Greetings. Welcome to National CineMedia, Inc. Q2 2019 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] Please note this conference is being recorded. I would now like to turn the conference over to your host, Katie Scherping, Chief Financial Officer. Please proceed.

Thanks Kevin. Good afternoon, everyone. I am joined today here in Denver by our CEO, Tom Lesinski; and our Chairman of the Board, Mark Segall. I'd like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors. 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, I'll turn the call over to Mark.

Thank you. Good afternoon, and welcome, everyone. As NCM's new Chairman, I am joining the earnings call this quarter on behalf of the Board of Directors to introduce Tom for the first time as NCM's CEO. As you know, with the help of on Korn Ferry, the Board recently completed an extensive search involving dozens of highly qualified candidates to identify a new CEO to lead NCM into the future. We were looking for an innovative seasoned executive with the leadership skills and vision to unlock NCM's full value potential. It was the Board's belief that this potential could only be achieved by strengthening our position as the cinema industry leader and a stronger player in the overall video industry. After a very extensive search and interview process, in which the Board met with many candidates, we realized that our own Chairman, Tom Lesinski, had the best combination of a deep understanding of our business, a strong working relationship with our founding member circuits, and the wide-ranging industry expertise necessary to lead NCM. As a long-time Director, who spent the last year as Chairman, Tom brings both continuity and the unique firsthand understanding of the value of our core business. Tom also brings the energy and experience needed to drive product innovation to keep improving NCM's competitive position in the ever-changing media landscape. Both his experience with NCM and a number of large and smaller media companies has given Tom a deep appreciation for our strong management team and staff and NCM's high-quality unique media assets as well as an understanding of the need to innovate to continue to grow the business. Tom has also proven that he has a talent for listening to all NCM stakeholders, including our public stockholders, exhibitor partners, advertising clients and NCM team members and making smart tactical and longer-term strategic decisions that are best for all concerns. As I mentioned, Tom is a highly accomplished executive with a carrier spanning the entertainment, digital, media, sales, marketing, and advertising industries. He was first appointed as Director of NCMI in December 2014 and served as Chairman of the Board of NCM, Inc. since August 2018. Since 2015, he also served as the CEO of Sonar Entertainment, a leading independent TV production company, after serving as its lead Board Director since 2013. His extensive 25-year Hollywood career also includes prior leadership roles as CEO and founder of Energi Entertainment, a multimedia content production company; President of Paramount Pictures Digital Entertainment; and President of Worldwide Home Entertainment for Paramount; and both Executive Vice President and General Manager of Home Entertainment; and Executive Vice President, Worldwide Marketing and Development at Warner Bros. He began his career in advertising, working at industry leaders: BBDO, Foote, Cone & Belding, and Procter & Gamble's Clairol Inc. I am now pleased to introduce Tom, for the first time, as NCM's new CEO. Tom?

Thank you, Mark, for that kind introduction, and welcome, everyone. It's great to be here speaking to you for the first time in my new role as CEO. Before I get started, I'd like to take a minute to thank Cliff Marks, who has worked tirelessly and closely with me, and the rest of the NCM team, over the past several months as our interim CEO. Cliff has done an excellent job, while continuing to spearhead our media sales strategy, call on clients, and otherwise manage our overall media sales team. I was and am very fortunate to have such a seasoned executive with deep experience within both NCM and the advertising industry as my partner and I'm grateful that Cliff will continue to play a crucial role for our company as he returns to his day-to-day media sales responsibilities as our President to continue to drive advertising sales growth. Thank you, Cliff, for everything that you do for the company, including fulfilling two critical roles over these last several months. To the hard work of Cliff and the rest of the NCM team over the last several months and with the support of our founding member partners, I believe now more than ever that NCM is poised to deliver on our promise to shareholders of providing a growth stock with a unique combination of high tax-deferred cash returns and capital appreciation for public stockholders. The combination of the largest cinema network in the U.S. and the evolution in improvement of our core advertising product to our expanding digital strategy will allow us to deliver a unique product that can expanse to desirable young, cord-cutting moviegoers throughout their entire online and in-theater experience. I look forward to completing this unique advertising product vision that will accelerate NCM's growth and increase…

Thanks Tom. I will walk through the operating results that Tom highlighted in further detail; discuss our thoughts on the quarter as well as our full year outlook. Then, we'll open the call to your questions. We will be providing a supplemental presentation of these results on our website for your future reference. For the second quarter, our total revenue was $110.2 million compared to $113.7 million in Q2 2018, a decrease of 3.1%. This $3.5 million change was driven by a $1.2 million decrease in national advertising revenue, $1.5 million decrease in regional revenue, a $400,000 decrease in local revenue, and a $400,000 decrease in beverage revenue. Total Q2 adjusted OIBDA was $50.2 million, a decrease of $2.1 million or 4% versus Q2 2018. The adjusted OIBDA margin for the quarter was 45.6% compared to 46% during the same period last year, primarily due to a decrease in revenue, partially offset by $1 million in lower operating expenses, driven by a decrease in legal and professional fees, which were incurred last year related to negotiation of a settlement agreement with our largest stockholder. Our theater access fees were flat compared to last year, but we had a decrease in the attendance portion of the fees related to lower box office attendance compared to a year ago, which were offset by an increase in digital screen fees, which increased 5% annually. The Q2 and year-to-date decrease in national revenue was driven by a weaker scatter market compared to a strong scatter market last year. In addition, as Tom mentioned earlier, the weaker-than-expected June box office continue attendance contributed a record second quarter make-good ending balance of $5.7 million compared to $2.5 million a year ago, a swing of $3.2 million at quarter end and compared to $4.7 million Q1 2019…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jim Goss with Barrington Research. Please proceed with your question.

Good afternoon. I'm wondering first, you had mentioned early on about an expectation for a more scatter and less upfront. I assume that will cut the make-goods issued down somewhat, is that a correct assumption?

Yes, make-good is really a function of attendance. Our demand, obviously, has been there even in the first couple of quarters, but the attendance just wasn't there to be able to deliver on that. So, as we move throughout the year and, hopefully, the attendance from these upcoming -- the upcoming film slate will hopefully meet or beat these expectations, so that will help us deliver on the outstanding make-good balances.

Okay. And I was wondering to the Noovie Pixar custom augmented reality you mentioned, are you in any of the efforts you're having or maybe it's premature yet? Are you drawing viewers earlier as you're hoping? And I'm wondering what sort of impact there might be or are you expecting on pricing demands? And is it helping local and regional ads in addition to the national?

Let me give that--

Yes, I am going to have our Cliff Marks, our President, respond to your question specifically.

Yes, just really started the Noovie program, we are measuring to see if it's going to get people there earlier. But -- that's clearly our intent, is to have people there playing games, so I can't really answer that question yet, but we are doing that research. Locally, our local ad sales team are not selling augmented reality programs, but it's primarily being sold by our national team. So--

But we know that digital -- this is Tom. We know that digital has been a useful tool for the local and regional salesforces and has contributed to some of the growth we've seen come back in the local business.

Yes, very strong sales digitally, but not the augmented reality part locally.

And maybe lastly, for now, I'm wondering if there is any linking of digital ads to the attendees following the movies? And does the relationship with the founding numbers loyalty program identification facilitate such a notion, where you might be able to follow sending them push ad or that sort of thing that might tie into the ad sales on screen?

We actually have a really clever product called Cinema Accelerator. And our Cinema Accelerator product is a retargeting product by design exactly as you noted. And when people come into our theater, we are actually able to track that phone and able to follow them when they leave on an optimum basis, of course. We are able to follow oneself. If a person leaves our theater and goes to a Walmart or goes to a McDonald's, we can actually measure that and then we could target them while they are in the McDonald's or while they're in the Walmart. So, Cinema Accelerator has been a very successful product, generates most of our digital revenue, and it's quite a good product.

And how do you monetize it, just lastly? Does that affect the rate you're able to charge upfront or--?

Yes, the way we monetize it is we actually -- we'll sell brands and as Tom noted about 40% of our national advertisers, about 30% of our regional advertisers actually do this. They will actually by schedule on-screen, and they know they've reached someone with their spot on-screen and then we target that same person over the next seven days in various places that, that person will be at. Whether be it a restaurant, whether it be in a big-box store, whether it be at home on the couch, we actually retarget them in seven days by actually going in and buying ads on sites that they use. That makes sense?

Yes, it does. Okay, thanks very much.

You're welcome.

Thanks Jim.

[Operator Instructions] As there are no further questions left in the queue, I would like to turn the call back over to Mr. Tom Lesinski for any closing remarks.

I am proud to have the opportunity to lead NCM and its talented and hard-working management team and staff into the future. With the leadership and Board changes now behind us, I am optimistic about the growth and stock price appreciation potential of our business. We are experiencing great demand from our advertisers, our audiences are excited about the future movie slate, and we have the strong support of our exhibitor partners. I would look forward to working very closely with our NCM management team, our exhibitors, Mark, and the rest of our Board, and our NCM team to continue to drive our strategic vision and leverage our unique position in the media marketplace as the leading company connecting brands to highly desirable movie audiences throughout their entire moviegoing experience. As Mark started this call, I will let him wrap it up as well.

Thanks Tom. But there is not much more for me to say. I know that I speak for our entire Board in saying that we are excited about the prospects of the company in your new leadership, and we get ready to support you and the company mission in any way that we can. Thanks for joining us today and for all your patience and support, as we work through our Board and leadership changes.

This does conclude today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.