National Cinemedia Inc (NCMI) 2012 Q1 法說會逐字稿

Greetings and welcome to the National CineMedia Incorporated First Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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 Incorporated. 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 2012 Q1 earnings conference call. Today I'll provide a brief review of our Q1 results and make some comments about the rest of the year. Gary Ferrera, our CFO, will then provide a more detailed discussion of our financial performance and guidance and then as always we'll open the lines for questions.

Once again we exceeded the top end of our adjusted EBITDA guidance range with solid 12% revenue growth and adjusted OIBDA growth of over 5% versus Q1 2011 despite a contractual increase in our Q1 theater access fees with our founding member theater circuits that happens every five years. Our national advertising business had a great quarter with revenue growth excluding beverage of over 19% driven primarily by a 540 basis point utilization increase to 76.4% which was on top of a significant network attendance increase of 27% related to a very strong box office and continued addition of new network affiliates. These gains were partially offset by lower average national CPMs and lower regional revenue.

The increase in national utilization and decrease in CPMs were driven by our strategy to create more flexible pricing structures during lower demand months and by some pre-bookings during our soft Q4 2011 scatter environment. The new pricing structures included providing incentives for new clients to test cinema or existing clients to move or expand their spending into lower demand months. We also continued to expand our relationship base of more price sensitive brands through airplane or other creative deal structures which as expected negatively impacted our Q1 CPMs.

From the beginning of our growth, our growth strategy has always been about growing utilization so that we can begin to benefit from a more favorable inventory supply and demand relationship. While we have made significant progress during several months of the year, Q1 continues to have lower inventory utilization than other quarters during the year. In many ways this is no different that television or CPMs varied by day part and program ratings. The only difference is that through the years TV has developed pricing structures and a broad enough set of client relationships that ensure that all inventories produce value. Our business is much earlier in its development cycle and thus our future upside lies in our ability to continue to broaden our client base so that it can better monetize our inventory in periods where theater attendance is low.

By offering incentives only in low demand months or potentially as part of our Upfront deals, we will not compromise our rate card during our higher attendance, higher demand months. So far this year we have received commitments from five national clients that have never spent with us or have not spent since 2006, three of them in Q1. The new Q1 clients include businesses in the import auto, insurance, and financial products and services categories. We also expanded commitments in Q1 versus their 2011 spending with ten existing national clients.

We also continue to benefit from the expansion improvement of our national digital network and the deployment of the new higher quality digital cinema systems. So far in 2012 we have signed two new theater circuits with approximately 140 screens and have added two to our network during the first and second quarters of 2012. These recent additions and over 1,800 screens added in 2011 bring our total network screen count to over 19,200 screens and 181 DMAs representing approximately 70% and 65% of the attendance in the top ten and top 50 US DMAs.

We believe that these improvements in scale and geographic coverage allow us to be more competitive with national TV and internet and mobile networks and various local marketing platforms. We expect this expansion to continue as we are currently targeting several smaller regional circuits with over 1,500 screens and approximately 60 million annual attendees.

We also continue to improve the technical quality of our network. As of last week we were playing our advertising preshow through digital cinema projectors on nearly 12,000 screens or 67% of our digital network screens and expect approximately 80% of our digital network will be equipped with a higher quality digital cinema technology by the end of this year.

After a great 2011 our local advertising business had a tough Q1 as revenue decreased over 13% due to a fewer number of larger regional contracts. As you know, the growth of our regional business over the last several quarters has been the primary driver of local revenue growth and while the current quarter was disappointing we do not believe it is a trend as the decrease appears to be the result of the timing of regional client spending which is more closely tied to the TV spot market.

Given the smaller Q1 revenue base, the shift or loss of only a few regional bookings have a meaningful impact on the quarterly local revenue. In fact, our regional bookings are starting to pick up in Q2 with the success of films like Hunger Games and the excitement building around the strong summer film slate. Also, our small client business that has been hardest hit by the recession appears to be stabilizing as the number and total value of contracts below $10,000 are up 7% and 11% respectively for Q2 so far.

Fathom Events had a very strong quarter as our consumer division revenue growth of 21.5% was partially offset by a 15.8% decrease in our business meeting division revenue due primarily to the wind down of that business during the quarter. Consumer division growth was driven by 56% increase in the number of event nights to 25 from 16 with successful events that included a program built around the documentary film Monumental, a Casablanca anniversary event and a Broadway presentation of Andrew Lloyd Webber's Love Never Dies. Coming off a 41% increase in event nights in 2011, the Fathom consumer business appears to be gaining programming momentum as we work to create a more robust alternative content ecosystem from programming to theatrical release and the creation of downstream revenue opportunities.

As part of this we're also beginning to more effectively market and promote events. For the first time we've created a national cross marketing relationship with a national brand for the upcoming Mayweather heavyweight boxing event on May 5. While it is still too early to tell whether these new cross marketing relationships will help sell more tickets, a meaningful increase in presales would seem to indicate that these new cross marketing relationships of Citibank's Private Pass preferred customer program and O'Reilly Auto Parts, over 3,700 retail stores are having impact. In addition to the Mayweather fight, the event pipeline for the remainder of the year is looking promising although Q2 comps will be challenging do to a very strong Q2 2011.

Our online and mobile initiative also continues to make good progress during the quarter as we expanded our online and mobile capabilities including the sale of local advertising through our broad local sales force. This sales force of over 180 individuals is a unique asset in the online and mobile world. More importantly we continue to aggressively package online and mobile with onscreen and lobby to provide very unique cross platform marketing campaigns for our clients.

As part of this strategy during the quarter we launched our new cineSync app on both iPhone and Android phones that will allow a theater patron to engage with lobby marketing materials and video screens. It also can automatically download coupons and other value added elements as it syncs with ads and content segments playing in our FirstLook preshow. This app is currently available as a companion to our Movie Night Out app and we are working with our circuit partners, wireless companies, advertising clients, and other app owners to further expand the distribution. This app allows us to create a direct connection to consumers for our add clients and provide value to the movie patron that will give them one more reason to go back to their local movie theater.

Looking ahead, our national bookings look very strong for the second half of the year including solid CPMs and we're also currently seeing a pickup in Q2 in our local regional business. However, it now appears that our strong performance by our national sales team in Q1 will be offset by a soft Q2 as we've had some commitments move into the second half of the year and the scatter market has been slower than we anticipated as reflected by the recent cancelation of several TV Upfront commitments. Of course there's no way to tell how much of that national money that has been optioned will come back into the marketplace in the second half of the year as last minute Q2 deals. However, the fact that it has been released may give us a chance to compete for it in the future.

With the softer Q2 we're now projecting a 2% to 9% increase in national ad revenue for the first half of 2012. While it's still too early to report anything specific, we could benefit later in the year from our first time participation in the TV Upfront process. So far our national sales people have received very positive feedback from the over 125 Upfront related meetings with clients and agencies that we have participated in to date. We're hopeful that this broader exposure to the media marketplace will result in some incremental buys this year as well as over the longer-term.

That's all I had. So, now I'll turn over the call to Gary so he can give you more details concerning our Q1 financial performance and Q2 in annual guidance.

Thank you, Kurt. For the first quarter our total revenue increased 11.7% to $79.1 million driven by a 12.2% increase in total advertising revenue including beverage and the 9.4% increase in Fathom Events revenue. Total Q1 adjusted OIBDA increase 5.1% to $24.8 million from $23.6 million and our first quarter adjusted OIBDA margin decreased to 31.4% from 33.3% in Q1 2011. This margin decrease is primarily due to the impact of the contracted 8% increase in 2012, the attendance-based portion of our theater access fee that occurs once every five years and the incremental digital cinema maintenance fee related to the increase in the number of high quality digital cinema projectors connected to our network. Additionally, our margins were impacted slightly by the fact that our lower margin network affiliate attendance base that operates under a revenue share model grew to 15.6% of our total Q1 attendance versus 11.2% in Q1 2011.

Our Q1 2012 advertising revenue mix shifted slightly and with 63% national, 20% local, and 17% beverage versus Q1 2011 which was 64%, 22% and 14% respectively. Q1 national ad revenue excluding beverage increased 19.1% to $45.6 million driven by an increase in utilization to 76.4% compared to 71% in Q1 2011 across the 26.9% increase in our Q1 attendance base. This increase was driven by the very strong box office as well as the addition of several new network affiliates over the past year.

These increases were partially offset by a CPM decrease of 11.5%. As Kurt mentioned, this decrease was primarily due to more aggressive pricing strategies designed to drive utilization during typically low utilization time periods. Our Q1 beverage revenue increase 19.5% to $9.8 million driven by the significant increase in founding member attendance and by the approximate 1% beverage CPM rate increase for 2012. The impact on OIBDA of this revenue increase was offset by an increase in the attendance-based portion of the founding member theater access fees as both are based on theater attendance.

Our Q1 2012 local revenue decreased 13.5% to $10.9 million, the same screen sales decrease in approximately 19.9%. Our Q1 local contracts increased slightly while the average contract value decreased approximately 12.4% versus Q1 2011. This was driven by fewer large regional contracts being booked in the quarter. The total dollar value of our larger local and regional contracts over $100,000 decreased approximately 55% and the number of these larger value contracts decreased approximately 31%.

Total Q1 advertising revenue per attendee decreased 11.7% to $0.39 for a national advertising revenue per attendee excluding beverage decreasing 5.9% to $0.27 while our local ad revenue per attendee decreased 33.3% to point -- $0.06. Note that both revenue per attendee metric declines were driven by the strong Q1 2012 attendance that increased 26.9% which further demonstrates that our revenue results are primarily ad market driven and do not directly correlate with theater attendance increases or declines in any given period, especially when increases in theater attendance are expected and were not built into the -- were unexpected and were not built into the ad contracts that were sold several months prior. Having said this, unexpected attendance increases will tend to lower our make good. In fact we entered the first quarter of 2012 with approximately $2.7 million in make goods and as of the end of the quarter, the balance was approximately $500,000.

Our combined Fathom Events businesses, Q1 revenue increased 9.4% to $12.8 million. This was driven by a 21.5% increase in Fathom consumer revenue as a 56.3% increase in the number of event nights versus Q1 2011 was partially offset by a 21.7% decline in revenue per consumer event. The Fathom consumer revenue increase was also partially offset by a 15.8% decrease in Fathom business revenue. As we mentioned on our last call we restructured the Fathom Events business to focus on the higher growth consumer business and no longer actively market the meetings business. However, going forward we may occasionally facilitate a small number of meetings across our network on an opportunistic basis.

Looking briefly at diluted earnings per share for the first quarter we reported a GAAP EPS loss of $0.02 which approximates Q1 2011. A $2 million increase in Q1 operating income was offset by higher net interest expense related to our $200 million senior unsecured bond deal which we completed last summer. We continue to expand our network and as of March 29, 2012 we had 19,073 total screens in our network, representing a 10.9% or 1,877 increase in total screens versus the end of Q1 2011, a 10.9% increase in digital screens.

As of the end of Q1, approximately 94% of 17,840 of our total screens were connected to our digital network, generating approximately 96% of our attendance. As we have indicated in the past it takes us a few quarters to fully integrate new network affiliates into our sales process. Our capital expenditures were $2.4 million for the first quarter compared to $2.2 million in Q1 2011 or approximately 3% of total revenue for both periods. We continue to estimate that 2012 CapEx will be in the range of $10 million to $12 million or approximately 2% of total revenue. This estimate assumes that no additional network affiliate agreements are signed during 2012.

Moving on to our balance sheet, our total debt outstanding as of March 29, 2012 was $821 million versus $778 million at the end of Q1 2011. Our net revolver balance was approximately $62 million at the end of the Q1 2012 versus $45 million at the end of Q1 2011. The increase in our net revolver balance is it's primarily related to our $200 million bond deal which was completed last summer and the timing of our semi annual interest payment on those notes and the timing of Upfront payments associated with recently signed long-term network affiliate agreements, both of which are reimbursed, in arrears, via the quarterly available cash calculations and will reduce our revolver balances.

I've consolidated cash investment balances at the end of Q1 increased by approximately $18 million to $84 million from approximately $66 million as of Q1 2011. Our short and long-term investments are comprised of marketable securities such as treasuries and commercial paper. Of our $84 million consolidated cash and investment balance, the NCM LLC balance was $9 million and the NCM Inc. balance was $75 million of which a portion is reserved for income tax payments and tax receivable agreement payments to the founding members excluding these tax associated reserves at our current dividend rate at the end of Q1 2012 we'll be able to pay approximately four quarters of dividends even if no additional cash were distributed up to NCM Inc. from NCM LLC.

As of March 29, 2012 and before our recent debt restructuring, the entire $550 million balance of our term loan was fixed under interest rate swap agreements at approximately 6.5% with interest payments due quarterly. Our $200 million ten year senior unsecured notes have an interest rate of 7.875% with interest payments due each January 15 and July 15 beginning in 2012. The average interest rate on our revolver borrowings was 2.7% in Q1 2012 versus 2.1% in Q1 2011. This increase was related primarily to higher average unused revolver balances and slightly higher commitment fee rates, both resulting from the July 5 amendment of our credit facilities that significantly increased our liquidity.

Our pro forma net senior secured leverage at NCM LLC as of March 29, 2012 is 2.8 times trailing four quarter adjusted OIBDA including $800,000 of Regal consolidated integration payments which is well below our senior secured leverage maintenance covenant of 6.5 times. We should also note that while we have no total leverage maintenance covenant, our total leverage in NCM LLC was approximately 3.7 times, approximately the same as Q1 2011.

I'd now like to provide an update on the recent change to our debt structure. On April 27, 2012, NCM LLC issued $400 million of senior secured ten year notes at a fixed rate of 6% with interest payments due each April 15 and October 15 beginning October 15, 2012. The note proceeds were primarily used to pay down $325 million of our $550 million term loan that was fully hedged, to then unwind an approximate $40 million swap liability related to the paid down portion of the term loan, and to pay down $25 million of a revolver balance as well as pay deal expenses. You should note that we expect to record a $25 million to $30 million charged interest expense in the second quarter related to unwinding the swaps. This charge will not effect the available cash distribution at NCM Inc. and other LLC partners.

In conjunction with the note offering we executed an amendment to our bank agreement that extended the maturity date of $105 million of $119 million revolver from December 2014 to April 2017. The remaining $14 million in revolver commitments formerly held by Lehman still mature on December 31, 2014 and the remaining $225 million in term loan balance remains swapped at approximately 6.5% and will mature on February 13, 2015. The margins on outstanding balances for the $105 million of extended revolver commitments will increase by 75 basis points to 225 basis points for LIBOR loans and 125 basis points for base rate loans. We have an opportunity to lower these margins as we delever.

The margins on the $14 million of unextended revolver commitments will remain at LIBOR plus 150 basis points. These transactions allowed us to increase our liquidity by paying down a portion of and extending our revolver while continuing to diversify our capital structure without materially impacting our ongoing cash interest expense. They also further reduced the refinancing risk on the remainder of our term loan and extended our total average debt maturities from 4.4 to 7.7 years at a very attractive historically low fixed rate.

We also announced our regular quarterly dividend of $0.22 per share. This dividend represents an annual yield of approximately 6% based on recent trading levels. The dividend will be paid on May 31, 2012 to shareholders of record on May 17, 2012.

Turning to our Q2 guidance and annual outlook, for the second quarter we expect total revenue to be in the range of $105 million to $109 million and adjusted OIBDA to be in the range of $47 million to $50 million. This implies an adjusted OIBDA decline of approximately 13% to 19% versus Q2 2011, primarily due to a 4% to 8% decline in revenue and an approximately $1.6 million of incremental theater access fees.

With respect to our annual bookings and outlook, our booked and pending total advertising revenue including content partner, beverage, cell phone, PSA, scatter contracts, and local are approximately 64% of the advertising revenue implicit in the midpoint of our full year guidance range, approximately the same as the last year on lower actual 2011 total advertising revenue. Annual total advertising bookings are up 6% on a total dollar basis. As Kurt mentioned, our Q3 national bookings currently look strong as booked and pending national advertising revenue, excluding beverage, is approximately 64% of the Q3 national advertising revenue implicit in our annual guidance whereas last year we were at approximately 57%.

And these Q3 bookings are up approximately $10 million or 20% on a total roll out basis. You should note that these positive booking trends could be due to timing but they look encouraging so far. Additionally, during the fall we could benefit from the overflow of advertising spend related to the political [cadre] on TV and from the assets of our May Upfront meetings. As such we continue to expect total revenue to be in the range of $460 million to $470 million and adjusted OIBDA to be in the range of $225 million to $235 million.

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

Thank you. (Operator Instructions) Our first question comes from the line of Townsend Buckles with JPMorgan. Please proceed with your question.

Thanks. If you could give some more color on what you're seeing in the ad market, we've been hearing pretty consistently from the cable networks that scatter trends have actually been pretty good, including Viacom and Scripps this morning. So, would you say it's your particular advertiser base that's pulling back or anything else that's more unique for you? Just anything that can help us frame the situation you're seeing?

Yes. I think it's two things. I think first of all a lot of those networks when they talk about the scatter being okay are not talking about having to sell much inventory because their Upfronts were so big and while there's been some networks that have experienced some Upfront cancelations, it's still the Upfront was so big last year that most of those networks were sitting pretty well before the scatter even started. So, that's part of it. The other part of it, a lot of the cable networks, Scripps in particular that you're talking about deal in a very low CPM marketplace, single digits to low double digits. That's clearly not the marketplace that we deal in. Our marketplace is more prime time, sports, special events stuff, whether it be the Super Bowl or Academy Awards or whatever where most of the higher CPM television is spend. And so I think the cable networks are doing fine because they're obviously selling at a much lower CPM.

And, Kurt, looking at your guidance for the quarter, May and June are clearly the big months. Can you give us an idea how much is booked at this point as we think about maybe some improvement into the summer blockbuster season.

I can't. That's not information we've given before. But I can tell you we have a pretty good handle on where we think the numbers are going to come out. The only wild cards are what we talked about in our comments is that there has been a bunch of money that's been pushed back into the marketplace with some of the categories that are pretty good for us -- car manufacturers in particular, there were a lot of articles written in the last few months about GM taking back a lot of their money and so on. So, could there be some last minute deals later this month or into June? Yes. Of course. As we've talked about before, it doesn't take too many things to turn the dial for us. One or two big deals could make the difference. We've always had the -- we've always approached this guidance thing on a pretty conservative basis and we continue to do that.

Okay. Thanks.

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

Great. Thanks for taking the question. I guess I wanted to drill down a little bit on the new view for the second quarter which coming out of the fourth quarter call you guys had highlighted Q2 and Q4 as likely the best growth quarters of the year. Now Q2 it seems like the opposite of that, one of the weaker growth quarters of the year. Was it really just this regional kind of money that moved out of local that drove it? Just a little bit more color on what changed from what you saw in the fourth quarter to the second quarter? And if this says anything about your ability to predict the balance of the year?

When we were budgeting and we were giving our guidance, it did look like second quarter was going to be a stronger quarter. We did have a few things move, as I mentioned, move into third quarter and fourth quarter so that clearly hurt us. But the market, if you look at our bookings week by week which we've analyzed pretty closely, week seven through 16 for whatever reason went very, very dry. We booked less than half or almost a third in some cases of what we had booked in previous years. We looked at 2011, 2010 for the same time period. So, there was clearly a significant deceleration in the marketplace for second quarter around that week seven through 16 which by the way was right around the time after we had given guidance. So, that slow down obviously is what we're reflecting in our guidance. As far as our ability to continue to predict, it's always a little bit of a tough game going into a new year and obviously our comments where we though Q2 would be a little stronger than it was were probably a little premature.

And, Barton, in Q2 our local business is trending well so far. It's sort of -- as Kurt mentioned in his script, somewhat [arose from] --

Yes. The other thing you've got to consider, Q3 is such a big quarter for us historically, especially the last two years. Going into any one year, it's very difficult for us to budget Q3 aggressively because our utilizations are so high and it makes it just more difficult. It's sort of the law of numbers. But what we continue to see is that our business, especially in July and August and even in September now, the utilizations are all significantly close if not over sell out levels and at very high CPMs. So, if we could continue to build demand in other quarters like we've done in third quarter, that would obviously help our business and it's something that we're focused on. But as it stands right now, third quarter once again -- and this will be for the third year in a row looks to be by far our best quarter of the year.

Okay. Great. I appreciate all the color. Thank you very much.

You bet.

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

Yes. Thanks for taking my question. Two questions really. First, when you look at the first quarter and just trying to dig into your new strategy a little bit, could you give us a sense of how many advertisers, particularly new advertisers you had in this year's first quarter versus last year's? And then secondly as we look at the third -- second quarter how should we think about utilization versus price relative to last year? And then last, the third quarter this year we're going to have the Olympics, obviously a big event. Is that a competitive factor for you guys at all?

Yes. Let me answer the last one first. The only thing we could see that was impacting us in the Olympics is the GM is a big Olympics sponsor and so our spending with GM this year has not been as strong as it was last year although some of the import autos and Chrysler have more than picked up the slack there. So, our overall spending in the auto category is still very, very strong albeit a little bit less with GM because of their Olympic commitment. They're a sponsor as you probably know. So, that -- I think that's the only thing I can really point to that I can see some Olympic impact.

Clearly the various networks of NBC and Comcast, there's six or seven or eight of them that are going to have Olympic programming are going to be pretty full the last week of July and into August. Could that be some of what's going on and why we're seeing our third quarter business pick up? Maybe because there's overflow. And that's being compounded by the election impact because a lot of -- there's going to be a lot of inventory that's going to be sucked up by the elections in that September-October timeframe. So, all of those are potentially contributing to what we're seeing in third quarter.

As far as the first quarter and some of the things that we've been doing, approximately 18% or so of our dollars were really related to the lower -- what I would call either opportunistic or airplane type structures that we are going after in the first quarter. So, that's really what drove some of the CPM decline. There were a couple of deals that we took last year when the market was a little soft in the fourth quarter, that we took for first quarter where the pricing was a bit lower. But the primary impact as I said was really around our strategy to try to build utilization. Was there another part of your question there?

Yes. In 2Q how should we think about utilization and price relative to last year?

Price I don't think is going to be the issue in Q2. I think it's primarily utilization. And just the fact that we had some units that moved on us and we just haven't seen the movement in the scatter market that we would like.

Thank you.

Our next question comes from the line of Anthony DiClemente with Barclays Capital. Please proceed with your question.

Hi. This is actually Bo Tang in for Anthony. Thanks for taking the question. I was hoping to get some more color on what's embedded in your full year guidance. Do you still see CPMs flat for the year?

Yes. I don't think we're prepared to necessarily change that. Clearly the CPMs are lower in the first quarter but a lot of the type of deals that we took in the first quarter we're just not going to take the rest of the year because we've got the demand that we need in those months to push the supply-demand economics where we need them to be. The only exception to that may be October although this October we could see a bit of an anomaly just because of the pressure from the elections. I suspect that's where most of the money is going to be spent. So that could actually impact an otherwise weak month for us and that could be some positive upside. We haven't really changed, as we said, in our overall outlook. We really haven't changed the dynamic much between utilization and CPM.

Got it. That's helpful. And then also given the favorable backdrop we have for M&A as film prints become less prevalent, can you talk about maybe the impact of this since some of your founding partners could be the ones that are driving some of this M&A?

Obviously our deal with the founding members would lead me to want them to be the winner in the M&A game. But that's not -- we have several very good relationships now with network affiliates that could also participate in some of the M&A that's going on out there. I do suspect that this will be a fairly active period over the next year to 18 months. There seems to be a little more incentive on the part of sellers either because of the digital cinema thing that you mentioned or because they're owned by private equity companies that have owned them for many, many years. So, I think that -- those incentives if you will I think will create less of a gap between the bid and ask as maybe you've seen over the last couple of years which could promote more deals to actually get done. So, we'll see where it goes. There's a likely chance that it could go positive our way but there's also some circuits out there that we would like to get or currently have that could go the other way.

Great. Thank you.

Our next question comes from the line of James Marsh with --

That didn't sound good.

This is James Marsh. Can you guys hear me?

Yes. I've got you, James. We lost our Operator but --

Yes. You lost your Operator. Just to follow-up on that M&A, can you just remind us what circuits are in play, either coming off your contracts or coming off your competitors' contracts? And related to that maybe you can discuss the screen vision -- pardon me, the Clearview circuit that Cablevision said they were going to put on the block? Just kind of frame out that opportunity? Maybe how many screens or attendance for that circuit?

Yes. The Clearview thing, we are -- it's not in our network. In fact I think over the last six months or so they've actually renewed with Screenvision. So, clearly there's no downside risk for us if that trades. It's obviously primarily a New York asset. So, I suspect it's going to be looked at by virtually all of the theater circuits that are interested in buying theaters. I don't know. There are smaller theaters, sort of suburban theaters if you will, not the sort of borough theaters predominantly. I think that will be an asset that people will look at pretty closely. They do have the Ziegfeld and a few other big theaters in New York.

So, anyway, that's on that. The only other one I'm aware of where there's actually a book out there is with respect to a piece of the Rave circuit, the piece that was owned by Boston Ventures or is owned by Boston Ventures. I suspect that that's a pretty good quality asset and I suspect a lot of people will be looking at that as well. That is also currently done by Screenvision. Those are the ones I'm aware of. There's lots of rumors floating around about other circuits that could go for sale. I'd rather not comment on those because at this point I don't think there's any specific book out there.

From our side there's really nothing coming up in 2012 that I can think of off the top of my head.

Yes. We have one circuit that comes up in '13. One or two.

Okay. And then just one quick follow-up. I was hoping to get a sense from you if the competitive environment with Screenvision has changed since ownership changed there? Is it still the same story there or have things settled down a little bit in your mind?

I think there are certain parts of it that have settled down. I think on the issue of CPM it's probably about the same. There seems to be an evolving view by the marketplace that we sell at a CPM premium to them and that just seems to be the way the marketplace is settling out. There are several initiatives that we continue to talk to Travis and the rest of the management there about doing together things like common research, putting data into the marketplace about who buys cinema, what kind of brands, what kind of categories and so on.

But with previous management we weren't making a whole lot of progress with but these are things that are good for the overall business, both theirs and ours and are clearly non competitive type of things. So, I'm really happy with the way we've been working with them on that stuff and so I would say it's marginally better. I don't think it's impacted the marketplace all that much but I think because we know the guys there, they're obviously owned by some very savvy, very good media investors. I think all that's positive for the business.

Okay. Thanks very much, guys.

Our next question comes from the line of Ben Mogil with Stifel Nicolaus. Please proceed with your question.

Hi. Good afternoon. Thanks for taking the call. So, in terms of looking at how we should be thinking about Q2 should we kind of be thinking about it from the perspective that advertising's kind of flat and that the decline in revenue on a year over year basis is really meetings and events -- i.e. Fathom, just because of the unwinding? Is that the right way to think about the revenue contribution?

Clearly what we said, Ben, is that our local business seems to be doing quite a bit better than it did in first quarter. I don't think that's going to be the issue in second quarter. I made a comment about their being a tough comp on Fathom. There could be a little bit of downside on that although that doesn't affect our OIBDA that much because the margins on Fathom are quite a bit lower. It really focuses around our national business and as we've talked about a lot, there's a lot more volatility in our national business to the loss or the gain -- whatever the case may be -- of two or three contracts. And that's always the case with us. Second quarter's one of those swing quarters where April and May can go either way. June's usually a very, very strong month. April and May are kind of -- April for sure are the swing months in that quarter and it really is all around the national advertising.

Okay. And then, Gary, I just want to make sure I got a couple comments from you correct in my notes. I've got you saying that right now your 3Q bookings are up around $10 million against where they were at last year. Is that correct?

Yes.

Okay. And your 64% sold now against the midpoint of guidance which is about flat with last year at this time. Is that right?

No.

For the year. I think there were two comments you made. You made a comment about where we were booked around the year I think was the 64%.

64% versus 67%.

And then there was a comment about third quarter. I think the key element of third quarter is the fact that on a dollar basis we're up 20% right now. That $10 million that you referred to, Ben, would equate to a 20% increase. And that's what's implicit in our guidance. We obviously have not given third quarter guidance yet. But if you looked at what our guidance is for the year and what we have in there for third quarter that would be what we're looking at.

That's great. And then just one last one for me. Are all the refinancing excluding the charge that you'll take just for unwinding the swaps, is $17 million of interest expense on a quarterly basis a good run rate starting with the second quarter?

Starting in the -- it's probably going to be around $54 million a year of actual cash.

I guess I was looking from a GAAP perspective.

Oh. GAAP's got a lot of other stuff in it. I'd hate to try to guess it right now. The actual real interest expense is going to be approximately $54 million, $55 million.

Other than the charge we're taking in second quarter for the unwind of the swaps which I guess we gave some guidance on --

You've got accretion and taxes in there and everything else.

Yes. You've got -- the number that's in the first quarter, if you take out that swap number is probably not for GAAP basis is not that far off.

Okay.

A little tiny bit more interest but not that much because of the swap goes away.

Yes. You have to move it around.

I've got it.

I understand.

Okay. That's great. Thanks, guys. That's it for me.

(Operator Instructions) Our next question comes from the line of Ben Swinburne with Morgan Stanley. Please proceed with your question.

Thanks. I might've missed it Upfront, Gary, but did you give the CPM decline in the quarter? It looked like it was high singles? Is that about right?

It was 11.55.

Got it. Okay. And then, Kurt, on the Upfront -- the new Upfront that's coming up here, I'm wondering -- what's the early feedback, particularly from the ad buyers? I know you've talked over the years about getting these folks on board, getting more in TV people instead of out of home. I don't know if you have a target ratio of out of home versus TV buyers for this event or not that you'd want to share with us but I'm just curious even qualitatively what you're thinking heading into it.

It's probably going to be around 50-50. That's around -- if you look at where we get bought now, we're give or take 50-50 out of television shots versus out of home shots. So, I would expect that to be the audience somewhat. Now, we would hope to get a few more television guys but that's a busy week and that's always been our challenge is finding a spot in the busy week and it happens to be May 16 at once that we picked which is sort of squeezed between I think Turner in the morning and CBS in the afternoon. And so we're hoping people will stop by for lunch. We're serving them a nice lunch. So, I think it'll be about a 50-50 but we are hoping to get more people there from television.

Our meetings so far have been very, very well-received. Initially I think people scratched their heads and said -- Why does cinema need to be part of this? Maybe somewhat similar to the way the video guys have become part of it -- online video guys have become part of it with their new front deal they did a few weeks ago. And I think a lot of that is just the media buyers are just getting overwhelmed in some respects by the number of things that they have to do during the pretty short Upfront period. And so I think their whole overall media marketplace has to start to absorb or digest all of these new people that they need to talk to during this Upfront season.

As we've indicated, we've had well over 100 meetings already with both clients and agencies. The feedback has been very good. I think from my standpoint this was a no brainer. It's going to cost us very, very little to put the meeting on. We're doing it in the AMC theater on the West side. That's obviously not costing us much. And so if we landed one incremental deal from this whole exercise, it pays for the meeting five to ten times over.

So, it's really an opportunity for us to reintroduce ourselves to the marketplace and make people understand that when you look at our size now, depending on whether you want to say Friday and Saturday, we're number one network in the country on those two days and we're clearly in the top five or top ten depending on the month the rest of the year if you include all days of the week. So, it's time for us. We're sort of sticking our flag in the ground and making a statement and getting people to notice us.

And then just switching back to the guidance for the year, it sounds like Q2 you've got great visibility on at this point and Q3 is a big quarter seasonally for you guys. Q4 you have a pretty easy comp for last year. So, is what you described, the full year guidance, even though it implies I think 10% growth in the back half as relatively low risk?

yes. I mean, look, we're going to have grown depending which end of the guidance in Q2 you want to take, we're going to have grown the business 2% to 9% in the first half and second half is always a bigger half for us. We've got a lot more impressions to sell because of all our new affiliate agreements. Second half will benefit more from that because there's more demand in the second half. Fourth quarter, my sense is that there's not going to be as much money placed at least in our world in the Upfront. I think some of the cheaper cable networks will probably do very, very well in the Upfront. There's clearly a dance going on as there is every year.

My sense is there's quite a bit more buyer's remorse going on right now about what happened in last year's Upfront than this year and the leverage or the pressure on inventory is not going to be as high this year and you're not going to see the kind of dollar increases and-or CPM increases that you saw last year. So, what happened last year, there was just so much money that got committed to the Upfront that fourth quarter which is the first quarter of the period and it's all firm money left us pretty high and dry, especially when the whole market turned around in July and August.

So, our anticipation is that October will be a little bit stronger month because of the political pressure on the marketplace and all that money and then there will probably be more money in the scatter market because there's not going to be quite as much committed Upfront as there was last year. That's sort of our thesis. And that obviously goes into next year's first and second quarter as well. It's always a little bit better for us if there's not as much money committed in the Upfront.

Thanks a lot.

Our next question comes from the line of Jim Goss with Barrington Research. Please proceed with your question.

Thank you. It seemed from your earlier comments that you're getting a little more increasingly positive on Fathom as a bit of a growth element even though it's still very small obviously and aside from backing off on the business meetings. Is that a correct assumption? How do you see that scaling over the next couple of years?

We clearly see this business as growing on a mathematical or percentage basis faster than our ad business and a lot of that's obviously just the law of numbers. It's a smaller business. It's much earlier in its development cycle than our advertising business and it's more of a start up if you will and it's still a developing business. So, your observation on its growth is obviously correct. I've said this in the past, if we could get this business to 10% or 15% of our overall revenue and 5% to 10% of our overall cash flow over the next few years I think that would be a very good outcome. So, yes, it's going to be incremental but it's still not got the upside potential of our advertising business. I mean the whole cash flow of the Fathom division is the equivalent of three incremental ads in our advertising business.

Now, having said that, from a strategic standpoint it continues to be very important for the theater circuit because it does provide incremental bodies, incremental concession sales and so on and the other part of the business that could actually provide more upside than I've indicated here in my first comments was around the sponsorship business and cross marketing relationships that lead to incremental dollars for us. So, there could be -- there is a very strategic connection with that business with our overall advertising business. So, for us, that's one of the reasons that I had thought that it made so much sense being a part of our business.

Are you tied into this incremental or this initiative -- the big chains announced at CinemaCon last week?

DCDC?

Yes. Is it part of your --

Yes. We are. We have been involved with them from a technology standpoint and if you step back and look at DCDC it has a lot of the same characteristics of the network that we currently have. Obviously the bandwidth would be significantly bigger. And we plan to use the DCDC network just the way we use the huge network that we have today. From my standpoint it's just a hopefully more efficient way of getting our ads to the theaters. Today we use one satellite network. In the future we're going to use another. So, we want to make sure it does everything that we need it to do. So, we've obviously been involved with the three circuits and some of the technology considerations and with the studios that are involved.

Okay. One other thing, separate issue. Are there any restrictions once groups change hands in terms of relationships with you versus Screenvision depending on who owns the theater groups?

Not really. Generally the relationships that theater circuits have with either us or Screenvision are exclusive to us or Screenvision and that sort of has to be that way because of the way the advertising business works. And the deals that we have with everybody except the three big circuits are revenue share deals that generally rotate around a 50-50 revenue share. So, those are the sort of parameters of that part of our business.

Okay. Thanks.

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

Thank you very much, everyone, for joining us today. And as always, if there are any follow-up questions, please call Gary, David, or myself and hopefully we'll be talking to you soon. Thank you very much for your support.

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