Greetings and welcome to the National CineMedia, Inc. Q2 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ted.

Thank you, Laura and good afternoon everyone. I am 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 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. And now, I will turn the call over to Tom.

Thank you, Ted and good afternoon everyone. Welcome to our NCM second quarter earnings call. Before we get started, I would like to again thank everyone within and outside our NCM family for all they are doing during this challenging time. I hope everyone is staying safe and making every effort to keep yourself, your loved ones, your colleagues and your community healthy. Today, I will be providing a high level update on what we have been doing to adjust our business in response to the ongoing challenges presented by the COVID-19 pandemic. Ted will then provide more details about our second quarter and plans to continue to navigate these extraordinary and unprecedented times and position the company to hit the ground running once studios begin to release new films and theaters reopen later this month. And then, as always, we will open the line for your questions. After a strong start to the year, no one could have predicted how profoundly the COVID-19 pandemic would impact all our lives. As discussed during our last call when the theaters were forced by local governments to close and film release schedules began to be pushed back, we immediately took steps to build liquidity and cut our operating costs, while at the same time selling in the advertising marketplace that continue to be very active. While almost all the theaters remain closed throughout the entire second quarter, our sales team continues to work with clients to shift existing commitments to future periods and negotiate new business. I am very appreciative and proud of all the hard work our team has been doing during the crisis as it has positioned us very well for when theaters begin to reopen. NCM continues to benefit from our highly variable cost structure and the aggressive steps…

Thanks, Tom. As Tom mentioned, with theaters closed, we only recorded a small amount of digital revenue during the current quarter and so I will focus most of my comments on providing an update on our liquidity position and our monthly operating expense, along with capital expenditures and debt service obligations. Then as always, we will open the call to your questions. The impact of COVID-19 on our second quarter and year-to-date results makes an analysis of our revenue and adjusted OIBDA not meaningful as it does not represent fairly our ongoing business. Also, our 10-Q was filed this afternoon and we have provided a supplemental presentation of our Q2 and year-to-date results with comparison to prior periods on our website for your reference. For the second quarter, our total revenue was $4 million compared to $110.2 million in Q2 of 2019 due to the temporary closure of almost all the theaters in our network in response to the COVID-19 pandemic. The revenue recognized in the second quarter of 2020 was primarily related to revenue associated with our digital service offerings. That revenue included both sales by our digital group as well as our local sales personnel. In fact, our local sales team was able to convert $1.3 million of on-screen ad business to our digital platform in the quarter. Due to the absence of any in-theater advertising revenue, total Q2 adjusted OIBDA was negative $12.7 million versus a positive $50.2 million in Q2 of 2019. It is important to note that NCM LLC’s theater access fees, network affiliate payments, and platinum revenue share payments are driven by attendance, operating screens, and revenue, and therefore were not incurred while theaters were closed. Additionally, through a disciplined and multifaceted approach, once all our initiatives were fully implemented in April, we reduced…

[Operator Instructions] The first question comes from the line of Eric Wold with B. Riley. You may proceed with your question.

Thank you. Good afternoon, guys. A couple of questions. I guess, one, you talked about continuing to maintain and build up a healthy pipeline of ad commitments, while theaters remain closed along with kind of shifting those commitments from prior periods into kind of the upcoming periods. How do you expect that to be handled under an environment of limited impressions when the theaters begin to reopen in terms of how those dollars are allocated between what’s going to be a diminished amount of impressions?

Well, it’s going to come down to who has commitments and who wants to use them regarding any period in time. Remember, flights have to line up ultimately to when a brand or an agency wants to use the inventory, so the first thing you got to do is marry up timing because not everybody wants to run the minute Tenet starts. Some people do, some people will want to wait. So, the first thing we have to do is look at it from a timing point of view. And then, we will allocate it in the most fair way we possibly can across all of our clients and obviously, we are going to start doing that now that we know the Tenet is what appears to be firm, we are in the process of doing that and Cliff and his team in the sales planning team are all working furiously on getting that balanced and worked out and that’s going to be an ongoing process, week-to-week and month-to-months really for the rest of the year.

Okay. And how does that work kind of with new advertiser coming in? Obviously, someone wants to advertise, let’s say, in January and February of next year, are they kind of – if they come in now, are they kind of back of the line in terms of to kind of go back through everyone else, whose kind of in the commitment pool and see if they want to go there first before you kind of open to new people coming in or is that not the way it works?

Cliff, do you want to answer that question?

Yes, sure. So, we will be actively participating in the upfront, which a lot of people place calendar money for January through December of ‘21. And we have a gauge, our planning group has a gauge of what our current obligation is for people who have committed to us and we will have a pretty good estimate based on what we think attendance will be based on how much new money we can take in. So, it’s a little bit – it’s a little bit of juggling, but – and everyone understands it. We are going to be transparent and share all the data with them and we will do the best we can to maximize every dollar.

Clearly, it doesn’t sound like that’s impacting the ability to get new people to commit dollars. Even with that increased competition, they are willing to kind of get in the pool, so to speak.

That’s right, that’s right. I think – I would like to really shout out the relationship that Cliff and our senior ad sales guys have had with the ad community in many cases for 20 years to 30 years and it’s at times like this, where there is still some uncertainty, but also a lot of potential that the relationships that he and Scott and the other key senior people have built, it gives us – puts us in a really good position compared to other media companies that may not have the same experience level that we have. So, the relationships matter and in this particular case, you will see the benefits of it for NCM.

Okay. And final question from me, with the – with kind of the big pool of committed ad dollars out there and obviously, competition for the impression, how should we think about CPMs and margins, given what I think would be – I may be wrong, an inability kind of squeezed scatter ads into the mix, given the level commitments already there?

It would be really difficult to give you an honest answer, but I will try to give you a forecast. Having actually not been in the market with new inventory for four months, it’s a little difficult to forecast what CPMs are going to be. What I will say is that the industry going into Q4, not just the cinema advertising industry, but the media industry overall, is expected to have lower budgets and lower CPMs. I think if you are going to be flat, you are going to be happy. I think across the board most CPMs are going to be down, at least, for the next probably quarter or two. Hard to say what’s going to happen for the rest of 2021, but – I don’t know if you want to add anything to that, Cliff, based on your end market sort of experience lately.

Yes, the one thing I would add is, a lot of the business for fourth quarter is already pre-negotiated. So, CPMs are established. So, really your question is more relevant for ‘21 than it is for fourth quarter.

Okay. [Operator Instructions] Our next question comes from the line of Anthony DeRosa with [indiscernible]. You may proceed with your question.

Hey guys. Thanks for taking my call. I just had a real quick question here. Since the theater is down and your theater experiences are nil, what’s the additional revenue resources you guys have been tapping into on the online OTT markets?

I am going to let Cliff answer that first, but let me start by saying we have been building a digital business for over 3 years now. And ironically, the only form of revenue we created on the digital side or – our company created was monetizing both our own and owned assets as well as selling them to third parties. So, Cliff, you can give a little more color on the digital revenue and where that’s coming from and the benefit to our company.

Yes, the majority of the digital revenue came to our local sales team who were able to work with their clients to shift money that was committed to us on screen. With some of our digital product that could be mobile, we also sell over-the-top impressions for third parties. Our local team did a fantastic job of converting revenue and that’s what a 100% of that revenue that Tom talked about is.

Yes. Well, one last thing to tap off from that. Now that most of the major studios are pushing toward the OTT for releases, are you guys looking at maybe possibly doing some synergistic work with like Netflix, Prime, or [indiscernible] or any of these other streaming networks that are growing by the month?

Yes. Streaming is probably our most important, if not our biggest category and we expect – and I even mentioned this, two quarters ago, we expect the biggest growth we have is going to come from the streaming players. They love the fact that they can reach millennial and Gen Z moviegoers in a very efficient way. Historically, people like Amazon and Hulu and others have always come to our platform. So, we expect as those industries continue to invest in marketing, that we will benefit more so than even our market share from those types of advertisers.

Great. Thank you, guys. I will be watching and following you guys. Thank you.

Alrighty.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn this call back over to Mr. Tom Lesinski for closing remarks.

Okay, thank you. Our NCM leadership team, our Board of Directors and our employees remain deeply committed to position our Company to weather this crisis and come out of this pandemic stronger than ever. As of today, our three founding members, the largest theater circuits in the US, AMC, Cinemark, and Regal are planning to reopen their doors and welcome audiences back to the movies beginning later this month. Once that happens and attendance levels begin to reach, and we believe that we are well positioned to deliver on the pillars of our growth strategy that we launched last year that included record Q4 2019 ad revenue and also generated free cash flow growth, stock price and dividend appreciation for our shareholders that existed prior to the start of the COVID crisis. I would like to close by once again thanking all of my NCM teammates, our Board of Directors, our cinema partners, lenders, and other business partners for their support through this difficult time. Film has always been a unique way of sharing stories of humanity, love, justice, and change that help bring people together and I look forward to the day soon when we can all get back together and go to the movies again. Thank you for joining us on our call and I hope everyone continues to stay safe and healthy. Thank you.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.