Cineverse Corp (CNVS) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2007 Access Integrated Technologies Inc. earnings conference call.

[OPERATOR INSTRUCTIONS]

[inaudible] are cautioned some of the material discussed today may include forward-looking statements regarding AccessIT's business and expected financial results. Words like anticipate, believe, estimate or expect are generally forward-looking statements. Although the company believes that the expectations reflected in these forward-looking statements are reasonable, they are based on information currently available in certain functions and there can be no assurances that they will prove correct. You should not rely on anything in these forward-looking statements as a promise or representation as to future results. You are encouraged to read the company's Securities and Exchange Commission filings.

At this time I would now like to turn the presentation over to your host for today's call, Mr. Bud Mayo, chief executive officer. Please proceed, sir.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today for AccessIT's first quarter fiscal 2007 investor conference call.

With me today are Brian Pflug, our SVP of accounting and finance, Jeff Butkovsky, our CTO, and Chuck Goldwater, president of our media services group and of Christie/AIX, our subsidiary.

Let me start by saying that I'm really pleased to report that the results of the first quarter fiscal 2007 have begun to reflect the kind of meaningful progress we know that the AccessIT's business model is capable of producing. On our last call you may remember that we spoke about our rapidly accelerating digital cinema rollout and the increasing number of digital features Hollywood is making available. These two contributing factors have enabled us to reach an all-important crossroad where the opportunities afforded by digital cinema get translated into tangible financial rewards.

I will elaborate more fully on this in a few minutes when I discuss the significant developments made by our digital cinema business, then detail the strategic value of our recently completed UniqueScreen Media acquisition and conclude by providing you with some insights into our new GE credit facility. But first let me discuss AccessIT's financial results for the quarter. After completing our prepared remarks we'll be happy to answer your questions.

As expected, the first quarter of fiscal 2007 was notable in that we recorded increasing revenue contributions from all three of our digital cinema revenue channels throughout the period, namely software licensing, transport and most dramatically virtual print fees paid to us by the studios when their movies were shown on Christie/AIX projection systems. Hollywood's strong summer release schedule and its increasing commitment to releasing digital movies continue to drive increased business activity for us well into the current quarter.

Focusing on the top line, overall revenue growth in the quarter was 41%, driven largely by the addition of substantial virtual print fees, which drove media services revenue up more than 73% versus the year ago period. In June alone, and I mean the month of June, VPF revenue exceeded $600,000.

In terms of expenses, SG&A increased significantly versus year ago levels, continuing to reflect the growth in the business, principally the addition of key personnel, the acquisition of PLX, the ongoing ramp-up of our media services unit and increased marketing activities. R&D spending, however, declined from 133,000 last year to 23,000 this year, as our previous investments in software and services have resulted in products such as the Theatre Command Center and [TDS Global], which are now fully commercialized. Overall the trend is positive, as you can see revenue growth continuing to outpace expense growth, as expected. This demonstrates the maturation of the business as we begin the shift from development to rapid growth.

Although Brian will talk in more detail about the financial results, I would like now to provide you with a brief status report on the business.

First, most critical to our financial stability, EBITDA performance in the quarter improved dramatically, showing the smallest loss in years, $218,000. June alone was a positive EBITDA month and this augers well for the upcoming quarter. This performance is made possible by significant increases in revenue from our growing number of installed digital systems as well as license fees for our software products.

Knowing this and looking at upcoming Hollywood planned releases, the stage is set for the company to reach its goal of positive EBITDA for a full quarter very shortly. We also believe ongoing positive EBITDA performance will be enhanced further through the acquisition of UniqueScreen Media, which I'll discuss more fully following Brian's presentation.

Next, as of June 30th, Christie/AIX had installed 534 digital cinema systems with exhibitors nationwide. And as of July 31st, 628 systems were installed in 82 locations in 21 states. This is up sharply from the 210 systems installed as of March 31, '06 and the 426 systems installed by the end of May.

Although the 14 to 16 hour theater show schedules and summer blockbusters have affected our pace of installations in July and we think to a lesser extent in August, we still expect to reach our goal of at least 200 a month by September, a total of 2,000 to 2,500 installations by March 31st, and our ultimate goal, of course, most importantly of 4,000 screens by October 31st of 2007.

I do want to remind anyone watching intently each month's installations that we remain years ahead of any potential competitors and that we're engaged in a marathon, not a sprint.

At this point I'd like to turn the call over to Brian who will comment in more detail on our latest financial results. After Brian's presentation I'll discuss the impact of two recent key developments in our business, specifically the acquisition of UniqueScreen Media and our GE credit facility. Following this we'll open the call to questions. Brian?

Thanks, Bud. I'll begin by reviewing our results of operations.

You've probably noticed that our income statement has a slightly different format than in the past. We are now listing our major expense categories in a cost and expenses section in order to conform to the presentation that many other companies follow. Our direct operating cost line item equates to our former cost of revenues line item. In addition, we've condensed the segment information in order to make the income statement more readable and we are presenting that data in our quarterly segment footnote instead.

Continuing on our quarterly trend of rapid growth, our revenues for our first quarter ended June 30th, 2006 were approximately 5.6 million, which is an increase of 1.6 million, or 41%, from the comparable prior year quarter and an increase of 24% from our fourth quarter ending March 31, 2006 revenue.

Our media service segments revenue grew by 73% versus the prior year's first quarter and as mentioned by Bud, were driven largely by the revenues of Christie/AIX and exhibitor license fees earned through our Theatre Command Center software. Our data center services segment revenues declined by 7% versus the prior year's first quarter due to our previously disclosed loss of certain data center customers. However, this has been largely offset by the signing of smaller data center customer contracts. The continued revenue increases in our managed IT services area and our new web hosting business.

Our direct operating costs increased by 25% for the quarter over the prior year due to cost increases in both segments. Within the media services segment there was an expected increase in payroll and other operating costs and within the data center services segment we've experienced an increase in utilities, data circuit expenses, as well as personnel costs to support our growth in the managed services and web hosting areas.

Our selling general and administrative expenses have also continued to increase, primarily due to increased company-wide staffing costs mainly in the media services group. And as a result, our total company headcount has increased from 110 to 145 employees in the year-over-year period. As a result, both EBITDA and adjusted EBITDA for the quarter improved to a negative 218,000 versus a negative 524,000 respectively in the prior year.

Our net loss was 2.5 million for both this quarter and in the prior year. In addition to the previously mentioned components, the June 2006 quarter reflects lower cash and non-cash interest expense due to expenses associated with last year's conversion of notes payable and accretion on warrants. Our net loss for the quarter also includes significantly higher depreciation and amortization expense, which increased from the prior year due to an expanded asset base of Christie/AIX to support our digital cinema rollout.

I'd like to note that 82% of our first quarter loss comes from non-cash charges such as depreciation and amortization and non-cash interest expense. On the subject of non-cash charges, I should note that as of April 1st, 2006 we are now subject to the new stock option expensing rules and we expect to record a non-cash charge in our September quarter resulting from recently issued stock options.

Turning to the balance sheet, at the end of the quarter we had, cash equivalents and short-term investments of 29.2 million and our fixed assets continue to grow due to the continual addition of digital cinema equipment. To date, all of our investments for digital systems have been from our cash reserves. However, as Bud will discuss in greater detail, the GE credit facility will be utilized for future purchases, which will continue to allow us to move forward with our digital cinema initiative.

And with that, I'll turn the call back to Bud.

Thank, Brian.

A little over a week ago AccessIT announced that it had completed the acquisition of an in-theater advertising company, UniqueScreen Media, and closed on a $217 million senior credit facility with GE Commercial Finance, two milestone events. Given the major impact both these items will have on our financial position, I wanted to take some time now to discuss them with you.

First, UniqueScreen Media. As previously stated, Unique is one of North America's leading in-theater advertising companies, currently delivers pre-show ads and entertainment to over 3,000 movie theater screens in over 300 theaters in 42 states. To give you a better idea of the impact we expect this acquisition to have on AccessIT, I thought I'd provide you with some financial background on the company.

For the 12 months ended December 31, 2005 UniqueScreen produced revenue of approximately $17 million and net income of 710,000. The net income in 2005 reflected the impact of net interest expense, income tax benefit and amortization and depreciation of approximately 390,000, 260,000 and 1.5 million respectively. In the first half of 2006 its revenues were approximately $9 million, up from the previous comparable period.

Due to significant investments, which we approved, made to expand its sales force to support its growth and other strategic initiatives prior to our acquisition, Unique produced a net loss in that six months of about $450,000. The net loss included the impact of net interest expense, income taxes and amortization and depreciation of approximately 250,000, 20,000 and 840,000 in that period.

As the company moves through the remainder of the year following AccessIT's ownership as of August 1st, however, we anticipate that Unique's revenues will grow, reflecting both new and existing business, and in turn its bottom line will substantially improve, returning to and ultimately exceeding 2005 levels for the forward 12 months. The operating results of Unique for August and September are expected to be immediately accretive and will make important positive contributions to AccessIT's future earnings reports.

And I think there was -- I'll point out now that there was a little inconsistency in the press release that we referred to expecting a contribution in the third quarter of our current fiscal year 2007. We expect that contribution to be in the current quarter, which is our second quarter.

Beyond the positive impact this business is expected to have on our revenue and cash flow, we anticipate Unique to be an important strategic asset for AccessIT, one which we fully intend to leverage. Under the leadership of its topnotch management team led by industry veteran Bob Martin, not only do we believe that a large number of Unique's customers will join Christie/AIX's deployment plan, but we also expect to bundle and cross-sell all of our services to those exhibitors as well as to our existing exhibitor partners.

Longer term, we expect Unique to provide us with the ideal platform to move into providing exhibitors with alternative content, extending well beyond pre-show and advertising to special events and other unique forms of content, such as concerts, faith-based programs, kid's programs and anime to name a few.

Now a little about the GE credit facility. And by the way, we've filed 8-Ks, on July 31st regarding the USM acquisition and on August 1st regarding the GE credit facility. For those who want more detail, I am summarizing them here, you'll get that in the 8-Ks.

On August 1st AccessIT closed on a seven-year $217 million senior credit facility with GE Commercial Finance. We expect that this facility, combined with the equity previously raised by the company, will allow us to comfortably proceed with the funding of the Christie/AIX deployment plan. This commitment has several important elements, namely the facility is secured by assets of Christie/AIX and its direct and indirect domestic subsidiaries, each of which will also guarantee the facility. Additionally, Access Digital Media Inc., AccessIT's wholly owned subsidiary and the owner of 100% of the common stock of Christie/AIX, has pledged all of the outstanding shares of Christie/AIX common stock.

Next, the facility is based on the prime loan rate, or the eurodollar rate at the option of Christie/AIX plus a margin of 2.75% to as high as 4.5% respectively, depending on, among other things, the type of rate chosen and the ratio of equity contributed into Christie/AIX to the total debt of Christie/AIX. The terms provide for an initial interest-only period through July 31st of 2008, followed by a seven-year amortization schedule with a 28.5% balloon at the end of five years and the ability to prepay after one year subject to paying certain breakage costs if applicable. If prepayment is made prior to August 1st of 2010, certain other prepayment penalties will be due. All in all, we believe that this first of its kind facility offers AccessIT a flexible funding mechanism from which to draw as we advance toward our initial goal of deploying 4,000 screens once again by October 31st of 2007. And equally important is a powerful validation of the future of our company and of digital cinema.

We thank the very industry-savvy team at GE for their confidence in us and the team at Bear Stearns for their invaluable advice and guidance throughout this process. It is our intention, I will point out, to visit the ABS marketplace, the structured finance marketplace later in 2007 with the help of Bear Stearns to see what we could do about refunding this plan and extending it as we move toward our goal of a total of 10,000 screens.

In summary, AccessIT is at a critical juncture in its growth. We have aggregated all the key components necessary for the success of our plan. We defined the first viable business model and secured necessary financing to execute it. We created the enabling software technologies and partnered with the leading hardware vendors and service providers, most notably Christie Digital Systems. We formed the most knowledgeable and experienced management team in the business and we gained the support of the major players on both sides of the industry, studios distribution and exhibition.

Now, as we approach the one-year anniversary of our plan and continue to execute on our long-term strategy, we're energized by these initial signs of success and buoyed by the exciting future ahead for your company. We look forward to continued growth, both organic and the results of our acquisition of Unique. We expect to continue to report improved financial and operational metrics. And we will continue to play a leading role in the digital cinema revolution, enabling Hollywood and exhibition to revitalize the movie going experience while expanding our footprint throughout the United States. And finally, we'll take this show on the road with multiple international initiatives, which leverage our technology and experience.

Operator, at this time I'd like to open the call to questions.

Thank you.

[OPERATOR INSTRUCTIONS]

Our first question comes from the line of Richard Ingrassia from Roth Capital Partners. Please proceed.

Thanks. Morning, everybody. Bud, regarding National Cinema Media and their recent announcement, I'm not going to ask you to comment on the financing itself, but more high level what do you think is more likely, that they invest and enhance in their own network and facilitate direct delivery from distributors or do they decide to partner with one or more delivery partners such as yourselves? And to what extent do you think the studios will insist on a third party to regulate and validate that flow?

Well, that's -- it's all very speculative at this point. I mean the only announcement I'm aware of by NCM is that they've appointed JP Morgan to help them examine a variety of financing opportunities and options. At this point, it's difficult to comment because we have no specifics on what their plan -- or plan is.

With regard to their ability to deliver to their own theaters, that's really up to the studios and I can tell you there's no unanimity among the studios on any of these kinds of issues. It's not inconceivable that an individual studio may decide, particularly if they think that it's cost effective, to allow NCM to do those deliveries if they prove that they're capable of doing so. But based on our experience, and we've been delivering movies since 2004, it's not about cost, it's about reliability and security and about using a single platform.

So my guess is that anybody who gets to deliver a movie is probably going to deliver it to every screen for at least that movie and as the business of delivering movies emerges and reaches maturity, and we think that is probably a $200 million a year business, at least domestically and some increase in that internationally, there'll be more than one provider. I wouldn't go so far as to call it commoditized, it won't be, it's far too complex than that. It isn't just like moving a file, there's much more to it, as we've learned. But we'd expect two or three players in the business at the end of the day and we need to be one of them. We want to capture market share, we'd like to have a third to 50% of that market. Have I answered your question, Richard?

He is no longer in queue. However, your next question is from the line of Jeff Van Rhee from Craig-Hallum. Please proceed.

Hey, Bud. Looks like a lot of -- a lot accomplished this quarter. A couple of questions. First, just UniqueScreen Media, I think the 8-K gave some financial details but H1 '06 looks like it was 9 million. I know there's some seasonality in those businesses. How does that compare year-over-year first half of '05, what kind of growth did they show here in the first half revenue-wise?

I don't know if we have six months. I know it was up, I think it was up about 12% year-over-year for the six months, as I recall. The important thing to us is that the trends are definitely upward just in their core business and we intend to do things to add value to that business while improving some of the opportunities for the rest of AccessIT. And there are already a number of meaningful meetings and conversations going on, not only with their customers but with people that neither one of us would otherwise be talking to. Our ability to provide a bundled solution is definitely going to be a plus for us, not only here in the United States but as we look at some international opportunities.

Now, you said it would -- I think you had worded it, it will return to and exceed '05 levels...

Yes.

...for the forward 12 months. Just specifically, are you referring to EBITDA, revenue, net income, all of them?

All of them.

Okay.

Yes, they don't have the interest and depreciation levels that are so high that they would eat up their operating income so that what you'll see, what we expect from this particular subsidiary is net income as well as, of course, higher EBITDA levels.

Could you touch on -- you've essentially got almost all of the major studios and I think roughly 3,000 out of 4,000 screens signed. Can you just update us on progress as far as any of the independent studios and additional exhibitors, where you are in those negotiations, sort of as specific as you're willing to get, kind of an update there?

Well, we have been -- I think that it's public information in the sense that it's clear that we're doing digital movies for a number of the independents, New Line, [LineStein] among them this year so far and we'll be expecting to do more as we progress. We need to address their particular concerns and needs going forward. They have a different distribution pattern than some of the larger studios and folks like Lion's Gate, who are longstanding valued customers of AccessIT on the software side for many years, we need to find out how to make this work for them, too, other than to do them one at a time, which is how we're doing them now.

They're paying the VPFs, we're handling the delivery for them, but unlike the major studios who've committed to pay out to 2017 for these virtual print fees, they're doing them one at a time. It's just because of the level of commitment that the current deployment agreement requires of any studio that signs. It's very difficult for the independents to sign the same agreement. So we need to visit that.

Frankly, we've got lots of other things to do and we're certainly accommodating any of their needs as they arise. And I would say that by the end of this fiscal year we would hope to come up with a template, as we did for the major studios that will address the particular needs of the independents.

And then thoughts on when you round out the 4,000 screens, you've got roughly...

Well, our goal is still to sign the rest of the 4,000 screens by the end of this fiscal year. I'll repeat that our goals going into this year have been to sign the remaining. At that point we had, I guess, 2,600 screens or 2,500 screens and we had 1,500 left to go. Now that we're down to about 1,000 we have every reason for optimism and there's a good chance that the majority, if not all of those remaining 1,000 screens in this deployment plan will come from UniqueScreen Media's customers, which is a great validation of some of the strategic value of this acquisition. So that's a key goal.

Another goal is to sign the remaining major studios, which are now -- we did sign Warner Bros, as you know, Paramount will be next, and we're turning our attention to working with them. In the meantime we've done a number of movies for Paramount and we are now addressing the completion, we hope, of a final agreement. We have every reason to believe that they'll come onboard quickly since the folks at Dream Works are running that distribution business and we already have an agreement, as you know, with Dream Works and they're the same management group. So we're optimistic there.

And the third key goal I'll remind you is to kick off at least one international initiative before the end of this fiscal year. And we think we're on target to do all of those things.

Okay, great. I'll jump back in line.

Next question representing Joseph Gunnar, Stephen Suttmeyer. Please proceed.

Hello, Bud. Just a quick question to dovetail off of the international outlook. I mean there have been some recent developments lately, you know in Europe, [XDC] has a market position of 230 digital screens, they've gotten some financing, they may extend that leadership position. Thompson also making some progress in Europe. Just internationally, are you bumping into any of these -- any of these digital cinema players in the bidding process?

The short answer is no, we're not. None of those folks are doing what we're doing or have advanced to the point where they're doing or could do what we're doing. We are approaching, with support from the studios and encouragement from the studios, a number of specific exhibitors with a [DCI] compliance plan and with a long term commitment using the same model essentially as we're using here in the United States with some different components where the studios may be contributing less, the exhibitors more, in some cases the governments are providing grants, and each one of these initiatives requires a great deal of attention, which they're getting from us. But they're very different in every respect from anything that's gone on previously, including those that you mentioned.

Okay. And I know that advertising is pretty big on a per screen basis in European markets, more so than in the U.S. Does this acquisition of UniqueScreen put you in a better position to gain international business?

Well, absolutely. I mean we know -- in fact, the most enthusiastic supporter of this acquisition as we began looking at various companies in this business and chose to pursue Unique was our head of international, Dave Gajda, who sees the importance of the bundled solution even more important outside of the United States. And I'm not talking about Europe specifically. It certainly includes Europe, but I'm talking about Asia and South America, Australia, places like that.

So we're -- we see many, many reasons for doing this deal from a strategic viewpoint. But what we didn't want to do is to make a deal that wasn't immediately accretive. We did not want to go backward. This is the year that we want to move forward and emerge from development stage into an operating stage and to me that means starting to show a bottom line.

Okay, that sounds great. And just on some of the cost savings and synergies you get from UniqueScreen Media, [Carmike] I don't think is a customer of UniqueScreen Media. Do you see a large opportunity to cross-sell to Carmike?

Well, we certainly see it as an opportunity, but keep in mind that in many cases there are historic relationships with other providers and even contracts that are already in force. So we have to kind of wait our turn and look at these on a case-by-case basis. There are many opportunities, most of which I can't even discuss on this call, but we're pursuing them in a variety of ways, including potential alliances with others.

Okay. And just one last question. Last quarter you were -- AIX was qualifying additional suppliers of media players. How many suppliers of media players do you have now?

We have one vastly improved one in Doremi who's really stepped up in a very big way to improve its production. They've expanded their production plant capacity and improved their deliveries substantially. That being said, we continue to evaluate three other suppliers and intend to choose one of them as quickly as possible. To meet our goal of hitting 300 a month after the 1st of the year, we may need another supplier, although Doremi feels that it can ramp up and so far they've done a superb job of meeting most of their commitments to us and certainly are miles ahead of everybody else at the moment.

Okay. Which other suppliers are you looking at right now?

I'd rather not mention. We haven't -- we haven't made any public disclosure of those companies. Some of them are names you would recognize immediately.

Okay, great. Thanks a lot, Bud.

Thank you.

Next question comes from the line of [Ned Beatty] from [150 LLC]. Please proceed.

I just have two quick balance sheet questions, one being your deferred revenues, they keep declining. I'm just wondering why and when will that trend reverse?

Deferred revenues. That would be primarily due to our software business and the timing of the billings versus the revenue recognition there. I don't have an answer for you on specifically when that will reverse but we don't expect that to continue to rapidly climb, however.

Okay. And the second one being just your receivables continue to climb as well and just -- was that a function of you guys acquiring these companies or what's going on there? Thank you.

Partially that is and partially that's due to just the first billings of virtual print fees to the distributors and we certainly have no concerns about the collectibility with them. So you should see some reduction of that in future quarters as we fully get onboard and start to collect on those.

Next question comes from the line of Alan Frame from [Boswell Capital]. Please proceed.

Hi. Congratulations on the financing deal with GE and the progress on the deployment plan. However, it seems to me that the stock price has not really reflected the achievements the company has made, especially in such a short period of time it was quite impressive. So my question is, number one, what are you doing to improve your profile with the investor, spreading the good story around, and number two, improve the trading volume and maybe lower the volatility of the stock a little bit? Thank you.

Well, these are always difficult questions to answer. We know what we're doing day-to-day building the business, meeting our goals, in some cases exceeding them. And it beats me why the stock has not reflected that progress. I think hopefully we've answered some of the questions that may linger. Clearly there is a confusion about some of the announcements that have been made by others, namely those made by NCM and even Imax, and maybe there's some association there and an assumption that somehow NCM's progress will hurt us in some way. I can assure you that that's not the case, not even remotely the case. We see NCM's progress as important to digital cinema and anything that's useful and helpful in emerging digital cinema business helps us as a beneficiary in so many different ways.

With regard to others in the group, Imax specifically, it's not part of the group. Right now there's only one member of this group in digital cinema and that's AccessIT. There is no company comparable to us, not even NCM, who I know aspires to do some of the things that we're doing but hasn't gotten there yet and that could be an opportunity for AccessIT as much as it is anything else. But in no event do we see it as a negative.

We try to get the story out. I do attend conferences on a regular basis. I will be attending the Roth conference in New York. Our senior management team is regularly telling the story internationally at conferences that relate to our industry. We are recognized as the top brand in digital cinema in the industry, without question, and everybody in the business understands the power of what we've put together here. Getting that story across to the investing public is something that clearly we can do more of and we will step up our efforts to do so.

As far as trading volume is concerned, there's very little we can do about that. I think trading volume certainly has picked up dramatically in the past year and if we continue to make this kind of progress, we can expect it to grow as well. But again, our primary efforts, Alan, are going into doing the things that will improve the bottom line, that will build new initiatives all over the world, to make this company the most significant growth company in the United States over the next five years. We've already been recognized as one of them and our goal is to become the top in that area. And I have to assume that if we continue on this path that the stock will eventually reflect that.

Okay. Congratulations on the good job so far. Thank you.

Thank you, Alan.

Next question is a follow-up from Jeff Van Rhee from Craig-Hallum. Please proceed.

Thanks. Two questions for Brian first and then one for you, Bud. Brian, just for clarification, the DSOs were this quarter -- were what, were like 35? So 35 days sales outstanding, which is exceptional. Do you expect that to come down, is that what you said?

Well...

...seems awfully low to start with and you think that comes down from there?

I was referring to the level of the receivables and I should correct myself. We actually expect the receivables as a total number to go up, of course, as we...

Right.

...as we ramp up. The distributors will have terms ranging upwards to 45 days on their receivables.

All right, but that' pretty typical. And then the deferred revenues, the business -- go-forward business per se is not geared around the typical software where you're going to have a big on-balance sheet deferred revenue, correct?

That is correct. USM however...

All right.

...does. When we file their financials you'll see that they have deferred revenue accounting treatment.

Okay. And Bud, I guess just a broader question. I mean as I followed the story from very early on, you had to wait for standards, you had to get studio agreements in place, you had to get theaters signed, you had to raise equity, you had to get a debt facility in place, all of which has come together essentially in the last year. We've now got units in place getting played with utilization that exceeded what I was looking for this quarter. What are the biggest challenges from here? I mean what are you facing every day? What's the top challenge that you look at every day?

I think [inaudible] probably identified it. Why isn't the market value of our company reflecting this tremendous progress? And that's probably the biggest challenge facing us. We need to turn our attention to first of all getting rid of the confusion that clearly exists out there, not only about what's going on around us but specifically what's happening internally here and the massive impact of the things we've already accomplished and put in place will have on our future results, quarter by quarter. Everybody's going to see that. You see it, other analysts see it, anticipate it in varying degrees, we see it clearly and we're gratified by the results.

And we can only hope that after a quarter or two that the market will catch up and get it because clearly I don't think they do. And we need to figure out how to get that story out in a wider forum. I think awareness of digital cinema is gradually increasing. The media is starting to report more accurately on not only what the industry is doing, but also what AccessIT's role in that industry is. And that's all got to be helpful eventually.

And again, as I said, that's the challenge, how do we translate this tremendous progress and leadership position that we've put together over the last five or six years, how do we translate that into market value and shareholder value? We've got to find a way to do that and one way or the other we will.

Yes. Well, it strikes me with the way EBITDA is going to ramp here, based on what you have in place and the utilization and as long as you stay on pace and utilization is decent, it's going to force the issue with the ramp in EBITDA that's coming. So, congrats on a good quarter.

Thank you.

Next question comes from a private investor, [Mr. Brian Hodgeman]. Please proceed.

Hi. I was wondering if you could give me some idea how long maybe on average a single system installation takes once you're inside the theater?

Well, these are done in stages, first of all. I think we're doing -- I think Christie has got the responsibility for doing these, can do eight to 10 a day. But that doesn't mean that they come in and do eight to 10 in a single day. It's more like they can do 64 in eight days or 70 or 80 in 10 days or less. And they're ramping up, they've added another team and we really are committed to getting this thing moving. We think we've gotten it as close to a production mode, if you could call it that, as we need to and we have new -- renewed commitments from Christie on its installment levels, renewed commitments from Doremi on its deliveries of media players and are really encouraged by both of those and expect to see come September, beginning September, substantial progress going forward and for the balance of this year.

And it's simple arithmetic. I mean you know the number of movies certainly are escalating. Just about every major movie this summer since Memorial Day has been released in digital, which has made life very simple, and every indication is that for the balance of the year that's going to increase, not go down. The number of screens that they play on times the number of movies times our virtual print fees, which are fairly stable throughout the entire 10-year period, they vary -- they do drop off slightly each year, but they never go down to a very low level, as one or two people have asked in the past. They are always significant and meaningful.

We have given guidance of an average of about $1,000 for a virtual print fee and we'll maintain that guidance for now. We're not disclosing details but I can assure you they do not drop of precipitously at any time during the 10-year period following installation.

Okay. I was just kind of concerned that -- I understand July is a busy month for theaters with the blockbusters and all, but that your installation rate was down some 13% in July compared to April, May and June and I was just wondering how accurate your forecast of 200 a month by September might be considering you only did, what, 94 in July?

Well, the reason is very simple. Anybody who's -- and I certainly have a lot of experience in this business, but in July, when the kids are at home from school, theater staffs are working 14 to 16 hour days, they're burned out. It's the most challenging time of the year. The kids are coming by the busload from day camps, from camps, from -- anytime it rains they're packing the place, there are summer blockbusters.

There are two issues working against us, which frankly we didn't totally anticipate. One is that -- and perhaps we should have. One of them is that personnel have no time to learn a new system. But the other one is they don't want Christie's technicians climbing around their theaters, running cable and fooling around in their projection booths. Something could go wrong and one lost show with a packed auditorium is a disaster. Come September, the kids are back in school, it's a whole different ballgame.

Okay, but so...

We'll probably run into a similar problem in the second half of December when things get busy again and the kids are home from school. But be that as it may, we're on track. We're very comfortable with our forecast today of reaching 2,000 to 2,500 by the end of this fiscal year and ultimately hitting our 4,000.

But as I said earlier, this is not a sprint. One month doesn't mean anything. It has no material impact on anything we're doing. We're actually exceeding our plan internally with the kinds of revenue and ramp-up that we originally expected and certainly the forecast that we've given to our lenders. So we're very pleased by this. And we see no red flags of concern at this time. And obviously we'd be foolish to say that nothing can go wrong. Of course something can go wrong, something as complex as this I would never sit here and make those kinds of definitive statements. But there's nothing on the horizon that we are currently aware of that is going to slow us down to a point where any material difference will occur based on the facts we have today.

And in any event, we're doing extremely well and are very encouraged by the level of revenue that we are generating from all of our channels and the impact on our bottom line. So we're looking forward to September results, we're looking forward to ongoing future quarters and we have every expectation that everyone who is a shareholder of AccessIT or someone considering becoming a shareholder of AccessIT will be pleased with that progress.

Well, that's great to hear. Thank you. I also just had one more quick question. Sorry to repeat the same question from last quarter's call, but regarding DCI compliant upgrade, I believe you had said that AIX is not responsible for any of those costs that may be associated with that?

That is correct. We have no exposure with regard to any upgrades in the field. We have some software that we are continually upgrading to keep pace with any of those changes, but those are responsibilities that we've already paid for and those are Christie's responsibilities to deliver them as the become available. And there are only a few items left; both Doremi or the media player manufacturer and Christie are taking care of those. And as they do, our normal software development team, which is not something we have to pay for, it's already there, we'll be making periodic upgrades and revisions to our industry standard software.

Well, great. Thank you for taking my call.

My pleasure.

Next question from Virtual Research, [Carter Yeager]. Please proceed.

Thanks for taking my call, gentlemen. I wanted to ask a little bit more about the credit facility. And for one thing, do you anticipate the need to issue any more equity at some point between now and 4,000 screens?

With regard to this deployment plan, no.

Okay.

If we do other things, possibly...

Okay.

...depending on the amount of cash flow. But one of the things that we're very pleased about in terms of the GE facility is that it's an interest-only facility through July -- the end of July of 2008. So that allows us to build up quite a bit of cash and be able to use that to do a number of different things. That's extremely helpful to us and was a key element in our negotiation with GE.

Okay. And regarding the relationship between the basis of the rate spread -- or the basis of the rate and then the margin over, could you clarify, is there anything you can share about the relationship between prime versus eurodollar and the 275 basis points versus the 450 basis points margin?

I'll let Brian take a shot at that.

Well...

All I can tell you is it's reasonably expensive.

Fair enough.

The 275 basis points was associated with prime and the 450 was associated with LIBOR and LIBOR being much lower than prime, you can understand why that margin would be higher. And then once we get to LIBOR, we have the option of selecting, I think it's either a 30, 60 or 180-day LIBOR rate. So when we get to our first draw we would presumably be going with that longer term LIBOR rate and the 450 basis points.

That was my guess, but I just wanted to clarify that. Those are all my questions. Thanks, gentlemen.

Okay.

Thank you.

Next question comes from the line of Sean Boyd from Westcliff Capital Management. Please proceed.

Hi, there. I just had one follow-up here. Most of my questions have been answered. On the media services revenues [inaudible] it looks like it's just a little over 4 million. You mentioned in your comments that you did 600,000 in VPF -- over 600,000 in June alone in VPF revenues. If I'm doing my math right, that's fantastic utilization. We're looking at sort of 15 to 20,000 a year per screen just based on very rough averages on where you are on the number of installs. Can you give us more on that breakdown of the 4.1 million, so what were the VPFs for the whole quarter or basically just the revenues that are kind of outside of Pavilion and derived from the installs?

You know we're not -- Sean, we're not breaking out VPFs at this point. But we did put out a press release that indicated that we had, I think, 1,200 since we started the deployment plan, which really was, for the most part, in the first quarter. Most of that was in the March quarter. I'm sorry, most of that was in the June quarter. There was very little in the March quarter, very little in April and then it really started to pick up a little bit in May.

But June was almost twice what May was and certainly opened our eyes to the reality that we were actually exceeding our model and things were starting to pick up. And that trend has certainly continued into July and, as I said, bodes well for the September quarter because we're escalating not only the number of screens, which, by the way, don't go on line -- I mean you see a number of screens at the end of the month. That doesn't mean that every one of those screens obviously was available to be booked and play movies and therefore collect a VPF for those. So there's a lag of anywhere from three to four weeks before we can actually book a movie on those because the studios want notice and they want time to book the movie in digital and do what they need to do internally.

Sure.

So there's a little bit of lag and you've probably factored that in already. If you look at a quarter, for example we ended the March quarter with 210, we ended the June quarter with 534, if you interpolate those two numbers you're probably dealing with a reasonable average for the quarter. Well, now we finished the quarter with 534, we're hoping to finish September with something approaching 1,000, if you interpolate those two numbers and factor them into the December quarter where there'll be a lot of blockbuster movies, we're -- there's reason for optimism.

I'm not giving guidance, as you all know, yet, but I'm trying to give you at least some facts that you can work with. And I think the message I'm trying to get through is that there's reason to believe that we're doing everything we said we were going to do and that the model is working, not just for us but for the industry because we've created this model. It's a model that works and once we demonstrate that obviously our cost of capital will come down too as we are able to revisit the debt markets.

So we're -- one component of that media services revenue is the software business. We get license fees for every installation. You know that's $800 per screen. So that's a contributing factor. We get software license fees from our software division for their TDS work and for their ASP work on TDS and also for the international, TDS global license fees as they complete revenue, as they complete deliveries they get -- we book revenues and recognize revenues. We also own a movie theater in Brooklyn that's our Pavilion Showcase Theater. And that's a business that does business as well.

So there are a number of components that comprise the media services business. By far the one that's scaling the fastest is the VPF side, the Christie/AIX piece, and that's the part where we're all expecting major contributions. Feeding off that of course are the opportunities for more transport business, which is also moving forward, and of course more license fees. So it all feeds on itself and now UniqueScreen Media is a component of that and will probably get broken out separately. I'm not sure how the accountants want to treat that. We may have a separate line item and treat that as a separate part of the business because it's so significant right out of the box.

But our goals now go up when we talk about what kind of revenue per screen we can be looking for. Simple arithmetic is UniqueScreen Media's revenue per screen of the 3,000 screens exceeded $5,000 a year per screen, approached 6. So we can now move from an expectation of doing $20,000 per year per screen from all revenue streams combined to maybe $25,000 or more per screen. And as we move into alternative content, we'll further raise our expectations. And as we get clarity on some of that, we'll share it and begin to provide some better guidance as we get smarter from that side of the business.

Got you. Now, it's certainly understood that you've got a lot of different things in there and you've got the -- a natural delay in terms of when they get hooked up and are generating revenue. The key to the question was really just kind of digging in and sort of feeling out that $600,000 number. It sounds like from what you're seeing that number continues to hold solid in terms of utilization and only increased.

Yes, exactly.

Congratulations...

And that's the part -- the delta that you will see in quarter-over-quarter going forward will primarily be from the license fees, the deployment for the Theatre Command Center plus the virtual print fees. Those will be the two key components.

Right, very good. Thank you.

Thank you.

At this time I show no further questions. I would now like to turn the call over to your host, Mr. Bud Mayo, for any closing remarks.

Well, this was a good session and I want to thank you all for those good questions. I hope that I've been able to clarify any issues or questions that I think in many cases have been understood by the marketplace, not necessarily by the people who ask the questions. And I want to thank you for your ongoing interest in AccessIT.

As I mentioned earlier, our senior management team continues its globetrotting activities, attending every important industry event as keynote speakers or panelists, and that I will again be presenting at the Roth conference in New York City on September 6th. Hope to see some of you there.

Finally, we look forward to seeing some of you at our annual meeting on Thursday, September 14th, in the offices of our outside counsel, Kelley Drye & Warren in New York City. Thank you again. Have a great day.

Thank you for your attendance in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.