Cineverse Corp (CNVS) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Cinedigm Digital Cinema first quarter fiscal 2014 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As reminder, today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Jill Calcaterra, Chief Marketing Officer. Ma'am, you may begin.

Good afternoon everyone, and welcome to Cinedigm's first quarter 2014 earnings conference call. With me 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 Adam and Chris, 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 businesses 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, August 13, 2013, 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 measures and an explanation of why the Company believes such non-GAAP financial measures are useful to investors.

Now I'd like to turn the call over to Chris McGurk. Chris?

Thank you Jill, and thanks, everyone, for joining us for Cinedigm's first quarter fiscal 2014 conference call.

Since we just did our full year 2013 call less than two months ago, we will make our remarks brief, and then take any questions you may have. In summary, we are right where we expected to be this quarter financially, and are on track to perform well the rest of the year. Cinedigm is making the significant investments in our core businesses that are necessary to take advantage of the huge opportunities the digital revolution has created, and to drive shareholder value creation. Since March, we have released 10 movies theatrically, and have made upfront investments in related marketing and distribution costs. In the fiscal first quarter alone, we incurred $2.6 million of planned theatrical acquisitions, marketing, and releasing costs. However, our financials do not yet reflect the bulk of the revenues associated with those releases once they hit the profitable home entertainment markets.

So, we are now right in the middle of our content distribution ramp-up, and in the coming months and years we will harvest the financial rewards of all the strategic investments we are now making. In fact, we expect that our expanding film slate will begin to contribute to revenues and EBITDA beginning late in Q2, and most directly in the second half of our fiscal year. Looking ahead, our theatrical release slate is strong, with a diverse mix of titles spanning documentaries, family movies, and indie films. Of particular note is our upcoming release, Our Nixon, a film we are disturbing with CNN; and Narco Cultura, a riveting documentary about the music and drug culture in Mexico. And we're very excited about the August 23 release of Short Term 12, an extremely moving dramatic film that has already won several awards, including the Grand Jury Prize and Audience Award at the South by Southwest Film Festival, and the Audience Award at the Los Angeles Film Festival.

Similarly, our home entertainment distribution business has experienced very significant growth, with 676 new programs and episodes acquired and 493 titles distributed into the marketplace in the first quarter alone. These titles represent a very diverse mix of content, ranging from popular kids' programs like The High, which airs on Disney Junior; and Stella and Sam, which will premiere this fall on PBS' Sprout; to Zatch Bell, a classic anime series; and Totally Spies, an animated series popular with tween girls. Other acquisition highlights from the quarter include Wolfblood, a much-anticipated teen wolf drama coming to Disney XD in October, as well as popular web-based programs from Mongo Media, including Happy Tree Friends; and a digital aggregation deal with the Jim Henson Company for a large portion of their catalog.

During the quarter, we also launched Docurama, our first premium over-the-top channel for YouTube. Even with a limited investment, we are seeing solid initial results. With over 500,000 channel views, Docurama is one of the highest-viewed premium YouTube channels. YouTube is currently providing additional marketing and channel support in an effort to further boost these numbers. We are now expanding Docurama to other over-the-top platforms, initially with Roku. In less than two weeks since our Roku launch on August 1, we have had 25,000 installs and have already locked in advertising from brands including Nissan and Samsung. We expect to expand our Docurama outreach with launches on Xbox and Samsung in the coming months. Though not yet a meaningful financial contributor, this early experience is very valuable, and we expect to launch two to three additional channels with branded content partners in the months ahead.

We are pleased that entertainment revenues increased by 18% year-over-year. And this occurred during our historically slow quarter for this division. Looking forward, we are on track to more than doubling our entertainment revenues for the full fiscal year, with strong video-on-demand placements, strong DVD pre-orders, and strong subscription video-on-demand agreements already in place for many of our recent content releases; and significant demand for titles from our growing library.

Now let's discuss Digital Cinema, which remains a foundation of our business. Currently we have 314 domestic exhibitor partners throughout the US and Canada, representing 11,848 screens, including 145 drive-in movie screens. Adding in our international footprint, we manage 12,349 VPF screens at 1,342 theaters with 340 exhibitor partners around the globe. In the last few months, we have negotiated agreements with distributors and signed up exhibitors through our VPF programs in the Caribbean, Australia, and New Zealand. Going forward, we will focus on international expansion and on the continuing servicing of the 12,000-plus screens under our administration.

Now on to our software business. Under the leadership of Dan Sherlock since January 2013, we have seen a number of positive improvements, including on-time deliveries to customers, new product launches, new sales by our growing pipeline, and a more satisfied customer base. One of our first major new projects is the development and launch of our web-based application for exhibitors called Enterprise. We showcased this centralized operational dashboard tool at both CinemaCon and CineEurope to positive reviews and planned several customer MOUs.

The product relies in a software-as-a-service mode, with two launch clients on August 1. We expect another six to eight signed clients to ramp up in the next couple of months. We also met a key milestone when we delivered the Distributor 3.0 application to a large studio client in early June to manage their theatrical distribution needs. The vast majority of our work is complete, and the studio is currently integrating the product, converting its data, training users, and expects to go live on this software in late Q2 or Q3. Though the six- to nine-month delay in launching this upgraded product has been frustrating, we believe the end result is well worth the wait for our customers, and we are excited about our prospects.

Already, a number of our existing studio customers are in contract discussions for Distributor 3.0, as they see the enormous improvements and benefits available through this upgrade. However, simultaneous to that progress, we continue to deal with issues on Distributor 3.0 with one of our major studio customers, and we are in discussions to determine the appropriate path forward.

During the recent CineEurope show in Barcelona, we showcased high-concept designs for future releases of our cornerstone exhibitor products, TCC and EMS. These products demonstrate a more intuitive and graphical user interface and leverage the web-based platform utilized in Enterprise to allow for greater use and access in the applications. The reaction was very positive, and we are working with customers for launches later this fiscal year.

Finally, we recently signed two large multi-year six-figure SaaS and license agreements for CineSuite, and new data tools growing out of our Digital Cinema operating software. Both of these contracts will go live in the next two quarters. Overall, clients and prospects alike are very impressed with the direction our new Management has taken our software products to, and with our general business progress.

Now I will turn the call over to Adam Mizel, our Chief Operating Officer and CFO, to discuss our financial results for the first quarter.

Thank you, Chris.

Consolidated revenues, including Phase I Digital Cinema, and Phase II Digital Cinema subsidiaries, were $19.6 million, a decrease of $1.3 million. Growth in revenues in the content and entertainment business was more than offset by decreases in deployment and service revenues. Phase I and Phase II deployment revenues, which the Company does not have the ability to influence, declined by $1.2 million as the result of, one, four fewer releases by studios as compared to the prior year fiscal quarter, due to the crowded release calendar; and two, limited screen space to accommodate all the tent-pole and wide studio releases during the quarter, which then constrained booking patterns by the studios.

First quarter non-deployment revenues were $7.8 million, level with the year-ago quarter. Factors that affected this year's results included, one, delay in software license fees as several international exhibitors moved their Digital Cinema installations to later this fiscal year; two, an elongated go-live testing and conversion by a studio customer, delaying [gravity] recognition on Distributor 3.0 into the fiscal second or third quarter; and three, our recently closed new sales are expected to go live later this fiscal year.

As Chris mentioned, our rapidly growing entertainment business has expanded significantly, with an 18% year-over-year revenue growth to $3.3 million. The increase is attributable to strong organic growth and distribution fees earned, from, one, the recent acquisitions of distribution rights of home entertainment titles; two, expanded monetization of our library of over 20,000 movies and television episodes; and three, revenues from theatrical releases that have reached the home entertainment window already.

Consolidated adjusted EBITDA was $9 million for the first quarter, in comparison to $13.5 million for the three months ended June 30, 2012. The $1.2 million in reduced EPS referenced earlier and the $2.6 million in upfront theatrical releasing cost incurred during the quarter accounted for almost all of this decline. Adjusted EBITDA from non-deployment businesses was a loss of $2.4 million during the quarter, compared to a gain of $800,000 a year ago. This decline was primarily driven by two factors -- the $2.6 million of upfront theatrical releasing, marketing, and acquisition costs recognized in the quarter -- the J-curve costs we've talked about frequently before -- as well as the additional SG&A supporting these releases; and two, as I just mentioned, timing delays to later this fiscal year in software-related revenue recognition. In accordance with GAAP, Cinedigm must recognize its upfront content acquisition and marketing expenses at the time of a theatrical release of a movie, and yet well before any revenues are recognized from the home entertainment market.

We continue to expect our slate of releases to be profitable and produce strong 20%-plus [IRR assisted odimes] over the first three years of their ultimate cycle. We understand shareholders have not yet seen these results in our financials. That is to be expected, given that 7 of our 10 releases occurred in the March to June period, and we have, or will release, another 3 movies this quarter. Based on significant DVD pre-orders from all of the major retailers, bolstered by our new universal distribution partnership, strong cable VOD, and transactional VOD marketing placements provided by our distribution partners for our upcoming home entertainment releases, attractive subscription VOD rights to these commitments already in place on our upcoming home releases, and other signs, we have significant confidence in the future results that will begin to hit our financials in September, and even more directly in the third and fourth quarters. All of this will contribute significantly to our expected 200%-plus growth in our entertainment revenues this fiscal year.

During the quarter we continued to [brew] significant free cash flow and paid down over $8.6 million of our non-recourse debt. Cinedigm will deleverage rapidly over the next few years. Our capital position remains strong, and was further enhanced subsequent to the quarter end through a net proceeds of $5.5 million via a registered direct public offering. Those proceeds will be used to make additional investments in our rapidly growing businesses, particularly in the acquisition of both libraries and new release products, and their related marketing and distribution expenses; the creation of over-the-top channels like Docurama; and for general corporate purposes. We are pleased that approximately 75% of the proceeds came from our existing large holders, showing tremendous support from our shareholders for the direction the Company is headed.

In summary, we are performing in line with our planned financial and operating assumptions for the fiscal year. Our home entertainment distribution business has peak results in fiscal Q3 and Q4 around the holiday season, and our 10 new theatrical releases from last March through August will begin to contribute meaningful revenues, rather than mainly expenses, late in Q2, and in particular in Q3 and Q4. Many of our software installations from existing customers have moved into Q2 and Q3 due to customer decisions, and our recent wins and robust pipeline will contribute significantly more later this fiscal year. We are confident in the remainder of the fiscal year based on the data we see currently, and are focused on how we can exceed our plan.

Now I will turn the call back over to Chris.

Thanks, Adam.

In summary, we are very excited about both the near- and long-term prospects for the business. 2.5 years ago we laid out a strategy to transform Cinedigm to take full advantage of the digital revolution that is changing the entire entertainment business. Today, we are fully executing and investing against that strategic plan in all areas. We also continue to spend time looking at accretive opportunities to acquire new content, libraries, and potential M&A that can profitably accelerate our growth plans. We have a strong team, dynamic businesses, and a unique plan.

We thank you for your time and attention today, and look forward to sharing our continued progress on next quarter's call. With that, I will open up this call to questions.

(Operator Instructions)

Joel Achramowicz from Merriman Capital.

Thank you very much. Good afternoon, guys. Adam, could you mention -- once again, Chris, you had talked about the combined international screens deployed over 12,000, was that correct?

I think it's 12,348.

12,349 screens, 1,342 theaters, 340 exhibitors.

That's great. Thank you very much. Obviously, you are seeing -- you are expecting significant back half growth in the Content business in order to achieve that doubling, at a minimum of the Content business year-over-year in '14, right?

Yes, sir. That was our plan going into the year. Because of the seasonality that Adam mentioned, and also because you are going to get the full impact of our theatrical release schedule as it hits the home entertainment markets in the second half of the calendar year, more likely in the fourth quarter and then the first fiscal quarter of next year.

You've already got 10 releases in the marketing pipeline?

We've released 10 movies, basically -- in March we released 2, 5 in the first quarter, 3 -- basically 2 in July and 1 coming up in the short-term, 12 this August. Those 10 movies, none of which have hit the home entertainment market yet. That's why I'm saying, they have been expenses generally. Some revenues, and some of them have done some transactional video-on-demand revenue, but most of that starts in September/October/November when they go into the home market, which was natural release window patterns for a movie release.

But also somewhat strategic in that you would like to get titles out there in and around and in advance of the holiday period when a lot of purchases of DVDs come. And that was one of the benefits of our new partnership with Universal is we got direct access into all the big retailers, we've got -- we got large orders for a lot of DVDs that we expect to get shipped in September and October as they fill up the shelves.

We could acquire one or two other tiles. We're going to the Toronto Film Festival in a couple of weeks, but conceivably could also be released in this fiscal year. And we could actually get some of the home entertainment in this fiscal year. We just announced last week, I think, a title called Adventures of the Penguin King, which we think is a great family title that's really going to leverage our relationship with Universal. It is a family story obviously, given the title, featuring the voice of Tim Allen, and we are pretty excited about that. That should hit in physical DVD in the first quarter next year.

Probably March.

Yes.

Great. You guys had talked about making further investments in content. Is that, Adam, the main reason why operating expenses were so high, for the most part?

Yes. Most of what you see in operating -- the increase in operating expenses is that $2.6 million that was directly spent in releasing movies theatrical. Our core operating expenses in SG&A are basically flat to slightly down quarter-on-quarter as we fully staffed our Business for what we're doing last year. And we keep pretty tight control as best we can on expenses. Increases are directly tied to revenue-producing events, and as we've talked about from an accounting perspective, releasing movies is an expense event for the first several months, and then it turns into a revenue event three to six months later.

Okay. How many employees do you have right now, speaking of headcount, Adam?

About 155 people, about the same. It really hasn't changed, plus or minus a couple people.

Great. I think that's all I have for now. I'll get back in queue. I may have a couple more later. Thank you.

Thank you, Joel.

Kris Tuttle from SoundView Technology. Thank you.

Thank you. I wanted to know if you had an update on the development of some of the Internet channel properties you started a little while back. We know that over-the-top content and Internet-based content channels are the future, and you have been dabbling a little bit there. Just wondering if you had some observations on what you have seen so far.

Sure. As we talk a little bit about in the prepared remarks, we have seen good traction from Docurama. We launched it on YouTube and then just recently on Roku, over on Samsung and Xbox. And I think both good traction in relatively small places as it is just rolling out, and we know documentaries are a good niche, but it's not a massive niche. It's not sports or kids programming or something else.

We have a strong library, it's performing well, and we're learning a lot. We recently signed, but are not yet in a position to announce, a really interesting strategic partnership with a good branded partner to launch another over-the-top channel that we're going to be rolling out over the next three to six months. We got to rush to do it ahead of an important festival. We've got one or two more close to getting done branded partnerships with people who we will also be launching channels with.

We are generally looking at opportunities where someone brings some combination of brand, customer-based eyeballs, and content so we can sell them the content from our library, and collectively target new acquisitions and new growth around it, and we give us a running start between all of those assets. And so, we like what we see. We see a big opportunity. We certainly see the consumer demand for it, and that is part of what we are addressing, we're pursuing is making sure we have the people, resources, and content to go after those opportunities.

Because we really do believe that over the next couple of years that's where a lot of growth and value will come in the entertainment sector, and we are uniquely positioned to do that because we already so big in the Digital business from our aggregation and distribution functions, which gives us all of the assets and acquisitions and marketing and technology and infrastructure that we can leverage with these channels versus having new upfront big expenses we're leveraging existing infrastructure. Yes, I think just to add to all what Adam said, look for some announcements going forward about partnerships in this area, because it's important that we align ourselves. We bring a lot of content to the table through these channels, but that we align ourselves with brands that have meaning in that space, and also entities that can help us curate and program those channels in the most powerful and active way to the audience that they have for their existing brand. So we would hope to be announcing one or two more of these channels in the next few months, and hopefully some partnerships in that space.

Okay, so we've got a couple announcements, maybe in the September/October timeframe in this area?

Yes.

Okay. All right, great. Thanks a lot. I will stop off and let the next person come along.

Thanks, Kris.

Eric Wold from B. Riley.

Thank you. Good afternoon. A couple questions for you. I guess one, I know some of the software deployments and kind of recognition can move around out of your control. But just based on what you know now, what would be the potential dollar value of recognized deals throughout the remainder of this year, both deals that you already deployed and waiting ready for recognition as well as the deals you just recently signed?

Yes, Eric. That is probably too close to breaking out individual results of a unit. I would say that -- what I'd say is that there are a lot of things that we have signed in our Software business that we have not been able to recognize, and at this point it is not because of us. We delivered what we need to deliver, we have done what we need to do. We can't -- an example, we recognized a bunch of software on international installations, and when exhibitors decide to slow down what they're doing in certain countries for their deployments, that delays our software.

And Chris referenced the studio that we delivered our product to in June. We were hoping they were going to go live this summer. They're being very conservative in their own training and data conversion process and testing process, and they may go live, I don't know -- I don't know whether they go live in September, they go live in December. Those things we just don't control, and I understand if you are a large company you're going to do things the way you want to.

And the good news is, because we have made all of those deliveries, we have a lot of existing customers in the pipeline who want to upgrade and are now negotiating that, seeing that the product is out there. We have a lot of things that are happening. Maybe the best way to partially answer your question is, most of our remaining software plan is not based on significant new customer acquisition.

It is on customers who have signed agreements, or who are already customers upgrading, and so we have a high degree of confidence in that, but as we've demonstrated and shown over the last six to nine months, we don't control the timing that those customers will go with. And that is the unfortunate nature of that business, and we do our best, but we can't force them to do anything when we want them to.

No, I understand that. I guess the follow-up on that, maybe not looking for a pinpoint number, but is the potential for the later part of this year greater than the $2.5 million that was already delayed from last year?

Yes. We expect our Software business to be growing top line and bottom line year-on-year by, not nearly the doubling we've seen in content, but we have solid growth, and we're seeing that pipeline and those customers line up that are enable us to do that. Almost 0.5 of our revenues are recurring revenues. And so it's really a question of converting those other customers onto getting them live.

Okay. And then the $2.6 million upfront fee, or upfront kind of the spending this quarter on the films acquired and kind of marketed. How many films are those included in the number?

All eight -- all five of our releases last quarter and pre-released spending on the three releases that we are doing this quarter all contributed to that number. There will be significant spending this quarter. We are releasing three movies, including Short Term 12 which is our largest release to date, and so we will be making those investments this quarter. We will also start to see revenues coming in from other sources.

But generally speaking, we recognized all expenses when a movie gets released theatrically. There's some we'll recognizing a long way in advance of the release, but most of the spending occurs in the 30 to 45 days in advance of the movie release date theatrically.

I know individual deals will vary greatly, but what would you want to assume as an average spend per movie on acquisition and pre-released marketing?

They really do --

They do vary quite a bit, but for modeling purposes probably around the $500,000 range. That is both acquisition and upfront marketing.

That's great. I got cut off little bit.

You didn't hear me? I said it varies across a wide range. I mean, we have acquired movies from $0 upfront to around $1 million. But I think if you use $500,000, around that range for modeling purposes, for upfront acquisition and upfront marketing cost, maybe a little higher, maybe $600,000, $700,000, if you want to be a little conservative. I think that's a good base for your modeling.

Okay, and then just last question from me. Going back to your previous question on SG&A. Of the $7.1 million of SG&A this quarter, Adam, is that all kind of baseline SG&A, or is any of the upfront acquisition and marketing, et cetera cost fall into that line?

That is basically going to be predominantly baseline SG&A, and it's pretty consistent with what it has been the last two quarters. As you guys recall, in the June 2012 quarter we closed on the New Video acquisition and integrated that. We built out our theatrical acquisition and theatrical marketing teams in the summer call of last year, so in fiscal Q2 and Q3. The growth you see is growth year-on-year of the quarter-on-quarter, and basically consistent with what we have been doing the last couple quarters because we are not adding people or resources. We staffed up and restructure around and ahead of a need to release the 13 movies that we have released to date and the 17, 18 that are in our plan this year.

I think its important to, we're talking about New Video and that acquisition. We are almost exactly where we thought we were going to be 1.5 years out after the acquisition, both from a revenue standpoint, and a cost standpoint, and a bottom line standpoint on the plan we put together for our Content business when we acquired New Video.

Perfect. Thank you guys.

(Operator Instructions)

Ron [Chose], Private Investor.

Good afternoon.

Hi, Ron.

How many of the theatrical releases that you have had so far have been consistent with your budgeting from a revenue standpoint? Have you made -- have you done better or worse?

I would say on the releases that are least nine months old, because you need nine months to have achieved all the revenues that you budget, not all, enough of the first cycle that you can start to have an answer to those questions. Those three or four that were early enough, we have an aggregate met or exceeded our plans on those, and the ones that we've released over the last four or five months, it's too soon to tell because most of them have not entered the home market.

Those that have entered that market, or started to, or are based on their performance and pre-orders of DVDs, are pre -- are deals cut with subscription VOD providers, and the commitments we have for marketing support and barcode placement and general movie placement by the cable companies, we feel very comfortable, optimistic we will meet or exceed all of our plans, but that is part of what won't happen until -- it won't start happening until September, October, November.

So would it be fair to say -- it would be fair to say that you would be better, in a better position than you had expected?

I think we will be in as good or better a position than we had expected, yes.

If I do -- if we do an adjustment of your adjustment of your adjustment, and include, or back out the $1.2 million from the delayed VPF revenues, and $2.6 million of distribution cost, would that not produce $1.4 million in EBITDA on a comparable basis to last year?

You wouldn't add back the virtual -- for non-deployment EBITDA, you would not add back virtual print fee revenues. But in comparing to last year, number one, there's $2.6 million of those upfront expenses; number two, which we don't break out because you can't, we have, and it's sort of evidenced in the SG&A. We increased SG&A last year to support what we are doing. So that is a difference, and in essence it will be leveraged over the rest of the fiscal year.

And then as we talked about, there's definitely been a delay, continued delay in our software revenue recognition, which is frustrating us because we keep thinking things are going to happen and then customers tell us otherwise. Because the point to make is, it is not us right now. Sometimes we have certainly been behind in our distributor products, but that is not the issue anymore. It is now moving large institutions to test, recognize, install or whatever the case may be. It's not that they're waiting on us. So those are the -- when you tie it all back together, that is the aggregation of the different pieces to bridge where we are.

You'll catch up on the VPF, presumably deployment revenues?

Yes, we think so. What we have seen over the last couple of years, last year and this year, is much more variability by studios in moving release dates, recutting movies, doing different things that we don't predict and we don't control, based upon the movies that moved out of this quarter, and they are now real release dates. They still fall within the fiscal year, and if that's the case, then yes. We're going to make it up. Who knows if a studio moves another movie there? There's much more of that going on right now, and there's not much we can do about it, other than knowing those movies do eventually get released.

When you have talked about -- and then one more question. When you have talked about goals three or four years out, you have talked about $40 million to $50 million of non-deployment, right? Non-deployment EBITDA. Do still believe that?

Yes, and all of our plans have us moving up in a very steep arc in our non-deployment EBITDA. Essentially, as we've said, beginning in the second half of this year.

You would not change that long-term view of what can be earned here, based on more recent experience?

No.

Last question is, you alluded to a 3.0 problem with a customer, and you are going to see what's going to happen with that, it sounds like. That is something that may turn out to be a legal difficulty? Is that right or not?

I think that, number one, probably unfair to comment; number two, don't have enough information, but we missed a deadline and we're trying to figure out what that means.

Say that last part again?

We are working with a customer to figure out when and how they implement the software in light of where they and we are in the calendar year.

And that is who's problem? Who is responsible?

Ron, that's what we're trying to sort out, and we probably shouldn't go into more detail on this call.

Okay. All right, thank you.

Thanks Ron.

Joel Achramowicz from Merriman Capital.

Thank you. To follow on Ron's question. Chris, did you -- does that push-out on 3.0, does that relate to that customer where there was an expanded scope issue last quarter that delayed some revenue into 2014?

Yes.

Okay. There are still some issues there.

Yes.

Okay, and it's hard to tell -- I mean, it could be positive?

We are in the middle of discussions now, and I don't think we should really get into more detail on it on the call.

Fair enough. You had talked about getting the huge opportunity in China for content entertainment, and you had said you were looking for some kind of a partner, both for maybe distribution partner, and maybe even a implementation partner for the software and the like. Any progress in that area?

Yes, we have had lots of conversations going on that continue. We have this huge library of content. We've got the biggest library of independent digital content here in North America. We primarily have rights just here in North America with some digital rights in territories internationally, where we service Netflix and some of the other services.

It is a natural extension for us to try to find a distribution partner, at least in English-speaking territories overseas, and potentially in emerging markets, because when you have a partner like that when you're going in and acquiring and disturbing product, it gives you so much more leverage on both sides of the equation in terms of buying more rights for content, both television and film content, and then having a much bigger distribution footprint. We've got several conversations ongoing right now with potential partners, both in Europe and Latin America and in Asia. So, hopefully, we will move forward with those discussions and have something to announce in the coming months.

And that, of course, could represent a nice step function in total distribution potential?

Yes, absolutely.

Okay, great. That's all I have.

It's all about having more independent content than anybody else, controlling distribution rights, and controlling distribution for that content right now to take advantage of all these different digital platforms that are opening up on a global basis.

Very good. Good luck going forward. That is all I have.

Thank you. I'd like to turn the conference back to Mr. Chris McGurk for closing remarks.

Thank you all for your comments, your support, your patience with us, and we look forward to talking to you again very soon.

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.