National Cinemedia Inc (NCMI) 2010 Q4 法說會逐字稿

Greetings, and welcome to the National CineMedia, Inc., Q4 and full-year 2010 earnings conference call.

At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (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, inc. Thank you, Mr. Oddo, you may begin.

Good afternoon. I'd like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 as amended, and Section 21e of the Securities Exchange Act of 1934 as amended.

All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties.

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

Now I'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 2010 earnings call.

Today I will provide a brief overview of our Q4 and fiscal 2010 results and share some thoughts regarding current business trends and opportunities that lie ahead for us.

Gary Ferrera, our CFO, will then provide a more detailed discussion of our financial performance for Q4 in 2010 and will provide revenue and adjusted OIBDA guidance for Q1 and full-year 2011.

Then, as always, we'll open the line for questions.

2010 was another great year of growth for our young Company as we posted record revenue and adjusted OIBDA of $427.5 million, and $222.4 million respectively.

After a couple of years of slower growth during the recent recession, these 2010 results represented revenue and adjusted OIBDA growth of 12.3% and 17.5% respectively, reflecting a 230-basis point increase in adjusted OIBDA margins to 52% due primarily to the positive operating leverage of our advertising business.

The majority of our 2010 growth reflects another outstanding performance by our advertising sales group as we continue to shift advertising market share from traditional media platforms. During 2010, we added 51 first-time national clients and 9 other clients that had not spent with us since 2006.

To put this in perspective, going into 2010 we only had 220 unique clients that had spent with us since 2006. We, in effect, expanded our client base by almost 30% during 2010. We also began to sell more effectively to largely regionally focused businesses.

While our Q4 growth rate declined from the record quarterly growth posted in Q3, we continue to expand our OIBDA as we increased our margins against a very strong Q4 2009.

With a stronger than expected Q4, we exceeded our 2010 annual guidance given during our last call.

What was most impressive about our Q4 results is that we were able to replace the significant Q4 2009 spending by the military, as well as the shift in annual content partner allocations to earlier 2010 quarters. Together these two items totaled approximately $11 million.

In addition, the very strong TV upfront last summer appeared to somewhat impact the scatter market activity versus 2009.

While we made great progress expanding our national advertising client base in 2010, there is plenty of opportunity for future growth as we still sell no advertising to thousands of brands that currently buy TV.

In fact, despite our growth over the last few years, we still only represent less than 0.05% of the total US ad spending, and thus a very small shift in spending from TV and other much larger mediums will provide attractive growth for us in the future.

In addition to recovery by the US auto manufacturers, our national advertising client expansion during 2010 was primarily in the electronics, video game, beer, and toys and games categories.

We also made progress in expanding our client base in segments that are not traditionally spent in cinema like CPG, financial services and insurance.

However, the entertainment, auto and telecom categories represent nearly 60% of our 2010 non-beverage national advertising revenue.

While this concentration is down from 65% in 2009, it is still higher than I would like as it exposes us to short-term quarterly fluctuations in revenue and OIBDA like we are experiencing in Q1 2011.

I view this as a short-term issue that is part of being a young growth Company, though the continued expansion and diversification of our client base, our strategy -- our category concentration will begin to come more in line with a lower percentage that the top three categories represent for most cable and broadcast TV networks.

Our local advertising group also had a strong 2010 with revenue increasing over 13% versus 2009.

Demand increased across both smaller local clients and our larger regional clients as our number of total contracts increased by 9%.

While smaller single location businesses began to spend again in 2010, a large percentage of our growth was due to an increase in clients that bought across entire DNAs or multiple DNAs, resulting in an increase in average contract value of 4% versus 2009.

Due to the success of our strategy to focus on larger regional clients such as car dealer associations and consumer banking, in 2011, we are now expanding our regional sales staff to broaden our focus to several new categories, including QSR and casual dining chains and state tourism associations.

While our local advertising was down just slightly in Q4 versus 2009, Q4 2009 represented a very tough comp, as revenue had increased 15.4% versus Q4 2008, due to the spending of a few larger regional clients.

Our Fathom consumer event business also continued to expand in 2010 as revenue increased 10.1% versus a strong 2009 that had increased 41.6% versus 2008. The expansion of our live broadcast capabilities to over 600 theaters and 162 DMAs and a 25% increase in the number of Fathom consumer events to 74, were the primary drivers of growth.

Despite this growth in the consumer focus part of the Fathom business, the overall Fathom business was only up 5.5% versus 2009 as the corporate meetings division continued to be adversely impacted by the weak economic recovery and cautious corporate spending.

While we exceeded our internal annual targets with respect to the number of Fathom consumer events, our revenue per event decreased as we began to experiment with several new types of content.

In particular we began to simulcast various sports events with cable pay per view. And while it appeared that we helped the content owners expand their overall market exposure and increase overall event audience, the theater attendance did not live up to our expectations.

During 2011 we will continue to experiment with TV simulcast of sports and other events, but will look for ways to provide more consumer value by differentiating the theater experience, including more 3D programming.

Given the great consumer response to our World Cup 3D event that we broadcasted live to a few theaters last summer, there appears to be strong demand for 3D event programming.

As such, during 2011 we will be significantly expanding our live 3D capabilities with RealD technology as our circuit partners deploy digital cinema equipment.

Deploying greater 3D capabilities is only one component of our plan to expand and improve the technical capabilities of our digital network.

During 2009 and 2010, we added five new network affiliate theater circuits with approximately 825 screens and 26 million annual attendees, which helped to partially offset a decline in theater industry attendance.

While this was good progress, we are not done yet as our network will continue to grow in 2011 as we have contracts in place to add approximately 875 Rave and Regal consolidated screens with over 30 million annual attendees that will join our network by mid 2011 when their advertising contracts with Screen Vision expire. ¶

This will increase our market share in the top 10, 25 and 50 DMAs to 72%, 70%, and 66% respectively.

In addition to these signed contracts, we continue to have promising conversations with several regional theater circuits who are interested in joining our expanding network when their current advertising agreements expire.

Many of these circuits are in smaller markets that will help us improve our C&D county coverage. And thus improve the more ubiquitous market coverage that many of the CPG, QSR and retail clients require.

For instance, just today we signed an agreement with Showplex Cinemas to add to our network their 83 screens and approximately 2 million annual attendees that are primarily in the Midwest.

Showplex is a relatively new company that is expected to grow in the future as they acquire more theaters.

There continues to be several circuits that will come out of contract with their existing cinema advertising supplier over the next three years, while our renewal exposure is very limited.

In fact, the average contract life of our network increased in 2010 due to the ongoing M&A activities of our founding member circuits.

The acquisition of over 900 Kerasotes screens by AMC and Regal last summer immediately increased our OIDA and OIBDA margins and more importantly significantly extended the length of our contract with respect to those acquired theaters from less than 2 years to nearly 27 years.

In addition to expanding the reach of our network we have also continued to improve the technical quality.

The rollout of digital cinema by the DC -- IP partnership and the deployment of new patented sound monitoring device, will allow us to bring an even higher quality presentation to theater patrons and our advertising clients.

As of last week we were playing our advertising preshow through digital cinema projectors in 2800 of our network screens and expect, by mid 2012, that over 15,000 screens, or approximately 90% of our digital network, will be equipped with digital cinema technology.

We believe that this higher quality projection across our national network will further differentiate our network quality versus Screenvision and provide national reach for 3D ads and entertainment programming that will provide a unique value proposition versus television.

As the adoption of 3D TVs in the home has been slow, we may actually have a 3D reach advantage for a period of time over television.

Including our initial launch of 3D advertising in April of 2010, we sold 5 3D ads during 2010, two of which were with new clients.

We're off to a good start in 2011 with a 90-second 3D car ad that began playing in January and are having ongoing conversations with several clients.

While we expect 3D to provide some future upside for us as these 3D ads will continue to attract new clients and provide CPMs that average from 50% to 100% higher than our average TD CPM it is still a very new medium for most clients and their creative agencies.

And, thus, there is likely to be an adoption period over the next few years just as there was with the transition to HD.

Looking ahead, our outlook for Q1 is somewhat soft, due to the projected lower national advertising revenue associated with the absence of military spending related to the deficit reduction debate going on in Washington, DC.

We also had a shift in content partner spending to later 2011 quarters.

These two factors represented $16 million or 35% of Q1 2010 national nonbeverage revenue.

While we were able to replace the loss of the military spending in Q4 of 2010, our low penetration into heavy Q1 spenders, such as the CPG, QSR, beverage and pharmaceutical categories made it more difficult to replace all of the 2010 Q1 military spending.

Excluding the military spending in Q1 2010, our national nonbeverage revenue is expected to grow 13% to 19%.

Fortunately our experience with the military over the last few quarters appears to be a bit of an anomaly as we are not only adding new clients, we are also maintaining and, in some cases, increasing the year-to-year spending of our existing clients.

As evidence of this, even including the impact of a significant reduction in military spending in Q4, 2010, our churn rate declined in 2010 to approximately 21% of total 2010 national revenue versus 23% and 36% in 2009 and 2008 respectively.

This trend may also be an indication that we are becoming more of a primary or at least a secondary medium for more brands. And not just a medium that is used for some sort of special marketing event.

Despite our lower projected Q1 national advertising revenue, we are still anticipating strong revenue and OIBDA growth for all of 2011 as the combination of national client proposals and commitments are meaningfully higher throughout the rest of 2011.

In addition our content partner spending is more heavily weighted to later 2011 quarters and our local advertising business continues to gain momentum as smaller businesses recover and we expand our regional client base.

We will also benefit in the second half of 2011 from the continued addition of new network affiliates and the digital cinema deployment that will increase our overall advertising impressions and provide a significant expansion of our 3D capabilities.

And while our national ad business is not significantly impacted by the ebbs and flows of the overall theater box office, we are also expecting a recovery in the theatrical box office as the year progresses.

The strong summer film schedule that includes several highly anticipated tentpole 3D films will provide positive tail winds for our overall business and more immediate benefits for our local ad business.

Before I turn the call over to Gary, I would like to thank all of our investors for their support during 2010. And I would also like to thank all of our employees for their hard work this past year as we posted another strong year of growth in 2010.

We are positioned very well for growth in 2011, and beyond as we continue to execute the business plan that we have had in place since our IPO, including the expansion improvement of our advertising in Fathom networks, broadening our advertising client base in Fathom, content offerings, making marketing and research investments that target underpenetrated categories, and creating more unique targeted marketing packages across our in-theater, online and mobile app platforms.

Now here is Gary to give you a little more detail concerning the 2010 financial performance and 2011 guidance.

Thank you, Kurt. I will now spend some time reviewing our fourth quarter and full year 2010 financial performance in a bit more detail, as well as provide guidance for the first quarter and full year 2011.

For the fourth quarter, our total revenue decreased 44% to $118.1 million, driven by a 6.5% decrease in Fathom events revenue to $14.3 million.

And nearly offset by a 0.6% increase in total advertising revenue including beverage to $103.8 million.

For the full year our total revenue increased $12.3 million to $427.5 million, driven by a 13.2% increase in total advertising revenue, including beverage, to $379.4 million, and a 5.5% increase in Fathom events revenue to $48 million.

The advertising revenue mix in Q4 2010 was 72% national; 20% local; and 8% beverage versus 71%, 20%, and 9% respectively for Q4 2009.

For the full year the advertising revenue mix was 72% national; 18% local; and 10% beverage. Versus 71%, 18%, and 11% respectively for fiscal 2009.

Q4 national ad revenue, excluding beverage, increased 2.3%, over Q4 2009, to $75 million. Driven by a 5.8% CPM increase and a significant increase in utilization from 103.9% to 114.3%. Offset by a 14.2% decrease in our Q4 impression base.

For the year, national ad revenue, excluding beverage, increased 14.8% over 2009 to $271.9 million, driven by a 5.7% CPM increase and a utilization increase from 87.5%, to an annual record of 101.5%. That was partially offset by a 4.4% decrease in our 2010 impression base.

The quarterly and annual increases in our impression base were primarily driven by a decrease in theater industry attendance, offset by the addition of new network affiliates.

Our Q4 beverage revenue decreased 8.1%, driven by a 13.2% decrease in founding member attendance partially offset by the 6% contractual CPM increase in 2010.

For the full year, beverage revenue increased 2.5% versus 2009 primarily due to the 6% CPM increase, offset by a 3.4% decrease in founding member attendance.

Our quarterly local advertising revenue comps became more difficult during Q4 2010, as Q4 2009 was a very strong quarter with growth of 15.4% over Q4 2008.

Q4 2010 local advertising revenue declined from $20.5 million, to $20.2 million or 1.5%. And local same-screen sales declined 5.9%.

While full-year local revenue increased 13.4% with same-screen sales increasing 9.4%.

Total Q4 advertising revenue for attendee increased 16.7% to $0.70 with our national advertising revenue per attendee, excluding beverage, increasing 18.5%, to $0.50 per attendee, and our local ad revenue per attendee increasing 16.7%, to $0.14 per attendee.

Both on a 14.2% decrease, and Q4 theater attendance.

Full year 2010 advertising revenue per attendee increased 20% to $0.60, with our national advertising revenue per attendee excluding beverage increasing 22.9% to $0.43 per attendee.

Our local ad revenue per attendee increasing 22.2%, to $0.11 per attendee, both on a 4.5% decrease in 2010 theater attendance.

As of the end of the year we had approximately $2.8 million in make goods. This is very comfortably within our historical range since going public in 2007 of $300,000 at the end of 2009 to $4.6 million at the end of Q2 2010.

Our combined Fathom events business Q4 revenue decreased 6.5% to $14.3 million, from $15.3 million.

This was driven by a 9.5% decrease in Fathom consumer revenue offset partially by a flat performance in Fathom business revenue.

For the full year 2010 the combined revenue for our Fathom events, consumer and business divisions, increased 5.5% to $48 million from $45.5 million in 2009.

The annual increase was driven by a 10.1% increase in Fathom consumer revenue, as consumer event sites increased 26.5% versus 2009. And were partially offset by a 12.9% decline in revenue per consumer event site resulting from experimentation with new types of content.

This Fathom consumer increase was partially offset by 2.4% decrease in Fathom business revenue, as business event sites decreased 9.9% versus 2009, and were partially offset by an 8.6% increase in revenue per business event site.

Total Q4 adjusted OIBDA increased 0.5% to $65.6 million, from $65.3 million in the fourth quarter of 2009.

And for the year increased 17.5% to $222.4 million, versus $189.3 million in 2009.

Adjusted OIBDA including integration payments for the fourth quarter increased 0.5% to $66.8 million, from $66.5 million in the fourth quarter of 2009.

For the year increased 17.5% to $226.3 million, versus $192.6 million in 2009.

You should note that the effect of integration payments is not included in our operating results as those net payments are recorded directly to our balance sheet.

We currently anticipate that the final Regal Consolidated Theaters integration payment will be earned by the end of Q2 2011 when these screens should have met their run out obligation with Screenvision and their attendees will shift into our advertising network.

Q4 adjusted OIBDA margin was 55.5%, up from 55.1% in Q4 2009, while full year adjusted OIBDA margin was 52%, up from 49.7% in 2009.

Both the quarterly and annual margin increases were primarily due to increase in higher margin advertising revenue as well as a decrease in a percentage of our total revenue drive from both our Fathom business and advertising affiliate business both of which provide lower margin.

These factors were also impacted by tight cost controls maintained throughout the business during the year in discretionary areas such as TNE and marketing and by some delays in hiring.

Looking briefly at diluted earnings per share for the fourth quarter, we reported GAAP EPS of $0.22 versus $0.26 in Q4 2009. And for the full year we reported GAAP EPS of $0.62, versus $0.62 in 2009.

You should note that net income in NPS in both Q4 2010 and full year 2010 are impacted by the non-cash change in fair value of the interest rate swap which was formerly with Lehman and is recorded through interest expense, an additional non-cash stock-based compensation amount.

As of December 30, 2010, we had 17,302 total screens in our network representing a 3% or approximately 500 screen increase in total screens versus the end of 2009. And a 3.8% increase in digital screens.

This increase in total screen count was primarily driven by the addition of approximately 830 affiliate circuit screens offset by the reduction of approximately 330 founding-member screens primarily through closures of underperforming nondigital locations.

As of the year end 2010, approximately 13% of our network is composed of affiliate screens versus approximately 14% at the end of 2009.

Approximately 93% of our total screens are connected to our digital network versus approximately 92% at the end of 2009.

These digital screens generate approximately 94% of our attendance. Our capital expenditures were $3.6 million for the fourth quarter and $10.4 million for the full year.

This is at the lower end of our annual guidance range we provided of $10 million to $12 million, and is up slightly from 2009 as we digitized over 600 affiliate screens during 2010 versus approximately 115 affiliate screens during 2009.

Regarding our balance sheet, our total debt outstanding at December 30, 2010, was $776 million, comprised of our $725 million term loan, a $50 million balance on our revolver versus $74 million at the end of 2009, and $1 million of other debt.

The revolver balance net of NCM LLC cash and cash equivalents was approximately $36 million, and approximates the balance at the end of fiscal 2009.

In addition to the $14 million cash balance at NCM LLC, there was a $69 million cash in short-term investment balance at NCM, Inc. at the end of 2010 versus $53 million at the end of 2009.

A portion of this cash is reserved for income tax payments and tax receivable agreement payments to the founding members. Excluding the tax associated reserves at our current dividend rate at the end of fiscal 2010 we had enough cash to pay approximately 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 5.7%, for Q4 2010, versus 5.8% in Q4 2009.

5.7% for the full year 2010, versus 5.9% in 2009.

As of December 31, 2010, 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 2.1%.

The interest rate on our revolver borrowings was 2.8% in Q4 2010 versus 2.1% in Q4 2009.

The 2.4% for the full year 2010 versus 2.2% in 2009.

This slightly higher rate reflects a shift in a portion of our borrowing balances from LIBOR rates to prime rates.

These rates were applied to a significantly lower average borrowing balances as we are now using the revolver as intended since resolving the Lehman issues in early 2010.

Our pro forma net leverage in NMC LLC as of December 30, 2010, decreased approximately half a multiple to slightly under 3.5 times trailing four quarter adjusted OIBDA, including the Regal Consolidated integration payments versus approximately four times as of 2009 year end.

You should note that we were well below our financial covenant of 6.75 times as of December 30, 2010, reducing to a floor of 6.5 times beginning in Q1, 2011, through the maturity of the term loan in 2015.

But we currently do not anticipate paying down our term date debt, our leverage is expected to continue to decline over time as OIBDA is projected to grow.

We also announced a regularly quarterly dividend of $0.20 per share. This dividend represents an annual yield of over 4% based on recent trading levels.

The dividend will be paid on March 24, 2011, to shareholders of record on March 10, 2011.

Shifting our focus to 2011 guidance, we are currently expecting that our Q1 2011 total revenue will be in the range of $69 million to $72 million with adjusted OIBDA in the range of $21 million to $23 million.

As Kurt mentioned, the primary contributing factors to the expected revenue in adjusted OIBDA declined in Q1 2011 versus Q1 2010 include an approximate $13 million military contract that did not return in Q1 2011. And a shift in the timing of more than $3 million of content partner spending to later 2011 quarters.

Q1 revenue will also be impacted by lower beverage revenue associated with low founding-member attendance. However, this will not materially impact OIBDA as theater access fees will also be lower by about the same dollar amount.

You should note that Q1 historically represents a smaller percentage of our annual OIBDA so that the midpoint of our annual OIBDA guidance range assumes that this shortfall will be made up throughout the remainder of the year.

Turning to the full year, we currently have total advertising commitments of approximately 45% of total advertising revenue implicit in the mid point of our full-year guidance range versus 47% of 2010 actual total advertising revenue at the same time last year.

These commitments include our content partner commitments, cell phone PSA, beverage commitments and scatter commitments.

While the total dollar value of these commitments are lower as a percentage of our higher projected revenue, they are currently 5% over 2010.

Our revenue guidance also reflects meaningful increases in client proposals versus approximately the same time last year.

For the full year 2011 we expect total revenues to be in the range of $465 million to $475 million, with adjusted OIBDA in the range of $240 million to $250 million, implying high single digit to low double digit growth.

Please note that this quarterly and annual outlook does not reflect any potential make goods generated during the period.

Adjusted OIBDA margins for the year are expected to increase slightly as the growth in our high margin national and local advertising revenue will be partially offset by an increase in network affiliate attendees, the incremental digital cinema fee related to integrating our network with the higher quality digital cinema projectors and higher revenue growth expectations for our lower margin Fathom consumer entertainment division.

As always, we will continue to maintain tight personnel and other cost controls.

Our 2011 outlook assumes that the economy and broader advertising market will continue to recover throughout the year. And some additional assumptions that we are making regarding our 2011 plan include the following.

In 2010 our content partner revenues were allocated approximately 45% in the first half, and 55% in the second half of the year.

We are currently projecting a 2011 allocation of approximately 40% in the first half of the year and 60% in the second half of the year.

However, a future shift in their annual (inaudible) commitments between quarters is possible as film and DVD release dates on our TV program schedules shift throughout the year.

We expect both our national and local advertising revenue to increase in the low double-digit range with a national increase driven primarily by increased utilization on a higher impression base related primarily to the addition of the network affiliates discussed and low single-digit CPM growth.

The local increase is driven by expected improvement in the economy, continued expansion in the number of larger regional client contracts and the impact of the additional salable screens under contract.

I would like to highlight that we will continue to use our standard 11, 30-second units of the denominator in our utilization calculations to ensure period-to-period capability.

As we have mentioned before, we can expand the show to a total of 14, 30-second units or potential utilization of 127% if there is sufficient market demand.

The Fathom consumer entertainment division is expected to continue to represent most of the Fathom growth with higher revenue growth in 2011 than in 2010, as we continue to expand the number of events in the arts, sports and other entertainment categories, as well as expand 3D events. And we begin to more aggressively sell event sponsorships.

After a bit of a recovery in Q4 2010, the business meeting division is expected to begin to grow again in 2011. At the lower rate than the consumer division.

We expect CapEx levels to remain in the $10 million to $12 million range for 2011, which is one of the primary reasons why we continue to generate such high levels of free cash flow.

This expected range includes the digitization of a portion of our currently contracted network affiliate screen and assumes that no additional network affiliate agreements are signed.

Lastly, consistent with 2010, our fiscal 2011 calendar includes 52 weeks.

Before we open the line for questions, I would like to remind everyone of the change in tax status for dividends that we discussed in our last earnings call.

Of the dividends paid in 2010, 72.5% are to be treated as a nondividend cash distribution for federal income tax purposes and the remaining 27.5% are to be treated as an ordinary dividend.

Stockholders should receive a Form 1099 div in the next few weeks for the 2010 tax year.

That concludes our prepared remarks. We will now open up the line for any questions you might have.

Ladies and gentlemen we will be conducting a question-and-answer session. Our first question comes from the line of Eric Handler from MKM Partners.

Couple of things with regard to guidance. One, is there any 3D revenue factored in there as of right now? And how big do you think the 3D revenue might actually be in 2011? And then secondly, if you assume that the overall US box office attendance is flat, year-over-year, where would that sort of put you on a run rate with your new affiliate agreements plus Consolidated and Rave coming in?

The answer to your first question, Eric, is that yes we do have in our guidance and projections 3D revenue growth over 2010. Because we said in the script we had five deals that we did in 2010 and we've already got one playing -- actually a 90-second ad playing -- that's played already. That's the answer to that.

There was a follow on, on 3D, what was the second question? How big in 2011? Probably not going to be able to give you that answer. Let's see. With attendance flat, we are going to be adding with the Rave and Consolidated plus the other one we just announced today that we signed, that's about 32 million attendees, give or take. Our affiliate attendance is up, what, 15% give or take? So you can probably do the math because I think we actually disclose what our attendance is for affiliates and our founding members in our press release. That ought to give you a pretty good indication of what we are thinking about.

Thank you.

Our next question comes from the line of James Marsh with Piper Jaffray.

My first question relates to the regional business opportunity. I was hoping you could just expand a little bit more there. How material could this business be over time? And who are the potential advertisers you looking at beyond some of these regional auto dealers? How you are going to sell those ads? Is that a national ad sale effort or is it local? If it's local, do you need to bolster that sales effort over time?

If you look at the regional group that we have, their sales levels today are, give or take, what, 10%, 12%, something like that. 8% to 12%, I guess, would be a reasonable range of our total regional sales. That's been growing pretty nicely over the last couple years as a percentage of our overall local sales. We have a specific group that sells the inventory. They focused on, as I mentioned in the script, several different groups. It's been primarily up until now car dealer associations. But we've gotten a lot of interest from the tourist organizations -- tourism organizations, and so on, so we've now started to expand the definition of what these guys go after.

In a lot of cases it's national looking clients that are simply buying what would be the equivalent, in the television world, of spot television. They're just going in and buying certain DMAs. And they want all the theaters in a given DMA just the way they would go and buy a local affiliate. When you look at the ads, the ads themselves actually look an awful lot like national ads. They happen to be placed further back in the show. Generally they're placed as the last ads in our segment three or potentially the first ads of segment two, depending on our inventory utilizations in the national.

That's very helpful. I have one question about military as well. As we look at this over the moderate term, do you view these reductions in military as a secular change and it's going to be a smaller category going forward? Or do you think this is part of a cycle and it's going to ebb and flow?

I think it's going to be part of a cycle. And just because we don't happen to be doing anything with the Army National Guard right now doesn't mean we are not doing military spending. In fact, we signed a contract in Q2 with the Army. And the army hasn't advertised with us in several years. I don't actually take this as anything but purely budgetary issues that the Army National Guard is dealing with.

As far as the ebbs and flows of their needs, cinema continues to be, I think at least for the Army National Guard, their number one recruiting platform. And one of the things that we've seen putting aside all the budget issues is that a lot of their recruiting goals have been met over the last couple of years. Just because the unemployment rate has gone up and a lot of kids that are coming out of high school or even college can't find a job so they tend to go into the military.So it's actually easier for the military to recruit during time periods of high unemployment. I would suspect as the unemployment rate comes down and unemployment in the private sector, if you will, goes up, you may see the recruiting needs of these various military services going back up and the money will flow back to us.

Just to be clear on that, those are state dollars not federal dollars? From the State National Guards or is it coming from some co-op?

No, it's national money, the Army National Guard is clearly national money. We get it from both buckets, because the Army National Guard is continuing to spend with us with our local guys. I suspect that's coming out of more what I'll call regional or state budgets.The big expenditures that we have been getting has been coming from Army National Guard as a national entity.

Okay. All right, thanks very much.

Our next question comes from the line of Alexia Quadrani from JP Morgan.

Thank you. First question, could you give us a little color about your visibility in to the first quarter? I guess how much revenue can you see at this point? The second question, is it possible you can give us a general idea of what the total military related dollars were in 2010?

Total military dollars in 2010 I think was the $13 million which happened to be all spent in the first quarter.

A little bit more.

A little bit more. I think there was some local too. As I mentioned in the script, like I said they didn't spend with us in fourth quarter either. And they had spent in 2009 fourth quarter. So that was mostly their expenditure for the year.

Visibility, you can assume, as usual, we've got a pretty good handle this far into the quarter. In fact, the flight for March I believe starts this week. We have a pretty good handle on our visibility and our guidance.

Our next question comes from the line of James Dix from Wedbush Securities.

Two questions I think. First in terms of where you think the share is coming from because I think you mentioned in your opening remarks you are picking up share. Obviously you had a count of new advertisers you picked up in 2010. Looking at that in terms of either the type of networks you think you are getting that money from or particular demos where you think advertisers are making shifts to you, any color that you could give there would be helpful.

Then, secondly, just I have a question, the level of visibility you have in terms of some of the shifts you've been seeing in money going from quarter to quarter. Or cancellations such as the military or the content partner money. I'm trying to get a sense as to both within the normal scatter line and then outside of it, some of these other elements of revenue. What's the minimum lead time that you normally get in terms of when you find out something is going to shift or be cut. So I have a better understanding of the type of visibility you face quarter to quarter.

Your first question on where the share is coming from, you never really know obviously. I think a lot of it is coming from broadcast. Given the cables' growth it would seem the cable is stealing share from somebody else as well. Don't know whether that's broadcast or where it's coming from. Clearly we do have instances where people are actually telling us they are moving money from broadcast to us. We also have a few agencies that are actually buying us completely out of their television groups. All the money is sort of fungible, if you will, television money, and we're considered part of that now with certain ad agencies.

I do believe on the locals that we are shifting money away from pretty much all the local mediums, whether it be newspaper, radio, spot television, possibly even billboards I guess. I think it's coming from a lot of different places on the local basis.

The demos, I mentioned in the script, some of the big growth areas, what I think has been most -- what I've been most happy about this year in '10 is that we were able to actually start getting money from insurance companies and other businesses that our demo doesn't necessarily fit perfectly. That's a good sign that we are able to start I think working our way through some of those demo match issues, if you will. Insurance companies and a few other categories tend to go to an older audience focus.

Visibility, pretty much the same as what we have been saying. The visibility is probably lead time a little bit less, although that's been improving over the last couple of quarters as the industry outlook has been better and clients have started to open up their budgets a little more freely. I think we are also benefiting in any given quarter from overflow from the scatter market on television. The broadcasters continue to struggle with their ratings.

It will be interesting to see over the calendar second quarter and calendar third quarter which happens to be the third and fourth quarter of the media calendar, whether the network guys have to start taking inventory out of sale to meet their upfront obligations.Because, as you know, the upfront was pretty big last year and I'm sure that some of them are having trouble meeting those obligations given the ratings decline. That could be something in the calendar second and calendar third quarter that could help us as well.

We do seem to this year, as Gary had mentioned, our level of proposals that we are entertaining right now and discussions that are being had is up meaningfully from last year. And so I think that's a sign that people are starting to think about cinema earlier in their sort of process -- marketing buying process. And I think that's a good indicator for us as well.

We're probably about 90% of the way to where we were pre-recession as far as visibility goes. We are almost into the same position.

As far as the timing of when we hear from people. Although we still get a lot of late deals, which was something that wasn't happening sort of in the '07, early '08 time frame, so that's good.

Just one follow up. That's actually very helpful. In terms of the mechanics of how much time you normally get before someone will -- in terms of notice on a cancellation. Whether it's military or content partner money, or just any large advertiser, somebody has a commitment in a particular month, what's typically the latest you will normally get in terms of notice on that shifting or being cut or something?

It can vary depending on the size of the contract or maybe no cancellation rights. Now in practicality if they come back to us and they say, look, the creative is not done, can we move it from one month to the next, we are going to do that. So you're going to get flexibility.

But generally, if there is a multi-flight deal, you'll see deals done where 50% of the commitment is cancelable on 120-day notice.We'll occasionally do a little shorter. We try to make the notice periods as long as possible because our sales cycles, obviously, will take that time to replace the inventory.

On the shifting of the content partner, usually have a couple of months' notice. Not typically a last minute thing. It happened once or twice in the past, but it's not typically like that.

Yes. The percentages that Gary gave you are based on the scheduling. 100%, give or take, very close to 100% of our content partner must spends for the year are scheduled today. That, of course, as Gary mentioned, is subject to change if programming schedules change or movie release dates are moved or whatever.But I think it gives you a pretty good indication that our commitments this year are a little bit back ended.And maybe that's -- at least in the case of the studios that do deals with us, they're trying to get around the summer. As you know, the summer schedule looks pretty good for the theater industry. So a lot of those guys may be moving their commitments around that summer schedule.

Okay. Thanks very much.

Next question come from the line of Mike Hickey from Janco Partners.

Great job on the quarter. Thank you for taking my questions.Just curious on the increase in your proposals. Obviously it must be meaningful.Do you think that reflects media buyers noting the high levels of utilization the second half of the year? Or do you think it's more awareness of how the medium is being effective?

I hope it's a little bit of both. Clearly there were some time periods last year, in particular July and again November, December, where we were really heavily sold. I would hope that would have an impact on people coming to us a little bit earlier. I do think, as I mentioned, we are starting to get to a critical mass point in the number of relationships that we have that are either primary or secondary where we're a primary or secondary medium for them.

The more and more of that you get it creates a bigger wave. At some point you get to a tipping point where cinema is more top of mind with media buyers than it previously was. And given the number of clients that we added last year, which I noted was pretty significant relative to our existing client base, we're stating to get closer and possibly even at some of those tipping points.

On 3D, you seem hesitant to get too excited. Obviously there is a huge (technical difficulty) in terms of CPM pricing and looking at the cinema market box office, 3D has been a great catalyst in terms of overall pricing. This year alone there is 35 films versus 21 last year, so that theme seems intact for a while. Just wondering when it can be meaningful for you? I'm curious on feedback from advertisers, and maybe -- I'm hoping at some point we would have a conversation looking at your CPM X 3D versus normal. And if that's two or three years out or when we can start modeling some more CPM growth from 3D?

I don't know when we'll get to the point where we start breaking things out on that granular a basis. If I gave the indication that I wasn't excited about 3D, maybe that was misread. I actually think it will be a great driver of bringing in new clients. As I said, last year of the five clients we did 3D's with, two of them were brand-new clients. There were clearly -- 3D is what brought them to cinema. And I think we actually may have an advantage over television for a number of years as the adoption in 3D in the home has been really, really slow and quite disappointing.

I do think this will be a differentiator. And that's why I'm excited about the fact that our 3D capabilities are going to be expanding so quickly. When you look at the amount of 3D impressions we could provide last year versus this year, it's more than doubling this year. Because of the combination of number of 3D screens that are going to be in our network along with the number -- increase in the number of 3D films that are going to be released.

The compounding effect, if you will, of those two things provides a pretty significant increase in 3D impressions. Having said that, and the only caution I guess I did put in my comments was that the media marketplace does not respond quickly to new technology. We saw exactly the same thing happen when HD became -- we started into the transition of HD. And it actually took four or five years before it became somewhat ubiquitous. I think that 3D will probably happen a little bit quicker. Although 3D, from a pure creative standpoint is more complicated in many ways than just HD is for TV.

For us, it's actually doing to be good we are out in front of TV and other mediums. Although I think the adoption of 3D by advertising agencies will come along as TV does it and other mediums do it. There are hand-held devices that are going to come out with 3D in the next few years and so on. Because the more platforms there are that can use the medium, the more people will invest in the medium itself and the production of the medium.

The last question, on your category analysis, you showed entertainment auto telecom, I think you said 60% of '10, down from 65% of '09. Can you give a little bit more depth in terms of concentration, category four or five?

Yes. I would say -- what were the three we listed?

Entertainment, auto and telecom.

Well, entertainment is probably number four, if you -- depending on how you want to broadly define it. The studios, the broadcasters and so on, I think that's probably our next biggest category.

What are some of the other categories? I'm actually pulling out a list here for you.

Beverage, obviously, is part of the Coke deal so we never really mention that. But it's important to mention, because beverage is a very big category. We happen to do it all effectively with one client which happens to be Coca-Cola so that's a big deal for us.

CPG is actually starting to grow. I would say it's clearly in our top ten now, which is good. We're starting to do a bit of work with Proctor and Gamble and a number of other clients.

When you get below the top three, it's pretty diversified that you would have -- that they are going to be pretty similar between CPG, insurance, technology, et cetera.

Okay. On the beverage are you comfortable with keeping those two spots medium term?

That's the deal that the circuits have made for a number of years now out with Coke. I'm pretty confident we're looking at 60 seconds for quite sometime. Obviously, that's given us another unit that we've got to sell in the marketplace.

Thanks, guys.

Next question comes from Marla Backer from Hudson Square. Please proceed with your question.

Thank you. Given one objective being to smooth out the lumpiness that you've seen with the content partner spending and military spending, is the sales force engaged in conversations with any other categories outside of beverage and cell phone and obviously entertainment for multiyear contracts?

Sure. We talked -- we have been talking to Proctor and Gamble for years about a big deal that would include multiple units throughout the year. We have these conversations with almost all of our clients.

We want to get as much upfront money and as much in commitments as we possibly can.

We also done a number now of these airplane deals primarily with clients that buy television, very, very cheaply. Some of them are buying mostly daytime television or remnant or other types of inventory that's very cheap. It's very hard to get them on board for our full rate card, if you will.

One way to work your way around is obviously some sort of airplane deal where we have more flexibility to place the inventory.

That was going to be my next question is the airplane deals. Obviously that's another way for you to try to offset some quarter intermittent quarterly softness. Are you trying to grow that part of the business also?

We definitely are. Some of that money will hit in our first quarter this year, which is good. I would say we are not at a level I would like to be -- between airplane deals and direct response deals those are the fill-ins for television.

And, unfortunately, we can't do very affectively what is considered direct response. It doesn't play very well in cinema, we have chosen not to do it.

That's a big pool of fill-in money that the television networks use and cable networks use today. You look at '08 and '09, that percentage got up in to the 20%, 30%, 40%, when other spending fell away. So when we aren't able to get the direct response, we've got to find other ways of filling it in and the so-called airplane deals is one of those ways.

Our next question comes from the line of Barton Crockett from Lazard Capital Markets.

Barton Crockett. Thanks for taking the question here at the end. I wondered if you could talk a little bit about the Screenvision ownership change in the context of competing for affiliate deals? Are you saying they are more competitive?Has it changed the tenor or the tone at all when you're approaching people? Do you have any update on how things are going with National Amusements?

I believe National Amusements has signed on with Screenvision. That's not somebody we are currently talking to. As far as the other regional operators, we continue, as I said there, to have several conversations with them. I haven't really noticed at this point there are any necessary change in tenor. They were pretty aggressive before in going after affiliates. I don't think that has changed all that much.

We continue to go after some people more aggressively than others, depending on where they are located, where the impressions are, and where we need to fill in. But I don't think that's changed all that much, to be perfectly honest.

Great, I will leave it there, thanks a lot.

Our next question come from the line of David Gober from Morgan Stanley.

Just a couple, if I could, first on stock based comp. And I apologize if I missed any commentary on this earlier in the call. Looked like stock based comp popped pretty significantly in the fourth quarter. And it looks like it returns to a little bit more of a normalized rate, but the 2010 rate should be pretty similar to 2011 based on the guidance you guys give. Curious if there is anything one time going on there?

And just on the commentary about where you guys get placed within ad agencies. You've talked about that transition over time and the fact that getting looked at within planning groups and TV planning groups is probably optimal place within an agency. Just curious how that's been trending over the last year or so, the last three to six months or so maybe. And any further progress that you guys have made there.

It continues to be a work in progress. There are two big buying groups right now that do it for sure. The rest is predominantly bought out of home agencies of one kind or another. I would say it's probably, on a dollar basis, 50/50 now, give or take. That's pretty rough but probably close.

Again it's going to be something we are going to continue to at least promote. We obviously don't have a whole lot of leverage to make it happen one way or the other.There is a learning process too -- or teaching process that we have to go through in retraining the new media buyers to understand cinema and so on. It does take a lot of work but we do think it's the right place to go because it puts you in a much bigger pool of potential dollars.

David, on the stock comp, basically what happens is we have to look at our three year plan that the compensation's derived off of. It's a cliff -- after three years for the various plans. We have to look at what the projections are. If it's overperforming and underperforming and things like that. You can probably make a guess on the ones we were developing during a recession, we're probably overperforming a little bit.

But if there is out there a few years out where we have set fairly high, we don't have any reason to bring those down because we are sitting here with no information that they're too far reaching or anything. So what we do is we basically look at the projections and do the math. That's why you see that number all running through Q4.

To put a bigger point on that, is that we clearly overperformed our plan in 2010, which -- the way our restricted share plan works, is that you get granted a certain amount of shares at 100% -- if you hit 100% of the net cash flow plan for a three year period. So it's a three year [clip fest], as Gary said. If you hit 90% of that plan, you get 50% of the shares that were at 100. If you hit 110% of that plan, you get 150% of that number.And so because of the overperformance in '10, primarily that was why you saw that hit in fourth quarter.

That's very helpful. Thank you.

Our next question comes from the line of Torin Eastburn from CJS Securities.

My first question is on the guidance. Just trying to back in to your utilization assumptions. Seems like in Q2 through Q4 you're assuming something close to or in excess of 100%. Am I thinking about that correctly?

Well, remember -- when you say 100%, the way we calculate -- and Gary mentioned it at the end of his comment, we use 11, 30-second units as the denominator. Whatever we report and we can go up to 40-second -- 14, 30-second units. So our total potential is 127%.

This year we did 101.5%.

If you backed all that off and said what's your real -- we're really around 80-some-odd percent, give or take.I haven't actually done the math that you are talking about. So it's a little hard to answer specifically. But the other thing that you have to take into consideration is our impression base will be growing meaningfully after the second quarter.

So if you took third and fourth quarter, we are going to be adding 30-plus million new attendees. So in the impression calculation you've got to take that 30, multiply it times 11 and multiply that times whatever percentage utilization you think we are going to do. Some of the growth in the second half is being driven by incremental impressions.

Okay. Second question about the guidance -- more about pricing. First, are any of the issues you are having in Q1 affecting pricing? And second, as utilization gets better throughout the year, what are your thoughts on CPM growth?

The answer to your first question is no. Pricing has not been an issue at all in first quarter. I would just say, as I mentioned in my analysis, or my report, we would be up on the high side, 19% if you just took out that one client, the Army National Guard. It clearly is this issue of timing with that. There is nothing going on in the first quarter that is CPM related.

Having said that, we do have a 90-second, 3D ad running in the first quarter which should bring up CPM a little bit. And we do have some airplane deals running in the first quarter which will bring it down. So they'll have offsetting effect, which I've talked about before.

And what was the rest of the year CPM growth? I think the guidance we keep giving people is low single digit is a good metric to use in modeling. We outperformed that the last couple of years and I think the outperformance is really more related to what is going on in the television marketplace. And clearly the last several quarters the TV market -- pricing environment has been very, very good, which is why you've seen us outperform, I believe, our low single digit and we have been more in the mid single digit increase in CPM.

Quickly, the last question, your full year guidance assumes about 10% revenue growth and 10% OIBTDA growth. I would have expected a little bit more leverage considering your incremental revenues don't come with much attendant costs. Is there anything going on other than the 3D buildout you would consider one time?

No. I don't know how you did your calculations. We would expect -- I think Gary even said this in his comments, that we would expect a continuance of a little bit of margin expansion because the incremental margins of our national advertising is so high.

I don't know how you did that. I don't know whether it's 10 and 12 or 10 and 9 or what the relationship is. But I do think you'll continue to see, as you did this year, the EBITDA growth extend beyond the revenue growth.

Take into consideration the -- depending on where the revenue growth comes from. Obviously if we're adding affiliates, that's more like a 40% margin business versus the -- if we do it on a founding member it's a lot higher than that.

Also the Fathom business is a lower margin. So it all depends on which piece you're growing in your model.

Yes. We will have a little bit of a benefit from the Kerasotes acquisition, because that was done mid year last year, give or take. This year it will be in there for the full year which is an increase in margin because our founding members own those theaters as opposed to Kerasotes.

Thank you.

Our last question comes from the line of Ben Mogil from Stifel Nicolaus.

Actually, I think everything I had a question on has been answered already. Thanks.

Cool.

I would like to turn the call back over to management for closing comments.

We don't have much else to say. I'm sure you felt like we said too much already.

Anyway, thank you very much for everyone's support. And, as always, if anybody has any follow-up questions, please give us a call. Thanks again.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.