Cineverse Corp (CNVS) 2012 Q2 法說會逐字稿

Good day, everyone and welcome to Cinedigm Digital Cinema Corp's fiscal 2012 second quarter 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 Cinedigm's business and expected financial results. Words like anticipate, believe, estimate or expects 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 and certain functions -- and therefore 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 of future results. You are encouraged to read the Company's Securities and Exchange Commission filings.

I would now like to turn the presentation over to the hosts for today's call; Chris McGurk, Chief Executive Officer and Chairman of the Board of Directors; Adam Mizel, Chief Operating Officer and CFO; Gary Loffredo, President of Digital Cinema and General Council. Please begin.

Thank you, operator, and good afternoon, everyone. This is Chris McGurk, and I want to thank you for joining us for Cinedigm's second quarter fiscal 2012 conference call. As the operator said, also joining me are Adam Mizel, our Chief Financial Officer and CFO, and Gary Loffredo, President of Digital Cinema and General Council.

As we reported earlier today, we are extremely pleased with our operational and financial progress for the second quarter and first half of fiscal 2012. In fact, the first six months of fiscal 2012 had been by far the best and most successful financial and operational performance period in the history of Cinedigm. We set records for all of our financial performance measures during the second quarter and first six months of fiscal 2012.

Revenues for the second quarter were a record $23.5 million,representing a 55.6% increase from the prior year. Adjusted EBITDA from continuing operations for the quarter was a record $16.7 million, an increase of 62.3% from the previous year.

Revenues for the first six months of fiscal 2012 were at record $43.9 million, representing a 43.9% increase from the prior year. Adjusted EBITDA from continuing operations for the first six months was a record $30 million, an increase of 47.3% from the previous year.

These across the board financial performance records in the second quarter and first six months of fiscal year 2012 reflect outstanding growth across all of Cinedigm's divisions. In digital cinema we achieved a record level of digital cinema deployments, with 1,427 digital screen installations this quarter, a 122% increase over the previous record, which occurred in the first quarter of this fiscal year. Our software business continues to see exceptional growth, and we signed several major software clients in the last several months. And on the content distribution side we continued to see increased demand for our content pipeline in the Cinedigm network.

These achievements reflect our commitment to transform Cinedigm to aggressively leverage our position as the industry leading domestic digital cinema platform. Inthat record, during the quarter we divested our noncore pre-show advertising unit and signed a definitive agreement to sell our noncore digital delivery unit, a deal we closed earlier today. As part of these transactions we created strategic software licensing and content distribution partnerships with the buyers, Screenvision and Technicolor respectively, that should help strengthen growth prospects for the core content distribution and software businesses. In both cases we turned a competitor in a noncore business into a strong partner for our key core growth businesses.

Clearly the success of Cinedigm's business transformation has now by begun to show in our record financial results and business momentum. In addition to these two divestitures, we enhanced our balance sheet and financial capacity to support our continued growth through the recent completion of a $6.9 million private placement of common stock and closing up a $100.5 million nonrecourse financing facility to support exhibitors in the digital conversion process.

Adam will review the financial and segment performance more detail in a few minutes. However, before he does so, I would like to take a few minutes to share some key thoughts on our business transformation and on our strategies to grow our core businesses.

Today 58% of all cinema systems in North America are now digital. That is over 22,000 screens. And Cinedigm has signed and/or are installed systems with 165 exhibitors,with current Cinedigm installations comprising over 33% of all installed systems in North America.

And this digital revolution is happening not just in North America but around the world. Of the overall 110,000 screens worldwide, installation of digital systems increased 122% in 2010 alone, with over 40% of worldwide screens now digital. Projections are that the vast majority of theaters will be digital by the end of 2013, an unprecedented and increasingly rapid acceptance of this enabling technology. And this provides an enormous foundation of opportunity for Cinedigm across all our divisions, both domestically and internationally, because installing the systems is just the beginning.

Digital cinema systems are true game changers for exhibitors, distributors and content providers. Digital cinema provides theaters with tremendous programming flexibility, including live events, 3D presentations and interactive programming, as well as huge operational efficiencies and insights into business analytics that heretofore were simply not available. Cinedigm is in the perfect position to capitalize on this opportunity with both our software and content distribution businesses, which I will get into in more detail now through brief updates on each of our divisions.

First, in regard it Cinedigm's domestic deployment business, the virtual print fee, or VPF, agreement installation deadline with the studios is rapidly approaching in the fall of 2012. If an exhibition chain misses the deadline, they will not benefit from the subsidies provided by the studio paid VPFs. This looming VPF deadline has helped to significantly accelerate our digital screen deployment program, with year-to-date conversions ahead of our original expectations.

This deadline was one of the key factors behind our record deployment of 1,427 screens in the second quarter. In total, the Company has now signed 9,667 digital screens for deployment and has installed nearly 8,000 digital screens with is 625 exhibitors nationwide. Clearly the exhibition community fully realizes that the time to go digital is now and that Cinedigm is the trusted partner to make it happen.

Let's now talk about our software business. As I mentioned earlier, software is needed to power the more than 110,000 screens worldwide that are transforming to digital. From enterprise software to run the screens, to transactional software to simplify business processes, to gathering and analyzing playback and a booking data, to supporting digital distribution by the studios.

As the market leader in both exhibition and distribution software, Cinedigm is uniquely positioned to take advantage of this growing opportunity by deepening the penetration of our existing products into our current digital cinema customers, by expanding our customer base across the entire worldwide digital platform, and by developing new management, transactional, and analytical tools to help our customers operate their businesses more effect effectively.

The way we see it,digital cinema has created a new platform, similar to the iPhone and iPad, to use a well-understood analogy. Digital cinema has now opened up a new frontier in the entertainment universe, and Cinedigm's object is to stay ahead of the curve by creating many different and valuable apps that can he could be used to balance the platform, providing business analytics and consumer insights that are becoming increasing and critically important to the entertainment business.

And very fortunately, Cinedigm already occupies a strong and unique position, with the broadest customer base in the industry that should enable us to be the most influential innovator in creating digital cinema software applications for exhibitors and distributors around the world.

Additionally, as we referenced earlier, Technicolor is now our strategic software design partner, supporting the development of next generation software products to leverage the opportunities created by the rapidly accelerating global digital cinema conversion. We are also pursuing pioneering strategies to create software applications that improve supply chain efficiencies and provide worldwide integrated solutions.

We are also pursuing pioneering strategies to create software applications that improve supply chain efficiencies and provide worldwide integrated solutions. All in all, the global growth potential at Cinedigm's software business is enormous, and we remain highly focused on leveraging our leading market position to help exhibitors and distributors get even smarter and more efficient, with several major new potential deals in our pipeline.

This year alone we have signed major software deals domestically with AMC, Warner Bros., Open Road and Technicolor. While on the international front we secured a multiyear contract with a Fortune 50 company and India-based media exchange initiative in addition to numerous pilot programs throughout Europe, Latin America and Australia, all of which we expect to translate into sales as these exhibitors secure digital cinema financing.

Now I'd like to spend a bit of time on our content distribution business. Just like software, we are very bullish about the growth prospects for the content marketing and distribution business. As you might know, I spent more than 20 years in this industry on virtually all sides of the business, from the executive ranks at Disney and Universal, to running MGM and United Artists, to the home entertainment world at Anchor Bay, the independent film business at Overture, and new media technology business on the boards and PriceGrabber, Geek Entertainment and DivX.

So when I joined Cinedigm in January of this year, one of the huge draws to me was the focus and track record of the Company. Cinedigm is a true thought leader and pioneer in the digital cinema space. Cinedigminvented the VPF formula that was the catalyst to launch the rollout and is now the standard for digital conversion financing. Cinedigm is the leader in digital operating software for both exhibitors and distributors.

And Cinedigm has also been a leader in alternative content distribution and 3D production. We were the first to produce and distribute live 3D into movie theaters. We were the first to distribute live 3D sports, with the BCS college championship in 2009. And we were the first to distribute live 3D music, with a wide release of the Foo Fighters in April of 2011.

Given the successful track record with the rollout administration of digital cinema, we are in a trusted place between exhibition and the studios, both of whom are our partners and see us as a sort of Switzerland to the industry. And we hope to use that special partner status to create what we believe will be a new distribution model using the digital platform.

First, let me remind you about a statistic I shared on our last call and that I repeat often because it is simply astounding. Only about 5% of seats are occupied in theaters Monday through Thursday, and only about 15% to 20% on an annualized basis. That means on average theaters empty upwards of 80% available times, and yet the domestic box office is still more than a $10 billion business annually. As you can imagine, just a small incremental increase in capacity utilization throughindie film and other alternative content programming has the potential to create a huge new business.

To take full advantage of that market opportunity we are using our digital cinema platform and the very targeted and cost efficient distribution model it facilitates to help reinvent the big screen experience and put what we like to call butts in seats in those under-utilized times. We aim to be leaders in given audiences in-theater experiences they simply cannot get in the home, sponsored by relevant brands that underwrite the experience and bring marketing muscle to bear in filling those theaters.

To that end we are seeing positive progress on the Cinedigm Network, which will be the conduit to differentiating enhanced experience for consumers. Focused on providing ongoing programmatic content in a channel-like format to exhibitors during offpeak times, the Cinedigm Network takes a page from the cable TV world by bringing to theaters regularly occurring programs that have an avid fan base and strong sponsorship potential, including an independent film series, an action sports series, kids and family programming, and much more.

Our recent partnership with Screenvision, demonstrating Cinedigm as the major provider of alternative content distribution and promotion for Screenvision's 15,000-plus screen platform will strengthen and expand Cinedigm's position as a leading supplier of alternative content to theaters across North America, and will help to accelerate the launch of these in-theater alternative content programs.

And for the first time ever we will be cutting theater owners in on the downstream profits of the programming we debut in their theaters. This profit sharing component will clearly and simply align our interests by encouraging theaters to support our programs with trailering and one-sheet placement, local marketing and other promotions for these evenings.

So how is this all ground breaking for our industry? We believe this proposition will create significant business upsides for all partners off the nimble and targeted backbone of digital cinema.

First, exhibitors will clearly benefit from both increased box office and concession revenues during offpeak times. Second, consumers will benefit from a unique enhanced and communal in-theater experience. Third, the producing community will get an outlet and enhanced downstream value for independent films and other types of content that would not otherwise get a theater release. And finally, brands and advertisers will have access to an all new branded entertainment platform that's specifically targets core demos with meaningful and relevant content.

And on the distribution front, we have seen a distinct increase in the number of content distribution opportunities and program releases via our digital distribution platform, including the groundbreaking documentary "Life in a Day" in conjunction with National Geographic Entertainment and YouTube, and nine indie films released with ARC Entertainment.

We also announced the 350 screen release of the newest Pokemon movie, and we recently made the groundbreaking announcement that we would present the first ever live 3D combat sports exhibition, with four ultimate fighting championship quarterly events commencing in 2012.

And this quarter also saw Cinedigm announce the formation of Indie Direct, a full service distribution and marketing solution for independent film producers and distributors. Overall, we believe we have developed the right plan to rapidly build a leadership position in this hire potential, high growth content marketing and distribution business. Expect more over the balance of the year as we role out our strategy, which may include elected M&Aopportunities.

A few words about our philosophy in the M&A area. As we recalibrate our focus toward the high growth, high multiple software content and distribution businesses, we believe that selective acquisitions in those areas that are accretive and can accelerate our growth plans and/or expand our product offerings could be important shareholder drivers for the Company. As such we are evaluating select, high potential, accretive acquisition opportunities that may meet our financial and strategic criteria.

Our $6.9 million private placement in June, along with a case receipt from our recent divestitures,provides us with additional flexibility in capitalizing on such opportunities. And let me stress again, our focus is on accretive opportunities to support our growth prospects, since our overarching goal is to increase shareholder value. And as a reminder the management team and Board collectively of Cinedigm own in excess of excess of 40% of the common equity of this company and are fully aligned with all of our shareholders.

Now, I would like to turn over to Adam, who will more fully review our second quarter operational and financial results, andthen I will I come back with a few concluding remarks. Adam?

Thank you, Chris. As Chris mentioned, we experienced a very strong and record-setting quarter in the first half of fiscal 2012, with financial results increasing at all of our business units.

In addition, we completed the sale of UniqueScreen Media, our pre-show advertising subsidiary, in this quarter, so in accordance with GAAP we now treat current and historical results from this unit as a discontinued operation. With the completion of the DMS asset sale to Technicolor today, we will apply that same accounting treatment to that unit in our fiscal Q3 going forward.

I won't repeat what Chris already shared recording our record numbers and financial success. However, the increases in both the second quarter and year-to-date reflect growth in each of our business segments and were driven by expanding Phase II deployments, increased VPF revenues and the related increase in our service fees in Phase I and Phase II deployment entities, significant increases in our software product licensing and maintenance fees from both the Phase II installations and from other new software customers, and increaseddistribution generated in our Content & Entertainment business.

First we will discuss our asset heavy Phase I and Phase II deployment segments, which include the VPF revenues, expenses, EBITDA and digital cinema assets and nonrecourse debt associated with the deployments.

Phase I VPF revenues increased both in the quarter and the year-to-date period approximately $800,000 to $11.7 million and $23.3 million respectively. We continue to see increases in screen turns with additional titles, often smaller releases by newer distributors, as well as wider release patterns by the major studios on their tentpole movies. We continue to earn our Phase I service fees of 5% of the VPF revenues and expect the unit's performance to remain consistent with recent results.

Phase II deployment revenues were $3.9 million and $6.9 million year-to-date, representing increases of 71% and 74% respectively. This revenue growth was driven by continued ramp up in Cinedigm financed installations, which we consolidate the full VPF revenues, assets and nonrecourse debt of those installations. We had 1,580 Cinedigm financed screens active at September 2011, versus just 529 at September 2010.

Slightly under 1,000 of the screens were financed with KBC, and we have now closed in October on a new $100.5 million nonrecourse facility led by Society Generale and Natixis, with lease equity provided by CHG finance. We are working with our lenders and auditors to finalize a lease structure to enable us to avoid consolidation of this new facility, and in essence account for the results similar to our exhibitor buyer-customers, in which we are just the asset servicer and receive service fees.

The total number of deployed Phase II screens installed now surpassed our Phase I screen counts, with 4,265 Phase II screen installations at September 30, and a total of 7,988 installations including Phase I and Phase II screens. 2,678 of the Phase II systems are from the exhibitor-buyer program, and we do not recognize the VPF revenues generated from these systems, since we pass those dollars through to our exhibitor partner net of our 10% service fee.

However, as I just noted, they do generate revenues for Digital Cinema Server unit and both upfront license fees and ongoing maintenance for our software division, and are therefore an extremely important part of the rollout. In contrast to our Phase I deployments, the virtual print fees generated from this asset base, other than the server fees we earn, are all pledged to support the underlying nonrecourse debt and do not revert to Cinedigm upon debt repayment, as this Phase II is a cost [recoupment] model, and Cinedigm has made no equity investments.

Our services segment, which includes the previously mentioned Digital Cinema Services unit, our Software unit, and for this final quarter, our DMS delivery unit supports our Phase I and Phase II deployments, our exhibitor-buyer customers, and other third parties. This unitexperienced strong growth of 151% of revenues in the quarter to $7.2 million, and 122% growth in revenues year-to-date to $12.8 million. Our Digital Cinema Servicing unit has seen year-to-date revenues more than double to $6.8 million in parallel to the rapid ramp up in the digital cinema installations, as we in installed 2,069 systems in the first six months of the fiscal year.

Our Software unit revenue 267% in the quarter and 255% year-to-date, and has contributed EBITDA year-to-date of over $2.2 million, even as we continue to invest in new product growth. This unit continues to experience strong growth from our the accelerating Phase II deployments, which generate license and recurring maintenance fees requirements for our Theatre Command Center product, software that allows us a Theater to operate like an iPad. On top of this, we are expanding our licensing of both our enterprise and EMS software products to exhibitors, both within and outside our deployment, as evidenced by the recently announced EMS license with AMC.

Finally, we are experiencing renewed growth in our domestic theatrical distribution software product as evidenced by the new partnerships with Warner Bros. and Open Road Films, and are in the midst of several large national PPC sales and pilot programs. Software also further expanded its customer base this quarter as part of the DMS transaction with Technicolor, as we agreed to license to them our leading operational delivery software as well as our innovative broadband content delivery technology. This transaction will be recognized on the financials in the current fiscal Q3.

Finally, our Digital Media Service unit, or DMS, which delivers movies, trailer and other content on behalf of studios to theaters, saw revenues increase 33% year-to-date to $5.1 million, although EBITDA lagged significantly and was negative $630,000 this year-to-date due to increased staffing necessary to handle this volume and increased shipping costs and hard drives from FedEx and UPS. As mentioned previously, these scaling and margin challenges contributed to our decision to sell this business to Technicolor.

With the sale of UniqueScreen to Screenvision at August 30, our Content & Entertainment segment includes only the alternative content and independent film distribution arm. This segment produced $648,000 of revenue this quarter, compared to $150,000 last year, and $901,000 year-to-date versus $543,000 last year. As Chris mentioned earlier, we have a number of additional exciting releases and programmatic challenge launches in our pipeline that we hope to announce shortly.

Our overall adjusted EBITDA was $16.7 million for the quarter, a 62.3% increase over last year's quarterly adjusted EBITDA of $10.3 million. The strong quarterly EBITDA performance is consistent with our revenue grains, in particular from the Phase II deployed screens, and even outpaces those revenue gains due to the positive operating leverage embedded in the growth of our services and software fees, and our continued focus on cost controls.

Our SG&A costs have decreased year to year, and we will continue to manage SG&A closely and tie increases to margin enhancing new business. Adjusted EBITDA for the quarter, excluding the Phase I and Phase II deployment subsidiaries, increased to $3 million from negative $287,000, and year-to-date increased to $3.5 million from negative $1.2 million last year.

This result is a reflection of the strong financial and strategic turnaround we have driven in the Company since June of 2010. We have streamlined expenses, refocused the Company on its core digital cinema, software, and content distribution businesses, and as a result have attracted key new customers to all areas to add margin enhancing revenues and position the Company for further growth. As our deployments continue to grow, we complete various ongoing software installations and we add new software, service, and content distribution [events], comparative year on year EBITDA performance should continue to improve in the quarters ahead.

$7.9 million and $15.4 million of nonrecourse Phase I debt was retired during the second quarter and year-to-date periods respectively, as the strong VPF related cash flows continue to deleverage the nonrecourse debt of the Company. These reductions were offset by net increases in our Phase II KBC facility of $6 million and $9.4 millionto fund new Phase II deployments during the quarter and year-to-date periods. This debt also amortizes from the strong Phase II cash flows, though recall that the full debt balance immediately impacts the balance sheet, as the EBITDA is added to our results in the future quarters.

Interest expense totaled $7.6 million in the quarter, bringing year-to-date interest expense to $15 million, an increase of $1 million and $1.5 million for the quarter and year-to-date periods respectively due to the additional Phase II nonrecourse debt. Of course, interest on all of our nonrecourse deployment related debt is fully funded by virtual print fees coming in, and we incur no debt or interest at all on exhibitor-buyer systems deployed. Interest expense on our Sageview debt was $4.1 million, with $1.5 million paid in cash and funded from our interest reserve account, and the remainder accrued as an increase to the debt balance. Going forward, Cinedigm will fund its recourse interest on the Sageview note from free cash flow.

The balance sheet reflects total cash and investments of $32.7 million, versus $17.2 million at March 31. $15 million is restricted to support debt service reserve funds for the Phase I facility and as funds available to support other strategic initiatives or recourse debt repayment. The unrestricted cash balance includes $6.9 million in proceeds from the previously announced private placement in July 2011. These shares have been registered and are freely tradable. Our receivables portfolio is growing, as our business expands and continues to be in good shape, with a majority representing studio contracted payments and adequate reserves on the remaining customer base.

Finally, a few words on the current quarter ending December 31. We expect the current fiscal third quarter to be another very strong quarter and well ahead of the comparable quarter last year, although he not at the level of our record-breaking Q2. However, the growing in Phase II installation base is increased stable quarterly service fees, and our Software unit continues to add a variety of clients, and as we discussed previously, will benefit from the license and maintenance fee contract with Technicolor in 2003. Content distribution will be similar to recent quarters, as we execute a number of independent film releases and continue to drive new relationships and distribution opportunities into the -- post holiday period when there is a smaller pipeline of major studio content.

Clearly our record as a results in Q2, combined with a very strong expected Q3 outlook, financially validate our efforts to transform the Company.

Now I will turn the call back over to Chris.

Thanks, Adam. To reiterate, Cinedigm's operational and financial performance in the second quarter and first half of fiscal 2012 was outstanding. By far the best in our history. Our strategic initiatives are taking hold and moving the Company in the right direction, and we are achieving outstanding financial progress.

Perhaps most important, in the ten months I have been with Cinedigm we have carefully and strategically determined where the Company should be headed and have executed on our transformation plan with the divestitures of noncore businesses and rapid development of the software and content distribution businesses. Our entire management team remains dedicated to growing shareholder value.

We now have a clearly defined vision and are moving aggressively to bring that vision to reality. We are optimistic that the business momentum generated by our strong results reported in the first half of this year -- indeed for the last four fiscal quarters -- will continue for the foreseeable future as we further the transformation of Cinedigm and evaluate additional accretive strategic growth opportunities.

As always we thank you for your support and confidence, and now we can answer any questions you might have.

(Operator Instructions). Our first question comes from the line of Erik Wald from B. Riley. Your line is open.

Thank you. Good afternoon. Quick question on the cash balance, make sure I understand. The cash balance at the end of quarter included both the capital raised during the quarter as well as the proceeds from USM, is that correct?

Yes, that's correct.

And can you tell us is what the proceeds were? The net (inaudible -- skip in audio) were from the sale of the digital delivery business you announced today?

As we have discussed previously, we sold that for -- the assets for in the low single digits of millions.

Okay. And then as you look into your next 12 months or so -- or a little less than 12 months as you approach the VPF deadline next year. I know you mentioned that this quarter won't be as strong as records you just put up in the second quarter, but kind of walk us through what the financing environment looks like for some of these smaller exhibitors?I know there's a lot of pressure on the smaller exhibitors to get up to digital by that deadline -- basically ever exhibitor has to get upgraded to digital by that deadline. How are the smaller exhibitors that are not a part of DCIP -- kind of marginal -- how are they coping with this pressure? Are able to find financing to get upgraded.

Erik, I don't think financing is an issue for exhibitors in converting, small or large at this point. Many of the smaller ones are actually relatively well positioned on a cash basis. They own their real estate. They are profitable small businesses. In addition, we have our nonrecourse financing facility that we close in October for those exhibitors. So I think the process is just getting the final decision made on equipment, on deployment timing.

And from many of the smaller exhibitors who are not as financially sophisticated is having them -- helping them understand just how the whole process works, I think as we discussed in the past. This is a -- whether they finance themselves or take advantage of our financing, it is still a complicated asset-backed type securitization for a set of exhibitors who that is not what they are thinking about day in and day out, so they have to understand it and walk through it.

This is Chris. I will add two other things. In regard to the third quarter and your comment about deployments, yes, we don't expect to achieve the same level of installations that we achieved in the second quarter, but we are looking for a very, very strong quarter in terms of installations in the third quarter. That should be one of our top three or four quarters of all time we are looking at, A.

And B, we said all along that our target for screen installations in North America is 12,000 to 13,000 screens. We're at about 10,000 screens signed right now. We still remain very, very comfortable of achieving that target level that I just mentioned.

Perfect. And then is some of the Q3 thoughts due to around the holiday that some of the exhibitors may not want to have this kind of -- these deployments going on in theaters during the heavy holiday season, [and they might] resurge back in the March quarter?

That's exactly right. We always get a seasonal drop during the holidays. But as I said, even with that we expect a strong deployment quarter, just not as strong as this quarter, which was basically off the charts in terms of screen installations in the second quarter.

Perfect. And then last question, on the indie film distribution side, give a sense of what your pipeline looks like over the next, let's say, six to 12 months as to what number of films you've got currently visibility on?

As we said, we distributed nine indie films with ARC Entertainment over the last four or five months. I think you can look at that level of product growth through our system going forward. We have a number of new deals we are actually negotiating as well to handle theatrical releases for other distributors that might handle the downstream markets. So I think you can look for activity about the same level that we've experienced in the last couple of months on the indie film side.

Perfect. Thanks, you guys.

Thanks, Eric.

(Operator Instructions). We have a question from the line of Kris Tuttle with Research 2.0. Your line is open.

Okay. Thank you. And congratulations, guys. I mean, you must be pretty pleased. I wanted to ask a little bit about this VPF phenomenon. Everyone is quite familiar and focused with the deadline in the US and the driver of activity, but I would like to know more about how you think the international markets will play or not play into that? As you -- as that business kind of ramps down in the US, what is the potential for other geographies to help basically continue the growth story in the digital cinema conversion process for you?

The international markets generally lag behind the US from anywhere from six months to 18 to 24 months. What you are seeing is more and more activity. Generally, internationally -- and this starts to talk about our approach -- thereis concentration of exhibitors, and so many of large international exhibitors will directly negotiate their virtual print fee agreements with the studios. And we are then talking with them about being in essence their outsource service provider.

And that is fundamentally our model when we look internationally, is how can we work with other deploying entities, either large exhibitors or local partners, bring our expertise and our relationships to bear to help them get their agreements done. And then use our existing infrastructure to support their servicing of the billing, monitoring, verification, disbursement, original print fees; expand the licensing and maintenance business of our various software products, because our products are all global.

We've -- one of the products -- we license the TCC product in India. We expect to be announcing several other large international software license deals in the near term. And then further expand internationally using our relationship with Technicolor and their international relationships to further drive that. SoI think you will see that being a growth in what -- where we wanted to be, the higher margin, long-term consistent, service fee and software [PT] part of our business. And ultimately it is a greater universe to deploy -- distribute various forms of content to.

Got it. That's helpful. Thank you.

Thank you, Kris.

(Operator Instructions). We do have a question from the line of [Ron Chez], private investor. Your line is open.

Good afternoon.

Hi, Ron.

Hey.

I'm having trouble here finding footnote one, so maybe you could just help me out for right now what the adjusted EBITDA ex-the VPF -- not including VPFs was.

The adjusted EBITDA in the quarter, excluding the Phase I and Phase II deployment subsidiaries, was $3 million in the quarter and $3.5 million year-to-date. So that is what you would expect EBITDA to be. We have a footnote outlining all the different things that are added back; basically interest, taxes, depreciation, amortization, other income expenses. I mean, all the things that you always add back in a financial calculation of EBITDA.

But for the second quarter it was $3 million?

Yes.

And without being specific -- or specific numbers, did your results in the second quarter first six months exceed the planning that you did prior to the start of this year?

Yes.

Yes, they did.

Okay. Thank you.

Importantly, in each one of our businesses.

Okay.

Thank you. I show no further questions in the queue and would like to turn the conference back to the speakers for closing remarks.

I would just like to thank everybody for your are attention, your confidence. And we had a great quarter, and hopefully we will look for more of the same momentum going forward. So thank you all.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.