Regal Entertainment returns extra cash to shareholders, achieves growth through acquisitions

By Lisa Kerner

Charlotte, N.C., Dec. 12 - Regal Entertainment Group's excess cash does not idle on its balance sheet, but is used for dividends, accretive acquisitions and investment in the company's asset base, said chief executive officer Amy Miles during a presentation Wednesday at the Wedbush Securities California Dreamin' Consumer: Management Access Conference in New York.

"Over the past five years, on average, we have generated in excess of $250 million of free cash flow," said Miles.

Chief financial officer David Ownby said Regal's variable cash flow over the last five years, including a low of $143 million in 2008, can appear misleading due to the timing of deferred federal tax payments.

Prudent debt management

Ownby, commenting on Regal's debt during the presentation, said the company likes to keep its net leverage at a "prudent level" in the range of three to four times net debt to EBITDA.

With $525 million of bonds sitting up at the parent company level and outside of the group that is included in its senior credit facility, Regal has "a lot of covenant flexibility," said Ownby.

Currently, the covenant leverage is four times, and Regal is at 2.3 times.

"We have a ton of financial flexibility going forward," Ownby said.

Ownby said he feels very good about the balance sheet, with Regal's nearest maturity occurring in 2017.

Two tranches of bonds coming due in 2018 and 2019 that were issued when the market wasn't quite as "frothy" as it is today may be refinanced to take advantage of a lower interest rate market in the future, said Ownby.

At the end of the third quarter, Regal had total debt of about $2 billion. Cash and cash equivalents at Sept. 27 were about $250 million.

Cash flow and acquisitions

Business decisions are made on the basis of how to grow free cash flow, not how to grow revenue, according to Miles.

"Our business model does support long-term shareholder value," Miles said, noting that since the company went public in 2002, it has returned about $24 per share.

A "known acquirer," according to Miles, Regal's preferred method of growth is through acquisitions, and it has completed 37 acquisitions in its 23-year history.

"Over time, we have grown our business about 70% through acquisitions and 30% through investment in our own theater development," Miles said.

She believes merger and acquisition opportunities will continue in the industry, especially against the "digital backdrop."

Regal's investment in its asset base includes premium auditoriums and new builds.

"We spend about $115 million to $125 million a year in capital expenditures," said Ownby.

The Knoxville, Tenn., movie theater operator continues to maintain the $40 million in efficiencies and cost savings put in place in 2011. Miles said Regal has right-sized its model, and its "P and L is appropriate" for its attendance level.

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