffray Companies, Research Division

Two questions here. First, Paramount's announced that they plan to release Mission Impossible in IMAX-only theaters for the first 5 days, and you have a large IMAX footprint. I'm just wondering, do you think you'll end up picking up share, or is it more of a wash? Because, obviously, AMC has got a big footprint as well. I just want to see what your thoughts are on that point.

Amy E. Miles

Ultimately, we'll see how that goes. That's the first test. But we are excited to -- I mean because the premium format is very important to us, and it's a key part of our strategy. So we think it's really good test for the industry, and the customer that will prefer to see Mission Impossible in a nonpremium format, obviously, will still have that option. It will just be deferred a week, but we think it's going to be a great test for the industry to be able to promote the premium experience for a week.

James M. Marsh - Piper Jaffray Companies, Research Division

My second question relates to gift cards. And it seems like they are available in more and more places. I'm just wondering, what percentage of the business is it today? And what percentage of those were actually redeemed? And how do you avoid the various state shipment rules, if the state wants to take those volume? Like, how does that all work? If that state is looking for money in every rock here, do they try to recoup that money? How does that work?

Amy E. Miles

That business over time has been a $250-plus million business for us, so it's substantial. And to your point, we have tried to expand that presence of our gift cards over the past couple of years. You see them in more C stores, you see them in grocery stores, you see them at the theater. So again, with a focus of trying to make our cards readily available, and we have done a lot of things from a tax perspective to make sure that we are in compliance and protected from an SG perspective.

David H. Ownby

And then, sorry, James, just to follow up on one of the things...

James M. Marsh - Piper Jaffray Companies, Research Division

On the percentages.

David H. Ownby

Yes, one of the other thing you said. In terms of the amount that are sold through third parties as opposed to -- in our theaters, and I want to -- this number is going to include also our discount ticket program where we sell bulk discount tickets to businesses. But right now, call it 30% or so of our sales are through those third-party outlets.

Operator

Our next question is from Ben Mogil of Stifel, Nicolaus.

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

So a couple of my questions are sort of follow-on to other people's. I think it was Anthony who sort of talked about capital structure and opportunities. From a cash perspective, what's the sense of how much capital -- like, if I look at your balance sheet over the years, is it kind of fair to say that around $200 million of cash is kind of what you need from a working capital perspective, and anything above that kind of at least makes the potential for a dividend increase or a special -- a little bit greater, is that the way we should be looking at it?

David H. Ownby

This is not necessarily our policy, Ben, but historically, just in terms of a comfort level for us to operate the business, we tend to like to have about one year's worth of dividend on the balance sheet and cash. So as we think about allocating capital, Ben, we don't like to allocate down too much below that number.

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

Okay. And above that, does that sort of trigger -- we can return it to shareholders in some capacity?

David H. Ownby

Well, again, like I responded to Anthony, over time we have done those 2 or 3 different things with our cash, and we're always going to continue to look for those opportunities and just try to choose the one that best benefits the long-term shareholder.

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

And then following up I guess on Eric's question. When you look at the family film situation, and obviously, there's been a number of films that's done a little weaker than expected in both 3D, as well as in IMAX. Any thoughts to sort of combination packs, any thoughts to not sort of an outright discount, but sort of something that makes -- sort of something that sort of implies the discount, sort of discounting concessions or something like that for the 3D uptick on some of the kids' films?

Amy E. Miles

Yes, we have done some couponing on the concession side with respect to growing the 3D business. And also, just another way to think about it is we have -- we actively market our Crown Club, so that's our frequent movie goer loyalty program, and that's free to participate. And to the extent one does, you can receive significant discounts on not just 3D, but movies and concessions in general. And then just also with that point, again, we've always said that offering a myriad of options to our customers is the best way for us to maximize revenue, and it also provides the best customer experience. And so on that point, if you do have a family or an individual that would like to see a 3D, we do have other options, discount tickets, matinee pricing, where there is still a premium, but it's not at that full Friday or Saturday premium. And those are all in addition to our loyalty program.

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

Did you find the couponing -- I think coupon was the first one you mentioned. Did you actually find that to be valuable in terms of supporting the business?

Amy E. Miles

We do.

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

You do. Okay. And then I think lastly, David, this is just sort of more minor, but the operating asset write-down that I think was $6 million. Was that just some existing theater closures? Or was it more screen closures at existing theaters that are still open?

David H. Ownby

It's a combination of both, Ben, at that line. The impairment charge there I think this quarter is a relatively small piece of that number, but most of that relates to theater closures.

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

And you've always added back when tightening adjusted EBITDA from a year-over-year basis, correct?

David H. Ownby

That's correct.

Operator

Our next question comes from Barton Crockett of Lazard Capital Markets.

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

I wanted to ask about Open Road Films, and if you could just outline for us what impact that had on the income statement. And I assume maybe that was in other net. If there were other things in other net, if you could outline that, please.

David H. Ownby

Sure. You are correct, Barton, that's where the impact is. And as Amy mentioned earlier, we're extremely pleased that Open Road came out of the gate with a successful and a profitable film. From an accounting perspective, that profit won't not show up in our financial statements right away due to the accounting rules governing the film industry. But instead, it will be recognized as Killer Elite moves to the various downstream windows. So as we expected, we did record a loss on our Open Road investment in this quarter of -- and it's roughly $10 million, Barton. And the majority of that's to be clear relates to the print and advertising spend for Killer Elite, which Open Road had to expense upfront as they spent it. So I think that leaves about $3 million or so in that line item, Barton, and the remaining $3 million or so is -- we had a small loss there on our DCIP investment this quarter. Over time, I would expect that number, the DCIP number to be kind of a break-even number, but it will have a little bit of quarterly up-and-down fluctuation.

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

So if you're expecting Killer Elite to be profitable, all else equal, that'll be a positive swing in the fourth quarter. Any sense of how profitable you think that really could be based on what you see in the box and your extrapolation?

David H. Ownby

Yes. It's a little early. I mean, obviously, we've done some projections, but it's a little bit early since the DVD, so we don't really know the DVD sales number yet. DVD will be released on January 17. And just to be clear, that profit that we'll recognize for that particular film will happen over really the next 2 or 3 years, Barton. It's not necessarily all in the upcoming quarter. So that number stretches out over time.

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

Okay. Alrighty. And then I was also wondering about on the ticket prices, which were -- again, your price hikes were lower than they have been historically, and you mentioned the senior kind of mix issue, but you still seem to be below the industry. And I was wondering if that's your read on the day-to-day your ticket prices were actually below the industry, and if that's happenstance or a deliberate kind of strategy?

David H. Ownby

Yes, I think a lot of those numbers you see out there for the industry are still estimates at this point. I think NATO will come out with some more concrete data when the year has ended. A lot of the services out there, Box Office Mojo and others just estimate the ticket price, and I never know exactly how -- what their processes are to estimate those numbers. So certainly, we don't think we're particularly out of whack in terms of pricing with the rest of the industry. We obviously monitor the markets that we're in, not just our theaters, but the competitive theaters as well. And again, we don't see abnormal pricing moves from our customers -- sorry, from our competitors.

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

Okay. And you gave us the 2D ticket prices. In the past, you've given us 3D and IMAX, I was wondering if we could...

David H. Ownby

Sure, absolutely. Our IMAX ticket price for the quarter was $15.82, and that's up just slightly from the third quarter of last year. And our RealD ticket price -- I'm sorry, our 3D ticket price is $11.82 for the quarter. That's down about $0.07 for the quarter. And, Barton, just a little bit more color there. Remember, last year, we were still in the early stages kind of in the first third of our 3D rollout. I think we had on average little over 900 3D screens in the third quarter last year, and most of those screens were in our larger markets that have a higher base ticket prices. So as the rollout expanded and we installed 3D in secondary and tertiary markets, the lower-base ticket prices in those markets brought down the average a little bit.

Operator

Our next question is from Martin Pyykkonen from Wedge Partners.

Martin Pyykkonen - Wedge Partners Corporation

A question on film on Open Road, with The Grey, which is I guess January 27. And I know part of your thrust, that was to fill in some of the holes, but also pulling it in to December limited release to get in the Oscar window for Liam Neeson. Any update or a thought on that as to what you might do with that film?

David H. Ownby

We certainly did talk about that, Martin, and certainly -- and we're very excited about the film and about Liam Neeson's performance. But I think at the end of the day, we feel like from a business perspective we were probably better off not to incur the additional expense to release it before the end of the year. And at the end of the day, I think we feel like if Liam Neeson's performance is good enough for an Oscar, it shouldn't matter when it's released.

Martin Pyykkonen - Wedge Partners Corporation

Okay. And then on RPX, you didn't mention any specifically, just refresh where you're going to end up at the end of this calendar year with RPX screens, and any even broad range of what you plan to deploy next year, 2012, on RPX?

David H. Ownby

Sure, Martin. We had 14 RPX screens at the end of the quarter. I can tell you if we opened one more since then, so I think we're at 15 today, I think we'll get to 18 to 20 by the end of the year. And we have identified sites for next year. That opportunity for next year is probably in that 12 to 20 range in terms of RPXs, and then we'll continue to evaluate those sites and give a little bit better guidance for that number on our fourth quarter call.

Martin Pyykkonen - Wedge Partners Corporation

Okay. I guess just overall, it sounds like with the premium format, collectively, that's obviously doing well for you. RPX in particular, I mean no reason to slow down, maybe stay at the same pace, maybe accelerate, but who knows on that?

David H. Ownby

Yes, I think the best evidence I can give you is that we continue to install them. I think that tells you that we think they're working.

Martin Pyykkonen - Wedge Partners Corporation

And lastly, just on 3D. The studios obviously give the opening weekend in a lot of cases for a 3D share. For you, collectively, over the last half dozen or so maybe more 3D films and not by particular title or studio? How was the second and third sort of weekend been relative to opening weekends? Does it stay pretty consistent with the opening? Or is it been turning up or down as it goes through its life?

David H. Ownby

I can't speak for others, obviously, but in our case I think we outfitted our circuit in such a way that it allowed us to continue offer those options to customers in Weeks 2, 3 and 4. And for the most part, the 3D percentages, while maybe not exactly as high as the first week, they have held up very, very well in weeks -- again in Weeks 2, 3 and 4.

Operator

Our next question comes from Tony Wible of Janney.

Anthony Wible - Janney Montgomery Scott LLC, Research Division

You guys have done an interesting job managing cost over at least the last year and arguably over the last 6 quarters. How much further can you guys kind of go in leveraging some your overhead costs? And then I had a follow-up after that.

David H. Ownby

Tony, we're obviously pleased with our operational execution this year. I think in the year-to-date period, we've taken almost $35 million out of our other OpEx number. And while some of that reduction is attendance-driven, a big portion as a result of our operational personnel's dedication to providing a great customer experience while keeping a very close watch on our variable costs. Many of the initiatives that drove those cost savings have now been in place for a full year, so we will start to comp against them in the fourth quarter. I fully expect our guys in the field to continue to perform at a high level, but just keep in mind that our opportunities for cost savings will be more limited going forward.

Anthony Wible - Janney Montgomery Scott LLC, Research Division

Got you. And on the news, it always seems to pop up in the headlines with either Sony with the glasses or Comcast with the Tower Heist. Can you guys comment on what your strategy has been around those events? Are you guys supporting the films as much? Are you guys pulling the trailers? Any commentary would be helpful.

Amy E. Miles

I think with respect to the 2 most recent events, clearly, Universal announced the test and then decided after a consultation with exhibitors that, that was not something that they were going to pursue. And on that point, I can say that although that wasn't a test that we wanted to support or could support, we did appreciate the dialogue and the approach that Universal took. They spent a lot of time talking to us, seeking our feedback prior to the announcement of the test, and so from that perspective, I felt that was an improvement in the process. And with respect to the announcement on the 3D glasses, over the course of a year, we have a lot of conversations with studios regarding proposed changes in the way that we do business. And those are typically handled privately. And they're handled in a way where there is mutual benefits for both parties. I would expect that the 3D glasses issues will be the same way. It's not the first time this issue has come up. And what we have also said publicly is to the extent that the studios seeks a change in the business model, that doesn't affect the price that we charge our customers or our economics, we'd be open to discussions around a change in the model around 3D glasses.

Anthony Wible - Janney Montgomery Scott LLC, Research Division

All right. And one last one. What percentage of admission revenue came from premium screens?

David H. Ownby

This quarter for us, Tony, it was about 23.5%, and that's compared to just over 16% in Q3 last year.

Operator

Our next question is from Richard Greenfield of BTIG.

Richard Greenfield - BTIG, LLC, Research Division

Amy, just a follow-up on that last point. It seems like overall, when you look at what happened with premium VOD over the summer and then the Universal aborted attempt and then the Sony 3D glasses issue. It seems like the overall partnership with the studios has become a bit -- has added a bit of friction over the course of the last 9 months. And we just love kind of your viewpoint as kind of where that goes. And just, two, you I think continue to own a chunk of RealD stock, and was just wondering, thought process, as you're kind of finishing the rollout of a good portion of those screens related to the IPO options, what do you plan to do with that?

Amy E. Miles

Yes. I think with respect to your first question in the studios, some of these issues, just -- because of the way they were played out were probably more public than maybe they have been in the past. But I could say at this date in this time, I don't view that as some type of deterioration in the overall relationship. The PVOD test happened. That's behind us. Again, we saw improvement in the process as Universal pursued their strategy. And so from that perspective, I wouldn't characterize our relationship with the studios today as different than it was, say, 3 years ago, for example. And then with respect to our RealD stock option, at this point in time, I mean we can be opportunistic with respect to liquidity plan. We own about 1.2 million shares of RealD, and we don't -- do not have any type of short-term strategy with respect to liquidation of the shares. But again, that's just an asset that's not core to our business, and we would be opportunistic.

Richard Greenfield - BTIG, LLC, Research Division

And on PVOD, I mean, do you expect more POV trials by the studios in 2012? Or do you think you have effectively put this to bed now?

Amy E. Miles

I would never say we effectively put this to bed. Could they propose certain tests in the future? That could happen. But again, I think at the end of the day, it's clear that both the studios and exhibition want to make sure that nothing happens to denigrate the box office, and I do not think that's they're going here. And so from that perspective, there may be future conversations. But on a positive note, and not necessarily with respect to premium VOD, but we are seeing or the industry is seeing growth in the OnDemand revenues. And so from that perspective, when you think about that opportunity, and maybe some potential opportunities with respect to digital ownership of content and rumored extension of rental windows that those things combined can help the studios from a home market or ancillary market perspective. And I think from a whole ecosystem perspective, that's beneficial to us also.

Operator

Our next question is from Benjamin Swinburne of Morgan Stanley Smith Barney.

Benjamin Swinburne - Morgan Stanley, Research Division

Most of my questions have been answered, so I just had sort of 2 clarification ones. Dave, when you look at the mix for the quarter on attendance growth being skewed so much to volume over price, I know those industry estimates are estimates, but you mentioned that the premium percentages were higher year-over-year, and yet the pricing growth was lower than I think what we expected, and the volume was much better. That's not a sort of conscious management decision, that is really just all reflecting mix? The fact that 3D was down year-over-year and 2D tickets were down year-over-year, that's all just mix shift, geographic and title and all that stuff?

David H. Ownby

Yes, our -- the way we go about pricing our theaters hasn't changed, Ben. We still, on a regular basis, really on an ongoing basis, look at our -- the various markets that we operate in. We evaluate where our customers -- I'm sorry, our competitors are priced, and we try to make the right pricing decision in each local market. And we have continued to go through that process in 2011 just like we did in years before that. It's just again that this year, some of those opportunities may have been more limited to raise prices maybe because some of our competitors haven't, but overall, what's really driving ticket price dynamic for this year are those mix issues.

Benjamin Swinburne - Morgan Stanley, Research Division

Do you or Amy believe that there's more elasticity in this business? In other words, if you do bring pricing lower that you're going to see volume pick up, or is it independent of that?

David H. Ownby

We haven't really seen that, Ben. I mean, we talk a lot about the fact that in general, we're relatively low price point form of entertainment, so it's tough to lower the price enough to really drive traffic. It's one thing if you're, for example, not to pick on this industry, if you're selling flatscreen TVs, you can drive drive traffic by lowering the price by $50 or $75. But to lower our prices by a dollar or two, over time, we just haven't seen that drive enough traffic to make up for that lost revenue.

Benjamin Swinburne - Morgan Stanley, Research Division

And then just one more, taking up on a comment, Amy, you just made before on home video viewing. It's interesting you threw out couple of trends that you think could help the ecosystem. I was sort of taking a different tack. If you look at both Netflix and now Red Box, they both put in price increases, or at least plan to, not that you would know since Red Box just announced this in the last 20 minutes, but they're putting a price increase. But it just seems interesting that you're seeing price go up on a number of areas, and you mentioned pushing back the rental window. I saw something today, Warner Bros. is pushing back blockbuster. Can that help your business? I'm not talking about the theatrical window, put the studios aside for a second. Is the higher prices in home video and pushing back windows in some of these traditional home windows help you potentially down the road?

Amy E. Miles

Yes, we think it does, and these are strategies that fit nicely with the existing theatrical window. And to the extent that content is more expensive in the home and that's a relative comparison to viewing film in a cinema, even though it's nowhere near the same experience, where at a home where a social expense. That being said, that price point comparison, I still believe it's helpful to our side of the business.

Operator

Our next question is from Joe Hovorka of Raymond James & Associates.

Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division

I got a couple more on Open Road. I know we had the P&A expense in the quarter, and we're not going to recoup that in the fourth quarter. But do we go to a small profit in the fourth quarter on the films since there's not another release until January? Or had not all the P&A been expensed yet?

David H. Ownby

Yes. Joe, to be clear, all the P&A has been expensed. So in terms of that individual film, pretty much all that's left in future quarters, and I want to stress the fact that, that happens over many future quarters and not just 1 or 2, all that's left for Killer Elite is basically profit. Now obviously, we'll start to layer other films in on top of that starting with The Grey in January. So it's -- that will make modeling that business even more difficult, quite frankly, but as we move through those different films, we'll certainly try to be as open with investors and as transparent as we can about the results for Open Road, both from an accounting standpoint and from an economic standpoint.

Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division

And The Grey, is that a late January release? Or will there be P&A spend in the December quarter? Or will it be a January spend?

David H. Ownby

The release is January 27. I suspect that there will some P&A spend in Q4, but I don't have that number for you, Joe.

Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division

And then do you also spend -- well, I don't know if it's printed -- I would just say advertising related to the DVD release on Killer Elite?

David H. Ownby

No, we have a partner for our home distribution, and we basically pay them a fee. So it travels with the DVD revenue.

Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division

Okay. And then just one more question. Do you have like a -- I mean there's a call it a G&A cost, whatever it is, just a static cost to run Open Road Films, right?

David H. Ownby

There is a -- they do have some G&A, but that's a relatively small number.

Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division

Okay. So that's not something we worry about on a quarter-to-quarter basis?

David H. Ownby

That's right.

Operator

Our next question is from Tuna Amobi of Standard & Poor's.

Tuna N. Amobi - S&P Equity Research

I think, Amy, you alluded to mobile ticketing as a potential revenue driver. Can you talk a little bit more about that in terms of the time frame to roll that out? Any partners that you're working with? And any color on the economics of that, and how that might compare to your traditional ticketing would be helpful.

Amy E. Miles

Yes, I think -- I'm not going to give specific numbers. We have mobile ticketing now that we are testing at approximately 55 to 60 theaters, and in a wide variety of markets throughout the United States. And the goal there again is how do we bring the premium experience outside of the theater and expand that and make it more customer-focused. So again, that was part of why we were pursuing the mobile ticketing. In anything that we could do to make it more convenient to buy ticket, we think ultimately increases the attendance level or the penetration from that perspective. And I can just say at this point in time, the early results are positive, and we're just going to have to watch it for a little bit of more time. I think we rolled out this initiative, let's say, give or take, 5 or 6 weeks ago. Okay. So that the amount of history that we have. And so we'll watch it for the rest of the year, and then make a rollout decision next year.

Tuna N. Amobi - S&P Equity Research

Okay. That's fair enough. So for David, the other operating revenue line actually came in higher than I think -- much higher than we were expecting, and I know attendance was a big part of that. But I'm trying to understand, if you keep attendance constant, how that line item actually may be kind of fluctuating. As I look at last year, I know you had are pretty strong last December, so I'm just kind of looking ahead to Q4, what factors do you expect to be in play here beyond attendance, of course, which you can't control but -- so any kind of comment as well on seasonality of that line item would be helpful.

David H. Ownby

Sure, Tuna. That line item is primarily attendance-driven. So the only piece of that, that maybe is a little removed from attendance is the revenue that we recognize from our gift card and discount ticket programs. And that revenue tends to be -- historically has been somewhat loaded into the fourth quarter, because that's when we sell most of our -- those products. So if you just look at the historical pattern, and then take into account fluctuations in attendance, I think that's probably the best way to approach modeling that line item.

Operator

Our next question is from Jim Goss of Barrington Research.

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

I have a few of them. One, and I know a couple of times the issue of content in the home has come up. I'm wondering if there is a way with the development of ultraviolet for the theatrical exhibitors to actually participate in that process instead of being at each other's throats to be basically as part of one another, and maybe give a way to participate in the aftermarket by promoting it, since you're aware of a lot the interest in the films is set, initially. Why don't you take that first.

Amy E. Miles

Yes. I think with respect to our participation in the home market, those are conversations that we have a different points in time with the studios. And to the degree that we could find a solution that was acceptable to both parties, that would be a conversation that we would be open to having and that we would pursue.

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

Okay. Secondly, you also mentioned your concessions, expanded concessions menus. And I'm wondering if you could talk about your philosophy in terms of dollars versus margins, since I think once you get past soft drinks and popcorn, the margins probably aren't going to be quite as high, but it might expand the overall volume. How do you approach that?

David H. Ownby

I think you described it exactly right, Jim. I mean we certainly don't want to do anything that we feel like cannibalizes our higher margin beverage and popcorn business, but as we discussed on our earnings calls before, a large number of our customers totally bypassed the concession stand. And so if we can offer products that get more people to the concession stand, then to your point, those are more whole dollars that will help us leverage the other fixed cost parts of our business. And so our goal there is always to find new products that attract more customers as opposed to just shifting the customers buying habits away from higher-margin items into lower-margin items.

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

Okay. So you'd be willing to take some margin decline if you could expand the dollar value enough to really help the operating costs leverage?

David H. Ownby

Again, the key there is more whole dollars because that helps leverage those fixed cost in our business.

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

Okay. And then MCM indicated some caution about the advertising environment. I wonder if, since you have an ownership stake there and it's in your theaters, if you could discuss that a little bit from your standpoint?

David H. Ownby

Well, I mean obviously that's more -- a better question for MCM's management. I think from our perspective, you're right, we do have a large investment in MCM. And over the long term, we're still very happy with that business and excited about the prospects there.

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

Last thing, is RPX at all involved at all in the MI4 experiment?

Amy E. Miles

The MI4 will be released on premium format screens and IMAX. So clearly, we'll show Mission Impossible in our IMAX screens, and then we'll look at our RPX position -- I mean look at our RPX and the films available at that time, and we'll make a decision regarding what films we show in our RPX locations, but it is available.

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

So you have the option?

Amy E. Miles

Yes.

Operator

Our final question comes from Marla Backer of Hudson Square.

Marla S. Backer - Hudson Square Research, Inc.

I have 2 questions. I apologize if you answered them. I dropped off the call for a little while. First, I have a follow-up on the Open Road discussion. Was -- your original target was 8 to 10 films per year, I think, if I'm not mistaken. And I think after The Grey, the next when you have is an Easter 2013 release. So should we assume that right now, Tom is aggressively pursuing other titles to fill in 2012? Or were you planning to build up on that 8 to 10 slowly over time?

David H. Ownby

We are planning to build to that 8 to 10 over time. You're not -- you're still correct, Tom is out there pursuing other titles. And I believe, Marla, you may have missed one. I think we have another title scheduled for release in March of 2012.

Marla S. Backer - Hudson Square Research, Inc.

Okay. Great. Sounds good. And then I have another question, just your opinion as the largest exhibitor, there seems to be a big disparity in the trade publications about the status -- the health of the industry, and the recent trends in the industry, and I'm wondering whether you've attempted to address some of that with various trade publications, and if you have an opinion on why there seems to be a different point of view about how healthy the industry is, which is what the fundamentals are.

David H. Ownby

I do think we're a little bit of a unique industry, Marla. There's obviously publicly available data. And so, therefore, there's a lot of people out there that like to think they know how to analyze that data. So certainly that probably gives arise to some of those differences of opinion that you're talking about. I think from our perspective, the best thing we can do is continue to make sure we deliver our message and deliver the kind of operating results that we have for the last couple of quarters.

Operator

It appears there are no further questions at this time. I would now like to turn the floor back to management for closing comments.

Amy E. Miles

Thank you for the time this afternoon, and we will look forward to speaking with you subsequent to our fourth quarter. Bye-bye.

Operator

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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