National Cinemedia Inc (NCMI) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to National CineMedia, Inc. fourth quarter and year-end 2008 earnings conference call. Today's call is being recorded. Following the presentation, we'll conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

I would now like to turn the conference over to Mr. David Oddo, Vice President of Finance. Please go ahead, sir.

Good afternoon. I would like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21e of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements.

These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the Company's expectations are disclosed in the Risk Factors contained in the Company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors.

Now I will turn the call over to Kurt Hall, CEO of National CineMedia.

Thanks, David. Good afternoon, everyone. Welcome and thanks for joining us for our fiscal fourth quarter and full year 2008 conference call.

Today, I will provide a brief overview of our Q4 and fiscal 2008 results, and share my thought regarding current business trends for 2009. Gary Ferrera, our CFO, will then provide a more detailed discussion of our financial performance for the quarter and full year, and will provide guidance for Q1, 2009 and an outlook for the full year. And then, as always, we'll open the line for questions.

We are pleased to report an 18.9% increase in total Q4 2008 revenue and a 20.3% increase in adjusted OIBDA versus Q4 2007. For the year, revenue increased 9.3%, while adjusted OIBDA increased 4.1% over pro forma 2007. These favorable results reflect solid national advertising and Fathom revenue growth, that more than offset the effect of lower CineMeetings and annual beverage revenue.

It is important to note that our fiscal fourth quarter and fiscal 2008 included an additional week that fell between Christmas and New Year's. As this week was one of the most highly attended weeks in box office history, it did have a positive impact on our Q4 and annual revenue and adjusted OIBDA.

While we were disappointed with the relatively weak financial results in the first half of 2008, we've had a very strong second half of the year. This is very encouraging, given the challenging economic environment and the difficulties that virtually all other advertising mediums have faced in late 2008.

In addition to our topline growth, our favorable performance reflects tight cost controls and the strength of our underlying high margin business model. While we continue to execute very well against our business plan, we also appear to be benefiting from the growth of our national network; and particularly, the addition of the AMC Loews theatres and certain key regional exhibitors.

With these additions, we now represent approximately 70% of attendance in the top 10 markets and over 60% in the top 50 markets. We continue to talk to new network affiliates and await with interest the outcome of the potential sale of the National Amusement circuit.

While increasing our network through the addition of new network affiliates continues to be part of our strategy to expand our impression base, given the current business environment, we are being prudent with respect to the structure of the deals that are offered to NCM network affiliates.

In fact, it is likely that the market circuit that splits their local and national sales between Screenvision and us, will be moving their national sales to Screenvision later this year. While I obviously would have liked to retain this high-quality regional circuit, the revenue guarantees and the required digital investment did not make sense for our business model.

This circuit represented approximately 3% of our national attendance and even less of our saleable impressions, as they were non-digital. Given all of the additional inventory we have added in 2008, it is not expected to impact our 2009 revenue, and will lower our affiliate fees and rolling stock distribution costs.

While we are having ongoing conversations with other national -- regional circuits, given the level of current inventory utilization and the organic growth of our founding member and existing network affiliate circuits, our impression base will be very well-matched with the expected future growth in market demand for cinema advertising. We will also benefit from the addition to our network in early 2011 of the consolidated theater circuit acquired by Regal.

While our Q4 inventory utilization decreased on a percentage basis, that impact was more than offset by an increase in saleable advertising impressions of over 30% versus Q4 2007, and an 11.9% increase in CPM versus Q4 2007, related to a favorable client mix and strong scatter demand for specific inventory in November and December.

While the current economic climate and some shift in our client mix may put pressure on our average CPMs in 2009, with our increased amount of inventory, we have more flexibility to structure relationships with clients that fit their CPM profile, especially during some of our lower utilization months. As we've mentioned in the past, our inventory utilization calculation is also adversely affected by the time that it takes to fully integrate additional network screenings and related impressions into our sales process.

Now that we have fully integrated AMC Loews and the other circuits added in 2008 into our network, our primary focus for 2009 and beyond will be to increase our inventory utilization across our now-larger impression base. Our strategy to broaden our client base and shift marketshare of overall media spending to our network appears to be paying off.

As cinema advertising still only makes up less than half of 1 percent of the total US ad spending, it only takes a small marketshare shift from other much-larger mediums to provide growth for us, even as overall client spending budgets are being cut. While the slowing economy, the more significant cuts in advertising spending appear to be more heavily focused on traditional media platforms that have been falling out of favor with marketers.

The best evidence of this is that our 2009 national scatter bookings are up approximately 59% compared to last year at this same time. While this may simply reflect the fact that our clients are booking earlier to secure placement for specific campaigns, even when including our pending business, we are still up approximately 12% above last year.

Our total national advertising revenue, including our content (technical difficulty) beverage, cell phone PSA, and booked and pending scatter contracts is approximately 67% of our total 2009 national advertising revenue target. Despite the issues affecting the automotive industry, a big part of the increase in our scatter bookings is associated with the import auto category.

Our 2009 import auto national scatter bookings to date are up nearly 20% versus all of 2008. While our domestic auto bookings are down, due to their greater financial difficulties, it is clear that certain foreign auto manufacturers have made cinema a priority in their new car launch marketing plans.

We've also benefited from the fact that our client mix has not been heavily concentrated in the struggling domestic auto, real estate, and financial sectors, as we have continued to build our business around several other categories. During Q4 2008, new clients were added in the existing retail, entertainment and media, business finance, auto import, personal care, and apparel categories, and clients in new categories, including insurance and pharmaceuticals were also added.

This trend has continued into 2009, as we have commitments from first-time clients in the travel and leisure, import auto, sports apparel, and retail categories. We are fortunate that some of the businesses within our core client base are performing relatively well in this economy. But that could change in the future if the recession persists. As such, further broadening of our client base will continue to be a priority for us.

Approximately 54% of our 2008 revenue is associate with companies in the entertainment and media, military, telecommunications, and import auto sectors versus 59% in 2007. Thus, we are making some progress diversifying our client mix.

While the improving quality and expanding scale of our network has been a factor, our success in adding new clients has come primarily from our aggressive strategic selling. We have been making thousands and thousands of sales calls a year over the last several years that appear to be paying off, as NCM has become an established brand and cinema is no longer an unfamiliar advertising medium.

While we still must convince potential clients as cinema creates more impact for their brands and a more attractive ROI, in some ways, the current economic environment may be creating a catalyst for media buys to become more open to and even search out digital media, that they believe will create the greatest amount of impact, as they must now meet their marketing objectives with a more limited budget.

In fact, traditional media silos appear to be collapsing, as overall spending budgets are being reallocated to favor certain new digital mediums that they believe will be more effective.

Our Q4 local advertising business grew only slightly over 2007, as increases in network screens and the extra week helped offset the negative effects of the weakening economy. Fortunately, Q4 local revenue only represented 17% of our total advertising revenue. Beginning in early November, we began to notice a more pronounced downturn in the local marketplace.

While our same screen local advertising business is clearly being adversely impacted by the effects of the recession, the impact does not appear to be as severe as many other local mediums. Our attractive audience, combined with our ability -- our unique ability to sell high-quality sight, sound, and motion advertising on a theater-by-theater basis, in close proximity to specific businesses, allows clients to target only customers in their trade area, providing a lower out-of-pocket expenditure and a higher ROI.

In addition, given the diversity of our client base, categories such as auto dealers and real estate only make up a relatively small portion of our historical revenue, and thus, significant spending declines by businesses in those categories have not impacted our local advertising revenue as severely as many other local advertising platforms.

The continued improvement in the quality of our FirstLook pre-show is also helping to attract new advertisers and new network affiliates. During 2008, we increased the depth of our contents to now include a new ABC Disney relationship in 2009 and 2010. We also began a new long-term contract with Sprint to provide a cell phone courtesy PSA in October 2008 -- the first of which featuring a pantless hedgehog has been a big success with theater audiences.

We also have benefited from the increasing quality of the cinema ads themselves, as creative agencies have become better at leveraging the power of the big screen.

Our combined meetings and events business continues to post strong revenue growth. This growth was driven primarily by the growth of Fathom Division, as it benefited from the diversification of our content mix and the expansion of our live broadcast capabilities to nearly 500 locations. This expansion has allowed us to increase the revenue and cash flow potential per event, and attract more high-quality digital programming.

Successful events during the current quarter included the Metropolitan Opera Live and Encore events, and another live event featuring Glenn Beck. In addition, during 2008, we restructured Fathom and CineMeetings to combine marketing and operations functions, resulting in a significant increase in the operating margins.

We also started to plant some seeds for the future in 2008 by launching our new consumer website, NCM.com. The beta version of the site was launched during Q4, and we expect it to come out of beta on April 1. This site is an extension of our FirstLook pre-show to the Internet, providing our clients with an integrated entertainment focus media buy across both our cinema and Internet platforms.

We have also developed unique widgets that are transformable to websites and personal social pages, and will be available soon for mobile devices.

In addition to driving traffic to our site through onscreen marketing, we are discussing Adnet relationships with our founding member circuits and other entertainment websites that will further expand our online reach and traffic. By leveraging our existing digital media and operating infrastructure, and our existing sales force, we have been able to develop, operate and sell this new consumer website with very little incremental investment or operating expense.

While we're not expecting NCM.com to add a significant level of revenue in 2009, it will be an increasingly important part of our future, as media spending continues to migrate to digital networks that can provide integrated marketing solutions to their clients.

I'm very pleased with the strong finish to 2008, especially given the very difficult market environment. While our local advertising business is facing some headwinds, I'm cautiously optimistic about our overall business for 2009, given our anticipated strong overall Q1 result, and the higher level of 2009 national advertising scatter bookings.

However, we are not underestimating the challenges that could lie ahead for the remainder of the year, should the recession deepen. You should note that while our Q1 results are favorable, they only represent a small percentage of our annual OIBDA. Thus, we have a lot of work to do to achieve our 2009 annual revenue targets.

As such, we are being cautious in our revenue and cash planning. In addition to maintaining tight capital spending and operating cost controls, 2009 base salaries -- for all but a few officers that were promoted -- were frozen at 2008 levels. And that dollar amount was added to a 2009 year-end performance bonus potential, should adjusted OIBDA targets be exceeded. Also, 2008 officer performance bonuses, that were paid this past week, were approximately 50% of the 2007 bonuses paid in early 2008.

We have also created a new equity plan for officers and key employees, the details of which will be included in our proxy that will be filed in the next few weeks.

While all of these measures will conserve some cash over the short-term, more importantly, they have better aligned our overall executive compensation with the Company's current operating performance and the long-term performance of our stock.

Now I'd like to turn over the presentation to Gary to give you some more details concerning our financial performance and 2009 guidance.

Thanks, Kurt. I will now spend some time reviewing our fourth quarter and year-end financial performance in a bit more detail. My discussion will focus on our actual 2008 results and pro forma prior-year comparisons that assume that the IPO and related transactions and the $805 million senior secured credit facility were effective as of December 29, 2006.

In addition, you should note that our fiscal fourth quarter of 2008 contained 14 weeks versus 13 for 2007. And the fiscal year 2008 contained 53 weeks versus 52 in 2007. You should also note that the effect of the AMC Loews and Regal consolidated integration payments are not included in our operating results, as those net payments are recorded directly to our balance sheet.

The total AMC Loews and Regal consolidated payments were $1.6 million for the fourth quarter, and $7.5 million for the full year period ended January 1, 2009.

For the fourth quarter, our total revenue increased 18.9% to $112.4 million, driven by an 18.6% increase in advertising revenue to $101.5 million, and a 20.2% increase in meetings and events revenue to $10.7 million. For the year, our total revenue increased 9.3% to $369.5 million over pro forma 2007.

Advertising revenue grew 6.7% to $330.3 million in 2008 from pro forma advertising revenue of $309.5 million in 2007. For the full year 2008, the advertising revenue mix was approximately 68% national; 19% percent local; and 13% beverage, versus 66%, 19%, and 15%, respectively, for fiscal 2007.

The advertising revenue mix shifted slightly in the fourth quarter, favoring our high-margin national advertising revenue over our lower margin, local advertising revenue, with the breakout for Q4 2008 being 72% national; 17% local; and 11% beverage, versus 67%, 21%, and 12%, respectively, for Q4 2007.

Q4 national ad revenue, excluding beverage, grew 26.5%, driven by an 11.9% increase in CPM and a 30.6% increase in our Q4 impression base, while utilization decreased to 97% compared to 104.4% in Q4 2007. The additional week and the addition of Kerasotes, Hollywood and AMC Loews attendees all contributed to the larger number of impressions over 2007.

For the year, CPMs grew 13.4% and our impression base grew approximately 10.8% over 2007, while utilization decreased from 87% in 2007 to 79.7% in 2008. Note that we have excluded the AMC Loews impressions from the calculations of CPM and annualization during the June to November run-out period, in order to maintain period-to-period comparability.

The only part of our national advertising business that declined from Q4 2007 was our lobby entertainment network and lobby promotional products, which decreased 6.2%, as several of our larger client categories focused their spending exclusively on the big screen. While these lobby media and promotional products account for only 6% of our fourth quarter total advertising revenue, they continue to be a unique part of our selling proposition.

Our Q4 beverage revenue was slightly higher than 2007, as a reduction in time required by one of our founding members was offset by a higher CPM and the attendance associated with the extra week. For the year, beverage revenue declined 7.3% versus pro forma 2007, primarily due to the reduction in time sold.

As we expected, the remaining two founding members have renegotiated their beverage agreements, and therefore reduced their contracted beverage advertising time from 90 seconds to 60 seconds beginning on January 2, 2009. While this is [an] expected result in a decrease of approximately 18% in beverage revenue in 2009, our ability to sell this additional 30-second unit across our entire network at a higher CPM should provide some upside during our high demand months.

In 2009, we will continue to use our standard 11 30-second units as the denominator in our utilization calculations. We will change the denominator to 12 30-second units beginning in 2010, and will recalculate 2009 utilization rates to ensure period-to-period comparability.

As the economy continued to deteriorate during 2008, we saw a deceleration in growth rates in our local advertising business. Q4 2008 local revenue was basically flat with Q4 2007, with growth of only 0.6%. The increase in total average screens in our network and the extra week helped to mitigate the declining same-screen sales. Total Q4 advertising revenue per attendee declined 9% to $0.61, and our national advertising revenue per attendee, excluding beverage, declined 2.2% to $0.44 per attendee.

While our Q4 local ad revenue per attendee declined 22.5% to $0.11 from $0.14 on a 29.7% increase in attendance, this metric is less meaningful in Q4, due to the lag associated with the integration of the AMC Loews and new network affiliate attendees into our sales process. In the case of the AMC Loews, the attendees were included in the denominator of these per-attendee calculations for the entire period, even though we did not have full access to the inventory until December, due to the run-out provisions.

The local ad revenue per attendee is more significantly impacted, as the inventory available in Loews during the run-out period was more heavily weighted to the national segments of our pre-show.

We entered the fourth quarter with $1.4 million of make-goods. And as of the end of the quarter, we had approximately $1.3 million of make-goods, compared to $4 million at the end of 2007. This lower make-good balance relates to the strong Q4 box office relative to 2007 and the extra week.

Our meetings and events business had another solid quarter, as revenue increased 20.2% to $10.7 million, from $8.9 million in Q4 2007. This was driven by an approximate 15% increase in event site count for the quarter, due primarily to the increase in Metropolitan Opera events from two in Q4 2007 to seven in Q4 2008, and our expanded network.

Turning briefly to our expense line items for the fourth quarter, advertising operating costs increased approximately 300 basis points to 6.4% of advertising revenues, due primarily to the increased size of our affiliate network, from 13% to 17% of our total network screens at year-end, which resulted in an approximate doubling of our network affiliate screens available for sale during the entire fourth quarter compared to the prior year.

Meetings and events operating costs increased 300 basis points to 62.6% of meetings and events revenues, due primarily to the mix of Fathom events. Network costs decreased 20 basis points to 4% of total revenue, due to the relatively fixed nature of these costs against the higher revenue. Theater access fees as a percentage of revenue were approximately flat versus Q4 2007.

Selling and marketing expense decreased 260 basis points to 11.2% of total revenues in Q4 2008, as a result of lower local sales commissions as a percentage of total revenue, and our efforts to contain our costs. Administrative expenses remained flat, but decreased to 5.5% of total revenue from 6.6% in Q4 2007, as higher legal and public company costs were primarily offset by lower performance bonuses.

Total Q4 adjusted OIBDA increased 20.3% to $64 million from $53.2 million in the fourth quarter of 2007, and increased 4.1% to $189.5 million from $182.1 million for the year. Adjusted OIBDA margin was 56.9%, up from 56.3% during Q4 2007, and finished the year at 51.3%, down from 53.9% in 2007.

The annual margin decline was primarily due to a decline in 100% margin beverage revenue, and an increase in the percentage of total revenue related to the lower margin meetings and events business. We also had an increase in our network affiliate costs, related primarily to the addition of Kerasotes and Hollywood Theaters to our network.

Adjusted OIBDA, including AMC Loews and Regal consolidated payments for the fourth quarter [in] the year, was $65.6 million and $197 million, respectively. Depreciation and amortization increased $2.2 million from Q4 2007, due primarily to increased depreciation on digital network investments in the various network affiliate circuits.

Net interest expense increased $16.5 million from Q4 2007 to $33 million in Q4 2008. This increase was primarily due to a pretax non-cash accounting charge of $16.3 million, related to the interest rate swap with Lehman Brothers, as well as incremental interest expense related to the extra week in the quarter. These items were partially offset by lower average interest rates.

In addition, we also recorded a pretax non-cash non-operating charge of $11.5 million, due to an estimated liability and impairment charges related to our investment in IdeaCast. This charge reflects the full impairment of our $7 million preferred stock investment and the recognition of the net liability associated with the potential settlement of the put-call agreement with IdeaCast lender, which is net of the value of a continuing interest in the business.

Looking briefly at diluted earnings per share for the fourth quarter, we reported GAAP EPS of $0.03. Excluding the non-cash charges related to the Lehman swap and IdeaCast net of tax and minority interest, EPS would have been $0.25 for Q4 2008 or an increase of approximately 32% over Q4 2007. For the full year, EPS would have been $0.59 or approximately flat with pro forma 2007.

Our network continues to grow, as we added new founding member screens and entered into agreements with network affiliates in 2008. As of January 1, 2009, we had 17,313 total screens in our network, including 2,982 network affiliate screens, representing a 13.4% increase in total screens at the end of 2008.

Approximately 17% of our network is now composed of affiliate screens compared to 13% a year ago. Approximately 88% of our total screens were connected to our digital network versus 87% at the end of 2007. These digital screens continue to generate over 90% of our attendance. This increase in screen count over Q4 2007 was primarily driven by the addition of approximately 1,020 AMC Loews screens; 490 Hollywood screens; 210 additional Kerasotes screens; and 180 Cobb screens, which were added to our network on January 1, 2009.

The approximately 400 consolidated theater screens required by Regal will not be included in our screen count and attendance until early 2011.

Our capital expenditures were $3.1 million for the fourth quarter and $16.7 million for the full year. This is slightly less than the guidance we had previously provided, as expenditures related to network affiliate installations were lower than expected. We estimate that 2009 CapEx will be in the range of $8 million to $10 million, assuming no additional network affiliate agreements are signed during 2009.

Regarding our balance sheet, our total debt outstanding as of January 1, 2009 was $799 million, comprised of the $725 million term loan and a $74 million balance on our revolver versus a $59 million balance at the end of fiscal 2007. This increase is due to our decision to draw all of our availability in light of the Lehman bankruptcy and general credit market conditions. The revolver balance, net of NCM LLC cash and cash equivalents, was down to approximately $40 million versus $51 million at the end of fiscal 2007.

This net revolver balance excludes the effect of $35.1 million of cash at NCM, Inc. versus $22.4 million at the end of 2007.

The interest rate on our $725 million term loan was 6.4% for Q4 2008 versus 7% in Q4 2007, and 6.5% for the full year versus 6.9% in 2007. Approximately $550 million of our $725 million term loan, due in February 2015, is fixed under interest rate swap agreements at 6.7%, and the remainder is floating rate debt at 3.8% as of January 1, 2009. The interest rate on our revolver borrowings was 4.6% in Q4 2008 versus 7.5% in Q4 2007, and 5.2% for the full year versus 8% in 2007.

Our pro forma net leverage at NCM LLC as of January 1, 2009 is approximately 3.9 times trailing four-quarter adjusted OIBDA, including the AMC Loews and consolidated payments down from approximately 4.1 times as of 2007 year-end. While we do not anticipate paying down our term debt, our leverage will decline over time, should OIBDA continue to grow.

Now turning to 2009. We are increasing our previous guidance for Q1 2009 and are now expecting total revenue to be in the range of $70 million to $73 million, and adjusted OIBDA to be in the range of $24 million to $26 million. The increased guidance for Q1 is primarily due to the greater-than-expected national bookings since our previous call.

For the full year 2009, we continue to expect total revenue and adjusted OIBDA to approximate the results achieved in 2007 -- sorry, 2008. This outlook for the first quarter and full year 2009 does not reflect any potential make-goods being generated.

Before concluding, I'd like to remind everyone that we previously announced a regularly quarterly dividend of $0.16 per share during our 2009 guidance call held on January 29, 2009. This amount represents a payout ratio of approximately 55% of the Q4 cash distribution to NCM, Inc., after adjusting for estimated taxes.

This dividend represents an annual yield of approximately 6% based on recent trading levels. The dividend will be paid on April 2, 2009 to shareholders of record on March 19, 2009.

That concludes our prepared remarks, and we'll now open up the lines for any questions you might have.

(Operator Instructions). Ben Mogil, Thomas Weisel Partners.

So, I wanted to get a better sense -- obviously, the box office is tracking well and obviously, you're seeing relatively good -- obviously, the first quarter is tracking ahead of what you thought even a couple of weeks ago.

In terms of the rest of the year, is the caution just sort of -- are you concerned that the box office gets weaker or are you sort of -- just as a general comment on the economy and the visibility that we're seeing? Because you seem to actually be having better visibility than a lot of other advertising companies that most of us on the call follow.

Yes, it doesn't really have anything to do with our expectation of box office. I learned long ago predicting box office was not an easy task. Having said that, the release schedule is starting to shape up pretty well and looks pretty strong, actually, for the summer.

But as we've talked about in the past, our revenue, especially on the national side, doesn't really follow box office all that much. Clearly, the tailwinds that we're getting right now from all the positive press on the theater business doing well and all that is very, very helpful. And you can probably point to a couple of first quarter deals where people either expanded their buys or made additional buys because of the continued strength of the box office. It's not one of the most important factors when we look ahead.

Having said that, we're obviously a little more cautious about the second half of the year. At this time last year, we were saying the same thing. We just don't have as much visibility to the scatter market now because it really hasn't broken. The upfronts for television really haven't started yet and they won't start until sort of the April/May time period, they'll start positioning for that. And as we've mentioned in the past, budgets are being released a little bit later than we've seen.

Now, having said all that, we do have an awful lot of committed revenue already. As I mentioned in my remarks, 67% of our budget for the year is already committed. And we're working on several other deals. So, we feel pretty comfortable about managing our business around sort of a flattish performance with 2008. We think that's the right way to manage our business right now.

And is the 67% of your budget being committed already, is your budget relatively flat with '08?

Yes, that's what we've said in the past. Yes.

No, I meant you said overall -- you said the business would be flat. I just wanted to make sure that from a national perspective, sort of apples-to-apples, if you will.

If you work through our numbers, the one thing you should note is that our beverage revenue -- we've already said, Gary mentioned it in his comments -- it's going to be down about 18% for 2009. That's going to be made up by the national revenue increase and a little bit of -- and it's also -- the national is also going to make up a little bit of decrease in local.

So we are expecting a bit of a stronger national marketplace. We also had increases related to our content partners and other committed -- long-term committed deals.

On the local side, are you seeing any kind of bad debt expense that you need to be worried about?

We've seen a few. We've taken some additional reserves. But I wouldn't say we've seen anything that's alarming at this point. There's been one or two larger ones that have hit. And when I say larger, $100,000 here, $100,000 there. But we are, I think, being a little more cautious on our reserves for obvious reasons. And we've taken a little bit higher reserves at year-end.

Okay, great. And I think last question before I cede the floor. I'm not sure if you -- I know you obviously mentioned or you don't know the terms of the national amusements and Screenvision contract, do you know when that expires?

I have no idea.

Okay. And is that the -- or is the national amusement markets the only large DMAs that you're not -- don't have -- that you've got less exposure to, if you will?

I would say that it doesn't really strengthen us. Their big markets are Boston, outlying New York, metropolitan area, we're pretty strong in those markets already, especially in New York. I guess they've got some exposure in Cincinnati that would help a little bit. But we're in all top -- 49 of the top 50, the only market we're not in right now from an advertising standpoint is Memphis. So we've got pretty good coverage already.

You don't have advertisers in Boston say, gosh, you're not giving us what we're looking for, kind of thing?

No, we don't really see that much anymore. We don't really sell DMA by DMA. In fact, we try not to. We sell as a national platform. So, we haven't had anybody tell us they weren't going to buy us because we didn't have Memphis.

Fair enough -- unless you're from Memphis. Okay, thanks.

James Dix, Wedbush.

Just three questions. First, following Kurt on the 67% number that you gave in terms of book to your targets for this year, how does that compare to where you were this time last year? And then -- oh, go ahead.

Yes, based on what we actually did this year, our 2008, it's about the same. And that's one other thing that kind of gives us comfort about this flattish year. But if you measured it against what we had budgeted for last year, it's a lower percentage.

Okay. It was lower at this time last year. Okay, so you (multiple speakers) [now]?

Based on our budgets.

Okay. Secondly, has your -- the view of the local versus national growth you expect this year changed since your January call? I mean, are you expecting now national to be a greater portion of your budget than local? Or has that not changed?

No, nothing's really changed. I think the language we used in January and the language Gary used today for our guidance was pretty much the same. So, nothing's really changed.

Clearly, we've had a few positive surprises in the first quarter, which has led to our increase in the first quarter. But at this point, we haven't just added that on, if you will, to the rest of the year. And we're still pretty comfortable with flattish year-over-year.

Okay. And then my last one -- you mentioned, Kurt, that there's some advertisers where it seems cinema is clearly part of the regular media plan. Is there any way you could give a little more color as to what types of categories you're really seeing cinema most integrated into at this point?

And then on the flip side of the equation, what categories, where you think you have some growth, are you really farthest away from that objective?

Well, clearly the import auto I mentioned as being something that we appear to be baked into almost all the new car launches now or a good percentage of the new car launches in one way or another. So what's called sort of Tier 1 spending by the car guys. So that's obvious. The military, we continue to do a lot of business with the military, various military branches -- Army National Guard, in particular.

And so, entertainment -- obviously, all forms of entertainment, whether it be broadcast cable, the movie studios -- we do a lot of business with them. Those categories that I mentioned that represented 54% of our total revenue, those would be obviously our core categories.

Now there's a lot of others that we've started to make a lot of progress with -- retail, we've made a lot of progress with. We've really done a good job I think with the back-to-school period. September of 2008, I think happened to be our largest, on a percentage basis, utilization month of the year. It ended up being something like 114% or something like that for the month.

So we've done some really good work I think with some of these other emerging categories. I think some of the upside for the future -- we've mentioned this before, but the packaged goods companies and companies that advertise every single day of the year. And it's not what I would call event marketing or built around some specific priority. They're just buying rating points in the marketplace every single day.

And we mentioned or I mentioned in my comments that we expect maybe a moderation of our CPM growth going forward because of client mix. And clearly, there are a number of client categories out there, packaged goods being one of them, that are used to buying at much lower CPMs. So we're going to have to adjust our model if we want to get significant spending by those categories. And we're in the process of making some of those adjustments.

The good news for us is that we have now built a fairly significant amount of inventory that we're able to be flexible in certain time periods of the year. Again, we're not going to probably -- you're not going to see a whole lot of discounting by us in our months where we're sold out already. There's three, four, five months a year that that's the case. So, I was actually pleasantly surprised, obviously, by our CPM growth this year. It was pretty good.

Okay, sounds good. Thanks very much.

[George Hoglund], Barclays Capital.

Thanks for taking my questions. Just two questions. The first is, with the increased guidance for first quarter '09, coupled with the guidance for the remainder of the year remaining flat, that would seem to imply declining advertising market overall. And maybe I'm just thinking about it the wrong way, but any clarity you could provide on, I guess, the last three quarters of the year, that would be appreciated.

Yes, clearly we had a very strong third and fourth quarter for the year. So, given the current environment, us trying to project increases over those very strong quarters is fraught with peril and risk. So not something that we felt like we wanted to do.

You also have to consider the 53rd week in the fourth quarter. That did add revenue and cash flow to fiscal 2008 that won't be there in fiscal 2009. So while we're going to be up a little bit coming out of the first quarter, I hope we can maintain that cushion through the second and third and fourth quarters. But I think, given the current market environment, there's some risk to that. And I think we've done a pretty good job in the past of being conservative in our guidance and we want to continue that way.

Great. Understood. And that actually leads into my second question, which was -- I was wondering if you could break out the additional revenue in the OIBDA provided by the 53rd week.

Yes, it's hard. I know the theater circuits have done some of that over their calls in the last week or so. It's harder for us, because we, first of all, we don't really track national revenue necessarily on a week-by-week basis.

Local revenue, we have a pretty good idea because it's theater-by-theater, what the local revenue is for any given week. But for national, we're making estimates, in this case, for a five-week period of December, and that's what's baked into our flights. Would we have been able to get that same amount of revenue over a four-week flight as opposed to a five-week flight, who knows?

So effectively, what we've done is we've shifted national revenue into the fourth quarter of 2008; it would have hit in the first quarter of 2009 under normal circumstances. You also have to consider that almost all of our operating expenses have got an extra week in there as well. Some of those -- we don't close our books, so some of those would be hard to allocate, if you will, by a five-week versus a four-week month.

So we really haven't spent a lot of time doing it. We just wanted to make sure that everybody understood that the numbers were there.

Rich Greenfield, Pali Capital.

Just wanted to make clear, just to follow up on the last question, that if it wasn't for the simple fact that you had the extra week, your guidance for both revenues and EBITDA would be up for both on a year-over-year basis.

Two, in terms of National Amusement, if National Amusement does get broken up and sold the way they're talking about, what happens to the -- as you look at the competitive landscape, what happens to Screenvision if they lose a good chunk of National Amusements -- not even so much directly to you, but they get sold off to other players, presumably some of your founding members in other companies -- what does that do to Screenvision's ability to sell in major markets, if they lose those screens?

And then lastly, you talked about having not having make-goods in the fourth quarter. I presume we're not going to have make-goods in the first quarter. Is it fair to say that if we continue to see this type of strength at the box office, that make-goods won't really be an issue for 2009?

Let me go in reverse. The make-good question -- clearly, higher box office helps, but it's when the higher box office happens that's probably more important. With our make-good, the way we allocate revenue, if the underperformance in box office happens to be in the last month of the quarter, that's much more difficult for us, because we can't make good in the current quarter; we end up making good in the next fiscal quarter.

If the box office under-delivers what we sold in the first two months of any given quarter, we have time to make good usually that contract, so it doesn't adversely impact the revenue for the current quarter.

So when the box office hit -- when the box office downturn, if you will, hits, is critical to the way our revenue is allocated. Putting it in perspective, Rich, obviously that last week of 2008 was a very, very big week. And had we not had that week, we would have ended up delivering the revenue associated with that week into first quarter of 2009. So it's a bit of a timing issue.

Your second question, I guess, was the National Amusements question. I don't want to speculate on what may or may not be sold. I understand books are on the Street and there's various combinations of assets that may or may not be sold. There's even talk of the New York and Boston asset not being sold at all.

So it's a little hard to really get a clear picture of what's going on there. Clearly, I think any big market, sort of top 10, top 25 markets that move away from a network, it's not good for the network provider. That's pretty straightforward. So, you can take that for whatever it's worth. Obviously, we're watching the whole thing pretty carefully.

And your question on the 53rd week. There's really two things that are working against us in 2009. We're losing about $7 million or $8 million of 100% margin beverage revenue. So we've got to make that up effectively with our national scatter business. And we're also losing that 53rd week.

And so there's two things that are working against us. Clearly, we're showing some growth in our national business for 2009, because that is offsetting the lower beverage and the lower -- slightly lower local. So, I guess your lead-in question was -- are you showing growth in national? Yes, I guess we're showing growth in national.

Perfect. Thanks a lot.

Barton Crockett, Lazard Capital Markets.

Okay, great. Thanks for taking the question. I was wondering if you could talk a little bit more about what's happening with markets, in terms of when does it hit and was there some type of competitive bidding situation between you and Screenvision? And you've talked and spoke in the past about Screenvision perhaps being an aggressive competitor. Was that any type of issue here?

Welcome back. I would say that it was reasonably competitive. This was a bit of a unique situation where Screenvision had the local sales representation and we had the national sales representation. And that's been going on for awhile. I think we just got to the point where we looked at the market and we looked at the number of impressions we had, and it just didn't make sense to continue to ratchet up the price.

We really, quite honestly, didn't need to, we didn't think. And I guess I was of the opinion at the end of the day -- no matter what we put on the table, it would probably get over-bid. And so we just felt that it was -- this was the right choice for now for us.

Okay, all right. Are there any other important affiliates for you guys that where there's a contract expiring this year, where there might be another change?

No. No, our two largest affiliates, Hollywood and Kerasotes, we just signed up last year. So I think we're in pretty good shape there. And with the Regal consolidated coming on in a couple of years, I think the amount of impressions that we're going to have, and the market coverage we have, I think are matched very nicely with the growth in budgets and growth in demand that's in the market.

The job of any network is to grow your impression base just ahead of the demand. You obviously don't want to spend a whole a lot of time paying money for an impression base that you can't sell. So, with all of our new impressions and our current sell-through, give or take 80%, we felt pretty comfortable that we were going to be able to meet demand going forward pretty nicely.

Okay. I was wondering if you could also talk about your interest in looking at Screenvision as an acquisition target. I mean, Thomson and ITV have publicly come out with their fourth quarters, and in the case of ITV, who reiterated and Thomson, I guess, got a little bit more open in terms of their interest in selling. I was wondering about your interest in buying and your view on antitrust at this point.

I'm sorry to be a broken record on this, but I'll give you the same standard answer I gave at the last call, that I'm always interested in an accretive deal. So I've not seen any materials yet. I understand there's not yet a book or a banker. So we're just sort of waiting and we'll see what there is to talk about.

As far as your second question, it's probably not prudent to talk about how the Justice Department may or may not act, especially given that we've currently had a changeover of the administration. And I don't think anybody has a real clear understanding one way or the other how justice is going to act under the new administration.

Okay, all right. I'll leave it there. Thanks a lot.

Scott Barry, Credit Suisse.

Kurt, could you just talk a bit about Loews qualitatively? Now that you've integrated Loews, what kind of qualitative benefits you're getting in terms of client feedback, et cetera?

Well, we don't get -- I mean, clients don't come rushing up to us and say how good we are when we're in the middle of a negotiation over CPM. So, we don't get a lot of those calls. But I can tell you, we've had some very significant signs in late '08 and now into '09, where clients that had previously bought Screenvision on a -- sort of an exclusive basis (technical difficulty) [are now] buying with us. And generally, we know, and in some cases, have even been told, it's the shift in Loews.

So, clearly more concentration in the Northeast, predominately in the New York metropolitan area, is a very good thing for us. It has obviously jumped up our marketshare of top 10, top 25 pretty significantly. So those are all positive factors that I think have helped our sales process since it happened.

It was clearly a little messier than we would have liked -- the transition between June and November, because we were sharing, effectively, the inventory. So the sales process leading up to June 1 was a little bit confused in the marketplace. And then after that, inventory that we had access to was not as good as we had hoped, especially on the local side, as Gary mentioned. So, now that it's clean, I think we're off to the races.

Great. I'll take a flyer too on them -- have you seen any impact from the sort of collapse in the business meetings segment here recently in the travel category, in the meetings and events business?

No, I mean, look, our meetings business was basically flat over year-over-year. So, revenue-wise. Actually, from a margin standpoint, it actually was higher because of some of the changes that we made, I talked about.

So, that business continues to do okay. It's actually doing pretty well the first part of this year. We actually think that the lack of budget could help with some of our corporate business, as people look for more cost-effective ways to communicate with their employees and their clients and so on. So we're obviously pushing pretty hard on that business.

The Fathom business is the one that really took off last year. We had revenue growth, I guess, of 110% or something like that. So, very good business there. Just the overall scale that we've now been able to deliver to the marketplace across a very large platform of live presentation is really what's getting us there.

And we're starting to see a lot of niche programming, like the back stuff that we've been doing. And there's some other stuff that we're working on now, that's very niche-y, but it works. So we're pretty excited about that. We generated almost $40 million of revenue between those two businesses this year and that was pretty good -- or in '08, rather.

Great. Thanks very much.

Marla Backer, Research Associates.

I wanted to ask one follow-up to what you were just talking about, Kurt, with the Fathom. Given that the Metropolitan Opera has been a point of strength for you, those are new demographics to the cinema, usual demographics. Is that giving you any opportunity to go out and try to sell some advertising to new advertisers that wouldn't have considered it before?

Well, you never really know how people find out about us. But I would hope that executives who make buying decisions from an advertising standpoint are in theaters more, because there's different types of programming.

We do know that, especially for our local business, that the on-screen advertising that we do for our local business, is pretty effective. So I can't really point to the Metropolitan Opera or any of our Fathom events and say that it's actually driven cross-selling, if you will, or leads into our advertising business. But I think the more and more people and the different kind of people we get into the cinema, the better.

I also think that it tends to introduce a whole new movie-goer to the cinema, because there's probably a lot of people that have attended the Met, for instance, that may not have been in a theater for quite some time. And they had a good experience and maybe they come back for a movie the next time.

So I just think the more people you get into the theater and into the new environments and the new stadium-seating theater, the better it is for the overall business.

Okay, thank you. And two other questions. One is on 3D, the 3D footprint, because obviously that's been a focus for the industry recently, with all the 3D content coming out. Is it giving you an opportunity to speak to advertisers about potentially utilizing 3D for commercials in cinemas? Or is that -- is it still way too early for that?

Well, I think it's way too early from a sort of business standpoint. It's not way too early from a technology and creative standpoint, and we have started talking to many clients about working with us to develop ideas around 3D.

Clearly, there's not a financial model out there, a good financial model yet for advertisers, just because there isn't enough distribution yet. And what distribution there is out there is somewhat spotty; very highly focused in smaller markets right now, primarily because of the Carmike chain being 100% digital.

But I think this will be something that will be a part of our future and we need to be ready for it. Will it be in '09 and have an impact on '09? I don't think so. In fact, as you very well know, the timing of the whole digital cinema roll-out is still in flux. So, we are sort of held hostage in some respects by when the [2K] equipment gets into the marketplace with enough scale and geographic reach to actually make sense for our business.

That make sense. And then my last question -- you talked a little bit about Screenvision vis-a-vis some of the exhibitors. Are you seeing any examples on the advertising side where Screenvision is still coming in and willing to offer CPMs that are just too low for you to match? And are you losing any potential advertisers now because of that?

It's really quieted down quite a bit. We've not seen as much aggression, if you will. Having said that, we haven't lost any deals. Clearly, there are situations where advertisers come to us and say, Screenvision is at such and such price, and you're higher, and I need you to get to that price. And there's this whole dance that goes on. But I would say that it's quieted down a little bit since mid-last year, when we talked about it (technical difficulty) [on one of our] calls.

Thank you.

And that does conclude the question-and-answer session. At this time, I'll turn the conference back over to you.

Thanks, everyone, for your patience and your support. And I think we've got a lot of good things going for us right now. And we just continue to keep our heads down and doing what we need to do to grow and operate our business.

So, thanks for your support, and we'll be talking to you soon, I'm sure.

And that does conclude today's conference. We do thank you for your participation today.