National CineMedia, Inc. (NCMI) Q4 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the National CineMedia Inc. Full Year and Fourth 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. [Operator Instructions] 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. Please go ahead.

Thank you, Hector and good afternoon, everyone. 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 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. 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. 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 fourth quarter and full year 2017 earnings call. During this call, I will spend a few minutes highlighting the company's fourth quarter and full year 2017 results and 2018 strategy, and Katie will then provide a more detailed discussion of our financial performance and discuss our guidance for 2018. And then, as always, we will open the line for questions. We reported a $140.7 million in total revenue for the fourth quarter ending December 28, 2017, the second highest Q4 ever. Demand for our advertising continues to be there and it was certainly there in Q4. However, we had our highest quarter and may could ever as the December audience fell short of expectations with overall attendance down 0.6% year-over-year. As a result, our 2017 Q4 total revenue of $140.7 million decreased 1.3% from $142.5 million in the comparable quarter last year, which was our highest ever. Adjusted OIBDA decreased 4.4% to $82.6 million for the fourth quarter of 2017 from $86.4 million for the fourth quarter of 2016. On the national side, our sales team finished out the year strong, with revenue up 5.2% to $101.4 million versus $96.4 million in Q4 of 2016, driven by strong scatter market, CPM growth of 4.5% and other revenue partially offset by a 3.3% decrease in impressions sold. Still our local and regional sales team had a difficult Q4 with local and regional revenue down 18.3% to $32.1 million from $39.3 million in the fourth quarter of last year. The $7.2 million decrease was primarily due to a significant decline in larger contracts over $100,000. We did however continue to see increasing benefits from our strategy of integrating into the Mediaocean and STRATA planning and buying systems. Beginning in November NCM local market audience data from Nielsen's monthly cinema audience reports became available in two of the most popular used local spot market buying platforms in the U.S. media landscape, Mediaocean's Spectra DS and OX systems, allowing Spot TV buys to view NCMs local audience ratings alongside those of local TV stations in 97 DMAs to make it even easier for the buyers to plan and buy our inventory. On the digital front, our Q4 digital and other revenue increased 37.9% over prior year. We are continuing to see the kind of growth that validates our commitment to investing in our newbie digital product ecosystem, although it remains a very small part of our overall revenue. 2017 was a challenging year for NCM as the advertising industry continues to evolve in a dynamic fashion, many traditional advertising sales organizations have experienced the impact of increased ad spend volatility. As a result, while the first half of the year was weaker than expected, it was followed by a strong recovery in the second half that demonstrated the resilience of our network, sales team and product offerings. Despite the near record performance in the third and fourth quarters, it was not quite enough to turn the year around. Total revenue for the year decreased 4.8% to $426.1 million from $447.6 million for the comparable period last year. Adjusted OIBDA decreased 11.1% to $205.1 million for the full year of 2017 from $230.7 million for the full year of 2016. On the national side, 2017 was really a tale of two hearts with a tough first half of the year down 17.1% followed by a strong recovery in the second half, which was up 4% over 2016. Despite this rally however, national revenue for the full year 2017 was down 5% to $296.3 million from $311.9 million in 2016, excluding beverage. Full year 2017 local and regional revenue was down 6.6% to $99.9 million versus $107 million in 2016 impacted in part by the loss of several large appetizers, the adjustment of AMC theaters sold or reported as part of the DOJ consent decree and the hurricanes that impacted so many of our local advertisers in the South. In an effort to streamline our operations and make us more efficient, we restructured the team in Q4 to reflect our leaner and better-defined sales organization with responsibilities against specific revenue types; local sales, local digital sales and regional sales, which is where STRATA Mediaocean and National Spot sales intersect with larger, multi-market media buys. I'm confident that we're entering 2018 better prepared to succeed in the changing local and regional marketplace. Our expanded focus on digital continue to be a bright spot throughout 2017, as we grow our digital revenue by over 30% year-over-year, while it is still an emerging portion of our business, we are actively engaged in developing exciting new digital products and experiences that will further [envision] in this area. Despite the headwinds, we made progress in 2017 in many key areas to better position us to deliver on our long-term strategy. First, we continue to develop and enhance our core platform with the launch of Noovie, NCM's new pre-show premium video platform and emerging digital ecosystem designed to lead movie audiences to what's next in entertaining content, purposeful commerce and interactive gaming. With the Walt Disney studios as our premier studio partner through June of 2018, Noovie is giving fans a reason to get to the theater early for exclusive behind-the-scenes looks at films from Disney, Pixar, Marvel Studios and Lucasfilm including Black Panther, A Wrinkle in Time, Avengers: Infinity War, Solo: A Star Wars Story and the Incredibles 2 and I'm happy to say it's working. According to NCMs behind-the-scenes proprietary research panel of over 5,000 hard-core movie fans, they're enjoying NCM's new preshow and are looking forward to more great things to come. 65% say they have arrived early to watch Noovie and they think it's informative rather than fun with Noovie backlog content scoring highest likability ratings, thanks to exciting looks at films like Coco, Star Wars: The Last Jedi and Black Panther. I'm excited about our progress with Noovie Digital which is designed to be complementary and to augment our core on-screen business by creating new integrated marketing capabilities, digital inventory and first party data that we believe will be key to our future growth. In 2017 with acquired Fantasy Movie League as the first part of our gaming plan and I'm pleased and encouraged by the traction we've seen to date and adding new users by leveraging the power of our remnant inventory. In Q4 we began testing Noovie Arcade, the first companion app to NCMs Noovie preshow that will allow audiences to play augmented reality games on the big screen and beyond. We just introduced Noovie Arcade to our advertising clients last month to generate sponsorship excitement, with a planned consumer beta launch nationwide in the first half of 2018; according to our research, 72% of our millennial audiences excited for Noovie arcade. We also expect to launch Noovie.com in Q2 of this year, our mobile and desktop website that will promote discovery of the movies, enable commerce and encourage the download of apps such as Fantasy Movie League and Noovie Arcade. The big screen is being used as the trailer for the digital experience, driving audiences from our Noovie preshow to our digital properties and back again. There is a real synergy between screens of all sizes when it comes to reaching movie audiences and our goal is to create both a compelling consumer experience for movie fans and a great vehicle for brands to reach them and to continue to reach even larger audiences, we also grew our national footprint 1.5% in 2017 to 20,850 screens as of December 28, 2017, welcoming Bow Tie Cinemas. Synergy Entertainment, Main Street Theaters and Golden Ticket Cinemas to name a few of our new affiliates added this past year. We also welcome 37 new national customers in 2017 from top categories including autos, telecom, Internet, apparel and prepared food to name a few and we continue to make inroads in new categories such as QSR and pharmaceutical, where historically we've not had a strong presence. The strong second half finished 2017 demonstrates that the future cinema advertising is bright. Based on the demand from advertisers in Q3 and Q4, we believe there is no other medium that can match the reach we have with Millennial and Gen Z audiences. While the success of movie slates will ebb and flow, Hollywood is producing the kind of content that is relevant to and will attract today's 12 to 34-year-olds and we expect advertisers to continue to invest in season that captive audience for years to come. Moving forward into 2018 the Board authorized a regular quarterly dividend of $0.17 a share compared to the prior quarterly dividend of $0.22. This approach of lower distributions to all members of NCM LLC aligns with our strategic plans for ongoing reinvestment in our network and product offerings and provides greater financial flexibility while maintaining a very strong tax-deferred dividend yield for investors. As of today, that tax-deferred yield will be 10% based on our closing stock price of $6.81. Our long-term goal remains to deliver a total shareholder return to investors beyond dividends. I believe that we have put the right leadership in place to ensure our future growth and success. We spent the last year aligning our end-to-end operations, restructuring our local and regional teams, expanding our digital team and welcoming our new Chief Revenue Officer Scott Felenstein, who has hit the ground running and brought strong leadership and direction to the sales team. And just last month, we welcomed our New General Counsel, Sarah Kinnick Hilty, to National CineMedia. Sarah is a great fit for NCM at this point in our company's evolution. I'd like to thank our NCM employees, our Board and our investors for their continued support over the past year and I look forward to a bigger and better future together in 2018. In fact, 2018 is off to a strong start with all indicators pointing to healthy top and bottom-line growth in Q1. Keep in mind we have a much easier comp in the first half of the year compared to the back half, but we are encouraged by what we see. So, with that, I will now turn the call over to Katie to give you more details about our Q4 and full year 2017 operating performance as well as color surrounding our 2018 guidance estimates. Katie?

Thanks Andy. I'll walk through the results that Andy highlighted in further detail, discuss our results for the quarter and full year and then provide our thoughts around the outlook for 2018. Then we'll open the call to your question. To assist in your evaluation of our results, for the first time, we are providing supplemental materials on our website in the Investor Relations section, which includes most of the financial information and metrics I will refer to today for you to reference after our call. For the fourth quarter, our total revenue decreased 1.3% to $140.7 million versus Q4 2016, driven by an 18.3% or $7.2 million decrease in local and regional advertising revenue partially offset by 5.2% or $5 million increase in national advertising revenue and a 5.9% or $400,000 increase in beverage revenue. For the full-year, our total revenue decreased 4.8% to $426.1 million versus 2016, driven by a 5% decrease in national ad revenue and a 6.6% decrease in local and regional revenue, partially offset by a 4.2% increase in beverage revenue. With the higher Q4 national advertising revenue growth, our Q4 advertising revenue mix shifted to 72% national, 23% local and regional and 5% beverage versus 68%, 27% and 5% respectively for Q4 2016 and our full-year advertising revenue mix shifted to 70% national, 23% local and regional and 7% beverage versus 70%, 24% and 6% respectively for fiscal year 2016. For the fourth quarter, national ad revenue was driven by a 4.5% increase in CPMs and an increase in other revenue partially offset by a 3.3% decrease in impressions sold versus Q4 2016. This increase in CPMs was primarily due to higher CPMs and upfront commitments and in the scatter market. The decrease in impressions sold was due to 0.6% decrease in attendance with inventory utilization increasing 132.3% from 136% in Q4 last year. For the full year, national ad revenue was $296.3 million, a decrease of $15.6 million versus 2016 driven by a 4.2% decrease in CPMs and a 4.7% decrease in impressions sold partially offset by other revenue. The decrease in CPMs was driven by lower CPMs from upfront and content partner allocations, partially offset by strength in the scatter market, which had CPMs up 7.8% for the year rebounding from a weak first half of the year. The decrease in impressions sold is the result of the 4.8% decrease in network attendance. And lastly our quarter end makegood balance was a record $5.5 million versus $4.6 million a year ago. Q4 local and regional advertising revenue was $32.1 million, a decrease of $7.2 million or 18.3% from Q4 2016 and was driven by an 8.8% decrease in the total number of contracts and a 12.8% decrease in average contract value. As Andy noted, local and regional results were impacted by the loss of several large advertisers, the loss of AMC theaters sold or reported as part of the DOJ decree and hurricanes in Texas and Florida during the quarter impacting our local clients in those areas. For the full-year our local and regional ad revenue was $99.9 million, a decrease of $7.1 million or 6.6% versus 2016 and was driven by 6.2% decrease in the total number of contract and a 2.8% decrease in average contract value in 2017 compared to 2016. Q4 beverage revenue increased 5.9% or $400,000 to $7.2 million versus Q4 2016 driven by a 10% increase in beverage CPMs partially offset by 3.5% decrease in founding member attendance versus a year ago. For the full year, beverage revenue increased 4.2% or $1.2 million to $29.9 million versus the 2016 driven by 10% increase in beverage CPMs, partially offset by 6.9% decrease in founding member attendance. Total Q4 adjusted OIBDA was $82.6 million a decrease of $3.8 million or 4.4% on an adjusted OIBDA margin of 58.7% versus a record 60.6% in Q4 2016. This Q4 margin percentage decrease was primarily driven by contractual increases in theater access fees of 8%, higher affiliate related expense as we continue to add affiliate partners to our system in 2017 and investments in our digital platform. Full year adjusted OIBDA or $205.1 million was $25.6 million or 11.1% decrease from $230.7 million in 2016 on an adjusted OIBDA margin of 48.1% versus 51.5% in 2016. Impacting full year results includes $3.1 million of impairment charges, $4.7 million for contractual increases in theater access fees and $3.4 million for severance and related costs for staff reductions in 2017. We recorded $9.3 million of integration payments and other income with theater payments from Cinemark and AMC associated with Rave Theaters and Carmike theaters versus $1.1 million for Q4 2016. For the full-year, we reported $20.9 million of these integration payments versus $2.6 million in 2016. You should note that these payments are added to adjusted OIBDA for debt compliance and NCM LLC cash distribution purposes but are not included in reported revenue or adjusted OIBDA as they are recorded as reductions to net intangible assets on the balance sheet. In the earnings press release we filed today, you will see we mentioned the correction of certain amounts previously reported for 2016 on the balance sheet, non-operating income, tax expense, net income and EPS. These corrections relate to prior period error detected in our tax accounting that date all the way back to the IPO in 2007. The errors do not impact any revenue, operating income or adjusted OIBDA previously reported. All previous tax receivable agreement payments and the tax returns have not been impacted and it did not impact any available cash distributions. We will be filing our 10K tomorrow for more details of these corrections as disclosed. Now let's look briefly at diluted earnings per share for which GAAP numbers include the impact of tax reform changes in Q4 in the full-year of 2017. For the fourth quarter, we reported GAAP diluted loss per share of $0.07 versus EPS of $0.22 as corrected into Q4 2016. Adjusted for CEO transition costs, the impact of your tax reform in 2017 and the reverse for reserve for uncertain tax positions in 2017 and 2016, the diluted EPS for Q4 2017 would have been $0.27 or increase of 23% in Q4 2016 as corrected would have been $0.22 per diluted share. For the full the year, we reported GAAP diluted EPS of $0.02 versus $0.34 in 2016 as corrected for this tax accounting error. Excluding CEO transition costs, certain impacts of your tax reform in 2017, the reversal of reserve for uncertain tax positions, since ’17 and ’16 and certain other non-recurring items noted in our earnings release, diluted EPS for 2017 would have been $.40 or an increase of 11% versus $0.36 in 2016. Our capital expenditure were $4.3 million in Q4 and $12.3 million for the full year versus $13.3 million for the full year 2016 or approximately 3% of total revenue in both years. The decrease in capital expenditures is driven primarily by lower investments in sales automation and other management systems [1.24]. Moving on to our balance sheet, our total debt outstanding at NCM LLC as of the end of 2017 was $932 million versus $935 million at the end of 2016, including $12 million outstanding our revolving credit facility. Our average interest rate on all debt was approximately 5.4% at the end of 2017, including our $270 million floating rate term loan bank debt and revolving credit facility that had an average rate of approximately 5.5%. Excluding revolver balances, 70% of our total debt outstanding at the end of 2017 had a fixed interest rate. Our consolidated cash and investment balances as of Q4, 2017 increased by approximately $9.6 million because of normal seasonality in the business to $59.5 million from the end of Q3, 2017 with $54.9 million of this balance at NCM Inc. As Andy mentioned, the Board of Directors authorized the company's regular cash dividend of $0.17 per common share for the quarter. The dividend will be paid on March 29, 2018 to stockholders of record on March 22, 2018. The dividend level was determined based on our plan to invest in the business over the next few years, while providing financial flexibility. We intend to pay regular quarterly dividend for the foreseeable future at the discretion of the Board of Directors consistent with our intention to distribute overtime, a substantial portion of our free cash flow. The declaration, payment, timing and amount of any future dividends will be at the sole discretion of the Board of Directors we’ll consider general economic and advertising market business, conditions the company's financial condition, available cash, current and anticipated cash needs and any other factors that the Board of Directors considers relevant. Our net senior secured leverage at NCM LLC as of the end of Q4, 2017 was approximately 3.2 times trailing four quarter adjusted OIBDA which is well below our senior secured leverage maintenance covenant of 6.5 times. You should also note that while we have no NCM LLC total leverage covenant, our total leverage at NCM LLC net of NCM LLC cash balances was approximately 4.4 times at the end of Q4 2017 versus 4.1 times at the end of 2016. Now turning to our guidance, for the full year 2018 total revenues is expected to be flat to up 4.5% versus 2017 or in the range of $425 million to $445 million and adjusted OIBDA is expected to be down 2.5% to up 4.8% percent or in the range of $200 million to $215 million. Looking deeper into our adjusted OIBDA guidance for 2018 there are a few factors to consider, a continued investment in our Noovie digital ecosystem, includes into incremental investments of $7 to $8 million in operating expense. We expect these investments to generate incremental revenue for the second half of 2018 and accelerating into ‘19 and beyond. This includes launching Noovie.com, Fantasy Movie League 2.0 and the Beta of our Noovie ARcade app in the first half of 2018 among other enhancements. The contractual increase of 5% percent in theater access fees for our digital screen fees is expected to impact adjusted to OIBDA by approximately $2.7 in 2018. And finally, this spring we're excited to be moving into our new Denver headquarters that is modern, close to public transportation with a smaller footprint and more open floor plan than our current office, that will enable better collaboration and help us reward and retain talent. As part of this move, we expect to incur approximately $1.7 million of onetime expense. While these additional costs will weigh on 2018 adjusted OIBDA, we believe these are the right actions to take to grow the business and reward and retain employees over the long term. Offsetting some of these increased costs, our cost reductions that we have been diligently implementing in the business such as streamlining our operations and focusing resources on our strategy, as an example in April of 2016 we had 641 full time employees. As we enter 2018, we have 572 full time employees and we continue to look for ways to take cost out of the business and align our resources for our strategy. In addition, the following are other assumptions that were made in preparing the projections that underlie our 2018 guidance. With respect to the recent Tax Reform Legislation passed in December, we expect NCM Inc. to benefit by an approximate 35% reduction of our TRA obligations to our founding members for the next several years. Based on our 2017 tax obligation, this would have saved NCMI approximately $8 to $10 million annually. We project beverage CPM to increase approximately 1% of flight attendants and we expect to receive $21 million to $23 million of integration payments and other income with theater payments from Cinemark and AMC associated with the Rave Theatres and Carmike Theaters. We expect 2018 CapEx to be in the $19 million to $21 million range or approximately 4.5% of revenue. The increase in CapEx over 2017 is related to approximately $8 million to $9 million that will be used to invest in our Noovie digital platform and approximately $2 million related to our headquarter move, which will be offset by $1.1 million of tenant improvement allowances paid by the landlord. This move costs includes the relocation of most of our technology data center to a secured first site location to allow us to take advantage of the security and flexibility and outsource location provides in a modern technology world. Excluding the digital capital investment and move related costs, our capital expenditures would be $9 million to $10 million or 2.5% of revenue, which is slightly below our historical level of investment. We expect 2018 interest on borrowing to increase by $2 million to $54 million from higher interest rates, which include approximately $51 million of cash interest and $3 million related to non-cash amortization of deferred loan cost. In addition to the available cash distributed and NCMI from NCM LLC and consistent with prior years, we project an approximately $5 million to be paid to NCM Inc. from NCM LLC for management fees, plus about a $1 million of interest earned on the NCM Inc, cash balances. We've had many requests from investors to outline what our available cash calculation might look like for 2018 based on the estimates we've outlined above. So, let me walk you through the elements of that calculation. Starting with our adjusted OIBDA guidance of $200 million to $250 million, you'll add the following as a bill to available cash. Integration payments of $21 million to $23 million, cash payments from our Fathom note receivable of approximately $4.5 million and as a reduction to available cash, you will subtract the following. Cash interest expense of approximately $51 million. Capital expenditures of $19 million to $21 million, net of $1.1 million to be reimbursed for tenant improving allowances and stock comp for Inc. employees of approximately $6 million to $8 million. These are the components that will allow you to arrive at a projection for available cash at NCM LLC in 2018, which is then paid to the four members of the partnership quarterly, based on their ownership percentage at the end of each quarter. Now this concludes our prepared remarks and I'll now open the lineup for questions. Hector?

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instruction] Our first question comes from the line of Eric Wold with B. Riley & Company. Please proceed with your question.

Thank you. And good afternoon. Couple of questions, I guess, one. I appreciate all the details you gave around the inputs and the guidance and some of the other factors playing into guidance as well as the cash flow outlook. But I guess, I'm not looking for a specific percentage that you used to give. But maybe as you look into 2018 you are coming up with this guidance, maybe give us some sense of some of the two main drivers of the inputs, in terms of pricing power, utilization etcetera. And kind of, how is that level of kind of visibility stand now into this year’s slate versus where you were at the same point last year?

I will ask Katie to add, but good afternoon, Eric. This is Andy. I think the way I would think about it is candidly as you know, we had a very difficult first half of last year and so the fundamental way I look at it is, our biggest opportunity is performance in the first half of the year because of the weakness in the first half of last year. So that is certainly part of it, but we've certainly constructed the plan based on advertisers joining us, a level of churn that we're used to and assumptions around CPM and utilization, and content partnerships etcetera. So, it's obviously very much a bottom up plan that's also takes account of macro factors like the anticipated impact of the slate etcetera.

And further Eric, just to comment on feedback on what Andy just said, remember last year our scatter was way down in the first half and so as that we think that'll rebound in 2018 that will bring CPMs up.

Okay. And then secondly, the $78 million being spent this year on some of the new digital initiatives in the Noovie platform, can you give us -- I think you laid out a few of the projects, can you give us a sense maybe of where you see the priority in terms of the ones most likely to drive traffic and engagement? And when do you think those will start delivering kind of strong first-hand data in terms of movie goers are actually in their seats versus maybe some of the qualitative data those are out there previously?

Let me just clarify to make sure it was clear to everybody on the call its, $7 million to $8 million, between $7 million and $8 million in OpEx that would impact from digital. But let me just clarify that because it sounded like $78 million that is..

No, that sounded like...

Okay perfect.

I think we have a number of initiatives that are going to be really important here. Obviously, our investments particularly of inventory behind FML, is going to be really important. And we are excited in terms of the growth in registered users for example on the FML side. I think Noovie ARcade is exciting to us because candidly it has the opportunity not only to encourage people to get into the auditorium early to play it, but advertisers are really enthused by it. There was one particular auto manufacturer who our sales team met with last week and gave a presentation to that was -- that had their CMO really excited about the possibility of a driving game as part of the Noovie ARcade for example. And obviously what happens there is that people download the Noovie ARcade app in order to play it and that enables us to capture all sorts of non-PII data about them that fuels us and our accelerate product as well as throwing off digital ad inventory. So when you add the introduction of Noovie.com in the second quarter of this year, obviously a key reason we rename that preshow Noovie was such that we could build a digital ecosystem that would also be named Noovie such that we could -- it could be both synergistic from a trademark point of view and in terms of driving people back with some force. So, all of those products are being created with the intent of driving data on the one hand and digital ad inventory on the other, both of which will fuel our cinema accelerator product which is at the heart of our digital efforts.

Perfect. And maybe just one final question if I can to sure I understand. So, on the new digital ad inventory they will come out with some of the apps and the digital ARcade for the non-founding member agreements, is the advertising revenue share the same for digital ad on your app that's used within the theater versus ones on the screen or is there a different calculation there and exclusion any?

No if you look at digital advertising is essentially out. We're creating it and we keep all the revenue for digital ad inventory that's created. So that's not an issue.

So even if it's used within the auditorium during the preshow?

Yes.

Perfect. Thank you very much.

You're welcome. Thank you, Eric.

Our next question comes from the line of Alexia Quadrani with JPMorgan. Please proceed with your question.

Thank you. Just sort of a bigger picture question, there's been a lot of noise in the exhibition industry over the last couple quarters around concerns over attendance and general box office staff net. And while, I don't think the success of the box always impact cinema advertising. And I know you've said you were encouraged by what you're seeing and obviously the comps are a lot easier. But I guess, I'm curious to hear your thoughts, if we compare this year to last year where settlement was been more positive on the outlook of the box office to this year where people are a bit more nervous about it. I guess does that have an impact at all on sort of the - your general outlook or do you think it's really more about the advertising trends and allocations rather than sort of box office perceptions?

That's a great question, Alexia. Let me let me attack that from a few different angles. I think firstly, this is my third year at NCM those who've been around longer tell me that the slate comes and goes and optimism and pessimism about the slate come and go you know offset by probably six to 12 months. So, I would tell you in general our approach to it is that, we obviously sell the big tent pole pictures that are coming in the excitement of the slate coming. But when we come to planning, we essentially take analyst calls and average them and run with the attendance expectations of analyst. So, we don't play -- and by the way, we also look at the expectations of our founder circuits in calculation what we think the attendants are going to be so. So, we don't play a role in estimating at all what we personally think any movie or any slate is going to do? What we do is, we gauge founder circuits and the industry's view and an average it and use that as a planning number. And so, when you look at the optimism of last year and the pessimism this year I find it kind of ironic right, because people were optimistic going to last year and it was a very difficult slate I think analysts seems somewhat pessimistic about the industry when you talk to exhibition, exhibition is optimistic about 2018 and thrilled about 2019. So, we can call it either way and that's why we tend to listen to the experts or the analysts of the industry and average that all and use that for planning purposes. Now with all that said, our business is more driven by demand than it is by supply, underlying supply matters obviously, there needs to be some good underlying supply. But it's very difficult to draw any kind of close correlation between supply and demand for our services. Our products are more in demand when there are big new auto launches or big new entertainment launches or big things going on in the core categories that drive our business. However, when something like Black Panther happens I think that helps you. I think Black Panthers certainly opens up the minds of media planners and buyers and advertisers to the possibilities of our media. And so, I certainly don't discount it. I just think it's really hard to correlate.

Okay. That’s very helpful. Thank you.

Welcome.

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

Yes. Thanks for the question. Few things for you guys, first, Katie one of the reasons last year you guys have talked about the first half of the year being soft is your content partners were more heavily weighted to spending in the back half of the year. So, I wonder how that is - it sounds like there are more balance this year than last year? And then secondly with that, how do you how do you expect national versus local in terms of relative performance?

Let me answer the first question on the spending for the back half. I think, we'll still see some heavy or waiting for the back half of the year again. So, when you think about Q3 and Q4 versus the first half, we'll probably see a heavier waiting there as well. What really drive down first half with this scatter market as well, so we're hopeful that that we don't see that again. And then the national and local, with the reorganization of our sales team we think that there's a bright spot there coming in at us in 2018 and some of the headwinds that we experienced last year with the hurricanes and AMC's loss of some of those theatres, year over year should play in our favor this year.

That's specifically local and religion, that's been reorganized.

Great. And then looking at your 2018 guidance, you got about $20 million gap from the low end to the high end of your guidance for revenue and then a $15 million gap between the high end and low end for adjusted OIBDA. I'm just curious what are the factors that you would sort of look at that could get you plus or minus versus the low end versus the high end. Is it all just demand for the core business? Is it part of a higher than the better than expected ramp for the new digital products? How do you see that?

I think the way we're looking at it, the range is consistent with what we had last year. And this business lives and breathes by very large contracts that can come in or out of any particular quarter. So that's why we start giving quarterly guidance because it's very difficult to predict that. And so, the large range in the guidance really is to help us manage through that visibility that we get every quarter or lack thereof as the case maybe for some of these large contracts. That's really the reason for the wide range of guidance.

All right. Thank you very much.

Thank you, Eric.

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

Thanks. I would like to go back to the very beginning of your comments Andy, where you were talking about the high make-goods that you wound up having to take a hit in December I think. And assume they developed earlier in the year when there was low point in the attendance levels and I was wondering what the flexibility was in terms of when you had to deliver on the make-goods and how much that actually did wind up impacting your revenue base?

Thank you, Jim. Actually, our operations team did a remarkable job of you may recall in the third quarter we had very weak attendance. Now operations team did a remarkable job of placing the ads that were that we had in the inventory that was available. So, we came out of Q3 into Q4 with a very reasonable make-goods. I think what actually hurts us in the fourth quarter was that that frankly the performance of Star Wars more than anything because it just didn't hold up as well as people thought it would. So, in the last few weeks that make-good built because of under delivery of Star Wars and some other pictures literally in the last few weeks. And December to put it bluntly is by far and away our largest month. And so, if the attendance doesn't deliver then we can end up with a substantial make-good. And I can tell you that all the way through the last week of the year, I thought -- I thought we were going to be up in revenue for the quarter and it was frankly the miss on attendance that led to the make good, that had us missing growth on the top line. That helps?

No that's very interesting. I'm just curious with Star Wars then did you have to deliver over the next couple of weeks. Was it a very tight timeframe for doing the make-goods?

No, no. The issue is if you remember what happened, obviously we compare that with particularly with a movie like Star Wars which is not only a sequel, it's a sequel of sequels, right. We have some very good days from what's previously happened with Star Wars movies. And in particular what's happened with it sort of it's Half-Life if you like, the way that attendance erodes over time. And this one eroded faster than did Star Wars VII in particular and so, you know that's really what hurts us because you have no time to react. I mean if in the last two weeks of the year, the movies don't deliver against anticipated attendance, you got nowhere to go.

And the one other thing I would ask about is the Noovie special partnership with Disney, could you talk at all about the terms and the tenure of that agreement? And if you be looking to stay with them or have others compete to take over the spots?

Yeah, that's a great question Jim. So yeah, the intent there is, I'm sure it's not lost on you that the value of our inventory gets higher the closer it gets to Showtime. And in the same way the further away it is from Showtime the less valuable it is. So, the opportunity to use some of the inventory that's very early in our show that has relatively low attendance to try and create or bring content that is unique and compelling is substantial. So, our relationship with Disney is that a one-year relationship that goes through June of this year, and what it does is it requires Disney to provide us with unique, as in unique to NCM and unique to Noovie content that we are uniquely able to show. We don't make any payments to them. We have the option, but not the obligation to get a sponsor to monetize through sponsorship. But it's a relatively simple relationship and one that at least the current period of it ends at the end of June. And I'm sure we'll sit down with them and determine whether that continues or whether we work with one or many of the other studios who are looking to promote that content in unique and different ways.

And they promote -- they provide their content free as part of it and then also buy ads around it?

No, they provide that content, their unique content to us free of charge. That's their obligation and our obligation is to run it. We make no bones about the fact that this run very early in the show. And obviously our intent is to drive up interest in the show and drive people there early. We obviously talk about the opportunity on our digital properties. We talk about the opportunity to get to the theater early to see that unique content. And Disney also looks to promote the idea of getting to the movie theater early to view that content. So that's a -- there's no cash that changes hands. We don't pay them. They don't pay us, but we believe that content helps drive interest in movie and we do have the option to gain appropriate sponsors for that content.

Thanks very much.

You're welcome. Thank you, Jim.

[Operator instructions] Our next question comes from the line of Mike Hickey with the Benchmark Company. Please proceed with your question.

Hey, guys. Thanks for taking my question. They drop off the line. So, I apologize. Andy you spoke to the Q1 strength. I think the question was asked but we're content part of money it's about sort of paid commissions, so the second half. So, I'm not seeing the upside from that spend. Can just speak a little bit more I guess to where you're seeing the strength in Q1 and I guess given your '18 guidance, where you are being more conservative in four quarters and then I think there's a couple obviously some computation and advertisers category spend. Can you speak to I think auto is probably the biggest weakness in the first half last year but can you speak to where those -- where your concentration is today and how those are tending? If you're seeing an uptick from last year and I will follow up next.

Yes. Mike, thank you. You broke up a little bit but I think I've got the gist. I got the sense you were asking about Q1 and where that relative strength is coming from. I think it's frankly many different areas. As is often the case, we have a couple of advertisers who come in particularly strong in Q1, which definitely helps us, but I think it is broad-based across multiple different categories, which is encouraging.

And we're seeing strength in scattered this year as well.

And when it comes to the overall year, as mentioned earlier, I think when you look at the opportunity; the opportunity is particularly in the first half of the year. That's not to say that we don't have opportunity in the second half. We certainly do. But when you look at the performance of last year, we were obviously particularly disappointed in the first half of the year that was really driven by the weak scatter and we do not have a weak scatter market this time around. Scatter driving our first quarter and we feel good about the many discussions we are in for the second quarter and beyond. So, we certainly feel good about that. And in terms of the concentration in advertising spend, I think it is pretty broad-based. I think we feel like, we feel good about the discussions we're having and the placements we're getting in the auto space. We certainly feel good about the various different streaming players, Telco is encouraging and we have -- we have lots of good conversations across many other categories. So, it's pretty broad based.

Okay. Good. So, the weakness that we saw in Q4 from local, regional it sounds like that would sort of change its way to that quarter. It's sounds like it's up now in Q1, just from that true and it's the only thing you secular pressure that you think is on local, regional maybe tied to reserve CD. I know you are making this effort trying to get people to feed reserve, obviously local regional part of the Showtime. So, any pressure there, just on sort of the changing dynamics of the tenant and when they arrived and then...

Yeah. Let me address that a little bit because as you know we don't give quarterly guidance. So, I won't talk to whether or not regional is up or down in the first quarter. What I will say is the regional and local had a very difficult fourth quarter. It was driven by larger contracts particularly by the big regional buyers across DMAs. And we reorganized that business to put a very strong team up against the regional side to streamline our local sales organization and to have a dedicated digital business. We feel very good about that reorganization. That reorganization is just batting itself in, but I think that the regional team where the weakness was in Q4 is frankly very strong. And I think, I'm encouraged that we'll have improving performance on the regional side throughout the year. When it comes to sort of reserve seating, I've mentioned before that, it's not clear that regional -- that reserve seating is having an impact on our audience build. But at the same time, that's certainly that what Nielsen would tell you that there's not a meaningful difference in audience build as a result of reserve seating. But at the same time, we have made available inventory in segment one of our show to the local and regional teams. So, there is very limited amount of inventory that's available in segment one, which is the segment that's closest to Showtime. So, we have I feel good about the local and regional sales team's opportunity because I think we have the right people in place. I think they are very focused against the segment of the business they are up against. They have access to segment one inventory if they can get the right price for it. And they are having been to one of our recent meetings last week or the week before. I was just very encouraged by their enthusiasm and optimism about the business. So that's kind of where we are with size of the business and I think you had a follow up question.

Yeah, I think, it actually gets in different direction from the last one. Thank you for that answer. I don't how much you can think through this but I guess the end that [indiscernible] so any by December again, I think this year any change into calls perhaps on kind of create an orderly distribution their if possible? And also wondering how that center World and AMC broke with pretty big year of exposure of that over time and often in our short expansion opportunity? Thank you.

Yes, so I think I caught both of those. AMC is obligated thanks to the DOJ consent decree to sell approximately 11 million shares of NCMI this year and about 4 million next year. Of course, they could sell them all this year if they chose to. They have an investment bank who we worked with last year. I assume that they will have the same investment bank who will work with us this year to help move those shares. At the end of the day as you know it's about AMC going to sell on to whoever offers them the best price. And we believe that we have a compelling story. We believe that there is a unique opportunity to get into our stock and it will certainly have I think a very good story to tell. As we as we work with potential buyers of those AMC blocks or single block however it goes down, but it's difficult to tell and it's very much in the hands of AMC in terms of the timing and how they choose to sell it. I think I couldn't quite hear, but I think your second question was about international was it not. I thought you to an International. Well you know it's interesting I mean we have we certainly have plenty of people to talk to now on the international stage with you know we have we've already engaged with Cineworld both during the due-diligence process and since the closing. I frankly have been delighted by the discussions that I've had with them about their ideas and determination to be successful obviously in their venture and they are very encouraging of what we are doing. They have made two nominations to our Board in a very prompt fashion who I look forward to presenting to the Governance Committee and Board and they are very constructive. As you know they have businesses in the U.K., they're down 50% VCM in the U.K. and are part of the either joint ventures or cinema advertising in their own rights across Eastern Europe and Israel as well. So that is certainly a discussion point as is AMC. And frankly I wouldn't leave Cinemark out of that either because they obviously have substantial assets in LatAm that’s focused up against Cinemark advertising. With all that said, the real difficulty or the challenge in international discussions is finding synergies because finding front-end synergies is really hard because at the end of the day advertisers don't buy cinema across markets any more than they buy TV across markets. They have very distinct national markets for those products. So, it doesn't give you an opportunity to find headcount on the front end. And similarly, in the back end, it's not clear that we have meaningful backend synergies if we were to merge with another cinema advertising or operation. With that said, we remain open and opportunistic should the right opportunity arrive.

Thank you, guys.

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, Hector. Today's dividend announcement allows for a tax deferred dividend yield of around 10% at today's close. The Board is determined that this dividend based on our belief that subject to unforeseen market conditions is sustainable, while enabling us to invest in the growth of the business and retain some financial flexibility. I'm encouraged by a strong start to 2018, advertiser reception to Noovie Arcade, our augmented reality product for growth in FML and the planned launch of Noovie.com in the second semester, a core element of our Noovie Digital ecosystem. I'm excited about both our dividend yield and our growth prospects. Thank you for listening and for your investment in NCMI.

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