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…

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…

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.