RealD Inc. Reports Financial Results for Third Quarter of Fiscal 2013

  RealD Inc. Reports Financial Results for Third Quarter of Fiscal 2013

Business Wire

LOS ANGELES -- February 6, 2013

RealD Inc. (NYSE: RLD), a leading global licensor of 3D technologies, today
announced financial results for its third quarter of fiscal 2013 ended
December 31, 2012.

“2D films generated an outsized share of global box office receipts during our
third fiscal quarter, which limited our financial results for the quarter,”
said Michael V. Lewis, Chairman and Chief Executive Officer of RealD.
“Importantly, our continuing focus on growth initiatives in international
markets recently led to two major exhibitor contracts in Russia, one of the
highest grossing countries for 3D box office receipts. We announced today that
Russian exhibitors Karo Film and Kinomax will equip up to a combined 300 RealD
systems across their circuits, providing the industry’s brightest 3D
presentation to their moviegoing customers.

“Our repurchase of 2.3 million shares of common stock during the quarter and
the recent expansion of our stock repurchase program underscore our confidence
in RealD’s future growth opportunities,” Lewis added.

Third Quarter Fiscal 2013 Financial Highlights

Financial results for the third quarter of fiscal 2013 benefited from RealD’s
previously announced change in quarterly reporting periods, which added 10
extra days to the quarter ended December 31, 2012 when compared to the third
quarter of fiscal 2012 ended December 23, 2011.

  *Total revenue was $46.9 million, comprised of license revenue of $30.3
    million and product and other revenue of $16.6 million. For the third
    quarter of fiscal 2012, total revenue was $49.0 million, comprised of
    license revenue of $28.5 million and product and other revenue of $20.6
    million.
  *GAAP net loss attributable to common stockholders was $4.2 million, or
    $0.08 per share, compared to GAAP net income attributable to common
    stockholders of $2.8 million, or $0.05 per diluted share, for the third
    quarter of fiscal 2012. The third quarter of fiscal 2012 included a tax
    benefit of $2.2 million.
  *Adjusted EBITDA was $12.5 million, compared to $16.2 million in the third
    quarter of fiscal 2012.
  *Adjusted EBITDA is defined within the section of this press release
    entitled “Use of Non-GAAP Financial Measures,” which includes a
    reconciliation to its most comparable GAAP measure, net income (loss).

Nine-Month Fiscal 2013 Financial Highlights

  *Total revenue was $170.1 million, comprised of license revenue of $106.5
    million and product and other revenue of $63.6 million. For the nine
    months ended December 23, 2011, total revenue was $196.6 million,
    comprised of license revenue of $116.1 million and product and other
    revenue of $80.4 million.
  *GAAP net loss attributable to common stockholders was $5.4 million, or
    $0.10 per share, compared to GAAP net income of $31.3 million, or $0.55
    per diluted share, for the nine months ended December 23, 2011.
  *Adjusted EBITDA was $49.4 million, compared to $86.6 million for the nine
    months ended December 23, 2011.

Cash Flows, Stock Repurchases and Balance Sheet Highlights

  *For the nine months ended December 31, 2012, cash flows from operating
    activities were $63.0 million and total capital expenditures were $24.4
    million, resulting in free cash flow of $38.5 million.
  *Free cash flow is defined within the section of this press release
    entitled “Use of Non-GAAP Financial Measures,” which includes a
    reconciliation to its most comparable GAAP measure, net cash provided by
    operating activities.
  *During the quarter, the Company repurchased approximately 2,262,000 shares
    of common stock for $21.5 million, representing an average cost of $9.52
    per share.
  *Since the inception of the stock repurchase program in April 2012 through
    December 31, 2012, the Company has repurchased approximately 4,822,000
    shares of common stock. As of December 31, 2012, $27.2 million remained
    available under the $75 million stock repurchase authorization.
  *Cash and cash equivalents were $27.7 million and total debt was $35.0
    million as of December 31, 2012. The increase of $22.5 million in total
    debt from September 21, 2012 primarily funded stock repurchases during the
    quarter.

Key Metrics

  *Estimated box office generated on RealD-enabled screens^(1) for the third
    quarter of fiscal 2013 was $643 million ($299 million domestic, $344
    million international). In the third quarter of fiscal 2012, estimated box
    office generated on RealD-enabled screens was $532 million ($256 million
    domestic, $276 million international).
  *The percentage of RealD box office generated from animation and family
    genre films (which have lower average ticket prices) decreased compared to
    the third quarter of fiscal 2012, when animation and family films
    dominated the holiday film slate.
  *Nine 3D films were released in the third quarter of fiscal 2013 compared
    to eight 3D films in the third quarter of fiscal 2012.
  *International markets generated 59% of license revenue and 34% of product
    and other revenue in the third quarter of fiscal 2013.
  *As of December 31, 2012, the Company had deployed approximately 22,200
    RealD-enabled screens, an increase of 13% from approximately 19,700
    screens as of December 23, 2011, and an increase of 700 screens (300
    domestic, 400 international), or 3%, from approximately 21,500 screens as
    of September 21, 2012.
  *As of December 31, 2012, the Company had approximately 12,600 domestic
    screens at approximately 2,800 domestic theater locations and
    approximately 9,600 international screens at approximately 2,700
    international theater locations.

                  Estimated domestic box office on RealD-enabled screens
                  represents the estimated 3D box office generated on
                  RealD-enabled domestic screens. Estimated international box
                  office on RealD-enabled international screens is the
                  estimated 3D box office generated on RealD-enabled
     (1)   international screens. RealD’s estimates of box office on
                  RealD-enabled screens rely on box office tracking data.
                  International box office reflects RealD’s estimates of
                  international box office generated on RealD-enabled screens
                  in 20 foreign countries where box office tracking is
                  available. RealD estimates these countries represent
                  approximately 85% of RealD’s international license revenues.
                  

Planned Changes to Definition of Adjusted EBITDA, a Non-GAAP Measure

Beginning in the first quarter of fiscal 2014 that ends on June 30, 2013,
RealD intends to modify its definition of Adjusted EBITDA for financial
reporting purposes to align with the Adjusted EBITDA definition under the
expanded credit facility entered into on April 19, 2012. The Adjusted EBITDA
definition under RealD’s credit facility does not add back sales and use tax
and property tax as part of the calculation. Beginning in fiscal 2014, RealD
will no longer add back sales and use tax and property tax to calculate
Adjusted EBITDA for financial reporting purposes.

3D Theatrical Release Schedule for Fourth Quarter of Fiscal 2013 and First
Three Quarters of Fiscal 2014
(As of February 6, 2013 – Domestic)

                                                   
Fiscal Q4 2013             Film                               Domestic Release
                                                              Date
(ending 3/31/13)           The Texas Chainsaw                 1/4/2013
                           Massacre 3D
                           Hansel and Gretel: Witch           1/25/2013
                           Hunters
                           Escape from Planet Earth           2/14/2013
                           Jack the Giant Slayer              3/1/2013
                           Oz: The Great and                  3/8/2013
                           Powerful
                           The Croods                         3/22/2013
                           GI Joe: Retaliation                3/28/2013
                                                              
Fiscal Q1 2014             Film                               Domestic Release
                                                              Date
(ending 6/30/13)           Jurassic Park                      4/5/2013
                           (re-release)
                           Iron Man 3                         5/3/2013
                           The Great Gatsby                   5/10/2013
                           Star Trek into Darkness            5/17/2013
                           EPIC                               5/24/2013
                           Man of Steel                       6/14/2013
                           World War Z                        6/21/2013
                           Monsters University                6/21/2013
                                                              
Fiscal Q2 2014             Film                               Domestic Release
                                                              Date
(ending 9/30/13)           Despicable Me 2                    7/3/2013
                           Pacific Rim                        7/12/2013
                           Turbo                              7/19/2013
                           The Wolverine                      7/26/2013
                           The Smurfs 2                       7/31/2013
                           300: Rise of an Empire             8/2/2013
                           Metallica: Through the             8/9/2013
                           Never
                           Percy Jackson: Sea of              8/16/2013
                           Monsters
                           One Direction Concert              8/30/2013
                           Movie
                           Battle of the Year: The            9/13/2013
                           Dream Team
                           Cloudy With a Chance of            9/27/2013
                           Meatballs 2
                                                              
Fiscal Q3 2014             Film                               Domestic Release
                                                              Date
(ending                    Sin City: A Dame to Die            10/4/2013
12/31/13)                  For
                           Gravity                            10/4/2013
                           The Seventh Son                    10/18/2013
                           Thor: The Dark World               11/8/2013
                           Frozen                             11/27/2013
                           Postman Pat: The
                           Movie--You Know You Are            11/27/2013
                           The One
                           The Hobbit 2: The                  12/13/2013
                           Desolation of Smaug
                           Walking With Dinosaurs             12/20/2013
                           47 Ronin                           12/25/2013
                                                              

Sources: Rentrak and imdb.com.

Conference Call Information

Members of RealD management will host a conference call to discuss the
Company’s financial results for the third quarter of fiscal 2013, beginning at
4:30 pm ET (1:30 pm PT), today, February 6, 2013. To access the call via
telephone, interested parties should dial 877-407-0789 (U.S.) or 201-689-8562.
(International) ten minutes prior to the start time and use conference ID
408060.

The conference call will also be broadcast live over the Internet, hosted at
the Investor Relations section of the Company’s website at www.reald.com. An
archived replay of the call will be available via webcast at www.reald.com or
by dialing 877-870-5176 or 858-384-5517 for international callers. The
conference ID for the telephone replay is 408060.

Cautionary Note on Forward-Looking Statements

This press release includes forward-looking information and statements,
including but not limited to: statements concerning anticipated future
financial and operating performance; RealD’s ability to continue to derive
substantial revenue from the licensing of RealD’s 3D technologies for use in
the motion picture industry, as well as RealD’s relationships with consumer
electronics manufacturers and its ability to generate substantial revenue from
the licensing of RealD’s 3D technologies for use in the 3D consumer
electronics market; 3D motion picture releases and conversions scheduled for
the fourth quarter of fiscal 2013 ending March 31, 2013 and the first, second
and third quarters of fiscal 2014 ending March 31, 2014, their commercial
success and consumer preferences; our ability to increase the number of
RealD-enabled screens in domestic and international markets and market share;
our ability to supply our solutions to our customers on a timely basis;
RealD's relationships with its exhibitor and studio partners and the business
model for 3D eyewear in North America; the progress, timing and amount of
expenses associated with RealD’s research and development activities; market
and industry trends, including growth in 3D content; RealD’s projected
operating results; and competitive pressures in domestic and international
markets. These statements are based on our management’s current expectations
and beliefs, as well as a number of assumptions concerning future events. Such
forward-looking statements are subject to known and unknown risks,
uncertainties, assumptions and other important factors, many of which are
outside management’s control that could cause actual results to differ
materially from the results discussed in the forward-looking statements. The
Company’s Annual Report on Form 10-K for the twelve months ended March 23,
2012, the Company’s Quarterly Report on Form 10-Q for the second fiscal
quarter ended September 21, 2012 and other documents filed with the SEC
include a more detailed discussion of the risks and uncertainties that may
cause actual results to differ materially from the results discussed in the
forward-looking statements.

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

Use of Non-GAAP Financial Measures

To supplement RealD’s financial statements presented on a GAAP basis, RealD
provides Adjusted EBITDA and free cash flow as supplemental measures of its
performance. The Company defines Adjusted EBITDA as net income (loss), plus
net interest expense, income and other taxes, and depreciation and
amortization, as further adjusted to eliminate the impact of share-based
compensation expense, exhibitor option expense and certain other items not
considered by RealD management to be indicative of the company’s core
operating performance. The Company defines free cash flow as net cash provided
by operating activities less total capital expenditures in a given period
(e.g., purchases of cinema systems and property and equipment on a combined
basis).

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

About RealD Inc.

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

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

© 2013 RealD Inc. All Rights Reserved.

                                                
RealD Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)
                                                       
                     Three months ended                Nine months ended
                     December      December         December       December
                     31,              23,              31,               23,
                     2012             2011             2012              2011
Revenue:
License              $ 30,334         $ 28,454         $ 106,499         $ 116,146
Product and           16,605         20,572         63,604          80,435  
other
Total revenue          46,939           49,026           170,103           196,581
Cost of
revenue:
License                10,523           9,202            34,819            30,321
Product and           15,497         15,870         65,366          64,465  
other
Total cost of          26,020           25,072           100,185           94,786
revenue
Gross profit           20,919           23,954           69,918            101,795
Operating
expenses:
Research and           5,376            4,336            14,866            12,736
development
Selling and            6,053            6,564            18,872            20,259
marketing
General and           12,346         11,513         35,797          29,735  
administrative
Total
operating             23,775         22,413         69,535          62,730  
expenses
Operating              (2,856 )         1,541            383               39,065
income (loss)
Interest               (426   )         (227   )         (1,027  )         (710    )
expense, net
Other income          (183   )        (792   )        (557    )        157     
(loss)
Income (loss)
before income          (3,465 )         522              (1,201  )         38,512
taxes
Income tax
expense               694            (2,241 )        4,242           7,170   
(benefit)
Net income             (4,159 )         2,763            (5,443  )         31,342
(loss)
Net (income)
loss
attributable          (1     )        70             89              (9      )
to
noncontrolling
interest
Net income
(loss)
attributable         $ (4,160 )       $ 2,833         $ (5,354  )       $ 31,333  
to RealD Inc.
common
stockholders
                                                                         
Earnings
(loss) per
common share:
Basic                $ (0.08  )       $ 0.05           $ (0.10   )       $ 0.58
Diluted              $ (0.08  )       $ 0.05           $ (0.10   )       $ 0.55
                                                                         
Shares used in
computing
earnings
(loss) per
common share:
Basic                  51,062           54,524           53,157            54,274
Diluted                51,062           56,385           53,157            56,985
                                                                         
                                                                         

                                                    
RealD Inc.

Consolidated Balance Sheets

(In thousands)
                                                                  
                                 December 31,                     March 23,
                                 2012                             2012
                                 (unaudited)
Assets
Current assets:
Cash and cash equivalents        $ 27,667                         $ 24,894
Accounts receivable, net           50,375                           59,212
Inventories                        14,105                           40,577
Deferred costs – eyewear           351                              932
Prepaid expenses and other        5,392                          2,630    
current assets
Total current assets               97,890                           128,245
Property and equipment,            21,183                           12,713
net
Cinema systems, net                129,954                          141,024
Digital projectors,                971                              1,078
net-held for sale
Goodwill                           10,657                           10,657
Other intangibles, net             1,620                            1,746
Deferred income taxes              3,049                            3,049
Other assets                      5,101                          3,663    
Total assets                     $ 270,425                       $ 302,175  
                                                                  
Liabilities and equity
Current liabilities:
Accounts payable                 $ 17,046                         $ 22,617
Accrued expenses and other         30,570                           28,870
liabilities
Deferred revenue                   9,218                            7,201
Income taxes payable               945                              1,121
Deferred income taxes             3,100                          3,149    
Total current liabilities          60,879                           62,958
Credit facility agreement          35,000                           25,000
Deferred revenue, net of           11,038                           13,920
current portion
Other long-term
liabilities, customer              4,458                            2,691
deposits and virtual print
fee liability
                                                                  
Commitments and
contingencies
                                                                  
Equity (deficit)
Common stock                       325,540                          309,894
Accumulated deficit               (165,824 )                      (112,711 )
Total RealD Inc.                   159,716                          197,183
stockholders’ equity
Noncontrolling interest           (666     )                      423      
Total equity                      159,050                        197,606  
                                                                  
Total liabilities and            $ 270,425                       $ 302,175  
equity

                                                    
RealD Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)
                                                                  
                                 Nine months ended
                                 December 31,                     December 23,
                                 2012                             2011
Cash flows from operating
activities
Net income (loss)                $  (5,443  )                     $  31,342
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation and                    24,130                           20,558
amortization
Deferred income tax                 (49     )                        (179    )
Non-cash interest expense           342                              133
Non-cash stock                      13,965                           11,718
compensation
Gain on sale of digital             –                                (1,156  )
projectors
Loss on disposal of                 44                               434
property and equipment
Impairment of long-lived
assets and related                  6,581                            9,024
purchase commitments
Changes in operating
assets and liabilities:
Accounts receivable                 6,361                            6,661
Inventories                         26,465                           8,951
Prepaid expenses and other          (2,372  )                        (306    )
current assets
Deferred costs - eyewear            581                              (524    )
Other assets                        (661    )                        (3,458  )
Accounts payable                    (5,595  )                        (32,904 )
Accrued expenses and other          (2,092  )                        (12,794 )
liabilities
Other long-term
liabilities, customer               1,767                            1,700
deposits and virtual print
fee liability
Income taxes                        (176    )                        4,024
receivable/payable
Deferred revenue                   (865    )                       (6,269  )
Net cash provided by                62,983                           36,955
operating activities
                                                                  
Cash flows from investing
activities
Purchases of property and           (11,665 )                        (5,545  )
equipment
Purchases of cinema
systems and related                 (12,774 )                        (46,656 )
components
Proceeds from sale of              2,474                          3,999   
digital projectors
Net cash used in investing          (21,965 )                        (48,202 )
activities
                                                                  
Cash flows from financing
activities
Repayments of long-term             –                                (2,311  )
debt
Proceeds from credit                47,500                           30,000
facility
Repayments on credit                (37,500 )                        (5,000  )
facility
Payments of debt issuance           (1,167  )                        –
costs
Proceeds from exercise of           1,070                            528
stock options
Proceeds from employee              611                              –
stock purchase plan
Proceeds from exercise of           –                                271
warrants
Proceeds from exercise of
motion picture exhibitor            –                                3
options
Purchases of treasury               (47,759 )                        –
stock
Distributions to                   (1,000  )                       –       
noncontrolling interests
Net cash (used) provided           (38,245 )                       23,491  
by financing activities
Net increase in cash and            2,773                            12,244
cash equivalents
Cash and cash equivalents,         24,894                         16,936  
beginning of period
Cash and cash equivalents,       $  27,667                       $  29,180  
end of period
                                                                  
                                                                  

                                                   
RealD Inc.

Schedule of Non-GAAP Reconciliations

(In thousands)

(Unaudited)



Reconciliation of Net Income (Loss) to Adjusted EBITDA
                                                            
                      Three months ended                    Nine months ended
                      December      December             December      December
                      31,              23,                  31,              23,
(in thousands)        2012             2011                 2012             2011
                                                                             
Net income            $ (4,159 )       $ 2,763              $ (5,443 )       $ 31,342
(loss)
Add (deduct):
Interest                426              227                  1,027            710
expense, net
Income tax
expense                 694              (2,241 )             4,242            7,170
(benefit)
Depreciation
and                     8,194            7,406                24,130           20,558
amortization
Other (income)          183              792                  557              (157   )
loss^(1)
Share-based
compensation            4,871            4,086                13,965           11,718
expense^(2)
Impairment of
assets and              680              1,196                6,581            9,024
intangibles^(3)
Sales and use           1,008            1,569                3,170            5,076
tax^(4)
Property               580            367                1,191          1,133  
tax^(5)
Adjusted EBITDA       $ 12,477        $ 16,165            $ 49,420        $ 86,574 
                                                                                      

   (1)   Includes gains and losses from foreign currency exchange and
              foreign currency forward contracts.
              Represents share-based compensation expense of nonstatutory and
      (2)     incentive stock options and restricted stock units and employee
              stock purchase plan to employees, officers and directors.
              Represents impairment of long-lived assets, such as fixed
      (3)     assets, theatrical equipment and related purchase commitments
              and identifiable intangibles.
      (4)     Represents taxes incurred by us for cinema license and product
              revenue.
      (5)     Represents property taxes on RealD Cinema Systems and digital
              projectors.
              
              

                             
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
                                 
                                 Nine months ended
                                 December 31,           December 23,
                                 2012                             2011
(in thousands)
Net cash provided by             $  62,983                        $  36,955
operating activities
Purchases of property and           (11,665 )                        (5,545  )
equipment
Purchases of cinema
systems and related                (12,774 )                       (46,656 )
components
Free cash flow                   $  38,544                       $  (15,246 )

Contact:

RealD Inc.
Investor Contact:
Erik Randerson, CFA
424-702-4317
eranderson@reald.com
or
Media Contact:
Rick Heineman
310-339-9347
rheineman@reald.com
 
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