National CineMedia, Inc. (NCMI) Q4 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the National CineMedia Fourth Quarter and Full Year 2012 Earnings Conference Call. [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. 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 earnings call. Today, I'll provide a brief overview of our 2012 results and provide some thoughts about 2013. Gary Ferrera, our CFO, will then provide a more detailed discussion of our financial performance for Q4 and all of 2012 and provide some color around our guidance for Q1 and full year 2013 and then as always, we'll open the lines for questions. Before I get started, I wanted to say a few things about Gary. As you know, he'll be leaving us on March 1. Gary has done a great job as our CFO over the last 7 years as he has built a strong financial team and leaves our company with a low-cost, long-term debt structure that provides us with ample liquidity to grow our business for many years to come. While I hate to see Gary go, we wish him luck on his new adventure. He will be missed, especially by me. While it's always difficult to replace a great CFO, we have had a very active interview schedule over the last several weeks, and I'm confident that we will be announcing a high-quality new CFO before the end of Q1. Now onto our 2012 results and our outlook for '13. We had another great year of growth from our national advertising group and despite a slow start to the year, our local ad business had a record Q4 with growth of 19%, primarily due to an increase in regional contracts. The year could've been even better if it were not for several macro headwinds in November and December and the negative impact of Sandy in our local ad business in the all-important Northeast region. In fact, through October, national revenue was on plan and we were poised to post not only strong revenue growth for '12 but also adjusted EBITDA -- OIBDA growth. Despite this economic slowdown to finish 2012 and the deep recession and slow economic recovery over the last several years, our business has performed very well relative to the rest of the media marketplace as our revenue and adjusted OIBDA have both grown at a compound annual growth rate of over 8% since our IPO, well ahead of the television marketplace. While our 2012 adjusted OIBDA was slightly lower than 2011, due primarily to higher theater access fees, lower capital expenditures and the completion of favorable debt refinancing has allowed us to continue to return value to our share -- stockholders through a record $48.7 million or $0.88 per share 2012 dividend. During 2012, our sales teams continue to make good progress towards our strategy of expanding our client base. Our national team added 30 new clients that have never spent with us or had not spent since 2006, 7 of which were added during Q4. The new national clients added during Q4 included businesses in the video game, cable TV, home audio equipment, Internet site and tourism categories. With these additions, we have increased our client base by nearly 60% over the past 3 years. While this is good progress, there is plenty of opportunity for future growth as we still do not sell advertising to many hundreds of high-quality brands that buy TV and we continue to be underpenetrated in several categories, including CPG, retail and QSR. We have made progress to diversify our national client base. However, our 3-core client categories of telecom, auto and entertainment represented 68% of our total national and ad revenue in 2012 as we saw strength with video game and movie studio clients and spending declines in the credit card and home video DVD categories. While this concentration increased due to one significant telecom deal that I will discuss later, there are still too many clients that only buy when they have their product launched, a unique piece of creative or some other marketing priority. So over the last year, we have initiated several longer-term strategies and tactics to further broaden our client base and reduce our quarter-to-quarter spending volatility, including developing a more unique integrated package of marketing products, including online to mobile, competing more aggressively in the TV upfront marketplace and provide a more creative and targeted pricing structures. The major highlight of 2012 was the success of our -- of the company's first-time participation in the TV upfront process. This strategy exceeded our initial expectations as we are able to improve NCM's marketplace credibility, increase overall awareness and create relationships with new clients, all of which contributed to an increase in overall commitment going into 2013. This strategy of embedding ourselves earlier into the media planning process allows us to better match our inventory availability, unique product integrations and more flexible pricing structures with the annual marketing plans of our clients. While it will likely take several years of participation in the upfront process to achieve the market awareness and upfront commitments garnered by TV networks, which are in excess of 70% of annual budgets, we are making good progress as our national scatter upfront commitments going into 2013 increased 10% over 2012, and we are currently at approximately 61% of our annual national advertising budgets, including scatter commitments and longer-term commitments related to our content partners, founding members circuit beverage agreements and cellphone PSA. Another highlight of 2012 was the completion of the single largest ad contract in the company's history that was driven not only by the quality of our network but also by our ability to provide high-quality creative services that created a unique integrated campaign consisting of 2D and 3D on-screen ads, lobby promotions, a 2D and 3D interactive on-screen audience motion game and online and mobile ads. While this significant contract was great news for 2012, it could create some comp issues in Q3 2013. Having said that, Q3 last year was so strong that it created an oversell situation, where we're not able to handle all the demand. And so I'm hopeful that we can replace the 2012 deal with a combination of campaigns with the same and additional clients. While our local and regional business finished the year very strong despite the negative impact of Sandy in the Northeast, the first 8 months were disappointing as the slow economy continued to impact smaller clients and our regional clients shifted spending to later in the year. A turnaround began in September as our local sales business benefited from new network affiliates that were fully integrated into our digital network and sales process, and we closed several larger regional deals. With the Northeast beginning to recover and more new affiliate screens coming online, the positive sales trends continued into 2013 as our current aggregate local and regional bookings were up 13% over 2012 at this same time last year. Our online and mobile initiative continues to be an important part of our integrated bundling strategy while our online and mobile ad sales only represented approximately 1% of our total ad sales. This integration strategy makes our overall selling proposition more unique and thus appears to be driving some incremental on-screen buys. In fact, during 2012, approximately $39 million of on-screen or lobby advertising contracts also included an online or mobile component, a 44% increase over the $27 million in 2011. This integration strategy combined with a 69% increase in local online sales were the primary drivers of the 52% increase in overall online and mobile 2012 ad revenue. With online and mobile campaigns becoming an increasingly important part of marketing budgets, in 2012, we continued to aggressively pursue our strategy of connecting our in-theater marketing platforms with the online and mobile world by expanding the distribution of our mobile apps. During 2012, we improved the integration of our Cinema Sync app into our Movie Night Out app and began the distribution of a standalone Cinema Sync app in the Apple and Android online stores. In 2013, we will further broaden the Cinema Sync distribution by integrating it into other movie-related apps. Cinema Sync's ability to connect on-screen ads to theater patrons through their smartphones provides a unique consumer engagement tool for our clients and another unique value proposition for cinema patrons as it allows the distribution of coupons, content and other value-added items. Turning to our Fathom Events business. Our full year Fathom Events revenue declined related almost entirely to the wind down of the Fathom Business division. Our Fathom Consumer division revenue decreased slightly, primarily due to a 13.5% fewer events, offset by an increase in revenue per event of 13% in '12 versus '11. These metrics reflected our 2012 focus on higher quality programming that will generate greater attendance per theater and higher profitability per event for us and our theater patrons. In 2013, we will continue to experiment with the Fathom programming mix and work with our founding member circuits to create a structure that will increase our margins and create a more robust long-term business for our theater partners. A key part of our strategy to broaden our advertising client base and improve our competitive position versus other national ad networks is to continue to expand and improve the quality of our digital network. During 2012, we signed 11 new circuits and 2 additional circuits so far in 2013. These 2012 and early '13 additions have improved our geographic coverage and national reach by adding over 900 screens with approximately 25 million annual attendees. Our founding members were also very active as all 3 announced deals in 2012 and 2013. We also continued to expand the number of higher quality digital cinema projectors in our network with over 14,600 screens installed as of last week. By the end of '13, we expect that approximately 85% of our total digital screens and over 95% of our founding member digital screens will be equipped with the higher-quality digital cinema projectors and over 96% of our network screens will be digital. In addition to enhancing our scale, our competitive positioning versus 3D will be enhanced by our broader 3D advertising distribution capabilities that provide a unique offering to our clients at CPMs that average from 50% to 100% higher than our average 2D CPMs. Looking ahead to 2013, we're off to a good start as our advertising upfront bookings are up and we're having productive conversations with several network affiliates to further expand our digital theater network. Given the start, we're planning for lower to mid-single digit adjusted OIBDA growth for 2013 as we continue to broaden our overall client base, reduce the spending volatility of existing clients and expand our digital media network, including various online and mobile extensions of our core theater network. We have already initiated our 2013 TV upfront campaign with many meetings already held and hundreds planned before our presentation in New York City during the Broadcast Upfront Week in mid-May. During 2013, we will also make more focused research investments, particularly some targeted at the CPG, QSR and retail categories. These additional metrics and analytics will better capture some of the qualitative positive attributes of cinema that are not currently reflected in the media mix modeling planning software that are used by many clients. While we are confident in our plan, our guidance has some downside protection built into it, should the economy not continue to recover or other macro events adversely impact the broader ad market. We're also creating some room should we not replace the significant 2012 Q3 national contract that I mentioned previously. Consistent with our plans since our IPO, our 2013 plan focuses on increasing our inventory utilization across our broader network and higher impression base by leveraging upgrades to our distribution and inventory management software. A larger, more robust network will provide us with much more flexibility to execute new demographic targeting strategies and experiment with more aggressive and flexible pricing structures. We will also benefit in 2013 from the expansion of our network and impression base related to the new construction and M&A activities of our founding members and the addition of new network affiliate circuits. Our network affiliate expansion targets over the next 18 months currently include smaller regional circuits with approximately 1,500 screens and 40 million annual attendees. Our founding members continued to be the primary consolidators in the marketplace as deals were announced by all 3 circuits in 2012, including Regal's announcement of their acquisition of Hollywood, one of our largest affiliates earlier this week. As many of these acquired circuits were already in our network, they will not expand our reach for a few years until existing Screenvision contracts expire on 239 screens. However, they will provide immediate incremental adjusted OIBDA and higher margins through increased beverage revenue and lower operating expenses. Before I turn the call over to Gary, I would like to thank all of our investors for their support and our employees for another year of hard work. While 2012 did not end the way I'd hoped, we have built a very high-quality company with a solid business plan in place. We will continue to provide investors with a rare combination of growth, potential incurring income. While competitive pressures will continue from TV and online and mobile video platforms as the DVR and other time-shifting and ad-skipping technologies continue to proliferate, and the Internet continues to fragment media distribution, we expect that our network will become an increasingly attractive national advertising platform for marketers. Now here is Gary to give you some more details concerning our Q4 and overall 2012 performance and more specific 2013 guidance for the last time.

Thank you, Kurt, for the kind words. I'll do my best not to mess up. For the fourth quarter, our total revenue increased 1.1% to $115.9 million, driven by a 2.6% increase in total advertising revenue, including beverage, to $103.9 million, partially offset by a 9.8% decrease in Fathom Events revenue to $12 million. For the full year, our total revenue increased 3.1% to $448.8 million, driven by a 6% increase in total advertising revenue, including beverage to $409.5 million, offset by a 20.1% decrease in Fathom Events revenue to $39.3 million. The advertising revenue mix for the full year was 70% national, 20% local and 10% beverage, versus 69%, 21% and 10%, respectively, for fiscal 2011. Total advertising revenue represented 91% of our full-year revenue versus 89% in 2011. National ad revenue, excluding beverage, in Q4 decreased 4.5% versus Q4 2011 to $66.3 million, driven by a decrease in utilization from 112.1% to 91%, partially offset by a 15.9% increase in our Q4 attendance base while CPMs were approximately flat. As Kurt mentioned, our Q4 utilization was affected by the overall advertising market being impacted negatively by the broader economic slowdown during the quarter. For the year, national ad revenue, excluding beverage, increased 7.9% versus 2011, to $288.7 million, driven by utilization increase to 98.8% from 96.7% on attendance that was up 8.4%, partially offset by a decline in CPMs of 2.5%. Our attendance increase was the result of the addition of several new network affiliates and a modest increase in organic theater industry attendance. We entered the fourth quarter of 2012 with approximately $1.8 million of make-goods and as of the end of the year, we had approximately $1.2 million of make-goods. This balance is lower than the year end 2011 balance of $2.7 million and sell to the lower end of our historic levels due to the strong December 2012 box office. Our Q4 beverage revenue increased 14% to $9.8 million from $8.6 million in Q4 2011, driven by a 13.7% increase in founding member attendance and the approximate 1% beverage CPM rate increase for 2012. For the full year, beverage revenue increased 4.5% versus 2011, primarily due to a 4.4% increase in founding member attendance for the year and the approximate 1% CPM rate increase. Our local advertising business performed well in Q4 as local revenue increased 18.9% to $27.7 million from $23.3 million in Q4 2011, with same screen sales increasing approximately 12.1% despite the impact of Hurricane Sandy in the Northeast. This strong performance for the quarter was primarily due to an increase in larger-valued contracts for both regional clients and national clients advertising in select markets as the total dollar value of contracts over $100,000 increased approximately 33% and a number of these larger value contracts increased by 23%. Total Q4 advertising revenue per attendee decreased 11.5% to $0.61 with our national advertising revenue per attendee excluding beverage decreasing 17.6% to $0.39 per attendee and our local ad revenue per attendee remaining approximately flat at $0.16, both on a 15.9% increase in Q4 theater attendance. Full year 2012 advertising revenue per attendee decreased 2.1% to $0.59 with our national advertising revenue per attendee excluding beverage remaining approximately flat at $0.42 per attendee and our local ad revenue per attendee decreasing 7.9% to $0.13, both on an 8.4% increase in 2012 theater attendance. Our Fathom Events business Q4 revenue decreased 9.8% to $12 million from $13.3 million. Fathom Consumer revenue increased 5.7% to $11.2 million as revenue per consumer event increased 38% on 26 events held versus 34 events held during Q4 2011. This increase in our Fathom Consumer business was more than offset by a $1.9 million or 70.4% decline in Q4 Fathom meetings business revenue. For the full year, combined Fathom Events revenue decreased 20.1% to $39.3 million from $49.2 million. Fathom Consumer revenue decreased 2.3% to $34.2 million as 90 events were held versus 104 events during 2011, with revenue per consumer event increasing 13% and full year Fathom meetings business revenue declining $9.1 million or 64.1%. As we mentioned on prior calls, we restructured the Fathom Events business during Q1 2012 to focus on the Consumer business and we no longer actively market the meetings business. However, we may occasionally facilitate a small number of meetings across our network on an opportunistic basis. While total 2012 adjusted OIBDA were -- of $221.2 million came in at the upper end of our revised guidance range, Q4 adjusted OIBDA of $58.3 million decreased 7.5% from Q4 2011. Q4 adjusted OIBDA margin was 50.3%, down from 55% in Q4 2011, while full year adjusted OIBDA margin was 49.3%, down from 51.5% in 2011. The Q4 and full year adjusted OIBDA and margin decreases were impacted by the contracted 8% increase in 2012 for the attendance base portion of our theater access fee that occurs once every 5 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. Together, these items increased our operating cost $1.4 million for Q4 and $6.5 million for the full year versus 2011. Additionally, our margins were also impacted by the fact that our network affiliate base, which operates under a lower margin revenue share model, grew to 16.5% and 16.4% of our total Q4 and full year 2012 guidance, respectively, versus 14.9% and 13.1%, respectively, in 2011. Looking briefly at diluted earnings per share for the fourth quarter, we reported a GAAP EPS loss of $0.01 versus $0.12 in income in Q4 2011. And for the full year, we reported GAAP EPS of $0.24 versus $0.58 in 2011. Excluding certain non-cash and other adjustments in both 2011 and 2012, that include loss on swap terminations, correction of taxes and write-off of debt issuance costs, GAAP EPS would have been $0.16 versus $0.18 in Q4 2011 and for the full year would have been $0.58 versus $0.65 in 2011. We continue to expand our network and as of December 27, 2012, we had 19,359 total screens in our network, representing a 3.7% increase in total screens versus the end of 2011 and a 4.5% increase in digital screens as of the end of 2012. 18,491 or approximately 96% of our total screens were connected to our digital network, generating approximately 97% of our 2012 attendance. Our capital expenditures were $2.6 million for the fourth quarter and $10.4 million for the full year, down $3.3 million versus full year 2011. This is below our annual guidance range that we provided of $11 million to $13 million, primarily due to the timing of digitizing our recently signed network affiliates, permanent savings realized from the lower cost of connecting our network affiliates to our network and delays in hiring related to development of our management and sales systems. Moving on to our balance sheet. Our total debt outstanding as of December 27, 2012, was $879 million versus $794 million at the end of 2011. The increase in our total debt balance is primarily related to a shift from accrued liabilities of approximately $63.4 million in payments related in the termination of swap agreements during 2012 and transaction fees associated with the April 2012 note placement and November 2012 term loan refinancing. Our net revolver balance was approximately $4 million at the end of 2012 versus $35 million at the end of 2011. Our total unused revolver availability was $110 million at the end of 2012 versus $75 million at the end of 2011. Our consolidated cash and investment balances at the end of 2012 increased by approximately $9 million to $107 million versus 2011. Our investments are comprised of marketable securities such as treasuries and commercial paper. Approximately $96 million of our consolidated cash balance was at the NCM Inc. level, with a portion reserved for tax-associated payments and management fees. Excluding these reserves, at our current dividend rate at the end of 2012, we'll be able to pay an excess of 4 quarters of dividends, even if no additional cash were disregarded of up to NCM Inc. from NCM LLC. The average interest rate on our term loan and note borrowings was 6.2% in Q4 2012 versus 6.9% in Q4 2011. This lower average rate was due to our 2012 refinancing that extended our average maturities to over 8 years. The average interest rate on our revolver borrowings, including commitment fees on unused balances, was 5.1% in Q4 2012 versus 3.7% in Q4 2011, as our July 2011 and 2012 refinancing that significantly increased our liquidity resulted in a slight increase of our revolver commitment fees and higher undrawn revolver balances. Our pro forma net senior secured leverage of NCM LLC as of December 27, 2012, is 3.1x trailing fourth quarter adjusted OIBDA, which is well below our senior secured leverage maintenance covenant of 6.5x. You should also note that while we have no total leverage maintenance covenants, our total net leverage at NCM LLC was 4x versus 3.6x at the end of 2011. This slight increase was primarily due to the shift in the funded debt from accrued liabilities of the $63.4 million of swap termination payments as part of the $400 million note issuance in April 2012 and the $265 million term loan refinancing in November 2012. We also announced our regularly quarter -- our regular quarterly dividend of $0.22 per share. This dividends represents an annual yield of approximately 6% based on recent trading levels. The dividend will be paid on March 21, 2013, to shareholders of record on March 7, 2013. Shifting to our 2013 guidance. We are currently expecting that our Q1 2013 total revenue will be in the range of $79 million to $84 million or approximately flat to up 6% versus 2012, with adjusted OIBDA in the range of $24 million to $28 million or down 3% to up 13%. For the full year 2013, we expect total revenues to be in the range of $455 million to $465 million or approximately up 1% to 4% over 2012 revenue, with adjusted OIBDA in the range of $225 million to $235 million, up 2% to 6% from 2012. Some of the more significant assumptions that we are making regarding our 2013 guidance include the following. At our -- in 2012, our current -- our content partner revenues were allocated approximately 45% in the first half and 55% in the second half of the year. We are currently projecting a 2013 allocation of approximately 50% in the first half of the year, with a more favorable waiting to Q1 2013 versus Q1 2012 and 50% in the second half of the year. As always, a future shift in the annual must-spend commitments of our content partners between quarters is possible as marketing priorities shift throughout the year. We expect our national advertising revenue to increase in the mid-single digit range for the year, with the national increase driven primarily by increased utilization on an impression base that we expect to be up low single digits, primarily due to the addition of currently signed network affiliates. Our full year national CPMs could be down versus 2012 as we continue to introduce more creative targeting and pricing structures in an effort to increase inventory utilization. However, we currently anticipate a CPM increase in Q1 primarily due to an increase in content partner revenue versus Q1 2012. We expect our local advertising revenue to increase in the high single digit range for the year, with the increase driven by expected improvement in the economy, expansion in the number of larger renewal [ph] client contracts and the impact of the additional salable screens in our network for 2013. We currently anticipate a Q1 local advertising revenue increase of over 10% versus Q1 of 2012. We will continue to use our standard 11 30-second units as the denominator in our utilization calculations to ensure period-to-period comparability. As we've mentioned before, we can expand the show to a total of 14 30-second units for a potential utilization of 127% if there is sufficient market demand. Our EFA has provided that our annual beverage CPM will increase or decrease by the same annual percentage change as our actual segment 1 national advertising CPM during the previous year. As such, our 2013 beverage CPM will decrease approximately 0.7%. The low margin Fathom Events business revenue is expected to decline around 25% during 2013 due to an expected low double digit decrease in consumer event revenue and the first full year reflecting the wind down of the business meetings division. We expect that Fathom Consumer decline is primarily due to a focus on fewer but higher margin events. We are planning on a high revenue per event on approximately 70 events versus the 90 events held during 2012. Additionally, you may recall that we operated the Fathom Business division a proportion of Q1 2012 but no longer actively market that business. Our adjusted OIBDA margins for 2013 are expected to increase versus 2012 primarily due to the expected increase in revenue, the attendance base portion of our theater access fee remaining stable at $7.56 per attendee through 2016 and the Rave, Great Escape and Hollywood acquisition by our founding members, flipping from an affiliate revenue share model to the more favorable founding member theater access fee structure during the year. And as always, we will maintain tight expense control. These benefits will be slightly offset by the incremental digital cinema maintenance fee as the ramp-up of installation should conclude through the first half of 2013. We expect 2013 CapEx levels to fall into the $10 million to $12 million range. This expected range includes the utilization of a portion of our currently contracted network affiliate screens. While we are having productive conversations with many network affiliates, our guidance assumes that no additional network affiliate agreements are signed. We expect 2013 interest on borrowings to be approximately $53 million, which includes approximately $51 million of cash interest and the remaining $2 million non-cash deferred loan cost. Also, we expect a change in the derivative sales value, non-cash loss to be approximately $10.3 million in 2013 as we amortize our final swap termination payment made in November 2012, over the original term of the swap through February 2015. And lastly, consistent with 2012, our fiscal 2013 calendar includes 52 weeks. Before we open the line for questions, I'd like to provide tax status information for our 2012 dividends. Of the dividends paid in 2012, 100% are to be treated as non-dividend cash distribution for federal income tax purposes. This information is posted in the Investor Relations section of our website and stockholders should receive a Form 1099-DIV in the next few days for the 2012 tax year. And finally, I would just like to thank Kurt for bringing me on board almost 7 years ago and giving me the opportunity to help build such a great team and organization. I will truly miss working with such high-caliber, fun and dedicated people. Now it's time for the next challenge and I hope to have a chance to work with or for you all in the future. That concludes our prepared remarks, and we'll now open up the lines for any questions you might have.

[Operator Instructions] Our first question is from James Dix of Wedbush Securities.

Three things. Just looking a little bit at this kind of strong pacings or -- I know you don't use the term, but just some of the bookings that you have in the national and local market for the full year. And just trying to reconcile that to kind of the full-year guidance of kind of 1% to 4% growth, as opposed to kind of your national bookings. Looks like they're up like 10% go into the year, local up 13%. Just want to make sure I'm understanding that. I know you have a 3Q comp which is pretty challenging, so that's probably one part of it. But any other color that you have on that would be helpful, and then I have 2 follow-ups.

Yes, I think, clearly, James, the Q3 deal that we discussed is something that we're somewhat worried about. Although I'm a lot less worried about it than we were a few years ago, when we had that Army National Guard contract sitting in the first quarter, and trying to replace that proved to be pretty difficult. Third quarter is pretty robust for us, as I mentioned in my comments, we turned a lot of money away in Q3. And so I'm hopeful that with the demand in Q3 being really, really strong the last, really, 3 years, Q3 has turned into our biggest quarter of the year, that we'll be able to replace it. I think creating a little hedge against that, I think, was prudent. The other thing is we've been burned the last 2 years by some sort of economic turmoil in the marketplace. And, I think, with the uncertainty that we have out there, in the general business environment, and the guys in Washington not getting their act together anytime soon, at least from my view, I think it's prudent for every company to be reasonably conservative.

Okay, great. You mentioned the National Guard. I guess, just more broadly, on that government spending category. I mean, that used to be I think in your top 3. Obviously there had been some changes there. Any outlook for that to potentially surprise the upside and any color you have, potentially, I don't know, on Affordable Care Act marketing spending. I'm hearing that from some guys in the TV market, and potentially that's a demo which could be attractive to you. But just any color on that category because it's been important to you in the past.

Yes. Well, the last 2 years, '11 and '12, were pretty slow from a military spending standpoint. In fact, I don't think we did any business, very little anyway, with the Army National Guard. So I don't think that -- the comps are particularly difficult in the government spending category for us, and we do have some stock already booked for this year. So there could be some upside in that category as a whole. As far as the Affordable Care Act spending, as we've mentioned before, pharma in general is a pretty weak category for us. The creative doesn't work very well, especially with all the information that you have to include on the ad as a matter of law. So I'm not going to say that it isn't something that may surprise us, and that we can come up with creative solutions that could work, but it's not something that we've built into our plans, clearly.

Okay, and then one last one, then I'll leave it to others. Are you working to experiment, at all, with the structure of the preshow, in terms of bringing in new advertisers? It just looks like, from some of the preshow's recently, you have some pretty long ads from some sponsors who are outside of the 3 main content partner segments. So I was curious as to whether there's any strategy to try to bring in some new formats in, outside of the content partners, to maybe attract some new advertisers. And are there any limitations on what you can do with the structure of the preshow, vis-a-vis, those 3 content partner segments?

Well I think the content partner structure has served us very well. It, obviously, provides a big chunk of upfront money in addition to providing some entertainment content, if you will, to break up the ad, and to make it better for theater patrons. That's always been one of our strategic goals. So I don't see anything changing necessarily. I think the mix of content partners is continuing to change. We've added Microsoft, this year, as a content partner. That's been something that was a big breakthrough. Content partners, in the past, have generally been related to entertainment companies of one sort or another, either movie studios or television networks, either cable or broadcast. So I think moving into this world where we now have a big technology provider onboard, I think, opens a whole new set of categories that could make our content partner model even more robust than it already is. And the other thing that we've really try to stress over the years, which you noted, is to try to create longer form advertisements that I think play much better in the theater environment. I think 30-second ads are on the short end. For us, I would much rather see 60s or are 90s. And we're see a lot more of that. I think as people start to get comfortable with producing for cinema, the 30-second format is not as productive, if you will, or effective. So we're going to continue to push on that. We've also started to work a little bit with regional clients, especially the ones that are more national in orientation. We have a lot of companies, now, that are buying us regionally, as opposed to nationally, because I want to target certain markets are certain theaters. And so we've allowed, in some cases, them to move the content up a little bit, into our segment, too. And so that, I think, has helped a bit. But other than that, the preshow format that we've used has worked pretty well and I'm sort of, of the mind of if something is not broke, don't fix it.

The next question is from Townsend Buckles with JPMorgan. Townsend Buckles - JP Morgan Chase & Co, Research Division: Just another on your revenue guidance for 2013. It sound like you've built a fair amount of conservatism, even at the high-end. So is it safe to say that your view, being a share gainer in the ad market, hasn't changed? And if so, if you can frame how you see your growth potential, I guess, on a more normalized basis.

I mean on the high-end, we're obviously, twice or 3x depending on who you want to listen to, the growth is being projected for the broader ad market. So, your comment on us being a share gainer is obviously, clearly, in play. There are some things this year that could benefit us, there isn't an Olympic sucking up a ton of money. We've already seen some positive impact from that, because as you know, a lot of Olympic sponsors had to dedicate most, if not all of their budgets, to the Olympics so that could be a positive thing. We don't get much of a tailwind from the elections, so we really don't have a comp issue like most networks are going to have associated with the elections. So that doesn't impact our business all that much. There could be some impact in the third and fourth quarter, around that, I think, in the television marketplace, which messes up their growth rates a little bit. So, like I said in my comments previously, there's a few things that are in the world right now that are a bit outside our control and I just think it's important for companies to guide conservatively. Townsend Buckles - JP Morgan Chase & Co, Research Division: Got it. And on your CPM guidance to potentially be down in 2013. You talked, in the past, about being more aggressive to get those more price-sensitive advertisers like CPG. So if you could give a sense of how much demand your sales team sees among those advertisers that stay away due to pricing, and also how you balance maintaining your higher rates elsewhere.

Well, it's always a balancing act and I'm not going to get into too much detail on our specific tactics around this, for obvious reasons. But I think it's safe to say that television allows pricing structures for CPG and certain other client categories that are different than other categories, which happen to be the more traditional cinema advertising category. So in many respects, what we're trying to emulate is what goes on in television, where you try to differentiate pricing based on the type of client. And more importantly, how big a commitment that client is willing to make and are they willing to advertise during periods of time where our demand is not as high. I'd mentioned, in the past, January through April and October are times of the year where demand is generally lower. Theater attendance is lower generally. So all of those things will come into play. And as I mentioned in my comments, as our network gets bigger and bigger, we have a lot more flexibility to do certain things around targeting. Clearly, one of the challenges with cinema versus television is our inability to target quite as well as television does on a 18 to 49 or other demographic groupings. So we're spending a lot of time improving our technology and creating various targeting strategies to try to create a better targeted demo, if you will, for advertisers. And so those are just some of the things that we're thinking about. Townsend Buckles - JP Morgan Chase & Co, Research Division: And any sense of how much those prices tend to fluctuate or need to fluctuate to really pull in a critical mass?

Well it just depends on the client. It's all over the board and it does depend on the time of year. As we've mentioned in the past, the difference in our CPMs, between our highest month and our lowest month, can be as high as 30% to 35%. So you've got a lot of leeway, just within our existing pricing structure, to work in a client's needs. Clearly, our upfront strategy is designed around some of this, because if we can sit down with a client and layout all the variables and our pricing flexibility, month by month, throughout the year and try to match that up with a clients marketing needs, it provides a much easier match. And that's been one of the emphasis we've had on our whole upfront strategy.

The next question is from James Marsh of Piper Jaffray.

It's Stan on behalf of James. Can you guys clarify, and you sold inventory of 61%, if that's for Q1 only or more longer term? And where do you expect to be by May?

Well the 61% is for our whole year. So the denominator in that calculation is our target for the year, and the numerator is how much we've booked. So that's how that calculation is done. We don't usually give precise predictions about where we're going to be in May or June. And even if I had to, it'll probably be challenging at this point.

The next question is from Eric Handler of MKM Partners.

Just on the upfront inventory that you sold from your May presentation, are CPMs for those deals down versus what you were -- how do those CPMs compare versus what you're doing in the scatter last year? I'm just trying to get a sense of the scatter pricing versus upfront pricing. And secondly, when you look at your regional business now, maybe you talk about your request per proposal level, how that's been tracking versus where you were last year.

Yes. The answer to your first question, Eric, obviously, not everything we've booked upfront. And the 61% that I mentioned was not related to jet stuff that came from our last year May meeting. So the upfront process, while it all sort of gets built up around these meetings in New York over a week, in May, is a process that goes on throughout the year. So I think one of the advantages we have, this year, is that we started that process much earlier than we did last year. In fact, we've had many, many more meetings, already this year, than we did last year at this time. And so we were a little late to the game last year. We did, obviously, do the presentation in May. But we started "upfront meetings" last year in the fourth quarter. So it's not just one event. The answer to your question on pricing, it's kind of all over the board. The upfront and scatter market, for us, as you know, is not a fully developed market. We're sort of riding, if you will, off the TV marketplace. And so, for us, there's no real rule of thumb that scatter pricing is up or down. It's all over the board depending on the deal, depending on the number of units that are committed to us, what months those units may fall into. Obviously, if somebody's going to buy -- anyway, if they're going to buy January through April inventory or October inventory, obviously the price can be a lot lower. It'll probably be a lot lower than deals that we do in the scatter market. And so it's really hard to give a rule of thumb. I think the thing that we're trying to impress upon people is that our growth is not going to be coming from CPM. In fact, as Gary mentioned in his briefing, we could have some declines over the near-term as we bring all these new clients on board. The mix of clients that we're hoping to bring on board, obviously, deals in a much lower CPM world when they buy on television. So it would be consistent that, that would do the same in cinema. Did I miss any of your questions in there?

The regional RFP level.

Yes, the regional level of activity is pretty high right now. Pretty robust. As I mentioned in my comments, upfront bookings is up 13% from last year. A lot of that, I'll will tell you, is the fact that we have gotten our new theaters on board, integrated into our sales process, obviously integrated into our technology. There is probably a bit longer lead time in the local and regional business, to get new theaters into the process and up to ramming speed, if you will, from a utilization standpoint, than it is in national. National is just added into the proposal and it gets priced in. With regional it takes a little bit longer. You've got to train people and you've got to get clients up the curve. So I think we're seeing the benefit of some of the expansion of our network that happened in '11 and '12. We're seeing some of that benefit come through. We're also seeing the benefit of just becoming larger. Because, as our network gets larger, more geographically dispersed, our coverage gets better. The regional contracts, I think, become a much more important part of our business. We've continued to talk about that, we've continued to add people to our retail team. And I think, as our network is bigger, that regional business, that sort of middle point between local and national, is going to play a bigger role in some of our growth.

The next question is from Barton Crockett of Lazard Capital.

I had a number of questions and then I wanted to step back and ask a kind of a bigger question. The number one question is just on the 61% of the budget that you sold. How would that compare to the sellout rate at this time last year?

Right now, if I was to do the calculation today, it's not significantly higher. If you looked at it at the beginning of the year, there was a pretty good spread, positive spread, between this year and last year. A lot of it have to do with just what week you pick. Because you'll have contracts come on board. Last year, this time, and it jumps up the percentage last year. So that's why we sort of just said how are we as we entered the year, right before week one of the year started, where were we? There was a pretty meaningful increase there. And as of today, it's kind of come back a little bit. But, obviously, it's on a higher budget number, too, right? So it still represents $1 increase over last year, which is important.

Okay. And then in terms of just the competitive and potential kind of consolidation environment versus let's say Screenvision. Could you just kind of summarize for us? I mean, how many screens do you see coming your way, from them? And how do you see that kind of impacting the possibility of you two consolidating at some point?

Well, as I said in my comments, there about 1,500 screens that we see coming up for -- potentially moving over to our network over the next couple of years. In addition to that, I mentioned there are some theaters that our founding members have acquired, I guess 239 screens I mentioned, that will be coming on board over the next 2 years, too, as their contracts expire with Screenvision. So there's a fair bit. I think the big chunks probably aren't for another 3 or 4 years, as some of the larger regional circuits that Screenvision has come up for renewal. So we're going to continue to do what we have been doing, which is to fill in marketplaces, add DMA's. I think we're in 180-plus DMA's today. That leaves, obviously, about 30 DMAs that we're not in. Most of them very, very small. But we're going to continue to push on it because I think it's good to continue to create a more ubiquitous network that can compete more effectively against television.

But do you think that, as these things switch away, does that increase the likelihood that there could be some combination between you guys and Screenvision at some point?

Well, I think that obviously is a factor. I think the more important factor is how much of the revenue we garner in the marketplace. And because as clients come to the market with money that they're going to shift from television to cinema, obviously, we would like to get 100% of it. Would we get 100% of it? Likely not, but that would be our goal.

Okay. And I guess just one final thing, if I could. On the adjusted EPS calculation, this $11 million tax adjustment and the $5 million in collection of accretion of interest. Could you just tell us what that's about?

You mean in the back of it? On the back of the earnings release? Yes, basically, what it is, is we had a couple of things going on. One being, obviously, when we went and did the refinancings. And then the big one that you're looking at is the -- and historically we had the DTAs, everything, valued at a 40% tax rate. And that was just a guess when we IPO-ed, what we'd be at. And then overtime, we've trended it about 38%, so we just had to adjust that from 40% to 38%. And that's the big chunk of it.

[Operator Instructions] The next question is from Jim Goss of Barrington Research.

I do have a couple. First, I was thinking about the conversations we had a little earlier, about not being able to target quite as well as television, which affects your strategy. In a way, movies usually have a very specific demo that they're targeting. Is the issue that you don't have their one-time shops and that steady season, that you have the ability to measure or are there other aspects involved?

It's interesting, Jim, two points. Yes, to your second question or point. If you start targeting by film, there's a lot of times a year that the films are not of the mix that people are going to run towards. And there are other times of the year, the summer primarily, and some of the other big moviegoing time periods where you're going to have too much demand. And as you know, we are somewhat limited in the amount of inventory that we have in any given swipe. We have designed our pre-shows, 14-, 30-second units is sort of our max, if you will. They occasionally go a little bit over that, but generally not too far because they will adversely impact our local and regional business, because they get moved back away from short time. So the limited amount of inventory is a big difference between us and television when it comes to that theory, if you will, of trying to target against a specific film it. Because the last thing you want to have is 200% demand against one film and you can only handle 100, and then lots of times a year you've got very low demand against other films. So that's why we have always gone against the movie rating as a primary way to target, because we always felt there was enough reach and enough films that would fall into those rating groups where we would always have enough demand throughout the year. And so that's really behind it. Now, you made an interesting point on the actual audience. As you dig into the audience for motion pictures, the audience doesn't change as much as you would think, whether it be between male or female our various age groups. Because even if you targeted, say children's films, and you thought that was a very young audience, the difference between home and theatrical is that every one of those young kids has a parent with them. That's not the case at home. So when you start to talk about, with media buyers, about their specific target audience, and let's just take the young person and they want a 12-year old or a 10-year old, the mix for home is going to be much higher than it is for cinema because you always have a parent or two along with the child. So, the rule or the lesson there is there's much more waste, against any demo group, in cinema than there is an television. If you take 18 to 49, maybe in television ads 15% or so waste, if you will, or people that don't fit into that 18 to 49 category. In cinema, you have a significantly higher percentage of waste. So that's one of the reasons why selling against demos or guaranteeing against demos is a very dangerous road in cinema. It's something that you really don't want to do because you are at such a disadvantage versus television on an apples-to-apples basis. So that's why we haven't sort of gone there.

Okay. Well, this ties into one of the other questions I had, which relates to make-goods. The concept of make-goods, for you, is different from television, certainly in terms of your ability to deliver or satisfy the make-goods in the next quarter. Except you really can't, because if you had a make-goods from summer season and you go into September, you might have a totally different audience, there's a person-to-person.

Yes. Well, look, they're making good against specific demos, right? Because they make demo guarantees, the television guys do. We make total audience guarantees against a specific rating or group of ratings. Generally, we won't make specific guarantees against 1 rating, it's usually a group of ratings, at least the PG-13 rating. So we're kind of hedging our bet in some respects. Because, again, going back to what I said at the beginning, we don't have a lot of inventory. And if you started making demo guarantees in the first 4 months of the year, and all of a sudden you couldn't make those guarantees because the theater attendance wasn't there, against those specific demos, then you're stuck with a big make-good that you make good in the summer. And if that would happen, obviously, you'd have to take some stuff out of inventory, potentially, during your highest selling period. So the fact that cinema doesn't have anywhere near the amount of inventory that TV networks have, puts us at a bit of a disadvantage if we were going to play in that game. And I think it becomes a much trickier type of situation. It's why we've always guaranteed against total audience as opposed to demo.

Okay. And maybe one quick question. The $103.9 million ad revenue number you reported. If you had to adjust, in your own mind, for Sandy, what do you think that figure might have been?

Great question. I don't think Sandy affected our national business all that much. But it clearly affected our local business in and the tail end of the quarter. And the only thing I can sort of reference you to is we were sort of trending towards a growth rate, in the fourth quarter, for our local, a little over 20%, around 21% or so. And it turned out to be 19%. So it may have cost us a couple of points on our local growth rate, local and regional growth rate. As I mentioned, we're starting to, obviously, see businesses open back up again in the Northeast. Although some parts of the Northeast just got whacked by a snowstorm. So, those are things you always have to deal with, and I don't like to dwell on these things too much, because every year there's something like this that goes on. Maybe Sandy was a little more significant than most.

And it's a big region for us.

Yes. And again, the Northeast in all businesses, is usually a pretty important region. And of for us, if you look at the amount of attendance and impressions, theaters, any way you want to look at it, the Northeast is quite significant for us.

Okay, was there anything else that affected that comp then? Because it was a little bit less than I was looking for as far as...

Yes. No, I wouldn't say so. I mean, clearly, 19% growth is hard to kind of cribble, it's pretty good, so I'm not going to complain about it. But as we know, the whole business environment slowed down dramatically in November and December. I think when the GDP numbers came out, that surprised everybody. We saw that or felt that, maybe earlier than most companies either did or at least admitted they did. As you know, we came out pretty early and said that we're feeling some slowdown in the fourth quarter. We sort of indicated, when the final GDP numbers came out. So other than just this on-again, off-again macroeconomic stuff, I can't see anything that really affected fourth quarter.

Our next question is from Ben Mogil of Stifel Nicolaus. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: So, I want to make sure that I've got everything sort of right here. The 61%, I understand, where this is all coming from, have you actually told us what percentage of your full-year revenue guidance you sold to date? I know in the past you've sort of given, not just on national, but on total. Have you given that on today's call?

No, we haven't. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: Do you want to give it?

No, but you can assume that our plan or our budgets are somewhere in the guidance somewhere, right? That we're considering those when we give our guidance. And then we probably left ourselves some room. So you can make those assumptions. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: In terms of the dollar amount that you're tracking, on national, above where you were last -- I get the 61% is the same, but the dollar amount is a little bit higher. Could you give us a sense of what percent -- the dollar amount is higher, is it 5%, is it 10%? Can you give us a sense of where it is or is it tracking to the overall guidance range?

I think I said 10% at the beginning of the year. So it's probably a little less than that as we sit today, but still an increase.

Yes, we have no further questions in queue at this time. I would like to turn the floor back over to management for any additional remarks.

Great. Well, thank you very much, everyone, for all your support. And if anyone has any additional questions, we will be here for quite a while, so please give us a call. Thanks very much.

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