Greetings, and welcome to the National CineMedia, Inc. Full-Year and Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Ms. Katie Scherping, Chief Financial Officer. Thank you. You may begin.

Thanks, Michelle. Good afternoon. I’m joined here in Denver by Cliff Marks, our President and Interim CEO; and Tom Lesinski, our Chairman of the Board. I’d like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. All statements, other than statements of historical fact 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. Now, with that, I’ll turn the call over to Tom.

Thank you. Good afternoon, and welcome, everyone. Before I turn the call over to Cliff Marks to discuss our results, I’d like to take a few minutes to welcome – or should I say, welcome back our newest Board Member, Kurt Hall. As announced a few weeks ago, Kurt was unanimously approved by our Board of Directors. Those of you who’ve been following NCM for years know that Kurt has served as NCM’s President, Chief Executive Officer and Chairman of the Board until January of 2016, when he retired to spend more time with his family and pursue his many outdoor interest. He continued to work with NCM as a consultant from January 2016 until January 2018. After many years as a theatre company executive, Kurt Hall has found NCM and was instrumental in building it from the ground up, taking NCM from a media startup to a mature public company. He brings an unmatched level of experienced insight, historical perspective and the industry relationships at the table, and I’m pleased that he’s back on the NCM Board. We are continuing our CEO search to identify a visionary leader, who can capitalize on the strengths of our company and our unique cinema advertising medium and innovate around NCM’s core business to ensure that we’re best positioned for sustainable, profitable growth and value creation for our advertising partners and shareholders alike. We are actively interviewing candidates for this role, and we believe it’s important to take the necessary time to find the right fit for NCM. While we look for our next CEO, Cliff has been doing a great job in leading our company as Interim CEO and continuing to spearhead our media sales strategy. Cliff has also intimately been involved with our CEO search and will play an important role to ensure a seamless leadership transition when a new CEO is hired. With that, I’ll turn it over to Cliff for a few remarks on the business before Katie reviews the financial results for the fourth quarter and full-year 2018.

Thanks, Tom, and thanks to everyone for joining us on today’s call. I will be reviewing the company’s fourth quarter and full-year 2018 operating results and highlights. And Katie will then provide a more detailed discussion of our financial performance and our 2019 revenue and adjusted OIBDA guidance. As always, we will then provide time for questions you may have. Our year began very strong with solid Q1 and Q2, but Q3 saw several clients shifting their spending to Q4. While we couldn’t totally capitalize on this high Q4 demand due to an unusual film slate rating mix, it has set us up strong for 2019. I’ll now walk you through fourth quarter of 2018. Despite the film mix challenges, demand was strong. Total revenue for the fourth quarter only decreased 2.3% from last year’s fourth quarter, which happen to be the second highest fourth quarter in our history. Our national sales revenue decrease of 3.7% versus fourth quarter 2017, excluding beverage was related to a higher percentage of the box office being generated by G and PG films like Mary Poppins rather than the PG-13 and R films like last year’s Star Wars, which were in higher demand by our advertising clients. So while our national sales team did great and we saw a strong demand for our inventory, especially in PG-13 and R categories, we just didn’t have enough impressions to satisfy demand in those ratings. Also, while attendance was up 3.7%, overall in fourth quarter, a sharp decrease in attendance in the last two weeks of December compounded the unfavorable ratings mix and adjusted in a record $8 million make-good, without which we would have been within the higher-end of our revenue guidance. Due to the high incremental margins of our national business, the shift of revenue…

Thanks, Cliff. I’ll walk through the results that Cliff highlighted in a further detail, discuss our thoughts on the quarter and year, as well as our outlook for 2019, then we’ll open the call for your question. We’ll be providing a supplemental presentation of these results on our website for your future reference. For the fourth quarter, our total revenue decreased 2.3%, or $3.3 million to $137.4 million versus $140.7 million in Q4 2017, driven by a 3.7%, or $3.8 million decrease in national advertising revenue, partially offset by a 0.9%, or $300,000 increase in local and regional advertising revenue and a 2.7%, or $200,000 increase in beverage revenue from $7.2 million to $7.4 million. Total Q4 2018 adjusted OIBDA decreased 7.7%, or $6.4 million to $76.2 million from $82.6 million in the fourth quarter of 2017 and adjusted OIBDA margin decreased to 55.5% from 58.7% in Q4 2017. The decline in adjusted OIBDA was driven by a decrease in the high-margin national business. As Cliff mentioned, we ended the year with an $8 million make-good, which was a record for us, but it also served to mute the impressive sales efforts of our team towards the end of the year since the impressions were not there to deliver the revenue. We do expect to fully deliver on this make-good in Q1. In the fourth quarter, we recorded $8.1 million of integration and other encumbered theater payments from Cinemark and AMC associated with Rave Theatres and Carmike Theatres versus $9.3 million in Q4 2017 and $21.4 million for 2018, compared to $20.9 million earned in 2017. As a reminder, these integration and other encumbered theater payments are added to adjusted OIBDA for debt compliance and partnership cash distribution purposes, but are not included in reported revenue or adjusted OIBDA as…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Eric Handler with MKM Partners. Please proceed with your question.

Yes. Good afternoon, and thanks for taking my question. Katie, I wonder if we could just talk a little bit about the guidance and let’s just for round number purposes assume revenue of 2% to 5%. How much of that do you feel will be national versus local or maybe what will be stronger? And then as you think about your national outlook for the year, do you expect it to be driven more by CPMs or utilization?

So the mix, we don’t really expect to see change materially. So still about 70%, 71% national, 25% – 24%, 25% local/regional and the balance is beverage. From a national perspective, a lot of that depends on the pricing for CPM-wise. Scatter was very strong in 2018. We see a lot more money upfront in 2019. We set our upfront as up a little bit more. So that will put a little bit of pressure on CPM depending on where the scatter market ends up for the full-year. So on a national basis, I would say, CPM is up a little bit, but it all depends on the mix during the year.

Okay. And then as a follow-up. As we think about your first quarter, which is normally the slowest quarter of the year, you’ve got $8 million of make-goods coming through, which I imagine should help your utilization quite a bit and maybe leave you with less impressions to sell, is that a fair impression to – is there a fair statement to make?

I would say, Q1, we always have a lot of inventory, and we’re not worried about being able to both deliver on the make-good, as well as be able to sell into all the available inventory that we want to sell into.

Okay, great. And then one last quick question. As far as the affiliates are concerned for 2019, are there any plan new affiliates joining the network in the year, or how should we think about that?

This is Tom. I can talk about that specific question. Typically, we don’t comment on active discussions that we’re having with affiliates. We’re always evaluating new ones. So we don’t want to go on the record to talk about that at this point on this call.

Okay. Thank you.

Thank you. Our next question comes from the line of Mike Hickey with The Benchmark Company. Please proceed with your question.

Hey, guys, congrats on a quarter and year. Thanks for taking my question. Just to clarify Q1, obviously, you have a solid make-good here. Consensus is a little bit below Q1 2018. Should we think of Q1 is growing this year over prior year?

Yes, Mike, we already – where we sit today versus where we were a year ago, we’re trending higher. So we’re really optimistic about Q1 of 2019.

Good. Okay. The – obviously, you have an active CEO search. It sounds like you have a few candidates I’m guessing, maybe we have someone new in the position here short-term. But curious if any visibility on timing? And also sort of wondering, as you hit your numbers in 2018, cash looks good. We do think that you’re guiding to some growth in 2019 in both sales and OIBDA, just sort of how you reflect on your current strategy if you think that’s working that can sustain profitability, you sort of moving in the right direction and the investments that you made and how that sort of fits into a new CEO coming in, and any sort of visionary investment plan that they may have? Thank you.

This is Tom. The – right now, we’re not going to comment specifically on the timetable that we have for a CEO, but we’re optimistic that we’ll have at least a candidate identified sometime in May. Having said regarding your strategy question, we’re happy with the current strategy, and we know it’s doing well to drive at a business, both this year and going into next year. Having said that, our expectations is that a new CEO will add his own nuances and his own ideas going forward. So, [at order] [ph] for that matter, sorry. Thank you, Katie.

Okay.

Thank you. [Operator Instructions] Our next question comes from the line of Jim Goss with Barrington Research. Please proceed with your question.

Thanks. One more thing about the make-goods issue and the development of it in recent quarters. Were there any particular issues you thought that drove the necessity from make-goods? Was it ad positioning or anything else should point to that created it? And well, maybe first go with that?

Yes, it’s Cliff, I’ll answer that. The make-good issue was primarily a result of the last two weeks of the year, the box that we had projected didn’t achieve our numbers. So that was really what drove it for the – drove it up to $8 million.

…in addition to the ratings mix.

Yes. For sure, the ratings mix made a big difference. When you lose this – when you have a lot less PG-13 in our content, you have more G and PG, that kind of put us in a little bit of a tougher sales position as well for sure.

And that – this is one time where the make-goods actually did pursue and that you couldn’t make up for – with either better pricing for the other available inventory or pushing it out to the next quarter when you had the available slots, where would it really had an impact?

That’s true. Just the last two weeks should you know, you don’t have the opportunity to make-good in a year.

Okay. The other thing – you laid out a pretty compelling argument that there shouldn’t be any risk to the dividend, given that your leverage has declined and you have quite a bit of cash on the books. But as Katie was outlining, how you get to the cash available to pay the partners and pay dividends. I’m just wondering where the – are there any categories that aside from OIBDA, I guess, that she should be at risk or benefit as we’re looking out to give some assurance that you don’t really have a big concern about a dividend cut since, I think that’s very important to investors in the stock?

So, Jim, even – with the guidelines that I laid out with available cash, if you do the all – the math all the way down, the payout ratio of cash coming in this year to the dividend of $0.68 pays out somewhere an average of about 80% of the total incoming cash flow to NCMI. So I don’t – there’s no risk there. Ecos is potentially as high as 90% payout is depending on what your mix of those items or those variables that I outlined. But you could be anywhere between 90% and 70% payout, but we feel like it’s probably close to the 80% on average, which is a very comfortable dividend payment at NCMI.

Okay. And for the most part, it seems like you tried to match up what investors and NCMI get relative to what the founding members get. Is that sort of a conscious decision or kind of something that you try to do?

Well, we just want to illustrate kind of the cash flow coming from the partnership up to the three founding member – up to the founding members, Regal and Cinemark and then NCMI, so that everybody can do the math equally on whether adjusted OIBDA numbers in our models are coming out. So that flows all the way through to giving them confidence again that – with that dividend number.

Okay. And then last question, you made a special mention of Kurt’s involvement now at the Board level, which I’m glad to hear of quite frankly also. Is there anything special you expect him to bring aside from just being a regular working member of the Board?

I would say that, Kurt brings just an unbelievable wealth of history and experience in the company, both from a financial side and from an affiliate and exhibition side. So he’s going to involved across the company. But I think you know what his strengths are from all the years of working with them and we’re really happy to have him as one of our leaders on the Board going forward.

All right. Thanks.

Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Marks for any closing remarks.

Thanks, Michelle. We’ve made great progress on our overall strategy in 2018. In the past year, we continued to introduce new Noovie Digital products and to enhance our core business, pay down debt, strengthened our relationship with our exhibitor partners and continue to pave the way for growth for long-term growth into the future. With the first quarter already looking strong and an exceptional films like coming for the rest of the year, we continue to feel very optimistic about 2019. Thank you for participating in our Q4 and full-year 2018 earnings call, and I’ll see you at the Noovie’s.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.