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Regal Entertainment Group (NYSE:RGC)

Q1 2012 Earnings Call

May 1, 2012 4:30 pm ET

Executives

Amy E. Miles – Chief Executive Officer

David H. Ownby – Executive Vice President, Chief Financial Officer and Treasurer

Analysts

Eric Handler – MKM Partners LLC

Bo Tang – Barclays Capital

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Townsend Buckles – JPMorgan

Barton Crockett – Lazard Capital Markets

Robert Fishman – Nomura Securities International, Inc.

Tony Wible – Janney Montgomery Scott

Matthew Harrigan – Wunderlich Securities, Inc.

Tuna Amobi – S&P Capital

Eric Wold – B. Riley & Company

Operator

Good afternoon. My name is Doug and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regal Entertainment Group Fiscal First Quarter 2012 Earnings Release Conference Call with our host Amy Miles, Chief Executive Officer of Regal Entertainment Group; and David Ownby, Chief Financial Officer of Regal Entertainment Group. All lines have been placed on mute to prevent any background noise. After management’s remarks, there will be a question-and-answer period. (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 27, 2012. 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 first quarter conference call. For the next few minutes, I will provide an overview our first quarter results for both the industry and Regal and update on several strategic initiatives and a brief review of the upcoming summer film slate. Following my remarks, David with highlights our financial results and as always, we will conclude the call with a question-and-answer session.

First and foremost, we are extremely pleased to start 2012 with significant growth in revenue, adjusted EBITDA and free cash flow. The combination of a healthy first quarter box office now focused on managing the variable portion of our cost structure enabled us to expand our adjusted EBITDA margin by almost 800 basis points and generate just under a $154 million of adjusted EBITDA, that is the highest first quarter total in our company’s history.

Industry box office received for our fiscal first quarter increased by just under 21% versus the same period last year and totaled almost $2.6 billion, the second highest first quarter total on record. It will be easy to a film that most of the quarters growth was due to the record breaking performance of The Hunger Games. But in reality, the Lionsgate hit simply catch off an already impressive run of weekly box office growth. The true driver of the quarter’s success was a broad and diverse film slate to generate at box office growth and ‘12 at the quarters ‘13 accordingly.

In total, 17 films released during the first quarter when all the growth over 50 million domestically, compared to only 13 films in the same period last year. From our perspective, a key takeaway from the first quarter is the continued long-term stability of the domestic box office. Our industry has always experienced and we’ll largely continue to experience short-term quarterly fluctuation in box office revenue, primarily related to the commercial appeal of the content in any given period. Recent quarters are no exception stood against that backdrop of quarterly ups and downs for long-term box office has remained remarkably consistent. The industry first surpassed the 10 billion mark for a trailing four quarter period in the second quarter of 2009 and in ensuing three years has gone below that mark only once.

With an increase as over $440 million in the first quarter of this year, industry box office revenue for the trailing four quarters just ended total almost $10.6 billion, slightly ahead of the industry’s record annual box office in 2009 and the fourth highest consecutive four quarters in the history of our industry. Equally important to us as a healthy box office environment is our ability to take advantage of increased attendance, to leverage our cost structure and maximize our operating results.

As was the case throughout 2011, our continued focus on cost control was a key driver of our success in the first quarter and helped us generate adjusted EBITDA growth of 83% and our highest quarterly adjusted EBITDA margin in over seven years. David will provide more financial details behind our operating results later, but I think it goes without saying that we are extremely pleased with our operational execution during the quarter.

We were also pleased with the results of several ongoing strategic initiatives during this quarter. Our conversion to digital cinema continues at a steady pace, and at the end of the first quarter approximately 80% of our screens work with digital projection systems and almost two-thirds of our buildings were solely digital.

In addition to the operating and content management efficiencies, we are experiencing as a result of the digital conversion, we continue to believe that acquisition opportunities will be created as more and more digital systems are deployed industry wide. By the end of this year, we estimate that approximately 65% of domestic industry screens will have been converted to digital and at major studios we’ll began to plan for the eventual and 35 millimeter prints. We believe that these factors combined with the healthy box office environment provide a good backdrop for M&A activity in the near-term.

We also continue to work for new and innovative ways to expand the premium experience for our customers. In recent quarters we began introducing expanded concession menu, mobile ticketing and reserve seating at various theaters around the country and in the first quarter we added the Regal mobile app for Android and iPhone to the list of amenities available to our customer base. The free app allows Regal customers to research movies, to purchase ticket, to utilize mobile ticketing and also receive special offers. The app was released in early March and installations are exceeding our expectations.

And finally, I’ll start at film distribution joint venture Open Road Films just completed a very successful first full-year of operation. Into the four films released today by Open Road will generate a profits for the venture and we are pleased with the management team’s ability to both identify and acquire commercially appealing films at times that reflect the financial disciplines necessary to generate a return on our equity investment. Open Road has an additional four picture, currently scheduled for release in the remainder of 2012 and we are optimistic regarding their prospects for continued success. We fully expect to see strategic initiatives to have a positive impact on our operations and free cash flow both in 2012 and into the future.

Now turning to the film site for the remainder of this year, the summer movie season gets underway this upcoming weekend with the release of Marvel’s The Avengers and all accounts the upcoming slate looks to be very strong. While there is always difficult to predict box office performance on a film-by-film basis there are several important factors that we view as cause for optimism as we look ahead.

First, a healthy number of films are scheduled through our release this summer. The recently scheduled currently showed 42 wide release films in May through August timeframe in line with the average for the last several years.

Second, we believe the film slate is well suited to your IMAX, RPX and RealD 3D auditoriums. Seven IMAX films and 11 3D films are scheduled for release over the summer. While the overall number of films available in a premium format is similar to last year, we believe that the major studios continued to get smarter using large formats in 3D, 3D on titles where it will have meaningful impact of both the quality of the film and the box office results.

And finally, this summer’s line up features a good mix of prime time films with built in audiences like Avengers, The Amazing Spider-Man, and The Dark Knight Rises and stories and characters that are made to the big screen, like Dark Shadows, Battleship, (inaudible) and Abraham Lincoln’s, Vampire Hunter. While the summer’s box office success will ultimately depend on the audience feel of each individual film scheduled for release, we are optimistic that these factors will have a positive impact on box office results in the coming months.

In summary, we are again extremely pleased with our operational execution during the first quarter and a resulting growth in adjusted EBITDA and free cash flow and we remain optimistic regarding the potential for box office success for the reminder of 2012.

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 first quarter results and update with respect to our balance sheet and asset base and some brief comments regarding valuation and capital allocation. For our fiscal first quarter, we generated total revenues of $684.9 million including $474.1 million of box office revenue, $180 million of concession sales and $30.8 million of other operating revenue.

Our admissions revenue this quarter increased 20.2% as a result of a 16.1% increase in attendance, combined with a 3.6% increase in our average ticket price. The increase in our average ticket price was driven by a nominal increases in our base 2D ticket price in certain markets and to a lesser extent by an increase in the number of tickets sold at our IMAX or RPX auditoriums; premium ticket sales overall accounted for just over 18% of our box office revenue, a slight increase as compared to same period last year.

On a per screen basis, our admissions revenue increased by just under 22%, outperforming the industry by approximately 100 basis points. The box office revenue generated by our IMAX [Audio Gap] and RPX auditoriums, which increased by over 50% per screen as compared to the first quarter last year was the key driver of outperformance.

Our concession revenue increased by 19% due to the previously mentioned attendance growth and an increase in our concession forecast of 2.4%. Similar to last year, the concession per cap increase was largely driven by improvements in beverage and popcorn volume and also benefited from the expanded food menu currently available at approximately 30 locations.

Other operating revenues increased 22.2% as compared to the same period last year as revenues from National CineMedia, our vendor marketing programs and our advance ticket programs all benefited from increased attendance during the quarter.

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 increase adjusted EBITDA and free cash flow. And as Amy mentioned, we were extremely pleased with our first quarter operational execution.

Our film and advertising expense of $236.8 million represented 49.9% of admissions revenue and increased 20 basis points as compared to the same period last year. Our strong box office that relied more on breadth than on a few high grossing films and a small reduction in print advertising costs helped to keep film and advertising expense as a percent of admissions revenue in line with our historical first quarter average.

Our 86.8% concession margin increased 30 basis points as compared to first quarter last year, thanks primarily to an increase in the portion of our vendor marketing revenue reported as a reduction of concession cost. Excluding vendor marketing revenue, our concession margin was unchanged as compared to the same period last year.

Total rent expense of $94.1 million increased slightly in the aggregate as increased contingent rent associated with our higher revenue was largely offset by reductions in base ramp as a result of screen closures in the last 12 months. And most importantly, our focus on cost control continue to have a positive impact on the bottom line.

Total other operating expenses of $176.8 million increased slightly $1.5 million or 2.1% per screen despite significant growth in attendance. An increase of approximately $2.8 million in the amounts paid to [DCFE], RealD and IMAX, partially offset by a reduction in non-rent occupancy costs were the primary components of the small increase. And theater level payroll remained relatively flat with the same period last year.

As with the case throughout 2011, our field personnel’s ability to control variable costs while still delivering a great customer experience and a meaningful increase in our concession per cap was a key driver of our success in the first quarter.

We are extremely pleased that our box office out-performance, the increase in our concession per cap and our continued focus on cost control helps generate significant improvement in total revenue, adjusted EBITDA and adjusted earnings per share, all of which were well ahead of consensus Wall Street estimate.

As per asset base in our balance sheet, capital expenditures net of asset sales for the quarter totaled $10.8 million and we continue to actively manage our asset base, closing four theaters with 27 screenings to end the quarter with 523 theaters and 6,587 screens.

Based on our development schedule and outlook for the remainder of the year, we still expect our 2012 capital expenditures to be between $105 million and $120 million, and for the full year we still expect to open five to seven theaters with 70 to 100 screenings and close eight to 10 theaters with 60 to 80 screenings, which would result in ending accounts of approximately 524 theaters and 6,629 screens for 2012.

As always, we encourage analysts and investors to model and evaluate our business on a per screen basis and want to emphasis that we now expect our screen count to bottom out at approximately 6,560 at the end of the second quarter before growing to the previously mentioned total of 6,629 by the end of the year.

With respect to the balance sheet, we ended the quarter with just over $316 million in cash and a total debt balance of just over $2 billion. The significant growth in our adjusted EBITDA and the corresponding increase in our cash balance has had a positive impact on our leverage and debt covenant calculations and as of the end of the quarter, our overall leverage ratio was 3.1 times and our leverage ratio as defined by our senior credit facility totaled approximately 2.1 times, well below the covenant limit of four times.

And finally, a few comments regarding valuation and capital allocation. It is no secret that when value using a multiple of adjusted EBITDA, Regal has historically traded at a premium to other companies in our industry.

However, we believe that the underlying reasons for our premium valuation is often overlooked by the investment community and we want to take this opportunity to reiterate the fundamentals that drive our industry leading multiple.

Year-in and year-out we generate the highest free cash flow in our industry. In our nine full fiscal years, as a public company, we have produced average annual free cash flow of just under $275 million.

Furthermore, we have a proven track record of using our cash in ways that best benefit our long-term shareholders by investing in the growth of our business and by providing a meaningful return to our shareholders in the form of recurring and special cash dividends.

Next week marks the 10-year anniversary of our public offering, and in that time period our shares have provided investors with an all end annual return of just over 9%, almost twice the return generated by the S&P 500 over the same time period. We believe that our proven ability to consistently generate free cash flow, combined with our approach to capital allocation, support our premium valuation, and we have every intention of using our free cash flow in a similar fashion in the future.

In closing, we are excited about the great start to fiscal 2012 and remain optimistic regarding the potential for box office success for the remainder of the year. That concludes our prepared remarks, and we’ll now open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Eric Handler from MKM Partners. Please proceed with your questions.

Eric Handler – MKM Partners LLC

Hi, thanks for taking my question. I have two questions, for you first your new movie app is this more of a marketing tool or is there some revenue potential from that. And then secondly looking big picture, as the industry moves away from 35 million of prints, you go more digital, your buildings are become fully digital, you have management systems in place or would that fall off from satellite delivery and as you see satellite delivery coming to plays, what can that do in terms of may be programming for alternative pattern?

Amy E. Miles

With respect to your first question, Eric, I’ll tackle the question on your mobile app, I think initially the way that we look at the app is very similar to what we did with respect of mobile ticketing, and so as a convenience in a way to drive revenues by making it easier for our customers to access our ticket inventory, so while that some marketing platforms the revenue initially is going to be hoping that we can increase market share or draw ticket sales with the convenience sales or apps coupled with mobile ticketing and then I think you will look at assiduously we will have additional marketing opportunities with respect to the apps.

Satellite delivery, okay, with respect to satellite delivery, I think it’s hard to put a timing on around when we expect that initiative, the good news is that as we indicated that during our press conference during cinema [claim], we’re making a lot of progress AMC, Regal, and Cinemark combined with our Studio Partners and in this way, you can take about that benefit in a cost savings, it will be much more attractive and efficient for us to deliver content via terrestrial and satellite then it is the hardware system today, and then I think longer term, what it does is open up a top line where distribution into the theaters is much more accessible for third-party content providers and now be more of the longer term benefits.

Eric Handler – MKM Partners LLC

Great, thank you very much.

David H. Ownby

Thanks, Eric.

Operator

Our next question comes from the line of Anthony Diclemente from Barclays Capital. Please proceed with your question.

Bo Tang – Barclays Capital

Hi, this is actually Bo Tang in for Anthony thanks for taking the question. One on margins, your guys in the field have done a great job once again finding cost letters to go on and given the fact that your EBITDA margins are still several 100 bips below peak margins, could you be talk about the long-term margin opportunity, and kind of where the cost buckets of where more savings could come from?

David H. Ownby

Sure, Bo, I mean, first and foremost, the number one driver of our business is always going to be attendance and that’s why you’re seeing a period like this although we have a good attendance quarter that’s going to help our margin a lot, when you think about historically what our margins have been in those years really wit the highest those were years what the industry was doing 1.5 billion give or take attendees and that number I think for the trailing 12 is more likely in the 1.3 billion range, so that attendees number is always going to be the number one driver of our margin. now having said that as you staying over the last really five or six quarters, we have been able to take a look at our cost structure and take a lot of the cost there before out of that structure and make sure that regardless of the box office or [tennis] environment that we can deliver meaningful margins for our shareholders and I think you have seen the results about play out in our numbers over the last several quarters.

Bo Tang – Barclays Capital

Okay, great. That's helpful. And then also I was wondering if you could talk a bit about the DMA environment, what are you currently seeing out there and when do you think it may began to pick up a bit, I mean also the context of our balance sheet in your current leverage, if you talk about how you think about the financing any DMA that you guys think about really?

David H. Ownby

Sure. But I think we've been talking now for several quarters about the fact that the digital conversion for the industry with great enough backdrop for M&A and certainly when you have enough box office quarter that we had in the first quarter that tends to bring sellers off the sidelines and I do think we would describe the M&A market as active at this point, obviously nothing specific that we want to comment on, but we would describe that has an active market and let me think about how we’ve been able to acquire circuits in our history, we really haven’t needed to access financing – significant financing over, then the acquisitions that we’ve done in the last 8 or 10 years, we’ve been able to do most of those primarily out of cash flow over the other sources of liquidity lock our NCM shares.

So all the things on the size of the acquisition that we’re looking at, obviously we’re at the low-end of our historical comfort range in terms of leverage just over three times net debt-to-EBITDA. so I would tell you that each transaction will be different, and we will consider all our financing options when we look at those transactions.

Bo Tang – Barclays Capital

Great, thank you.

Operator

Our next question comes from the line of Ben Mogil from Stifel Nicolaus. Please proceed with your question.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Hi, good afternoon. Thanks for taking my question. So a couple of questions for David, I hope you gave, but can you talk a little about the 3.6 change in ticket price with the IMAX, 3D share being let the same although higher dollars, but about the same on a percentage basis, can you talk about the changes were already to be in the little scheme numbers if you will?

David H. Ownby

Sure, Ben. If you think about that 3.6% increase, about 3.2% of that was really purely related to the increase in our 2D ticket price and the remaining give or take going forward was really as a result of the flat benefit of mix shift. If you drill down to the individual ticket prices what you see is that our 2D ticket price was $8.31 in the first quarter, compared to $8.05 in the first quarter of last year. our IMAX ticket price was $15.53 in the first quarter this year, $15.46 in the first quarter of last year and our 3D ticket price was $11.77 in the first quarter of this year, a $11.54 in the first quarter last year.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay. And that's great, thank you. And then sort of switching gears a little bit on this film rental, so much lower than I think a lot of us were expecting almost flat year-over-year to quite a much better box office, can you talk about sort of again, it’s a broader spectrum than you’ve had, it has 1Q, can you talk a little bit about film rental sort of outlook for the rest of the year, I realize that you’re not going to have an [Open Road] negotiation studios, which is in general, when your thoughts for some of, in general what you're seeing?

David H. Ownby

Sure, Ben. And when you think about the first quarter and this has been a case in a lot of first quarters historically, it's typically the quarter that has the most breadth to it and we’ll not say that there's not a lot of concentration at the top, the box office has not typically driven by two or three blockbusters it tends to be more driven by a [lot of] number of films and now that was the case again in the first quarter this year, and I think top three films this quarter, which is a pretty good indicator only represented about 19% of the box office in the first quarter. And although that the overall box office dollars were up that the breadth to the films like as always helped our film cost remain at low level, these things historically in the first quarter and I'm obviously pleased with that execution. as we look at the remainder of the year, what’s going to drive some of that film cost number as you look at it compared to previous year is that concentration at the top of the box office. So we’ll discuss, wait and see how some of the titles play out over the summer to see how maybe the box office really is.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay. And then last question this is sort of more of a strategic one. So IMAX caused little bit on their call last week about looking possibility opening up second screens that existing, this is how we are existing venues where they saw or just resembling saw significant demand. So when you look at some of your venues, is that let’s leave aside with the economics would be but conceptually do you see significant demand what to that and how are your thoughts around RPX strategy be different if you have that flexibility on (inaudible)?

Amy E. Miles

I’m trying to cover that in a few different ways. We’ve always believed that from a destination our key premium format highlight wins a day. So from that perspective we’ve been very pleased over time with the results of our IMAX locations. Now more to your question regarding second screens in an auditorium I think we’d really – I’m sorry, second screens in a theater we’d really just have to look at the way out of the theater base and see if we had any assets that would be conducive to that type of presentation and if we did then we could have conversations around with our IMAX around whatever opportunities may exist there, but it would be very important to us that we make sure that and the asset base would or the theater itself will limit itself second half of the second screen. So that’s a conversation that we could have with IMAX but we are also very pleased with the performance of our RPX outage ramp and you can see that and I think the best evidence is that fact that we were doubling the number that we have to receive. So the key for us is strategically how do we provide the best guest experience that we had and have to create we will use those IMAX and RPX to achieve those results.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay that’s great and congratulations on a really good quarter guys.

Amy E. Miles

Thank you.

David H. Ownby

Thanks Dan.

Operator

Our next question comes from the line of James Marsh from Piper Jaffray. Please proceed with your question.

Unidentified Analyst

Hey guys thanks, this is (inaudible) in for James. Just a follow up on the large format screen strategy. Is it too late envision the major players in North America unifying kind of which American brands for rolling them nationally something you guys considered other obstacles in your mind and I have a follow up.

Amy E. Miles

I think at this point it may be not too late, but it might be pre-mature to speculate that that would happen from our perspective we are very happy. We saw RPX brand we are very happy with the presentation the standard that we put in place in order to move forward with that strategy. So I think that broader conversation where I understand your question and that opportunity is probably premature to speculate on what may happen there.

Unidentified Analyst

Okay and my follow-up is can you guys comment your thoughts or if you can give us your thoughts on subscription based model. I believe one competitor in North America has been testing it in order the challenges to implementing strategy?

Amy E. Miles

At this time we would not be pursuing any top of our subscription based model with respect to how we are thinking about our ticket prices over the next couple of years.

Unidentified Analyst

All right thank you.

Operator

Our next question comes from the line of Townsend Buckles from JPMorgan. Please proceed with your question.

Townsend Buckles – JPMorgan

Thanks. Going back to your really strong margin performance can you give a sense of to what extend to evenly spread box office drove your limited OpEx growth aside from just film rate of course. So would you rather OpEx growth in meaningfully different if it had been just one or two films driving the success like back in the first quarter of 2010.

David H. Ownby

The pattern of the tendency in box office during the quarter certainly has an impact on that number and this quarter in particular as we talked about the box office wasn’t really driven by one or two weekends it was a fairly steady box office week-to-week through the quarter and that is a better environment for us in terms of scheduling payroll, having said that I do continue to believe that our field personnel will continue to do a great job as we move into 2012 and get as much out of every payroll dollar as we pop up (inaudible).

Townsend Buckles – JPMorgan

Okay so can you I guess kind of weigh between your cost initiatives versus the positive scenario having a season sale performance?

David H. Ownby

I would say a launch area that was our the dedication and the ability of our field managers to control that costs and on top of that there was a more benefit associated with the patterns of the tenants during the quarter.

Townsend Buckles – JPMorgan

Okay thanks and Amy could you just give an update on how the board is weighing uses of cash especially after its really strong quarter as we think about the dividend is a thinking to wait and see what develops on the M&A front before considering a possible rays or a special is there anything else we should be keeping in mind.

Amy E. Miles

I think, David, plus a good job answering that question, I will let him answer that.

David H. Ownby

That sound, and I think as we talked about before, what we don’t we’ve never really changed the way we think about capital allocation as I said at the end of our prepared remarks. What we believe that our strategy over the last 10 years of using our capital in a variety of ways both for growth and for shareholder return has been one that has worked for us over time, and quite frankly that’s the conversation that we had with our board every time we see them, and we’ll continue to have that conversation.

Townsend Buckles – JPMorgan

Okay. Thanks a lot.

David H. Ownby

Thank you.

Operator

Our next question comes from the line of Barton Crockett from Lazard Capital Markets. Please proceed with your question.

Barton Crockett – Lazard Capital Markets

Okay, great. So I want to focus on the other OpEx, which continues to be very impressive. So attendance grew 16%, but other OpEx was basically flat, does that suggest that in a period when attendance is flat, we might actually see other OpEx take another step down, and to follow on with, I mean, what – you’ve implemented some software updates that, I thought we were basically confident against by now.

And so we see that other OpEx – kind of down – but we’re not really seeing that. Is there something else going on maybe with digital rollout kind of helping you kind control that expense better? Thank you.

David H. Ownby

Yeah. No, Barton. It really like I said, it really has a lot more to do we just back that our guys in the field are have done a great job of scheduling payroll, and on top of that this quarter benefited from a steady attendance pattern, during the quarter. It is pretty extended, if we were to see a flat attendance or down attendance, it’s hard to me to say at this point, because there is a lot of factors that affect that, how our payroll number might look, I’ve said before that we have, that the opportunity for further reductions from where we are today are probably more limited than they have been in the past. But having said that, first and foremost, I do believe I’ve gotten the field, we’ll continue to do a great job.

Barton Crockett – Lazard Capital Markets

Okay. And then, I just can you reiterate what you see as kind of the leverage targeted range that you have at the low end and at the high end, and when you say when you are in the low end. I mean if you haven’t really below this kind of leverage, and what’s kind of the high end leverage that you will be comfortable in.

David H. Ownby

We’ve historically, Barton, we’ve said that we will be comfortable operating the business in class of three to four times net debt to EBITDA range, and I think we’re at 3.1 times net debt to EBITDA today. I’ll have to go back and look and see when the last time we were below that number, but it’s been quite a lot since we were lower than that.

Barton Crockett – Lazard Capital Markets

Okay. I mean, how long are willing to sit at the low end before you do something?

David H. Ownby

I think that all depends on what opportunities are in front of us, I think we want to continue to pay attention to the active M&A market, and at the same time we always keep an eye towards making sure that we provide a healthy return for our shareholders.

Barton Crockett – Lazard Capital Markets

Okay. That’s great. Thanks a lot.

David H. Ownby

Thank you.

Operator

Our next question comes from the line of Robert Fishman from Nomura Securities. Please proceed with your question.

Robert Fishman – Nomura Securities International, Inc.

Hi, guys. So following up on [John Sythian’s] comment at CinemaCon last week, so that the premium VOD and that the studio that exhibition leaders have engaged in constructive dialog, I think as you referred to - and are discussing as partners now expanding the market for everyone. Are you able to help us to understand how Regal might be able to benefit in the scenario, and from these discussions over the next year or two.

Amy E. Miles

Yeah, I think, I think Tom will tell how we ultimately benefit, but I do think the major point that Don was trying to convey during his message at CinemaCon with the relationship had increased substantially and the conversation today as it relates to changes in the end home market are very different than they were, say a year ago.

And we at Regal just maybe this will have clarify a little bit, I will give you a little bit of example, has been confirm with some of our studio partners talking about ways that we could use our Crown Club or frequent movie goer program to help the studios market help them market both theatrically and particularly in the home, but we could we have a lot of good information about. And for the frequent movie goer base, what movie day like this day, what John films are seeing, and that information is very helpful and valuable to our studio partners.

So those are the kind of conservations that we are having as it relates to our activities in the home, and then even further than that we have marketed in-home products to our Crown Club members. But again it’s how we figure out a way that, both of us work together to grow the overall box-office pass. And I think the premium VOD discussions, I can’t fit anything directly today, but hopefully that understanding of finding this mutually beneficial opportunities will continue.

Robert Fishman – Nomura Securities International, Inc.

Okay, great. And if I could just ask one more question on the cost side, are you able to quantify any full year targets that you’re trying to hit for 2012, if we tried to backout that’s a variable cost, I think cost concessions and the salaries?

David H. Ownby

So much of our cost structure even in other OpEx line Robert is attendance driven; it’s very difficult decisions, where we have a target, because what we always want to do is manage our business in the attendance environment that we’re in. So no we don’t have a number of target for you.

Robert Fishman – Nomura Securities International, Inc.

Okay, understood. Thanks a lot.

Operator

Our next question comes from the line of Tony Wible from Janney Montgomery Scott. Please proceed with your question.

Tony Wible – Janney Montgomery Scott

Hey, good afternoon or say good evening; congratulations on a great quarter.

David H. Ownby

Thanks Tony.

Tony Wible – Janney Montgomery Scott

A few questions, so I wanted to dig in, first of all in the NCMI ticket contribution looking at their financials and their 10-K would have alluded kind of a little bit of a lower number than what you posted, were there some kind of disconnect, or what would have bridge the gap between those two and then I also wanted to ask about the G&A level per screen downgrade 8% year-over-year, which I think the lowest per screen declining since season 2008, but attendance per screen was just nicely up, what’s qualitatively kind of behind the scenes outside of payroll and kind of the smoothness effect you’re talking to really drove that?

David H. Ownby

Sure, Tony on the NCMI contribution normally you can do exactly what you’re thinking about. You can go to NCM’s previous quarterly file. We can see what they’re going to pay us in the upcoming quarter. The first quarter is a little bit structurally different because in addition to that normal distribution if we get in the first quarter, we also typically receive our tax receivable payment from NCM in the first quarter and I’m doing this for memory, I believe their filing would have told you that we’re going to pay us $8.6 million for the first quarter and our tax receivable payment on top of that is about $5 million, which is how you get to roughly $13.5 million we recorded in the first quarter this year.

Tony Wible – Janney Montgomery Scott

Gotcha.

David H. Ownby

And I’m sorry, what was your second question?

Tony Wible – Janney Montgomery Scott

Going through the G&A and a lot, but just qualitatively I’m just trying to figure out ultimately, how sustainable some of the G&A benefits just with that particular line item has caught me by surprise?

David H. Ownby

You’re talking the other OpEx line or the G&A line?

Tony Wible – Janney Montgomery Scott

Through G&A expense per screen, if I just look at it first as attendance per screen there was a great delta that G&A expense per screen down 8% and I calculated and it’s per screen was up almost 18%?

David H. Ownby

Yeah, I mean our G&A expense; I think we’re talking about the same number here, which is the small number about $16 million. Are you talking about other OpEx, which is $176 million?

Tony Wible – Janney Montgomery Scott

No, the $60 million number.

David H. Ownby

That’s really just can be expenses associated with our corporate office and those (inaudible) and it really doesn’t vary with the attendance that’s more of a fixed number.

Tony Wible – Janney Montgomery Scott

Do you still lasting benefit there?

David H. Ownby

Yes.

Tony Wible – Janney Montgomery Scott

Okay. And last thing it should just be, did you guys give the 3D screen, IMAX screen and RPX screens out?

David H. Ownby

No we didn’t, but we’re happy to do that for you.

Tony Wible – Janney Montgomery Scott

Okay.

David H. Ownby

Our ending screen count for the first quarter we had 66 IMAX screens.

Tony Wible – Janney Montgomery Scott

Okay.

David H. Ownby

18 RPX screens and 2,758 3D capable screens.

Tony Wible – Janney Montgomery Scott

Great, thank you and again congratulations on the quarter.

David H. Ownby

Thank you, Tony.

Amy E. Miles

Thank you.

Operator

Our next question comes from the line of Matthew Harrigan from Wunderlich Securities. Please proceed with your question.

Matthew Harrigan – Wunderlich Securities, Inc.

Thank you. And I have three questions, your first is if you could comment on the (inaudible) on 48 frames per second. And – it is just a little bit of shock in terms of the clarity out of the blocks and the consumers how often they – and there will be something that will really afford further screens of some of the great 3D products that’s coming out.

And when you look at the upgrade, I assume you’re positioned to do that largely through software albeit at some extent? And then secondly, if you did have world become available on the M&A side in entity that went accurate, do you think it’s something that the government would tolerate and where it would be good for you even if you weren’t the largest consolidator (inaudible) amicable to three years now or thought you have more market power to the extent that more and more of the footprint is rolled up?

Amy E. Miles

I’ll take the first part of your question. With regard to the debate on the (inaudible) we have said that it is our job by the end of this fiscal year on (inaudible) in time for the project release that we will have give or take 2,500 or 2,700 3D screen that are ready and available and capable of showing 48 frames per second.

So from our perspective we think that Peter Jackson has been a great innovator in our industry and as we see the technology advancement we think it is important that we at Regal support those when we can and this is an example where we can. And in the way that we look at it is this is a great user content that we are going to be able to deliver to our customer and fairness ultimately the customer will make the decision.

So what I have been told is that over time as the industry will face new technology, so it has taken people a little bit of time to get used to that. And so I think this is just another example of where are you seeing some of that initially action, I remember a lot of that (inaudible) we were lucky enough to say was unfinished, a lot of the post production work hasn’t happened.

So from our perspective the way that we look at it is we were going ahead full swing with our plan and you are right, for us it is a software conversion. We will have some investment in that software but it’s not material to our overall CapEx guidance, and so I think I’ve answered everything that you have with respect to the (inaudible) and then moving to the M&A environment, I think it’s such today that if you look at – I wouldn’t say that our market power is shifted over time. I would argue it’s may be different because you have a lot of competition for content today and rates of view content, but I think that what most to me industry will be looking at it just ways to grow their asset base in an accretive basis and the DOJ not been really I mean it’s fact that you will have to comply with, but I wouldn’t say that environment has changed overtime.

Matthew Harrigan – Wunderlich Securities, Inc.

Even for a very practically large transaction.

Amy E. Miles

Again that review is a market-by-market basis not an overall market share perspective, so for now you can think about it, DOJ would review an acquisition today just as they always have, they look at each individual theater market and make an assessment.

Matthew Harrigan – Wunderlich Securities, Inc.

Great, thanks but great – big numbers obviously.

David H. Ownby

Thanks.

Amy E. Miles

Thank you.

Operator

Our next question comes from the line of Tuna Amobi from S&P Capital. Please proceed with your question.

Tuna Amobi – S&P Capital

Thank you my question was answered.

Amy E. Miles

Thanks, Tuna.

David H. Ownby

Thank you, Tuna.

Operator

Our next question comes from the line of Eric Wold from B. Riley. Please proceed with your question.

Eric Wold – B. Riley & Company

Thank you, sir a couple of quick follow up questions. One (inaudible) on the margins, but anything in the margin benefit for the quarter besides sounds like you have the concession you are marketing that helps in the quarter there is all kind of something you could carry forward, I think that is nothing but one time.

David H. Ownby

Nothing one-time Eric, I mean again the two key drivers of our margin expansion in the quarter were higher attendance and our ability to control our variable costs.

Eric Wold – B. Riley & Company

Perfect just wanted to make sure, and then secondly on the M&A side maybe give a sense of kind of you are not obviously – the kind of the assets that you have seen that are out there for sale and you kind of looked at, I mean how would you characterize the quality of assets are out there for sale now. Is it across the board or lesser quality one-time to get out quicker for the market that’s crowded other valuations if you were looking for, did they make sense to you or is there the rationale waiting below loans going back against the wall closer to dead lines to get better valuations.

David H. Ownby

I think the way I will describe the things that we have seen to this point Eric it is probably all across the board, we have seen some high quality assets. We have seen some probably what I would call more average [fears] and in terms of the bid I ask I don’t know that we – that any of those processes are fallen of for long at this point, for us to make a real determination about how people are thinking about the business.

Eric Wold – B. Riley & Company

And then lastly, going back to the DOJ question before, if you – almost you have done this (inaudible) this has been a situation in the past but there, if there has been a package of fears – that are available you find attractive, but certain ones may not fit based on DOJ or (inaudible) you don’t like where those assets or the quality, are sellers willing to do a lot of carve outs of those packages and really you are ready to buy what you want or there is really have a nothing deal in most cases.

Amy E. Miles

Yeah I think every deal has varied over time and we have been and is it (inaudible) seller is normally just giving what the (inaudible) economic analysis with respect to that question and through that economic analysis, we have been able to buy substantially all the asset, a portion of asset or 100% of the company. So we’ve been able to execute deals under a lot various scenarios and the key driver for those, for the seller is primarily what’s the economic result.

Eric Wold – B. Riley & Company

Perfect. Thank you both.

David H. Ownby

Thanks, Eric.

Operator

That was our last question. I would like to hand the call back over to management for closing comments.

Amy E. Miles

Thank you guys for joining us today and we look forward to speaking with you after a few more months. Thank you.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

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