Greetings, and welcome to the National CineMedia, Inc. Q1 2020 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ted Watson, Senior Vice President, Finance. Please go ahead, sir.

Thank you, Jerry. Good afternoon, everyone. I'm joined today by our CEO, Tom Lesinski. I would 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, including our discussion about the future impacts of COVID-19 and 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 or on the Investor Relations page of our website at ncm.com. Now I'll turn the call over to Tom.

Thank you, Ted, and good afternoon, everyone, and welcome to our first quarter earnings call. Before we get started, I'd like to thank everyone within and outside our NCM family for all they are doing to help us to get through this challenging time. I hope everyone is staying safe and making every effort to keep you and your loved ones healthy. Today, I'll be sharing some high-level insights regarding our Q1 performance. And more importantly, I'll provide details of what we have done to adjust our business focus and our operating cost and financial structure in response to the challenges presented by the COVID-19 pandemic. During this unprecedented time, our primary focus has been to maintain liquidity, by operating as efficiently as possible to position our company to get back to business as soon as possible as the country begins to normalize. Ted will then provide more details about our Q1 results and the financial impact of our operating and financial plan as we navigate these extraordinary and unprecedented times. And then as always, we'll open up the line for your questions. It goes without saying that the world has changed since we had our Investor Day in New York on March 4. As with almost all businesses, the COVID-19 pandemic has disrupted our industry in ways that were not even imaginable 2 short months ago. After ending 2019 with record national advertising revenue performance and the highest fourth quarter ad revenue in our company's history, we started 2020 with great momentum. February year-to-date revenue was up 3% versus the same period in 2019. Then in March, the spread of the COVID-19 virus in the U.S. forced theaters and all other nonessential businesses to close. While our in-theater business was forced to shut down, our digital advertising business continues…

All right. Thank you, Tom. I will walk through the Q1 results in further detail, provide some more details on how to think about the cost structure of our business during this COVID-19 pandemic. Then we will open up the call to your questions. We will be providing a supplemental presentation of these results and our COVID-19 update on our website for future reference. For the first quarter, our total revenue was $64.7 million compared to $76.9 million in Q1 2019 or a reduction of 15.9%. This $12.2 million change occurred primarily in March as the COVID epidemic spread to the U.S., resulting in a $7.6 million decrease in national advertising revenue, a $3.4 million decrease in local advertising revenue and a $1.2 million decrease in beverage revenue for the current quarter versus Q1 '19. Total Q1 adjusted OIBDA was $14.4 million compared to $22.1 million in Q1 2019, a decrease of $7.7 million or 34.8%. The adjusted OIBDA margin for the quarter was 22.3% compared to 28.8% during the same period last year due to a decrease in revenue, partially offset by $6.2 million in lower operating expenses, driven by a decrease in variable costs that include theater access fees, affiliate advertising payments, sales commissions and a decrease in performance-based compensation as a result of the COVID-19-related closures of theaters in March. Our Q1 2020 advertising revenue mix was 77% national, 15% local and 8% beverage. This compares to Q1 2019 that was 74%, 17% and 9%, respectively. As a reminder, beginning in Q1, regional revenue is now being combined with our national revenue. Because of the significant impact of COVID-19 on our March results, an analysis of our Q1 2020 revenue versus Q1 2019 is not meaningful as it does not represent fairly our ongoing operations. While Q1…

[Operator Instructions]. The first question is from Eric Wold, B. Riley FBR.

Tom and Ted. A couple of questions. I know you're talking to an uncertain environment out there, but you mentioned you're starting to head into the upfront buying season as it relates to next year, whether that next year ends up being kind of October, September over the calendar year. Any sense, early read into that -- into the ad buying environment you're getting from your customers? Are sales cycles lengthening? Are they kind of a little more hesitant to commit upfront? Any adverse impact of CPMs? Just kind how do you think about kind of the light down tailwind you were going to have coming this year against kind of the COVID-19 budget headwind possibility?

Okay. I'm going to turn that question over to Cliff Marks, who is also on the line, and he's the one literally day-to-day talking to customers. And I think he can give you a preview of how things are going right now and what the upfront looks like in terms of how our advertisers are looking at the industry as well as our platform.

Yes. Hey, Eric. I think that you're going to have a kind of bifurcated upfront this year. There will still be an upfront for the general marketplace as well as the cinema marketplace. I think a lot of brands and a lot of clients are trying to figure out where they're going to flow. But we project that there will be an upfront. We have been very active in talking to clients and starting to present ideas. In traditional years, much more of our business happens in what we refer to as the broadcast upfront, the buying period in the late fall on October, November. And I'd project that, that will still be the majority of our upfront buying this year.

I think the one thing I would add to that is the fourth quarter from a theatrical point of view may end up being one of the biggest attendance box office fourth quarters in a really long time, as some additional major movies have shifted into that. So we're optimistic about our fourth quarter. And hopeful that with theaters reopening in a really great fresh slate, that it will drive a lot of interest from advertisers.

So on that, you mentioned before, you're optimistic that a favorable environment for in-theater ads, given fresh content, possible delays in sports and scripted content. How would you expect to see that reflected in the ad mix kind of versus traditional years in terms of upfront versus scatter? And then would you still think it's a ripe environment kind of for the platinum ad buys in that fall/winter period? Or could there be some hesitancy among buyers kind of lock those in at this point?

Let me start, and then I'll let Cliff continue. I mean it's obviously a very fluid situation out there as the upfront, the traditional broadcast upfront is moving in a fluid dynamic, and there's going to be a mixture between really June through the fall of a mixture of scatter and upfront. And it's obviously an unprecedented time. And I think as a result, there could be a mix that's different than historically has been between scatter and upfront. But every platform, including our own, is talking individually to our clients and to the agencies to come up with the right solutions from a timing point of view. I think -- what, you want to add to that, Cliff?

Yes. The other thing I would add is we've had a very, very loyal group of upfront partners who really like our medium. They've been loyal to the cinema medium. They've been loyal to NCM. And from all of the conversations we've had to date, most of our clients are not wigged out. They're very much -- they very much believe in our medium. Most of them are working with us and have been very cooperative in trying to shift. So it's hard to know exactly, of course. But I anticipate that most of our upfront partners will return. And I can tell you that, I mean, obviously, it's early in the selling the post show advertising. So we're still working on establishing the value and the premium value of that. So it remains to be seen, what happens with that. But nobody dislikes better inventory. Anyone we've talked to, nobody dislikes better inventory. So I don't foresee it to be challenging to big brands that they should be there. We'll have to have a lot of conversations about the value, but that's what was going to happen anyways.

We have a question from Jim Goss at Barrington Research.

Continuing along the ad theme, to the extent that you have commitments right now that you obviously can't deliver, are you able to treat these effectively as make goods that you'll be able to deliver once theaters start to open and be able to maintain the revenue base you would have had, but deliver it later on? And what is the flexibility in delivery, such that you don't have to pile everything up into periods where the demand might be greater and then it really would hurt to have to give the ad spots away at a lower rate than you'd be able to get later on?

Jim, let me start, and then I'll have Cliff add some more flavor to it. There's -- you're asking really two different questions. The first question is, is the existing commitments that had happened in the prior upfront, we're having a significant success rolling those into later months and later quarters. So for example, commitments that were made in Q2 have been moved into Q3 and Q4. And we've had a very good success rate of maintaining those dollars. As it relates to the whole make good situation, we have an existing make good coming out of Q4 into Q1, which is about the same number. Some of that make good will get used as theaters open, and the rest will get used as the rest of the calendar year goes forward. Do you want to add anything to that, Cliff?

Yes. No, I think that's accurate. I mean we've been able to shift a lot of our business, so that's a good thing. Depending on when we open and how many rating points are available, that will determine how much money we're able to burn before we write new money, before we write new deals. So really, it's an unknown as to when do the theaters open and how many impressions we have. But we've done a really good job. Our team has really done a fantastic job of saving a lot of money.

Okay. And maybe competitively, you've talked about trying to take some share from broadcasting, which you've always attempted to do. Right now, broadcasters are having a pretty good success in-home viewership levels, but the ad man in pricing has been down because of a lot of the troubled advertisers and reductions in ad commitments. And I'm wondering how that affects this whole process. And also, you might tie it into this shift in to national from local that seems to be continuing to take place in your...

Look, let me start. I think Jim, what I would say is that if you really look at current programming, there is so little on television today. Obviously, none of the sports is current. Most of what's on network television is reruns. We believe that as we start going into this with all new programming beginning as early as July, that we'll have a real opportunity from a volume and CPM point of view to drive the business. When you think about it, a lot of these movies have been sitting there finished in the can for months now waiting. So we think as people, particularly given how cooped up everybody is with the combination of that dynamic, plus really fresh programming and big programming that will open an opportunity to hopefully grow our business and steal share from traditional television and also to drive CPMs.

And the greater -- the macro marketplace, as you noted, that's really not a cinema issue. That's just a marketplace issue. There's a -- the broadcast networks, while they have increased viewership, there's not enough money to cover all those rating points. That's in every one situation. Every network is going to deal with that.

[Operator Instructions]. Gentlemen, there are no further questions at this time. I'd like to turn the call back over to Tom Lesinski for closing remarks.

Thank you, guys, for the questions. I just want to close by saying our NCM leadership team, our Board of Directors and our employees remain deeply committed to position our company to weather this crisis and to come out the other end stronger than ever, so we can deliver on our mission to unite brands with the power of movies and engage movie fans anytime and anywhere. Once the COVID-19 pandemic alleviates, we'll be well positioned to continue to deliver the growth strategy that we launched last year and that was beginning to take hold before the crisis hit. While our stock price is currently depressed, our unique corporate structure is providing an investment vehicle that is continuing to deliver a substantial dividend return even during the crisis. We are confident that all the steps we've taken will allow us to deliver free cash flow growth and stock price appreciation once the crisis is passed. I'd like to close by once again thanking all my NCM teammates, our cinema partners, lenders and the other business partners for their hard work and support through this period of time. I can assure you that all of us at NCM are working tirelessly to not only get through this crisis, but together, make NCM an even stronger company. Thank you all for joining us, and I hope that someday soon, I'll see you all at the movies. Until then, I hope everyone stays safe and healthy. Thank you.

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