Cineverse Corp (CNVS) 2013 Q2 法說會逐字稿

Good afternoon everyone, and welcome to Cinedigm's second quarter 2013 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 Management, please note that on this call, 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 November 13, 2012, and Cinedigm does not intend and undertakes no duty to update 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 website, presents reconciliations to the appropriate GAAP measure and an explanation of why the Company believes such 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. Sir?

Thank you, and thanks everyone for joining us for Cinedigm's second quarter fiscal 2013 conference call. On this call, I will briefly discuss our general business trends, the progress we are making on our strategic plan, and our expectation to meet our guidance, given our first-half business accomplishments. I will then hand the call off to Adam to review our financial results. Finally, I will provide a brief summary of our growth strategy, and then open the call up to questions.

Overall, we had a solid quarter that was meaningfully ahead of our expectations, both operationally and financially. The strategic steps we've taken, as well as the investments and divestitures we have made in the last months, are setting us up, as planned, to perform solidly in the second half of fiscal 2013 and beyond. First, I would like to underscore that Cinedigm is now the number one operator in each of its businesses. We are the number one servicer of digital cinema screens, the number one provider of operational software to exhibitors and movie studios, and the number one aggregator and digital distributor of independent film, television and other content.

I'd now like to highlight some of our recent achievements in each of these businesses, and discuss our operational progress and focus areas going forward. Let me start with some digital cinema deployment highlights. This past quarter, we saw the final surge of exhibitors making the move to digital prior to the December 31 studio imposed deployment deadline. Consequently, we recorded the second highest installs in our history with 875 screens installed. Additionally, we signed license agreements for 1,319 more screens. With the exception of a special program, we are now finalizing to support the drive-in movie theater community. We are pleased that our domestic screen signing program is all but complete at this point.

In total, as of today, we have 12,252 screens under agreement and 10,852 screens installed across 276 exhibitors. Cinedigm's stated goal was to deploy more than 11,000 screens. So we have already far surpassed our expectations, giving us an unmatched digital theater footprint in North America. As a reminder, we estimate that each 1,000 screens deployed adds over $2 million of incremental non-deployment EBITDA in the first year, through service fees, software license, and maintenance fees. And over $1 million in recurring annual EBITDA illustrating the financial importance of these additional screens.

With regards to our software business, as we mentioned on our last call, we have invested considerable budgeted resources and personnel in R&D to build our deal pipeline, expand our product line, and support our international expansion, helping ensure that we capitalize on our market-leading position in this high-growth core business. And we are already reaping the rewards of this investment. On the exhibitor front, during the quarter, we deepened our relationship with two deployment exhibitor partners, Carmike Cinemas and Goodrich Theaters, by expanding their software packages to include our exhibitor management system to manage their back office booking and distribution processes. Additionally, Goodrich has also become a SAS customer for our TCC enterprise system, allowing for total home-office control of their vast theater network.

Internationally, we are seeing equally positive results as installations have commenced in Ireland and the UK. We signed our first international deployment exhibitor in Caribbean Theaters, who will begin installing our software in our fiscal fourth quarter, and we expect Australian installations to also commence in the fourth quarter. Similarly, we made continued progress in the second quarter on our TDS studio distribution product as we signed and installed two new distributor software licenses without LD Entertainment and Film District. We continue to have a robust software pipeline of additional studios and exhibitors, and look forward to a strong second half of our fiscal year.

Now I'll turn to our content distribution business. We have successfully completed the integration of New Video, which we acquired in April of this year. We are now the largest end-to-end distributor of independent digital content across theatrical and all ancillary platforms, and have rapidly become a strong player in the multi-billion dollar independent film and alternative content distribution business. We are very well positioned with all of the key digital distribution platforms. From key digital theatrical exhibitors, to in-home digital retailers including iTunes, Netflix, and Amazon, as well as mobile phone applications and cable and satellite operators. And we are now poised to further leverage our market-leading position and rapidly grow this core business. And this is just the beginning, as we are spending our relationships with several of our existing major digital partners in exploring deals with new digital platforms on both the domestic and international front.

Now, I'd like to emphasize that Cinedigm's strong position as the leading aggregator of independent digital content in the world is an extremely key asset for us. And it is driving results this year that are already beyond our expectations, with year-over-year digital revenue growth of 86% in calendar 2012. These digital revenues include subscription VOD with the likes of Netflix, Amazon, and Hulu; transactional VOD with Comcast, DirecTV and Time Warner, among others; and electronic sell through, of which iTunes is a good example.

Our digital transactional business this year is up over 59%, with over 3,800 titles actively scanning weekly. This growth has been driven in part by our strong iTunes partnership. We are very pleased that in October, we were the number one provider of non-major studio content to iTunes. And the number five provider among all studios, with seven new release films among iTunes top 100 October releases. Including our award-winning documentary The Invisible War, which premiered there on September 25. For Cinedigm to be on a list surrounded by such established and successful major studios as Warner Brothers, Lionsgate, Disney and Universal, is a strong indicator of the scope and potential for our growing digital distribution business.

We also continue to add to our digital aggregation library with several major acquisitions, including the popular Digimon TV series, the ground breaking PBS miniseries Half The Sky, rights to Academy Award nominated Liz Garbus' documentary Love, Marilyn; and Chasing Ice, featuring a celebrated National Geographic photographer using time lapse cameras to capture a multi year record of the world's changing glaciers. With these titles and numerous others, we reached a major milestone this quarter, when we surpassed 14,000 movies and TV shows under license in our library. In addition to the ongoing revenues these titles create for us, it's equally important to note they expand our breadth and depth of content offerings for our aggregation partners, and provide a unique point of difference when negotiating with other emerging platforms. All of these deals should help keep us on track to produce a strong and positive second half of this year, as well as provide a stable foundation for growth in fiscal 2014 and beyond.

In regard to content opportunities that provide a unique point of difference for Cinedigm, and that illustrate our forward-looking strategy, I'm especially excited about the deal we announced two weeks ago with Alloy Digital to distribute content from their popular YouTube channels, Smosh and Clever Media, on transactional digital platforms beyond YouTube where the programs now debut and are currently top performers. From a strategic point of view, we are excited about this partnership with Alloy, both for the short-term opportunities presented via ancillary sales, and from the longer-term perspective of creating alternative content channels, potentially with a big-screen digital theatrical component targeting Alloy's narrow cast demographic of millennials. We believe that the democratization of content creation and content distribution as epitomized by the online efforts of Alloy and YouTube, and the subsequent monetization of that content, is a big part of the entertainment industry's future, and we are very pleased to be in a leadership position to rapidly develop that business.

On the more traditional theatrical and digital distribution acquisition front, we are continuing toward our goal of releasing 20 to 25 films a year, with 10 films now in our release slate. We already released The Invisible War, and expect to release six additional movies in the current fiscal year with the initial theatrical release of Citadel having taken place this past weekend, and In Our Nature set to be released on December 7th. One notable trend I'd like to share, and one that we expected when we acquired New Video, is that the market is now responding to our digitally focused releasing model and we are seeing a rapid escalation in the volume and quality of projects now coming our way, as well as an influx of potential financing, creative, and talent partnerships.

Our recent acquisitions include several high profile titles such as Arthur Newman, starring Academy Award Winner Colin Firth, and Academy Award Nominee Emily Blunt; and Violet and Daisy, written and directed by Academy Award Winner Jeff Fletcher, and starring James Gandolfini. We expect these titles and our entire release slate will be strong contributors to our future growth, and will build significant library value.

So in summary, we had a very solid quarter operationally in all of our core businesses, setting ourselves up for a strong performance in the second half of this fiscal year and beyond. And now I'll turn the call over to Adam Mizel, our Chief Operating Officer and CFO to further discuss our financial results for the quarter.

Thank you Chris. I will begin with the review of our financial results for second fiscal quarter, which ended September 30, 2012. And then we'll discuss our outlook for the balance of the fiscal 2013. Please note that all comparisons referenced in my prepared remarks reflect quarterly year-over-year comparisons unless I specify otherwise. Before I get into the details of the quarter, it's important that I provide some context to frame our results. In the year ago period, we posted record breaking results across virtually all parts of our business from deployments to installations to DPS payments to software. Last Q2, we installed a record 1,455 digital systems. Even though we had a great quarter this year and our second highest installation quarter ever with 875 installations, the 570 installation screen gap reduced our non-deployment and consolidated EBITDA year-on-year by almost $2.3 million alone, masking in many parts, many other positive developments in the quarter.

In addition, the second quarter movie releasing landscape this year was notably different, due to a confluence of unique circumstances. Without a doubt, this summer's Olympic Games forced studios to appropriately adjust the timing and breadth of their major releases to avoid competing with the highly rated games. This negatively impacted the EPS in August. Additionally, studios universally avoided major releases around the widely anticipated release of the mega-blockbuster Dark Knight Rises. And with the tragic shooting in Aurora, Colorado, the normal movie attendance and booking patterns were further upended, keeping Dark Knight Rises on screens much longer than expected, and thus further reducing VPF in July and August. In addition, the reduced attendance after Aurora led the studios to further limit the number of screens for their releases, again, a unique timing impact on virtual print fees.

Adding to this disruption in releasing, Warner Brothers moved its wide release of Gangster Squad from August to January 2013 after the shootings, and Paramount opted to convert GI Joe Retaliation to a 3-D release, delaying that highly anticipated film until March 2013. So when we tallied all of these idiosyncratic events that were outside our control and their impact on VPF, our Phase One and Phase Two VPF revenues and EBITDA were down $1.5 million from last year. As expected, we have returned to normal booking patterns in September and October, and our VPF revenues are back at or above plan in those months. We expect to make up a portion of this lost summer revenue later this fiscal year, as several movies have been rescheduled, and the holiday releasing season is off to a strong start.

Finally as we have discussed previously, this fiscal year is a period of both investment and growth. During Q2, we invested almost $200,000 in third-party marketing costs around future movie releases and our now 10 movie slate. We of course also invested the time and expense of our expanded and very busy acquisitions and marketing teams with the financial return from those activities coming a bit in Q3, but more in Q4 and next fiscal year. As Chris mentioned previously, we have built a very strong releasing slate and are optimistic about our future results. So with that context, I'll discuss our results this quarter, which were still solidly ahead of our expectations.

Revenue for the second quarter was $22.6 million, a 7.5% increase from $21 million in the second quarter a year ago. The increase in revenues was a result of the New Video acquisition and organic growth in content, and was partially offset by the previously discussed $1.5 million revenue decline in digital cinema deployments, and the difference in screen installs between our record Q2 2012, and our second highest install quarter this quarter in Q2 2013.

In the second quarter of fiscal 2013, adjusted EBITDA from continuing operations totaled $14.1 million, down from $16.9 million in the year-ago period. Excluding the Company's deployment business, adjusted EBITDA from continuing operations was $1.2 million, an increase of 48% from fiscal 2013 quarter one, and a decrease from $3.2 million in the same period a year ago. The decreases on both consolidated and non-deployment EBITDA can be explained by the unique convergence of events I mentioned earlier, as well as our budgeted investments and content acquisition, and the challenging comparison to an exceptionally strong quarter in the year ago period.

In our asset heavy Phase One and Phase Two deployment segments, revenue and EBITDA decreased as a result of the factors we just discussed. The good news is that, as Chris mentioned, we have over 12,200 screens signed and 10,852 installed as of today as compared to 7,988 at September 30, 2011. All of these screens generate recurring and stable service fee revenues for our digital cinema services unit, as well as up front license and recurring maintenance fees for our software division, and will support solid results the remainder of this fiscal year and beyond.

We continue to aggressively strengthen our balance sheet as we paid down nearly $27 million of nonrecourse debt in the first six months of fiscal 2013. Total nonrecourse debt is now $145.3 million, down from $171 million at the beginning of the fiscal year, or less than three times our stable contractual deployment EBITDA. Going forward, we expect to continue this significant deleveraging of our balance sheet from our stable deployment cash flows. Our services segment, which includes the previously mentioned digital cinema services unit and our software unit, generated $6 million in revenues, including inter-segment deployment service fees. This represents decline of 9.5% from last fiscal year due to the comparison to our record 1,455 screen install quarter.

Because of strong services and software growth, we were able to actually make up most of that $2.3 million year-over-year decline in one-time up front activation and software license fees resulting from 570 fewer installations. This is an example our strong operational and financial progress masked by the combination of factors outside of our control that impacted revenue. Our software continues to benefit from our Phase Two deployments that generate license and recurring maintenance fees for our theatre command center product. Software that allows the theater to operate like an iPod.

Domestic growth has exceeded expectations with the extended Phase Two installation deadline, and we're expecting international growth from our signed contracts to kick in during the second half of the year. Software deployments have begun in Ireland, the UK should begin shortly, and installations with Caribbean, who we signed last month, and in Australia, should commence in our fiscal Q4. In addition, second half growth will be driven by our expanding TTC enterprise product, which provides centralized exhibitor management and data analysis, has been licensed by several circuits including Goodrich Theaters and a SAS model. Similarly, sales of our EMS product that manages the entire back end movie booking and distribution process have expanded with both Carmike and Goodrich expecting to go live with the product in fiscal Q4.

Finally, we also continue to grow our TDS studio distribution management product, with licenses to Film District and LD Entertainment this quarter, and we expect upgrades for our existing clients to our latest version of the TDS to commence in Q3 and Q4. This sales success has been noted in the industry, and we are building a substantial pipeline of new business across all these products as the digital cinema conversions take hold and create greater demand for automation in both the revenue and expense savings opportunities our software offers to clients.

CEG, our content distribution unit, generated nearly $3.6 million of revenues compared to $0.6 million in the prior year period. Total CEG revenues when including New Video results in both periods, increased 8% year-over-year, even with the continued industry-wide decline in DVD revenues, of which we are not immune, and almost no recognized revenue from our theatrical releasing slate in this quarter. As a reminder, we recover all of our upfront costs from all content revenue streams, and earn our typical 25% to 30% distribution fee prior to sharing economics with other partners. We expect to gross 60% to 100% on these investments from our fees, or 25% to 35% IRR over a two to three year initial period.

However, we will also begin to see the quick turnaround of this investment process. For instance, we should turn GAAP and cash profitable on The Invisible War in this current quarter. The movie was released on iTunes on September 25, and this revenue will be recognized in Q3. Similarly, the title will be available on Netflix in this quarter, and we will then recognize a substantial fee. We are also entering a similar cycle on our other Q1 release Like Water, which earned a GAAP profit in Q2 and will earn a life to date GAAP profit in Q3. This performance pattern is why we are excited by our recent acquisitions, and the upcoming slate of nine releases in Q3, Q4, and Q1 of next year. We are optimistic as we look ahead into the next 12 months.

Finally, we are confirming our annual guidance. In total, we expect consolidated GAAP revenues including our deployment units of $91 million to $97 million, consolidated adjusted EBITDA of $57 million $59 million for the fiscal year 2013. We expect adjusted EBITDA for fiscal 2013 from non-deployment operations of $11.2 million to $12.7 million prior to the $4.5 million to $5 million of GAAP expense impact from $10 million, and still growing, from movie acquisitions and additional digital library acquisitions. Net of the GAAP expense impact, we expect to produce adjusted reported EBITDA from non-deployment operations for fiscal 2013 of $6.7 million to $7.7 million.

As a reminder, quarterly results are not a predictable metric for Cinedigm as we build our software and content release driven businesses. Each quarter can be significantly impacted by factors such as software deployment, timing and revenue recognition outside our control, and the timing of our CEG content acquisitions, and the corresponding release dates. And by changing movie release dates by the major studios, the resulting impact on VPF revenues. The seasonality of our business has increased with our New Video acquisition, and the heavy movie release calendar in our fiscal Q3, which ends December 31, and the significant holiday purchases of digital and physical DVD home entertainment products. Now, I will turn the call back over to Chris.

Thank you Adam. In summary, we are excited about both the near and long-term prospects for the business. Perhaps most important, less than two years ago we laid out a strategy to transform Cinedigm to take full advantage of the changing landscape, both in the digital cinema world, and in the overall digital content distribution arena, by focusing on three high-growth core businesses where we could be the clear market leader. Today, we are doing exactly what we said we were going to do, and are fully executing against that strategic plan in all areas.

And our strategies are paying off. First, we are significantly exceeding our targets in deployment and growing our fee-based digital theatrical servicing business. Second, we are building our software business and its base of recurring revenues. And third, we successfully completed the New Video integration to become the leading end-to-end digital distributor of independent content in the world, and are successfully ramping up that business. Furthermore, we clearly know what we need to do to grow shareholder value, and our entire management team is dedicated to optimizing our strong potential. We will be presenting our full investor story and taking one-on-one meetings at the upcoming LD Conference in Los Angeles on December 5. So if you plan to attend, please look for us. So we thank you for your time and attention today, and look forward to sharing our continued progress on next quarter's call. And with that, I'll open the call up to questions. Operator?

Thank you sir.

(Operator Instructions)

Eric Wold from B. Riley.

Good afternoon, and thank you. Adam, I apologize if you said this, I think you did, but do you mind quickly running through real quick the revenue by segment for the quarter once again?

Sure. The revenue in the services segment was $6 million including inter-segment, inter-company revenue. So when you look in our queue those were backed out because of consolidation. The revenue in our content entertainment group was $3.6 million in the quarter. And then I don't, off the top of my head, have in front of me revenue in the deployment segments but that would basically be the difference.

Okay. And then if you look at the Indie film side, obviously you've done a great job building up content for next year and remain on track there. Give a sense of what the environment looks like competitively in terms of getting your hands on this content, and maybe what you've paid on average or committed on average up front for the rights, and if that is changing at all on the competitive landscape?

This is Chris. I'll answer your second question first. We've committed on average significantly less than $1 million per title on the 10 titles that we bought so far. And that includes both the acquisition cost and marketing spend in theatrical on those titles. So, we're exactly where we thought we were going to be in terms of the average up front commitment on those titles.

So to your first question is what does the Indie marketplace look like? We've been very, very pleased at both the quality and the breadth of content that's been available to us over the last six months. Particularly since in the last four months we hired a Head of Marketing and a Head of Acquisitions in our group, which obviously makes it a little bit easier to go and find and market that content. We've put together what we feel is a really strong slate. And as we've acquired movies and as we've started to release movies as I said in my remarks, it's been great to see the caliber of the offerings that have come our way, and how we're further up in the queue now in terms of agents and managers and producers bringing content to us. And I think that's epitomized by the last two acquisitions that we made. Arthur Newman, which was a very, very hot title up in Toronto, which we acquired, starring Colin Firth and Emily Blunt, and Violet and Daisy, starring James Gandolfini. I think you're going to see more of that going forward. So, we feel very good about what the market place looks like. We feel very good about our competitive position. And we feel really great about what's coming our way. And it's only going to get better.

Perfect. And then a second part to that I guess towards Adam. You mentioned the two titles turned GAAP profitable last quarter and this quarter. If you think about the entire portfolio of titles that you continue to ramp up into next year at what point can the segment turn GAAP profitable for the group, all of the Indie comes as a group?

I think in general, we would expect that to be happening next year, because we're building out the slate. So the issue is, when do we get closer to steady state? As we ramp up to two releases a month, until we get closer to that, you'll still have more new acquisitions and the cost of that swamping the profitability in the old ones. The should cross over some time in the next fiscal year. I'll have a better sense of that when we do all of our detailed budgeting. But I think what we're really seeing also is the relatively quick turnaround on both the cash and the profitability.

If you think about Invisible War, was released on June 21 in theaters, and we will be GAAP profitable effectively within six months. The same thing with Like Water, which was also in June. If we can keep a similar pattern, and that seems -- those were both -- one was a day-to-day release and one was a traditional theatrical release, and in each case, we were able to get profitable within six months. We do that, then I think we'll be at the earlier end of the range. If we have more that are elongated from a releasing pattern, then it could take us a few months longer. But we're moving very quickly, because of the digital platform that accelerates all that revenue occurring and being recognized

And Adam makes a good -- to your earlier question about the competitive environment, Adam's point underscores what we're seeing as a real competitive advantage that's building for us in the marketplace. As opposed to some of our competitors who have a model for releasing movies, whether it's premium VOD or it's a traditional release, like a Fox Searchlight for instance. Our approach is to adopt the right releasing model for each individual movie, and not try to fit a movie into a model. So we'll go day in date, we'll go traditional theatrical release, we'll go premium VOD if that makes the most sense for the movie. And that kind of flexible releasing plan that we're able to offer, we're seeing is very attractive to the agencies and producers and managers out there. And we think that's one of the reasons why we're really beginning to see a high caliber of content coming our way.

Perfect. And then last question on the installation that you've still got in the pipeline to be deployed in the coming months. Get a sense of when those installations could be completed? It sounds like, you mentioned that your digital deployment business is basically complete at this point. I know you still have another month and a half left until the VPF deadline, is that basically your decision to shut it down for capacity reasons or is there still demand coming in from exhibitors to get it upgraded?

Well exhibitors had to sign for deployment by September 30, so we're not signing any new exhibitors at this point. We had the deadline for installations is December 31, unless the studios are prepared to make an exception for certain exhibitors. So, of the screens that we have in our installation pipeline, basically they're not -- domestically, if they're not installed by the end of the quarter here, they won't get installed barring a studio exception, and there are one or two exhibitors who may need that combination of their own hesitation and some people did lose a couple weeks on the East Coast around the storms. There's reasons that may happen. The only thing about that otherwise might extend beyond that is what we're working on for drive-ins and some very small theaters where the studios are trying to be accommodating. But it won't make a difference in moving the needle effectively in our overall business.

Thank you. And then third and final question is a modeling question on the shares outstanding, which obviously -- what should we use there going forward for both loss situation and if you turned the profit on the bottom line?

Nothing's changed. The total shares outstanding of approximately $48.8 million and then the treasury method on any options and warrants. There's no new issuances and no changes.

Okay, perfect. Thank you.

Sure.

Joel Achramowicz from Merriman Capital.

Thank you. Thanks for taking my question. Adam, I wanted to ask a brief question about it sounds like even despite some of these timing issues and the developments over the summer that you're kind of -- you're feeling pretty good about moving any shortfall that we might have expected in the second quarter into the back half. It sounds like it's shaping up to be better than you expected.

Yes. I think that we are ahead of our plan for the first half of the fiscal year, in terms of EBITDA on a non-deployment basis. And a lot -- as we said we were in a year of investment and growth and there's a lot that we set up, we think set up very well in the first six months, and we look forward to the back half of the year in both software and in content and we see a lot of value coming in. We said also -- we still have seasonality always in this quarter. It's a big releasing quarter on the studio side. It's also, from the New Video business, there's still a lot of DVDs and other digital things purchased around the holidays. So there's just a little bit of a bump in Q3 always. So it's not surprising that that's how we've tried to have people think about our business. But yes, we have a lot in the pipeline that is signed and we expect to get over the finish line in Q3 and Q4.

And it's important to underscore again, as Adam said in his remarks, that even though we had that one-time blip for all of the factors that Adam mentioned from a VPF deployment standpoint that the depressed the results in the last quarter. We've already seen those VPF revenues come back in the first two months of our third quarter. And we expect that trend to continue over the balance of the year.

That's great. I had a question, Chris with regard to as you're building up this and continuing to expand your portfolio, do you fully expect to at least break even on most of the purchases that you make? Are you -- I'm sure you've put together more of a modeling and assessment process with Adam in determining the payback on these investments and content. But do you hold yourself as much as you can to breaking even on a particular release or what have you? Or limiting your loss?

We really try to hold ourself to a 30% plus higher. But you're asking the exact right question. Every one of these purchases -- and again we're buying finished product. Which improves the risk reward profile dramatically. It's important to underscore here that we're not developing movies, and we're not investing in production. We're acquiring finished product. Every time we acquire one of these movies, we go though a pretty exhaustive green light analysis, and I'm pretty happy to say we haven't green lit anything yet. But even in the lowest of the low cases, has brackets around it. So we expect to at least break even on all of these titles. And as Adam said, we're targeting a 30% plus IRR on each one of these releases.

The idea is to have a high-volume of releases, 20 to 25 pictures a year that we're generating that kind of return on. And when go to bat that many times, hopefully, eventually you're going to have the one or two titles that break out of the top of the chain here and you get your version of Saw or Paranormal Activity, and that's the way we have the model set up. So we're pleased about the risk/reward profile of the business. We're pleased about the acquisitions that we've done so far and how they've validated our model of the business going forward. And obviously we're really pleased about the kind of revenues we're generating in our digital business at New Video, which gives us a built-in security on our economic model that maybe other studios don't have.

And as you go forward, too, you continue to build up excellent critical expertise going into evaluating content going forward. And as you seemed to mention in your remarks, you're image is significantly improving and getting burnished in your ability to come into the market and acquire excellent content.

No, I think that's absolutely right. I feel in that part of the equation we're even ahead of where we expected to be, with 10 acquisitions under our belt. We're not having to knock on doors, people are coming to us now and are excited about the flexible releasing model that we're offering to the marketplace. And that's why you see movies like Arthur Newman that at least three or four other independent studios were after and Violet and Daisy coming our way.

That's great. Could you describe the international and particularly European opportunities, Chris and Adam, with regard to -- you're not necessarily upgrading digital systems or digital projection systems. But you are offering software and network based distribution and management software for theater management? And you're also hooking those international theaters into your network?

Yes, they're basically two complementary opportunities for us internationally. At a high level, number one, is taking our digital cinema servicing platform, both the people and infrastructure and the software that today now servicing over 12,000 screens, and offering that as a service bureau in partnership to others internationally. We're doing that with a partner in Brazil. That's effectively what we're doing in Australia and New Zealand, and we're doing it to some degree in India. And we will keep looking at other opportunities in that. To the extent we do that on the servicing side, one of our requirements is that any of those exhibitors also use the TCC software that we also require and are using in the United States because that's what we need to manage the servicing. So with just in the servicing there's that first level of software product sale and conjunction. They can be separate, they can go together.

On top of that, for both the exhibitors and studios around the world are our additional products. Our EMS product which last quarter Carmike and Goodrich licensed, and AMG licensed last year, and our enterprise product, also are applicable to exhibitors internationally. So there's multiple sale levels whether we're directly in the servicing of their digital cinema deployments or are not. Within Europe, it's more the latter of some of our other software products and services. We've done some things in Ireland and the UK with some exhibitors on the software side. There other integrators in Europe. And so, they have a model where their software, like ours, can be linked into their integration. So we have software that sits on top of everybody else's, and that's the sales process more in Europe than not. But wherever it is it's part of the opportunity that we see, now that digital's taking hold, it makes that sales cycle a lot easier.

And how are the European and other international theaters, how are they reacting to your software and your value propositions as you go into those markets?

Well, we've gotten some early sales, and it's been relatively early days in doing that. Our presence internationally has grown a lot over the last 12 months with our new Head of Sales and just with the progress the conversions have made. We have a huge opportunity in the US. And so we balance that with where we can do things internationally, and we need the right local partners. When we get there, we have good reception. It's a big part of our pipeline.

So you're really building a global theater distribution network in many ways?

Well I think you're exactly right. Ultimately, there's a lot of data that we want to be collecting out of all these digital screens. And having those relationships and access points helps us do that.

Yes. Good stuff. Good progress guys. Looking forward to seeing you in the back half. And thanks very much.

Thank you Joel.

(Operator Instructions)

Kris Tuttle from SoundView.

Hello guys, a couple quick questions. It sounds like the content strategy is really coming together well. Earlier on, part of that strategy involved some play by the exhibitors who would have some skin in the game and I guess have the opportunity also to make some downstream, participate in the downstream. Could you provide an update on whether or not that's still a part of it? Or is that no longer as relevant in a post New Video acquisition world?

Kris, this is Chris. Good question. It's still relevant, and we've got several discussions going on with key exhibitors, both more mainstream exhibitors and exhibitors who operate in the independent film world to see if we can secure agreements with them basically to get advantage theater play across their network, and in exchange give them a piece of our upside in either independent film or these alternative content channels which we hope to launch in the next fiscal year. So it's still an important key to our strategy going forward. Expect announcements in that regard, I'd say over the next six months.

Okay. And my other question was the same line of business. But on the I guess -- the content owners are using you for aggregation distribution and it's all very effective. And a lot of those platforms already have their own built-in demand generation or at least fulfillment. Are content owners or is it part of your plan to think about maybe new ways to leverage, be it social networks or other types of geographic data, to essentially be a more effective marketing partner for some of these properties that you acquired to increase your returns?

The typical answer is yes. The way we think about it is slightly different than what you just described, but in the same vein, which is with the significant amount of content that exists everywhere, and the growing number of digital platforms who really allow you to put everything out there, because you don't have to fight for physical shelf space. What the greatest need you see is for curation. And really where you see Cinedigm moving in the content space is providing curation support. And that's in giving up alternate content channels that we are going to be launching in theaters that combine both the theatrical and the digital release. When you talk about all of that, that's all about helping someone who's got an avid audience find what they want and help them curate doing that. And you reach that audience through a combination of the fact that you provide them that curation, but you also use their social media and other digital tools to connect to them. Because you don't find people by buying ads in the New York Times or buying TV commercials on cable. You find them where they are, and where they're interested in their content. And so we're doing all of that under the organizational thought of how do you curate to bring them 14,000 titles in our library. Well you've got to figure out how to help them find what they want. And that's really where we do it.

Right. Okay. I got you. And one last one. It sounded like -- I didn't get all the numbers exactly, but it sounded the debt declined in the quarter. And my question is, are we at a point now where we can start to see sequential reductions in the debt and the servicing costs over the next several quarters? What kind of expectations should we have there?

That debt is going down significantly. We paid down $27 million in the first half of the year, that's not -- we can't double that for the year. Close to it actually. Close to it. Fair enough. I was thinking between Phase One and Phase Two. And we're not adding any new nonrecourse debt from the deployments. We're not adding debt really in any way. We're building our business on -- with internally generated capital, so we will keep deleveraging, and that will obviously reduce the burden as well. Absolutely.

Yes I think people will like that. All right, well that's it for me guys. Thanks again. That was a great quarter. So keep up the great work.

Thanks very much Chris.

Eric Wold of B. Riley.

Hello guys. Just one quick follow up. I just want to make sure I understand it. So with the 12,250 some-odd screens committed right now and 10,800 or so deployed as of today, should we -- how many of those should we infer get deployed through year end since we're into the heavy period where most theaters don't want you muddling around with their operations? Or how many should move in to next quarter?

Well I think of that backlog, some of them as I said, either won't get installed or are going to require studio extensions. But there's some very specific reasons for those exhibitors to be in that position. But we're installing a lot of screens in November and December, because yes, normally you're right. If people had the luxury of time, they wouldn't do it at the holidays. But exhibitors who made the decision to wait till the very end don't have the luxury of time any more.

Okay. So it's safe to assume that the majority of those, except for some of the small exceptions, would be done this quarter?

Yes, I would think we'll see a similar installation quarter as the quarter we just completed in terms of numbers.

Okay, that helps. Thanks Adam.

Thank you. And I see no additional questions at this time.

Okay then. I guess then we should end the call, and I just want to thank everybody for their continued interest and support, and we look forward to talking to you again next quarter. Thank you.

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.