Cineverse Corp (CNVS) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Cinedigm Digital Cinema Corporation's Fiscal 2012 Third Quarter Earnings conference call. Today's conference is being recorded.

I will now turn the call over to Mr. Andrew Blazier. Sir, please go ahead.

Good afternoon, everyone, and welcome to Cinedigm's Third Quarter 2012 Earnings conference call. With us today are the Company's Chairman and Chief Executive Officer Chris McGurk and Chief Operating Officer and CFO Adam Mizel.

Before I hand the call over to them, please note that certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties, and assumptions. Potential risks and uncertainties that could cause the Company's business and financial results to differ materially from these forward-looking statements are described in the Company's periodic reports filed with the SEC from time to time.

All information discussed on this call is as of today, February 9, 2012, and Cinedigm does not intend and undertakes no duty to update for future events or circumstances.

In addition, certain of the financial information presented in this call represents non-GAAP financial measures. The Company's earnings release, which was issued this afternoon and is available on the Company's web site, presents reconciliations to the appropriate GAAP measure and an explanation of why the Company believes that its non-GAAP financial measures are useful to investors.

And now I'd like to turn the call over to Chris McGurk, Chairman and Chief Executive Officer of Cinedigm.

Chris?

Thank you, Andrew, and thanks to everyone for joining us today for Cinedigm's Third Quarter Fiscal 2012 conference call.

We are pleased to be reporting on our strong third quarter results, both operationally and financially, that reflect outstanding growth across all of Cinedigm's divisions.

In summary, revenues for the third quarter were $19.8 million, a 23% increase from a year ago. Consolidated adjusted EBITDA from continuing operations for the quarter was $14.3 million, an increase of 11.1% from the prior year. Adjusted EBITDA excluding deployment subsidiaries was $1.4 million, an increase of 370% from the previous year and our second-highest non-deployment EBITDA quarter ever only behind last quarter's record EBITDA.

And on the operational front we had an equally impressive quarter. We installed 768 new digital screens, representing our second-highest installation quarter ever, only behind our last quarter's record installation of 1,427 screens, putting our fiscal year total for installations at 2,837. This impressive performance is even more notable because our fiscal third quarter has historically been a seasonally low installation period.

Early in the current quarter we announced we had signed our 10,000th Digital Cinema screen in our combined phase one and phase two Digital Cinema deployment. This milestone in digital screen conversion contracts is a huge achievement for both Cinedigm and the entire entertainment industry. This digital transformation has created a tremendous paradigm shift that will have long-lasting ramifications on all aspects of the industry and has created tremendous new growth opportunities for Cinedigm.

In the combined phase one and phase two Digital Cinema deployment program, Cinedigm has now signed 10,201 screens overall with 191 different exhibitors and installed 8,977 digital screens. In total, Cinedigm has deployed nearly 33% of the 27,000 Digital Cinema screens in North America.

Concurrent with achievement of these strategic initiatives, we have dramatically improved the financial performance and foundation of the Company. We have set records for all of our key financial performance measures during the first nine months of fiscal 2012. This across-the-board financial improvement reflects outstanding growth across all of Cinedigm's divisions.

Today's call marks my first anniversary for earnings announcements at Cinedigm and I want to take a few moments to briefly summarize the significant accomplishments we've made over the past 12 months.

In just one year's time, we have transformed the Company to take better advantage of the worldwide Digital Cinema explosion and to focus more keenly on our core businesses of digital deployment servicing, software, and content distribution.

First, we streamlined the Company by pruning our noncore businesses so that we could focus on the areas of the business that are high growth and high margin and where we could clearly be the market leader. To remind you, in November we sold our Digital Media Services unit or DMS to Technicolor. In return, Technicolor became Cinedigm's exclusive content delivery partner and preferred partner for post-production and other Technicolor services. Technicolor is also working with us to define and market the next generation of entertainment industry software, strengthening the growth prospects for our core software business.

In August, we sold Unique Screen Media, our in-cinema advertising division, to Screenvision, a leading cinema advertising sales and services company. In return, we entered into a long-term agreement to be one of Screenvision's primary providers and distributors of alternative content. This deal significantly strengthens and expands our position as a leading supplier of alternative content and independent films to theaters across North America.

In both of these asset sales, it's important to underscore again that we turned a competitor in a noncore business into a strong partner for our core growth businesses.

On the software front, we have seen dramatic growth over the last year. We have expanded penetration of our existing products to current Digital Cinema customers while simultaneously growing our customer base across the entire worldwide digital platform. Additionally we are rapidly developing new management, transactional, and analytical tools to help our customers operate their businesses more effectively. Specifically during this last year we signed two signature software deals, both with key leaders in their respective businesses, AMC on the exhibitor side and Warner Bros. on the distributor side. We also completed a software deal with a newest studio distributor, Open Road Films.

And leveraging our strong track record and experience in North America in the software and VPF servicing businesses, we've experienced tremendous growth internationally. In the last six months alone, we have announced software and/or VPF servicing deals in Australia, India, Ireland, the UK, and Brazil. We expect more international announcements in the months to come as the Digital Cinema footprint expands. And it's important to note that there are twice as many screens overseas as in North America and our successful track record domestically as the market leader in both exhibition and distribution software gives us a distinct advantage in satisfying the international demand for Digital Cinema software, VPF servicing, and alternative content.

And I'm equally pleased with our growth in the theatrical content marketing and distribution business for both alternative content and independent films. In the last year, Cinedigm has released ten independent films, 12 family offerings via our Kidtoons program, several special event releases, including Life in a Day, a Ridley Scott-produced event film released in conjunction with National Geographic, Google, and YouTube, the newest Pokémon movie, and the groundbreaking live 3-D Foo Fighters performance and documentary.

Continuing our momentum in the content distribution business, during the Sundance Film Festival last month we announced an important new partnership for Cinedigm in leading home entertainment distributor New Video group to acquire and distribute independent theatrically in North America followed by home entertainment releases across VOD, digital, DVD/Blu-ray, and cable. This partnership, which puts us even more squarely in the middle of the billion dollar-plus independent film distribution business, leverages Cinedigm's unique position as a digital exhibitor of independent film and alternative content in theaters and New Video's innovative digital and physical distribution capabilities. New Video is the largest aggregator of independent digital content in the world with Amazon, Apple's iTunes store, Hulu, Netflix, and Wal-Mart's VUDU service as key partners. In fact, New Video has placed over 12% of iTunes' film and TV content. As such, the New Video/Cinedigm partnership represents a unique digital end-to-end distribution solution for filmmakers. We are currently pursuing several potential indy film acquisitions under this partnership that have been very gratified by the tremendously positive reception we've had from talent and filmmakers to this exciting full-service distribution opportunity.

And I'd like to emphasize that our plans in the independent film distribution arena do not include investing in the development or production of film projects. With studios releasing fewer and fewer indy films, instead focusing their efforts on the blockbuster tent-pole releases, there is a glut of independent films and other alternative content in the marketplace that we can readily acquire for distribution in all media for little or no money upfront. By offering these films a guaranteed theatrical release in a smart, targeted way and feeding an enhanced downstream revenue opportunity with that theatrical release, we are capitalizing on yet another high-potential fee-for-service business, further leveraging the digital platform.

Finally, last Saturday we broadcast the first-ever live 3-D combat sport exhibition in theaters to audiences across the US. UFC 143 Diaz v. Condit aired live and in 3-D in more than 100 theaters nationwide on February 4 from Las Vegas. It was an amazing fight and it was even more stunning in 3-D. And it's the first of four quarterly bouts we are doing with the UFC. So if you missed, there's still time to see fight number two expected to take place in late spring.

We believe this sort of exciting and unique programming brings to the forefront the many benefits of Digital Cinema in terms of enhanced audience experience and leading-edge distribution. Expect more announcements along these lines in the near future as we are certain we have developed the right plan to rapidly solidify our leadership position in this high-potential, high-growth content marketing and distribution business.

While we believe in the long-term potential of our existing businesses as we have stressed on these calls before, we remain focused on selective, accretive acquisitions that can accelerate our growth plans or expand our product offerings. As such, we are currently evaluating potential accretive acquisition opportunities that meet our financial and strategic criteria as we believe such opportunities can be important drivers of additional shareholder value.

As a reminder, the management team and Board at Cinedigm collectively own in excess of 40% of the common equity of this Company. And therefore we are fully aligned with all of our shareholders regarding potential M&A opportunities, as well as the Company's growth strategies.

And now I'll turn the call over to Adam Mizel, our Chief Operating Officer and CFO.

Adam?

Thanks Chris.

As Chris mentioned earlier, we experienced very strong results during the fiscal third quarter. Revenues from continuing operations for the third quarter of fiscal 2012 were $19.8 million, representing a 23% increase from revenues of $16.1 million in the same quarter a year ago. The increase in revenues reflected outstanding growth across all divisions and was driven by expanded phase two deployments and the increased VPF revenues they produced, increased Digital Cinema installations and the related increase in our service fees from phase one and phase two deployment entities and exhibitor buyers, significant increases in our software licensing and maintenance fees from both the phase two installations and from other new software customers, and increased distribution revenues generated in our content and entertainment business.

For the first nine months of fiscal 2012, revenues from continuing operations increased 37% to $58.9 million as compared to $43.1 million for the same period one year ago. Adjusted EBITDA from continuing operations year to date was $44.8 million, which is a 33% increase from the $33.7 million in the first nine months of the prior year.

Phase one VPF revenues decreased 9% year over year in the quarter to $10.5 million as there were fewer wide studio releases in 2011 as compared to 2010 and our final contractual VPF step-downs occurred in the middle of Q3 2010 and that difference in rate accounted for approximately 60% of the revenue variance this quarter. Phase one VPF revenues were almost flat for the comparative nine-month period as higher screen turns offset the negative year-over-year VPF rate comparison. Phase two VPF revenues increased 27% year over year to approximately $3 million in the quarter and 143% year to date to $9.9 million. This revenue growth was driven by our continued ramp-up in Cinedigm-financed installations in which we consolidate the full) VPF revenues, assets, and non-recourse debt of those installations. We now have installed 1,657 total Cinedigm-financed systems as compared to 760 at December 31, 2010.

Consolidated net loss was $10.1 million or $0.26 per share compared to a consolidated net loss of $4.1 million or a $0.13-per-share loss a year ago. It should be noted for comparison purposes that GAAP net loss for the third quarter of 2012 includes approximately $8.1 million in various noncash and accounting-related charges related to sale of assets to Technicolor, restructuring charges, discontinued operations, and equity method accounting. Excluding these noncash items, GAAP adjusted net loss on a non-GAAP basis on a pro forma basis for -- was a $2.7 million loss or $0.07 a share, essentially unchanged from a year ago.

Our services segment, which includes our Digital Cinema services unit and our software unit, experienced strong revenue growth of 116% this quarter to $6.1 million as compared to the third quarter a year ago. Within this segment, Digital Cinema servicing unit revenue increased 48% to $3.3 million this quarter as a result of the ramp-up in Digital Cinema installations. As of December 31, we had installed 2,873 systems in fiscal year '12 to date and we installed 768 systems in the third quarter. We have signed a total of 6,282 screens to master license agreements in fiscal '12 and have a total of 10,201 screens under MLA in the combination of phase one and phase two. The growth in phase two this year in combination with our existing phase one asset base has provided the Company with a strong and consistent revenue and EBITDA base to support its future growth plans.

Our software unit continued its strong performance this fiscal quarter as its revenues grew 164% year over year to $2.9 million. The unit continues to experience strong growth from our accelerating phase two deployments, which generate license and recurring maintenance fees for our Theatre Command Center product, as well as the recent additions of Technicolor, Warner Bros., and Open Road as customers. We have a deep and active pipeline of potential new exhibitor and studio customers as the industry seeks technology to support the digital transition.

Additionally, as Chris mentioned earlier, the international arena for software has been steadily increasing and we expect more international announcements in the months to come as the Digital Cinema movement spreads worldwide.

Our content unit also experienced revenue growth of 33% to $580,000 in the quarter as we released several independent films, though we continued with our limited distribution activities during the busy holiday movie season in advance of our stated goal to control ancillary market distribution revenues. With our recent distribution partnership with New Video, we expect to increase our release calendar going forward as we're currently seeking to acquire distribution rights in all media to several independent films. Generally there's a four- to six-month lead time between rights acquisition and release to appropriately market and manage the release.

Our overall adjusted EBITDA was $14.1 million during the quarter, an 11.1% increase from the same quarter a year ago and $44.8 million year to date, a 33% increase from the year-to-date fiscal period in 2011. Adjusted EBITDA for the third quarter excluding the phase one and phase two deployment subsidiaries increased 370% to $1.4 million from $298,000 a year ago. This was our second-highest quarterly EBITDA performance in the Company's history. This EBITDA was reduced by approximately $331,000 in the quarter due to charges and a time lag in the impact of our restructuring activities. During the quarter we took a restructuring charge of $832,000 related to severance for employees. We expect another restructuring charge of $400,000 to $500,000 in Q4 for the remainder of our restructuring plans with both additional personnel and real estate-related efficiencies planned. Pro forma for these completed and upcoming actions, adjusted EBITDA in the quarter would've been approximately $1.9 million, $450,000 greater than actual reported adjusted EBITDA. Our Digital Cinema services and software units each had strong EBITDA quarters with 81% and 208% year-on-year growth in their EBITDA. Although EBITDA in our content unit improved 14% from last year, it continues to be negative in advance of our management of the ancillary distribution revenue streams.

Adjusted EBITDA excluding deployments has seen a nearly $5.9 million positive swing in the first nine months of fiscal 2012 as compared to fiscal 2011 from a loss of $350,000 last year to EBITDA of over $5.5 million this year to date. This significant improvement reflects an across-the-board increase in results in Digital Cinema services and software, as well as focused expense management.

Our SG&A cost totaled $4.3 million or a $1.5 million increase from $2.8 million a year go. Tied to right-sizing the Company post our recent divestitures, our restructuring plan is expected to reduce SG&A by approximately $1.5 million annually. Given the timing lag to full implementation, SG&A in this quarter on a pro forma basis would then have been reduced by approximate $370,000.

In addition, as we have discussed in prior quarters, SG&A has increased as one we have added sales and Digital Cinema servicing resources to support our rapid phase two growth, and two we have added additional engineering, development, and sales resources in our software organization to support our recent end client additions, as well as our next-generation product development.

Digital Cinema EBITDA margins still increased to 40% from 32% a year ago and software EBITDA margins increased to 53% from 45% last year.

Interest expense totaled $7.6 million during the quarter, an increase of $800,000 from a year ago, due to the additional phase two nonrecourse debt added during the fiscal year and $496,000 of additional interest on our mezzanine note.

As a reminder, interest on all of our nonrecourse deployment-related debt is fully funded by VPFs coming in and we incurred no debt or interest on the exhibitor (buyer) systems deployed.

In addition, we have concluded with our auditors and as reflected in these financials that the recently-completed $100 million nonrecourse facility will not be consolidated into our balance sheet. Given that change, nonrecourse debt will continue to decline rapidly as a result of the strong underlying deployment cash flows. During the last 12 months, in just phase one we retired $31.1 million of nonrecourse debt.

Turning to the balance sheet at December 31, 2011, the Company had total cash and investments and restricted cash investments of $31.8 million as compared to $23 million at March 31, 2011. $9.5 million of our cash is restricted funds either for recourse debt repayment or to support M&A activities and $5.7 million is restricted for the phase one facility.

Our receivables portfolio is growing as our business expands and continues to be in good shape with the majority representing studio contracted payments and adequate reserves on the remaining customer base.

Looking at the current quarter ending March 31, which is our seasonally slowest quarter given the reduced movie release schedule post-holidays, which obviously impacts VPF revenues, which are less than other quarters, we expect the fourth quarter to be another strong quarter as compared to our previous fiscal year given the continuation of growth trends we have seen in this fiscal year to date. The phase two screen base is producing increased stable quarterly service fees. And as we approach the end of the studio-mandated deployment period at September 30, installations continue at a strong pace, though we do expect fewer installations than in the third quarter as we work through our backlog and continue efforts to sign the remaining unsigned exhibitors.

Our software unit continues to perform well given the recently-announced international and domestic customer signings. Our new customers will not begin to impact our financial results until the first several quarters of the next fiscal year.

Content distribution will be similar to recent quarters as there is a four- to six-month time lag between title acquisition and release. We are excited about the potential from our new partnership with New Video and its impact on this unit.

Now I will turn the call back over to Chris for some final thoughts.

Thanks Adam.

To recap, in my first 12 months with the Company, we've made several significant achievements that have clearly transformed Cinedigm. These achievements demonstrate that we are successfully executing on our strategic vision of accelerated growth and increased shareholder value. As we approach the end of the 2012 fiscal year, we are proud of these accomplishments, but are even more optimistic about our future opportunities. Cinedigm is an ambitious and innovative Company, well-positioned in the industry and delivering on its strategic, operational, and financial objectives.

As always, we thank you for your support and confidence. And now I'll open up the call for questions.

Operator?

Thank you, sir. (Operator Instructions). Our first question comes from the line of Erik Wald of B. Riley & Company.

Hey, good afternoon. As you approach the VPF deadline at the end of September, could you give us a sense, a couple things. One, any -- are there any rumblings out there at all that that might be extended or do you think the studios are being pretty firm on that, on the September 30? And then around that, what is your -- I know your -- what you've signed last, you know, kind of what you installed, so it's kind of your main backlog. Can you give us a sense of the magnitude of the number of theaters and screens that you're talking to right now that are kind of maybe on the, you know, five yard line sign.

Hey, Erik, it's Chris.

Everything we've heard and everything we've heard from the studios right now is that they're holding firm with that deadline in September. We've heard nothing to the contrary. So it looks like a firm date. And that's part of why we're seeing so much momentum from a signing and a deployment standpoint.

We've probably got more than 1,000 screens in our pipeline, you know, more than that, 1,300 or 1,400. And I don't think we see anything out there that tells us we're not going to get through our -- the goal we've always stressed that we'll get to 1,200 or 1,300 -- or 13,000 screens by the time we're through.

And the total of 13,000, I guess the deadline of signing or having something signed by the end of September, what kind of a lag [would you give to] get those installed?

Well, Erik, at the moment the way the agreements are structured is deadline of installations is September 30. I think the question you're asking may be what ends up happening, which is there may be some extension of installation if you signed up, but not --

That's speculative at this point.

At the moment we have about 1,300 screens in our signed backlog to be installed. And as Chris said, we would expect to sign an additional 1,000-plus in the next number of months. And there's a lot of those conversations that are going on. There's certainly the capacity, both in equipment and in installers to get things done very quickly. So I think there'll be a lot of activity over the next eight, nine months as that -- when we reach that September 30 deadline.

[Perfect,] and then sort of last question, kind of two part, as you look beyond the deadline around the end of this year and kind of get to kind of a more fully digital world, when do you think alternative content, however you want to define it, really begins to move the needle with exhibitors? And I don't know if you want to comment on this and talk about specific guidance, but as you look beyond the installations, what are some reasonable growth rates for the other businesses that you could see in the coming years?

Well, I'll get the first part of that. Then I'll let Adam handle the growth rate piece.

I really think toward the end of this year and into next year, you're going to begin got see some real strong growth in the alternative content arena. The issue with alternative content has never been that there hasn't been demand for it out there in the marketplace. I mean, for the last ten years and particularly in the last five years, exhibition has been looking for other types of content besides wide release feature films. The issue from our standpoint is that no one's been able to put that kind of content into theaters that has an economic model that makes sense for the studio distributor, as well as the exhibitor, as well as the provider of that content. And that's why we've been so focused on trying to figure out a way to bring ancillary distribution to the table and to take our theatrical expertise and marry it with the opportunity to distribute that content into the home and participate in the entire stream of revenues for that content. And that's why we think this deal that we just struck with New Video is an important step forward for us and actually for the industry, not just for independent film, but other forms of alternative content, because when we're able now to go out and buy all rights in all media for alternative content and independent film, we think that's going to be the trigger for us to begin to bring a high volume of economic content to the table to service that demand that exists out there in theaters. And once we get clicking on full cylinders in that business, which we think is going to happen in the second half of this year, we think it sets us up in a perfect position to really begin to provide a high volume of content to our exhibitor partners, so I'd say toward the end of 2012, 2013.

Adam, do you want to tackle the growth question or not?

Sure.

Erik, and I think if others have heard us speak recently at conferences, we've talked about we believe in both the software business and the content business, they can both be very significant and large businesses for Cinedigm and we look at over the next three to five years and think we can build both of those into businesses that produce $20 million-plus of EBITDA in each of those businesses. So when you add that up with what we see in our core servicing business, we think over the next three to five years this turns into a $50 million-plus EBITDA company from today, you know, for the first time, [that's about] $5.5 million of EBITDA.

What the quarterly growth rate or the annual growth rate of that is, that's very hard because we're building businesses and customers and things like that are not at the moment predictable. But we think what excites us every day and why we work as hard as we do is we see that opportunity. We see limited competition on our way to execute in that opportunity. Our job is to keep driving it forward over the next couple of years.

Yes, I think it's just important to stress to what Adam said that that $50 million-plus in EBITDA is all non-deployment EBITDA. That's what we're talking about.

Yes, we're [talking about] non-deployment EBITDA, not considering the other $50 million-plus of deployment EBITDA that we have that goes to service the debt and the underlying residual value that the Company owns in the cash flow streams of the phase one deployment.

Perfect. Thank you, guys.

Thanks Erik.

Thank you. And our next question comes from the line of Kris Tuttle of Research 2.0.

Okay, thanks. Thanks for taking my questions.

I have one for each of you. Chris, could you talk about in terms of the licensing of this new content, first of all, who are you sitting across the table from now that you guys, you're working with New Video, but who else is kind of going after this content? Are you encountering other people in the mix? And then as you sign this new content, you talked about the four- to six-month kind of lag between licensing and when you can get that out there. How should investors sort of be looking for progress there? Will you announce things that you've licensed? Or will you hold off on that until it's closer to release?

Okay, thanks Kris.

No, we'll announce -- when we acquire content, we will announce at that point. Who we're sitting across the table with, well, from an independent film standpoint, which is principally what the deal we set up with New Video, we're sitting across the table from content providers across the spectrum, either represented by agents or independent producers who are selling their product. At the Sundance Film Festival, literally there are 1,000 films there available to be acquired. And we're operating along with New Video almost like any other independent studio at this point in terms of acquiring product. Who we're competing with, which I think may be as part of your question as well is we're -- for that product we're competing with the likes of the Weinsteins, Fox Searchlight, Anchor Bay Films, all of the usual suspects out in the marketplace. The good news is that as I mentioned in my remarks, there's more than enough quality product to go around, 1,000 films at Sundance, maybe 20 deals done, more product of higher-level talent there than ever before. And that's going to continue for the foreseeable future. So we think we're going to be able to find enough product to adequately fill the pipeline from an indy film standpoint.

From an alternative content standpoint, in terms of the new model we're putting in place, which is going to include ancillary distribution, not just theatrical distribution, we don't believe we really have any competition right now for all rights acquisition of alternative content.

Okay. And then one question for you, Adam, as we were talking about continued and discontinued ops, will you -- because some of the sales were material, will you be providing or will you need to provide restated figures for the prior quarters that we'll use as comps for the next fiscal?

Well, if you look at our financials, every quarter historically has been restated to remove the financials from (background noise) because they've been moved --

Yes, yes, I've noticed that.

So you have apples-to-apples comparisons to what, you know, the various charges is that we write off assets and other things on the balance sheet that are noncash, but as you, you know, whatever the book values were versus the proceeds as we talked about with both of those transactions, yes, they were -- we focused on collaborations and they allowed us to both raise capital and make partners out of competitors and redirect our management focus, but both of those were if you like, you know, bad investments from a financial perspective, from the, you know, decisions made by previous management about the business.

Okay. So basically if I look at the quarterlies and the year-over-year figures that you've got as you've been reporting them, they've already been adjusted and restated. We don't need to do it again?

Correct.

Okay. Perfect. Thanks guys and keep up the great work.

Thank you.

Thank you.

Thank you, sir. And your next question comes from the line of Ron Chez, a private investor.

Good afternoon.

Good afternoon, Ron.

I have a couple of questions, please. The $1.9 million, Adam, that you were talking about in adjusted EBITDA, is that not the most salient of the numbers here? Isn't that the one number that you ought to focus on or investors ought to focus on or you do?

Yes, that basically, you know, in restructuring our business, I hope you -- everyone has gotten the sense that we sold two units, we really shrunk the Company, both in terms of employees from 200 to 100 people and shrunk the revenue base of the business -- for those two businesses. We have been quick and efficient hopefully in right-sizing the rest of our infrastructure. But as quick and efficient as one can be, you can't get it exactly timed to the day. So there are a number of changes that we made in the quarter that just completed, a couple more in this quarter that when the run through, that would produce -- if you -- if they had been done at the beginning of the quarter, that was the comment of $450,000 of effectively less expense against our $1.4 million of reported adjusted GAAP -- adjusted EBITDA.

But -- well, the --

-- where they add up, they add up, if we had done everything perfectly, in theory we would've produced $1.9 million of --

Okay. Okay. And really that's your metric for measuring or will be your metric, principal one measuring the financial performance of the business going forward?

Yes.

Did that exceed your expectations, the $1.9 million? Were you -- when you saw the number, were you pleased or disappointed?

Overall both on the quarter and the year to date we're ahead of our budget as we've had a good, strong year in installations and a good, strong year in our software business, so I think we're -- we're never happy because we can always do more.

I know you said how hard you work, right?

Absolutely.

Somebody did.

He does work very hard. I'll second that.

And what about you?

Same here.

Okay. You talked about the independent films and you made this deal with New Video and there's a glut of independent films to make deals on. So why is it necessary then to make an acquisition in the content area as opposed to going it alone?

Well, we're not saying it's necessary. It's something we're looking at. This deal with New Video right now is a partnership, okay, but we're saying that the most important thing is either through partnership or actually through acquisition and actually owning and controlling the downstream markets, it's to be able to go to a supplier of independent film or other content and be able to sit across the table from them and say we have a distribution solution for you in all media. We have deals in place, not just theatrically, but we can place your product into the home in a variety of ways through DVD, through digital distribution, through VOD, through broadcast sales. That gives you so much more leverage when you sit across the table from a content provider to A, cut the right deal, and B, to attract a higher quality of film or other type of content to your model because producers and agents and other content providers want a one-stop distribution and marketing solution for their content. And that's why it's so important. It gives you leverage in a number of ways. So whether we continue or partnership with New Video or we end up acquiring a downstream distributor, it's that leverage that we're seeking that can take our distribution model to a higher level.

And I would assume that --

-- Ron, for something as critical as that, we want to make sure that we own and control it versus relying upon a third party entity that we don't have influence over.

And as I said, if we do anything in that space, it will only be done in an accretive way.

And I would assume that that would accelerate your capability to move that business along, right?

Well, that's the other thing. As opposed to building that capability, if you were to -- either by partnering with New Video or ultimately maybe looking at acquiring another distribution company, you're buying their infrastructure and the deals that they have in place. And then you're helping to take that to a much higher level because you're enabling theatrically-released content to go through their model. And releasing a film theatrically, even in a very targeted, narrow-cast, low-cost way, which is what we would be able to provide, dramatically enhances the value of that content, whether it's an independent film or other alternative content, in the downstream markets. That's why we're so excited about what we announced with New Video and we're hopeful we'll have many more announcements in the future regarding our plans in that space.

Did you not say that you are -- that that -- you don't have a significant competitor there in the total package, including the downstream capability?

We have competitors in the independent film distribution business. What we don't have is we don't have a competitor in terms of someone else out there that's actively trying to acquire alternative content, you know, action sports movies, urban programming, those kind of things that we've talked about previously, who is actively trying to acquire that content in all media. You know, Fathom is out there that it's owned by NCM, they're our competitor in that space. But they're only a theatrical distribution company. They're not an all-rights platform across North America.

(multiple speakers)

I'm sorry to interrupt. Go ahead.

No, no, I'm finished. Go ahead.

I was just going to say and the -- there is leverage as a result with respect to talking about your distinctive competence. There is leverage by being able to say that you're going to get theatrical distribution, leverage for you in negotiating?

Absolutely. But the biggest leverage that you get is when you're able to sit across the table from a content provider and tell them that you are a one-stop marketing and distribution solution across North America for their content. It provides consistency -- a consistent marketing and distribution plan, which is only going to enhance the value of their content. And, again, it enables you to cut a better deal and it enables you to attract a higher caliber of content and talent into your model.

One more question about software, please. Is the services and installed screen base doing what you want it to do in terms of software wins and the reception to the software that you have?

Yes, we're making very solid progress. I mean, as we have talked in the past, a key accelerant in that business is as exhibitors have become fully digital and then live with and understand the -- what that means that operationally they need software to make a real difference. You can get very basic software that you put in with a digital deployment that in essence makes that digital deployment look just like a film deployment. We were walking through this the other day. You can get basic software with a digital projector and [employees] -- your staff needs projectionists who spend 20 hours a week making this thing work or you can license our software and spend 30 minutes and program and automate the entire multiplex. Those kinds of distinctions, you can say that till your blue in the face. Until someone lives it every day, it becomes a much easier sales process. So as we make that first sale in our customer base with the digital conversion, we follow that up talking about many other products and services. One of our large exhibitors in phase two just is starting a pilot of our enterprise product because now that they're digital, they want to -- they see the needs and they're piloting that. Another large exhibitor is reviewing a couple other of our big products because of the same reasons. And so we're seeing that happen and it's part of what makes us very excited about the opportunities in software over the next couple years.

This is -- one last thing. This is a narrow niche market. What's the competition there with respect to software?

Generally our competition is in-house solutions that have been built by exhibitors or distributors and/or just do nothing effectively. There are very -- especially domestically very limited competition that we run into. And so our task is to go make the sale. And one of the -- as I said, we -- since we have 191 exhibitors who we've already made a software sale to, the first sale is always the hardest.

Okay, thank you.

Thank you, Ron.

Thank you, Ron.

Thank you. And our next question comes from the line of Douglas Cummins of Schwartz Heslin.

Hi, Chris and Adam. Congratulations to both of you for the fine work you continue to do and for Chris a great first year.

Thank you.

As a longtime shareholder I'm very pleased to see you in place doing all of the good stuff you're doing. I have one question that relates to my guess that the millions of people who tune in to various kinds of sports broadcasts on television each week, including the great franchises that the NFL enjoys, the NHL, the NBA, college basketball, the great golf tournaments, et cetera, it seems to me could fill a lot of movie theaters with people who would come to watch an NFL game. My God, think of the Super Bowl in 3-D. Is there -- do the economics of the networks and the -- and those great sports franchises allow you guys to strike some kind of a deal with them to bring sports to the local Cineplex? I would think you'd fill an awful lot of seats for those exhibitors if you could do it.

That's a very good question. And the answer is we hope so at a certain point in time. But right now as we look at sort of the economic equation that's presented to us by the rights holders of that league sports product, they simply want too much money in terms of license fees to make it economic for us over the short term. You have to pay a multimillion dollar license fee to spread the Super Bowl over a 200-screen 3-D footprint. It simply is not economic for us. So what we're doing is we're looking at other opportunities to, you know, outside of major league sports really to prove the concept like we're doing with the UFC, like we did with the FIFA World Cup previously, like we're talking about doing in the Action Sports Arena to continue to prove the concept. And then hopefully down the road we'll see what we can do in terms of league sports. But right now it's not an arena that we really want to play in because of the size of those rights fees.

Thank you.

Thank you, sir. And I see no further questions in the queue at this time. I would like to turn the conference back to the Mr. McGurk for any final comments.

Thank you. No, I would just like to thank you all for your time, your continued support, and your focus. And we look very much forward to talking to you all in three, four months from now. So thank you all very much.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a good day.