National Cinemedia Inc (NCMI) 2015 Q4 法說會逐字稿

Greetings and welcome to the National CineMedia fourth-quarter and full-year 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Oddo, SVP of Finance. Thank you, Mr. Oddo, you may begin.

Good afternoon. 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, other than the 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 either at the end of today's earnings release or on the investor page of our website at www.ncm.com.

Now I'll turn the call over to Andy England, CEO of National CineMedia.

Thanks, David. Good afternoon, everyone. Welcome and thanks for joining us for our 2015 earnings call. Before we get into our results, I'd like to thank the exceptionally talented National CineMedia team for building one of America's premier video advertising networks. This team has established a strong foundation from which we can continue to build.

I'm extremely privileged to take on the CEO role with NCM, especially with the Company having just finished a year that posted both record advertising revenue and adjusted OIBDA. At a time when the entire video advertising landscape is shifting and brands are seeking better and more engaging ways to reach consumers, I'm very excited to be joining one of the top millennial networks in the country, and I look forward to working with our National CineMedia Team, our advertising clients, and all of our theatre network circuit partners to build on NCM's core business and advance our key strategic initiatives.

With that said, I'd now like to spend a few minutes highlighting the Company's record fourth-quarter and annual results, our progress against the business plan, and how we begin to plan for the future. David will then provide a more detailed discussion of financial performance for Q4 and all of 2015, and provide guidance to Q1 and full year 2016. Then, as always, we will open the line for questions.

We are very pleased with our record fourth-quarter advertising revenue and adjusted OIBDA results, which exceeded our guidance ranges and increased 11% and 4%, respectively, versus record Q4 revenue and adjusted OIBDA in 2014. This outstanding performance was driven by increases in national advertising CPMs, a strong demand in the advertising scatter market during the fourth quarter, and significant growth in our local and regional advertising business, as the Q4 box office, fueled by the success of Star Wars: The Force Awakens, created strong interest in our cinema advertising products.

We're even more pleased with our record annual advertising revenue and adjusted OIBDA results, which increased 13% and 15%, respectively, versus full year 2014. Our annual performance was driven by increases in both utilization and CPMs for our national advertising business, plus an increased number of larger regional contracts for our local and regional advertising business.

2015 was a blockbuster year for our national business, driven by a strong upfront and a healthy scatter market. This resulted in upfront allocations that drove higher inventory utilization rates in lower demand periods and drove higher CPMs in higher demand periods as inventory supply tightened.

Our dynamic pricing strategy also drove higher CPMs around tent pole films and other high demand periods, while at the same time allowing for pricing flexibility around softer demand periods. National CineMedia's presence during the main broadcast week at the May upfronts in New York has helped to establish our Company as a serious competitor in the video advertising marketplace.

The success of this upfront strategy has allowed us to be a more substantive and timely part of the discussion with marketers as they evaluate our highly engaging, state-of-the-art video advertising network among an increasingly fragmented media landscape. And the results are speaking for themselves. As discussed on our Q3 earnings call, we had another strong upfront going into 2016, proving that our network continues to gain standing and provides the value that advertisers are seeking.

Having said that, going forward, we do not intend to update our upfront or booked-to-target percentages as we believe it does not provide meaningful insight into business performance. While we continue to believe that booking a majority of our national revenue upfront is healthy for our business, the optimal balance of upfront commitments and bookings versus future scatter market expectations will vary based on market conditions in any given period. We will continue to provide revenue and adjusted OIBDA guidance and high-level commentary as appropriate.

Turning back to our upfront discussion, as part of our upfront strategy success, I'm glad to report that we also continued to expand and diversify our national client base in 2015, adding 46 new national clients in 24 different industries. As the landscape changes, a major challenge for mass marketers these days is reach, and since National CineMedia can offer that reach, particularly with millennials, we are continuing to attract new major national brands who are at the forefront of media to the big screen.

During Q4, we saw the most significant spending increases from clients in the cable TV, video game, and pharmaceutical categories, with some declines in the Internet sites, electronics, and personal care categories. For the full year, we saw the most significant spending increases from clients in the import auto, QSR, apparel store and military categories, with declines in the movie studio, home video DVD, and domestic auto categories.

Excluding beverage, NCM's top three industry categories, entertainment, auto, and telecom, made up 42% of our total 2015 national ad revenue, down from 44% in 2014. These new additions to our client roster and changes in our category mix resulted in the greater diversification of our national client base, which is good for the overall health of our business.

In addition, we are continuing to seek out unique ways to acquaint new clients with our medium. For example, National CineMedia was recently appointed as the official representative of the Cannes Lion festivals in the US, a partnership that we believe will help us build new relationships with potential clients through our support of both the American and global advertising creative community.

Turning to our local and regional advertising business, for the fourth quarter the Company posted the highest local and regional revenue of any quarter in its history, as an increase in the value of larger regional contracts drove a revenue increase of over 40% versus Q4 of 2014. The box office and buzz surrounding Star Wars: The Force Awakens, in December, also drove interest in our local video advertising product as theatre patrons often show up to the theatre even earlier for blockbuster films.

We also began to see the benefits of filling both open and newly created sales positions for the expansion of our local sales force that we announced last August. While ramp-up time can be difficult to predict and varies by individual salesperson, we expect this new sale structure will allow us to expand utilization and revenue on underperforming screens over time.

We also recently announced a partnership with STRATA, a leader in media buying and selling software, which will allow us to participate in the spot TV advertising marketplace for the first time, with access to STRATA's extensive client base of agencies.

Lastly, as we enter another political year in which brands may be forced out of TV due to tight inventory, preemptions, or may simply not want to be adjacent to negative political ads, the National CineMedia network remains a politics-free zone in 2016. This creates increased opportunities for our local business by enabling advertisers to reach their customers in a positive and highly engaging entertainment environment.

Consistent with the growth of the overall online and mobile advertising marketplace, we experienced strong online and mobile revenue growth of 86% and 27% for Q4 and full year 2015, respectively, versus 2014. While online and mobile revenue remains a relatively small part of our total advertising revenue, our strategy of packaging our in-theatre inventory with our online and mobile inventory is important as it gives marketers a unique way to connect with our attractive movie-going audience.

The 2015 launch of National CineMedia's Cinema Accelerator, a new online product, which provides even better online targeting of audiences before, during, and after the movie, proved to be a hit with clients who realized the benefit of connecting the dots of the movie-going experience to create a more cohesive cinema marketing plan. The ongoing expansion and improvement of our national network, along with better local and regional coverage, continued to improve competitive positioning across our business last year.

At the end of 2015, we had over 20,300 network screens and coverage in 187 of the 210 TV DMAs, with digital projectors for all network screens and approximately 98% of network attendance receiving the FirstLook pre-show over National CineMedia's digital distribution network. As we begin to compete more aggressively with the shorter lead times and robust audience targeting capabilities of other mediums, it is increasingly important that all of our network screens are part of our digital distribution network, and we are working toward that end.

One of the key strengths of our network continues to be the stable impression base provided by our exhibitor partners and by the high-quality movie studio content created for their theatres. While our current cinema network provides strong national coverage, our focus on the expansion of our overall impression base and improved geographic coverage should allow us to compete more effectively with traditional and emerging video networks.

In addition to Cinetopia joining our network last April, and Santikos Theatres joining our network in Q1 of 2016, we continue to have promising conversations with several theatre circuits that are interested in benefiting from the high revenue per patron that National CineMedia generates. During 2015, we renewed and extended agreements with 12 of our existing 43 affiliate theatre circuits, increasing our attendance weighted average affiliate contract term to over six years as of year-end 2015. Including founder member agreements that have approximately 21 years remaining, our attendance weighted average contract term across our entire network is approximately 19 years.

National CineMedia's success is not only good for us, it's good for our circuit partners as well. During 2015, our overall advertising revenue growth significantly benefited our affiliate circuit partners. In fact, Q4 and full-year affiliate revenue share payments per average affiliate screen increased approximately 10% and 12%, respectively, versus Q4 and full year 2014. With this strong growth in affiliate payments and the quality entertainment experience that National CineMedia's FirstLook pre-show provides to theatre patrons, I'm confident that we will continue to be the first choice for affiliate circuit partners in the future.

It's also important to note that when National CineMedia's founding members acquire theatre circuits, such as AMC's acquisition of our Starplex affiliate last December, the acquired theatres immediately become part of the higher-margin founding member fee structure and related long-term contracts. That's increasing operating cash flow and average contract length unless the acquired theatre circuit is under contract with another advertising provider.

As such, there are 223 additional screens with approximately 10 million annual attendees that were acquired by the founding members in 2013, that will join the network in November 2018, once their contract with another advertising provider expires. Until then, the founding members will continue to make integration payments to National CineMedia, LLC.

And last, but certainly not least, from an internal National CineMedia systems perspective, as announced last May, we began increasing investment spending in 2015 to accelerate the timeline to complete the upgrade of our sales proposal and inventory management systems and development of new audience targeting systems and data management platforms. The integration of these improved systems with our digital distribution network will allow further shortening of campaign lead times and provide more targeted and efficient campaigns and detailed reporting to clients.

We have also begun to build a database of cinema audience data through relationships with suppliers, including both Movio and Fandango, and through a wireless beacon network that we currently have installed in 114 of our network theatres. First-party cinema audience data, along with a host of additional second- and third-party data sources, will feed into a new data management platform currently being built with a partner that will be announced soon. This new DMP will allow us to provide marketers with the expanded audience targeting and data analytics capabilities that is a necessity in today's more competitive video advertising marketplace.

During my first two months here at National CineMedia, I've had the pleasure of meeting with and getting to know many of our employees, advertising clients, theatre circuit partners, investors, and analysts. All these discussions have reinforced that we have a great core cinema advertising business.

Moving forward, we'll focus on strategies that ensure we are the first choice provider of marketing solutions for our advertisers and theatre circuit partners, searching for and evaluating contiguous business opportunities and partnerships that leverage our core competencies, making smart choices around discretionary spending that's aligned with our broader strategies, and investing in our people and building our capabilities. The team and I will continue to drive towards these objectives.

Finally, I'd like to note that dividend preservation and future dividend growth potential that aligns with our after-tax cash flow remains a top priority, and any future changes in operating strategy will take this priority into consideration. We are committed to returning a substantial portion of our after-tax distributions to our public stockholders while maintaining a reasonable cash balance.

Before I turn the call over to David, I want to congratulate our National CineMedia team members for a successful 2015, and thank everyone here at National CineMedia, along with our stockholders, for their continued support through this transition. I'm excited to contribute my extensive media and marketing background to National CineMedia's exceptionally talented management team, as we improve the Company's value proposition to marketers and enhance its market position to drive value for our stockholders, employees, and circuit partners.

Now, I will turn the call over to David to give you some more details concerning our Q4 and overall 2015 operating performance and more specific color that supports our 2016 guidance.

Thanks, Andy. For the fourth quarter, our total revenue increased 10.8% versus Q4 2014. Driven by a 5.7% increase in national advertising revenue and a 41.6% increase in local and regional advertising revenue, partially offset by a 31.4%, or $3.2 million, decrease in beverage advertising revenue.

With the higher Q4 local and regional advertising revenue growth, our Q4 advertising revenue mix shifted to 66% national, 29% local and regional, and 5% beverage, versus 69%, 23%, and 8%, respectively, for Q4 2014. With the higher full-year national advertising revenue growth, our full-year advertising revenue mix shifted to 69% national, 24% local and regional, and 7% beverage, versus 66%, 25%, and 9%, respectively, for FY14.

For the fourth quarter, the 5.7% increase in national ad revenue was driven by a 10.2% increase in CPMs, partially offset by a 6.2% decrease in impressions sold versus Q4 2014. This increase in CPMs was primarily due to another quarter of strong scatter pricing, while the decrease in impressions sold was due to a decrease in inventory utilization to 132.1% from 138.7% on a 2.9% decrease in network attendance. Excluding the additional week in our fiscal fourth quarter of 2014, our Q4 network attendance would have increased 2.7%.

For the full year, national ad revenue increased 19.6% versus 2014, driven by a 14.2% increase in impressions sold and a 6.7% increase in CPMs. The increase in impressions sold was due to an increase in inventory utilization to 128.3% from 115.7% on a 1% increase in network attendance, due to an overall expansion of our client base related in part to the success of our strategy to compete in the national television upfronts. Our higher 2015 CPMs reflected the success of our upfront strategy and strong scatter pricing during our higher demand Q2 through Q4 periods.

We entered the fourth quarter of 2015 with a $2.9 million make-good balance, and as of the end of the year, we had a $3.4 million make-good balance, as high December advertising demand pressured our inventory availability. Our Q4 local and regional advertising revenue increased 41.6%, due to a 35.2% increase in average contract value and a 4.2% increase in total number of contracts, versus Q4 2014. The significant increase in average contract value was primarily due to a $9 million, or 124% increase, in the total dollar value of contracts over $100,000.

For the full year, our local and regional ad revenue grew 10.5%, versus 2014, and was primarily driven by a $6.9 million, or 21.7%, increase in the total dollar value of contracts over $100,000. The increase in volume and value of these larger contracts was due to increased sales through agencies that are responsible for larger regional advertising budgets, and client interest related to the record 2015 box office.

Q4 beverage revenue decreased 31.4%, or $3.2 million, versus Q4 2014, driven by the 14.4% decrease in 2015 beverage CPMs that was tied to the percentage decrease in 2014 national segment one CPMs, which is the segment closest to the advertised show time. Approximately $1.4 million of this decrease in Q4 beverage revenue was due to one of our founding members reducing their beverage advertising from 60 seconds to 30 seconds beginning July 1, 2015.

You should note that this beverage inventory is available for sale to other national advertising clients. For the full year, beverage revenue decreased 21.9%, or $8.4 million, versus 2014, driven by the 14.4% decrease in beverage CPMs, with approximately $2.7 million related to the reduction of time by one of our founding members.

Total Q4 adjusted OIBDA increased 3.7% on an adjusted OIBDA margin of 55.1%, versus 58.9% in Q4 2014. This Q4 margin decrease related to higher commission and bonus expense related to better performance against targets in 2015, compared to 2014, and an approximate $2 million reduction in bad debt reserves during the fourth quarter of 2014 that did not occur in 2015, and the decrease in 100% margin beverage revenue previously discussed, partially offset by the increase in high-margin national and local and regional ad revenue.

Full-year adjusted OIBDA increased 15.4% on an adjusted OIBDA margin of 51.5%, versus 50.6% in 2014. This full-year margin increase related primarily to the increase in high-margin national, local, and regional ad revenue, partially offset by the decrease in 100% margin beverage revenue and the Q4 2014 and 2015 expense items just discussed.

We recorded $900,000 of AMC and Cinemark integration payments for the fourth quarter versus $800,000 for Q4 2014. For the full year, we recorded $2.7 million of these integration payments versus $2.2 million in 2014. You should note that integration payments are added to adjusted OIBDA for debt compliance purposes, and NCM LLC's pro rata available cash distributions to the three founding members in NCM, Inc., but they are not included in our reported revenue and adjusted OIBDA, as they recorded as a reduction to net intangible assets on our balance sheet.

Looking briefly at diluted earnings per share, for the fourth quarter, we reported GAAP diluted EPS of $0.11 versus $0.14 in Q4 2014. Excluding terminated merger costs, an income tax reserve, and certain other nonrecurring items, the diluted EPS for Q4 2015 and Q4 2014 would have been $0.20 and $0.19, respectively.

For the full year, we reported GAAP diluted EPS of $0.26 versus $0.23 in 2014. Excluding these same items for the full-year 2014 and 2015, the diluted EPS for 2015 would have been $0.51, an increase of 42%, versus $0.36 in 2014.

Our capital expenditures were $4.7 million in Q4 and $13 million for the full year, versus $8.8 million for full year 2014, or just 2% to 3% of total revenue in both years. While our 2015 capital expenditures came in at the low end of the range provided on our last earnings call, the increase versus 2014 was primarily due to the acceleration of the development of our inventory management and audience targeting systems to more effectively compete with other video advertisers.

Moving on to our balance sheet, our total debt outstanding at NCM LLC, as of the end of 2015, was $936 million, versus $892 million at the end of 2014. This increase was due to the increase in our revolver borrowings that was driven by the payment the Screenvision termination fee and merger-related costs by NCM LLC, primarily in Q1 of 2015, and timing of available cash distributions and receivables related to higher 2015 revenue.

As discussed on our previous earnings calls, our revolver balances will decrease by $25.5 million when the remaining merger-related expenses are reimbursed through a reduction in available cash distributions, during the third quarter of 2016, as required by our NCM LLC operating agreement.

Our average interest rate on all debt was approximately 5.3% at the end of 2015, including our $270 million floating-rate term loan bank debt and revolver credit facility that had an average rate of approximately 2.8%. Excluding revolver balances, 69% of our total debt outstanding at the end of 2015 had a fixed interest rate.

Our consolidated cash investment balances as of the end of 2015 increased by approximately $4 million to $85 million from the end of Q3 2015, with $82 million of this balance at NCM, Inc., and $3 million at NCM LLC. Excluding tax reserves and after the payment of the recently announced $0.22 per share dividend to be paid on March 24, 2016, we would be able to pay our current dividend per share for over four additional quarters even if no cash were distributed up to NCM, Inc. from NCM LLC.

Our pro rata -- I'm sorry, our pro forma net senior secured leverage at NCM LLC as of the end of 2015 was approximately 3.3 times trailing fourth quarter adjusted OIBDA, which is well below our senior secured leverage maintenance covenant of 6.5 times. You should also note that while we have no NCM LLC total leverage maintenance covenant, our total leverage at NCM LLC, net of NCM LLC cash balances, was 4.1 times at the end of 2015.

Shifting to our 2016 guidance, Q1 revenue is expected to be in the range of $71 million to $75 million, and adjusted OIBDA is expected be in the range of $20 million to $24 million, versus a tough comp that posted record Q1 revenue and adjusted OIBDA in 2015, that grew 10% and 23%, respectively, versus Q1 2014. These Q1 ranges project low single-digit decreases in both national and local advertising revenue versus Q1 2015.

While Q1 2016 national scatter revenue is up versus Q1 2015, our Q1 2016 total national revenue is being impacted by a greater percentage of upfront commitments, including content partner commitments, that are allocated to the second half of 2016, versus comparable upfront commitment allocations in 2015. We also built in some downside protection should our Q1 make-good be higher than past experience in case the March box office does not perform as well as expected. These factors are partially offset by an expected increase in Q1 2016 average CPMs versus Q1 2015.

Beverage revenue is projected to be down approximately 10%, due primary to the decrease in time by one of our founding members, partially offset by a beverage CPM increase for 2016. You should note that Q1 is historically our lowest revenue and adjusted OIBDA quarter in any given year.

For the full year of 2016, total revenue is expected to be up 4% to 6% versus 2015, or in the range of $463 million to $473 million, and adjusted OIBDA is expected to be up 4% to 8%, or in the range of $238 million to $248 million. This annual guidance provides for some downside protection should the 2016 scatter market prove to be softer than expected, the cancellation of upfront commitments be higher than past experience, or our 2016 upfront not be as successful as last year, which could reduce Q4 national revenue to a level lower than projected.

In addition, the following are additional assumptions that were made in preparing the projections that underlie our 2016 guidance. We have planned for our 2016 national advertising revenue to grow mid-single digits.

You should note that while we have been less exposed to the scatter market due to our upfronts over the last two years, we may continue to see variability in our CPMs in utilization from quarter to quarter, depending on scatter market demand, client mix, content partner spend, inventory availability, and level of upfront cancellations. We will continue to use our standard 30-second units as a denominator in our national utilization calculations to ensure period-to-period comparability.

As we have mentioned before, for 2016, we can expand the FirstLook show to a total of 16 30-second national units that could result in utilization of over 100% if there is sufficient market demand and we are comfortable that an expanded pre-show will not get too cluttered and reduce ad effectiveness. We have planned for our 2016 local and regional advertising revenue to increase mid-single digits. This growth is expected to be driven primarily by low single-digit organic growth, efficiencies provided by the expansion of our local sales force, the addition of the Santikos affiliate circuit, and the opportunity to increase regional revenue from our participation in the national spot market.

We have planned for our beverage revenue to be down low-single digits versus 2015, due to the 30-second reduction in time by one of our founding members that began July 1, 2015. This time reduction is expected to reduce our first six months of 2016 beverage revenue by approximately $3 million versus the first six months of 2015. As mentioned, this unit is available for sale to other clients that could help offset this decrease in 100% margin beverage revenue.

The $3 million impact of the time reduction during the first six months of 2016 will be partially offset by a 5.7% increase in our 2016 beverage CPM versus 2015, as our contracts with our founding members provide that our annual beverage CPM will increase or decrease by the same annual percentage change as our actual FirstLook segment one national advertising CPM during the previous year.

Adjusted OIBDA margins for 2016 are planned to increase versus 2015. This planned increase is primarily due to the planned increases in our high-margin national and local advertising revenue and an approximate $2.7 million OIBDA benefit related to the shift to the higher-margin founding member fee structure provided by the Starplex affiliate acquisition by AMC last December.

While we no longer have any Fathom Events revenue or adjusted OIBDA due to the sale of that business at the end of 2013, it's important to note that NCM LLC will receive approximately $5 million in note principal and interest payments in Q4 of 2016. This will be the third of six annual note payments with interest that we will receive.

While these payments are not included in adjusted OIBDA, they will be included in NCM LLC's pro rata available cash distributions to the three founding members and NCM, Inc. We are also planning to receive approximately $3 million of integration payments from our founding members in 2016. While these payments are not included in adjusted OIBDA, they will be included in our debt covenant calculations in NCM LLC's pro rata available cash distributions to the three founding members of NCM, Inc.

We expect 2016 CapEx to be in the $14 million to $15 million range, or approximately 3% of revenue, as we continue to accelerate management development related to our audience targeting software and sales proposals inventory management systems. CapEx related to digitizing our affiliate screens is expected to be slightly lower than 2015, but could increase should ongoing conversations with new network affiliates lead to additional contracts.

We expect 2015 interest on borrowings to increase slightly to $53 million, which includes approximately $50 million of cash interest, and $3 million related to non-cash amortization of deferred loan costs. In addition to the available cash distributed to NCM, Inc. from NCM LLC and consistent with prior years, we project an approximate $6 million cash benefit at NCM, Inc. due to the NCM LLC management fees, interest earned on NCM, Inc. cash balances, and net proceeds from the exercised employee stock options.

Lastly, as you model 2017 and after, I'd like to remind everyone that the attendance-based portion of our theatre access fee will increase 8% to $0.0816 per founding member attendee, from $0.0756 per founding member attendee. This will begin in 2017.

In addition to the annual 5% increase to the digital screen portion of our theatre access fees, we estimate this increase will add an additional $3.6 million to the attendance-based portion of our 2017 theatre access fee expense, based on current founding member attendance estimates. As the attendance-based portion of the theatre access fee only increases 8% every five years, the next increase will not occur until 2022.

Before we open the line for questions, I'd like to provide some information about our dividend. As announced earlier today, a $0.22 per share quarterly dividend has been approved by our Board of Directors that will be paid to stockholders on record on March 10, 2016. This dividend reflects approximate 6% current yield and our continued policy of returning a substantial portion of our free cash flow to stockholders.

Given our unique capital structure, a significant portion of our historical dividends have been a return of capital, and thus the after-tax yield to investors has been very favorable relative to other dividend-paying companies. In fact, 100% of our dividends paid during 2015 are classified as non-dividend cash distributions for federal income tax purposes. This information is posted in the investor relations section of our website, and stockholders should have received a Form 1099-DIV for the 2015 tax year.

That concludes our prepared remarks, and we'll now open the line for questions.

(Operator Instructions)

Eric Handler, MKM Partners.

Thanks. Andy, welcome to NCM. Quick question, now that you've been in the seat for a couple months, you're stepping in, the machine's running pretty well. Curious to see where you think you can have the biggest impact on the business?

And then looking at the overall business, and David, maybe could shed some light on this in terms of your guidance, how do you think of the balance between utilization versus CPMs this year?

Well firstly, thank you, Eric. I appreciate the question and the welcome. In terms of the biggest impact I think it's really about to your point this is a well managed business and it's a successful business and I see my job as to essentially accelerate that performance. So particularly when you look at the core business, we have a terrific core business, and my objective will be to bring in more circuits, bring in more advertisers, and enhance the business in any way I can to make sure that (inaudible) to see this is just a terrific solution in a fragmenting media world.

Secondarily of course I'll be looking to see where else we can expand from that platform. But it's really -- job one is about building the core business. Second part?

Eric, on the guidance for utilization in CPMs, we guided to our national ad revenue to be up mid-single digits and decided to just leave it at that. We're off to a good start obviously -- you know our upfront CPMs are up and we've just guided to Q1 CPMs being up as well. But we'll just leave those metrics sort of the fallout as they will throughout the year. Obviously it will be a combination of both in some way.

Thank you both.

Alexia Quadrani, JPMorgan.

Hi, thank you. This is Julie Yuan for Alexia. In a year when a lot of people are talking about fewer tent pole films and maybe a broader base of midsize films filling out the slate, how do you think this may affect your business and are there any particular benefits or opportunities from it or is it more of a headwind?

And kind of as a follow-up to that you've talked about before packaging different ad spots together so advertisers can hit their overall goals. And it seems like this might be more relevant this year with this slate of potentially a lot more smaller films, though. Do you think this process has gotten easier for the advertiser, or do you think there still needs to be progress here to make the experience easier or more seamless?

Well Julie, thank you for the question. Obviously this is my first year in the business and so I look at the film slates with a great deal of interest and as I talk to our founder circuits and I talk to my colleagues about film slates and what's a bigger or better film slate and what isn't, I'm certainly aware of what the consensus view is on 2016 and 2017.

But I'm also aware that the consensus view on Deadpool was that it was a decent movie that would do perhaps $60 million in its first weekend, and it did over the four day weekend, I think, $150 million. So you'll forgive me if I'm a little skeptical about the experts' views on what the slate's going to do in 2016, so. Net-net the slate matters. Clearly it matters, and if films do better it's certainly going to help us. It's our intention to make sure that we have such a strong platform that that's not the driver of our business, however, so we shall see.

I'm not sure I fully understood your question about packaging ads together. We typically do package ads together by rating. Obviously as we look to get smarter and offer our advertisers better solutions part of our intent going forward as we improve our inventory management system is to be able offer genres as well, and so we will be offering different packages and frankly more complex packages to our advertisers going forward. Not sure if that answers your question.

It's very helpful, thank you.

You're welcome.

James Dix, Wedbush Securities.

Good afternoon. Andrew, welcome. I guess my first question is just looking at the base of advertisers that you have like the categories, the verticals, what is that mix now as you look back at 2015 and where do you see particular upside as you look at the advertisers that use television versus the ones that use cinema?

I know there's always an issue of trying to get advertisers to get involved in some of your lower utilization months, but I'm just wondering when you look at the advertisers using the medium where do you see particular upside? And then I had one follow-up

That's a difficult one to answer, James, but thank you for your question. We do already have a tremendous base of advertisers. As mentioned, there are some categories where we do particularly well and it tends to be, candidly, those categories who are buying premium video.

So if you look across the broader $70 billion to $80 billion US premium video marketplace they're already buying the more expensive, higher engagement premium video. So those are at, if you like, our bread and butter. I think our opportunity to your push is to bring in more advertisers who might choose to advertise at a more financially acceptable time to them, and certainly CPGs for example would be one area.

But I think we have a whole lot of opportunity with other advertisers. I think the other opportunity of course we have is to have those advertisers advertise with us more consistently, and that will obviously be part of it as well, so to the extent that we can continually demonstrate success for their businesses by advertising with us, that's an opportunity as well

Great. And then just following up a little bit on the remarks you made about mobile. Where do you see the longer-term potential there? Because it always seemed to me as though there's been little bit of tension between the circuits and maybe you as an advert -- ad platform is that how do you integrate the mobile phone into a theatre experience?

But it does seem like there's a lot of upside potentially to integrate the mobile phone with your advertising. I'm just wondering whether you have any longer-term thoughts about where that should be going?

I think firstly -- I'd say certainly our founder circuits as represents in the Board meetings and elsewhere are very supportive of us chasing additional mobile advertising dollar. And I think as we look at the moviegoer we have an option to reach them before, during, and after their moviegoing experience.

And I think from a circuit point of view there's no issue with the before and the after. There's some discussion about that for the obvious reason that they ask that you mute your phone before the movie itself. So obviously they don't want other patrons to be disrupted. But beyond that I think they're very supportive and that's certainly an area we believe has potential.

Great, thanks very much.

You're welcome, thanks James.

Barton Crockett, FBR Capital Markets.

Great, thanks for taking the question. I was a little bit interested in looking at the guidance a little bit more. I guess really kind of two things in particular. One is you are guiding for revenue growth and OIBDA growth at about the same level, so not much in the way of margin expansion. But I would think your ad revenue is coming at a very high contribution margin and I would think that 4% to 6% revenue growth could be margin expansive.

Is there some type of unusual expense that is weighing on margins as we look ahead? So that's one part of it.

And another question I was curious about is you're clearly seeing lumpiness in revenues with the first quarter down but the full year up. Which quarters are kind of the inverse of what we've seen in the first quarter as you look ahead to the year? Where should we see more growth to kind of offset the step down in the first quarter?

Thank you, Barton. I'm going to just start and then I'm going to hand over to David. I think the first thing I?d point out is firstly we do have high gross margins to begin with, as you know. I'd also point out that if you look at cost base a significant part, in fact really over half of our costs, are either contractual or related directly to sales commissions. So we do have a cost base that is somewhat static but certainly a little opportunity for leverage. David?

Yes, Barton, one of the things that weighs down and has been weighing down, and will weigh down continue a little bit -- our margin is the change in the beverage revenue in the 30 seconds? reduction. As I mentioned we expected to be -- even with the increase in the CPMs of 5.7%, we expected to still be down low single digits on the beverage.

So I think if you exclude the beverage on both sides of revenue and OIBDA, you'll see a little bit more margin expansion there. Other than that there is really nothing else really to point to. Again we noted that we added some downside protection on the guidance there. What was the other part of your question on the quarters?

I was just wondering I mean if the first quarter is down and the full year is up where do we see good growth? Is it the third quarter, second quarter, fourth quarter? When you guys have mapped out the year what offsets this step down in the first quarter?

As I mentioned, we'll -- given you high level guidance sort of on where the upfront allocations are laying out, and when I gave the Q1 guidance I mentioned that our upfront allocations in 2016 are weighted more towards the back half of the year, so the third and the fourth quarter of the year. And -- versus if you looked at the same upfront allocations last year and this is inclusive of content partners as well. So it's just the way that the dollars are being spread throughout the year.

Okay, all right. Great, thanks a lot.

Thank you, Barton.

Jim Goss, Barrington Research.

Thanks. I would like to ask a little bit more about the first quarter decline, and the 30-second reduction related to beverage. I thought the beverage contract was the -- one of the ones that are sort of cast in stone. How did that develop and if you had to look at the comp issue, the beverage contract and the small size of the quarter, how do those blend into create the decline in the first quarter?

I mean, the beverage contracts basically say with our ESAs with the founding members that we have to provide them up to 90 seconds of advertising if they need it via their individual contacts that they have with Coke. And so that is what is set in stone. That has changed over the years so we were pointing out that one of our founding members beginning of July 1 of 2015 had reduced their beverage time from 60 seconds to 30 seconds.

And so that creates a comp issue on our beverage advertising all the way through June of this year. And so the first quarter we'll see a small impact from that, $1 million or $2 million there. As for the rest of the first quarter I just want to point out that again it's traditionally the lowest revenue in adjusted OIBDA quarter that we have in any given year. In fact, it's been around 10% or 12% of our OIBDA for the entire year, so I want to put that into perspective.

And again we had a record Q1 last year so it was a bit of a difficult comp as well. So only -- the numbers are so small in the first quarter that only a few million dollars makes it a big percentage change, so I wouldn't put too much stock in that. And again I just explained to Barton that the upfront and content part of our allocation just played out a little bit differently this year.

And also wanted to point out that what shows the health of the scatter market is that our scatter dollars are up from the first quarter versus last year's scatter dollars. And I also pointed out that we just wanted to create just a little bit of downside protection on the low end of our guidance range just in case the box office didn't perform as well as we expect in March

All right, that's good information. And Andy, I would add my welcome as well. And with the advertising background you bring to the table, you made an interesting comment about genre. Traditionally I think there wasn't a lot of matching of the advertising to the types of movies and maybe it's because things can be moved around sort of in a fluid fashion.

But are you thinking that that might be a way to improve the value to the advertisers by doing a better job of matching to the extent you can and then maybe command a higher price point for the ads?

The short answer would be yes, Jim. Thank you for your welcome. I think up until now the focus of our sales has been by rating, by G, PG-13, R, etc. And so yes the opportunity to advertise by genre essentially enables the market to better match against the target audience.

So that requires us to have the systems improvement on the inventory management side, but once we have that up and running that's our intent and obviously to supply the kind of data and analytics that will help the market make that match between the brand there and the target audience provided by the rest of the genres so the obvious benefit to us as being it's more efficient and drives a higher CPM.

Okay and one other question I have is the subject of make goods came up and in most broadcast settings, make goods are a cost. They've been less of a cost I think for NCMI because of the fact that you'd have available inventory so if -- they might almost be a benefit if you couldn't deliver all of the eyeballs in one period.

But you had spots available in the next period and you could run the ad then, and it would fill it in and sort of tighten up supply demand. Is that changing, or are you getting to the point where you don't have that availability or am I misreading that situation?

Yes, Jim, this is David. No, it hasn't changed. Our softer periods are generally -- when we report a make good at the end of the quarter, the next month has plenty of room to absorb that make good and if not then, then the following month as well.

And typically three out of our four quarters we've got a pretty soft month historically after the end of the quarter, January for example, April, October. July is the only one that sometimes we may have some make good that spills over into August and September, but nothing there has changed. We still recognize all the revenue.

Okay, thank you very much.

Thank you very much.

(Operator Instructions)

Anthony Nemoto, Credit Suisse.

Thanks for taking the question. I have a question around reserved seating. How are you guys thinking about that, and anything you're doing specifically in the mobile and online space that you're discussing earlier on the call to specifically approach that potential trend?

And then secondly, when can we expect to see impacts from the DMP and other analytics offerings in the numbers? Is this something -- is this an offering that you'll plan on looping into this year's upcoming upfronts? Thank you.

Thank you, Anthony. I think the first piece of that reserved seating, I think we shall see. Clearly, reserved seating has, and in particular recliner seats, etc, have worked well for the circuits and you see that continue to expand. From what I understand from the circuits there is a limit to where they can expand it based on the type of market and the sensitivity to pricing, etc.

We certainly think that that continues to give us an opportunity to market to those individuals and plan to do so as we do to all those folks who we can capture through our partnerships around data. In terms of the impact from our data and analytics, we plan to talk about that at the upfront. We believe we will be in a position to talk more clearly about data and analytics and what our plan will be and how it will help our business at the upfronts and obviously we will see how that plays out with our advertising customers.

Great, thank you.

Eric Wold, B. Riley.

Thank you, and good afternoon. There's understandably been some costs around the 2016 slate, tough comp to last year's record. And I have to assume that's playing into the guidance and upfront demand allocation from your advertisers. That being said, it's also pretty well believed that 2017 is going to be an extremely strong year once again with a return of a bunch of key franchises and tent pole films.

At what point if not now do you start having discussions with advertisers to lock in slots for next year? Are we likely to see that happen earlier than normal, and what are your thoughts on the impact on that to CPMs?

It's a good question. And I'm certainly in the learning curve as to the importance of the slate. I mean obviously a great slate brings in more moviegoers but how accurately we can gauge those slates beforehand seems to be an art rather than a science, to say the least.

With that said if you think about our upfronts this year we talked to our advertisers about really five quarters. We talked to them about the fourth quarter of 2016 all the way through 2017, and so that's exactly -- in May of this year in New York is exactly when we'll begin to really talk up the 2017 slate as well as the fourth quarter of 2016 slate. And to the extent that the advertisers share the prognosticators' views about the strength of that slate, that should help us.

Perfect, thank you.

Thanks, Eric.

There are no further questions at this time. I would like to turn the floor back over to Mr. England for closing comments.

Good, thank you. Well, thank you for joining us today. I'd just again want to reiterate my thanks to the National CineMedia team, particularly David Oddo and Jeff Cabot who for the last three years have been co-interim CFOs and done an exceptional job in those capacities.

We have an exciting business. We have a business that operates within a premium video space. We think we have lots of opportunity. Hopefully you began to get a sense of that on this call and I look forward to future discussions with you all both collectively and individually. Thanks very much.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.