Cineverse Corp (CNVS) 2009 Q1 法說會逐字稿

Good day, everyone, and welcome to the Access Integrated Technologies' first-quarter fiscal year 2009 earnings conference call. Today's call is being recorded. Listeners are cautioned that some of the material discussed today may include forward-looking statements regarding AccessIT's (technical difficulty) 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 they will prove correct. You should not rely on anything in these forward-looking statements as a promise or representation as to the future results. You are encouraged to read the Company's Securities and Exchange Commission's filing.

Now I would like to turn the presentation over to your host for today's call, Mr. Bud Mayo, Chief Executive Officer.

Thank you, operator. Good morning, everyone, and thank you for joining us today at AccessIT's first-quarter fiscal 2009 investor conference call. With me today on the call are Brian Pflug, our SVP of Accounting and Finance, and [Eddie Patel], our VP and Treasurer.

The opening week of fiscal 2009 brought two pieces of great news to AccessIT. First, we announced that we were selected by the National Association of Theater Owners Cooperative Buying Group, otherwise known as the CBG, to be the integrator of choice for its members. And secondly, we were able to execute an earlier than required interest rate swap on our existing debt and our subsidiaries, GE Credit Facility. Each of these events were significant for AccessIT and I will discuss them along with some other items after I have covered our financials.

Moving to our financial highlights, we have seen a 13% increase in year-over-year quarterly revenue. Virtual Print Fees have accounted for much of that growth, but we are pleased to see a significant increase in digital content delivery revenues year-over-year and for the first quarter since we began delivering movies by satellite in 2004, our satellite business unit showed a small positive EBITDA in the June quarter.

Our software division has held its own for the quarter without new license fees for our Theatre Command Center software. We anticipate that upon commencement of our Phase II deployment, license fee revenues for this product will once again ramp up.

On the content and entertain side, revenues have been down year-over-year, primarily due to our termination of uneconomic contracts at UniqueScreen Media and the economic climate in general. Our advertising and creative services unit is what we call it internally, but it is UniqueScreen Media, an acquisition, as you may recall, that we made a couple of years ago.

While I have commented that this unit's results have been disappointing, we continue to believe we are on the right track to bringing their results more in line with our expectations to profitability and we have seen some movement there.

Gross margins rose from 69% in the March quarter to 72% in the June quarter overall and our adjusted EBITDA margin was up from 41% in the March quarter to 49% in the June quarter. These increases are due to the reduction of direct operating expenses and control of our SG&A costs.

Operating income year-over-year improved from a loss last year of 7% of revenue to income of 3% of revenue. Quarter-over-quarter, the improvement was more dramatic from a loss of 11% to that 3% I just mentioned.

Although the improvement in operations is primarily the result of a $1.6 million impairment charge of intangible assets in the March quarter, even without it, we have seen improvement from a loss to operating income. Year-over-year, adjusted EBITDA was up 67% and quarter-over-quarter, it was up 14%. The year-over-year increase was greater than the quarter-over-quarter due to, in large part, to the increased number of installed screens from last year compared to this year, even though, for the last two quarters, there have been no additional screens installed and we are pleased that adjusted EBITDA margins and operating income have continued to improve. I should point out that adjusted EBITDA was higher than all estimates by analysts for the quarter, at least those that I am aware of.

At this point, I would like to mention just a few of the more notable events of the quarter. First, as I mentioned at the opening of this call, in April, the National Association of Theater Owners Cooperative Buying Group selected AccessIT as the integrator of choice for its 600 plus members representing more than 8000 screens. The CBG received proposals from 10 organizations during its selection process, including Technicolor and Kodak and upon its selection of AccessIT indicated that we offered the winning package of extensive experience, exhibitor choice and competitive cost.

While we are already recognized throughout the industry for our leadership in digital cinema, several executives from major Hollywood studios praised CBG's decision. All of these endorsements are encouraging as we begin to move forward on our Phase II deployment plan. We anticipate that many of the CBG members will be among the anticipated 10,000 screens we deploy over the next three years.

Also in April, months before we had agreed to under our loan agreement, our subsidiary, Christie/AIX, executed an interest rate swap to lock in rates at 7.3%, effective August 1 on 190% of the $202 million of outstanding GE debt. In this difficult credit environment, this rate is already in the money and we have recorded an unrealized gain for the quarter of $2.2 million.

I will speak for a moment about our Phase II plan. I know you're all interested in that and I can assure you so are we. We intend to move forward with up to 10,000 screens over the next three years and as I just mentioned, we still target, and I emphasize the word target, to begin installations later in this quarter.

I emphasize the word target and recognize that installations could slide into our third quarter due to logistics alone. We continue discussions with those studios who have not yet signed VPF agreements anticipating they will and we continue discussions and negotiations with exhibitors, many of whom are recognizing that without digital cinema, they will not be able to play the growing slate of upcoming 3D movies expected in the coming year.

Despite fewer titles in the June quarter and a slight seasonal quarterly dip in VPFs, EBITDA for the Christie/AIX unit remained above $11 million for the second consecutive quarter. Our digital Media Services unit, which includes our satellite delivery operations and network operations center, saw a record quarter. The number of deliveries increased significantly year-over-year, both in feature deliveries and in terms of the number of locations to which they deliver. This can be attributed to both more distributors using our services and more digital content being available overall.

The business unit's legacy broadcast business has also been a source of growth year-over-year and SG&A and direct operating expenses in the division have gone down due to reduced personnel costs and operating efficiencies. The combined outcome is a milestone for that business unit, positive EBITDA for the June quarter.

Just before our last call, we announced our new CineLive network will be brought to 150 AccessIT satellite-ready locations throughout the country. This network will provide the channel for live 2D and 3D content to be presented in theaters around the country. The initial 50 installations are underway and we look forward to exciting news on how we will be using our exclusive network.

UniqueScreen Media, acquired in 2006, I would have to say has been a strategic plus and a bit of an operating minus. Let me elaborate. We have converted 800 customer screens to digital cinema and The Bigger Picture, a sister division, has increasingly used unsold inventories to acquire and promote its programs. Although advertising sales in this difficult economy have not yet reached the levels we are seeking, we did see a slight improvement quarter-over-quarter in EBITDA in that unit. Much of that was addition by subtraction for a reduction of unprofitable theater contracts and other related costs. The unit remains a challenge and in response, we continue to contain costs and improves our sales programs in the hopes of achieving improved quarterly results.

At The Bigger Picture, we saw a growing number of programs during the first quarter with no significant improvement in operating results for the quarter. Although we continue to expect the balance of the year to show progress, especially with our Kidtoons channel.

Each month, a new title has been offered by the Kidtoons channel, including July's Thomas and Friends, The Great Discovery Movie, which was the largest box office draw to date for Kidtoons, our longest-running channel in which Dr. Donna, a child psychologist, offers advice to parents of young children on the G-rated programs they have just seen.

The Bigger Picture Concerts channel also provided a number of events during the quarter, including Queen, Deep Purple, TobyMac and John Mayer. And we have at least three upcoming events -- the David Crowder Band on August 18, Three Days Grace on August 25 and David Gilmour live at Gdansk on September 22. Stay tuned for more titles.

At this point, I would like to turn the call over to Brian who will comment further on our latest financial results. After Brian's presentation, I will discuss a few more of the recent developments in my concluding remarks and then open the call to questions. Brian?

Thanks, Bud. I will begin, as usual, by reviewing our quarterly operating results. Our consolidated revenues for the first quarter ended June 30, 2008 were $20.6 million, which is an increase of $2.4 million or 13% from the comparable prior year quarter. This also represents a $1.3 million, or 6% decrease in revenues from our quarter ended March 31, 2008.

The increase in our reported revenues from last year's first quarter continues to be driven by our Media Services segment, which increased by $3.6 million due to Virtual Print Fees and movie deliveries. Partially offsetting this was a year-over-year decline in revenues of $1.2 million in the Content and Entertainment segment due to reduced in-theater advertising revenues, mostly attributable to our elimination of various underperforming customer contracts and due to economic factors there.

The advertising decline was also evident in the results versus our fourth quarter and we also saw a slight drop in Virtual Print Fee revenue due to less digital movies released in the current quarter versus the prior quarter, which is not expected to continue for the remainder of the year. And lastly, the first quarter saw a decline in some IT services that we provided.

Regarding adjusted EBITDA, our Media Services segment increased from $7.3 million last year to nearly $12 million this year, or an increase of over 60%. This performance is also due to the digital cinema business, which has high EBITDA margins and ongoing cost containment in the other units as well. Our Content and Entertainment segment experienced lower year-over-year adjusted EBITDA; however, it was tempered by the reduced expenses we have been able to manage.

On a consolidated basis, our direct operating costs have been reduced in both the year-over-year and the quarter-over-quarter periods and as a percentage of revenues, stands at 28% in the first quarter. The change is primarily due to personnel reductions and expenses related to our theater advertising contracts in our Content & Entertainment segment. As noted, we pulled back in that area in order to form a smaller yet hopefully more profitable business. Our resulting gross margin has increased 72% for the quarter from 66% in the comparable prior year quarter and 69% in our quarter ended March 31, 2008.

Our overall SG&A expenses have also declined versus last year's first and fourth quarter and as a percentage of revenues stand at 23% for the June 2008 quarter. The major cause of this was the consolidation of sales and other personnel within the advertising business, ongoing cost containment efforts elsewhere and some prior year accounting and legal expenses related to the year one Sarbanes-Oxley compliance.

Our total Company headcount was 270 as of June 2008 versus 350 as of June 2007. As a result, our adjusted EBITDA improved to $10.2 million for this quarter compared to $6.1 million in the prior year and $8.9 million in our fourth quarter. Also, it should be noted that adjusted EBITDA has exceeded all of our interest expense in the last five quarters, a trend we expect to continue.

Interest expense has increased in the year-over-year period, consistent with the increased balance in the GE facility and the senior notes issued in August 2007; although the interest on the senior notes has been paid in stock. Interest expense decreased, however, from the fourth quarter due to a fourth-quarter charge to record the value of shares issuable pursuant to the senior notes and due to lower variable rate interest on the GE facility.

This quarter also includes a $2.2 million unrealized gain on the fair value of a derivative commonly known as an interest rate swap, which our digital cinema subsidiary entered into in April 2008 to effectively pay a fixed rate of 7.3% and 90% of the amounts outstanding under the GE facility to guard against exposure to increases in the variable interest rate. Although the swap contract does not become effective until August, our early action to enter into this contract and the subsequent upward movement in rates resulted in this contract having substantial value as of June 30. Going forward, we will record future changes in the fair value of the swap contract through income each quarter.

Our net loss was $4.3 million for this quarter versus $6.8 million in the prior year and the current quarter's loss includes $11.7 million of non-cash charges, which as in prior periods is more than our reported net loss. The June 2008 quarterly loss includes $5 million of interest primarily associated with the GE credit facility and our digital cinema unit plus $2.2 million of non-cash interest related to our senior notes. Our net loss for the quarter also reflects higher depreciation expense, which increased from the prior year due to our Phase I deployment-related assets.

Turning to the balance sheet, at the end of the first quarter, we held cash of over $25 million and working capital was approximately $13 million. Following the Phase I completion and pending any Phase II activity, our asset base has now peaked and receivables have declined, which along with improved operating results leads us to positive operating cash flow in the quarter. With that, I will turn the call back over to Bud.

Thanks, Brian. Despite the challenging economy and financial markets, our success overall and especially in our satellite operations, we are proving every day that AccessIT is uniquely poised to capitalize on the now inevitable digital cinema future. We are providing the software and services that no other company in the world is providing to movie distributors and exhibitors alike and our numbers are improving as we do so.

We are, of course, not without our challenges. While we continue to be encouraged by our advisers and by discussions with individual lenders, the refinancing of Phase I has moved slowly. Because of these delays, we have separated Phase II financing proposals and are proceeding with a number of lender discussions to improve our chances of commencing Phase II within our target timeframe. At this point, I would like to open the call to questions.

(Operator Instructions) Richard Ingrassia, Roth Capital Partners.

Thanks, good morning, everybody. Bud, I know you can't comment on specific feedback, but to your last point about Phase II funding, what high-level comments can you make for us on the capital markets environment for that funding?

There is a tremendous amount of interest. We haven't had one negative meeting. I will say that. Certainly I have not been present at any negative meetings that, out of the box, did not show great interest in participating in financing. And we do have ongoing discussions with a number of serious lenders who have expressed, without question, serious interest in providing funding for Phase II. And that is pretty much all I can say at this point.

Okay, fair enough. And two more questions if I can. There was a time you thought AccessIT had a role to play perhaps on the software side in the DCIP rollout. Is that still an opportunity in your view or should we expect the progress in Phase II to really be comprised by the small and medium size change that fall in that CBG consortium?

I would have to say that while we consider DCIP a potential customer, partner, collaboration partner in the future, no part of our business plan has ever included doing business with that group. We would love to and we certainly have ongoing discussions with a variety of people in that group, but it would be totally presumptuous of me to assume that we are going to do any business. So I guess the answer is that we are concentrating on our own Phase II. We have got a lot to do here and we are concentrating on international opportunities to license that technology where we have actually begun to do so.

Okay. And lastly, can you maybe be a little more specific about how you think the general economic climate is affecting the business. In particular I suppose I may be addressing how often a box office, a theatrical box office can be countercyclical and why you would or would not benefit in that regard.

Well, that is an interesting point of view. First of all, since we do have a number of different business units, we are certainly feeling the economy in our advertising unit. The Bigger Picture continues to increase the number of programs and sponsorships for those programs, which is really at the core of their success. And so we are seeing progress there. But on the advertising side, it is a huge challenge for our salesforce and they are making progress. So in that part of the business, we have had kind of a mixed bag on the Content & Entertainment segment.

With regard to the rest of our business, it is driven by the deployment of additional systems and that in turn, of course, is driven by the state of the economy and really the credit markets because all progress related to further deployments will depend on the availability of reasonably priced capital. We are tapping into that market, have the advantage of having completed 3,723 screens with an excellent track record of both financial reliability and consistency and also technology consistency at 99.9% reliability for over 8 million shows.

And that is a major advantage for us, but despite that, the credit markets, as everyone knows, are very choppy, very difficult. There isn't the same amount of capital available for these kinds of programs or any programs for that matter and we are having to fight our way through that challenge. And we continue to be optimistic, however, about it.

So in that respect, the economy does have an effect indirectly on us and our ability to move forward with Phase II and we continue to -- although we show optimism and have that optimism and it is deserved based on discussions we are having, it is a potential threat to the timing of Phase II and therefore, our entire Media Services segment. We are gratified by the improvement of results in our satellite and delivery business and that is based on the fact that screen counts overall in the universe have gone up over the past year, not only from our installations, but the miscellaneous installations that have taken place over the past year for 3D solutions. We deliver to all of those screens

And so we have proven the basic premise that we can grow the business in almost any economy as long as more screens are installed, whether we do them are not. So it is kind of a mixed bag, Rich. We remain cautiously optimistic based on our own track record, but certainly are fighting the battles that are more difficult than ever in the credit markets.

Okay, thanks for the color, Bud.

Jeff Van Rhee, Craig-Hallum.

Hey, Bud. Really nice job on the EBITDA there this quarter. I had several questions. First, in terms of the UniqueScreen or preshow side, the cost reductions or the thinning of unprofitable contracts, are we through that process, are we three quarters of the way, just how far are we into that?

In terms of the impact on the quarter, we are not through getting the impact and the improvement from all of those changes. We will see some in the subsequent quarters. We still haven't completed a national advertising program, which, again, will be accretive. That is not reflected in this quarter and we are hopeful of having something in place some time during the fiscal year and sooner rather than later. We see incremental revenue and EBITDA from that as well and we continue to bring on and retain the best-of-breed sales people with defined territories and recurring business and try to build it from that point of view.

I guess while you are on that, directionally at least, I understand you are not giving guidance, but at least directionally, can you talk about the top two or three drivers of whatever the sequential change should be in terms of EBITDA drivers?

Well, there is no question that Phase II will have an impact once those installations go in. We know that, if you trickle down and just look at the waterfall of revenues, it is a better way of looking at. We install more systems, we get more Virtual Print Fees, we get more alternative content fees. In Phase II, we will also be getting, in some cases, advertising usage fees. We get license fees for our software. We get recurring ongoing maintenance fees from our software division.

And then we get to deliver more movies to more locations or even the same number of movies, but just to more locations. So we get to put more satellite dishes on roofs and while we are waiting for that to happen, which we get the right to do, we deliver hard drives. And we have gotten much better at delivering hard drives and learning how to make some money doing that, which has had an impact on that division.

I guess I was just thinking sequentially outside of Phase II what would be the key drivers of changes in EBITDA?

License fees internationally or domestically for our software products, which are many and you are familiar with them. We are getting some traction there. We have a suite of products that go beyond the theater management system that is licensed during the digital cinema deployment. We have the only third-party vendor software for distribution and we continue to sign new distributors to that product.

We have our exhibitor management system for the back office and we continue to add to that product mix. We have royalty license software, applications software and we continue to add some customers to that business. So drivers are basically associated with continuing to build internally.

For the transport division, it is all about the universe of digital screens. It doesn't matter whether we have a satellite dish on the roof. It doesn't matter whether AccessIT has installed them. If there is a digital screen in a building and a movie and we are delivering the movie, we deliver almost invariably to every digital screen that books the movie. It is rare that we don't to 100% of those screens. It happens on occasion, but most of the time we deliver to every theater, whether we have installed it or not. So if somebody else installs systems, we get an opportunity to grow.

On the advertising side, it is all about the economy and our efficiencies to be sure that we have contracts that make sense to us that we are not guaranteeing revenues that we are not achieving, that we are splitting revenues in a fair and equitable way with our exhibitor customers and that we build the number of advertisements and the pricing for those advertisements on a per-screen basis. But the economy is a significant driver in that --.

Assuming the economy stays difficult or even takes on a little more headwind as you look at just the advertising business, what is the offset there -- the headwinds versus the cost reductions? I mean your gut instinct in terms of directional EBITDA for advertising business?

We see improvement coming on a quarter-over-quarter basis. That is certainly the goal for the year despite the economy. We are meeting goals in two of our three regions in that division with the middle market, which includes a big concentration in Michigan, being the one that has not reached goal internally. Those goals are more modest than they used to be, but achieving them and building on them is the primary goal of that division.

All right. I guess two other questions then. Brian, with the interest rate swap and a lot of moving parts, can you just give us a semblance of even a range of what you think the interest rate expectations should be sequentially? And then Bud, just one follow-up on the delivery business, the number of locations outfitted with satellites now out of however many you think you are going to ultimately install?

Jeff, because we locked in that 7.3% rate, which takes effect in the middle of this quarter, I think I would expect interest expense in total to be probably about what it was in the June quarter though because we did see some I think drop in the average rate that we had experienced from prior quarters. So I wouldn't expect it to be any more than it is now certainly.

Okay. And then Bud, just in terms of locations on deliveries, satellites?

It is about 270 now. I don't have an exact count because we are continuing to install more satellite dishes along with some of the CineLive boxes, so I don't have an exact count as of today, but it is about 270.

Jeff, let me also add that, because principal repayments do begin in August, we will see some lower interest expense just because the principal balance will be lower, but I wouldn't expect that to translate into a ton of interest reduction in just this first quarter, but just so you are aware of that.

Okay, that's it. Thanks.

(OPERATOR INSTRUCTIONS).

(Operator Instructions) George Grose, American Capital Partners.

Good morning. Bud, could you talk a little bit about I guess on the satellite delivery? I mean it sounds like you have done a good job of I guess turning the business around there. What was, I guess, the sequential and year-over-year improvement there in EBITDA?

Well, we're not breaking out divisions, so I can't give you that information, George. But what I will tell you is it was a modest positive EBITDA for the June quarter. Two of the three months were positive; one of the months remained negative in that quarter. It is not a big number.

I would just take a little bit of an issue with the word turnaround. It really wasn't a turnaround. It was the steady progress that we have been predicting since the time in 2004 that we set up this facility and started delivering business. Actually, we set it up in 2003, made a large investment, and made some acquisitions. We bought the Boeing Digital Cinema division. We bought FiberSat Global Services and is built our NOC around that business, gradually improving it.

And finally -- and predicting actually last year that we would cross over. We didn't; we missed to that goal last year, but hit it in the first quarter this year instead.

We are hoping that that is a sustainable number. We are gratified in particular by the relationship of that growth, in which year-over-year we are up dramatically in revenues.

We are particularly gratified by the fact there is a relationship between the screen counts that are out there, which we have always said has been the primary driver, and the growth of that division. So I think we all have and all shareholders have some cause for optimism that the more screens that are out there, the more that division -- which is a very important part of our business plan -- will continue to prosper and grow. This is what we look forward to.

We see a definable market ultimately of somewhere between $150 million and $200 million a year of recurring business. We are doing a fraction of that. Even if we fall shorter of our goal of 50% of that market, a sizable chunk of it will be a very meaningful addition to both the top and bottom line of AccessIT in the future.

Okay, but I guess what I am trying to get at is like you haven't added any screens, you didn't add any screens in the June quarter. So the improvement, is that due to like more alternative content being distributed? Is that where it comes from?

Good question, George. Let me address it. First of all, as I have said before, in that business unit we are not limited to delivering just the screen to the screens we install. So what we saw were several hundred additional screens by others, a variety of others, that were installed, one or two in a building, in order to play 3-D movies.

The total screen count in the United States right now is about 5,200 altogether of digital screens. We have 3,723 of them. So we have seen growth in installations away from AccessIT, and that we have gotten benefits from.

In addition, we have taken on more studio agreements, and we have started delivering for more customers. So it is kind of a FedEx model where, if you have more customers asking you to deliver their packages for them, you get more business even though there may be the same universe of screens.

In our case, if we have more titles to deliver, even if the screen count remains constant, we can increase our revenues. If the screen count goes up, and we maintain the same number of titles, our business goes up.

So, it is basically a matter of a combination of those things. As I mentioned in my comments, it has been a combination of those things. We have increased the number of customers that we deliver for, who pay us. We have also increased the number of screens we deliver to.

Okay. So how many of screens do you have that are non-AccessIT now?

There are about 1,300 throughout the United States, maybe 1,500. I guess in total it's about 1,500 of non-AccessIT screens scattered throughout the United States today.

That you deliver to?

Well, we deliver to everybody.

Okay (multiple speakers) --

There are no screens that we cannot deliver to in the United States.

Okay. What is the -- I presume in that segment, the margins must be pretty high there. What is the ballpark margins on that there?

The incremental margins are high, because obviously there are a lot of fixed costs and overhead in that division, and I am not breaking out specific margins in that business.

Okay, but I guess as you add more screens, it can be really meaningful?

Well, in satellite delivery, it's a very scalable model. Because much of the uploading costs, and the uplink to the satellite transponder, much of those costs are fixed once you start getting it up there. It is really what it costs you to do that and the underlying overhead and infrastructure required to do that, that is really what we are looking to recapture and start getting a return on.

For hard drive delivery, the costs are linear. What we can do is negotiate volume contracts and bring the cost of FedEx and DHL, who physically delivers those packages for us, instead of being a 50- or 70-pound tin of film prints, it is a hard drive encased in a very safe package. We simply give that to FedEx or DHL or whoever gives us the best deal, and it gets it to the theater.

It is not our favorite way to do it. We don't think that it is the long-range solution for the industry, but we have learned how to control those costs and make margin on each of those deliveries. And we have had to because there is no question that we are not going to have within a year or two satellite dishes on every roof of every theater that has a digital installation.

We are seeing growth just in response to the 3-D slate. For 2009 there are already 10 3-D digital titles announced. There will be more moving out into the next few years. So that exhibitors understand that in order to play those movies, they have got to have a digital screen. As soon as they put that digital screen in, they create an opportunity for that division to deliver to more screens and increase its revenue.

Okay. Lastly on the Content & Entertainment, I think last quarter you mentioned that the EBITDA, I guess, burn was $2 million. What was the figure this quarter and also in the same quarter last year?

I don't understand the term that you are using.

Well, like your UniqueScreen Media and The Bigger Picture, I think last quarter you mentioned that --

Oh, okay, I'm sorry. The Bigger Picture, you're asking specifically about The Bigger Picture?

Yes.

And how the last quarter did?

Yes.

It improved in terms of its cash usage in the quarter. We expect that to dry up as we start recognizing revenues for sponsorships that run over future programs. A lot of the sponsorships that we have actually signed and continue to sign don't really get recognized until the program that they are sponsoring is actually shown. So we have some of that business.

We have some distribution fees that are unrecognized. In some cases, that we have actually collected a portion on in advance.

So there are lots of -- there are a lot of things going on there that are all positive in that division. I remain very committed to it as a part of AccessIT, as a very integral part of our future. Although it is moving slowly, we have not seen any impact related to the economy, which is certainly good news.

As I mentioned earlier, they are using the UniqueScreen Media advertising inventory, the unsold inventory, to help them acquire and promote their products and sponsorships.

Okay, thank you.

(Operator Instructions) Paul Sonz, Sonz Partners.

I have two questions. One is, I have recently, where I go to the movie theater at Regal, constantly seeing shows that they are putting on, sponsored by FathomEvents. There is one coming up on August 21 with Warren Buffett and Pete Peterson live at a digital theater.

Bud, it seems like it is such a easy -- well, I don't if an easy thing to do. But I have seen so many shows that I personally had wanted to go to that Fathom is putting on. I wondered, what seems to be the difficulty in your group of basically putting on the same kind of event?

Well, I think we are. We have actually -- AEG Live has given us more concerts in the last year than they have given NCM's Fathom network, and we are very proud of that, that we have obviously done a good job for them.

We continue to put out more and more concerts. We have six that I mentioned for this year alone, so far. We're not going to get them all.

The Fathom network is an excellent network, especially for that product. They can do live. They can do pre-recorded. They are not doing them on digital cinema screens, but for certain purposes it is an excellent solution, and they bring a very powerful package to the table.

We are not viewing the marketplace as uniquely ours. You know, we're not going to get all the programs. Fathom can deliver to 300 to 400 locations throughout the country in top DMAs. If that is your goal, they have some advantages. If you are willing to do it on an LCD projector, they can deliver a great package.

What AccessIT can do and Bigger Picture can do is deliver to the big-D systems, the digital cinema screens. If you're looking for a digital cinema-quality presentation than you want The Bigger Picture right now.

There are some limitations on DMAs is that we can reach -- designated marketing areas. We in our deployment and in the installations that we have, there are a few holes that we need to plug in Phase 2, or somebody has to.

Because we deliver, again, the same way we deliver by satellite and by hard drive to theaters that we have not installed, we also sell product to them. For example, Kidtoons is playing on National Amusements' theaters, it's playing on Kerasotes Theatres, and playing in theaters that we have not yet signed to our Phase 2 program and hope to.

We play on DCIP-type screens in some cases. We have in the past and we hope to in the future, depending on what the event is.

So, you know, again, it's a big marketplace. There are six major studios filling screens throughout the year. There are about 25 independent distributors showing movies. There is plenty of room for more than one distributor of alternative content, we believe. We expect to see at least five or six players, including some of the studio affiliates, distributing alternative content on a regular basis. We see Sony has two alternative content events coming out they have already announced.

So in other words, what you are saying is that you don't feel that it is necessary for you to originate the alternative content. That the margins in sort of being the promoter of the events, as Fathom is, is not necessarily what you want to do. You just want to be the guy who is delivering whoever, whatever product somebody else originates.

Without question, we want somebody else to originate the product. We are not in the production business. We are a fee-for-service provider. We can do all the marketing, we can do all the booking, we can do the distribution. But we certainly don't want to be on the production side.

Now I don't know what Fathom is doing with respect to this event, whether they are actually paying for the production or whether somebody, some third party is. But I know we won't do it. We just don't have the budget for it.

Maybe someday we will be able to participate in the cost of production, certainly if capital were available at a very reasonable price, which it is not today for us, we would consider sharing some of that cost to generate even more product.

But right now we don't have to. There is plenty of product out there for us, sponsor-driven, and as long as we keep our channels full with a continuing flow of content -- as we are with Kidtoons and with concerts -- we will look now to sporting events increasingly.

And as we complete the deployment of our CineLive boxes more and more to our unique capabilities to do live 3-D events for all of these 3-D screens that are proliferating all over the country.

When do you expect the CineLives to be complete?

Well, the first 50 should be in by the end of September, and we are just going to keep going. Our goal is to have 150 is by the end of the year. Right now, until we have some specific programs -- which again we don't want to pay for -- and the gating issue there is something has got to pay for it. We are negotiating with many folks to get that, those programs out.

We have got some, again, cause for optimism about some really spectacular events possibly in this fiscal year. We certainly hope so and we are working toward that.

One last question. It maybe seems silly but I wondered if you could explain it to me. If you cannot get financing to go forward, what does Hollywood do? In other words, it seems like to me that Hollywood has made a decision to shift their economic model to one that demands digital cinema and digital distribution. Yet no one else is doing it.

So what does Hollywood do if you can't get the financing on your own to move forward with the next set of deployments?

I think Hollywood, if you are referring to the studios --

Yes, I am.

-- is expecting us to do it. And because we have done it in the past and continue to have optimism about our ability to do it, it becomes a timing issue. Not a whether we are going to do it or not, but when.

How do they -- what does that do to their economics if you're when is postponed by a year?

Well, I think it changes things. I mean, you know, there is no question if you look at some of the releases that were scheduled to be only in 3-D, some of them had to go to 2-D as well, so that changes some of the economics for a movie if it can't be properly and widely released only in 3-D.

There are drivers for Hollywood, but you know, that is not our business. There are some logical conclusions that one can make. I don't want to draw those conclusions. All I know is our job is to start Phase 2 as soon as we can, to work through the challenges, to get through this difficult market.

The good news is the rates are lower than they have been in many, many years. As we have already been able to capitalize on them by moving quickly in April rather than waiting till August, we have captured some savings already. So if we can get something done, we can do it and lock in rates that are very, very favorable to us and to Phase 2. So we just have to keep plugging, Paul. That is all (multiple speakers).

Well, the results look good and certainly from my experience down here, we never -- we go to see digital, Journey to the Center of the Earth or this Fathom coming up, there is just huge demand. There is huge demand, so I am very encouraged. Anyway, thank you very much.

Jeff Van Rhee, Craig-Hallum.

Two very brief questions. One, the pace of installations, I know it's getting a little ahead of ourselves with that. But on a monthly basis the capacity to do installations, what has happened since you stopped installing to that capacity? Expanded? Decreased? Stayed about the same?

Then the second question for Brian. The $245 million in long-term notes payable and the $22 million in short-term, can you just break down the composition of those debt lines?

Yes, I will give Brian a chance to go into that breakdown for you. Are you ready to do that, Brian?

Yes, Jeff, we can certainly do that. Long-term, let's tackle the bigger number first. The $55 million of the senior notes is certainly long-term. We have the $9.6 million vendor note that we had obtained from Christie, is sitting in long-term. Of the GE facility, $180 million of that would be long-term. So those three numbers together would be the $245 million.

The $22 million is almost exclusively the GE piece, as well as some bits and pieces of a couple of smaller notes.

Okay.

Okay, so would you repeat the question for me?

Just capacity. We saw pretty steady build in how many units could get in, in a monthly basis. But you're talking a much bigger Phase 2 than you did Phase 1. I'm just curious in the meantime what has happened to the capacity installed.

If you do start installing late this quarter, as you said you had targeted, what kind of installation capacity is it on a monthly basis?

There are a couple of things that influence that. First of all, Phase 2 is a three-year program as opposed to two years. And we are not starting from scratch. We have the infrastructure in place to manage that process.

We have mind share that is tremendous, and experience that we obviously didn't have back three years ago when we launched this thing. So that helps.

We don't feel we have lost any capacity at all. Because Phase 2 is vendor neutral, we are engaged in negotiations now with all three major suppliers for supply agreements. These agreements are extensive and lengthy and have to be fully negotiated. Those are under way now, and we hope to have some announcements shortly.

Because of the fact that we can use -- not necessarily will use, but can use --all three, without taking anything away from the great job that Christie has done for us, and the great relationship that we developed between our companies over the last three years in particular, our ability now is not limited to a single vendor and their ability to install systems.

But I will remind you that we use those third-party vendors to do the installation work. I will also remind you that at the peak we were able to do almost 500 screens in a single month. So if anything, Phase 2's capabilities, assuming we do enter into supply agreements with all three vendors, will go up substantially.

On the other side of that, Jeff, is DCIP's getting rolling as well. They will have demand for content. Assuming they get rolling early next year, as they have begun to say, then all three vendors should be pretty busy and issuing purchase orders, and we intend to be sure that we are one of them and are treated fairly in that allocation. That certainly is a part of our negotiations in supply agreements today.

We know it is going to get busy. There are essentially two major customers in the United States for this content -- for this product, rather, DCIP and us. And we're not going to be a stepchild to anyone. We need to be up there and be treated the way we feel we should be treated, without taking anything away from DCIP or the freedom for a vendor to sell to whoever gives them proper purchase orders.

Sounds good. Thank you.

(Operator Instructions) Adam Mizel, Aquifer Capital.

A couple of quick questions. In the past, when you have been engaged in financing discussions around Phase 2, you have said that you're confident that you will not require additional equity for Phase 2.

As you your conversations have progressed, is that still true?

That is still true. In Phase 2, we are talking about debt. We are certainly not intending at this point, and no discussions that we have had so far, would require AccessIT to raise more equity to deploy those systems.

I am not going to -- in this market, I will make the statement that for Phase 2 deployments we have no intention of raising any equity in AccessIT. If we have business opportunities in any of our other four divisions, we are going to act on them in a way that we have to.

The debt and credit markets need to be the first option, as they have been. For example, satellite dishes and CineLive boxes we have been doing with a straight debt facility that we announced last quarter. It is at 8.4%.

We will continue to seek those opportunities always first. In particular, with a depressed market cap and a depressed market in general, we will redouble our efforts to do that.

Great. Other question related to Phase 2 is, are you -- it is sort of the chicken and the egg, which is as you have discussions with exhibitors, will you be able to sign any exhibitors for installation agreements ahead of the financing commitment? And does that help getting financing done?

Or rather do you really have to get the financing done before you bring exhibitors into a commitment phase?

We are doing all of this concurrently. Exhibitor contracts are moving toward closure, and we have specific financing options related to each of those and will -- as they crystallize, we will certainly talk more about them in the future. But I am not prepared to get into details today about those.

Sure. I presume the window that you are working around is effectively post-Labor Day, pre-Thanksgiving? Because that is a quiet enough period time for exhibitors that that is where they want to see installations; and once you get back into the holiday season things get quieted down on the installation front. So that's -- everything is sort of coalescing towards that September, October, November time frame?

That is exactly right. We can't do a lot during the summer months when it is so busy in these theaters and they are running 16-hour shifts. It is not only interfering with the operation, but the staffs are exhausted and working long hours. They are not as trainable. They're not as ready to make those changes and adapt to the new technology as they will be in quieter times.

So absolutely right, September, October, early November, before the holiday product emerges is what we are targeting to try to get some things done. Then there may be a trickle of activity in anticipation of some of the calendar 2009 3-D events. So there is a sense of urgency about those that we have never seen before among exhibitors and studios and producers.

So you know, maybe that will make a difference; but you are absolutely right. September, October, early November really are the target window. Then January, February, March, April will be another window prior to some of the summer product starting to move in May.

Great. We look forward to hearing what happens. Thank you.

(Operator Instructions) It does appear there are no further questions at this time. Mr. Mayo, I would like to turn the conference back over to you for any additional or closing remarks.

Okay. Well, thank you very much, everyone. Before I close the call I want to just update you on a few financial conferences that I will be attending in the near future and hope to see some of you, maybe all of you, there.

On September 25, we will be presenting at the Roth Capital Partners Investor Conference in New York. On October 7 I will be at the Maxim Group Growth Conference. On October 29, for the first time at the Wall Street Reporters Small-cap Discovery Conference. These are all, as I mentioned, in New York City.

Thanks for joining us today and for your continued interest in our Company.

That concludes today's conference. Thank you for your participation. You may now disconnect.