National Cinemedia Inc (NCMI) 2009 Q2 法說會逐字稿

Greeting, ladies and gentlemen, and welcome to the National CineMedia, Incorporated Second Quarter 2009 Earnings Conference Call. (Operator Instructions.) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Oddo, Vice President of Finance for National CineMedia, Incorporated. Thank you, Mr. Oddo, you may begin.

Good afternoon. I would like to remind our listeners that this conference contains forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933, as amended; and Section 21-E of the Securities Exchange Act of 1934, as amended. All statements other than the 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'll turn the call over to Kurt Hall, CEO of National CineMedia.

Thanks, David. Good afternoon, everyone. Welcome and thanks for joining us for our second quarter 2009 earnings call. Today, I'll be providing an overview of our second quarter operating results and an update on the marketplace. Gary Ferrera, our CFO, will then provide a bit more detail on our financial performance for the quarter and will provide specific guidance for Q3 2009 and the full year. And then, as always, we'll open the line for questions.

We are pleased to report another quarter of growth in a difficult marketplace. Today, total Q2 2009 revenue increased 7.2% versus Q2 2008 and our Q2 adjusted OIBDA increased 5.8% over 2008. Our revenue growth reflected continued national market share gains that more than offset the effect of lower revenue across the rest of our business. Most notably, as expected, our beverage revenue declined 6.6% as a result of the reduction in time required by our founding member circuits to fulfill their reduced time obligations to Coke. This decrease in beverage revenue combined with higher network affiliate costs contributed to our OIBDA margin decline.

Our national advertising revenue, excluding beverage, increased 21.5% as we benefited from a higher allocation of content partner spending in Q2 2009 versus Q2 2008 and expanded our client base as we continued to improve the quality and reach of our national network. Non-content partner national advertising revenue excluding beverage grew 8.7% in Q2. Improvements in our network, most notably the addition of AMC Loews circuit that strengthened our coverage in the larger DMAs are clearly aiding our strategy to broaden our client base. Several new clients are buying our network for the first time in 2009, including clients in the QSR, package goods, sports apparel, import auto, and telecommunications categories.

We are also starting to see interest in the technology area, a whole new category for us. It is important to note that certain of our new clients in the past had bought Screenvision exclusively. Strengthening our network remains a top priority in our effort to compete more effectively with broadcast and cable TV and other national advertising networks. We've already added 184 new screens to our network in 2009 through our agreements with our founding members, including the 82 movie co-screens acquired by Cinemark in Q1. These screens had previously been a part of the Screenvision network and while only four theaters, they are highly attended with all four in the top 50 DMAs and three ranking among the top 50 grossing theaters in the U.S.

In addition to pursuing new network affiliates through conversations with several theater operators, we are also hopeful that our network growth will continue to benefit from M&A activity in the theater marketplace. In addition to the 400 consolidated screens acquired by Regal in 2008 that will join our network in 2011, we continue to watch the National Amusement's theater sales process and the Screenvision sales process with interest. Any favorable outcome from this market activity will add to our current market coverage and aid in our effort to complete--compete more effectively for national advertising budgets. While we have so far not been included in the Screenvision sales process, we continue to believe that a transaction would provide attractive expense synergies, a national advertising network that is more competitive in the national TV marketplace.

This is especially true in the package goods, retail, and QSR categories, where we are significantly underrepresented from a spending standpoint. While we currently have nearly 70 and 60% market share of theater attendance in the top 10 and 25 DMAs respectively, these significant spending categories in particular require either--even broader reach with nearly universal geographic coverage for us to compete more effectively with TV and other national advertising platforms. While we continue to be interested in pursuing a transaction with Screenvision we will continue to pursue the expansion of our network through relationships with other theater circuits.

Another testament to the quality of our network has been our ability to establish and renew long term marketing relationships with some of the largest media and entertainment companies. I am happy to announce that over the last several weeks we have renewed our content partner marketing agreements with NBC Universal, Warner Brothers, A&E, and History Channel for another two years through 2011. These exclusive agreements not only provide us with two-year commitments to acquire advertising on our network, they also will continue to provide us with high quality entertainment programming that ensures that our First Look preshow will continue to deliver a premium entertainment experience for patrons and an increasingly effective marketing platform for our advertising clients.

As expected, our Q2 CPMs decreased as the supply/demand dynamics in the market are now clearly favoring media buyers. However, our ability to expand our client base and increase Q2 inventory utilization nearly 23 percentage points while saleable inventory increased over 18% more than offset our slightly lower CPMs. While our CPMs continue to be much higher than average TV CPMs, softness in the TV [market] pricing creates a bit of a drag on our pricing as broadcast sets the tone for the pricing environment for the sight, sound, and motion advertising marketplace in which we compete. We expect this softer CPM environment to continue throughout the remainder of 2009 and to result in near term quarter over quarter CPM declines as our over 15% CPM growth in the second half of 2008 will set a challenging benchmark.

Our national advertising business continued to form well. As expected, our Q2 local advertising revenue declined as the increase in network screens available for sale by our local sales force was not enough to offset the softer marketplace. Having said this, while we continue to trail last year's sales levels our local business appears to be stabilizing as we exceeded our internal Q2 targets and the rate of revenue decline versus the same quarter in 2008 has slowed dramatically from what we experienced last quarter. Our Q2 local revenue decreased only 6.1% versus Q2 2008 compared to the 19.3% Q1 2009 decline versus 2008. While our local business did decline on a year over year basis, our performance exceeded that of most local advertising mediums as we continued to benefit from the addition of several high quality theaters, strong box office, and attractive audience. In particular, the AMC Loews Theaters were strong local performers during the quarter.

Our combined meetings and events business experienced its first down quarter since we went public. Both our meetings--CineMeetings and Fathom division revenues were down during Q2 as our larger meeting clients appear to be delaying their corporate events and more of the Metropolitan Opera events were scheduled in Q1 this year than in Q2 and as such, much of the Q2 revenue decline was related to the timing of the Met events. Year to date, our meetings and events revenue grew over 9% versus the first six months of 2008 off a very strong performance by our Fathom division. CineMeetings' revenue was down for the first six months as it was adversely impacted by the weak economy. While the soft economy is expected to continue to impact our meetings business, our second half of the year should benefit from a solid Fathom event pipeline.

Turning briefly to some of our future growth initiatives, our web initiative is beginning to gain traction with the Q2 launch of our new consumer website, NCM.com, and related widgets, and we began to market and sell our online ad network. While the NCM.com traffic is still somewhat modest, our online ad network that currently represents 22 publishers, in addition to NCM.com, has nearly 30 million monthly unique visitors. This new online initiative provides our sales force with a unique integrative bundle that can be sold separately or with our in theater products. While we have begun to close deals with interactive online agencies, we are not expecting our online initiative to be a meaningful growth driver in the near term. However, as media buying silos continue to collapse and clients increasingly look for integrative marketing solutions across multiple platforms, we believe that NCM.com and our ad network will be an important part of our future growth.

During Q2, we completed the restructuring of our investment in IdeaCast through an acquisition of 100% of its senior secured debt from its lender and foreclosed on certain assets that secured that debt. We then merged those assets into another out of home digital advertising company called Danoo, a Kleiner Perkins portfolio company. As a result of this transaction, NCM became a minority shareholder it the new larger combined entity while allowing us to continue to place maximum operating focus on our core cinema advertising business, while providing a potential growth engine for the future. The new combined company will become one of the larger out of home digital advertising companies selling advertising across networks in health clubs, coffee shops, airports, and airliners. While the digital out of home advertising business is only in its startup stage and continues to be very highly fragmented, this new partnership with one of the most successful venture capital investors will provide a platform to create the national scale and more efficient buying currency required by national buyers, much the way cinema advertising has evolved over the last few years.

I am very pleased with our strong second quarter and first half performance as we continue to outperform other media platforms in a very difficult marketplace. However, we continue to operate in a very challenging business environment with difficult second half comps ahead of us and limited overall Q4 visibility as media buyers and the brands they represent continue to delay their final scatter buying decisions until the very last minute.

As Gary will discuss in a few minutes, given this late breaking scatter market, we are providing a broader range with respect to our guidance for the year. While the next two quarters will be challenging on a comparative basis given our strong second half of 2008, we continue to make significant progress expanding our client base and shifting market share from TV and other national advertising platforms. With our expanding client base and our continuing network improvements we are very well positioned for when the economy begins to recover.

Now, I'd like to turn over the presentation to Gary to give you some more details concerning our Q2 financial performance and our financial guidance for the remainder of the year.

Thank you, Kurt. I will now spend some time reviewing our second quarter financial performance in a bit more detail as well as provide guidance for Q3 and full year 2009. You should note that the Regal consolidated integration payment is not included in our operating results as those payments are recorded directly to our balance sheet. The Regal consolidated integration amount was 800,000 for the second quarter of 2009 and 1.1 million for the first half of 2009. Including the final payment specifically related to the AMC Loews Theaters in Q1, total integration amounts for the first half of 2009 totaled 1.2 million.

As Kurt mentioned, we had a great second quarter, especially considering the current market environment. We outperformed our guidance range due to some very late breaking scatter dollars, some which came as late as the first week of June. For the second quarter, our total revenue grew 7.2% to 92.9 million. Total advertising revenue increased 11.6% to 83.5 million while meetings and events revenue decreased 21% to 9.4 million. The advertising revenue mix shifted in favor of our national business for the second quarter of 2009 and was approximately 70% national, 18% local, and 12% beverage versus 64%, 22%, and 14%, respectively, in Q2 2008.

Q2 national ad revenue, excluding beverage, grew 21.5% driven by a utilization increase to 81.3% compared to 66.2% in Q2 2008 across an 18.3% increase in our Q2 impression [biddings]. While CPMs decreased 6.2%, the strong Q2 2009 box office combined with the inclusion of a full quarter of AMC Loews attendees contributed to the larger number of saleable impressions over Q2 2008.

As discussed on previous calls, the time required for beverage advertising by two of our founding members in 2009 was reduced from 90 seconds to 60 seconds. This reduction was partially offset by the 8% contractual beverage CPM increase as well as the additional attendees provided by the strong Q2 2009 box office and resulted in a 6.6% decline in Q2 2009 beverage revenue versus Q2 2008. While the economy continues to struggle versus the first half of 2008, the quarterly declines in our local business have begun to stabilize as our Q2 2009 local revenue decreased only 6.1% versus Q2 2008. The 7.9% increase in total average screens available for sale by our local sales force helped to partially offset a decline in same screen sales.

Total Q2 advertising revenue, excluding beverage, per attendee decreased only 1.3% to $0.41 despite a very weak ad market combined with a 16% increase in total attendees. National advertising revenue per attendee, excluding beverage, increased 4.7% to $0.32 per attendee in Q2 while Q2 local ad revenue per attendee declined by 19.2% to $0.08 per attendee, improving from a 27.1% decline in Q1 as we benefited from improving sales activity.

We entered the second quarter with approximately 2.5 million of [made] goods and as of the end of the quarter we had approximately 1.1 million of made goods, which is the same amount as at the end of Q2 2008. A very strong box office in the last few weeks of June helped reduce the Q2 made good liability.

Our meetings and events revenue decreased 21% to 9.4 million from 11.9 million in Q2 2008. This decline is primarily due to weakness in the CineMeetings business and the fact that we held fewer Met events during Q2 2009 versus Q2 2008 as the timing of the Met events during the 2008/2009 season favored the first quarter. However, year to date, our meetings and events revenue increased 9.1% compared to the first half of 2008. Total Q2 adjusted OIBDA increased 5.8% to 45.3 million from 42.8 million in the second quarter of 2008, while adjusted OIBDA margin was 48.8%, down from 49.4% during Q2 2008.

The margin decrease was primarily due to the lower high margin beverage revenue, the increase in our theater access fees associated with the addition of the Loews attendees and the strong film schedule, higher network affiliate expenses associated with the addition of new network affiliates and one-time professional service costs related to the IdeaCast transaction. These factors were partially offset by the increase in our higher margin national advertising revenue and our efforts to contain costs.

Adjusted OIBDA, including Regal consolidated integration payments for the second quarter, was essentially flat at 46.1 million, compared to 46.5 million in 2008. For the first half of 2009, total revenue was 166.4 million compared to 149.4 million in the first half of 2008, an increase of 11.4%. This included advertising revenue of 143.6 million, compared to 128.5 million in the first half of 2008, an increase of 11.8%. Adjusted OIBDA was 72.2 million in the first half of 2009, compared to 63.5 million in the comparable period in 2008, an increase of 13.7%. Adjusted OIBDA included the AMC Loews and Regal consolidated theater payments was 73.4 million for the first half of 2009 versus 68 million in 2008, an increase in 7.9% from the prior year.

Depreciation and amortization increased 1.1 million from Q2 2008 due to increased depreciation related to investments in our digital network and the various network affiliates circuit and our NCM.com website as well as increased amortization related to the increase in intangible assets associated with the annual founding member common unit adjustment. Net interest expense decreased 4.6 million from 15.1 million in Q2 2008 to 10.5 million in Q2 2009. This decrease was primarily due to pre-tax--to a pre-tax non-cash accounting gain of 4.5 million related to the interest rate swap with Lehman Brothers that is considered ineffective for accounting purposes. This non-cash gain was due to a higher long term interest rate, which also resulted in a decrease in our interest rate swap liability.

Looking briefly at diluted earnings per share for the second quarter, we reported GAAP EPS of $0.17. Excluding the non-cash gain related to the Lehman swap net of tax and minority interest, EPS would have been $0.14 for Q2 2009 versus EPS of $0.10 in Q2 2008, a 40% increase.

As of July 2, 2009, we had 16,848 total screens in our network, including 2,333 network affiliate screens, representing a 1.2 decrease in total screens at the end of the second quarter versus the end of Q2 2008. Approximately 14% of our network is comprised of affiliate screens and approximately 92% of our total screens are connected to our digital network versus approximately 85% at the end of Q2 2008. These digital screens now generate approximately 94% of our attendants.

The slight decrease in total screen count at the end of Q2 2009 compared to Q2 2008 was primarily driven by the reduction of approximately 675 non-digital market screens from our network and offset partially by the addition of approximately 180 Cobb screens, 150 AMC Loews Star screens, 82 Muvico screens acquired by Cinemark, and some minor net organic founding member screen growth across our network. You should note that the market screens were not part of our digital network and were not available for sale by our local sales force as the local sales had been handled by screen vision. Also, approximately 400 consolidated theater screens acquired by Regal during Q2 2008 will not be included in our screen count and attendance until 2011.

Our capital expenditures were 2 million for the second quarter, compared to 3.7 million in Q2 2008 with a total of 4.5 million in the first half of 2009 versus 9 million for the six-month period in 2008. We continue to estimate that 2009 CapEx will be in the range of 8 to 10 million assuming no additional network affiliate agreements are signed during 2009. This compares to 16.1 million in CapEx in 2008.

Regarding our balance sheet, all of our debt is held at the operating company, NCM, LLC. Our total debt outstanding as of July 2, 2009 was 805 million, comprised of a $725 million term loan, a $74 million balance on our NCM, LLC revolver, versus a 47 million revolver balance at the end of Q2 2008 and a 6 million non-interest bearing note payable to Credit Suisse associated with the idea of [cast] restructuring. The revolver increase is due to our decision to draw all of our availability in light of the Lehman bankruptcy. The revolver balance net of NCM, LLC cash and cash equivalents was approximately 47 million at the end of Q2 2009 versus 45 million at the end of Q2 2008. This net revolver balance excludes the effect of $34.3 million of cash in NCM, Inc. versus 16.3 million at the end of Q2 2008.

The 34.3 million Q2 cash balance in NCM, Inc. is reserved for dividends, income tax payments and tax receivable agreement payments to the founding members. You should note at our current dividend rate, excluding tax associated reserves, we currently have enough cash to pay approximately one full year of dividends. The average interest rate on our $725 million term loan was 5.9% for Q2 2009 versus 6.2% for Q2 2008. 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 2.4% as of July 2, 2009.

The average interest rate on our revolver borrowings was 2.2% in Q2 2009 versus 5% in Q2 of 2008. Our pro forma net senior secured leverage at NCM, LLC as of July 2, 2009 is approximately 3.8 times trailing four quarter adjusted OIBDA, including the AMC Loews and Regal consolidated payments, which is down from approximately 4.2 times as of Q2 2008. We also announced our regular quarterly dividend of $0.16 per share. This dividend represents an annual yield of approximately 4.3% based on recent trading levels. The dividend will be paid on September 3, 2009 to shareholders of record on August 20, 2009. Now, turning to our Q3 guidance and annual outlook. For the third quarter, we expect total revenue to be in the range of 94 to 97 million and adjusted OIBDA to be in the range of (inaudible) to 51 million. This guidance is lower than the Q3 2008 adjusted OIBDA of 62 million primarily due to a shift in content partner spend towards the first half of the year as well as lower beverage revenue. With respect to our annual outlook, we continue to experience a delay in national advertising bookings, as marketers and media buyers are taking longer to commit advertising dollars as they monitor uncertain economic conditions. However, in both Q1 and Q2 we met or exceeded our targets as dollars were booked later in the quarter than in previous years. As a result of this late breaking scatter market, our total national advertising revenue including our content partner, beverage, cell phone TSA, and booked and pending scatter contracts, is approximately 81% of our total 2009 national advertising revenue target versus approximately 92% of the actual 2008 national advertising revenue at this same time last year.

We are hopeful that some of this decline is simply due to timing. For instance, one client that funded a Q4 2008 buy aggregating 18.2 million from September through December 2008, had not yet committed for 2009 and recently notified us that future spending will likely be delayed to 2010. Based on these advertising market dynamics, we continue to manage our business based on the expectation that a late scatter market will materialize in Q4 resulting in our full year total revenue to be in the range of 360 to 370 million and adjusted OIBDA to be in the range of 175 to 185 million.

While we remain hopeful that we can achieve the upper end of our guidance range, given our lower current bookings there continues to be some downside risk should the scatter market not--should the scatter market fail to fully materialize. You should note that this outlook for the third quarter and full year 2009 does not reflect any potential made goods being generated during Q3 or Q4.

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

Thank you. (Operator Instructions.) Our first question comes from the line of Alexia Quadrani from JP Morgan Chase. Please proceed with your question.

Thank you. Just to follow up on your commentary about the vertical--I guess there's some clients that are pushing spending into 2010 or pushing back significantly on pricing. Is that limited to certain verticals? I mean, are you seeing that more pronounced in one or two verticals or is it across the board?

The comment that Gary made was really specific to one client and it happens to be in the military category. So it's really not something we're seeing across the board. As I indicated, we are obviously seeing a much softer pricing environment out there, so that's pretty much across the board. But with respect to the comments that Gary made with the delay in spending that was one specific client.

And when you talk about--I think you mentioned in your opening comments about how you recently won some new clients that were previously Screenvision customers that are coming to you. Could you talk a bit about I guess how maybe their customer base maybe by vertical differs from yours? Is it dramatically different or not really? And maybe what kind of opportunities you can see going forward in terms of the new vertical penetration.

Well, I think clearly the nature of our network somewhat dictates the type of clients you have. And I think clearly our network is much more A and B county focused, so there's clearly times when clients that want more C and D county coverage will either buy us both or even in some cases buy just Screenvision. So I think the real nature, if you will, of the networks itself sort of dictates that. But clearly, I think both of us attract clients that are 18 to 34 focused because that's obviously a big percentage of the theater going audience.

And when you look at I guess the verticals that you're beginning to penetrate that you highlighted that aren't really your core verticals historically, is there one or two that you really think could be a significant or a core vertical down the road because they have expressed really an interest in sort of moving their ad dollars to the theater advertising?

Yes. Look, we're getting good pickup from everybody. As I've many times, a lot of this just has to be with sticking to the blocking and tackling of the sales process and getting more and more customers familiar with cinema, comfortable with the creative, comfortable with their execution in this new platform. I think specifically some of the interesting bright spots we've seen in the technology category, that's been pretty interesting. And we've seen some good pickup in the sort of family restaurant area. So clearly, those have been client categories that we haven't had a lot of action with up until now.

And just one last question. Could you--I'm sorry, I just didn't quite understand what you meant when you said you weren't included in the process for Screenvision. Does that mean you just--you haven't been involved in it yet, or you don't think you'll be involved in it?

The comment was based on we haven't been involved with it yet. It's a little hard for me to speculate whether we will or won't.

Okay, thank you.

Thank you. Our next question comes from the line of James Marsh with Piper Jaffray. Please proceed with your question.

Hi, gentlemen. A couple of questions here. First, you mentioned that you renewed your content partner deal. Were there any major changes in the structure of the deal or is it similar to what it was before?

I think there are a few changes, but--and I don't generally want to talk about the specifics of our contracts with them. But the basic overall structure was somewhat similar.

Okay. And then, could you just talk a little bit about the competitive environment overall with Screenvision today? And then, just a last housekeeping item. If you could just kind of quantify bigger than a breadbox the IdeaCast investment.

The--I think the competitive environment with Screenvision has not really changed since the day we started. We both compete in a very big marketplace and we're both trying to shift market share from the television and other national mediums into our network. So I wouldn't really characterize the competition as anything different than it has been.

And then, IdeaCast, can you give us a sense for what that investment was?

It was a reasonably small one and it got a little bigger this year, obviously, because we invested in the restructuring that I discussed. But it's still pretty immaterial in the scheme of things.

Great. Thanks very much.

Yes.

Thank you. Our next question comes from the line of George Hawkeye with Barclays Capital. Please proceed with your question.

Hi. Thanks for taking my question. I just had two. The first is in a typical year how closely correlated to the television upfront is the marketplace for cinema advertising? And relative to this year, is it sticking close to that or is it as expected? And then, secondly, given that the National Amusement theater chain is on the block, if it's picked up by one of the founding members, how many screens does that represent as a potential pick up? Thanks.

I'll answer the last part first. I think the National Amusement circuit is somewhere in the neighborhood of 1,000 or so screens in the U.S., so I guess that's the total potential. As far as the correlation, I'm not quite sure I fully understand the question. Clearly, we have seen the upfront begin to move more rapidly over the last couple of weeks. I don't think it's quite done yet, but it's further along than it was two weeks ago. We're clearly seeing or at least hearing about rollbacks in CPMs and some more significant with the smaller networks. And so, that sort of goes to my comment that I made before on the softer CPM pricing environment, which is clearly out there. There also seems--appears to be a reasonably meaningful amount of money that's being held back. In other words, the total dollar spending on the upfront seems to be down and the numbers vary all over the place. But it's a reasonable amount of money.

I think in the past, we've sort of viewed that as being somewhat positive. That means there's more money in the marketplace to compete for, the scatter marketplace. Obviously, we'll have to wait and see whether that money actually comes back into the marketplace in the form of scatter dollars. It generally does, but I think a lot of that will be dictated by the speed at which the economy recovers and/or client faith in that actually happening. So I think all things considered, more money in the scatter market is a good thing for us.

Great. Thank you.

Yes.

Thank you. Our next question comes from the line of Ben Shapiro with Thomas Weisel Partners. Please proceed with your question.

Hi. Ben Shapiro here on behalf of Ben Mogil. He would've liked to be here himself, but we've got another company reporting at the same time, so we had split the duties. I just have two questions. The first one, and I know you alluded to this earlier on the call. I was just wondering if you could give us any additional color around recent trends in CPM rates for local or national radio and TV and how that's impacting your business specifically?

Well, as I mentioned in my comments, the overall marketplace is very soft from a CPM standpoint. And like most of the media business, it's all supply and demand oriented. So when you get out of--when you have a big category say like the car category that stops spending money, that obviously has an impact on the overall marketplace. So I would say that we've seen soft CPMs pretty much across the better and obviously reflective in our numbers as well.

Okay. I remember from last quarter I think auto and military were holding up okay. Are they--are you still seeing strength in those categories or--?

--Yes, the auto--.

--Sorry.

Yes, the auto was actually one of our strongest growth categories in the second quarter. Most of that was--but not all of it, but most of it was Asian auto companies. So we're still seeing quite strong pickup in the auto category. I've already mentioned that the military they did spend in the first quarter with us. They have told us they plan to spend in 2010. The remainder of 2009 spending that I referenced before is looking somewhat doubtful.

And telecom was pretty strong.

Yes, telecom was very strong in Q2 as well. That's a good point, Gary. Thanks.

Great, thanks. And last question. I just--it was kind of noisy in the background and I didn't hear correctly. When you were referring at the end of the call to how--what percentage of bookings you had. I think it was in the 80% range compared to the 90% last year.

Yes.

If you'd do that for me, that would be great.

81% versus 925.

Right.

Okay, thanks very much.

Thank you. Our next question comes from the line of James Dix with Wedbush Incorporated. Please proceed with your question.

Thanks, guys. Just two questions for you. First as you look towards 2010 are there any categories which you've kind of been chipping away at during this downturn where you think you could get some upside surprise in terms of spending? And then, second, I guess it goes a little bit to kind of quarterly variability. From time to time you've indicated that given the relatively small number of national spots you have, if you have a late cancellation sometimes that can lead to some quarterly variability. Do you have any strategy going forward as to how to reduce that or is that just a function of broadening and deepening the overall advertiser base?

Really, that's our primary strategy because with more clients that are buying your medium obviously, the portfolio theory kicks in and you're not as open to issues of somebody canceling or moving their ad. So that's obviously the primary strategy. But we're also building relationships with a number of different clients. They're referred to in some cases as airplane deals. But we're trying to build relationships where we can get commitments from people and we can actually place that inventory when there's inventory available. Obviously, that is at a fairly significant CPM discount, but it still is a strategy that television has used very effectively.

The other point I'll make is that the one thing that television has been very reliant on over the last six to nine months is the direct response money. We really don't deal in that industry at all. And it's one of the strategies, quite honestly, just because of the quality of that content and the nature of the content that's not available to us. And it's been a big factor for television over the last few quarters.

There was one other part of your question. Oh, the other part was the potential new categories. Yes, there's a number that I think we had hoped for fairly significant growth in the future. We continue to pick away at the package goods category. There are some obvious big spenders in that category, big client names, and we're continuing to work very closely with those clients and making some progress. And hopefully we'll have continued progress and breakthroughs in 2010.

The insurance category, we've sort of started to breakthrough in that. I mentioned before the casual dining category. We're starting to break through in that. So financial a little bit. I guess that's part of the insurance category. So we are making really good progress. And as I've mentioned before, we continue to grow some of the more traditional categories like the car category.

Great. I just had one follow up on that. I think you've mentioned in the past some of the new categories might be more price sensitive than some of the categories you've had on in the past. Do you think the dynamic of having Screenvision out there as a competitor has any impact on the ability to expand your category base in the sense that my understanding is they typically appeal more to a lower CPM?

Well, there's clearly going to be times when we're just going to pass on a deal because we don't like the deal or we've got--we're fairly well sold or we think we're going to be fairly well sold. The whole decision on whether you take a deal that you make think is lower priced is based on where you stand at that point in time, how long you have before the flight runs, how much inventory you have available, all of those factors are very important. And then, of course, the category, because there's clearly certain categories generally buy television, for instance, at a lower CPM than other categories. And obviously as I said before, if we get into a point where people are making commitments to us where we're able to place the inventory wherever we want it will obviously be a lower CPM associated with that, consistent with the way it's bought on television.

Okay, great. Thank you very much.

Yes.

Thank you. Our next question comes from the line of Barton Crockett with Lazard Capital Markets. Please proceed with your question.

Okay, great. Thanks for taking the question. I was curious about the comment that you mentioned about advertisers being interested perhaps in seeing more C and D networks on top of the A and B networks, markets where you guys have been strongest. And that makes me think about Carmike and the possibility of them joining your network at some point. They're a big Screenvision partner right now. Can you comment on that? Is there some possibility there, some eventually where you think they could become part of your network?

Barton, subject to the existing agreements that people have with Screenvision, I think we're going to be looking at most everybody that has a significant number of theaters. So I'm obviously not going to comment on any specific circuit and you are right that Carmike does provide a lot of C and D county coverage. Now, I just want to be clear. We still have a lot of C and D county theaters. Clearly, our concentration is much more focused in A and B counties. And generally - and the military, for instance, is a very good example - they usually buy both of us and Screenvision, because they want coverage across everything.

Okay, great. And then, it sounds like you're interested and continue to be interested in growing your affiliate network. Are there--is there a meaningful group of theaters you think that just do not want to be with National CineMedia because of your close tie to the top three theater chains and the idea that they'd be aligning with competitors in that instance?

I know that used to be the old thought and there probably are still a few out there that don't like it. But I think at the end of the day what most exhibitors express is they want to just try to maximize the revenue potential for their advertising business in the future. But at the same time, they want to make sure that what they're putting in front of their audience is very, very high quality. And so, that's one of the reasons that we have focused so much attention on making the first look very high quality. And so, I think the combination of obviously increasing income and making sure that they take care of their patrons, I think those are the two things that people look at the most.

We also get a lot of interest in our Fathom network, because that's incremental revenue as well. So to the extent that a relationship with us in advertising leads to some alternative content going into their theaters, I think that's a good thing for the circuits as well.

Okay. And I wanted to ask a question about your guidance. You guys--I was in print with estimates that you guys would be at the high end of your revenue and EBITDA guidance actually ended up being my guidance here in the second quarter, yet you're coming in with guidance for the full year that if anything suggests an easing from your previous view that you can approximate last year's revenue in EBITDA. Is there something that's changed in your view of the second half that makes you more cautious now than you were a quarter ago, or are you just continuing to layer in some conservatism in your guidance?

Well, I mean, in Q2, as we mentioned in the call--on the call in the script, we had some late break and scatter pop up as late as the first week of June, which as you can imagine is something that we just typically didn't have before. So we--us putting that into our estimates would have just been irresponsible in trying to guess where the quarter came out. So we did when we made our Q2 estimates have some additional revenue in there that we hadn't yet booked. We just didn't have as much as came in because of that late breaking scatter.

When you look at Q3 and Q4, Q3 late breaking scatter will, again, hopefully some of that will come in. And we have projected some of that in there. Not an incredible large amount, because obviously it's August versus June and people are away so we may not see as much. When we're looking into Q4, it's a very big quarter for us in the year and we're still quite a ways out and when we said we're 81% booked and pending versus 92% there is still a ways to go. So the guidance range we've given we feel pretty comfortable with. Business--it's all related to where the scatter comes out.

I will tell you the one client that we've now learned is likely to shift their spending into 2010 where we had thought previously that that spending was going to be in fourth quarter, that clearly has shaded our view a little bit. As we mentioned on our last call, that client had still not committed at that point in time. And so, we raised it on the last call because it was something that could vary our numbers in the fourth quarter. Now, the good news is that we've got a lot of time between now and November and December n particular. In the past those months have been very high demand months. So we're hopeful that our sales team will be able to get out there and fill it out.

Okay. And just--I'm not sure I heard it correctly. What was the number that client was expected to spend that was pushed into next year? Was it 2.8 million? Was that the number?

We didn't actually tell you. I think what Gary had said in his comments is how much that client spent last year in September through December.

And what was that number?

I think it was 16.

18.

18?

I think it was 18 million.

18 million, okay. All right, food. Thank you.

You bet.

Thank you. Our next question comes from the line of Torin Eastburn with CJS Securities. Please proceed with your question.

Good afternoon. Most of my questions have been answered already, so I just have two quick ones. Gary, you mentioned there could be some downside risk to the guidance. Do you think of downside as the lower end of the ranges you've given or the lower--?

--Yes, yes, that's what I mean, Torin. It's--we put a wider range than we had last year just because of the visibility and it not being as great in Q4. So we are pretty comfortable with the range we put out and if things go well we hope to be in the high end of the range. And if the scatter market doesn't materialize, we'd probably be towards the lower end.

Okay. And then, with the Department of Justice kind of continuing to be aggressive in terms of investigating and prosecuting cases, does that change your thinking at all about Screenvision?

No.

Okay, thank you.

Thank you. Our next question comes from the line of Rich Greenfield with Pali Capital. Please proceed with your question.

Hi, thanks. When you look at your--just to kind of a follow-up on this last question or two questions ago. There has been a real decrease in visibility in terms of how far out people are booking. I mean, one of the questions we just asked on the CBS call that where supposedly scatter is pretty strong, at least that's what they're saying. But the comment is that people don't want to commit in the upfront process because they just can't commit far out anymore and they want to buy closer in and that's going to help scatter. So given the fact that scatter is materializing later, it is possible--I just want to make it clear that it is possible that you could outperform your prior guidance, including this guidance, and be above that range, if you saw the same type of demand come in late, like you saw in the second quarter.

I know there's obviously issues in terms of content partners shifting. But there is the potential if scatter is strong that you could do quite well versus the current range that you're giving out. That's question one. Question two, is the reason you're excluded from the Screenvision process related to antitrust? Or is this you're waiting--you think they're waiting to see how National Amusements plays out? Or is this just that UBS doesn't like you for some reason? And then, lastly, are there any remaining content partner deals that need to be re-upped over the course of the next year? Thanks.

I'll answer the last one first. The answer is no. We're firm with everybody now through 2010. There will be some contracts that we'll be trying to renew for '11 and '12 at this time next year. So the way we've laid those out approximately give or take three of our content partners are in one series of two years, three are in the other. So every other year. So that answers that question. The excluded from the Screenvision thing, look, I'd be speculating, Rich, and it's always good not to speculate. We have heard that the owners are concerned about the antitrust issue. We obviously have a different view, but it doesn't mean that we're right or they're right.

So I think there's also probably the possibility that it brings more interest into the process if we're not there. I don't--again, I'm just speculating. And then, the visibility. Look, anything's possible. Clearly, the last couple of quarters we've been able to exceed even our upper end of our range because of the late breaking scatter. The other thing as I mentioned a few minutes ago we've got going for us is that November and December have been historically very strong quarters. Last year, we stopped selling fourth quarter very early because we were so heavily sold. And in some cases I know we did turn some money away and I'm sure there's some money that we never saw just because we weren't sort of accepting any new orders. So anything's possible. I just think in this business environment it's prudent to, as we have done, create a reasonable range where if the scatter market doesn't materialize we're at the lower end. If it does materialize we're at the upper. To use your words, if things go incredibly well could we exceed that. Yes, of course. But again, I think as we have in the past, we're really trying to give guidance that we think we can achieve or exceed.

And I don't want to beat a dead horse, but when you look at Screenvision, is being owned by a financial buyer or someone else in the industry other than its current ownership structure, meaning not owned by National CineMedia, but is that better for you? Does it impact your thinking at all? Is that a good or bad event?

Well, depending on what kind of capital structure they put in place and the pressure they have on generating higher CPMs and other things that they may do, I don't--I sort of look at it on a neutral basis. As I said in my comments, we're going to continue to pursue other theater circuits. Obviously, if we were able to acquire Screenvision that process would be a different process. But at the end of the day, it doesn't really alter our thinking all that much.

Thanks so much.

Yes.

Thank you. (Operator Instructions.) Our next question comes from the line of Barton Crockett with Lazard Capital Markets. Please proceed with your question.

Okay, great. I just had one other thing I wanted to come back on. Based on some of my checks, it looks to me like you've actually had very strong sellouts in July and early in August. And I was just wondering if that corresponded to what you're seeing and if perhaps there's a real skew here between the utilization perhaps going up year over year and the CPMs coming way down or whether you're seeing kind of a reduction in the sellout rates as we get into later in August and September?

Look, the business has been quite good. And so, I don't think that there's any doubt about that. I think clearly as we indicated last year and we've indicated already, last year's third quarter was extraordinary, so everything kind of went right. So could that still materialize this year? Sure. But I think your checks are consistent with what we're seeing. Clearly, the variation in our numbers over the next six months are going to be driven primarily by utilization. Clearly, there's going to be lower CPMs as we indicated, but the big swing, if you will, is going to be our ability to sell more of our inventory. We have plenty of inventory. Even with a great second quarter of over 80% utilization, that still means we've got a lot of inventory left. And remember, that 80% utilization is only calculated on 11 30-second units.

So we've got up to 127% that we could hit.

Yes. Mathematically, 127% would be sellout because we actually can go to 14 30-second units and we're only using 11 right now. We've got the extra Coke unit that we got back, which makes it 12. And then, we will oversell occasionally both segment one and segment two, so that puts us at 14. So when you do the math at 11 over 14, that happens to be 127%. So we've got enough inventory to meet demand. That's something that's good.

Okay, great. Thank you.

Yes.

Thank you. Our next question comes from the line of Eric Handler with MKM Partners. Please proceed with your question.

Hi. Thanks for taking my question. As we look out to the back half of the year, your local business was relatively stronger than most for local. Is that down 6.5--6.6%--Is that sustainable in the back half of the year or could we see improvements or should we see something more in line with other local businesses?

What we're thinking, Eric, for the second half of the year is that the local business will be pretty much in line with last year to slightly up. Now, that means on a per attendee or per screen basis it will still be down, because we have more screens than attendees. But we think it will--we're projecting and assuming that it will be sort of online with last year to slightly up from last year.

Because, Eric, as you recall, business activity in October pretty much shut down. And so, our fourth quarter followed for the local business followed what many businesses did. So we're going to have somewhat easier comps in our local business. Clearly, a lot easier than our national business in the fourth quarter. Because the shutdown of the economic activity affected our local business pretty directly.

Got you. Thank you.

Yes.

Thank you. Ladies and gentlemen, at this time there are no further questions. I would like to turn the floor back to management for any closing remarks.

I really don't have anything to say but thanks. And I'm sure we'll be talking to some of you with follow up questions after the call. All three of us will be here, so if anybody does have any follow up questions, please call. And thanks for everyone's support and we'll talk to you next quarter.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.