National Cinemedia Inc (NCMI) 2016 Q4 法說會逐字稿

Greetings, and welcome to the National CineMedia Fourth Quarter and Fiscal Year 2016 Earnings Conference Call. At this time, all participants are any listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Katie Scherping, please go ahead.

Thanks Daisy. Good afternoon everyone. 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 fact 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 financial 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.

With that, I'll turn the call over to Andy England, our CEO.

Thanks Katie. Good afternoon everyone. Welcome and thank you for joining us for our fourth quarter and full year 2016 earnings call. During this call, I will spend a few minutes highlighting the Company's fourth quarter and full year 2016 results and Katie will then provide a more detailed discussion of the financial performance for Q4 and full year 2016 as well as guidance for 2017. And then, as always, we will open the line for questions.

As you know, 2016 was my first year as CEO of National CineMedia and I'm happy to say that it was a good one, especially in Q4. Total revenue for the fourth quarter of 2016 increased 4.5% to a record $142.5 million and adjusted OIBDA increased 14.9% over Q4 of last year to a record $86.4 million. And national sales team brought in yet another one for the record books with $96.4 million in national advertising revenue in Q4 compared to $88.8 million in Q4 of 2015.

Both CPMs and the utilization rose in the fourth quarter, driven mainly by a significant spike in December that resulted in the CPM increase of 19.8% and a 3.9% increase in utilization. Our digital sales team had a solid Q4 as well. On the downside, our local and regional advertising revenue fell below last year's record fourth quarter numbers by 3.2% to $39.3 million.

As for our results for full year 2016; 2015 was a very tough year to beat both at the movies and for NCM. But just as the 2016 box office set a new record, NCMs revenue and adjusted OIBDA for the full year of 2016 set a new record since the sale of the Fathom Events business in 2013. Full year 2016 total revenue increased 0.2% to $447.6 million from $446.5 million in 2015 and adjusted OIBDA increased 0.3% to $230.7 million for the full year of 2016, over the $229.9 million in 2015.

I was pleased with the growth over last year's record comps while overcoming a soft first half of 2016 and $3 million in lost beverage revenue, related to one of the founding members reducing the length of its beverage advertising unit by 30 seconds, beginning July 1, 2015. We continue to expand and diversify our national client base in 2016, adding 34 new national clients in 20 different industry categories. When you look across some of these categories, it is exciting to note that many of the biggest players in those industries use our FirstLook pre-show to reach millennial audiences.

For example, the Top 4 tech companies and the Top 5 media companies on the Fortune 500 list advertise nationally with NCM in 2016, as did seven of the Top 10 selling automakers in the US. While our advertising business continues to be more volatile than I would like on a quarter-to-quarter basis, I continue to believe that NCMs combination of broad national reach, reliable and high impact viewable impressions and engaged millennial audience and high quality event programing, positions us very well for the future.

As you know, our national pre-show inventory is sold both through content partnerships, other upfront commitments and in the scatter market. While I'm pleased with the content on upfront commitments we've secured to-date, allowing us to enter 2017 in a good position to grow the business, reports from across the media industry indicate a slow scatter market in the first quarter, and we are experiencing them as well.

Digital sales team also had a strong year and while digital still remains a small but growing part of our business, it is one which will play an increasingly important role as we create new ways to reach movie audiences wherever they may be consuming movie-related content.

2016 continue to be a challenging year for our local and regional advertising business, as full year 2016 local and regional ad revenue fell below the prior year's record by 2.3% to $107 million. While the number of contracts over $100,000 were down year-over-year, the good news is that they have been increasing towards the end of the year as new local sales team members that came on board in key markets began to gain momentum.

Although the tide was turning, it ultimately did not turn soon enough to change the fact that while the overall number of local and regional contracts for the full year were up, the average contract value in 2016 was down from 2015. Nonetheless, we continue to see many new local and regional clients coming on board in 2016 and we began to benefit from competing for national spot budgets by the recent inclusion of NCM into the STRATA planning and buying system, which brought cinema advertising to the spot TV market for the first time.

This has resulted in 14 new clients in 2016, which is a good start heading into the 2017 national spot planning cycle. We also made strides in growing our NCM network in 2016, led by our new Affiliate Partnerships team which was formed to not only seek out and develop new affiliate partnerships, but to also strengthen our existing relationships and enhance business collaboration with their founding members and more than 40 affiliates nationwide.

These relationships with their exhibitors are a key and renewed focus of that business and are fundamental to continuing to expand that theater network, and therefore, the number of impressions we have available to sell to advertisers. It is also important to note that under the terms of the ESAs and common unit adjustment agreement with the founding members and on network affiliate agreements, all new theaters built or acquired subject to existing advertising sales agreements by the founding members or network affiliates will become part of our network.

During 2016, we added a net 187 new screens to our network from both founding members and affiliates, and thus far in 2017, we have entered into contracts to add new affiliates with 370 screens, including Bow Tie Cinemas in the key New York advertising DMA.

As of December 29, 2016, our NCM network consisted of 20,548 screens in 1,622 theaters in 48 states and the District of Columbia, including each of the top 25 and 50 DMAs encompassing 189 DMAs in total. Theaters within our network represented approximately 70%, 68% and 66% of the total theatre attendance in theaters that present advertising in the top 10, top 25 and the top 50 US DMAs respectively, and 63% of attendance for all DMAs, providing a very attractive platform for national advertisers who want exposure in larger markets or on a national basis.

We expect our NCM network expansion to continue to improve our geographic coverage and enhance our ability to compete with other national advertising mediums, which will allow our exhibitors to maximize the advertising value of their audiences. With the merger between AMC and Carmike Cinemas now closed, we continue to operate under our governing documents with AMC and we look forward to benefiting from the future growth of the larger AMC Carmike entity under our long-term exhibitor services agreements, as new theaters are build or acquired.

We are currently in the process of working with AMC and NCM's Committee of Independent Directors to evaluate any proposal made by AMC related to the transition and their proposed settlement with the Department of Justice to ensure that any agreement reached is in the best interest of NCM shareholders. Keep in mind, the settlement with the DOJ with respect to the divestiture and transfer of screens, we estimate, represents approximately 2% of NCMs total network.

I know many of you are anxious to know the details of the impact of this transaction on our business, but we are still sorting it out and we will have more to share with you as we finalize the details. AMC and NCM are committed to working together as AMC works through its required ownership divestiture in an orderly fashion. The details of which will also be worked out over time.

And finally, as you know, we began increasing capital investment spending in 2015 and continued in 2016 to accelerate the timeline to complete the sales proposal and inventory management systems as well as the development of new audience targeting systems and data management platforms. The integration of several of these improved systems for that 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 particularly focused on acquiring new data sets and sources to fill our data management platform to better compete in today's data driven advertising marketplace, as well as involving our successful Cinema Accelerator product to become an even more robust digital offer.

While I'm proud to say that we had an overall record year financially, 2016 was about more than just the numbers at NCM. We also had some terrific and groundbreaking campaigns in our theatres including; adding Amazon's original award-winning program to our FirstLook pre-show, working with Airbnb to create it's Double Feature, international cinema campaign using first-of-its-kind 3D technology to show two different travel experiences on the big screen simultaneously; and launching the AT&T Ticket Twosdays program to reward customers with a free movie ticket when they buy one at full price through AT&T Thanks.

We also partnered with Twitter and Disney for the first ever Twitter integration into digital displays in cinema lobbies that featured Rogue One: A Star Wars Story trailer, assets and fan tweets. NCM was also appointed as official representative of the Cannes Lions Festivals in the USA in 2016, which was a significant part of our strategy to creatively seek out new ways to acquaint brands with that medium.

2016 was also transformative in the C-suite, as we established a new NCM leadership team with the right people to help guide our future growth, including the addition of CFO, Katie Scherping; Cliff Marks promotion to President; and our new Senior Vice President of Corporate Development and Chief Digital Officer, Lawrence Snapp, who came to us from Microsoft to be the architect of NCMs digital future.

We have also recently completed a restructuring of our senior leadership team and reporting structure to streamline NCMs internal functions, institute an end-to-end customer focused approach to operations and better allocate resources to continuity and growth.

It is our vision for NCM to be the connector between brands and movie audiences and we have worked together, over the past year, to identify and cement our Company values of integrity, collaboration, accountability, creativity, customer focus, and passion for movies that I believe is the behavioral framework that will help us achieve that goal.

Moving forward into 2017 and beyond, we will be executing year one of our long-term growth plan that includes growing our network affiliate partnerships, growing on-screen revenue, expanding our digital product offerings, ensuring that we are the first choice for our customers, developing our people and capabilities and allocating resources to strategy.

It's an exciting time to be at NCM and I'm optimistic about our future and the future of cinema advertising. I would especially like to thank our National CineMedia employees along with our stockholders for their continued support this year. When I joined the Company, I was tasked with strengthening the core business while finding new growth avenues and I think we've made very positive strides towards that end.

Now, I will turn the call over to Katie to give you some more details concerning our Q4 and full year 2016 operating performance and color to support our 2017 guidance estimates.

Thanks, Andy. I'm going to reiterate some of the results that Andy previously touched on, in case you didn't catch them before. For the fourth quarter, our total revenue increased 4.5% to a record $142.5 million, breaking the previous record of $136.4 million in Q4, 2015, driven by an 8.6% increase in national advertising revenue, partially offset by a 3.2% decrease in local and regional advertising revenue, and a 2.9% decrease in beverage advertising revenue.

With the higher Q4 national advertising revenue growth, our Q4 advertising revenue mix shifted to 68% national, 27% local and regional, and 5% beverage versus 65%, 30% and 5% respectively for Q4 of 2015. And our full year advertising revenue mix shifted to 70% national, 24% local and regional and 6% beverage versus 69%, 24% and 7% respectively for fiscal year 2015.

For the fourth quarter, national ad revenue was $96.4 million, a $7.6 million or 8.6% increase from Q4, 2015, which was driven by a 19.8% increase on CPMs, partially offset by a 4.1% decrease in impressions sold, combined with a decline in other revenue versus Q4, 2015.

This increase in CPMs was primarily due to higher CPMs on upfront commitments, and to a lesser extent the scatter market. The decrease in impressions sold was due to a 7.2% decrease in attendance with inventory utilization increasing to 136% from 132.1% in Q4 last year. For the full year, national ad revenue was $311.9 million, an increase of $4.9 million or 1.6% versus 2015, driven by a 9.6% increase in CPMs, partially offset by an 8.2% decrease in impressions sold.

Our higher 2016 CPMs reflect the success of our upfront strategy, and to a lesser extent, strength in the scatter market. The decrease in impressions sold is the result of a decrease in inventory utilization from 128.3% to 118.4% and on a 0.8% decrease in network attendance. We recognize there is an opportunity for growth and are exploring new and better ways to drive up utilization during our traditionally slower periods in the future. And lastly, our quarter-end make-good balance was $4.6 million.

Q4 local and regional advertising revenue was $93.3 million, a decrease of $1.3 million or 3.2%, driven by a 4.3% decrease in the total number of contracts, partially offset by a 0.6% increase in average contract value. For the full year, our local and regional ad revenue was $107 million, a decrease of $2.5 million or 2.3% versus 2015, and was driven by a decrease in revenue from contracts greater than $100,000, whereby there was a 6.9% decrease in contract volume and a 5.6% decrease in the average contract value in 2016 compared to 2015.

This was partially offset by a 2.5% increase in volume of contracts less than $100,000. This is primarily a result of new team members of our sales team that were added in late 2015 gaining traction in their respective regions later in the year. Q4 beverage revenue decreased 2.9% or $200,000 to $6.8 million versus Q4, 2015, driven by a 6.7% decrease in founding member attendance, partially offset by a 5.7% increase in beverage CPM to 2016.

For the full year, beverage revenue decreased 4.3% or $1.3 million to $28.7 million versus 2015, driven by a $3 million decrease related to one of the founding members reducing the length of its beverage advertising unit by 30 seconds beginning July 1, 2015, partially offset by a 5.7% increase in beverage revenue CPMs on nearly flat attendance.

Total Q4 adjusted OIBDA was $86.4 million, an increase of $11.2 million or 14.9% on a record adjusted OIBDA margin of 60.6% versus 55.1% in [Q4], 2015. This Q4 margin increase was primarily driven by the increase in high-margin national advertising revenue in combination with lower selling and commission expenses.

Full-year adjusted OIBDA of $230.7 million was an $800,000 increase from $229.9 million in 2015 or a 0.3% increase with adjusted OIBDA margin of 51.5%, which is in line with 2015. We recorded $1.1 million of AMC Cinemark integration payments for the fourth quarter versus $900,000 for Q4 2015 for the Rave Theatre. For the full year, we recorded $2.6 million of these integration payments versus $2.7 million in 2015.

You should note that integration payments are added to adjusted OIBDA for debt compliant purposes and NCM LLC's pro rata available cash distributions to the three founding members at NCMI, but they are not included in our reported revenue and adjusted OIBDA, as they are 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 $0.24 versus $0.11 in Q4, 2015. Adjusting for the reserve for uncertain tax positions and CEO transition costs, the diluted EPS for Q4 2016 and Q4 2015 would have been $0.24 and $0.20 respectively.

For the full year, we reported GAAP diluted EPS of $0.42 versus $0.26 in 2015. Excluding a loss on the early retirement of debt related to the redemption of our senior notes, terminated merger costs and certain other non-recurring items noted in our earnings release, diluted EPS for 2016 would have been $0.44, a decrease of 14% versus $0.51 in 2015.

Our capital expenditures were $3.9 million in Q4 and $13.3 million for the full year versus $13 million for full year of 2015 or 3% of total revenue in both years. The $300,000 increase in capital expenditures is driven by our continued investment in our inventory management systems and audience targeting platforms that Andy mentioned earlier.

Now, moving on to our balance sheet, our total debt outstanding at NCM LLC as of the end of 2016 was $935 million versus $936 million at the end of 2015, including a $15 million outstanding on our revolving credit facility. Our average interest rate on all debt was approximately 5.1% at the end of 2016, including our $270 million floating rate term loan bank debt and revolving credit facility that had an average rate of approximately 4.6%.

Excluding revolver balances, 71% of our total debt outstanding at the end of 2016 had a fixed interest rate. Our consolidated cash and investment balances as of the end of 2016 increased by approximately $15 million to $69 million from the end of Q3, 2016, with $58 million of this balance at NCM Inc and $11 million at NCM, LLC. Our total NCM, LLC liquidity including our NCM, LLC cash balances and availability of NCM, LLCs revolver was $170 million at the end of Q4 2016.

We announced today that the Board of Directors has authorized the Company's regular quarterly cash dividend of $0.22 per share of common stock. The dividend will be paid on March 23, 2017 to stockholders of record on March 9, 2017. We intend to pay a regular quarterly dividend for the foreseeable future at the discretion of the Board of Directors, consistent with our intention to distribute over time a substantial portion of our free cash flow.

The declaration, payment, timing and amount of any future dividends payable will be at the sole discretion of the Board of Directors who will take into account general economic and advertising market business conditions, the Company's financial condition, available cash, current and anticipated cash needs, and any other factors that the Board of Directors considers relevant. Our annual dividend [yield] is currently 7.1% based on today's closing share price of $12.43. For anyone interested, Form 8937 is available on our Investor Relations website in support of the tax treatment of dividends paid in 2016.

Our pro forma net senior secured leverage at NCM, LLC as of the end of 2016 was approximately three times trailing four quarter adjusted OIBDA versus 3.3 times at the end of 2015, 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 2016 and in line with the end of 2015.

Moving on to our 2017 guidance, as you may remember from our November call, we've been in the process of reviewing our guidance policy and we have received feedback from many of our analysts on this topic. Starting in 2017, we will be transitioning to providing only annual guidance on the business, updated on a quarterly basis as we move throughout the year. This will allow us to focus on communicating the longer-term trends in the business versus explaining the quarter-to-quarter fluctuations that often occur in our volatile revenue environment.

It is our intent to provide enough color on the seasonality of NCM that will allow you to understand quarterly trends, while maintaining focus on the longer-term drivers of the business. As Andy mentioned earlier, in 2017, we are entering year one of our strategic plan. In addition to growing on screen revenue, you will see a renewed focus on growing affiliate partnerships and we will expand our investment in the growth of our digital business. As such, we view 2017 as a transitional year that will position the Company for future success.

For full year 2017, total revenue is expected to be down 0.5% to up 4% versus 2016 or in the range of $445 million to $465 million and adjusted OIBDA is expected to be down 2% to up 4% or in the range of $225 million to $240 million. This guidance also takes into account the first quarter softness we are experiencing, as Andy previously mentioned.

From a seasonality perspective, Q1 is historically our lowest revenue and adjusted OIBDA quarter in any given year. We would expect this to hold true in 2017. In fact we would expect any growth in 2017 to occur in quarters two through four given the sequencing of the initiatives we have in place. Looking deeper into our adjusted OIBDA guidance for 2017, there are a few factors impacting expected results.

One; every five years we have an 8% increase in our per-attendee fee with 2017 falling into that cycle. This is in conjunction with the increase in our digital screen portion of the theater access fees, will impact adjusted OIBDA by approximately $5.6 million. As we mentioned earlier, we are investing more aggressively in growing our affiliate base. This will come at the expense of some margin pressure in the short term, but will allow NCM to leverage our affiliate base into the future.

And number three; 2017 is an investment year for the further expansion of our digital business. We are increasing our year-over-year investment by 23% or $1.5 million, which we expect will generate revenue growth in this area in 2018 and 2019. While these additional expenses will weigh on 2017 adjusted OIBDA, we believe these are the right actions to take to grow the business over the long term. Offsetting some of these increased costs are cost reduction that we have and are currently executing.

Our COO, CTO left us at the beginning of 2017 and we have realigned those assignments to others in the organization. Our expectation is that our growth and expenses over time will be outpaced by our revenue growth, creating slightly higher growth in adjusted OIBDA. In addition, the following are other assumptions that were made in preparing the projections that underlie our 2017 guidance.

We project beverage CPM to increase approximately 10% on relatively flat attendance. We expect 2017 CapEx to be in the $15 million to $16 million range or approximately 3% of revenues. The increase in CapEx over 2016 is related to about $2 million that will be used to transition our new affiliates that will be added to our network this year. We will continue to invest in the enhancements of our systems related to our audience targeting software, sales proposal at inventory management systems, as well as an upgrade to our CRM platform, so we may better serve our customers across all parts of our business.

We expect 2017 interest on borrowings to decrease 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're projecting approximately $5 million to be paid to NCMI from NCM LLC for management fees, plus $1 million in interest earned on NCMI cash balances, as well as any net proceeds from the exercise of employee stock options.

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

(Operator Instructions) Barton Crockett, FBR Capital Markets.

Okay, great. Thank you for taking the question. I would -- [it's really is] about one kind of bigger picture thought about the business. We just completed a year where you had a good fourth quarter, but overall for the year, pretty flattish. We're going into a year and we felt good about the upfront, but the near-term environment is a little bit tougher and the outlook also is kind of flattish.

Under the previous CEO, we got the message that NCM should be a growth business that there should be a growth story here, hardly taking share from television and advertising. The trend last year and the outlook for this year had, it doesn't look like much of a growth story. I was just wondering if you could give us your view, do you think theatre advertising is a meaningful growth story at this point or is it kind of more at a level of maturity -- more maturity perhaps than we would have expected couple of years ago?

Well Barton, firstly, thank you for the question. I think, it will be helpful to stop by level setting history. And so, if for example, you take the -- NCMI did its IPO in 2007 and if you take a nine-year CAGR from 2007 to 2016, what you'll find is our net revenue grew at 3.2% and our adjusted OIBDA grew at 2.7%. So there is certainly growth there whether you characterize that as a growth business, I don't know, but there is certainly underlying growth there and we believe there will continue to be some underlying growth there.

However, if we're going to be a more exciting growth story, frankly, we need to execute our core business well, which means that we need to grow affiliates, we need to grow without founders, we need to find new advertisers, we need to build a national spot as we've talked about. But most importantly, if we want to grow at a greater rate, we have to crack digital and that's exactly why we plan to invest in digital going forward as Katie talked about. So, hopefully that helps.

Okay, and just one kind of more detailed point. In your outlook for the year, just to be clear on this, I mean, I think AMC is required to move 19 theaters to the Screenvision network. Is that factored into your guidance of loss at both screens or is that not really factored in at this point?

Frankly, we don't see that as being material. We don't have an agreement with AMC about the transfer of advertising for screens at the moment. But regardless, we don't see it as being material so that won't impact our guidance.

Okay alright. I'll leave it there for now. Thank you very much.

James Dix, Wedbush Securities.

Good afternoon. A couple of questions, I guess first, just in terms of the full-year outlook. Are there any specific assumptions as to national as opposed to local advertising growth for the year? And then just in terms of the first quarter, I guess I'm interested in what benchmarks you use to indicate that the TV scatter market is slow?

I mean it seems I've heard different things from different networks, about how slow the scatter market is, but you've mentioned it. So I figured I would just ask like what your benchmark on that. And then I've one follow-up on the AMC transaction.

Good. Well, on the first one I'll ask Katie on when it comes to national versus local, relative expectations.

Yes. And I think between the two, we expect national to go little bit higher than the regional business and again, regional having some opportunity because they're coming off of a little bit slower quarter with the momentum being built into 2017. National will probably grow a little bit faster than local, but not materially different.

When it comes to scatter, I think it's not a surprise to you that media people know other media people, and so without naming names, I can tell you that we've talked to a number of people across the broader media industry and it's our sense that scatter out there is thin, but you may have a different read on it.

Did you guys have a sense as to when you started hearing that about the market? When the scatter market started to slow down?

Probably toward the end of January, I think we really thought surprise us --

Yes, I mean, certainly during January the sense was that there is not a lot out there, but these things can change, right, these things can change with advertiser optimism and so we are just providing that as some perspective and you may have a different perspective, which we certainly respect James.

Okay. And then on the AMC transaction, any estimate -- like how many shares are going to be issued to AMC as a result of the Carmike deal, and then, is there any plan to divest shares pursuant to the DOJ agreement?

I would say, I'm going to be very careful in how I answer that James, as you might imagine and I think, we don't know the number yet for multiple different reasons and that's all part of our negotiation. So we don't know the exact number. What I can tell you is that we will work extremely cooperatively with AMC to make sure that we have the right strategy and we have the right plan to execute a sensible and careful placement of those shares such that the market is disrupted as little as possible while understanding obviously, it's a large number of shares.

(Operator Instructions) Mike Hickey, Benchmark Company.

Hey guys, thanks for taking my questions, appreciate it. I guess there used to be the belief that there was a relationship between media buyer interest for your platform and the relative strength of the slate at the box office. So, curious how you think about, maybe not as much Q1, but the remainder of the year, given that the slate looks fairly appealing, yet maybe, we're not seeing the media buyer interest that we would normally see, given the strength of the slate. I have a quick follow up. Thanks.

Yes, thank you, Mike. So we've spent some time looking at this actually to try and get -- we've haven't done a regression analysis, but we try to get a sense of the correlation between box office and our business. And I can tell you that, for 10 of the last 12 quarters, they've been positively correlated, meaning if box office was up, NCMs net revenue was up and if box office was down, NCMs revenue was down. And so, there clearly is an underlying correlation there.

In Q4, that was clearly not the case. In the fourth quarter, box office was significantly down and we had a very healthy quarter, so that would obviously be an exception. I think we're not being helped by the current stage of the Q1 box office, although I think the belief is that once Beauty and the Beast kicks-off, the rest of the 2017 film slate will be a tailwind rather than a headwind.

So that certainly may be a factor and the fact that box office is down year-to-date. I think in general, it's certainly -- when box office is good, it certainly helps our local business, that's pretty clear because those orders tend to come-in in real time. So if an opening weekend is good, you can bet on it at the next weekend, which is great. If a movie is expected to be big, so obviously I'd point to Star Wars in the fourth quarter of 2017, which certainly everyone expects to be very big. I think if you call it, it's going to be big, I think that certainly helps. When something's unexpectedly big, that doesn't necessarily help because it is difficult to call. So that would be my observations around that topic.

Yes, that helps, it's helpful. Thank you. The last question from me, curious about the trend for the [pre-ticket] sales and assigned seating and it seems to be increasingly going in that direction, especially with larger releases like Star Wars, et cetera which is obviously a big factor, I think, in 2017 and 2018 slate. Also I guess the move to recliners and the pullback in seating capacity also is probably a motivator to make sure you get a sweet seat for the show.

So I'm curious if -- I mean, I guess the implied assumption is that, if you are getting your seat assigned in a pre-ticket sale that you're less enthusiastic about sitting through commercials, maybe that's the case. But I'm curious if you're finding that to be true, and I'm also curious if perhaps that perception is somewhat seated within the media buyers view. Thank you.

Yes, it's a good question, Mike. Firstly, I would assure you that FirstLook show looks terrific from one of those comfy recliner seats. So, I'd encourage you to give it a shot sometime. I think the impact of assigned seating can be a bit misleading, because there may be an impact on the margin, but particularly for the tent-poles, people want to get to the cinema early as part of the experience and we've heard that lot. I also think there is a material benefit from the growth of dine-in-theaters, which are leading consumers to get to their seats early, so they can eat before the movie.

So I think it's a mixed bag, about 19% of theaters in our network currently offer reserve seating, although obviously that number is getting higher. I believe a similar percentage of movie tickets are bought online, somewhere around the 20% mark, with the remainder still purchased at the box office. So I think it's not as clear as that. It's certainly a question we get asked by advertisers, advertisers want to know the impact and certainly the most objective third-party data we have is from Nielsen which would tell you that it hasn't made a difference.

And so, we don't expect everybody to be in their seat 20 minutes before show time. So we've always expected an audience build and Nielsen would tell you that audience build hasn't changed. So I think it's -- the days is muddy but it's certainly something we watch very carefully.

Jim Goss, Barrington Research.

Thanks. This might tie in a little bit of what you've been talking about, but I'm wondering about the impact of the usage of more of the weeks of the year by the major studios, four major films and the consistency of demand and CPM levels, especially since the advertisers don't know any better than anybody else exactly which of those films will wind up being the biggest hit. So, I would think that usage of the full year might play to your advantage in that regard. So does it?

Well, Jim, that's great question. I certainly think your premise is appropriate, which is, if you look at the seasonality of the box office, it's a lot less than people think. And I think the general population and I think media bias as well think that the cinema business is driven by the summer and holidays and the summer and holidays is certainly important, but frankly, the audience is pretty healthy throughout the year.

One stat that I always like to quote is that the movie audience in the first quarter of 2016 was 97% of the audience in the fourth quarter of 2015, which just gives you a sense -- if you think the first quarter is tiny and fourth quarter is huge, that happen to be a strong first quarter, but nonetheless, it's not that seasonal.

Now that said, media buyers are also looking at when they need impressions and they're also looking at, particularly where the millennials are at any given month, any given season, and so, they certainly have a bias towards buying this at the summer and the holidays, there's no doubt, and that's the core of our business.

But we are on a never-ending, if you like, a journey to help folks understand that that is the studio strategy. There are millennials to be had every month of the year, every week of the year and we try to aim for a continuity of buyers with our major advertisers, as a result. But your observation is fair, it requires a continued work.

Are you getting any more traction with your notion that you compete directly with the major television networks and that you're the biggest TV network effectively on Friday and Saturday night. That always spoke to me, and I'm wondering if it's resonating?

I think it is. I think people understand that is the core part of (technical difficulty). It's interesting to know, if you look at how media is bought in the US, each of the media planning and buying agencies typically has different groups that buy different forms of media, and you'll find that approximately -- and then when it comes to national advertising, approximately half of it is bought by TV buyers, and about half of it is bought by outdoor buyers.

And so, when you're talking to a TV buyer, you obviously want to be talking in their language and when you're talking to an outdoor buyer, you want to be talking in their language. But nonetheless, we feel being with the TV buyer in any given agency is a good thing for our medium, because we have a stable audience, we have tons of millennials. They are much younger than the [TV Nets]. Our average audience age is way younger than average audience nets. So, we think we have a great opportunity there and we continue to tell that story.

Okay. And maybe lastly, when NCM tried to go into the upfront market, I think the original core upfront sales were really things you have traditional -- or advertisers you have traditionally dealt with anyway and I'm wondering if you have been able to layer on more and more non-traditional advertisers so that it has in fact created the stability that you've been seeking to achieve?

That's a difficult one to answer. What I will say is, I think, I believe we first did an upfront presentation and sought to sign-up upfront customers in 2012. And I would say, between 2012 and 2016, we have established ourselves as a player in upfront week in New York and so people are expecting our presentation, they're expecting to hear news from us and they're expecting to have separate presentations and meetings that are around the upfront before and after.

So I think we've established ourselves as a player in upfront and I think that's really important. In terms of whether that in itself has changed our advertiser mix, it's hard to say because our advertiser mix has certainly changed over time, but whether that's because of upfront or whether just because of the changing nature of the marketplace, I think I'd have to take that offline and think about it.

Omar Sheikh, Credit Suisse.

Just a couple questions; one for Andy and one for Katie. Andy, just going back to reserve seating point, sort of continuing on that theme, you talked about, I think 19% of your circuit has reserved seating, while again the available screens have reserved seating. Do you have any data points on whether that's resulting in people coming later and you delivering lower impressions? And if that's the case, what feedback are you getting from advertisers about, how they think about that. So obviously, as you're seeing an increase in that percentage overtime, I guess it's going to become more and more important.

And the second question for Katie, just on -- clarifying I think one of the numbers you gave in your guidance for the year. I think I heard you say that you said beverage CPMs is going to be up 10% in the full year based on flat attendance and I wondered whether you could give us some help understanding what those numbers would be, so CPMs and attendants for national advertising, what's embedded in your guidance on those two upfronts? Thank you very much.

Yes. So, on the first one Omar, thanks for the questions, I think I can't add a whole lot to what I said before. I think the most objective source we have on the impact of reserve seating and how it impacts our audience build is Nielsen. And according to Nielsen numbers, there has been no material change in the audience build as a result of our reserve seating.

So, given that that's the best data that we have and the only third-party objective data that we have, that's our belief. It's certainly something that comes up with advertisers. Advertisers ask that question and it's certainly the one we get into discussion on that once in a while. What I would also tell you however, though, is that when it comes to digital, they get into viewability discussions. And when it comes to TV they get into all sorts of discussions about where the people are looking at four other screens at the same time, et cetera.

So I think the way I'd summarize that is that each medium has its challenges. I think obviously getting butts in seats is something that's very important to us, it's something that I found the circuits know is important to us. It's one of the reasons why we're taking a good hard look at our pre-show and thinking about things that we could do differently to make it a more compelling experience for consumers and so it's a focus. But thanks for the question. Katie?

Okay. So, your question was on the beverage CPM increase of 10% on roughly flat attendance. So, on a revenue standpoint, coming off about $28 million of revenue, that equates to -- close to a $3 million lift in beverage revenue. Are you asking how that's calculated, is that was the -- I couldn't understand your second part.

No. Sorry, I just wondered what the equivalent numbers of CPM and attendance expectations were for national advertising?

We're not going to give that detail. We're not disclosing what our assumptions are behind that.

I would now like to turn the floor back over to Andy England for closing comments.

Okay, thank you, Daisy. So, I'm obviously pleased with the way we finished 2016, such that we were able to take both the top and bottom lines for the full year into record territory. And in media industry that's in deep disruption, National CineMedia offers advertisers a compelling opportunity to reach millennials. And in 2017 and beyond, National CineMedia has the plans and the people to make good things happen. Thank you for listening and participating and thank you for holding our stock.

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