Greetings and welcome to the National CineMedia Incorporated second quarter 2017 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Katie Scherping, Chief Financial Officer.

Thank you, Omar. Good afternoon, everyone, and thanks for joining our call. I'd like to remind our listeners that this conference call contains forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933 as amended and Section 21E of the Securities 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 risks 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. Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found at the end of today's earnings release, which may be found on the Investor page of our website at www.ncm.com. Now with that, I'll turn the call over to Andy England, CEO of National CineMedia.

Thanks, Katie. Good afternoon, everyone. Welcome and thank you for joining us for our second quarter 2017 earnings call. During this call, I will spend a few minutes highlighting the company's second quarter 2017 results, and Katie will then provide a more detailed discussion of our financial performance for Q2 and reaffirm our guidance for 2017. And then, as always, we will open the line for questions. As we had noted on our last earnings call in May, second quarter was looking challenging and remained challenging throughout the quarter. The softness we had experienced in the first quarter continued into Q2 due to a slow scatter market as well as timing from some of our upfront and content partner commitments. The difficult quarter was further exacerbated by a few one-time charges, including a couple of balance sheet write-offs and accounting for our new Denver office lease, which although was cash-neutral is reflected as a one-time charge to the P&L. Katie will explain in further detail in a moment. I'll move on to briefly review the top-line numbers and share some highlights regarding the progress we made in several strategic focus areas of our business. Total revenue for the second quarter decreased 15.9% to $97.1 million from $115.4 million for the comparable quarter last year. Adjusted OIBDA decreased 28.8% to $42.3 million for the second quarter of 2017 from $59.4 million for the second quarter of 2016. Our national sales team had a tough quarter with national ad revenue down 20.5% to $66 million versus $83 million in Q2 of 2016. This decrease in national advertising revenue, excluding beverage revenue from the founding members, was due primarily to a 16% decrease in impressions sold because of lower demand in the scatter market and lower content partner spending in the second quarter…

Thanks, Andy. I'll walk through the results that Andy highlighted in further detail, discuss our thoughts on the quarter, and our outlook for the rest of the year, then we'll open the call to your questions. For the second quarter, our total revenue decreased 15.9% versus Q2 2016, driven by a 20.5% or $17 million decrease in national advertising revenue and a 7.1% or $1.8 million decrease in local and regional advertising revenue, partially offset by a 7% or $500,000 increase in beverage revenue. Total Q2 adjusted OIBDA decreased 28.8% or $17.1 million and adjusted OIBDA margin decreased to 43.6% from 51.5% in Q2 2016. For the first six months of 2017, total revenue decreased 11.8% or $22.6 million, adjusted OIBDA decreased $23.5 million or 28.2%, and adjusted OIBDA margin decreased to 35.4% from 43.5% in the first six months of 2016. The Q2 and year-to-date declines are primarily driven by decreases in higher-margin national advertising revenue as a result of a soft scatter market, as mentioned on last quarter's call, and the timing of content partner and upfront allocation. Further, our Q2 performance was impacted by non-cash impairment charges of $1.7 million in Q2 related to investments obtained in prior years for advertising services. Year-to-date non-cash impairment charge totaled $3.1 million. Recall, we recorded $1.4 million for the impairment of similar investments in Q1 and a $700,000 impairment in Q2 of 2016. As Andy mentioned earlier, we signed a lease of new office space for our headquarters here in Denver. Our current lease expires in 2021, but we had the option for early termination on June 30, 2018 if we provided notice by June 30, 2017 and paid $1.8 million penalty as an early termination fee. The lease we signed with the new landlord required them to reimburse us…

At this time, we will be conducting a question-and-answer session. Our first question is from Eric Wold of B. Riley. Please proceed with your question. Eric Wold - B. Riley & Co. LLC: Thank you. Good afternoon, guys. Couple of questions, I guess, one, just a clarification, and then a few around the launch of Noovie. I guess, one, when you talk about your Q3 pacing ahead of last year, are you seeing that for both national as well as regional, local? And if so, to the same kind of general degree?

I have to check that.

Eric, I'd say yes. Both of them are exceeding expectations from last – or not expectations, exceeding 2016's pacing. Eric Wold - B. Riley & Co. LLC: Okay. And then on Noovie, I know it's not launching until kind of end the Q3, early Q4, but I'm assuming you've been talking to advertisers, possibly even selling some of that digital inventory on both, the Noovie app that will launch as well as on the Fantasy Movie League. If so, are you seeing any demand for digital, those two digital offerings as incremental to kind of the in-theater spending that someone had committed to, or is there an opportunity for somebody to kind of move commitments from one to the other, so net-net it doesn't add? And then if you're – and as you talk to advertisers, would you allow someone to advertise solely on just those digital properties, or does that kind have to be a packaged deal that if you want to be on that, you've got to be in theater as well?

Firstly, thanks for both questions, Eric. I think just to be very clear on that timing, a new Noovie pre-show will launch on the 29 of September. The Noovie digital web presence and app will launch either at the end of this year or beginning of next. So, the digital piece will lag the pre-show piece, which I have no concerns of it, because right now – so it starts as kind of rebranding of FirstLook with some of new content segments as well with the new sort of pre-show lineup. And then obviously, once we have the app up and running, that's when we'll start using inventory to drive people to the digital presence. And candidly, we typically have more inventory available to do that in the first quarter, anyway, whereas Q4 tends to be pretty busy. So, that's kind of the way that works. From a Fantasy Movie League point of view, well, let's sort of blend the general with the specific. On the specific side, if you look at FML, FML on its web presence does accept advertising today, but not on its app. So right now, there's no advertising available on its app. So, we have some product development to do to make sure we have ad units available on FML. But we will have the same types of ad units available on FML that we do on the Noovie digital app and web presence when it launches. So, from a revenue point of view, we're thinking much more going into 2018 rather than getting any meaningful additional revenue in 2017. Now, with all that said, we've had a number of conversations with advertisers about whether it's everything from FML to Noovie digital, to the Noovie pre-show, and there's general excitement that this is nothing like things that we've done before and we're hearing a lot of good excitement from large national advertisers. So, we're certainly encouraged by that. I think when it comes to whether or not we would sell ad inventory, digital ad inventory separately, absolutely, we would. However, it's worth nothing that the vast majority of cinema accelerated contracts we sell tend to be sold alongside a pre-show buy. And that's not because we mandate it. It's just because that's the way that our advertisers tend to like to buy it. So, we would anticipate that most of the ad sales for the medium term on the digital side will get bundled with pre-show, but certainly not mandated. Eric Wold - B. Riley & Co. LLC: Perfect. Thank you. I appreciate it.

You're welcome. Thank you, Eric.

Our next question is from Alexia Quadrani of JPMorgan. Please proceed with your question.

Hi. Thank you. Julia Yue on for Alexia. Hoping to get a little more clarity on the ad market, specifically in Q3, how much visibility or confidence you have into the ad growth guidance that you gave at this point? I guess, is there any risk the advertisers could shift out their ad spent? And then you mentioned the scatter market is rebounding. What do you think is causing that? Are you seeing that coming from any specific categories or industries?

So, we have – thank you, Julia. We have a lot of money that's going to happen in the back half of the year that was booked through upfront and content partner commitments, so that's a big part of it, right? We have – time in the year is running out and that advertising has to get booked, so that's certainly part of it. I think we're also seeing some excitement on, in particular, the fourth quarter film slate. But I think in general, it certainly won't be our intention and we have no indication that advertisers are going to be looking to move advertising out of Q3. I'm sure it's not lost on you that the estimates from exhibitors are that attendance is going to be weak in the Q3. So, obviously, we're doing the very best we can to make sure that we book all the slots in Q3. So, we don't have to push a large make-good into Q4, but that is certainly work in progress. In terms of why scatter is stronger, whether it is – I've heard different theories. One is that advertisers are, one way or another, getting comfort that – I think when the new administration came in, there was a bit of wait-and-see attitude. And now, people have waited and see for six months, and whether they like it or not, they need to get on with business, and I think that's partly an influence. I think also the ratings declines that you're seeing in many of the broadcast and cable TV guys mean that a lot of their inventory is getting sucked up with make-goods, which in turn means that they don't have inventory available for scatter, whereas obviously we do, so I think that's an influence as well. Anything you'd add to that, Katie?

No. I think that's okay, good.

Got it. And then I was wondering if you could also talk a little bit about how you think the advertisers are thinking about cinema this year now that you're through the upfront process. In particular, I know in the past you've talked about theaters converting to recliners with reserved seating, and it wasn't really affecting your business much based on the Nielsen data. I was wondering. Are you seeing that become a greater part of the conversation with advertisers this year?

It is certainly part of the conversation. I think in general, it's a larger part of the analyst conversation, in all honesty.

Okay.

But it's certainly a part of the conversation. People want to know what the audience build looks like and they want to understand the cinema. At the same time, with the exception of the May through September time period is obviously tough this year from an attendance point of view. But if you look, in general attendance I think has been very stable in cinema, and so we very much have that going for us. Certainly, all of the evidence that we gather from exhibitors, which I know you look at as well, would suggest that recliner seats help drive attendance. And notwithstanding the fact that we rely on the film slate as to the exhibitors, having those recliners drive up interest, excitement, and the experience in the theater we think is a good thing. So overall, we're bullish on the sector and we believe that as we hit Q4, attendance we're told will come roaring back.

Great, thank you very much.

Thanks.

Our next question is from Eric Handler of MKM Partners. Please proceed with your question.

Thanks for taking my question. I'm just curious about 3Q and the strength that you're seeing. Last year was a bit of an abnormal 3Q because of the impact of the Olympics. So if you look at normalized levels or maybe let's go back two years, how is pacing for 3Q looking relative to historical levels?

Eric, we're still pacing better at this point in time of the year than we have been in the last couple of years. So we're pretty confident that Q3 is going to shake out. We look back three or four years when we do our quarter, or our monthly – our weekly, sorry, projections, and we're actually better than we have been in the last couple years so far.

Okay, great. And then as a follow-up, I'm just curious. Are you seeing any trends with any new categories or who's coming back or what's soft right now? Where are you seeing the bulk of your dollars coming from?

Again, it's a good question. So I was reading in MediaVillage only last week that the two most challenged categories of the year to date have been entertainment and auto, both of which are down in the overall spending in the low double digits. Those happen to be our two largest categories. So obviously, it doesn't help us when entertainment and auto are not spending. And at the other end of the spectrum, the most aggressive spending is coming from pharma, and we frankly just don't really participate in pharma. So the category-by category hasn't really helped us. Now with that said, we are certainly making progress in some categories. In other categories, we're not doing as well as we'd like. But I can assure you we're strong believers, and I give you this is an example, that we should be doing better with QSR. QSR is a huge category. They're interested in selling to millennials. We have a huge number of millennials who come in and out of our theaters, and it's our belief that we should be doing better with QSR, and we are showing some progress there. I'd also like to see us do better with telcos and with insurance, and the sales team is very much focused up against those categories. So sometimes, category strength works for you, sometimes it works against you. But one thing's for sure, whether the winds are for or against you, it's time to work hard, and that's what the team is doing.

Great, thank you very much.

Absolutely.

Our next question is from Mike Hickey of the Benchmark Company. Please proceed with your question.

Hey, Andy and Katie. Thanks for taking my questions. I appreciate it.

Hey, Mike.

I guess I'm curious on the strength that you see in local sales in Q3. It seems like that's a category that is a little bit more impacted by perception of how strong or lack of strength that we see in the box office. And so I think it's pretty clear the box office is exceedingly weak. We certainly saw that over this last weekend and quarter to date. So I'm curious why strength in local when the box office is sort of plunging here?

That's a fair question, Mike. And one that's a little tough to put our finger on, because our local sales are doing just fine in Q3. Obviously, they're a bit soft in the first half of the year, but doing fine in Q3. So, maybe there's some macroeconomic indicators there. But one thing is for sure, I think, big titles tend to really help, to your point, and Star Wars we're very optimistic about for our regional team in particular. So I can't shed a lot more light on it than that other than the fact that I think we have a strong regional team led by a strong leader, and those guys have their nose to the grindstone making good things happen. And of course, they're also very commissioned based. And so, that is a key driver of their effort, but it's a motivated and very experienced team and we're proud of the efforts they're putting in.

And we're also seeing our regional and local teams doing a great job in packaging and bundling with digital online mobile offerings as well. So, they're doing really well on being aggressive in that front too.

Okay, thank you. I guess the next question is on national for Q3. If we look back last year, you're utilized at close to 133% and I think it's sort capped at 136%, and your CPM was up, I think, a couple percent. So, curious when we think about the likelihood of impression being a lot lower this year – or this quarter, excuse me, given the weakness that we're seeing in attendance trends with what look to be a pretty tough comp, I guess, when you look at utilization and CPM prior year Q3. How we think about, I guess, the drivers of growth in national in Q3? Thank you.

Mike, our cap kind of the way we look at the cap of utilization is about 145%, because we have flexibility to extend the show as we need to. So that – yes, it may be a tougher comp this year depending on where the slate comes out. But I think when we look at content partners and scatter coming back, those are higher-dollar CPMs than what we had earlier in this year when we saw scatter pretty weak, that's usually a higher dollar CPM placement than an upfront would be, for example. So, as we see the content partner and scatter market placing ads in the back half, we should see that CPM increase as well.

Okay. Good. Thank you. Last question, can you give us any visibility on what you're modeling for? What you're expecting for a maybe per-screen attendance trends in Q3 and then Q4? Thank you.

I think what we're hearing from the exhibitors, I think they're talking about down 15% in Q3. And again, as Andy spoke to earlier, we're going to watch that utilization and make sure that we don't end up with a large make-good. So, we're managing the inventory within the quarter to make sure that we're giving the impressions that have been sold throughout the quarter.

All right. Thanks, guys. Good luck.

Thank you, Mike.

Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to turn the call back to Andy England for closing remarks.

Thank you, Omar. Well, just to wrap up, obviously, a very challenging second quarter, a challenging first half of the year for National CineMedia, but we feel very good about where we are going forward. We feel much better about the second half of the year as we – than we did about the first, driven by content partners, driven by a strengthening scatter market. So despite some of the challenges for exhibitioner having in Q3, we feel good about our ability to deliver against that guidance. That's partly driven, of course, by the work we're doing against our strategy. We're convinced we're doing the right things in terms of fighting to bring on other affiliates, making sure that we have the best digital offerings available, and et cetera. So, improved things to come in our view and we appreciate you taking the time to spend time on this call with us. Thank you very much.

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