Greetings. Welcome to National CineMedia, Inc. Full Year and Fourth Quarter 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. Thank you. You may begin.

Thanks, Savvy. Good afternoon, everyone. I am joined today here in Denver by our CEO, Tom Lesinski. 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 could 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 or on our Investor Relations page of our website at ncm.com. Now, I'll turn the call over to Tom.

Thank you, Katie, and good afternoon everyone. Welcome to our fourth quarter and full year 2019 earnings call. I'll be sharing some high level insights regarding our strong Q4 performance and our better than expected full year results and our plans for 2020. Katie will then provide more detail about our 2019 results and our 2020 guidance. And then as always, we will open up the line for your questions. I'm very happy to report that we finished 2019 on a strong note, posting record Q4 advertising revenue and a record full year national revenue. This top line revenue growth resulted in better than expected adjusted OIBDA growth for both the current quarter and the full year, and this momentum is continuing into 2020. I'll talk more about 2020 and our progress against the strategic plan that we laid out in November in just a few minutes. Q4 2019 revenue, overall, increased just over 7% year-over-year, driven by a 13% increase in Q4 national revenue. As I mentioned, our company posted record fourth quarter advertising revenue, driven by higher national sales demand and the launch of our new inventory after the advertised Showtime in Cinemark and Regal Theaters. This new premium inventory features five minutes of advertising that runs right after the advertised Showtime as the auditorium lights dim, which we call lights-down inventory. And one minute inventory that runs just before the last one or two trailers prior to the feature film that we call our platinum inventory. Our Q4 growth reflected strong national inventory utilization as well as the sale in December of our new platinum inventory to a leading technology company, an automobile manufacturer and a major retailer. It's important to note that the platinum CPMs were where more than 50% above our national pre-show average, as…

Thanks, Tom. It's been my privilege to work with NCM to accomplish so many major initiatives for the company over the past several years, and I know that I leave our company in the very capable hands of our executive team. It's also essentially nice to go out on a high note with a record Q4 and an impressive finish to the year. I'll now walk through the Q4 and full year operating results that Tom highlighted in further detail, and then provide our full year 2020 outlook. Then we'll open the call to your questions. As always, we will be providing a supplemental presentation of these results on our website for your future reference. For the fourth quarter, our total advertising revenue was a record $147.2 million compared to $137.4 million in Q4 2018, an increase of 7.1%. These better-than-expected results reflect a strong quarter for our national advertising sales team, partially offset by a decrease in regional and local revenue and lower beverage revenue. Total Q4 adjusted OIBDA was $83.5 million, representing an increase of $7.3 million or 9.6% versus Q4 of 2018. The adjusted OIBDA margin for the quarter increased to 56.7% compared to 55.4% during the same period last year, due to an increase in the mix of our higher margin national revenue, including the benefit from our first sales at the high-margin platinum unit. The increase in adjusted OIBDA and adjusted OIBDA margins was driven by a 13% increase in our national business related to very strong demand from advertisers as reflected by our network inventory utilization of 156%, driven primarily by an 11.4% increase in impressions sold for the quarter. The increase in inventory utilization from the 127% in Q4 of 2018, in part related to the delivery of impressions from the prior quarter…

Thank you. [Operator Instructions] Our first question comes from Jim Goss with Barrington Research. Please g ahead.

I’ve got a couple here. One at the beginning of the conversation, I think, Tom, you mentioned $8.7 million of make-good. And you've already delivered a big chunk of these so far this year. I was wondering what the forgone cost of that inventory was? Or was were the make-good supply do largely unsold inventory?

I'm not sure about foregone cost, what I can say is it in the first six weeks of the year we've worn -- we've taken almost $4 million out of the make-good, given the overall performance of the Box Office in January and half of February. Does that answer your question? Or are you asking something different?

Yeah. No. That sometimes, yes -- that largely answered it, but sometimes it seems like you have a lot of spots, and not all of them are sold. And I thought there might allow for some of it without really pitching too much.

Yes. And I think in Q1, Jim, we typically have less inventory sold. And just historically, Q1 is a lower inventory sales quarter than any other quarters. So easier for us to run out make-good, but also the Box Office outperforming helped us in the first quarter as well.

Okay. And there was also comment you just recently been ramping up the last upfront within the couple of months, will be starting in the next one. It seems like they're running together a little closer than I thought they might. Why would that have been?

Well, the new upfront starts in two months, Jim. So the most recent upfront ended, basically just ended about a month ago. So there's really about a 3-month period between the two. Our sort of ends later than traditional television and cable and the sequencing is typically network TV, then cable, then outdoor and cinema go at the end. So we're always at the end of a television upfront, which starts earlier, almost more than six weeks earlier, so but there was about a 3-month period roughly at least between the two.

Okay. And you were making some -- you were distinguishing your inventory between like the new post five minutes plus the platinum stat in the earlier inventory. And then you also mentioned that about 60% of the audience would be onboard with the new format. How is wind up having sort of a blended upfront pricing strategy, especially when you also mentioned that region regional is moving to national, and I would imagine those prices are not exactly the same? How do -- is this more of a reporting issue than a sales issue?

It's not a sales issue when we have very distinguished buckets between platinum pricing, lifestyle pricing, and the traditional pre-show pricing. Sometimes they are bounded together and it's blended, but we have significant different CPMs and all three of those buckets. And I think from a reporting point of view, I could let maybe Katie to speak to that. But …

Yeah, I think, our CPM is typically on upfront is a little bit higher, but this year we had a little bit lower. I think we're looking forward to kind of a bundling program with the new inventory and it's hard to pinpoint where that CPM is going to have.

Okay. And lastly, have audiences caught on to the shift in when the ads are run and adjusted the timing of arrival to the extent you can determine that?

There has been no shift to people coming in later based on the new start time. It's only really a difference of six minutes at the end of the day. And we only started really in December. So it's too early to say whether there's any impact from a consumer point of view. We haven't seen any one showing up later as a result.

[Operator Instructions] Our next question comes from Alexia Quadrani with JP Morgan. Please go ahead.

This is Anna [indiscernible] on for Alexia. Thank you so much for the question. I'm just wondering if you expect the stronger trends that you were seeing in national advertising through the end of 2019 and kind of softer local and regional advertising trends to continue into 2020, and also what is your level of comfort with your 2020 guidance? Thank you.

So in terms of local and regional, we've changed strategically how we staff those businesses. In particular, on the regional business, we've decided to only allocate the top 11 DMAs into their regional business, and the remaining DMAs from 11 on are now going back into our local business. And we're seeing some early indications that that new strategy on the organization is helping to stabilize both those businesses, and potentially being both active growth rates in 2020. In terms of our guidance in 2020, I think we have optimism based on how 2019 finished and how the early interest in platinum and in lights-down, has contributed to a really new way to look at NCM. And many advertisers and brands are looking at the company in many cases for the first time, but also old customers are looking us in a different way. So we feel really good about our guidance going into 2020, especially coming off 2019 with our new inventory taking hold at the end of last year.

Our next question is from Eric Handler with MKM Partners. Please go ahead.

Yes. Thank you for the question. I tuned in a little late, so hopefully I'm not asking you to repeat anything. But with the new inventory strategy, are you seeing any difference in the advertisers that are either making requests for proposals or signing up for these new pods?

Yeah. It's a good question. One of our first three platinum spots was sold to a one of the largest retailers in the U.S. who had never advertised in the history of National CineMedia. We also have recently added a CPG company, who hadn't been on the platform ever. So one of the goals of platinum and of lights-down was to bring new categories and new companies into our platform. And in the short time, we've been selling it and we've seen two major advertisers to come in who were never part of our platform. So that was one of the key objectives in creating the new platinum and lights-down in inventory.

And are you drawing them in with discounted first-time buyer status? Or are they paying full freight?

Well, every deal is different, I can say that. I can tell you that the platinum deals have not been discounted. Sometimes it would be our brand new advertiser will create some incentive to come in, but we are keeping platinum at a very high price point. So, hopefully that answers your question.

Our next question is from Mike Hickey with The Benchmark Company. Please go ahead.

Congrats on the quarter. I was on and off the call. I apologize if these questions were asked. But I wanted to make sure to ask just in case. On the – your ad shift to post Showtime, have you done any consumer feedback studies in terms of how people are reacting to ads in the new spot? Because, I think that was sort of meeting issue with one of your partners, the fear that you'd be upsetting movie pay attention, and that's why they didn't necessarily sign up.

Let me answer that question in two different ways. The one piece of research we already did just recently, which we haven't published yet, because it's really came off the presence just in the past week, was the engagement from our ads is -- has been as high as we've ever had in terms of how the new advertising platinum spots are effecting consumers. So it's been really a pleasant result so far that as the new platinum spots are rolled out, that they're really resonating and from an effectiveness point of view with consumers. We've also got a lot of anecdotal feedback from the affiliates that there really isn't an issue with the advertising running and then closer to the movies. And obviously, we’re sensitive to that. But candidly, as people have gotten used to it, the few comments that did happen really become actually fairly small. So, we're pleased that the response from a consumer point of view has been really positive.

That's great. And you said 60% of that work, I think you expect to participate. How do you close the gap there, Tom, that other 40%? What are the key metrics you need to share with your partners?

It's a matter of adding more affiliates. We expect to add 15 affiliates onboard by the end of 2020. Some are big, some are small. And it's a matter of really talking to each one of them, which I've been doing along with our affiliate team, along with cliff, and it's going to each one individually. A lot of the affiliates wanted to see how it worked with Cinemark and Regal in 2019. And given the success of that, and the consumer acceptance, I think we'll get a really good attachment rate on the affiliates that we go out to, and many of them have already signed up. We just haven't announced it yet.

Yes. And a last question for me. Shocked to see the dividend [indiscernible] normal question given investor seems like is the dividend safe, so quite the statement raising the dividends here. And of course, I’m curious, sort of how you – it’s obviously show the great level of confidence as well in the ‘20 guidance, but you've sort of been vulnerable historically to variability, ready to scatter money. And so I’m curious if this is because you've got more upfront money user or businesses or what's giving you the visibility and confidence, I guess, to raise the dividend there?

I think I think the way the Board and management have looked at is really this strategic growth plan that we have put in place and the success so far platinum. Then it's also our commitment to payout almost substantially all the actual annual cash flows of the company. But really the strategic plan and the elements are in it, there's a lot of confidence than I have as well as the Board. And that's what really drove the increase in the dividend.

And then, I guess last one on -- your Analyst Day coming up here in March, would you expect to have a new CFO at that or is that two things there?

I think, optimistically we'd like to have a new CFO on board. It'll -- we have three or four really good finalists right now. But I can't commit to that. But if, obviously, that person has been hired by them, then they'll be In New York.

Our next question is Eric Wold with B. Riley FBR. Please go ahead.

Just a couple of questions. Just kind of touch on the platinum spot. Just kind of think about the selling strategy around the spot in terms of kind of want, I guess, kind of what committed run times you are acquiring to get people into that part of the spot? And then, I guess, how much you -- maybe not a dollar amount, maybe frame percentage, how much would be the pricing on platinum varies at all between kind of an upfront buy and scatter buy?

The difference in upfront versus scatter pricing is going to be consistent on a percentage basis. So, obviously, there's going to be a premium on the scatter side. I don't want to specifically get into the actual pricing for competitive reasons, even how new the platinum is. But obviously, we're not interested in discounting platinum much since it's a brand new product. And obviously, it's a big focus of the upfront, coming up soon. And I think the true test of how big platinum will be will really come once we get out of selling in the upfront marketplace. But the response in scatter has been very good and the pricing that we promised, a 50% lift in platinum pricing has been more than delivered on the initial platinum sales. And we're optimistic that that lift will continue through and hopefully get even potentially higher as we get towards the second half of the year.

And then, lastly, on that kind of -- first one, I guess, first part of the first question was kind of -- is there kind of a committed run time or kind of a mid max on how long you have someone run a platinum spot? And then, given the premium pricing on that and the margins on that in a scatter environment, can you allow kind of a faster turnaround to get those onto screens? Or is there been inherent limit on how fast you can get new content screens regardless?

So I'll try to answer those separately. Right now, we have a relatively short amount of time that will allow us to get a platinum spot on, we can't do it overnight. When our entire new sales planning system gets on board, we can do it almost same day, but if we really need to, we can get a platinum spend on within 24 hours to 48 hours. So from a friction point of view, we can do that. Especially, since right now there's only Cinemark and Regal onboard. And as we add the other 10 to 15 affiliates, it’s manageable. I don't want to get into specifically what the advertising requirements are in terms of the number of weeks for competitive reasons. It's really a proprietary selling strategy that we have. So I can't tell you at this point what the requirements are. It's just not something we want to disclose at this point.

We have reached the end of the question-and-answer session. And I will now turn the call over to Tom Lesinski for closing remarks.

Before Tom jumps in here for closing remarks, I just wanted to make a correction to the available cash calculation adjusted over the guidance that was quoted. It should be $202 million to $212 million. So the correction to the adjusted OIBDA guidance is $202 million to $212 million. Okay, Tom, you can take it from here.

Okay. So I'm very pleased to be ending 2019 with the best fourth quarter ad sales in our company's history, and the biggest year ever for our national sales team. Our new growth strategy has to be done to show results on both our top and bottom lines and we're continuing that forward momentum into 2020 with our focus on creating long-term shareholder value to a unique combination of free cash flow growth and increased dividends. Our team is deeply committed to our company's mission statements to unite brands with the power of movies and engage movie fans anytime and anywhere. I look forward to continuing to work very closely with our Board of Directors, our founding member and affiliate partners, and our great NCM team to continue to drive our strategic vision for growth and leverage our unique position as the cinema expert in the media marketplace to benefit stockholders, employees, exhibitor partners and advertising clients like. Thank you for joining us on the call. And we'll see you at the movies.

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