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Edited Transcript of NCMI earnings conference call or presentation 20-Feb-20 10:00pm GMT

Q4 2019 National CineMedia Inc Earnings Call

Centennial Feb 27, 2020 (Thomson StreetEvents) -- Edited Transcript of National CineMedia Inc earnings conference call or presentation Thursday, February 20, 2020 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Katherine L. Scherping

National CineMedia, Inc. - CFO

* Thomas F. Lesinski

National CineMedia, Inc. - CEO & Director

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Conference Call Participants

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* Anna Jeanne Lizzul

JP Morgan Chase & Co, Research Division - Analyst

* Eric Christian Wold

B. Riley FBR, Inc., Research Division - Senior Equity Analyst

* Eric Owen Handler

MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst

* James Charles Goss

Barrington Research Associates, Inc., Research Division - MD

* Michael Joseph Hickey

The Benchmark Company, LLC, Research Division - Senior Equity Analyst

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Presentation

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Operator [1]

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Greetings. Welcome to National CineMedia, Inc. Full Year and Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to your host, Katie Scherping. Thank you. You may begin.

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Katherine L. Scherping, National CineMedia, Inc. - CFO [2]

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Thanks, Avi, and good afternoon, everyone. I'm joined today here in Denver by our CEO, Tom Lesinski. 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 or on our Investor Relations website -- page of our website at ncm.com.

Now I'll turn the call over to Tom.

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [3]

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Thank you, Katie, and good afternoon, everyone. Welcome to our fourth quarter and full year 2019 earnings call. I'll be sharing some high-level insights regarding our strong Q4 performance and our better-than-expected full year results and our plans for 2020. Katie will then provide more detail about our 2019 results and our 2020 guidance, and then as always, we will open up the line for your questions.

I'm very happy to report that we finished 2019 on a strong note, posting record Q4 advertising revenue and a record full year national revenue. This top line revenue growth resulted in better-than-expected adjusted OIBDA growth for both the current quarter and the full year, and this momentum is continuing into 2020.

I'll talk more about 2020 and our progress against the strategic plan that we laid out in November in just a few minutes. Q4 2019 revenue overall increased to just over 7% year-over-year driven by a 13% increase in Q4 national revenue. As I mentioned, our company posted record fourth quarter advertising revenue, driven by higher national sales demand and the launch of our new inventory after the advertised showtime in Cinemark and Regal theaters. This new premium inventory features 5 minutes of advertising that runs right after the advertised showtime as the auditorium lights dim, which we call lights down inventory. And 1-minute inventory that runs just before the last 1 or 2 trailers prior to the feature film that we call our platinum inventory.

Our Q4 growth reflected strong national inventory utilization as well as the sale in December of our new platinum inventory to a leading technology company, an automobile manufacturer and a major retailer. It's important to note that the platinum CPMs were more than 50% above our national preshow average as these marketers clearly appreciated the value provided by the higher reach and better engagement not available in other premium video media options. Although our regional and local business inched a bit softer than I would have liked in Q4, there were signs that the recent strategy changes we made in these parts of our businesses will begin to take effect in 2020. Due to the strong Q4 national demand and lower-than-expected holiday movie attendance, we did have a slightly higher-than-expected make-good at $8.7 million.

Unfortunately, the attendance for the first month -- excuse me, fortunately, the attendance for the 1.5 months of 2020 has been stronger than expected, and we already have delivered a large portion of that make-good. I'm very proud of the NCM team for their hard work to implement our new strategic plan, including the launch of our new premium inventory strategy in Q4. This has resulted in stronger-than-expected adjusted OIBDA growth for the year and great momentum going into 2020.

Our largest national ad core categories in 2019 included media and entertainment, insurance, telecom, electronics and automotive, with the highest growth for the year coming from the insurance, retail, CPG, electronics and restaurant categories. It's also notable that we just started to break through the large CPG category and experienced the lowest advertiser churn in 5 years, indicating that marketers appreciate our brand-building capabilities and our ability to cut through the clutter of digital and TV platforms.

Much of our 2019 growth was driven by higher utilization as our CPMs were negatively impacted by a higher percentage of upfront revenue versus our revenue from sales in the scatter market in 2019 compared to 2018. This is a favorable trade-off given the benefits of locking in dollars upfront versus the uncertainty of the scatter market quarter-to-quarter and year-to-year. Moving forward, we expect our lights-down inventory to help increase average upfront CPMs as we get into the 2020, 2021 upfront selling season. We just recently wrapped up our 2019-2020 upfront season, and I'm pleased to say we had another strong upfront versus last year. Even though we did not have our new after showtime inventory in our product mix during most of the upfront selling process.

Our 2020-2021 upfront kicks off in the next couple of months, and we will aggressively take to market our new premium inventory format that will further improve our platform's reach and engagement while delivering an even more captive cinema experience. We are confident that our new platinum inventory will sell well in the upfront market as it requires more advanced planning by marketers, which is why it's a major focus of our 2020, '21 upfront strategy. Given the high gross margin of our platinum inventory, it will be a key part of our plan to expand our margins and grow adjusted OIBDA. And with the success in 2019 of our focused meetings directly with brand and ad agency decision-makers during the upfront season, it will be an important part of our 2020 and 2021 selling strategy.

Additionally, we continue to see benefits from our digital investments. The demand for the bundling of digital impressions with our on screen advertising continues to grow. During 2019, we had an almost 6% increase in the number of clients who had additional component integrated into their media buy and over 41% of our national and 26% of our local and regional ad revenue included an integrated digital campaign. These integrated campaigns resulted in 133% higher contract value versus on-screen only contracts and are helping to grow our average CPMs, along with driving higher inventory utilization. The continued expansion of our apps and other digital products and data offerings drove a 12% increase in digital revenue in 2019 over 2018. This past year, brands like Ball Park hotdogs and State Farm ran innovative integrated digital campaigns with our Noovie ARcade and Trivia products, respectively.

As demonstrated by our strong 2019 finish, our 5 pillars of growth strategy that we outlined in our November call is already creating meaningful shareholder value. And once again, providing a unique investment vehicle that delivers both a substantial cash return through our dividend and stock appreciation as we continue to drive free cash flow growth.

The first key pillar of growth that involve increasing the quality and value of our on-screen inventory was launched in November in Regal and Cinemark theaters. The early reaction from marketers has been very positive as we sold our first platinum spots in December and received strong interest from high-profile clients for both lights-down inventory as well as our Platinum Spot.

In fact, recent research indicates that consumer recall and engagement for the Platinum Spot has been outstanding. As these new premium-priced higher-quality products require more advanced planning by advertisers, we believe that they'll be a very attractive addition to our product mix during the 2020, '21 upfront selling season and allow us to aggressively bundle this higher-value inventory with our Noovie pre-show program to increase both utilization and average CPM. You should also note that since a portion of our national inventories moved to the after the advertised showtime, the quality of our local and regional inventory will also improve as it moves closer to the showtime.

The second pillar involves the planned upgrade of our sales planning, proposal and inventory tracking systems. Our company-wide initiative to increase our operational efficiency and effectiveness with new processes and technologies is twofold. First, designed to improve our speed to market that has become even more important with the growth of digital. And secondly, it will allow us to be more efficient with our delivery of impressions that will help increase utilization and help to reduce our quarter-end make-good liability. We will begin our testing of the systems later this year with an expected launch in Q1 of 2021.

The third growth pillar is the continued investment in compelling digital entertainment apps and games. As mentioned, 2019 we saw the successful launch of several of these new digital products, including initial versions of our Trivia games, Name That Movie and Shuffle. Consumer demand for these fun and entertaining games grew meaningfully in 2019 as they were played over 7.6 million times compared to 1.7 million times in 2018. Based on this growth and our consumer research, moviegoers wanted more trivia-related games with more content, more depth, more movie IP and more ways to play with friends. So in 2020, we'll be enhancing and expanding our trivia offerings with major upgrades to Shuffle and Name That Movie as well as integrated web gaming on noovie.com, where people can find and play all of our digital games. All these digital products create new ways for brands to engage with movie audiences beyond the big screen to reach them before and after the movie anytime and anywhere.

This also provides us with our own digital ad inventory and extremely valuable addressable first-party customer data, which brings me to this fourth strategic pillar for growth, building a data-driven business. Creating a more data-centric ad platform is critical for us to be able to more effectively compete in today's modern video advertising marketplace. We've continued to grow our first and second-party data sets from $27 million in 2018 to over $106 million, which exceeded our goal of $100 million by the end of 2019. We're expecting to almost double that number to 200 million data sets by the end of 2020, representing almost 20% of the moviegoing audience. We believe this represents the critical mass that will allow us to really begin to effectively monetize that data by retargeting audiences with digital advertising through our Cinema Accelerator product, and more effectively support cinema campaign ROI for our advertisers.

Importantly, the vast majority of our digital campaigns are now using one-to-one targeting.

And finally, the fifth pillar of our growth strategy is to optimize our affiliate network by adding key exhibitors in select markets, that will increase our overall impression base and extend our geographic reach and market coverage. We are currently in discussions with several circuits about joining our network and are reviewing the profitability of a few affiliate contracts relative to their strategic benefit.

Our affiliate partnership team is also working on expanding our new premium inventory to our existing affiliates, so we can sell all our onscreen products across a large portion of our network. So far, 10 of our current affiliate partners have agreed to display the new premium inventory in addition to Regal and Cinemark. We expect to have up to 15 affiliates participating in our new and improved show format in 2020. By the end of the year, we expect to be selling our new premium inventory across almost 60% of our network attendance.

As you can see, I have good reasons to be very optimistic about NCM's future. I'm also becoming more optimistic about the 2020 Box Office as some early Q1 films such as Bad Boys, 1917, Parasite, and most recently, Sonic the Hedgehog have opened much stronger than expected.

Looking further ahead, there is high anticipation for movies like Wonder Woman 1984; Black Widow; Minions: The Rise of Gru; Fast and Furious 9; Venom 2; the new bond film, No Time to Die; The Eternals; Raya and the Last Dragon and Disney's live-action remake of Mulan. As always, it will be undoubtedly could be a few surprise hits with the 2020 box office rely more on a broader number of films rather than a few huge temples.

In summary, the unique immersive big-screen social experience of the cinema continues to resonate with all demographic groups, especially the millennial and Gen Z audiences. The video ad market also remains strong as marketers look for strong brand building less cluttered media platforms to augment their digital buys. I believe with the successful execution of our growth strategy, that NCM is positioned for a very bright future in 2020 and beyond.

Our Board of Directors also shares our optimism on the growth as we see ahead. As a result, I'm pleased to announce the Board has authorized a 12% increase in the company's regularly -- regular quarterly cash dividend from $0.17 to $0.19 per share of common stock, bringing the annualized dividend to $0.76 per share. This increase in our dividend reflects our belief in our strategic growth plan and our intention to distribute substantially all of the free cash flow to shareholders.

This level of dividend, along with our cash balances will allow us to maintain the financial flexibility that will support our investment in future growth initiatives. For anyone who liked an even deeper dive into our current view of the business and our longer-term business strategy, we'll be holding an Investor Day on Wednesday, March 4, at NASDAQ MarketSite, New York City for existing and potential investors and analysts. Please plan to join us as our NCM management team and expert panelists deliver informative presentations and discussions addressing such topics as near and long-term growth strategy, the state of the media industry and a closer look at the overall media and advertising businesses.

Details can be found in the Investor Relations section of our website.

Before I turn it to Katie, I wanted to acknowledge the fact this is her final earnings call before she retires from NCM in 3 weeks. We will miss Katie's leadership and passion for her work. She's been a key leader for over 3 years and has put a valuable perspective to our company's executive leadership team. Her last official duty will be to host our Investor Day on March 4, before moving into a consulting role to provide her expertise and guidance to me and the team and to support the transition to a new CFO. We have no specific news to report yet on her successor, but we are in discussions with several excellent candidates and hope to have something to announce shortly. So thank you, Katie, and I will now turn the call over to you.

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Katherine L. Scherping, National CineMedia, Inc. - CFO [4]

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Thanks, Tom. It's been my privilege to work with NCM to accomplish so many major initiatives for the company over the past several years. And I know that I leave our company in the very capable hands of our executive team. It's also especially nice to go out on the high note with a record Q4 and an impressive finish to the year. I'll now walk through the Q4 and full year operating results that Tom highlighted in further detail and then provide our full year 2020 outlook. Then we'll open the call to your questions. As always, we will be providing a supplemental presentation of these results on our website for your future reference.

For the fourth quarter, our total advertising revenue was a record $147.2 million compared to $137.4 million in Q4 2018, an increase of 7.1%. These better-than-expected results reflect a strong quarter for our national advertising sales team, partially offset by a decrease in regional and local revenue and lower beverage revenue.

Total Q4 adjusted OIBDA was $83.5 million, representing an increase of $7.3 million or 9.6% versus Q4 2018. The adjusted OIBDA margin for the quarter increased to 56.7% compared to 55.4% during the same period last year due to an increase in the mix of our higher-margin national revenue, including the benefit from our first sales of the high-margin platinum unit. The increase in adjusted OIBDA and adjusted OIBDA margins was driven by a 13% increase in our national business related to very strong demand from advertisers, as reflected by our network inventory utilization of 156%, driven primarily by an 11.4% increase in impressions sold for the quarter. The increase in inventory utilization from the 127% in Q4 2018, in part related to the delivery of impressions from the prior quarter-end make-good balance, partially offset by a 9.1% decrease in attendance versus prior year.

The impact of our higher national inventory utilization was partially offset by a 1.8% decrease in CPMs related to the higher mix of lower CPM upfront campaigns, driven by our desire to expand our client base into new categories that included entry-level pricing with the goal of expanding our overall utilization. I would also note that our December Platinum Spot is not included in our calculation of CPMs for Q4 2019 for competitive reasons.

Our Q4 regional business started to show signs of stabilization as regional ad revenue decreased by a modest $200,000 or 1.9% versus Q4 2018 to $10.5 million. The small decrease was due to a decrease in average contract value for contracts under $100,000 and a slight decrease in regional digital revenue. Q4 local ad revenue decreased 9.7% or $2.1 million to $19.6 million from $21.7 million in 2018. This decrease in local advertising revenue was due to a decrease in the volume of local contracts and a decrease in the average contract value. With the restructuring of our local selling strategy and commission structures late last year and better local inventory placement within our Noovie preshow resulting from the shift of some of the time -- some of the national inventory to after the advertised showtime, we are confident our local business will begin to grow once again in 2020.

Our local business will also continue to benefit from the strength in our local digital product. Overall, our Q4 digital revenue increased nearly 24% as we continue to see growth in the percentage of customers that were integrated with local on-screen ad buys. Q4 beverage revenue decreased $600,000 or 8.1% from $74 million -- $7.4 million to $6.8 million versus Q4 2018, driven by an 8.2% decrease in founding member attendance, partially offset by a slightly higher CPM. Our Q4 2019 advertising revenue mix was 75% national, 7% regional, 13% local and 5% beverage, versus 71%, 8%, 16% and 5%, respectively, in Q4 2018.

For the full year, total revenue increased 0.8%, or $3.4 million to $444.8 million from $441.4 million in 2018. These better-than-expected 2019 results were negatively impacted by a slightly higher make-good that ended the year at $8.7 million versus $8 million at the end of 2018. As Tom mentioned, with some better-than-expected early Q1 2020 film openings, this higher year-end make-good is providing benefit to our Q1 2020 results.

Our full year adjusted OIBDA increased $2.1 million or 1% to $207.5 million from $205.4 million in 2018. And adjusted OIBDA margins increased to 46.7% from 46.5% in 2018. Including a $2 million noncash onetime Q3 investment impairment, adjusted OIBDA for the year would have grown 2% over 2018.

Full year 2019 national ad revenue increased 3.9% or $12.2 million to $324.2 million versus 2018. This increase was driven by a 2.5% increase in impressions sold and the increases in branded content and platinum sales, partially offset by a 3.2% decrease in CPM due to a mix shift from scatter to the upfront. The increase in impressions sold was the result of an increase in utilization to 125.9% from 113.5%, offset by a decrease in network attendance of 7.6% compared to 2018 that was driven by a record 2018 Box Office. Consistent with Q4, the decrease in CPMs reflected a higher mix of upfront deals versus scatter deals and entry-level pricing for new clients. For the full year 2019, regional ad revenue decreased 9.5% to $24.7 million from $27.3 million in 2018. This decrease is driven by the shift from regional advertising to national advertising by several large clients and a decrease in average contract value, driven by a reduction in spend from a few large returning customers in 2019. These decreases were partially offset by a significant increase in contract volume and an 18.3% increase in digital sales revenue from regional clients in 2019 versus 2018.

Moving forward in 2020, we will be adding the regional revenue results into our national revenue for our revenue reporting to reflect the fact that our regional sales team is managed as part of our national team due to the significant crossover with many clients. Consolidating the small part of our overall revenue into our national revenue will provide consistency between the way we run these parts of our business and the way we discuss them in our external financial reporting.

For the full year, local ad revenue decreased 5.4% or $3.8 million from $70.7 million to $66.9 million compared to 2018. The decrease in local advertising revenue was due to a decrease in the volume of local contracts, partially offset with 15.7% higher local digital sales revenue. We expect clients to increasingly integrate their local cinema ad buys with our digital retargeting capabilities after patrons leave the cinema. Full year beverage revenue decreased 7.6% or $2.4 million from $31.4 million to $29 million versus 2018, due to a 7.1% decrease in founding member attendance, partially offset by a slight contractual increase in beverage CPMs.

For the fourth quarter, we reported GAAP diluted earnings per share increase of 14% to $0.24 versus earnings per diluted share of $0.21 in Q4 2018. When adjusting for CEO transition costs, diluted earnings per share for the fourth quarter of 2019 would have increased 4.3% to $0.24 versus the pro forma $0.23 per diluted share in Q4 2018.

For the year, we reported a GAAP diluted earnings per share increase of 24.3% to $0.46 compared to earnings per diluted share of $0.37 in 2018. The 2019 result included a decrease in deferred tax expense of $11.2 million from 2018 due to the remeasurement of our deferred tax assets in 2018 as a result of a state tax law change. As adjusted for CEO transition costs, and the reversal of deferred tax in 2018, diluted EPS for 2019 would have increased 27% to $0.47 versus the same $0.37 per share in 2018.

Our capital expenditures for 2019 were $15.3 million, which included $2 million of implementation costs and prepaid expenses related to our upcoming cloud-based technology systems and $7.6 million related to our digital product development and the creation of more robust consumer databases compared to the $6.9 million spent in 2018.

This total CapEx was at the high end of our stated guidance range of $14 million to $15 million and slightly below the $15.4 million spent in 2018.

In the fourth quarter and for the full year 2019, we received $5.4 million and $21.7 million, respectively, of integration and other encumbered theater payments associated with AMC Rave Theater and AMC Carmike Theater versus $5.4 million and $22.7 million, respectively, in 2018. 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 assets on the balance sheet. It should be noted that the AMC Carmike Theater integration payments of approximately $19 million will continue through 2037, the remaining term of the AMC ESA, while the Rave Theater have now been moved on to our network for 2020.

Our total debt outstanding at NCM LLC at the end of Q4 2019 was $3 million higher than the end of Q4 2018. Our bank term debt and bonds were $897 million versus $904 million at the end of Q4 2018, and the revolver balance at the end of the current quarter was $39 million compared to $27 million at the end of Q4 2018, due primarily to funding the October bond refinancing costs out of our revolver. Our average interest rate on all debt was approximately 5.5% for Q4 2019 versus 5.7% for Q4 2018, including our $267 million floating-rate term loan bank debt and revolving credit facility that had a rate of approximately 4.8% versus 5.3% last year.

Our interest expense increased $2.6 million during Q4 2019 due to a 30-day overlap from the October refinancing of the $400 million note. Excluding our bank revolver balances, 70% of our total debt outstanding at the end of Q4 2019 had a fixed interest rate. Our total net leverage at NCM LLC as of the end of Q4 2019 was 4x trailing 4 quarter adjusted OIBDA, which is well below our consolidated net total leverage maintenance covenant of 6.25x. Our consolidated net senior secured leverage ratio of 3x is also comfortably below the covenant of 4.5x. Our consolidated cash and investment balances at year-end was $81 million with $69 million of this balance at NCMI. We currently have enough cash available to cover nearly 5 quarters of dividends at NCMI at $0.19 per share, with over $0.88 per share of cash on hand at the end of 2019. As Tom mentioned earlier, we announced today that the Board of Directors has authorized the increase of the company's regular quarterly cash dividend to $0.19 per share of common stock. This dividend will be paid on March 17, 2020, to stockholders of record on March 3, 2020. The company intends to pay a regular quarterly dividend for the foreseeable future at the discretion of the Board of Directors, consistent with the company's intention to distribute substantially all its free cash flow to shareholders through its quarterly dividends. The declaration, payment, timing and amount of future dividends payable will be at the sole discretion of the Board of Directors, who will consider general economic and advertising market business conditions, the company's financial condition, available cash, current and anticipated cash needs, including opportunities to reinvest in the business and any other factors that the Board of Directors considers relevant.

Our annualized dividend yield at 76% -- or $0.76 per share is currently 9.5% based on today's closing share price of $8. As a reminder, currently, 100% of our dividend is tax-deferred for income tax purposes.

Now turning to our guidance. For the full year 2020, total revenue is expected to be up between 1.2% and 4.5% versus 2019, or in the range of $450 million to $465 million. Adjusted OIBDA is expected to be down 2.7% to up 2.2%, or in the range of $202 million to $212 million.

Looking deeper into our adjusted OIBDA guidance for 2020, there are a few factors to consider. One, consistent with 2020 cinema industry box office expectations, we are estimating the 2020 industry attendance to be down mid-single digits. Two, we expect sales of our Platinum Spot to increase throughout 2020 with momentum taking hold in the later part of the year. It is important to remember that the gross margin of our platinum inventory is 75%. And as we gain traction throughout the year, it is expected to drive an increase in adjusted OIBDA margin and dollars. Three, the additional theater access fee for the ESA amendment are expected to increase year-over-year by $9 million to $10 million.

In addition, the following are other assumptions that were made in preparing our projections that underlie our 2020 guidance. We project beverage revenue to be down approximately 3% to 4% -- 3% to 4%, driven by attendance down mid-single digits, offset by a blended CPM increase of approximately 1.8%. We expect approximately $19 million of integration payments and other income or theater payments from AMC associated with Carmike Theaters. We expect 2020 CapEx to be in the $14 million to $16 million range or a little over 3% of revenue. The digital investment portion is expected to be approximately $7 million as we continue to invest in our digital and data platforms. We expect 2020 interest on borrowings to decrease $3 million to approximately $55 million, driven by lower average interest rates and lower average debt outstanding, which includes approximately $52 million to $53 million of cash interest and $2.5 million related to the noncash amortization of deferred loan costs.

Turning now to NCM LLC's available cash calculation for 2020, starting with our adjusted OIBDA guidance of $204 million to $208 million, you'll add the integration payments of approximately $19 million. As a reduction to available cash, you will subtract the following: cash interest expense of approximately $52 million to $53 million; annual scheduled debt principal amortization of $2.7 million; capital expenditures of $14 million to $16 million; a noncash stock comp for Inc. employees of approximately $3 million to $3.5 million; $1.2 million to $1.7 million of onetime operating costs associated with the implementation, severance and retention costs for our back-end inventory management system, which are adjusted out of our operating income estimates. These are the components that will allow you to arrive at a projection for available cash at NCM LLC in 2020, which is paid to the 3 members of the partnership: Regal, Cinemark and NCMI quarterly based on their ownership at the end of each quarter.

In addition to the available cash distributed to NCMI from NCM LLC and consistent with prior years, we project approximately $3 million to $3.5 million to be paid to NCMI from NCM LLC for management fees plus $1 million of cash interest earned on NCMI cash balances.

NCMI's cash is reduced by the expected payout of $14 million to $15 million for payment under the tax receivable agreement for our founding members. This will allow you to arrive an estimate of the net cash available for NCMI to fund dividend payments. This concludes our prepared remarks. Now we'll open the call for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jim Goss with Barrington Research.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [2]

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I've got a couple here. One, at the beginning of the conversation, I think, Tom, you mentioned $8.7 million of make-goods and you've already delivered a big chunk of these so far this year. I was wondering what the foregone cost of that inventory was? Or was where the make-goods applied to largely unsold inventory?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [3]

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I'm not sure about foregone cost. What I can say is that in the first 6 weeks of the year, we've -- one, we've taken almost $4 million out of the make-good, given the overperformance of the Box Office in January and half of February. Does that answer your question? Or are you asking something different?

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [4]

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Yes. No, that sometimes -- yes, that largely answered it, but sometimes, it seems like you have a lot of spots and not all of them are sold, and I thought that might allow for some of it without really pinching too much.

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Katherine L. Scherping, National CineMedia, Inc. - CFO [5]

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Yes. And I think in Q1, Jim, we typically have less inventory sold, and just historically, Q1 is a lower inventory sale quarter than any of the other quarters. So it's easier for us to run off make-goods, but also the Box Office outperforming helped us in the first quarter as well.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [6]

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Okay. And there was also a comment that you just recently been ramping up the last upfront, but in a couple of months, you'll be starting the next one. It seems like they're running together a little closer than I thought they might. So why would that have been?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [7]

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Well, the -- the new upfront starts in 2 months, Jim. So the most recent upfront ended basically just ended about a month ago. So there's really about a 3-month period between the 2. Our sort of ends later than traditional television and cable and the sequencing is typically network TVs and cable then outdoor and cinema go at the end. So we're always at the end of the television upfront, which starts earlier, almost more than 6 weeks earlier. So -- but there is about a 3-month period, roughly, at least between the 2.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [8]

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Okay. And you were just making some -- you're distinguishing your inventory between like the new post 5 minutes plus the Platinum Spot in the earlier inventory. And then you also mentioned that about 60% of the audience would be on board with the new format. How does this wind up having sort of a blended upfront pricing strategy, especially when you also mentioned that regional is moving to national. And I would imagine those prices are not exactly the same. How do -- is this more of a reporting issue than a sales issue?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [9]

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It's not a sales issue. And we have very distinguished buckets between platinum pricing, lights-down pricing and the traditional preshow pricing. Sometimes they are bundled together and it's blended, but we have significant different CPMs in all 3 of those buckets. And I think from a reporting point of view, like I let maybe Katie just speak to that, but...

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Katherine L. Scherping, National CineMedia, Inc. - CFO [10]

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Yes. I think our CPM is -- typically an upfront is a little bit higher. But this year, we had a little bit lower. I think we're looking forward to kind of a bundling program with the new inventory. And it's hard to pinpoint where that CPM is going to add.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [11]

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Okay. And lastly, have audiences caught on to the shift in when the ads are run and adjusted the timing of arrival to the extent you can determine that?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [12]

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There has been no shift to people coming in later based on the new start time, it's only really a difference of 6 minutes at the end of the day. And then we only started really in December. So it's too early to say whether there's any impact from a consumer point of view. We haven't seen anyone showing up later as a result.

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Operator [13]

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(Operator Instructions) Our next question comes from Alexia Quadrani with JPMorgan.

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Anna Jeanne Lizzul, JP Morgan Chase & Co, Research Division - Analyst [14]

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This is Anna Lizzul on for Alexia. Just wondering if you would expect the stronger trends that you were seeing in national advertising through the end of 2019 and kind of the softer local and regional advertising trends to continue into 2020? And also, what is your level of comfort with your 2020 guidance?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [15]

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So in terms of local and regional, we've changed strategically how we staff those businesses, in particular, on the regional business, we decided to only allocate the top 11 DMAs into that regional business and the remaining DMAs from 11 on are now going back into our local business. And we're seeing some early indications that, that new strategy on the organization is helping to stabilize both those businesses and potentially bring them both back to growth rates in 2020. In terms of our guidance in 2020, I think we have optimism based on how 2019 finished and how the early interest in platinum and in lights-down has contributed to a really new way to look at NCM and many advertisers and brands are looking at the company. In many cases, for the first time, but also old customers are looking at us in a different way. So we feel really good about our guidance going into 2020, especially coming off 2019 with our new inventory taking hold at the end of last year.

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Operator [16]

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Our next question is from Eric Handler with MKM Partners.

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Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst [17]

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I tuned in a little late so hopefully, I'm not going to repeat anything. But with the new inventory strategy, are you seeing any difference in the advertisers that are either making request for proposals or signing up for these new pods?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [18]

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Yes. It's a good question. One of our first 3 platinum spots was sold to a -- one of the largest retailers in the U.S. who had never advertised in the history of National CineMedia. We also have recently added a CPG company who hadn't been on the platform ever. So one of the goals of platinum and of lights-down was to bring new categories and new companies into our platform. And in the short time we've been selling it, we've seen 2 major advertisers come in who were never part of our platform. So that was one of the key objectives in creating the new platinum and lights-down inventory.

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Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst [19]

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And are you drawing them in with discounted first-time buyer status? Or are they paying full free?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [20]

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Well, every deal is different. I can say that. I can tell you that the platinum deals have not been discounted, sometimes with a brand-new advertiser we'll create some incentive to come in, but we are keeping platinum at a very high price point. So hopefully, that answers your question.

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Operator [21]

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Our next question is from Mike Hickey with The Benchmark Company.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [22]

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Tom, Katie, congrats on the quarter. I was on and off the call. I apologize if these questions were asked, but I wanted to make sure to ask them just in case. The -- on the -- your ad shift to post showtime, have you done any consumer feedback studies in terms of how people are reacting to ads in the new spot? Because I think that was sort of maybe the issue with one of your partners, the fear that you'd be upsetting movie patrons and that's why I think you necessarily sign up...

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [23]

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Well, let me answer that question in 2 different ways. The one piece of research we already did just recently, which we haven't published yet because it's really came off the presses just in the past week, was the engagement from our ads is -- has been as high as we've ever had in terms of how the new advertising platinum spots are affecting consumers. So it's been really a pleasant results so far that as the new platinum spots have rolled out that they're really resonating from an effectiveness point of view with consumers. We've also got a lot of anecdotal feedback from the affiliates that there really isn't an issue with the advertising running and then closer to the movies. And obviously, you know we're sensitive to that. But candidly, as people have gotten used to it, a few comments that did happen that really become actually fairly small. So we're pleased that the response from a consumer point of view, has been really positive.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [24]

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That's great. So -- and you said 60% of the network, I think you expect to participate? How do you close the gap there, Tom, that other 40%? What are the key metrics you need to show your partners [to get everybody across?].

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [25]

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It's a matter of adding more affiliates. We expect to have 15 affiliates on board by the end of 2020. Some are big, some are small. And it's a matter of really talking to each one of them, which I've been doing along with our affiliate team, along with Cliff. And it's going to each one individually. A lot of the affiliates wanted to see how it worked with Cinemark and Regal in 2019, and given the success of that and the consumer acceptance, I think we'll get a really good attachment rate on the affiliates that we go out to. And many of them have already signed up. We just haven't announced it yet.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [26]

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That's great. A last question for me, shocked to see the dividend up from -- the normal question given investor seems likely, is the dividend safe. So quite the statement raising the dividend here. And of course, curious, just sort of how you -- you obviously show a great level of confidence as well in the '20 guidance, but you've sort of been vulnerable historically to variability related to scatter money. And so I'm just curious if this is because you've got more upfront monies or businesses, or what's giving you the visibility and confidence, I guess, to raise the dividend here?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [27]

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I think the way the Board and management have looked at it. It's really the strategic growth plan that we have put in place and the success so far, platinum. And it's also our commitment to pay out almost substantially all of the actual annual cash flows of the company, but really the strategic plan and the elements are in it. There's a lot of confidence that I have as well as the Board, and that's what really drove the increase in the dividend.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [28]

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And then, I guess, last one on your Analyst Day coming up here in March, would you expect to have a new CFO at that? Or is that too premature?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [29]

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I think optimistically, that we'd like to have a new CFO on board, it will -- we have 3 or 4 really good finalists right now, but I can't commit to that. But if, obviously, that person has been hired by then, then they'll be in New York.

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Operator [30]

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Our next question is from Eric Wold with B. Riley FBR.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [31]

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Just a couple of questions. Just kind of thoughts on Platinum Spot. Just kind of think about the selling strategy around the spot in terms of, kind of -- we want, I guess, kind of what committed run times are you requiring to get people into that Platinum Spot? And then, I guess, how much you -- maybe not a dollar amount, but kind of maybe frame percentage. How much would be the pricing on platinum vary, if at all, between kind of an upfront buying and a scatter buy?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [32]

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The difference in upfront versus scatter pricing is going to be consistent on a percentage basis. So obviously, there's going to be a premium on the scatter side. I don't want to specifically get into the actual pricing for competitive reasons. Given how new the platinum is. But obviously, we're not interested in discounting platinum much since it's a brand new product. And obviously, it's a big focus of the upfront, coming up soon. But I think the true test of how big platinum will be will really come once we get out selling in the upfront marketplace. But the response in scatter has been very good and the pricing that we promised, the 50% lift in platinum pricing has been more than delivered on the initial platinum sales, and we're optimistic that, that lift will continue through and hopefully get even potentially higher as we get towards the second half of the year.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [33]

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And then lastly, on that first one, I guess, first part of the first question was kind of -- is there kind of a committed run time or kind of a min-max on how long you'd have someone run a Platinum Spot? And then given the premium pricing on that and the margins on that in a scatter environment, can you allow kind of a faster turnaround to get those on the screens or there's an inherent limit on how fast you can get new content on screen regardless?

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [34]

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So I'll try to answer those separately. Right now, we have a relatively short amount of time that would allow us to get a Platinum Spot on. We can't do it overnight. When our entire new sales planning system gets on board, we can do it almost same day. But if we really need to, we can get a Platinum Spot on within 24 to 48 hours. So from a friction point of view, we can do that. Especially since right now, there's only Cinemark and Regal onboard. And as we add the other 10 to 15 affiliates, it's manageable. I don't want to get into specifically what the advertising requirements are in terms of the number of weeks for competitive reasons, it's really a proprietary selling strategy that we have. So I can't tell you at this point what the requirements are. It's just not something we want to disclose at this point.

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Operator [35]

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We have reached the end of question-and-answer session. And I will now turn the call over to Tom Lesinski for closing remarks.

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Katherine L. Scherping, National CineMedia, Inc. - CFO [36]

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Before Tom jumps in here with closing remarks. I just wanted to make a correction to the available cash calculation, adjusted OIBDA guidance that was quoted, it should be $202 million to $212 million. So the correction to the adjusted OIBDA guidance, $202 million to $212 million. Okay. Tom, you can take it from here.

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Thomas F. Lesinski, National CineMedia, Inc. - CEO & Director [37]

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Okay. So I'm very pleased to be ending 2019 with the best fourth quarter ad sales in our company's history and the biggest year ever for our national sales team. Our new growth strategy has begun to show results on both our top and bottom lines, and we're continuing that forward momentum into 2020, with our focus on creating long-term shareholder value through a unique combination of free cash flow growth and increased dividends. Our team is deeply committed to our company's mission statements to unite brands with the power of movies and engage movie fans anytime and anywhere. And I look forward to continuing to work very closely with our Board of Directors, our founding member and affiliate partners and our great NCM team to continue to drive our strategic vision for growth and leverage our unique position as the cinema expert in the media marketplace to benefit stockholders, employees, exhibitor partners and advertising clients alike. Thank you for joining us on the call, and we'll see you at the movies.

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Operator [38]

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