National Cinemedia Inc (NCMI) 2009 Q4 法說會逐字稿

Greetings and welcome to the National CineMedia Incorporated fourth quarter and year end 2009 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the presentation.

(Operator Instructions)

As a reminder, this conference is being recorded.

It is 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 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 and Exchange Act of 1934. All statements other than statements of historical facts communicated during this conference call may constitute forward-looking. 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 2009 earnings conference call.

Today I will provide a brief review of our Q4 fiscal 2009 results, and my share thoughts regarding our 2010 business plan focus and current business trends. Gary Ferrera, our CFO, will then provide a more detailed discussion of our financial performance for Q4 and full year, and will update guidance for Q1 and for the full year 2010. Then, as always, we will open up the line for questions.

We were pleased to report a 5.5% increase in total Q4 2009 revenue, and a 2% increase in adjusted OIBDA, versus very challenging Q4 2008 comps that included an extra week. These favorable quarterly results reflect a recovering advertising marketplace, and another strong quarter for our Fathom consumer business. Despite a challenging market environment throughout the year, our annual revenue increased 3%, while adjusted OIBDA was approximately flat with 2008, consistent with our guidance that we had given at the beginning of 2009. 6.1% growth in our national advertising, excluding beverage, and 41.6% Fathom consumer revenue growth, more than offset the impact of lower Fathom business revenue and an approximate $7 million decrease and 100% margin beverage revenue.

The strong finish to the year resulted in a Q4 inventory utilization increase to 103.9%, versus 97% in Q4 2008. The relatively weak October was more than offset by a record December, where our inventory utilization was 117%. The most encouraging part of these results was the fact that we also experienced a 5.1% increase in Q4 saleable advertising impression, as Avatar and other successful films offset the impact of the extra week in 2008's fiscal Q4. This combination of higher utilization and saleable impressions more than offset the Q4 CPM decrease of 5.3% versus Q4 2008, reflecting a difficult selling environment throughout most of 2009, and a shift in client mix versus 2008.

As we have mentioned, the continued expansion of our client base is likely to dampen CPM growth, as we sell lower-demand time to client's that are likely more CPM-sensitive. As our CPMs continue to be driven by the supply/demand dynamics of the national TV marketplace in our client mix, we anticipate continued quarter-to-quarter fluctuations until we more consistently sell-out our inventory. The decrease in our national advertising client spending is a -- in a very difficult marketplace is very encouraging, as our strategy to broaden our client base and shift market share of overall media spending to our network appears to be paying off. However, our future visibility continues to be somewhat impaired, as clients continue to delay making commitments until the last minute. In addition to our top line growth that significantly outperformed the broad media marketplace, our ability to maintain the high operating margins in our advertising business reflected our tight cost controls and the strength of our underlying business model.

In addition to executing well against our operating plan, we also appear to be benefiting from our growing national network. With the AMC Loews, Hollywood and Kerasotes theaters integrated into our sales process for the full year, and the addition of several key Muvico theaters acquired by Cinemark early in 2009, our geographic coverage and overall reach has improved, making us much more competitive with TV and other national media networks. Our market position is expected to continue to improve in 2010 and beyond, as we added approximately 370 additional network affiliate screens at the end of 2009, and will benefit from the addition in 2011 of the consolidated theater circuit acquired by Regal. With these new network additions, we will continue to expand our approximately 70% and 65% attendance market share of theaters that sell advertising in the top ten and top 50 DMAs, respectively.

In addition, as most of the new network theaters are digital, our digital attendance has increased to approximately 93% of our network, which will create several sales and operating cost synergies. We also are expecting the completion of AMC's acquisition of the Kerasotes circuit in a few months. This AMC acquisition will extend our weighted average contract life, enhance our operating margins and reduce leverage, as we convert the current revenue share agreement to the longer-term, higher-margin founding member theater access fee structure.

Increasing our digital network and number of saleable through the addition of new network affiliates continues to be a key part of our business strategy. With our strong inventory sell through in 2009, and signs of an improving economy, we have increased our effort to bring on new network affiliates. As you can see by the successful addition of new affiliate screens in 2009, we are always engaged in conversations with regional theater operators, and we expect to continue to add new affiliate screens.

As advertisers continue to look for us to provide the kind of ubiquitous market coverage that they get from other national networks, we are working to create a larger network that will allow us to accelerate the shift in media spending, and in doing so provide a more efficient advertising network for marketers, and financial benefits to all the theater circuits that are part of our network. While expanding our network continues to be a key focus area for us, broadening our client base is still our primary driver of revenue growth. As cinema advertising only makes up less than half of 1% of the total US ad spending, it only takes a very small market share shift from these much larger mediums to provide attractive growth for us. This shift in spending may have even accelerated in 2009, as consumers became more discriminating and marketers became more to spend when they knew they would create impact for their brands. We also appear to have benefited in Q4 from lower broadcast TV ratings, as marketers were forced to look for impressions in other mediums.

Our 2009 results benefited from the fact that our client mix was not heavily concentrated in the Tier 2 and Tier 3 auto, real estate and financial sectors. Having said this, our concentration in the entertainment, telecom, Tier 1 auto and military is still too high. As such, we continue to focus on client development activities across several categories. In fact, our new client development strategy that was launched in late 2008 was so successful during 2009 that we have added another business development executive in 2010. During Q4 2009, new clients were added in the QSR, auto prepared food, apparel, toy, personal care, home products, insurance, broadcast TV, telecom, music and confectionary categories. This trend has continued into 2010, as we have Q1 commitments from first-time clients in the government, personal care, pharmaceutical and home video categories.

While our local advertising business improved steadily throughout the year, it strengthened considerably in Q4, as Tier 2 domestic auto began spending again, and local businesses appeared to gain confidence in an economic recovery. Even with the extra week in Q4 2008, our local revenue for Q4 2009 grew 15.2% in total and 7.4% per same screen. Revenue only declined 3% for all of 2009 versus 2008, after a very slow first three quarters this year. Excluding the extra week in 2008, our local business was approximately flat year-over-year.

Our Fathom consumer and business divisions had another strong year, as combined Q4 and 2009 revenue increased 43% and 17%, respectively. This growth was primarily driven by our consumer events division, as we expanded our live broadcast capabilities to over 500 locations, with approximately 690 screens and over 152 DMAs, and expanded and diversified our programming. Our business division revenue declined from 2008, as business event spending was adversely impacted by the weak economy.

Now in our ninth year of live theater broadcasts, there are signs that the consumer-focused part of our Fathom business is approaching a tipping point, as existing programming such as the New York Metropolitan Opera is drawing larger and larger audiences, and we are attracting more high-quality programming in new diverse categories. Interestingly, cinema appears to be a place where programming as diverse as the Met, Glenn Beck and professional boxing can attract meaningful audiences, while providing a new distribution and marketing platform for content producers and owners.

2010 is also off to a strong start, as Q1 revenue is tracking ahead of last year, and we have added several new programming franchises to our broadcast schedule, most notably the UFC, that will include four events throughout 2010. While our margins on the Fathom events part of our business are considerably lower than our average, they have been improving as our revenue has grown and operating expense synergies have been created between the consumer and business divisions. As we continue to expand the entertainment programming and business client base, the Fathom business will become an increasingly important part of our business. In addition to the incremental event cash flow, our ability to create more multiple event series will allow us to create sponsorship opportunities for our advertising sales teams to bring to their clients.

Looking ahead, our business plan for 2010 will include a continued focus on expanding our digital network and advertising client base, and further expanding our Fathom events businesses and our online and mobile advertising network. While our near-term growth will continue to come primarily from selling more of our in-theater advertising inventory, the growth of our Fathom events business and online initiative will allow us to create unique, integrated digital marketing packages across multiple platforms, providing another compelling reason for marketers to buy us.

With the DCIP financing being completed, we will also begin to benefit from the higher-quality 4K digital cinema projectors being installed by our founding member circuits, that will provide a better on-screen presentation and the ability to distribute 3D ads at Fathom events. We plan to begin connecting these higher-quality digital projectors to our advertising and live Fathom broadcast networks immediately, and while there will be some increasing operating costs over time related to higher maintenance and bulb costs, we are confident that this new technology will benefit our business.

As I mentioned when we spoke to you last month, I'm very pleased with the way that the year ended, as we were able to deliver original 2009 adjusted OIBDA guidance given early in 2009. With the uncertainty in the marketplace at this time last year, the fact that we were able to deliver our original OIBDA guidance, that offset the impact of the beverage decline, is a testament to the hard work of our employees, especially those in sales. Our ability to outperform traditional media platforms in a difficult market provides strong evidence that our network is gaining acceptance by more and more advertisers, as they focus on our increasing network reach and ability to create higher impact.

As the overall economy appears to be recovering slowly, I'm cautiously optimistic that the future -- about the future, as our Q1 results to date are expected to be strong, and our 2010 national advertising proposal levels are higher than last year. With the continued improvement of our cinema advertising, online, mobile and Fathom networks, our media network is well-positioned to continue to gain advertising market share, as marketers look for engaging and effective integrated digital marketing solutions like ours.

Now I would like to turn over the call over to Gary, to give you some details concerning our financial performance and 2010 guidance.

Thank you, Kurt.

I will now spend some time reviewing our fourth quarter and full year 2009 financial performance in a bit more detail, as well as update our guidance for Q1 2010. As a reminder, you should note that our fiscal fourth quarter of 2009 contained 13 weeks, versus 14 weeks in 2008; and fiscal year 2009 contained 52 weeks versus 53 weeks in 2008.

For the fourth quarter, our total revenue increased 5.5% to $118.6 million, driven by a 1.7% increase in total advertising revenue, including beverage, to $103.2 million, and a 43% increase in Fathom events revenue to $15.3 million. For the year, our total revenue increased 3% to $380.7 million, driven by 1.5% increase in total advertising revenue, including beverage, to $335.1 million, and a 17% increase in Fathom events revenue to $45.5 million. The advertising revenue mix shifted in Q4 2009, favoring local revenue over beverage revenue, with the breakout for Q4 being 71% national, 20% local, and 9% beverage; versus 72%, 17%, and 11%, respectively, for Q4 2008. For the year, the advertising revenue mix shifted, favoring our national advertising revenue over our beverage revenue, with the breakout being 71% national, 18% local, and 11% beverage; versus 68%, 19%, and 13%, respectively, for fiscal 2008.

Q4 national ad revenue, excluding beverage, approximated Q4 2008, driven by a utilization increase from 97% to 103.9%, on a 5.1% increase in our Q4 impression base; offset by a decrease of 5.3% in CPMs from Q4 2008, and lower lobby, land and other non-inventory-based revenue. For the year national ad revenue, excluding beverage, increased 6.1% over 2008, driven by a utilization increase from 79.7% to 87.5%, on a 6.4% increase in our impression base; partially offset by a decrease of 5.5% in CPMs from 2008. Our Q4 beverage revenue declined 12.5%, as a reduction in time required by two of our founding members was partially offset by a higher CPM and the higher attendance associated with the strong Q4 box office. For the year beverage revenue declined 16.2% versus 200980 eight, primarily due to the reduction in time sold.

As we discussed in our outlook call last month, we expect that our founding members will continue to acquire 60 seconds of on-screen marketing to fulfill their obligations to Coke, resulting in potential beverage revenue growth in 2010 due to the contractual 6% CPM increase. It will also be affected by any potential increase or decrease in founding member attendance.

I would like to highlight that we will continue to use our standard eleven 30-second units as the denominator in the utilization calculations, to ensure period-to-period comparability. As we have mentioned before, we can expand the show to a total of 14 units if there is sufficient marketing demand.

As the economy improved during the second half of 2009, our local advertising growth rates improved from sequentially declining levels of negative growth during the first three quarters of 2009, to strong positive growth in the fourth quarter. Q4 2009 local revenue increased 15.2% over 2008, with same screen sales increasing 7.4%; while full year local revenue decreased 3%, with same screen sales decreasing 11.9%. If you exclude approximately $1.8 million of local revenue attributable to the extra week in December 2008, Q4 2009 local revenue increased 28.2% over 2008, with same screen sales increasing 19.5%; while full year local revenue is approximately flat to 2008, with same screen sales decreasing 9.4%.

Total Q4 advertising revenue per attendee declined 1.6% to $0.60, with our national advertising revenue per attendee, excluding beverage, decreasing 4.1% to $0.42 per attendee, while our local ad revenue per attendee increased 10.9% to $0.12 per attendee; both on a 3.9% increase in Q4 attendance. Total 2009 advertising revenue per attendee declined 2.2% to $0.50, with our national advertising revenue per attendee, excluding beverage, increasing 2.3% to $0.36 per attendee, while our local ad revenue per attendee decreased 6.5% to $0.09; both on a 3.8% increase in 2009 theater attendance.

As of the end of the year, we had approximately $300,000 in make-goods, compared to $1.3 million at the end of 2008. This is our lowest quarterly make-good balance since going public in Q1 2007, primarily due to the strong December box office.

Our combined Fathom events business had another solid quarter, as Q4 revenue increased 43% to $15.3 million, from $10.7 million in Q4 2008. This was driven by a 82.5% increase in Fathom consumer revenue, offset partially by a 2% decrease in Fathom business revenue. For 2009, the combined revenue for our Fathom events, consumer and business divisions, increased 17% to $45.5 million, from $38.9 million in 2008. This was driven by a 41.6% increase in Fathom consumer revenue, partially offset by a 9.6% decrease in Fathom business revenue. While our Fathom consumer division has remained strong, with increases in the number and quality of events such as the Metropolitan Opera series, Glenn Beck and the Wizard of Oz, for example, our Fathom business division, which focuses on corporate meetings and marketing events, has struggled throughout 2009 due to the soft economy.

Total Q4 adjusted OIBDA increased 2% to $65.3 million from $64 million in the fourth quarter of 2008, and remained relatively flat for the year at $189.3 million, versus $189.5 million in 2008. Adjusted OIBDA, including [real] consolidated payments for the fourth quarter, was $66.5 million, and including AMC Loews and Regal consolidated payments, for the year was $192 million. You should 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 final integration payment related to the AMC Loews theaters was approximately $100,000, and only affected Q1 2009.

Q4 adjusted OIBDA margin was 55.5%, down from 56.9% in Q4 2008, while full year adjusted OIBDA margin was 49.7%, down from 51.3% in 2008. Both the quarterly and annual margin declines were primarily due to the increase in 100% margin beverage revenue -- I'm sorry, the decrease of 100% margin beverage revenue, as well as the increase in the percentage of our total revenue derived from both our Fathom business and advertising affiliate businesses, both of which provide lower margins. These factors were partially offset by tight cost controls maintained throughout the business year, and discretion areas such as T&E and marketing, as well as savings and advertising operating costs related to the loss of the non-digital markets national advertising only affiliate agreement, which was terminated early in 2009.

Looking briefly at diluted earnings per share for the fourth quarter, we reported GAAP EPS of $0.26, versus a loss of $0.33 in Q4 2008; and for the full year we reported GAAP EPS of $0.62, versus $0.02 cents in 2008. You should note that the results for all periods were affected by multiple pre-tax non-cash charges.

Our network continues to improve, as we shed less-profitable non-digital screens during 2009 and replaced a portion of these with more profitable digital screens. As of December 31, 2009, we had 16,803 total screens in our network, including 2,402 network affiliate screens, representing a 2.9% decrease in total screens versus the end of 2008, but a 1% increase in digital screens. The slight decrease in total screen count at the end of 2009 compared to 2008 was primarily driven by the reduction of approximately 670 non-digital Marcus affiliate screens from our network, offset partially by the addition of approximately 70 net founding member screens and 90 net affiliate screens, excluding Marcus.

As of the year end 2009, approximately 14% of our network is composed of affiliate screens, versus approximately 17% at the end of 2008; and approximately 92% of our total screens are connected to our digital network, versus approximately 88% at the end of 2008. These digital screens generate approximately 93% of our attendance. Also, approximately 370 affiliate screens that were announced during Q3 2009 will be included in our screen count as of Q1 2010, and proximately 400 consolidated theater screens acquired by Regal during Q2 2008 will be included in our screen count in 2011.

Our capital expenditures were $2.9 million for the fourth quarter, and $8.6 million for the full year. This is well within our guidance range that we provided of $8 million to $10 million, and only 2.3% of 2009 total revenue, versus 4.5% in 2008. As we mentioned on our last call, we estimate that 2010 CapEx will continue to be in the range of $8 to $10 million, assuming no additional network affiliate agreements are signed. These low levels of CapEx are one of the primary reasons why we generate such high levels of free cash flow.

Regarding our balance sheet, our total debt outstanding as of December 31, 2009 was $803 million, comprised of a $725 million term loan, a $74 million balance on our revolver, which the same balance held at the end of 2008, and a $4 million balance remaining on the non-interest-bearing note payable to Credit Suisse, associated with the IdeaCast restructuring. The revolver balance net of NCM LLC cash and cash equivalents was down to approximately $36 million, versus $40 million at the end of fiscal 2008. In addition to the $38 million cash balance at NCM LLC, there was a $53 million cash balance at NCM Inc. at the end of 2009, versus $35 million at the end of 2008. A portion of this cash is reserved for income tax payments and tax receivable agreement payments to the founding members. However, excluding the tax-associated reserves at current dividend rate at the end of fiscal 2009, we had enough cash to pay more than four quarters of dividends, even if no additional cash were distributed up to NCM Inc. from NCM LLC.

The interest rate on our $725 million term loan was 5.8% for Q4 2009, versus 6.4% in Q4 2008; and 5.9% for the full year, versus 6.5% in 2008. As of December 31st, 2009, 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%. The interest rate on our revolver borrowings was 2.1% in Q4 2009, versus 4.6% in Q4 2008; and 2.2% for the full year 2009, versus 5.2% in 2008.

I would like to take a moment to discuss the winding down of our relationship with Lehman. Regarding our interest rate swap, we assigned this to Barclays last month under the same terms and notional amount, and also paid all back payments which were held until resolution of the situation. These payments totaled $7 million, plus an immaterial amount of default interest.

Regarding our revolver, the unfunded Lehman commitment of $6 million was assigned to Barclays last month, and is now available for borrowing. Additionally, we are in the process of transferring the admin agent role from Lehman to Barclays, as well as executing an amendment that will allow us to pay down and borrow on $66 million of the revolver without losing borrowing capacity. The remaining $14 million will remain held by Lehman, but will be excluded from any pro rata share payments. The $14 million Lehman balance will become due when the revolver term ends in February 2013.

Our pro forma net leverage at NCM LLC as of December 31, 2009, is approximately 4 times trailing four quarter adjusted OIBDA, including the AMC Loews and consolidated payments; approximately the same as the 2008 year end. You should note that we are well below our financial covenant of 7 times as of December 31st, 2009, reducing to 6.75 times in 2010; and a floor of 6.5 times beginning in 2011 through the maturity of the term loan in 2015. While we do not anticipate paying down our term debt, our leverage will decline over time as OIBDA is expected to grow.

Now turning to 2010, we are increasing our previous guidance for Q1 2010, and are now expecting total revenue to be in the range of $80 million to $83 million, and adjusted OIBDA to be in the range of $29 million to $31 million. This would put us on track for potential double-digit growth over Q1 2009. This is especially positive, as we had so little make-good revenue carried into Q1 2010. The increased guidance for Q1 is primarily due to greater than expected national and local advertising bookings, and stronger than expected Fathom event performance since our previous call.

You should note that while we are very pleased with this projected first quarter performance, Q1 historically represents a small percentage of our annual OIBDA, and for the full year 2010 we continue to expect total revenues to be in the range of $400 million to $410 million, with adjusted OIBDA in the range of $194 million to $204 million. Please note that this quarterly and annual outlook does not reflect any potential make-goods generated during the periods.

Before concluding, I would like to remind everyone that we previously announced our regular quarterly dividend of $0.16 per share during our 2010 outlook call held February 4th, 2010. This amount represents a payout ratio of approximately 52% of the Q4 cash distribution to NCM Inc., after adjusting for estimated taxes, and represents an annual yield of approximately 4% based on our stock's recent trading level. The dividend will be paid on April 1st, 2010, to shareholders of record on March 18th, 2010.

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

(Operator Instructions)

Our first question is from the line of Eric Handler with MKM Partners. Please proceed with your question.

Yes, thanks for taking my question. In terms of the more optimistic outlook for the first quarter, is there anything in the margin in the last month that allowed you to do this, in terms of are we seeing a greater number of advertisers, and what particular vertical that might be coming from?

I think it's just strength across-the-board, Eric. As we've mentioned, everybody is delaying as long as they possibly can. We had a lot of money come in for March right at the end of February; we're even still working on a few deals from March, and as you know, March has already started. So I think it's just more of the same story; it's just late-breaking money, and it gives us a little less visibility. So we give guidance, and we give you what we have at the time, and it generally changes as we get closer and closer to quarter end.

Can you give us -- excuse my voice, I'm losing my voice here, but can you give us perspective on Fathom? How many events you expect to have in 2010, and how it compares to 2009?

We expect more events than in 2009. I can't give you the exact number. We will be giving that throughout the year, as we actually have them. A few less Met events during the year, we are expecting. The Met's taken a little bit of a different approach; I think they are going for a few more high-quality events rather than a lot of events, and I think that's been borne out in some of the recent ones that we had. Carmen was very, very successful, for instance. Hamlet is coming up, for instance, and we have very high expectations for that.

So with UFC coming on board, we think those will be successful events. We are working on some boxing series. So I think you're going to see more events, but I think most importantly, I think the events that we're going to do are going to be much higher-attended events.

Thanks.

Our next question comes from the line of Alexia Quadrani with JPMorgan Chase. Please proceed with your question.

Thank you. A couple of questions. The first one really on the recent success we've seen of 3D, and the growing number of 3D screens. Beyond the obvious of driving more traffic to the theaters, which is obviously a benefit for you guys, is there another way we should be thinking about how 3D is going to affect your business? Is there any more talk about premium advertising for this format?

Yes, sure, we are working -- with several clients on the idea of 3D advertising, and you will be hearing more about that hopefully over the next few weeks, so that will definitely happen. The extent to which we are able to get a premium CPM for those type of 3D ads, we will have to wait and see. I assume, given that the exhibitors are getting a fairly good premium for the 3D movies, that we should be able to get a premium for the 3D ads as well; so I think there could be some upside there.

Clearly, the Fathom business I think will benefit from access to the projectors. 3D events, we'll see -- you know, there is a lot of technology that we are working on for live 3D for the future. There has been a lot of experimentation around it. I think that's still a little bit -- a ways off, but there are prerecorded events that we are talking to people about. The most difficult part of that will be getting access to the 3D projectors, because there is so much film in the marketplace right now. As you well know, there is a lot of 3D films being released, and now with the success of Avatar, I expect there will be a lot more; and so the demand on those 3D systems will continue to increase. So we will have to have some very, very good programming to get access to those projectors, I would suspect.

Having said that, I think just even the 2D digital cinema will benefit the Fathom business, just because of the quality increases.

And then going back to your comments on the CPM decreases from the changing of your client mix, should we also expect or are you seeing also CPM decreases in your core verticals, or is it just really from a mix shift?

Most of it's mix shift, but last year there was a time period, especially sort of first part of second quarter through the end of third quarter, where there was an awful lot of pricing pressure in the marketplace, in the TV marketplace; you know, you saw rollbacks on all the upfront deals, and all that impacted us as well, because clients would come to us across-the-board and basically say, look, I got rollbacks in television, I'm expecting rollbacks from you as well. The pricing started to stiffen up and firm up quite a bit in the fourth quarter, especially all the last-minute deals we did, so that helped offset some of the softness earlier in the year, and we are seeing reasonably good pricing now, because the [scatter] markets are so tight in the TV business.

And I guess last question, if you can give us a bit more color on your, I guess, four or five major verticals, and how they tracked in the quarter? I think you mentioned domestic auto has just come back strongly; I guess how about foreign auto and the other major verticals, and if there's any changes to those trends in Q1?

i think we are still seeing the same real positive trends in our core four or five verticals that I mentioned in my comments. The entertainment companies still continue to spend, the military spending in the first quarter, and we are talking to them about later in the year. So we are still having great success with foreign auto. You know, it's a mix of different auto companies in whatever period you are talking about, because it's primarily tied to new product launches. But across-the-board, I think pretty much every car company now is spending in cinema when they release their new cars. So I'm not seeing a whole lot of change there.

The big change for us is our ability to continue to replace some churn with new clients, and I listed a whole litany of client categories that we are starting to get into business with, and that has continued into this year. So we are seeing a lot of interest in cinema.

Thank you.

Our next question is from Barton Crockett with Lazard Capital. Please proceed with your question.

This is Victor Anthony in for Barton Crockett. I wondered if you could talk about the utilization and CPM trends you've seen so far in the first quarter 2010 relative to where you exited the fourth quarter, and any sort of update on the [pace] for the second quarter of 2010?

As I said, the CPMs have started to firm up, and that's pretty consistent with what we are seeing in the TV scatter market. Our utilizations are what is primarily driving our growth in the first quarter, as has been the trend in the past and continues to be our focus. As I've said many times, I don't expect any real sort of long-term CPM growth until we get a higher level of sales. So I think it will clearly continue to be supply and demand dynamics that drive our pricing.

As far as the second quarter, as we mentioned in our remarks, both in this call and the previous call, while our commitments for the rest of the year are down, our activity as far as RFPs and deals that we're working on is way up. So I think -- just the activity in the marketplace is very, very strong right now; and those deals aren't closed yet, and as I said, everybody is kind of waiting until the last minute. But we are pretty hopeful about the activity that is out there in the marketplace.

Okay. And second question is on Screenvision; if you could just provide an update from the last time you spoke about. And outside of Screenvision, if you could just discuss the competitive landscape; are you guys taking share, and from what medium is that share gain coming from?

Yes, it's hard to tell exactly where you are taking share. Obviously, we can look at the overall statistics for 2009, and they will basically tell you that broadcast was down and cable was up a little bit. So just from those data points, you know, I would draw from that that maybe we are taking some share from broadcast television, although I will tell you I think there is a wholesale shift of media spending going on; you know, you have newspaper spending, a lot of it moving to the Internet, you have some of that even moving to us in some cases. And so I think you are getting a lot of what I will call breaking down of the media silos; so money is becoming very migrant, if you will, amongst the different silos, and we are benefiting from that.

The Screenvision question, I don't think there has really been any change. The deal continues to linger on, clearly taking a lot longer than anybody anticipated; and we continue to watch with interest, and are open to looking at it if we ever got the opportunity. As I've mentioned before, there are significant synergies. We don't actually think there's the issues that the sellers think there is from the standpoint of anti-trust, and so we will just have to wait and see how that all works out.

Okay. Finally, is the [instance] of the attendance figure that you are looking at for the first quarter what is baked into your guidance?

Well, we've budgeted consistent with the circuit; so you've heard all the circuits talk about their attendance expectations, so I will just leave it at that. Clearly, the first quarter has been a very good first quarter. You know, Avatar carry-over has been very strong. You've had a number of openings that have, I think, surprised some people, including the opening this weekend of Alice in Wonderland that set an all-time record for a March opening. So the theater business seems to be hitting on all cylinders right now.

Okay, thank you.

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

Good evening. Gary, first, could you just quickly run through the national, local and beverage revenue percentages again?

Sure. Give me one second. Okay. For Q4, national was 71%, local was 20%, and beverage was 9%.

Okay.

Then for the full year 2009, national was 71%, local was 18%, and beverage was 11%.

Okay. Thank you. And your full year guidance, does it include any expected impact from the shift in Kerasotes theaters over to --

It doesn't at this time.

Yes, it's a little hard for us to predict, A, when it's going to happen, and B, what the actual transaction is from our standpoint, because it's just a lot of known -- stock prices unknown, and so on.

As it gets closer and firmed up, if you ask the question again, we might be able to give you more information.

Yes, and as we have done in the past, we will put an 8-K out that has a detailed calculation of everything.

Okay, thank you.

(Operator Instructions)

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

Hi, gentlemen. A couple of questions related to Fathom. First, I think you mentioned the access to DCIP projectors, I just wanted you to remind us how those recruitments work for alternative content as well as -- do you think you are going to use it for advertising or just for all content? Then secondly, related to just marketing overall for some of these alternative content events, how is that responsibility being shared with the exhibitors? I mean, are they actively involved in marketing UFC, and just how those economics work in general?

We're primarily the marketing engine for all the Fathom events; the content owners get involved quite a bit with it as well. Our primary strategy is really around the web; there is an awful lot of web marketing activity that goes on. We obviously use the pre-show, and we have what we call a digital trailer that runs right after the pre-show; all of those are the primary marketing activities for us.

On the recoupment side, how do those the numbers work?

Well, there is two different structures. There will be a structure associated with the advertising business; we will be able to talk about that more later. And there is also a virtual print fee, if you will, associated with alternative content events. It's quite a bit lower than what has been discussed or agreed for films. Obviously, you are talking about one show time versus a whole feature film run. So all of those numbers will be coming out as soon as that deal gets announced.

Okay. And then just one last follow-up for Gary. Gary, as we look at that meeting and events business, it seems like it's fairly volatile, and I'm just trying to figure out, do you think there is a going to be a natural seasonality to this over time or is it just going to be event by event-driven?

I think for the short-term, it's probably going to be bouncing around quarter to quarter, until you build up a base. There's a few people out there that we do events with that are quite large and recurring, but quite a few of them vary. And obviously, the church business up until the recession was pretty stable. So as you can build out those large ones and get them to be recurring, I think that will help over time, sort of like the Fathom consumer side has, but it will take a little while.

Yes, the object is obviously to create relationships like the Metropolitan Opera, where you have several events scattered throughout the year. If you can create several relationships like that, then you've got a core of business that you can then build around for the events that come up every so often, like concerts and other things.

Excellent. Okay, thanks very much, guys.

Our next question is from the line of Ben Mogil with Thomas Weisel Partners. Please proceed with your question.

Hi guys, good afternoon. Two quick questions. Firstly on Fathom, so certainly you've had great success with opera and things like that; any concern that as you go to boxing and UFC and stuff like that, that the lack of the availability to drink both liquor and beer in a lot of theatrical theaters themselves, and actually smoke as well, is going to kind of hurt your ability to sort of forecast how those businesses do versus say the opera, where it is obviously a very different crowd?

I don't think so. In fact, a lot of the research has told us that families like to go to these events where they don't have to deal with the issues of alcohol, and all the related things that go along with that. So the "safe" environment that the theater creates I think is actually a good thing, and actually could bring a lot more families and other constituencies into the theaters.

Now having said that, as you know, there are a lot of theaters now that are being built that do have alcohol capabilities, so that will be an increasing trend. I don't think you will ever see a theater with smoking in it, but I do think that over time, as new types of theaters are built, and new designs are put into place, you will see beverages be a more important part of it.

I just don't think that those things are the primary driver of why people go and see the content. Clearly, they are associated with it, but I think that's more about where historically the content has been played, as opposed to people absolutely needing a beer if they are going to watch a UFC event.

Okay, fair enough. Certainly, the safe environment is something I can understand.

Then second question, and this is it for me, in the past -- you know, your national advertisers certainly understand the media and the recall rates, and stuff like that. I think in the past you talked about the local advertisers being a little bit more interested in the fact that, for example, movie theater attendance and the box office, if that was strong that was helping you guys, from the perspective of being able to sort of pitch them the ratings, or here are the number of attendees, if you will, was up, and that was something in their market, you know, given the decline of local TV and newspaper and radio ratings, that they were certainly interested in. Were you certainly seeing that in the last quarter? Was that certainly something you are seeing in the first quarter guidance?

Think there is no question that in time period where there are big films, where people know they are going to be in their seats earlier, like Avatar was, that the local advertisers are going to be much more interested. As you pointed out, I think the value proposition relative to all these other sort of local mediums, if you will, is very very attractive; especially when you combine that with the ability to target specific theaters that are within certain radiuses of businesses.

The problem with most local advertising mediums, you have to buy the whole market. So you think about buying radio, newspaper or television, you're effectively buying the whole market, most of which is not your trade area. So when you look at the cost benefits of being able to target geographically, it's pretty significant. When you also combine the sight, sound and motion, which you only have obviously with broadcast or local spot television, it's a very good value proposition, and I think that's what drives it.

Thank you. Last question for me, and going back to the Screenvision situation, have you had an updated legal counsel view on what a potential merger between you and Screenvision would look like, particularly after the DOJ approval of the Live Nation/Ticketmaster deal?

We haven't done any work since the Live Nation deal was approved, but we had done enough work prior to that to feel very comfortable that some of the issues were not as significant as some in the deal might have thought. So you never say never, obviously, with these kinds of things, but we felt pretty comfortable that a broader definition of the marketplace could be sustained to include television and a whole lot of other things that make cinema somewhat insignificant relative to those overall marketplaces, and the fact that it wasn't a consumer-focused, if you will, issue, I think was also a benefit.

I don't know how the other side feels once the Live Nation deal got approved, but clearly that's evidence that there is obviously still flexibility.

Okay, great. That's it for me, thanks a lot, guys.

Thank you.

There are no further questions at this time. I would like to turn the floor over to management for closing comments.

Thanks, everyone, for joining us today. As always, if anybody has any follow-up questions, we'll all be available this afternoon and tomorrow, or pretty much any time.

So, thank you for your continued support, and we will talk to you soon. Bye-bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.