National Cinemedia Inc (NCMI) 2012 Q2 法說會逐字稿

Greetings and welcome to the National CineMedia Incorporated Second 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, Mr. 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 Q2 earnings conference call. Before we get started, I'd like to say a few words about the tragedy a couple weeks ago at one of our network theaters in Aurora, Colorado that impacted the lives of many people forever. Like all of you, we were shocked and profoundly saddened by this horrific event that happened only a few miles from our headquarters and wounded one of our employees. While it appears that out NCM teammate will recover fully from the wounds, many were not so fortunate. Our hearts and prayers go out to all the theater patrons and theater employees that were involved directly or indirectly, as they work through the physical and emotional impact of this tragedy, and our Company employees stand ready to help in any way that we can.

Moving onto our Q2 results, during the call I will make some brief comments about how our business is performing and our prospects for the rest of the year. Gary, our CFO, will then provide a more detailed discussion of our Q2 financial performance and Q3 and full year guidance, and then as always we'll open the lines for questions.

Once again, we exceeded the top end of our quarterly adjusted OIBDA guidance range due to lower expenses and higher than expected national ad revenue. Despite some market headwinds as reflected in the slowing GDP growth, our national advertising business was better than expected as Q2 and first half national advertising revenue, excluding beverage, grew 6% and 11% respectively versus the same periods in 2011. Our Q2 national advertising growth was driven primarily by a 2.5% national CPM increase and higher lobby and online and mobile revenue. These Q2 gains were partially offset by a slight decrease in national inventory utilization on approximately flat network attendance, as the continued addition of new network affiliates offset the June industry attendance guidance.

While our Q2 utilization was down slightly, the impact was offset by higher CPMs, which is consistent with our strategy to provide more aggressive pricing structures to drive utilization only in lower demand months. In Q2, we began to firm up pricing in the later part of the quarter as the summer theater attendance and client demand picked up.

Our Q2 and six month national growth was also driven by the addition of many new clients. So far this year, we have received commitments from 17 national clients that have never spent with us or not spent since 2006, 12 of which were added during Q2. The new client categories that were added during Q2 included businesses in the apparel, toys, liquor, telecom, hardware, movie studios, cable TV, hotels and resorts, and prepared food categories.

Q2 also benefited from one week of the groundbreaking integrated campaign that we launched with Samsung during the last week of the quarter, which is scheduled to run until September. This campaign is the largest and most integrated deal we've done in our history, providing clear evidence of the value of our strategy to create a digital media company with high quality creative, production, and technology development and operations capabilities that support our world-class sales organization. This unique combination of core competencies has positioned us very well to meet the needs of our clients as they look for more creative and integrated ways to market their products. In the case of Samsung, we provided an integrated campaign that included a two-minute 2D and 3D made for cinema spot that ran in our first book preshow, several lobby promotions, a 2D and first ever 3D interactive on-screen game, online and mobile ads, plus creative and production services related to the various theater ads and a New York City launch event.

We also launched another part of our growth strategy early this year when we held hundreds of client and agency up front meetings that culminated with our first ever up front presentation on May 16th. By all measures, this event was a success as approximately 500 clients, media agency, and other media executives attended our presentation and lunch in the middle of the busy TV up front week in New York City. In addition, some of our analysts and investors also attended, no doubt just to make sure media people really showed up.

We also received some great media PR, as we were mentioned in many ad trade articles and were reviewed very favorably alongside all of the major broadcasters and cable networks. While we view our upfront strategy as a multiyear endeavor, as a result of the hundreds of meetings held prior and after the New York presentation, we are already beginning to see an increase in overall up front bookings for 2012 and '13, and with a few up front deals booked just after the presentation, the strategy appears to be off to a good start. While it will likely take several years of participation in the TV upfront process to achieve the market awareness and upfront commitments garnered by TV networks, I am hopeful that with the success of this first year, we will increase our overall national upfront commitments as a percentage of our annual targets beyond the approximately 60% going into 2012, including our content partner commitment, beverage revenue, and cell phone PSA.

The local advertising business improved sequentially versus Q1, though still a mixed bag of the positive impact from an increase in the number of smaller local contracts versus Q2 2011. It was offset by three or four fewer large regional contracts, one of which was over $1 million. While Q2 was a disappointing quarter for our overall local business, there were some good signs related to the pickup and the deal flow with smaller businesses, as the number and total value of contracts below $10,000 were up for Q2 versus 2011. It also appears that the decrease in regional revenue may be the result of clients shifting money from regional to national buys or simply to timing, as we are looking on several larger regional deals for later in the year.

As mentioned, our online and mobile initiative is becoming a more important part of our integrated strategy. During the quarter, we continued expanding the sale of online and mobile ads, including to our broad local sales force. We also will continue to expand the distribution of our new CinemaSync App as part of our Movie Night Out App, and by integrating into theater circuit, online ticketing, and advertising client apps. And this month, we will be launching a standalone CinemaSync App for both the Apple and Android platforms.

While don't expect meaningful near term direct revenue from our new CinemaSync product, as we continue to expand its distribution, it will become a much more important marketing tool for our clients, as it automatically downloads coupons and other value-added elements by synching to consumer's smartphones during the playing of ads and content segments during our first look preshow or on the (inaudible). We'll also recognize marketing materials in the lobby through the smartphone camera. Most importantly, this app will provide incremental value to movie patrons and give them one more reason to go to their local movie theater.

While our Fathom Events revenue declined by $6.6 million, $3 million due to the Q1 wind down of the Fathom business division, the revenue decrease only impacted our overall Q2 and first half OIBDA by approximately $1 million, as we benefited from lower fixed sales and operating costs, and lower NCM support costs as a result of the restructuring of the Fathom division. Despite several successful Q2 events, including two live Metropolitan Opera events, This American Life, and our largest Mayweather fight to date, the consumer division revenue declined 30%, primarily due to a 7% decrease in the number of event nights to 26 from a strong Q2, which included 28 events and the testing of a few new types of events that did not work as well as we'd hoped.

During the quarter, we continue to enhance our competitive positioning versus other national and local media networks, as we continue to expand and improve the quality of our digital network. So far in 2012, we have signed four new theater circuits with approximately 315 screens and 10 million annual attendees. These recent additions and over 1,800 screens added in 2011 will bring our total net worth screen count to over 19,300 screens in 183 DMAs, representing approximately 75% and 65% of the attendance in the top ten and top 50 USDMAs. We expect this expansion to continue on a selective basis, as we are currently targeting several small regional circuits with over 1,100 screens and nearly 40 million annual attendees, and are working on finalizing two renewals of existing affiliates, representing approximately 800 screens and 20 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 over 13,000 screens or 72% 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 the year. Approximately 8,000 of those screens will be capable of playing 3D ads. We have also increased our Fathom wide broadcast network to 719 2D and 85 3D locations.

Looking ahead, our Q3 national bookings are very strong as we are benefiting from some upfront deals, and a reasonable scatter market, and the Samsung deal that I mentioned previously. While there is some good fourth quarter activity, it's still too early as advertisers are just beginning to execute their Q4 media plans. We have also not begun to see the TV overflow impact of the significant political spending that is expected to peak in September and October.

That's all I had. So, now I'll turn it over to Gary give you some more details concerning our Q2 financial performance and Q3 and annual guidance.

Thank you, Kurt. For the second quarter our total revenue decreased 3.4% to $110.1 million driven by a 42.9% decrease in total Fathom Events revenue, partially offset by a 2.7% increase in total advertising revenue, including beverage. Total Q2 adjusted OIBDA decreased 8.1% to $53 million from $57.7 million, and our second quarter adjusted OIBDA margin decreased to 48.1% from 50.6% in Q2 2011. The adjusted OIBDA margin decreases were primarily due to the impact of the contracted 8% decrease in 2012 for the attendance-based portion of theater access fee that occurs once every five years, and the incremental digital cinema maintenance fee related to the increase in the number of higher quality digital cinema projectors connected to our network.

Additionally, our margins were slightly impacted by the fact that our lower margin network affiliate attendance base that operates under a revenue share model grew to 16.2% of our total Q2 attendance versus 12.1% in Q2 2011.

Our Q2 2012 advertising revenue mix shifted slightly and with 71% national, 19% local, and 10% beverage versus Q2 2011, which was 68%, 21% and 11% respectively. Q2 national ad revenue excluding beverage increased 6.2% to $71.9 million, primarily driven by a 2.5% CPM increase, as well as growth in lobby base and online revenue. These increases were partially offset by a slight decrease in utilization to 90.3% compared to 91.5% in Q2 2011 on approximately flat quarter-to-quarter attendance.

We entered the second quarter of 2012 with approximately $500,000 in [baked goods] and as of the end of the quarter, we had approximately $1.4 million of baked goods, due primarily to a slightly weaker than expected June box office. You should note that this was lower than the Q2 2011 balance of $2 million. Our Q2 beverage revenue decreased 5.6% to $10.1 million, primarily driven by the 5% decrease in founding member attendance, resulting primarily from the weaker June box office, partially offset by the approximate 1% beverage CPM rate increase for 2012. The impact on adjusted OIBDA of this revenue decrease was offset by a decrease in the attendance-based components of the founding member theater access fees as both are based on theater attendance.

Our Q2 2012 local revenue decreased 4.5% to $19.3 million, with same screen sales decreasing approximately 13.1%. The number of Q2 local contracts increased 3.7% to approximately 3,400 contracts, while the average contract value decreased approximately 8.1% versus Q2 2011. Driven by a decrease in the number of larger regional clients or nationally recognized clients placing ads regionally, the total dollar value of our contracts over $100,000 decreased approximately 25% and the number of these larger value contracts decreased 18% from 28 to 23 contracts. As Kurt mentioned, we are working on a number of large deals for later in the year. So some of this decrease could be related to timing.

Total Q2 advertising revenue per attendee increased 3% to $0.58, with our national advertising revenue per attendee, excluding beverage, increasing 6.6% to $0.41 per attendee, partially offset by local ad revenue per attendee decreasing 4.3% to $0.11 per attendee. The increase in the advertising revenue per attendee was due to the 2.7% increase in total advertising revenue, including beverage revenue, and the impact of a 0.3% decrease in network theater attendance. As we have mentioned in the past, it takes a few quarters to fully integrate new impressions onto our local and national sales process. And thus, the new screens added to our network late last year and this year have slightly reduced our 2012 per attendee metrics.

Our combined Q2 Fathom Events revenue decreased 42.9% to $8.8 million. This was driven by a 29.8% decrease in Fathom consumer revenue to $8.5 million, as a 7.1% decrease in the number of consumer event nights versus Q2 2011 was compounded by a 24.5% decline in revenue per consumer event, versus a snug Q2 2012. Additionally, Fathom Meeting Business revenue declined by $3 million or 90.9%. As we mentioned on our last call, we restructured the Fathom Events Business to focus on the consumer business and no longer actively market the Meetings business. However, 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 second quarter we reported a GAAP loss per share of $0.03, down from a gain of $0.16 in Q2 2011. This decline was primarily due to the $26.7 million charge to interest expense in the second quarter of 2012 related to unwinding a portion of our interest rate swaps, a $4.9 million decrease in Q2 operating income, a $2.5 million write-off of debt issuance cost associated with the Company's debt refinancing in the quarter, and higher net interest expense related primarily to the higher interest rate on our unsecured notes completed in July 2011.

Excluding the impact of the swap terminations and write-off of debt issuance costs, diluted EPS would have been $0.13 for the quarter. We continue to expand our network and as of June 28, 2012 we had 19,039 total screens in our network, representing a 5% increase in total screens versus the end of Q2 2011, and a 7.9% increase in digital screens.

As of the end of Q2, approximately 95% of 18,104 of our total screens were connected to our digital network, generating approximately 96% of our attendance. Our capital expenditures were $2.5 million or approximately 2% of total revenue for the second quarter compared to $4.1 million or 4% of total revenue in Q2 2011. We currently estimate that 2012 CapEx will be in the range of $11 million to $13 million or approximately 3% 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 June 28, 2012 was $839 million versus $760 million at the end of Q2 2011. The increase in our total debt balance is primarily related to $40.2 million in payments related to the partial termination of swap agreements in conjunction with the refinancing of $325 million over existing bank term loan. Transaction fees associated with the July 2011 $200 million notes and April 2012 $400 million notes placements and related bank loan restructuring fees.

Our net revolver balance was approximately $6 million at the end of the Q2 2012 versus $25 million at the end of Q2 2011. Our consolidated cash and investment balances at the end of Q2 2012 increased by approximately $10 million to $75 million versus Q2 2011. Our investments are comprised of marketable securities such as treasuries and commercial paper. Approximately $67 million of our consolidated cash balance was at the NCM Inc level, with a portion reserved for tax associated payments. Excluding these tax associated reserves at our current dividend rate, at the end of Q2 2012, we'd be able to pay four quarters of dividends, even if no additional cash were distributed up to NCM Inc from NCM LLC.

The average interest rate on our term loan and note borrowings was 6.7% in Q2 2012 versus 5.4% in Q2 2011. While these average interest rates increased, the note transactions were beneficial as they allowed us to diversify our capital structure while increasing our liquidity by paying down a portion and extending our revolver. They also further reduced the refinancing risk on the remainder of our term loan by extending our total average debt maturities from 4.4 to 7.7 years, and very attractive historically low fixed rates. The average interest rate on our revolver borrowings was 3.3% in Q2 2012 versus 2.3% in Q2 2011. As of July 2011 and April 2012 refinancings, resulted in an increase of our interest rate margins and revolver commitment fees.

Our pro forma net senior secured leverage at NCM LLC as of June 28, 2012 is 2.9 times trailing four quarter adjusted OIBDA including $500,000 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 net leverage at NCM LLC was approximately 3.9 times versus 3.7 times at the end of Q1 2012, primarily due to the funding of the $40.2 million of swap termination payments as part of the $400 million note issuance in April 2012.

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 August 30, 2012 to shareholders of record on August 16, 2012.

Turning to our Q3 guidance and annual outlook, for the third quarter we expect total revenue to be in the range of $141 million to $147 million and adjusted OIBDA to be in the range of $84 million to $89 million. This implies an adjusted OIBDA increase of approximately 5% to 11% versus a record Q3 2011.

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 82% of the advertising revenue implicit in the midpoint of our full year guidance range versus 85% at the same time last year, on 9% lower actual 2011 total advertising revenue compared to our 2012 guidance midpoint. Annual total advertising bookings are up approximately 5% on a total dollar basis. While it's too early to predict a closing probability, we are starting to see a pickup in Q4 activity as the value of our total proposals outstanding has increased 18% compared to the same time last year. Additionally, as Kurt mentioned, during the fall we could benefit from the overflow impact related to political spending crowding out brand advertising on TV. As such, as 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 up lines for any questions you might have.

(Operator Instructions) Our first question is from Eric Handler of MKM Partners. Please go ahead.

Thanks for taking my question. I joined a little late so forgive me if you already talked about this, but I'm curious to know what type of impact you're already seeing in terms of your RRPs from the upfront presentation that you held back in May. And then secondly, among your advertisers, what verticals are you seeing strength from and which are a little bit weak right now?

Hi, Eric. It's Kurt. We didn't give any specific data on the upfront. Didn't think it was appropriate and competitively sensitive, obviously, but needless to say we got two or three deals within days of the upfront, which we can actually -- we know came from the presentation, which were several multiples of what it cost us for the upfront presentation. So that's a good thing. And as I mentioned sort of generally, we've had a lot of upfront deals that we've done so far this year and we're sort of pacing just on the overall upfront about ahead of where we were last year in sort of the upfront. And as I mentioned, we've also already booked some '13 business that we clearly have not started to book by this time last year.

On the categories that are weak or strong, I think that was your second question, right?

Right.

I would say that we've had a pretty good run of Asian auto. US auto a little affected by the Olympics because GM is such a big Olympic sponsor. So a lot of their money has gone to the Olympics. And Gary, you got any --

Electronics.

Yes, electronics. Obviously, Samsung dominated kind of the discussion for third quarter and we haven't publicly said what that is for obvious reasons, but I think there's been a few numbers that have been talked about. So that obviously is going to skew our market share in the whole electronics category for the quarter. But I don't think, Eric, there's been any significant change other than the new clients that I mentioned. I don't know if you were on the phone when I mentioned the categories for our new clients. Were you there? Did you get that?

No, I'll get it from the transcript later on.

Okay, that's fine. So there's a number of new clients in there that helped, obviously, as well.

Great. Thank you.

Thank you. The next question is from Townsend Buckles of JPMorgan. Please go ahead.

Thanks. On your Samsung deal, it sounds like it's gone well beyond just the onscreen buy. Can you give a sense of how incremental those other integrated parts are financially? And as we think about the quarter, does this deal really move the needle on your Q3 guidance?

Well, whenever you do a big deal like that, I don't know what move the needle means. Obviously, the guidance we've given is pretty healthy growth over last year in a quarter like last year that was already really big. The third quarter is our biggest revenue quarter of the year and our utilizations and sell-throughs are very, very high. So the fact that we were able to grow that kind of quarter is obviously a good thing. Some of that is high utilizations, but the other part of it is our network is bigger so we have more impressions. So we can obviously grow that way.

So as far as the amount of money and we're not obviously quoting any amount of money. But it's probably in the neighborhood of 25% or so of the deal had other aspects just in addition to, if you will, onscreen, your onscreen money. Onscreen was still the, obviously, the major part of it, but what really I think made this deal so special for us that it really confirmed that our strategy, our integrated strategy of having all these different things that we can sell really showed through.

Also, there was a lot of production activity that we participated in not only in pure production, but we were involved with storyboarding and all sorts of other things that are way up the chain from where we would usually participate. Generally, we talk to buyers. They have ads. They want to play in theater and that's pretty much it. In this case, we were very integrated, if you will, into the creative agency process and the various things that we did that were different, whether it's the 3D interactive thing, which had never been done before. Those were things that really caught their attention and our ability to do it I think really in large part drove some of the bigger aspects of the deal.

As we think about how unique this was, do you feel there are many other opportunities for as deal like this with other advertisers, and when will you have a sense of how successful this campaign was that you can hopefully show to others?

Absolutely, with other advertisers and with Samsung. And clearly, we've always been thought of as a launch medium and clearly this was a launch. So we were a very high percentage. I don't know their overall budget for this, but we were a pretty high percentage for us anyway of the overall launch budget. And so I think that clearly gives higher visibility to our overall strategy of being a launch vehicle, and I think people will start to take that more into consideration. But I think it also shows people that it's not just about the onscreen. There's a lot of other things that we can do very effectively for people.

And Gary, I know it's early, but can you give a bit more sense of your level of visibility in a Q4 versus, say, this time last year? You mentioned a pickup in activity recently and your guidance implies pretty strong growth on these accounts, of course. But just hoping to get a sense of your comfort level here.

As we said, it's very early days, but it's similar to last year within a couple of million dollars.

I would just add to that, the number of proposals, I think Gary actually mentioned that in his script, is much, much higher. But a proposal is just a proposal, right. So what I was trying to get across in my script and Gary kind of mentioned it, we've got a bigger group, a fairly significant increase in the total number of proposals. The question right now of course is when do they close, and how do they close, and do they close and over the next few weeks we'll obviously be assessing that. And hopefully they'll move from 25% probability to 50% and then hopefully higher.

So I think on a weighted basis, we're kind of ahead of last year and clearly on the overall proposal we're ahead.

Okay, thanks guys.

Thank you. The next question is from Anthony DiClemente with Barclays Capital. Please go ahead.

Hi, this is actually Bo Tang for Anthony. Thanks for taking the question. Along the ad market, I guess based on the recent commentary from some of the media companies, it seems like the scatter market may have softened recently. I was just kind of curious to see if you guys are seeing some more things at all.

Yes, I would say that the third quarter right now is a little soft, but I would say that's more about the Olympics. A, a lot of the money got sucked up by the Olympics in the third quarter. But B, everybody is either at the Olympics, watching the Olympics, or on vacation. So we're in kind of a dead period right now and we expect middle of the month when everybody comes back from the Olympics and people start really now getting serious about fourth quarter. The good news is, we're pretty well set up in third quarter and yes, the Samsung deal helped in that respect. And like I said before, we've got a good group of proposals that we're working on for fourth quarter. Hopefully, there will be more. We still have some inventory in September that we're still selling as well. So there is a little, I don't know what you'd call it, a soft spot, or vacation spot, or what do you want to call it. But yes, right now it's a little soft.

Got it, that's helpful. Also, Kurt, you talked about before how your strategy has focused on trading price for volume in some of your slower periods. And given that 1Q is now behind you and granted, there are I guess some slower months in the fall, should we expect pricing to be positive in the back half of the year?

It will depend a little bit on October because October is the only month that has a little bit softer demand generally, and has some of the same characteristics as first quarter. You obviously saw in first quarter that our attempt to trade some price for higher utilization worked out really well at the top line and the bottom line. So you can continue to see that process unfold. There also could be some up front deals, especially around the whole airplane strategy, commitments that could start flowing in. Then maybe we'll reduce obviously our average CPM a little bit, especially in September, October.

So again, it's a hard one to put a finger on. I have fairly high confidence that May through sort of September or August, anyway, and November and December are always going to have a lot higher CPMs than those other months.

Thank you.

Thank you. The next question is from James Marsh of Piper Jaffray. Please go ahead.

Hey, guys. It's Stan Meyers on behalf of James. Kurt, just a quick question. If you can discuss current competitive environment in the wake of mass theaters going to Screen Vision.

I don't know if they want to Screen Vision. We didn't have them so I'm assuming they were there already. So I would say there's not a lot of change. As we've talked about, we've already signed up for more this year. There's some more in the hopper. So I would say there hasn't been a lot of change in that. We're still seeing a movement of attendees our way and like I mentioned in the third quarter, in the third quarter one of the reasons we were able to grow the way we have projected is because we had a lot more impressions. I mean our utilizations are already very high in third quarter. So those incremental impressions obviously helped.

Thank you.

Thank you. The next question is from Ben Mogil of Stifel Nicolaus. Please go ahead.

Hi, guys. Thanks for taking the question and good afternoon. So just one question. Kurt, you made a good point earlier that you guys have increasingly got sort of bigger share of launches. You've done that in a couple things, the Samsung, Microsoft Vista, et cetera. Can you talk about how you're sort of able to take that as a follow-up and be sort of part of their larger ongoing maintenance ad budget, if you will. We keep seeing you guys be there for the big launches, but not so much for the sort of maintenance stuff. And how do you think that sort of plays itself out?

Well, some of that's clearly going to be a pricing discussion because a lot of the money that's spent in what I call sort of GRP gathering, if you will, or you're just out there spending every single day to try to bulk up your GRP, a lot of that's done at a lower CPM. So of course, our airplane strategy and other strategies where we have a little more control over where the inventory is being placed and so on will hopefully provide us some of that extra money. We are making some progress there. You saw the results of that in the first quarter.

So we're going to continue to do that. The other thing that we're going to continue to do is try to continue to reeducate the market on this whole idea of month parting. In other words, conditioning the market that January through April and maybe October you can expect lower CPMs, but don't expect it in May through August and November and December. And of course, the challenge with all of this trade-off between price and utilization is that the agencies buy for several clients. And if you give them a lower priced deal for one client and you have a higher priced deal with another client, they're going to not like that all that much.

And so conditioning the marketplace to think about it in month parting is not easy. It took television I'm sure, I wasn't around or in business back then, but when television really got to the structured day parting that they've gotten to today, that took a while to happen. And then we're in the early stages of that education process for our business.

That's great. Thanks. I appreciate -- just a good overview for us. Thanks, Kurt.

Thank you. The next question is from Barton Crockett of Lazard Capital Markets. Please go ahead.

Thanks for taking the question. I wanted to talk a little bit about the guidance. You guys are very helpful with your guidance and we appreciate it very much. But last year, there was obviously around this time you issued some guidance and then had to change it because the market changed a lot. And I was wondering this year if that experience of last year has promoted you to kind of change anything in the way you're approaching guidance, maybe get a bit more conservative or has it really not prompted any kind of change? That's the first thing.

Well, I think the last two years you could probably say you've had some of the same things happen in the macro environment where the first half of the year and then things slowed down in the summer and either slowly got bad or cratered like they did last year in August. So it would be hard to say that that last two years hasn't impacted the way everybody behaves and the conservatism that may or may not be in people's numbers and/or view of the world. I think everybody's a little gun shy right now, watching very closely of whether we're going to have a repeat. I would tell you, I think this year it just feels like there's a little more stability. But this time last year, things were starting to come unwound pretty aggressively and really, as you know very well, came unwound really badly in August.

So I'm feeling a little more optimistic about that, but again, as you well know, there's a lot of things going on around the world that could impact people, the way people feel about things. I am somewhat optimistic about the number of proposals we have and the dollar value of those proposals. Also optimistic that the local-local, the smaller local business is starting to come back and show some signs of life again. Maybe that means that at the base level of the economy, people are starting to get a little more confidence and things starting to recover.

Payroll numbers the last couple of days haven't been that bad. And so I guess on balance, I feel a little more optimistic right now than I did last year at this time.

Okay, that's helpful. And then the Samsung deal, is there any sense from them that they want to do this again or would contemplate doing it again? Or does that seem kind of one and done?

I don't believe it's one and done. I think that the phone launch, if you've seen the numbers, has been a huge success, the Galaxy X3, I think it is. And so I think we have a very happy client. I wish I could take credit for all of that success. I obviously can't because there was a lot more media being spent around the world than just in cinema. So I think this will be something that could continue going forward. I don't have anything to report on it yet, but hopefully as you build these relationships and things go well, people will come back. That's usually the way it works.

Then one final thing. You mentioned that domestic auto got zapped by the Olympics. Any sense that post the Olympics they're looking to come back?

Yes, I think you'll see that come back. When I say it got zapped, it was mostly a GM thing because GM is one of the primary sponsors. Well, actually, I've been doing some business for Dodge and so I think last year you may recall, in 2011 we had a huge upfront deal from GM and it ran kind of throughout the year. So most of GM's money got kind of reallocated or repositioned at least up through the Olympics into the Olympic effort. But we are having conversations with them about things in the future.

That's great. Thank you.

Thank you. The next question is from Leo Kulp of Citigroup. Please go ahead.

Thanks for taking the question. I guess more of a broader longer-term outlook. I think in the past you've mentioned that you think normalized ad growth through the high single digits to around 10%. Looking forward, I know things are a little rocky right now, but is that still a reasonable expectation?

What were your numbers again?

High single digits to 10%.

Yes, I think the guidance we're giving for the year on national ad growth, anyway, is in the low double digits. So our cash flow this year is obviously being inhibited, the growth is being inhibited a little bit by our theater access fee increases that are happening this year. And so, our business model is so -- has got such a high flow through rate that when we grow, except for this year when we've got these additional theater access fees, if we're going to grow our revenue a certain number, it's not that far off from the same growth in cash flow. In fact, historically anyway, the cash flow has actually outperformed, the cash flow growth has outperformed the revenue growth a little bit because of the high margins on our incremental national advertising.

Thank you.

Thank you. The next question is from Sean Leahy with Barrington Research. Please go ahead.

Thanks for the question. I'm actually standing in for Jim Goss today. I was just wondering with the addition of your new clients and the efforts to broaden your advertiser base, have you seen any significant changes taking shape in terms of the demand environment with regard to pricing? And also, are there any untapped ad verticals that are of particular interest to you guys right now?

Well, it's been the case for quite some time and we are making some progress, but clearly the CPG QSR retailers, those guys are always guys that we're most challenged with, I would say. As I had mentioned in my opening comments, we've got a few new clients that we haven't historically done a lot of business with. We did a little bit of liquor, prepared foods. That's not been a big category in the past. Hotels and resorts, it comes and kind of goes. A lot of that is related to the content quality, but it's -- I like what I'm seeing. Clearly, as we showed in first quarter, as we bring on some of these new categories it's going to be at a lower average CPM generally. The hope and the strategy would be to try to get those clients interested in our lower demand inventory. It's probably going to be hard for a CPG company to compete for our inventory in July with the kind of CPMs that they're used to paying on TV.

(Inaudible) the upfronts played a significant role in kind of introducing you to those new clients? Or is that something more that was really (inaudible) based?

Absolutely, and I mentioned that we got some orders right after the meeting and one of those orders came from somebody who's never done any business with us. In fact, it was a category insurance that we didn't really think had a lot of interest in us, to be perfectly honest. So we're starting to get some flow from some categories that are demos are not perfect for. But people are starting to think about us in a little bit different way, which is obviously one of the messages that we sent at the upfront.

Thank you.

(Operator Instructions) Our next question is from Mike Hickey of National Alliance. Please go ahead.

Congratulations on your quarter. I was a bit late to the call, so forgive me if you covered this. But obviously Wanda has just acquired AMC and given the reg approval to move forward. Does this offer you, in your view, kind of a gateway to expanding your network of international markets for advertising?

Interesting question, Mike. I don't see that right now, although I think it's early days for that new ownership and the management at AMC getting used to their owners and all that. So you never say never, but as I've said many times before, we've got so much opportunity here in the US to grow our revenue and cash flow, we're not really looking for those kind of opportunities, the international.

Everybody thinks international is real sexy, but I will tell you, maybe other than China, which it's interesting you bring that up, but most of the international markets, at least the developed markets are very well penetrated from an advertising standpoint and quite mature, very high utilizations, very high CPMs. So some of the things we benefit here from a growth standpoint, getting CPMs up to higher levels and obviously getting utilizations up to higher levels, you won't have those same kind of benefits in those other countries. So other than maybe helping people with our technology knowhow and setting thing up, and all that kind of stuff, there's probably less synergies in most countries.

Now having said that, China is obviously a developing country. Wanda has a very attractive theater circuit over there. I don't know why they wouldn't go and set up an NCM like vehicle over there themselves. It's not clear to me we necessarily need to help them with that.

Okay. On your upfront, obviously you guys did a great job. It sounds like you won some deals from it. Can we expect that you'll do it again next year?

Oh, absolutely. We're part of the landscape now and we haven't staked out where we're going to do it yet, but that was probably the most challenging part of that for us was finding a whole in the busy schedule during the week where we were pretty comfortable that we could get people to come. And given the 500 plus people that came, I think we did a pretty good job. We gave them free lunch. I think that helped a little bit and we kept our presentation short so people could get off to, I think it was the CBS meeting that was following ours.

It did so happen that Conan O'Brien apparently had invited a lot of senior guys to lunch. So that, we competed with that a little bit coming out of Turner's meeting right before us. But I think we're part of the landscape now and people are going to respect it, and we're really looking forward to it. I think there's going to be a lot of really good things to talk about and a lot of good case study type stuff to talk about.

Absolutely. Great job in the quarter and good luck over the next couple quarters.

Thank you. The next question is from James Dix of Wedbush. Please go ahead.

Good afternoon, guys. Just a couple for you. Just wondering, maybe this is for Gary, how the year is coming in, in line with your original budget. Obviously, you've kind of maintained your full year outlook through midyear, but I was just wondering whether you've seen, versus your original expectations on the flow of business, any material variances or whether it's kind of coming in line? And then I had two follow-ups actually.

James, we don't comment on where we are in budget, but we haven't obviously changed our guidance since the beginning of the year. So that's really all --

I think it's pretty safe to say, James, our expectations of where we come in versus our budget haven't really changed that much because we haven't changed our guidance.

Okay, that's good. And then, do you think there's any talk out there that potentially if the macro slows down that the fourth quarter might be a little bit more of a boggle than usual just because you have a fair amount of spending that was committed to the Olympics? And so maybe to some extent that's on autopilot and advertisers may be trimming a little bit of their third quarter spending, but they might take a harder look at their fourth quarter given the macro slowing down. Just wondering any thoughts you had on the impact of the Olympics on the dynamics of your business, since you're a relatively young business as a public company. Certainly, any color you could give on the impact of the Olympics on your past would be interesting.

James, we actually went back to '08 and looked at some of that, and we couldn't really tell. There didn't seem to be anything we could identify and '08 was obviously was pretty much dominated by other events that were happening at the time, including Lehman in September. So it's hard to get any kind of read on it because '08 was such a strange year in that respect. Now, having said that, given that the Olympics, I think NBC came out the other day and said they sold $1 billion against the Olympics. I guess that's the first time they've ever done that. I don't know how much of that is sort of incremental versus sucked out of the greater marketplace. Always hard to tell, but there's surely some.

The good news for us is that it didn't affect all that much our third quarter, and if we're able to have a reasonable closing rate on the stuff that we've got in the pipeline, we're hoping the fourth quarter will be good too. The macro is a great point and if I could tell you what the macro is going to do over the next four months I probably wouldn't be sitting here. But it's going to be somewhat related to that. I'm somewhat optimistic or probably better cautiously optimistic that things can hold together this year. The election also may play a role in that because depending on who wins the election may have an impact on where the economy goes. We're staring at the so-called fiscal cliff, or whatever they're calling it now, and the first of the year. How that sorts itself out will be another thing that I think we should all be watching very carefully.

On the other hand, the election could impact September and October pretty significantly because that's where a lot of the money is going to be spent, especially in the seven or eight so-called battleground states. Now, for us, not likely we're going to get a lot of pure political spending that's going to come our way because even though we've talked to the DNC and the RNC, the chances of them giving us a positive political ad seem to be nil at this point. And it's really quite funny, they even laugh when we ask them for a positive ad. It seems to be very clear that the strategies of both campaigns seem to be a lot more attack oriented, as opposed to making their candidate look good.

So the impact for us, I think, will be in the overflow that we get from broadcast or cable tightening up because of the amount of money being spent by the campaigns in those two mediums. So that overflow impact I alluded to in my comments, hopefully we'll see that in September and October. For us, October is a month that has historically pretty low utilization. So if we see some uptick of two or three deals that we wouldn't have ordinarily gotten in October because of that, that could be pretty impactful for us for fourth quarter.

Okay, just one follow-up on that and I joined a little late so you may have addressed it. So I apologize, but I know last year you said that the dynamic played out where term insurance seemed like the upfront was strong. Maybe there was a little buyer's remorse as the year went on in terms of the amount of commitments that were already in the market for fourth quarter, making the dynamic for you a little bit more challenging. Looking back at the upfront now that you've seen for the broadcast and cable guys, and talking since with advertisers, how would you compare kind of the amount of money that's already been pre-committed, that level dynamic? Does it seem like there's more for you to work with or kind of similar to last year?

Look, last year and this year the total revenue seems to be about the same. It appears as though there's been projected declines in ratings, especially in broadcasts, which have been offset by increases in CPM. So the dollars are about the same. I wouldn't say that it was as frothy as last year by any means, but it was -- the dollars are about the same. What happened last year was really two things happening at the same time, big dollars committed in the up front and then a complete reversal of the economy in August. And everybody shutting down because of that fear around that macro economy. So just because the dollars are committed, I'm hopeful that it does not impact our business the way it did last year and the key is going to be if there isn't any kind of buyer outlook about the economy. And as you recall, it got pretty dire in the August, September, October timeframe and then it started to recover in sort of middish October into November. And by that time it was sort of too late.

So it was really the timing of those two things, the upfront followed very closely by the turn around in the economy that really drove our tough go last year.

Okay, and just one last one, and I appreciate it. You mentioned the launch spending and how you've had success in getting launch spending from national advertisers. Any way you can quantify that or give some indication of the amount of your national advertising, which is coming from that type of spending? Or any way you can talk about the difference in pricing you get from that type of business?

I don't have a metric in front because we can tell when stuff is launched. Obviously, the Samsung one is very easy. Some of the other stuff, whether you're right in the launch or just after the launch, or whether it was some sort of follow-up, it's always a little hard to define what the heck's a launch. So it's hard for me to give you an exact number. Maybe if you call up later. We'll play around with that, see if we can come up with a number that allocates it. Generally, I will tell you that CPMs are higher on launch business because they need it when they need it. And so it's obviously special inventory that they're buying and it's specific from a timing standpoint. And so that's all good news for us, obviously.

But look, it's not just about launches with us and I think the job we've done with Sprint and our PSA stuff, the job we do for Coke on beverage and up in all of our content partners, and I add that we renewed all of our content partners that were up for renewal this year going into '13, '14. So half of our content partner deals have been renewed for the '13, '14 and we'll have some renewals obviously that will come up next year for the '14, '15 period. So that's good news.

So we're still making I think pretty good progress on people that are just spending with us kind of all the time.

Okay, great. Thanks very much.

Thank you. There are no further questions in queue at this time. I would like to turn the floor back over to management for closing remarks.

Great. Thank you very much for all your support and please help us pray for all the folks that were involved in the theater shooting a couple of weeks ago. And if anybody obviously has any follow-up questions, we'll be around for quite some time. Thank you very much.

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