National Cinemedia Inc (NCMI) 2018 Q3 法說會逐字稿

Greetings, and welcome to National CineMedia Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Katie Scherping, Chief Financial Officer. Thank you. You may begin.

Thanks, Sherry. Good morning. I am joined here in Denver today by Cliff Marks, our Present and Interim CEO; and Tom Lesinski, our Chairman of the Board.

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 can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors.

Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP 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 with that, I'll turn the call over to Tom.

Thank you. Good morning and welcome to everyone. Before I turn the call over to Cliff Marks to discuss our results, I'd like to take a few minutes to review the leadership transition we announced this morning.

As you saw, we announced that Andy England has stepped down as the Chief Executive Officer and that Cliff has been appointed to the additional role of the Interim CEO. The board appreciates Andy's service to the company. His work over the past several years has been important in helping us reinvent the preshow and launch our Noovie brand, diversify our client base and build our emerging NCM digital products. At the same time, we believe that there is significant untapped potential in our platform and that new leadership is needed to unlock this potential. Through our CEO search, we want to identify a visionary leader who can capitalize on the strength of our company and our unique cinema advertising medium and innovate around NCM's core business to ensure that we are best positioned for sustainable, profitable growth and value creation for our advertising partners and shareholders alike.

The board is very confident in NCM and in the company's future. We are the largest cinema advertising network in North America, with long-term commitments from the 3 largest exhibitors in the United States. Our addressable market is sizable and growing with an expanding and increasingly diversified client base. Our products deliver results for our advertising partners, connecting their brands to our valuable, hard-to-reach movie audiences. And our financial foundation is strong with operations that drive high margins and strong cash flows. From this perspective, we are initiating the CEO search from a position of strength and great opportunity.

As the board conducts its search with the assistance of Korn Ferry, we are very pleased that Cliff has agreed to serve as Interim CEO, adding to his role as NCM's President. As I'm sure many of you know, Cliff has spent more than half of his professional career with NCM. He's been part of the NCM senior leadership team since 2002 and has served as the company's President since 2016. All in all, Cliff has more than 30 years of advertising, marketing and sales experience in the media and entertainment industry. Cliff's deep familiarity with our operations, our people and our industry make him a natural choice to serve as Interim CEO. We are confident that his leadership, combined with the continued support of a team in place, will help ensure a seamless transition during this period.

With that, I will turn it over to Cliff for a few key remarks on the business before Katie reviews the financial results of the third quarter.

Thank you, Tom. I'd like to begin by saying that it's truly an honor to take on the additional role as Interim CEO. Throughout my tenure as President and during my 16 years at NCM, I have seen firsthand the potential of our organization. Like Tom and the rest of the board, I'm incredibly confident in the company's future, and I look forward to continuing to work together with our talented employees to harness the power of America's movie network and ensure a smooth transition in the next chapter for NCM.

I will now turn to review the company's third quarter 2018 results and highlights. Katie will then provide a more detailed discussion of our financial performance and guidance. As always, we will leave time for questions.

Third quarter total revenue decreased 5.4% to $110 million from $116.4 million for the comparable quarter last year. Adjusted OIBDA decreased 14.4% to $536 million (sic) [$53.6 million] for the third quarter of 2018, from $62.6 million for the third quarter of 2017. The Q3 year-over-year decline is in contrast with the strong first half of the year and highlights the quarter-to-quarter volatility in our business. That said, we feel good about the fourth quarter and have increased our revenue guidance to $435 million to $450 million and that -- feel that we will end up the year within our guidance for adjusted OIBDA of $205 million to $215 million.

Total revenue for the first 9 months of 2018 increased 6.5% to $304 million from $285.4 million for the comparable period last year. And adjusted OIBDA increased 5.5% to $129.2 million for the first 9 months of 2018 from $122.5 million for the first 9 months of 2017.

Both our national and local and regional sales teams experienced a challenging third quarter. National advertising revenue was down 4.4% to $80.8 million in the third quarter of 2018 versus $84.5 million in the third quarter of 2017, excluding beverage revenue from the founding members. This reduction was due primarily to a 9.7% decrease in impressions, partially offset by a 5.5% increase in national advertising's CPMs, excluding beverage.

Scatter continues to be a major contributor on the national side in 2018 as advertisers are increasingly valuing flexibility, spending their money much closer to campaign air dates. Our scatter business was up significantly this quarter compared to last year, but it was not enough to cover the decrease from content partner and upfront revenue, both of which we expect to rebound in Q4.

Our national business is firmly positive for the year, with national revenue for the first 9 months of 2018, up 10% to $214.4 million from $194.9 million in the same period in 2017. We also continue to attract new national clients to the big screen in the third quarter of 2018, from categories including Internet sites, toys and games, and office supplies, service stores. And our top growth categories for the quarter included apparel stores, electronics, Internet sites, broadcast TV and telecom and hardware.

I'm happy to say that moviegoing continues to be alive and well, as our network attendance was up 9.4% in Q3 and is up 8.9% for the first 9 months of 2018. And while the Q4 slate is shaping up nicely regardless of the lack of a Star Wars film, I would note that the weight of the ratings base between G and PG slates and PG-13 slates will limit our inventory availability to fully take advantage of the box office for Q4. Again, despite this dynamic, we feel confident about the fourth quarter and have increased our revenue guidelines to reflect that.

As we've noted on previous calls, the remainder of the 2018 upfront dollars that we currently have contracted are hitting later in the year in Q4. We're continuing to aggressively participate in the 2018-2019 upfront marketplace, and we are already pacing ahead of our 2017-2018 upfront as agencies and advertisers look to us for the best ways to connect their brands with our valuable, young and engaged NCM movie audiences.

Our local and regional teams had a challenging third quarter, with a decrease in local and regional advertising revenue of 13.1% or $3.3 million, to $21.9 million in third quarter 2018 versus $25.2 million in third quarter 2017. The variance was due mainly to the loss of one customer that made up over 80% of that decline year-over-year. Our National Spot strategy is continuing to show traction as spot buyers are increasingly turning to cinema and to Mediaocean and FreeWheel Advertisers, formally known as STRATA, media planning and buying systems to make up for lost GRPs due to declining TV ratings.

Currently, for the 9 months ended September 27, 2018, our local and regional revenue is down 3.2% or $2.2 million to $65.6 million from $67.8 million for the first 9 months of 2017. But the local team had a strong pipeline for the fourth quarter, and we are confident that our local and regional teams will post better results in Q4. Our local clients are also excited about a new cinema opportunity that we just introduced with ScoreStream, the first and leading crowd-sourcing platform for live local stores to bring high school and other local stores with video highlights and scores to our Lobby Entertainment Network and the big screen as sponsored Noovie local segments. It's a great way for local businesses to connect with their communities and to be part of 2 things that the customers are passionate of: movies and local sports teams. And response from advertisers has been positive so far.

On another note, our beverage revenue continues to grow in Q3, as founding member advertising revenue for the beverage concessionaire business increased 10.4% to $7.4 million in the third quarter, up $700,000 from $6.7 million in the third quarter of 2017, primarily because of the increase in founding member attendance in Q3.

Our NCM digital project -- products, which were designed to support and augment our on-core -- our core on-screen advertising business, continues to be increasingly popular with both advertisers and young, hard-to-reach movie audiences that they desire. Our revolutionary Noovie ARcade companion app for the Noovie preshow has now been downloaded over 1 million times with great, new augmented reality experiences on the big screen and beyond, including a scary fun Horror Experience for Halloween. Beginning last Friday, November 2, movie audiences nationwide can play along with Disney's Wreck-It Ralph with Ralph Breaks the Internet Noovie ARcade game, our first studio collaboration and an industry-first in theater AR activation from the Walt Disney Studios.

We also had a soft launch of noovie.com in September, which will serve as our official Noovie search and discovery platform for movies and games, with more unique and interesting movie content being added before we officially launch the site later this year. Rick Butler, the former Chief Operating Officer and General Manager at Fandango from 2006 to 2013, has moved into the role of Chief Digital Officer at NCM. And I look forward to more great things to come from him and his team in 2019.

As advertisers demand a cross-platform, integrated media options with multiple touchpoints to reach audiences, digital becomes increasingly important to NCM's future to achieve additional incremental revenue from on-screen buys through digital expansions. While digital revenue itself remains a small part of our overall revenue, an increasing percentage of our revenue is now coming with integrated deals, meaning on-screen buys that also include digital extensions. Over 40% of our national on-screen revenue now comes from campaigns with digital extensions, up from 30% in 2017. This digital extension metric is one that we will focus on more going forward as the measure of the success of our NCM digital business to highlight our philosophy of digital in support of the core.

As our NCM digital properties continue to become a natural extension of our Noovie brand promise of delivering entertaining content, gaming and commerce to movie audiences, we're also beginning to see some digital-only deals. We're gaining traction by leveraging first-party data to drive one-to-one audience connections that marketers are seeking. This is aligned with our long-term vision to use digital to connect with on-screen audiences and help drive attribution insights, further reinforcing our belief that digital can increasingly play a part in NCM's future growth and profitability.

Third quarter was also a significant quarter for NCM on the financial side as we paid down debt for the first time since we became a public company. In addition to the $675,000 quarterly amortization of our term loan in Q3, we repurchased $7.7 million of our 2026 senior unsecured notes in September. The cancellation of these notes will save NCM LLC about $440,000 annually, or $3.5 million in interest over the period to maturity. In addition to our required quarterly term loan amortization, we intend to continue opportunistically to pay down debt going forward while maintaining financial flexibility and delivering a sustainable dividend to NCM's stockholders. We also currently have enough cash available to cover 4 quarters of dividends at NCMI. Katie will go into more detail on our cash flow shortly.

While Q3 was lower versus a strong prior year Q3, it has been a good year for NCM overall. The senior leadership team and the board are focused on finishing the year strong and driving towards our vision to be the connector between brands and movie audiences.

And with that, I will now turn the call over to Katie to give you more details about our Q3 operating performance and update our guideline estimates. Katie?

Thanks, Cliff. I'll walk through the results that Cliff highlighted in further detail, discuss our thoughts on the quarter and our outlook for the rest of the year, then we'll open the call to your questions. We will be providing a supplemental presentation of these results on our website for your future reference.

For the third quarter, our total revenue decreased 5.4% or $6.3 million to $110.1 million versus $116.4 million in Q3 2017, driven by a 4.4% or $3.7 million decrease in national advertising revenue, a 13.1% or $3.3 million decrease in local and regional advertising revenue, partially offset by a 10.4% or $700,000 increase in beverage revenue from $6.7 million to $7.4 million. Total Q3 2018 adjusted OIBDA decreased 14.4% or $9 million to $53.6 million from $62.6 million in the third quarter of 2017, and adjusted OIBDA margin decreased to 48.7% from 53.8% in Q3 2017. The decline in adjusted OIBDA was driven by a decrease in both national and local and regional businesses.

For the first 9 months of 2018, we are still ahead of the same period last year as total revenue increased 6.5% or $18.6 million, to $304 million from $285.4 million in the first 9 months of 2017. Adjusted OIBDA increased $6.7 million or 5.5% to $129.2 million from $122.5 million in the first 9 months of 2017, while adjusted OIBDA margin decreased slightly to 42.5% from 42.9% versus the first 9 months of 2017.

The year-to-date increases are driven by an increase in high-margin national advertising revenue due to a significantly stronger scatter market up 18.9% in 2018 compared to last year. Note that Q3 year-to-date adjusted OIBDA results include $1.5 million of nonrecurring legal and professional fees related to our settlement of Standard General and a 7.7% or $4.4 million increase in theater access fees, which are driven by founding member attendance related to the robust box office we have seen year-to-date.

In the third quarter, we recorded $5.5 million of integration and other encumbered theater payment from Cinemark and AMC associated with Rave Theatres and Carmike Theatres versus $6.9 million in Q3 2017 and $13.3 million for the 9 months of 2018 compared to $11.6 million earned in the same period in 2017. As a reminder, these integration and other encumbered theater payments are added to adjusted OIBDA for debt compliance and partnership cash distribution purposes but are not included in reported revenue or adjusted OIBDA as they are recorded as a reduction to net intangible asset on the balance sheet. We expect to record approximately $18 million to $19 million of these payments from our founding members for the full year of 2018.

Our Q3 2018 advertising revenue mix was 73% national, 20% local and regional, and 7% beverage versus Q3 2017 that was 72%, 22% and 6%, respectively. Q3 national ad revenue decreased 4.4% versus Q3 2017, primarily related to a 7 -- 9.7% decrease in impressions sold, partially offset by a 5.5% increase in CPM. The decrease in impressions sold was the result of a 28.1% decrease in inventory utilization to 133.2% from 161.3% in Q3 2017. This was partially offset by a 9.4% increase in network attendance. Recall, Q3 2017 was one of our highest utilization quarters on record.

For the first 9 months of 2018, national ad revenue increased 10% due to a 6.6% increase in CPM and a 4.4% increase in impressions sold. The increase in impressions sold was driven by an 8.9% increase in network attendance, partially offset by a decrease in utilization to 109.1% from 113.9% versus the first 9 months of 2017. Finally, our quarter-end make-good balance was $3.2 million at the end of Q3 2018, the same as the end of the Q3 2017.

Q3 local and regional ad revenue decreased 13.1% or $3.3 million versus the third quarter in 2017 and was driven by an 8% decrease in contract volume and a 9% decrease in contract value due to decreases on the value of contracts over $100,000 within the automotive and insurance categories. As Cliff noted, we had one large client churn out of Q3, making up over 80% of the year-over-year decline.

For the first 9 months of 2018, local and regional ad revenue decreased 3.2% or $2.2 million versus the first 9 months of 2017. The decrease in advertising revenue was driven by an 8.2% decrease in contract volume partially offset by a 3.9% increase in contract value. Again, a few large clients didn't recur in 2018 that were large contributors of revenue in 2017. We expect Q4 from our local and regional sales to exceed the fourth quarter of last year, driven by the strength in our national stock buying with FreeWheel and Mediaocean platforms.

Q3 beverage revenue increased 10.4% or $700,000 versus Q3 2017, driven by a 9.1% increase in founding member attendance and a 1.1% increase in beverage CPM. For the first 9 months of 2018, beverage revenue increased 5.7% or $1.3 million versus the first 9 months of 2017 and was driven primarily by a 7.8% increase in founding member attendance and a 1.1% increase in beverage CPM.

Looking briefly at diluted earnings per share for the third quarter, we reported GAAP diluted EPS of $0.14 versus EPS of $0.21 in Q3 2017. As adjusted for CEO transition cost and the reversal of uncertain tax positions, diluted earnings per share for the third quarter 2018 would have remained the same, while the third quarter of 2017 would have decreased to $0.19 per diluted share.

For the first 9 months of 2018, we reported GAAP diluted EPS of $0.16 versus EPS of $0.28 for the first 9 months of 2017. As adjusted for CEO transition costs, the reversal of uncertain tax positions and early lease termination expense, diluted EPS for the first 9 months of 2018 would have remained $0.16 versus the EPS of $0.27 for the first 9 months of 2017.

Note that our weighted average shares outstanding and our net income attributed to NCMI for the quarter and year-to-date include the additional shares of NCMI followed by AMC in the second half of 2017.

For the first 9 months of 2018, capital expenditures were $11 million versus $8 million for the first 9 months of 2017, driven by a $5.2 million investment in our digital ecosystem. We are estimating that our full year 2018 capital expenditures will be in the $15 million to $16 million range or approximately 3% of revenue, including $7 million to $8 million of digital investment.

Moving on to our balance sheet. Our total debt outstanding at NCM LLC at the end of Q3 2018 was $926 million versus $920 million at the end of Q3 2017. Our revolver balance at the end of the third quarter in 2018 was $14 million versus no outstanding revolver balance at the end of third quarter 2017. Our average interest rate on all debt was approximately 5.7% at the end of Q3, including our $269.4 million floating rate term loan bank debt; 68% of our total debt outstanding at the end of Q3 2017 had a fixed interest rate.

As Cliff touched on earlier, in September, we paid the scheduled quarterly amortization on our term loan of $675,000, and we repurchased and retired $7.7 million of our 2026 senior unsecured bonds worth $7.2 million. We were able to repurchase these notes at a discount averaging 5.3%. The interest savings on this repurchase will be approximately $440,000 annually or approximately $3.5 million over the remaining life of the bonds. By way of reminder, our charter -- under our charter, we can pay down up to $15 million of our debt annually without additional board approval and may opportunistically continue to do so as part of our strategy to maintain financial flexibility and a sustainable dividend for our stockholders.

Our total net leverage at NCM LLC as of the end of Q3 2018, was approximately 4x trailing 4-quarter adjusted EBITDA -- or OIBDA versus 4.4x in Q3 2017, which is well below our consolidated net total leverage maintenance covenant of 6.25x. Our consolidated net senior secured leverage ratio was 2.9x versus the covenant of 4.5x.

Our consolidated cash and investment balances as of Q3 2018, increased by approximately $17 million to $67 million from the end of Q3 2017, with $62 million of this balance at NCMI. The increase in cash at NCMI is the result of increased year-over-year available cash distributions from improved operating performance combined with a quarterly dividend reduction to $0.17 per share versus $0.22 in 2017.

We announced today that the Board of Directors has authorized the company's regular quarterly cash dividend of $0.17 per share of common stock. The dividend will be paid on November 30, 2018, to stockholders of record on November 15, 2018. The dividend level was determined based on our plans to invest in the business over the next few years while providing financial flexibility. 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 amounts of any future dividends payable will be at the sole description of the Board of Directors, who will consider general economic and advertising market business conditions; the company's financial conditions, available cash, current and anticipated cash needs; and any other factors that the Board of Directors considers relevant. Our annual dividend yield is currently 7.9% based on last Friday's closing share price of $8.61.

Now turning to our guidance for the full year of 2018. As Cliff noted earlier, even with the dip in the third quarter, the strong first half of the year combined with what we are seeing so far in the fourth quarter in spite of the absence of a Star Wars film release and the more challenging mix of ratings for our inventory, we are increasing our revenue guidance, expecting total revenue to be up 2.1% to 5.6% versus 2017 or in the range of $435 million to $450 million. And adjusted OIBDA is expected to be flat to up 4.8% or in the range of $205 million to $215 million. I would also highlight when taking our adjusted OIBDA combined with our integration payments, which are contractually obligated payments to NCM LLC, our business has a very robust cash flow profile, with margins more than 50%.

Turning now to NCM LLC's available cash calculation for 2018. Starting with our adjusted OIBDA guidance of between $205 million to $215 million, you'll add the following as a build to available cash: one, integration payment of $19 million to $20 million; two, cash payment from the Fathom note receivable of $4.5 million. As a reduction to available cash, you will subtract the following: one, cash interest expense of approximately $51 million to $52 million; two, annual scheduled debt principal amortization of $1.4 million and the recent $7.7 million note repurchase plus any potential additional note repurchases up to $50 million annually; three, capital expenditures of $15 million to $16 million, net of $1.1 million to be reimbursed for tenant improvement allowances; and four, noncash stock comp for Inc. employees of approximately $3 million to $4 million. These are the components that will allow you to arrive at a projection for available cash at NCM LLC in 2018, which is paid to the 3 members of the partnership, Regal/Cineworld, Cinemark, and NCMI, quarterly based on their ownership at the end of the quarter.

Now that concludes our prepared remarks, and we'll open the line for questions. Cherry?

(Operator Instructions) Our first question is from Eric Handler with MKM Partners.

A question for Tom. With Andy's departure, I'm just curious what is it you're looking for in a permanent CEO and sort of what's the strategic direction you want this CEO to take that Andy maybe wasn't quite delivering on for you guys?

Let me say this. So this was a collective decision by the board in considering whether to renew Andy's contract or not, they looked at the totality of his contribution to the company. And we certainly appreciate his contribution. The board's looking for new leadership that will ultimately take the company to the next level, unlock significant potential in NCM's platform and, most importantly, this is about unlocking NCM's potential. So as we look for new leadership, we will factor all those things in the new equation. But importantly, it's about unlocking NCM's potential and value.

So just to press you a little further on that. The potential and value, how -- is it with advertising? Is it on a digital end? Is it with -- where is this that you believe that there is a longing for (inaudible)

Eric, you're breaking up a little bit.

Yes, Eric, we didn't hear the last half of your question. Your phone broke up.

Okay. I'm -- so I'm just trying to get a sense of -- when you say unlock potential, where do you see that potential? Is it on the digital side? And maybe you could just fine-tune some of those comments from the very broad stroke you're giving.

So ultimately, it's going to be the decision of the new CEO and the board to decide this, but, ultimately, the growth in the company is going to come from our traditional growth in the platform, potentially higher value inventory in the platform as well as growth in digital. And I want to leave it at that in terms of the specifics that we talked about today.

Fair enough. And then with regards to the fourth quarter, I'm wondering if -- it sounds like there was some national advertising that was switched out of Q3 into Q4. Can you maybe say how much of that -- the value of that inventory was? And sort of what gives you the increased confidence? Maybe how much of the fourth quarter is already booked to get you to the guidance, just to frame some of those metrics?

Yes, Eric, I mean, I think we said in the call on -- or in the script that we see the upfront moving more fourth quarter. So we didn't see as much in Q3. It'll be more heavily weighted in Q4. And we increased our guidance to reflect that confidence, and that's really as specific as I'm going to get.

Our next question is from Eric Wold with B. Riley & Company.

A couple of questions around -- again, so a couple of questions around local/regional. I guess you noted that 80% of declines in Q3 was due to loss of one customer. Is that a 1 quarter event? Are they gone for good? And so I'm not looking for you to name them, but what kind of drove the decision, if it is gone for good, that's going to move from this medium?

Eric, it's Cliff. The one customer that we lost was an automotive that had been launched the previous year and used cinema as their launch vehicle. They love our medium. They'll be back for sure.

Okay. So it wasn't a loss. It's just timing versus last year, okay.

Yes, yes.

And then I guess, besides that one customer, you did a complete kind of rebuild, so to speak, of the regional and local sales force. Last year had kind of a slow start at start of the year, a good Q2. What can you read into Q3 and maybe what are you seeing so far Q4 about what that rebuild is kind of doing, if there's still kind of more to be done there?

I believe we've restructured our local and regional team to fit with the marketplace demands today. We're -- we got the right organization on the field for the way media is being bought locally or regionally; feel pretty good about the local team.

Okay. And then just final from me. I know it's -- I'm not looking for official guidance for next year, but maybe just give a little comfort in terms of what you're seeing so far into next year around kind of commitments, upfront or anything, to kind of give more confidence in terms of the trends into next year.

Yes. The only thing, Eric, that we're going to share publicly is that guide -- or that we're trending a little bit better on the upfront side, but we don't give specifics around upfront, but we are seeing a little bit better trends this year versus last year.

Our next question is from Jim Goss with Barrington Research.

In terms of strategy, you've talked over the past couple of years of wanting to add the digital, since that's the way advertising is going, and some other things, and I know you're going to continue in some of those efforts. But I'm wondering, is there any sense that given that you had basically owned the movie advertising space, very much dominated it, that you had too many distractions away from that and that's -- part of what you need to do is reassert yourself in your core base business?

So this is Tom. It's always been the focus of the board and the company to focus on the core, and the digital assets that we've created are always designed to support the core. And while sometimes maybe we talk a lot more about digital, the business that we are focused on is the in-theater movie advertising business. Almost all of the advertising that we focus on is that. And I think importantly, the digital products, while they get a lot of news, are really designed to support the core. So I wouldn't characterize it as a distraction. I would characterize it as an ancillary strategy that supports our core business.

Well, Jim, I also think that we focus on digital because of the investment we're making, both capital and operating investment in that so that explains some of the investments the company is making to support the core with digital.

I'd also add that we brought in some digital experts who focused on that. It takes no time away or focus away from the core media advertising sales organization.

Okay, good to hear. And then in the -- I was wondering, any early impact you're detecting from the subscription programs. In particular, it seems you were talking about one-to-one targeting. This is an area where you would have much better demographic data and it could facilitate your objectives. Is there anything you have to say about that either so far or what you expect can happen?

I think one of the most important thing is about building our digital business, it will allow us to have a one-to-one relationship with our customers. As we build first-party information and data, I think you'll be pleasantly surprised to see how we'll be able to leverage that in the future.

Okay. And then finally, the notion that you said sort of couple of times about upfront dollars hitting later in the year, was this the way it was set originally? Or was there a shift to have that taken place? I was just curious if that was in the guidance you had given for the third quarter and then it just rolled over into the fourth.

Well, when our upfronts are placed, we place them for the year. And then it's up to the advertisers to make the decision on what quarter they want to show their advertising. So we don't have a lot of control over that. And that's pretty volatile quarter-to-quarter, but for the year we have pretty decent visibility. It's just on a quarter-to-quarter basis that it shifts around.

Okay. And is the fourth quarter part of that year? Or does that year extend until next summer, say?

It's part of the year. And some of our -- next year's upfront is -- some of them are booked for 5 quarters. So we do see some of that benefit coming in Q4 as well.

(Operator Instructions) Our next question is from Mike Hickey with The Benchmark Company.

Cliff, Katie, we've got you clear this morning. The -- I guess on the executive search, Cliff is definitely a strong leader here. Is he a candidate do you think for CEO? And also, I'm wondering if Kurt Hall is back in the mix or if he's going to be sitting up in Aspen. I'm just curious on those 2 pieces. And I have a follow-up.

So -- this is Tom. So Cliff is obviously an excellent candidate. He's not planning to be a permanent candidate for this position. We're not going to talk about any other specific candidates, but I will say there's no plans for Kurt Hall in that role.

Okay, fair enough. The -- I guess the second question back to sort of how you're thinking about unlocking value and sort of how you balance, I guess, maybe sort of shaping a more consistent, stable operating model, sort of lack of slow sales growth, but obviously a cash flow story, which I think a lot of investors are comfortable with versus what I think I'm hearing as sort of a scenario where you're looking to drive top line growth. So how you balance, I guess, those 2 directions strategically.

I think what I would say about top line growth, that's correct. We're not going to tell you on this call today what our plans are for top line growth, but the board and Cliff and the rest of the management team is focused on unlocking value on a top line and bottom line basis. Once we've got that solidified, we'll certainly update you on the next call about that. But we do believe there's a lot of top line growth available to the company going forward.

Okay, good. That's helpful. I guess the last one, obviously, there's a lot of volatility in the model, but we've lost some transparency, I think, over the last year plus in terms of quarterly guidance and also lost some transparency until where upfront is tracking relative your bookings target, et cetera. I think both those were helpful measures for us to sort of get a near-term guide on expectations. So how -- I guess, how are you thinking about maybe providing more insight, near-term insight, to how you're going to perform so you don't see such a disconnect between quarterly consensus and where your budgeting actually is.

Yes -- and Mike, when about 2 years ago we changed our quarterly guidance to an annual guide and, really, the volatility that we see in quarter-to-quarter and last Q3 and this Q3 were very different tales. So for us to give quarterly guidance and show that volatility or predict that volatility with enough accuracy to give you guys confidence that far in advance is just not realistic for us. And our business is volatile, as we've said on this call. And so we'll stick with our annual guidance. We'll give you as much visibility on the call, like we said. Q4, we're trending confidently into Q4. And the upfront is just too big of, I guess, a number that it can be changed during the year based on the contracts with our customers. So there's optionality within that. We have confidence that we're trending above last year. So we do share that. But as far as specific numbers, it's too difficult. And for us, we don't see that, the placement of those upfront dollars, until the advertiser decides to spend them. So it's not something we have control over or perfect visibility to on a quarter-to-quarter basis, which is why we don't get too specific of a detail on every quarter, but we're still confident that Q4 is coming in, as we said, above last year's Q4.

We have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing remarks.

We made great progress on our overall strategy in the third quarter and, as we indicated, by the increase in our revenue guidance. We continue to feel good about the full year 2018 and the future growth of NCM. We introduced new NCM digital products and Noovie local offerings to enhance our core business, paid down debt, and continued to lay the path for growth in 2019 and beyond. As President and Interim CEO, I am committed to continuing to fully capitalize on our unique market position as the largest cinema network in the country while ensuring that we continue to grow our business through this transitional period and long into the future. Thank you for participating in our third quarter 2018 earnings call, and I'll see you at the movies.

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