Greetings and welcome to the National CineMedia, Inc., Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Ted Watson, Senior Vice President of Finance. Thank you, sir. You may begin.

All right. Thank you, Victor. Good afternoon, everyone. I am joined today by our CEO, Tom Lesinski and 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 and 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 our 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. Welcome to our fourth quarter and full year 2020 earnings call. I hope that you're all continuing to stay safe and healthy and the year is cautiously optimistic as we about the positive impact of the COVID-19 vaccine rollout. We continue to be confident that once the vaccine rollout achieves critical mass later this spring and early summer, people will flock back to the movies after a year of being locked down. Today I'll provide a high level update on steps we've been taking to not only enhance our liquidity position, but also to expand, diversify and improve our business despite the ongoing challenges presented by the COVID-19 pandemic. With our recently announced bank facility amendment that has provided covenant relief through Q3 2020 and a new $50 million debt facility, which will provide additional liquidity for the company to continue to execute on its growth initiatives we believe we are very well-positioned to weather the waning months of the pandemic. Ted will provide more detail on how we continue to manage our expenses and our overall liquidity that will allow us to continue to navigate these extraordinary times and to ensure that the company is ready to quickly benefit from the return of movie audiences that will now start in Q2 as new films begin to get released and then as always, we'll be opened for questions. Looking back on the fourth quarter of 2020 it should come as no surprise that it continues to be a challenging time for our business and the entire out of home entertainment and advertising industries. As of the end of December, 60% of our theaters in our national cinema advertising network remained closed due to State and local COVID-19 restrictions and many continue to operate…

All right, thanks Tom. As Tom mentioned, despite the impact of COVID-19, we've made significant progress over the last year to bolster our liquidity position while actively growing our network and diversifying our lines of business. With up to 60% of our network theaters closed during the fourth quarter and over 50% still closed, we recorded $15.7 million of Q4 revenue an increase of 162% over Q3. Obviously the impact of the COVID-19 pandemic on our business makes an analysis of our revenue and adjusted OEBITDA versus prior periods not meaningful as the current results do not purely represent our ongoing business. Therefore, I will focus most of my comments today our current improved liquidity position and our success in limiting our monthly cash flow burn rate while minimizing the impact of the longer term prospects of our business. Due to our efforts to reduce our operating expenses, total Q4 adjusted OEBITDA was negative $9.9 million, a 12% and 22% improvement over the $11.2 million and $12.7 million negative adjusted OEBITDA recorded in Q3 and Q2 respectively. The combination of our highly variable operating cost structure and our proactive overhead cost reductions allowed us to limited our adjusted OEBITDA losses during a period where our Q4 network attendance was down 92% compared to the same period in 2019. Our Q4 average burn rate was reduced to approximately $11 million per month versus $12 million and $13 million in Q3 and Q2 respectively. The majority of our operating cost reductions have related to personnel. During Q4 over 40% of our employee base were furloughed, eliminated or had salary reductions of up to 50%. The remaining employees have their salaries reduced by up to 20%. These additional cost reduction measures reduced our core operating expense in Q4 to $5.2 million per month…

[Operator instructions] Our first question comes from Eric Wold with B Riley Securities. Please proceed with your question.

Just couple of questions, I guess one you incent to kind of what you're even seeing with the advertising pipeline in recent weeks, New York was announced open vaccine distribution stabilizing, what in recent weeks versus what you saw in Q4 in terms of the trend and then turning to your sense of the level of upfront commitments still in that pipeline as the films are to be shown, versus what you will be leading on the scatter demand?

I'll answer the first question and I'll the second one over to Ted, what's interesting in our company is every week we have the entire sales team on phone calls and I always listen into those calls and in the past two to three weeks given the positive news on vaccinations and theater openings in major markets, the amount of volume and the amount of activity associated with what's happening in that space has significantly increased and I was really pleased to hear that after a relatively long period of time where many of our biggest advertisers were sitting on the sidelines. So I was highly encouraged by the amount of activity in the quality of the RFPs and negotiations and discussions happening with advertisers. So they see the light at the end of the tunnel as do we and part of that's really a testament to the fact that we've kept our sales people engaged with our biggest agencies and clients for the last year to make sure that cinema advertising was really forefront and always something that is part of the media mix. As relates to where we are upfront, Ted do you want comment on that in terms of pipeline?

Yeah Eric, we're not giving any specific guidance on the pipeline at this juncture. What I will tell you is that it's clearly second half of the year pipeline that's really what we're talking to folks and looking at commitments. So I would say that historically the upfront is call it 65% of revenue and scatters the other 35%. Obviously I think very well it probably be flipped to some degree this year, higher scatter revenue, but there is a solid pipeline in the back half of the year and specifically into Q4 is what I would say.

And then just my final question on the digital out-of-home opportunity. You clearly got into this for longer term opportunity to hand. Any way you can give a sense of your goals, your revenue goals under that segment over the coming years, how that margin profile, I know that you’ve been leveraging your existing sales force out of margin profile will look compared to the existing business and how much of an overlap is that between the advertiser and customer base of DOH versus in the theater . Is it a lapse as you can put together stronger campaign to combine all of that or is there enough differential now your TAM has improved in terms of new areas?

We guess a lot of questions so let me try to -- so it's okay, I'll try to remember them all, if I don’t, feel free to remind me. We started looking at diversifying our company's revenue streams long before COVID happened. It was part of our whole long-term planning process and the goal was always to try to find other digital out of home opportunities that correlate to the young demo that is so coveted in theaters. So when we looked at things, we looked at demo match and we also looked importantly at scale. We wanted to make sure that things were large. It's not much of a stretch to talk about restaurant goers and moviegoers, the dinner and movie concept has been part and parcel of American culture for a long time. So that was a natural one. In terms of giving you a sense of the size of it and where we hope to be, we're not really giving any guidance on that yet. What I will tell you though is we do expect this business to be meaningful in '22 and we believe this next six to seven months will be laying the foundation for that. The initial response we've gotten from advertisers as part of the dynamic of cinema and this is really positive and people get it and they get the correlation to it and I wouldn't want to understate the data piece of this, as all of these out-of-home initiatives involved a significant amount of additional data. There are opportunities for us to continue to core our out-of-home business beyond what we've announced. There is a major additional retail group that we'll be announcing in the next couple weeks. So this is something that's going to keep growing and we look at is as a real opportunity for our company.

Thank you. Our next comes from Eric Handler with MKM Partners. Please proceed with your question.

Just wanted to follow-up on Eric's question when you look at this, digital out of home business, are you already selling, are you up and running this business, so we'll actually maybe start seeing a little bit of revenue circuit start trickling in right now? Are there any incremental costs associated with this business, so just kind of think a little bit deeper into this business.

So the revenue will start trickling in. We've literally started positioning the product in the marketplace in the last month or so. We've hired head of that group. We're committed to having the right staffing for that group in addition to utilizing our substantial local sales force. I would look at the next six months as really building it out, but there will be some revenue this year and we're excited about it. Cinema will always be the most important thing to National CineMedia but it seems obvious with the infrastructure that we have and with the sales organization that we have and with our new digital systems that we've implanted, we can really optimize our overhead pursuing some of these alternatives. Anyway we’re a very invigorated sales team around right now and we're excited about marrying all these digital out of home opportunities with cinema and we do believe that one plus one is going to equal more than two in many cases like this. Was there a second part to your question? I want to make sure I answered it.

I have another question, with regards to adding another $50 million of liquidity in the fourth quarter, you already had a good amount of liquidity already. Is there any particular reason why you felt there was a need to draw down further and as you're thinking about the timing of that?

Yeah I'll take that. You're right Eric, we did preserve and we had a fair amount of liquidity, but the answer to your question is at the end of the day, it's to ensure that we get through the other side and really the main issue from our business is the working capital lag. So while we had plenty of cash, we do have to maintain a minimum liquidity of $55 million and so you think about the business ramping back up and as we start generating sales, our typical kind of days, sales outstanding is like 90 to 100 days. So we will have a little bit of a lag collecting that revenue from when it's recognized and that's really the primary reason for doing this.

The other thing I would add that answer just is that having that additional liquidity will keep us our ability to be aggressive on the digital out-of-home side as well as any acquisitions they may come up on the affiliate exhibition side. So those are other additional rationales for what we might do with that additional liquidity.

Our next question comes from Mike Hickey with The Benchmark Company. Please proceed with your question.

Hey Tom, thanks for taking my questions. I appreciate it. I guess the first question is just on the reserve [ph] obviously that was a trend going into I guess the pre-pandemic and accelerated obviously now just trying to operate without so much personnel. What are you seeing I guess in the auditoriums in terms of attendance behavior what's reserve 100% maybe at some are taking some of your affiliates and finding numbers?

It's really hard to draw conclusions in this particular time period just because of the odd restricted seating situation, the restricted number of screenings and most important a very limited release schedule in terms of what's out there. What I can say is without being too specific is in many of the key markets particularly in major states like Texas where there a lot of theaters open, the actual attendance levels and the consumer satisfaction is very high and encouraging and higher than we would have even thought, but I would be hesitant to extrapolate one market out to the rest. We know preliminarily that with the announcement in New York that there's been a lot of evidence about those kinds of restricted theaters already selling out, but I think we really need a couple of months of theater openings on a national scale and real movies to draw conclusions. I think from any conclusions from what happened during the pandemic would be really premature. Obviously we're keeping an everything happening, but I look at this as a very fall sensor reality in terms of the behavior particularly from a product point of view as you've seen in the way some of the movies have released.

Is there -- do you sense any push back from movie stations, the duration of the show time, is there some I guess nervousness of the duration there waiting for the movie to start.

We track this very heavily in our consumer studies and we haven't seen any negativities on that so far. Obviously, some of that we keep track of, candidly with the pandemic and with the processing of getting people through people have arrived generally earlier and they normally do, which is a good thing for us obviously. So it's really we're going to keep an eye on over the course of the next several quarters though.

How do you think about your overall screen network size Tom kind of, do you enforce this sort of the belief that may be overall we'll see a reduction in the screening from the US. Flipside of that is, it seems that the one big deal if you're talking on the affiliate side. So how you balance those two when you think about your total screening size over the next 12 to 18 months and thoughts on how screening is behaving and so what are the duopoly market between your NIM?

So the way we look at it is there's always room to grow our network. We believe especially not knowing what the consumer behavior is going to be like as it relates to post-COVID or as it relates to less theaters being opened that will continue to be aggressive in bringing new affiliates on board. Obviously we're very happy with the Harkins announcement and what that brings to our family, but as I've mentioned on multiple calls, we believe there's a real rationale to want to be part of the largest theater network and there is a real benefit to it for exhibitors. So you know not knowing what the screen count will be like or how many theaters may close over the next year or two, we look at our position of the marketplace as something that's attracted to distributors. So we'll continue to add affiliates as they become available. In terms of commenting on what our competitors are doing is I don't think it's something that we're prepared to do at this time.

Last question for me and I appreciate this is you mentioned the sales and models and this is now challenging environment and too severe compensation is commenced on variable. So just wondering how your sales team overall has held up. How much turnover you had if any and if there is sort of a time even after rebuild because you see or not?

I can bring Cliff on as a guest responded to this. Cliff are you there. Let me just phrase it by saying that due to Cliff's leadership which has been steady and significant, the loyalty that he has created not just with our sales team, but with our clients is really exceptional and the credit goes to him for where we are today, but also how we've weathered the storm. So in terms of any kind of significant attrition, I can tell you that we haven't lost a senior salesperson in the past year. Obviously there has been attrition at lower levels, but I'll let Cliff answer more specifically.

We've done a really good job at forming our team what's going on, keeping them in the loop and just ask them to have faith in the medium and the company and for the most part, we've maintain most of our people as Tom eluded to, yeah we've lost some lower level people, but I felt really good about the team we've put out on the field in just a month from now or whenever the movies open up and we're going to be ready to lock and we're going to be very competitive.

There are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks you may have.

Okay. As I mentioned previously, we're very well positioned for the future as we leave 2020 behind and focus on the road ahead and we're looking forward to the return of theater audiences as the COVID vaccine rollout accelerates and herd immunity takes hold. All of our research indicates strong consumer demand, see films on the big screen once again and with all the 2020 films delayed, many of them into '21, the film average is very strong in the upcoming years. So despite the challenges of 2020 and the hard work of our team to expand our network and begin to diversify our advertising impressions basically, we're very optimistic about capturing additional video advertising market share as TV GRPs continue to decline, which makes our young audience even more attractive to media buyers. I want to particularly thank our senior management team and our entire staff once again for all their hard work during these very difficult times and I want to thank our shareholders and lenders particularly for their support and patience. So we appreciate all of you joining the call and I hope that everyone continues to stay safe and healthy and look forward to seeing you very soon again at the movies, thank you.

Ladies and gentlemen, this concludes today's webcast and you many now disconnect your lines at this time. Thank you for your participation and have a great day.