National Cinemedia Inc (NCMI) 2016 Q2 法說會逐字稿

Greetings, and welcome to the National CineMedia second-quarter 2016 earnings conference call.

(Operator Instructions)

I will now turn the conference over to your host David Oddo, SVP of Finance. Please go ahead.

Good afternoon. I'd like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27a of the Securities Act of 1933, as amended, and Section 21e of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed in the risk factors contained in the Company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors.

Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found at the end of today's earnings release, which may be found on the investor page of our website at www.NCM.com. Now I will turn the call over to Andy England, CEO of National CineMedia.

Thanks, David. Good afternoon, everyone. Welcome, and thank you for joining us for our second-quarter 2016 earnings call. During this call I will spend a few minutes highlighting the Company's second-quarter results and progress against our 2016 business plan. David will then provide a more detailed discussion of financial performance for Q2 and provide guidance for Q3 and full-year 2016. And then, as always, we will open the line for questions.

I'm pleased that we were able to deliver solid second-quarter revenue and adjusted OIBDA results that exceeded the midpoint of guidance ranges, especially as we were up against a record Q2 2015 that saw revenue and adjusted OIBDA gross of 22% and 30% respectively versus Q2 of 2014. On the positive, our local and regional advertising business posted yet another record for second-quarter revenue, with growth of over 5% versus Q2 of 2015. However, as expected, the local and regional revenue growth was more than offset by lower national advertising and beverage revenue.

Our Q2 national revenue decreased approximately 6% due primarily to lower utilization related to a lower amount of content partner commitments allocated to the second quarter of 2016 versus comparable content partner allocations in Q2 of 2015 as well as client churn that could not be fully replaced during the quarter. This lower national utilization during the second quarter was partially offset by a 7% increase in CPMs that was primarily driven by higher upfront pricing versus Q2 of 2015. While I am of course disappointed that we weren't able to grow our national revenue versus record national revenue in Q2 2015, I'm encouraged by 6% growth in our total advertising revenue per attendee, as industry box office pullback versus a record Q2 2015 box office.

National CineMedia's presence during the main broadcast week at the May upfronts in New York continues to establish our Company as a serious competitor in the video advertising marketplace. And this year was no exception, as our 2016 upfront presentation was all about millennials, content and data, highlighting NCM's highly desirable millennial audience, our world-class movie studio content, and improvements in data and targeting available to our national advertisers for this upfront cycle. Our messaging and the unique role we play in today's fragmented media landscape really registered with buyers and, as in prior years, our national sales force continues to work with advertising decision-makers during the commitment process, that is currently pacing well and typically runs through September.

While our upfront strategy has made it possible to more effectively compete in the larger pull of premium video advertising dollars and has allowed us to be a more central and timely part of these annual discussions with marketers, we're still in the process of working with agencies on integrating our avails into their planning and buying systems. More effective integration will allow our high ratings and quality audience to receive greater visibility in consideration as marketers decide how best allocate their spend, whether in the upfront or scatter markets.

I'm also pleased that we continued to expand and diversify our client base during the second quarter, adding 5 new national clients in four different categories, bringing total new national clients to 22 so far in 2016. The four categories added during the second quarter included movie studios, internet sites, personal care products and toys. These new additions to our client roster and changes in our category mix means greater diversification of our national client base, which is good for the long-term health of our business.

As a part of the strategy to grow our client base, we are continuing to creatively seek out new ways to acquaint brands with our medium. As discussed on prior calls, National CineMedia is now the official United States representative of the Cannes Lions festivals, which provides us with a unique opportunity to build relationships with the creative community and potential clients. In fact, I'm happy to report that our 2016 investment in the Cannes Lions partnership has already paid off by resulting in the booking of a meaningful national contract with a client that we met with during the festival in June.

Also during the second quarter we expanded our client spend in the telecom cast group with the launch of a unique promotion with AT&T and two of our founding member circuits called Ticket Twosdays whereby AT&T rewards its customers with a free movie ticket when they buy one at full price. As a result we have received a meaningful advertising commitment from AT&T for the remainder of 2016 and into 2017. And we hope to have additional circuit partners join the AT&T Ticket Twosdays promotion as it continues to roll out across the country.

Moving on from national to the local and regional advertising portion of our business, this team posted yet another record for second-quarter revenue by growing over 5% versus a record Q2 of 2015. But what's especially noteworthy is that we were able to grow overall local and regional revenue during the quarter with a softer film slate versus the record Q2 2015 film slate, and with approximately the same revenue from contracts greater than $100,000. While the amount and timing of larger contracts can benefit or impact any given quarter versus prior year and ramp up for new sales director take some time, this second-quarter growth reflects the benefits we're beginning to see from the expansion of our local sales force and the expansion and diversification of our local and regional client base.

As you may recall, we recently entered the national spot TV advertising marketplace for the first time through our partnership with STRATA, a leader in media buying and selling software that allows its extensive client base of agencies to now buy select NCM inventory through their system. Since our last call we have continued to gain traction and have booked several regional deals with incremental advertisers through STRATA.

Lastly as we move toward the November elections, I'm proud to say that the National CineMedia network remains a politics-free zone, allowing our local and regional sales team to help advertisers reach their customers in a positive and highly engaging entertainment environment. It's not only the right thing for our circuit partners, but it allows NCM to be a haven for brands that may be forced out of TV due to tight inventory pre-emptions or a desire to stay away from negative political ads.

Consistent with the growth of the overall online and mobile advertising marketplace, we experienced strong Q2 online and mobile revenue growth of 30% versus Q2 of 2015. Will it still remains a small part of our total advertising revenue, our strategy of packaging our in-theater inventory with our online and mobile inventory through our Cinema Accelerator product continues to be important, as it gives marketers a unique way to create a more cohesive cinema and digital marketing plan.

Our NCM Theater Networks ongoing expansion and improvement continued to enhance our competitive positioning, as the remaining Texas-based Santikos Theaters affiliate screens joined our network during the second quarter. At the end of Q2 we had nearly 20,500 network screens, an increase of 1.6% versus Q2 of 2015, and coverage in 187 of the 210 TV DMAs. All of our network screens utilize digital projectors. And our first-look preshow is delivered to approximately 99% of our network attendance over our digital distribution network.

As you know, one of the key strengths of our network continues to be the stable impression base provided by our exhibitor partners and by the world-class movie studio content created for their theaters. While our current network provides strong national coverage, we believe that a focus on the expansion of our overall impression base and improved geographic coverage will allow us to compete more effectively with traditional and emerging video networks and help our national mass-market clients solve the ever-present issue of reach. In addition to Santikos Theaters joining our network this year, we continue to look for opportunities to add additional affiliates. I remain confident that National CineMedia and our first-look preshow will continue to be the best advertising solution for movie theater circuits.

It's also important to remember that when our founding members acquire US theater circuits, the acquired theaters immediately become part of the higher margin founding member fee structure and related long-term contracts unless the acquired theater circuit is under contract with another advertising provider. As such, there are 223 additional screens with approximately 8 million annual attendees acquired by our founding members in 2013 that will join our network in November 2018, once their contract with another advertising provider expires. Until then, the founding members will continue to make integration payments to NCM, LLC for these screens.

Last but certainly not least, as you know we have begun increasing capital investment spending in 2015 to accelerate the timeline to complete the upgrade of our sales proposal and inventory management systems, as well as the development of new audience targeting systems and data management platforms. The integration of these improved systems with our digital distribution network will allow for the further shortening of campaign lead times and provide more targeted and efficient campaigns with detailed reporting to clients. We're especially excited about the rollout of our new data management platform to our national advertisers during this upfront cycle, which will allow us to provide marketers with the expanded audience targeting and data analytics capabilities that are a necessity in today's competitive video advertising marketplace.

During my first seven months at National CineMedia I've been focused on successfully transitioning into the business and getting to know many of our employees,, advertising clients, theater circuit partners, investors and analysts. All of this has reinforced my belief that we have a strong core cinema advertising business and has helped me think about how to move our business forward. To that end, we continue to work with our Board on our formal strategy that will guide National CineMedia into 2017 and beyond.

This strategy, as well as our newly established Company values, will flow through all levels within our organization to ensure business alignment with continued focus on our objectives. As we forge ahead, NCM will strive to deliver our vision of being the connector between brands and movie audiences. And our NCM team will focus on strategies that strengthen and expand that core business while working on adjacent opportunities that align with this vision.

Before I turn the call over to David, I want to thank our National CineMedia employees along with our stockholders for their continued support. While our advertising business has been more volatile than I would've liked in the second and third quarters of 2016, our updated annual guidance reflects a year that is relatively flat versus a record 2015 that grew revenue and adjusted OIBDA 13% and 15% respectively versus 2014. One thing is clear. Given the ongoing fragmentation in the overall video advertising marketplace and building skepticism about the efficacy of many online and mobile platforms, NCM is in a unique position.

We believe our combination of broad national reach, reliable and high impact viewable impressions, and engaged millennial audience, and high quality event programming positions us very well for the future. Now I will turn the call over to David to give you some more details concerning our Q2 operating performance and more specific color that supports our Q3 and 2016 guidance.

Thanks, Andy. For the second quarter our total revenue decreased 5% versus Q2 2015 driven by a 6.2% decrease in national advertising revenue and a 21.1%, or $1.9 million decrease in beverage revenue, partially offset by 5.4% increase in local and regional advertising revenue. Total Q2 adjusted OIBDA decreased 11.9%, and adjusted OIBDA margin decreased to 51.5% from 55.5% versus Q2 2015. For the six months of -- for the first six months of 2016 total revenue decreased 3.4%, adjusted OIBDA decreased 12.3%, and adjusted OIBDA margin decreased to 43.5% from 47.9% versus the first six months of 2015.

These Q2 and year-to-date declines are primarily driven by the decreases in high-margin national advertising revenue and 100% margin beverage revenue, and increases in selling expenses related to online publisher expense that is offset by lower margin revenue, investments in research and data required for our upgraded sales proposal and inventory management systems, and a $700,000 non-cash impairment charge on an investment obtained in prior years in exchange for remnant advertising inventory. We also recorded $700,000 of AMC Rave, and Cinemark Rave integration payments for the second quarter versus $800,000 in Q2 2015. You should note that these integration payments are added to adjusted OIBDA for debt compliance and partnership cash distribution purposes, but are not included in reported revenue and adjusted OIBDA, as they are recorded as a reduction to net intangible assets on the balance sheet. We now expect to report approximately $2.5 million of these integration payments from our founding members during 2016.

Our Q2 2016 advertising revenue mix shifted slightly toward local and regional, and was 72% national, 22% local, and 6% beverage versus Q2 2015 that was 73%, 20%, and 7% respectively. Q2 national ad revenue decreased 6.2% versus Q2 2015, and was driven by a 16.2% decrease in impressions sold partially offset by a 7.1% increase in CPMs versus Q2 2015.

The decrease in impressions sold was driven by a decrease in inventory utilization to 124% from 133.3% in Q2 2015 on a 10.2% decrease in network attendance that was impacted by a difficult comp versus a record Q2 box office in 2015. While Q2 impressions sold were impacted by content partner allocations and client churn versus Q2 2015, Q2 CPMs benefited from higher upfront pricing versus Q2 2015.

For the first six months of 2016 national ad revenue decreased 4.4%, driven primarily by a decrease in utilization to 102.6% from 118.3% on network attendance that decreased 2.5% partially offset by a 7.4% increase in CPMs versus the first six months of 2015. And lastly, our quarter end make-good balance was $4.3 million.

Q2 local and regional ad revenue increased 5.4% versus a record second quarter in 2015, and was driven by an increase in revenue from contracts less than $100,000, whereby these contracts had a 4.9% increase in average contract value and a 2% increase in average contract volume due to the expansion of our sales force and diversification of our client base. Revenue from contracts greater than $100,000 remain consistent with Q2 2015. For the first six months of 2016 local and regional ad revenue increased 3.8%, driven by an increase in revenue from contracts less than $100,000, whereby these contracts had a 7.5% increase in average contract volume partially offset by a 3.9% decrease in average contract value. Revenue from contracts greater than $100,000 remain consistent versus the first half of 2015.

Q2 beverage revenue declined 21.2%, or 1.9 million versus Q2 2015, and was driven by a decrease of $1.5 million related to the 32nd reduction in time by one of our founding members that began July 1, 2015 and a 9.8% decrease in founding member attendance versus Q2 2015 partially offset by the 5.7% increase in beverage CPMs for 2016. For the first six months of 2016 beverage revenue declined 13.9%, or $2.3 million versus the first six months of 2015, and was driven by a decrease of $3 million related to the 32nd reduction in time by one of our founding members that began July 1, 2015 and a 1.3% decrease in founding member attendance versus the first half of 2015 partially offset by the 5.7% increase in beverage CPMs for 2016.

Looking briefly at diluted earnings per share. For the second quarter we reported a GAAP diluted EPS of $0.11 versus $0.17 in Q2 2015. For the first six months of 2016 we reported GAAP diluted EPS of $0.04 versus $0.02 for the first six months of 2015. Excluding terminated merger costs and amortization of derivatives recorded in 2015 and CEO transition-related costs reported in 2016, diluted EPS for the first six months of 2016 would've been $0.07 versus EPS of $0.19 for the six months of 2015.

Our capital expenditures were $3 million for the second quarter compared to $2.9 million for Q2 2015. As previously discussed we continue to accelerate the development of our inventory management systems and audience targeting platforms to more effectively compete in the video advertising marketplace. We estimate that our full-year 2016 capital expenditures will be approximately $14 million, or just 3% of total revenue guidance for the full year.

Moving onto our balance sheet. Our total debt outstanding at NCM, LLC at the end of Q2 2016 was $942 million versus $936 million at the end of Q2 2015. The increase in total debt was due to a $6 million increase in our revolver borrowings to $72 million from $66 million, with the increase driven primarily by the timing of working capital needs and upfront payments to certain affiliates. As discussed on our previous earnings calls, our revolver balance will decrease by $25.5 million when a remaining merger-related expenses are reimbursed through a reduction in our Q2 2016 available cash distributions that will be paid on August 29, 2016 as required by our NCM, LLC operating agreement. In addition, during the second quarter we increased our revolver commitment capacity to $175 million from $135 million in order to provide a more comfortable cushion above our seasonally high revolver balances.

Our average interest rate on all debt was approximately 5.4% at the end of Q2, including our $270 million floating rate term loan bank debt and revolver credit facility that had an average rate of approximately 2.9%. Excluding revolver balances, 69% of our total debt outstanding at the end of Q2 2016 had a fixed interest rate.

Our consolidated cash investment balances at the end of Q2 2016 were $64 million, a decrease of $5 million from the end of Q2 2015, with $58 million of this balance at NCM Inc and $6 million at NCM, LLC. Excluding tax reserves and after the payment of the recently announced $0.22 per share dividend to be paid on September 9, 2016, we would be able to pay our current dividend per share for approximately 3.5 additional quarters, even if no cash were distributed up to NCM Inc from NCM, LLC.

Our annual dividend yield is currently 5.5% based on today's closing share of $15.92. Our pro forma net senior secured leverage at NCM, LLC as of the end of Q2 2016 was approximately 3.2 times trailing four-quarter adjusted OIBDA, which is well below our senior secured leverage maintenance covenant of 6.5 times. You should note also -- you should also note that while we have no NCM, LLC total leverage covenant, our total leverage at NCM. LLC net of NCM, LLC cash balances was approximately 4.4 times at the end of Q2 2016 versus 4.3 times at the end of Q2 2015.

Turning to guidance. For the third quarter we expect total revenue to be in the range of $109 million to $116 million, or a decrease of 2% to an increase of 4%. And adjusted OIBDA to be in the range of $56 million to $63 million, or a decrease of 6% to an increase of 6% versus a tough Q3 2015 comp that posted revenue and adjusted OIBDA growth of 11% and 14% respectively versus Q3 2014. These Q3 guidance ranges project a low single-digit increase in national advertising revenue that includes a projected increase in CPMs and a mid-single-digit increase in beverage revenue partially offset by a mid-single-digit decrease in local and regional revenue versus Q3 2015. The projected decrease in local revenue is related to fewer larger value contracts versus Q3 2015, an additional sales ramp-up time needed for new local sales directors resulting from the expansion and restructuring of our local and regional sales force. Also, while Q3 industry box office continues to perform well, the lower end of our Q3 guidance ranges provide for some downside protection in the event that our quarter-end make-good were to exceed historical averages.

For the full year 2016 we now expect total revenue to be in the range of $440 million to $450 million, or a decrease of 1% to an increase of 1% versus 2015. And adjusted OIBDA to be in the range of $220 million to $230 million, or a decrease of 4% to approximately flat versus a record 2015 for both advertising revenue and adjusted OIBDA.

As Andy discussed, our second and third quarters were impacted by lower content partner allocations that favor the fourth quarter in 2016 and client churn that was not fully replaced, some of which was related to the movement of a few of our Q3 2015 clients spending against the Olympics in 2016. As noted on our last earnings call, we expected our 2016 revenue to be weighted toward the fourth quarter of 2016. And while we have built in some downside protection on our annual guidance, our Q4 booking and proposal activity remains healthy and we are currently pacing as expected toward our fourth-quarter targets. That includes prepared remarks, and we'll now open up the lines for questions.

(Operator Instructions)

James Dix, Wedbush Securities.

Good afternoon, gentlemen.

Three things: related to the guidance for the first two, it looks like for the full year revenue is looking to be around $20 million, $25 million; about 5% lower than your prior guidance. Any color you could give on the components of that change? And then similarly on EBITDA, looks like -- OIBDA, it is around $20 million or so than your prior guidance. Curious on the incremental margins there. Anything else going on there than simply flowing through the impact of the revenue change to the bottom line?

And then finally, you mentioned in the release and then also in your remarks some client churn. I think maybe in the national level for the 3Q, some moving to the Olympics, if I understood correctly. Do you have any data on how many national advertisers are not returning this year? I think you gave already some statistics on new advertisers this year. Just curious on the flip side there.

Thanks.

James, I will take the guidance change question.

Most of it is due to Q3 not performing as expected. Again, I pointed out that the Olympics had some -- most of the impact on that. Some of our advertisers that advertised last year aren't advertising with us this year, just shifting their money towards the Olympics. And then we just added some more conservatism to the fourth quarter. So that's the remaining piece of that, mostly on the national side but on the local side as well/ They both had record quarters last year. So we want to sure that we're giving you guys conservative guidance, that we had the lower probability of having to change later in the year. So just a little more conservative in fourth quarter.

Then just on the EBITDA? It looks like most of it is flowing straight through to EBITDA. Is that how we should be thinking about it, or are there any incremental costs that are going into that?

No, there's no incremental costs. We have high-margin national inventory and also -- revenue, and also high-margin local revenue. When we move guidance ranges down we keep the same ranges. So when you get to the lower end of the ranges it skews the margin a little bit. But we have implemented cost savings measures as well the last half the year. So there's no incremental costs at all. It's just a factor of the way the numbers work when you have $10 million ranges.

Okay. And then any data on how many advertisers are being affected by -- is all the churn basically related to the third-quarter Olympics? I'm just trying to get a sense of that.

Most of it is in the third quarter. I would say more than 50%, and probably five or six advertisers.

Great. Thank you.

Barton Crockett, FBR Capital Markets.

Okay. Thanks for taking the question. I wanted to drill down a bit more on the guidance change. Could you give us a little bit more precision around, if the $25 million you're taking out of revenues, would you say more than half of it was in the third quarter? Or was it even more skewed to the third quarter? How much of it -- can you give us some percentage breakdown there, roughly?

I'd say most if, more than half is third quarter.

Okay.

And then again, we're just bringing some conservatism in the fourth quarter guidance. And as we noted, as Andy Randy noted and I noted, we're on track to hit -- at this point in the year, it's still early so we've got a lot to sell, November and December especially. You sell more as you get closer. But we are on track to hit our targets for the fourth quarter. And Andy mentioned that we expect a flattish year.

Okay. Now on this kind of issue of Olympics, I mean this was predictable at some level. I mean, the Olympics come up every four years. Was the Olympics behavior here different than what you've seen in the past? Is that what led to the surprise there on the guidance?

Thanks, Barton. This is Andy.

Firstly, I don't think we have very good information on that, because obviously the Summer Olympics happens once every four years. So I don't think we have very good information from 2012 on exactly what happened there. But also I think the world is totally different from 2012. If you look at the amount of fragmentation in media and the sheer amount of change that has gone in the media marketplace, I'm not sure detailed 2012 information would have informed us that well.

So I think if you look at what advertisers are doing in terms of, just look at this year's upfront and some of the behavior you're seeing there in reaction to the brutal scatter market last year. I think there's just a lot of change. And I think it was very difficult to predict. So that's the overall take on it. And obviously we continue to build relationships and frankly add advertisers who even in the second quarter we're adding advertisers and we're adding advertisers in the third quarter, too. But I think it's chunky. And that's what makes it difficult. It comes and goes in chunks.

Yes. One final just big picture thought here; this was supposed to be a medium that was gaining momentum with pressure building on TV. And instead what we're seeing is TV seems to be recovering and your momentum has really slowed here for the back half of the year. Why shouldn't we look at that and be a little bit more cautious about the strength of the secular story at this point?

Well I'm perhaps not surprised that we don't see it that way, Barton. I think firstly it's not clear to me that TV is strengthening. Yes, their upfront strengthen. But from some of the numbers I have seen, if you're an advertiser and you're faced with the kind of scatter CPM increases that were happening earlier this year, you'd probably throw all of your money into the upfront as well. So I think we should -- we shall see how the whole TV market plays out. And this is one of the reasons, frankly, why we eschew the idea of giving upfront guidance, because I think it's not helpful. I don't think it will actually be indicative of how the full year plays out. But we will determine that a year from now, right? So I think there is some craziness going in TV, which I think is difficult to gauge.

I remain very bullish on the cinema marketplace. I think when you look at the millennial mix that we have. I mean obviously we have, as you document so well, we have very choppy courses when it comes to attendance, because obviously first quarter was a terrific quarter and second quarter was a very poor quarter and third quarter looks to be substantially better, and the numbers I'm hearing are slightly up in the fourth quarter. So it's a very choppy attendance medium. But on the other hand, those people who are attending are predominantly millennial and a highly desirable audience. And I think that's reflected in the advertisers that continue to be drawn to our medium.

Just one final thing here, just again bigger picture. Do you have any sense that there might be any macro issue here? I know we seem to be getting some good data on the economy. But there are things like tanking auto sales, potentially. And some other mixed, choppy kind of retail environments at some places. Is there any macro issue here that you are hearing when you talk to your advertisers?

I certainly haven't heard that. I think when you look at the history of our net revenue, I think the reality is that we have historically struggled when we have been lapping a very, very good year. And 2015 was a record year by any metric. And that's part of what you are seeing. So I see it, frankly, as being more internal and more some churn that relates to specific things that are happening in 2016 rather than any underlying macro issue.

Okay. Great. Thank you very much.

Alexia Quadrani, JPMorgan.

Hi, thank you. This is Julia Yue on for Alexia. I have a few questions.

First, how have your conversations with advertisers been different, if at all, this year in the upfronts compared to previous years? And particularly do think the advertisers are seeing NCM's data capabilities differently and really leveraging these new initiatives, or do you think it is more of an educational process right now as they become more comfortable?

And secondly, could you also talk a little more about the local and regional business where it seems like you continue to diversify the client base? And what are the biggest drivers of that improvement? Are you seeing broad-based interest? Is it the coming from certain industries? And how much of it is increased sales force efficiency?

Thank you.

I think the conversations we're having with advertisers this year, I think, have been extraordinarily positive. I think we are in a world where, to the earlier part of the conversation, some of the upfront CPMs getting written are in the low double-digit increases. I think we begin to seem like a much more reasonably priced medium in the broader context of premium video. And I think that leads to very positive conversations because I think for the most part advertisers want to be on our big screen. It's a matter of affordability. And we appear to be getting more affordable, which is very encouraging.

I think the data piece of it is important. I think it is a - it's an ante. It's something that you have to bring to the broader marketplace. And I think it's recognized that we are doing a significantly better job. So with this upfront we're going from selling just by rating to selling by genre. And the data that is there to back it up is strong. And I think that enables our advertisers to be more efficient. And they certainly appreciate that. So I think we are hearing just very good things. And by the way, it's not lost on people that I think the conversations we're having now obviously are more about 2017. And is not lost on people that the film slate is expected to be very strong in 2017. So that's part of the conversation as well.

I think when it comes to local and regional business, I don't know if you can add a few perspective here, David. But I think again, we continue to diversify our client base. I think we continue to have good conversations and be though of as one of the more interesting options out there for local and regional. I'm not sure I could talk to the specific categories. Do you have any handle on that?

Yes. The categories are just -- they're very diversified. They're all over the map. So there's really none that stick out as doing any better than others. They hit basically every category you can think of out there.

Okay. Great. Thank you so much.

Ben Mogil, Stifel.

Hi. Good afternoon. Thanks for taking my question.

The first question I've got really is with regards to the Q&A you had with Barton about what is changing in the Olympics and the macro. You talk about millennials being a desirable audience. But when you look at the MPAA stats, the millennials are leaving the theaters in droves. Is that playing anything you think in a role here in terms of some of the advertiser concern about the medium?

I think there's some dispute over some of those stats. I think there's -- I don't think, candidly, we're well aligned as an industry over what the actual stats are. So if you look at the very long term, there are certainly some leakage of overall audience from movie theaters, but nowhere near the level of leakage you're seeing in the TV, particularly around cable. So I think 2015 proved that when you've got a strong film slate, millennials are there in droves. And so I'm not -- provided that the studios, that they're developing great original content, I think we're going to have a great audience to sell.

Are you getting any kind of pushback from advertisers on just concern that even on the attendance numbers that you got lots of distractions in the theaters, people looking at phones, people doing other stuff? Are you getting any kind of feedback of pushback the way that you would with TV? With movies sitting in front of the TV but you obviously have distractions available, should you want them?

Yes. We have the distraction conversation once in a while. But frankly it doesn't tend to be a very long conversation because all the evidence shows, particularly when it comes to millennials, that they are multi-screening very regularly. And it doesn't -- if you draw the comparison, and most advertisers are comparing the movie theater to TV.

Right they're comparing it in terms of premium video. And you literally can't block out the cinema screen with an iPhone. It's right there and you're going to see it. But you sure can block out a TV screen with an iPhone. And so I think the sheer size of the screen and the all-consuming nature of the cinema advertising medium actually makes it the dominant screen, even if you got one in your hand, as well, versus TV where it's a fairer fight.

Okay. That's great. Thank you very much.

Welcome. Thank you, Ben.

(Operator Instructions)

Mike Hickey, Benchmark.

Hey, Andy and David. Thanks for taking my question.

Maybe just to clarify, obviously 2016 is a tough year for the box, tough comps, Olympics, politics et cetera, obviously driving some churn in your business. But I guess we're close to 2017 here. And I'm sort of curious your enthusiasm that you can rebound here and drive growth. Obviously there's some excitement for the box office, not just in 2017, for 2018. You have less disruptions. It sounds like you continue to get traction through the upfronts, which will be in incremental positive. And of course the comps are easier.

So I'm just curious to get your early take on 2017, and if you have any data -- I know you're not wanting to provide that as much, but if you have any data in terms of bookings in 2017 compared to the prior year, I think that's constructive at this point.

And then I have a quick follow-up. Thanks.

Well Mike, thank you for the question.

We can't give you numbers on that at the moment. What we can tell you is that we are encouraged by our upfront discussions. What we will do is we will provide 2017 guidance at our February call. So we will certainly fill it in then. But I think to your point, there's a tremendous film slate coming in 2017. And I think that, allied with the conversations we've been having in the upfront make us certainly very optimistic. I should point out that we will have an increase -- every five years we have an increase in our theater access fees. That is a slight offset there. But nonetheless I think we feel very good about 2017.

Okay, good. Thank you.

The last question. One of your founding members, AMC, has taken the growth path to look at international markets in terms of expanding their network. And so I'm curious, from your business looking at Europe, I think obviously there's a lot more fragmentation in Europe on cinema advertising than we have domestically. So I'm thinking or curious if you could reset your strategic view on perhaps international expansion, what you might see from Europe?

Thank you.

Thank you for that question.

As we've reviewed our strategy with the Board, obviously international is one of the discussions that come up. I can tell you it's not a priority. But the reason it's not a priority is firstly because we think we have important and valuable things to get done in the US. But secondly because we haven't spotted a great synergistic opportunity as yet on the international landscape. Now, as you know, that can change. And we're certainly open to those opportunities. And at the same time there might be a financial transaction that makes sense, even without great synergies. So we're certainly open to that, but we don't see this as being a priority today.

Okay. Thanks. Best of luck.

Thank you, Mike.

Jim Goss, Barrington Research.

Thanks. I apologize if this was covered, since I came in early. But did -- if you look at reserved and receded situations, have you determined whether those aspects are a plus or minus to what you offer?

Thank you, Jim.

I think frankly it's a mix bag. If you look at what's going on and how the exhibitors are investing capital and improving the experiences in their theaters, I think there's a mixed bag. I think the overall improved experience in the theater is that it's helping attendance. I certainly think improved dining options, et cetera are both improving attendance and driving people in early.

But it's -- our sense of when you look at reserve seating, it's a mixed bag. It's probably not helping us overall. But nonetheless it's making the experience better for the attendee and driving attendance. So when you add it all up, we think it's somewhat neutral, if you look at the package of things that are changing in movie theaters. But certainly we will watch with a great deal of interest.

Okay. And any thoughts on how you might incentivize audiences to get there early? For example, could you flip it around a little and engage audiences using their iPhones in your time slot, maybe with a quick game with a concession giveaway from an ad sponsor or something of that would sort of play into what you're experiencing, and maybe make it a little more interesting to be there for your promos?

Well, the short answer to that is yes, Jim.

I think this somewhat longer answer is that we believe in general we have an opportunity to improve the engagement in our preshow. So to your point, if getting butts in seats is the key thing that we need to do in order to drive the value of our franchise, than one of the levers we have is dialing up engagement in the preshow. We certainly think interactive is one of the ways in doing that. But we're exploring all different ways in which we might dial up that engagement level.

So, net yes.

All right. Thanks very much.

Thank you, Jim.

Thank you. At this time we have no further questions. I'll turn the call back over to Andy England for closing comments.

Good. Well, thank you very much. And thank you everyone for the questions.

As discussed, I think we feel we had a solid Q2, given our guidance. Q3 is not where we would have liked it to have been, but the net of all this is that we will have an overall year that, given that 2015 was a record year, 2016 will be a reasonable follow-up. But as I said, not where we want it to be. But we have good grounds for optimism going forward with the film slate and conversations we're having heading into 2017. So that's where we are. Thank you for tuning in and thanks for your investment.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.