Q3 2019 Earnings Call
Come to the National Cinemedia Cinemedia Inc. conference call.
Time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
He wants to require operator assistance during the conference. Please press Star zero on your telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference.
Katy sharpening you may begin.
Thank you Darryl good afternoon, everyone I'm joined today here in Denver by our CEO , Tom Lesinski and joining by phone is clip mark will be available for Q and a later in the call.
I'd like to remind our listeners that this conference call contains forward looking statements within the meaning of section 27 eight of the Securities Act of 1933 as amended and section 21 of the Securities Exchange Act at 934 as Amanda.
All statements other than statements of historical fact communicated during this conference call may constitute forward looking statements.
These forward looking statements involve risks uncertainties.
Important factors that could cause actual results could differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings the FCC.
All forward looking statements are expressly qualified in their entirety by such factors.
Further our discussion today include some non-GAAP measures.
Accordance with regulation G. We have reconciled these amounts back to the closest GAAP measurement. These reconciliations can be found at the end of todays earnings release, which may be found on the investor page of our website and C M Dot com.
Oh, that's turned the color to talk.
Thank you Kt and good afternoon, everyone.
I assumed leadership role here at NCM, roughly three months ago with a simple objective.
To return to our public company routes by delivering a substantial dividend through long term topline growth.
Hi, adjusted OIBDA margins and high quality earnings as measured by conversion of earnings to free cash flow.
And so after providing you with a few observations about our recent quarter I'd like to share with you our vision for the company moving forward.
Then as always Kt will provide more detail about results in our 2019 guidance and then we will be open we'll open the line for your questions.
I'm very excited about the progress that we've been making to transform our business into a more effective entertainment and advertising distribution platform that is more data driven and nimble in today's changing video advertising marketplace.
With these significant strategic developments in our business all the changes to our ownership and leadership and the recently announced ability to sell that's closer to the feature film we are poised for growth in 2020 and beyond.
As we noted on our call in August we got off to a strong start to the third quarter with our pipeline pacing ahead of last year.
Well, we were able to slightly grow our Q3 top line revenue over last year, that's our national business continued to perform well we finished the quarter a bit softer than we expected.
A couple of national deals didn't close resulting in scatter revenue well below Q3 2018.
Our regional business continued to underperform and our make good came in higher as a few August and September films underperformed expectations.
As a result, our Q3 revenue and adjusted wide bid out came in below our Q3 expectations.
Our Q3 adjusted OIBDA was also negatively impacted by a 2 million dollar noncash write off related to a prior investment we made several years ago, which Kt will go over in more detail in a minute.
As we've mentioned advertisers are spending in scatter closer and closer to their air date other advertising campaigns.
While this trend started several years ago as digital platforms rapidly expanded it appears to be continuing to accelerate.
Clients now have so many video media choices and thus they can adjust where they placed their ads right up to the early days without the risk of not securing the desire GR piece.
Well, we're always adjusting the ways, we we evaluate and risk assessed our national sales pipelines were currently making a significant effort to address this issue and we have a large scale initiative in the works to upgrade our inventory in sales management systems as well is shipped our product sales strategy. So he can react more quickly to shorter RFP lead times.
In addition, we're expanding our digital inventory and consumer data platforms to make our product more integrated and easier to buy.
To be in step with all the other digital video advertising platforms that have made media buying easier and virtually frictionless.
The good news is what we lost some Q3 revenue related to this last minute shift in spending we continue to work with these clients for Q4 placement as well as on a 2020 upfront commitments that are less subject to last minute shifts.
This will not only keep shifting dollars on our books.
In many cases allows us to expand those clients overall spend.
We've been able to increase the dollar value of our courtesy partner deals for 2020 to sponsor the silence your cellphones messaging at the end of our new Michelle has that said when the show was now closer to the feature film.
We're also receiving positive climate sponsors to our new new beep.
Pre show format with inventory after the advertise Showtime yeah, we introduced to the marketplace in mid September , which I'll get into great detail shortly including the sale of our first platinum 62nd unit that will run in December of this year.
I would note that the Cpmp for this platinum spot was at a substantial premium to our historical pre show CPL.
We're also working on several digital strategies that I will discuss in a minute that are designed to bring more people into the dealers and get them into their seats earlier.
Now they've gone through my first 100 days, a C.L. I'd like to share more details about the five pillars of our strategy that we believe will create significant shareholder value as NCM. Once again becomes a unique investment vehicle by delivering a substantial dividend driven by long term revenue in free cash flow growth.
The first pillar of growth is related to increasing the quality and value of our media inventory.
As you know, we recently made a highly strategic and meaningful change in the value of our onscreen inventory, but the introduction of the new inventory placement after the advertise Showtime in our newly pre show in Reagan Cinemark with the completion of the say amendment in mid September .
We are marketing the five minutes had been inventory that began at the advertise Showtime as our quote lights down inventory.
We're also offering the new platinum spot that is deeply embedded near the end of the trailers, which we believe is one of the most price and impactful AD spots in the entire premium video advertising marketplace.
These improvements are expected to significantly increase the value of the inventory that we can offer to our national clients. We believe our local and regional clients will also benefit from better inventory placements as their placement will now be closer to the advertise Showtime.
[noise], well there'll be some incremental fixed and variable cost associated with this change given the higher expected sell through an average CPM. We expect our revenue growth will drive higher free cash flow available for distribution to our circuit partners and public shareholders.
This higher value inventory combined with an entertaining and engaging pre show program that is integrated with our new be digital ecosystem provides a unique cross platform premium video product that truly stands out in the media marketplace.
Our national sales team has been talking with many high profile brands and we've already closed a number of deals for lifestyle in advertising with clients in the QSR retail telecom and video game categories.
Also as I mentioned I'm excited airport that we just closed our first platinum deal for the month of December with one of our longtime technology clients.
We've also had strong interest in the platinum and away from major clients in the digital media space technology auto and apparel categories for Q4, and many other major clients in categories for 2020.
AD campaigns with this size a mini investment commitment are often planned months in advance and the timing of reaching those clients when they're making those investment decisions as critical we had hoped to bring our new inventory to the market a little earlier in the here to take it better advantage of the upfront marketplace. We were only able to begin selling advertising since mid September once the Esa amendments were side.
Well, we're not able to take full advantage of selling Q4 inventory the significant interest we're seeing for both the lights down in platinum in Bridgeport 2020 is very encouraging.
In addition to this new and improved inventory, we're actively working on new ways to reinvent our newly pre show program to ensure that it is truly connecting with today's millennial and Gensix movie goers to create an in theater experience that will help keep audience is coming back from more as well as drive traffic to our digital properties Hello.
With these changes and improvements to our media product and inventory cannot alone drive growth. So the second pillar of our strategic plan involves the plant upgrade of our sales planning proposal and inventory tracking systems to match today's more seamless digital buying experience for our customers to make it easier and faster for advertisers to buy cinema with NCM.
Our companywide program to increase our operational efficiency and effectiveness with new technology designed to solve the speed to market friction issues associated with our cinema product is underway.
And we expect full of mutation, which occurred late in 2020 or early 2021.
The third growth pillar that we've been focusing on is the continued investment in creating compelling digital entertainment products that we believe will improve the entertainment value of our pre show and promote incentives for movie goers to go to theaters and getting to their seats earlier, which will in turn create digital AD inventory any unique cross platform media product focused exclusively on the highly attract.
The movie audience to their movie going journey, both in theater and online over the last 12 months, we've had a 30% increase in the number of clients, who had a digital component integrated into their media buy.
Also on a trailing 12 months basis over 45% of our national and 26% of our local and regional AD revenue had an integrated digital component.
Integrated campaigns are resulting in a 215% higher contract value versus onscreen alone contracts, which is key to future growth.
We continue to expand our newby digital ecosystem and user fan and user base of movie fans with NCM owned and operated products like newly Dot Com Newby arcade Newby Shuffle fantasy will be league and name that movie.
This creates a new ways for brands to engage with movie audiences beyond the big screen to reach them anytime anywhere before and after the movie with new higher margin digital AD inventory in extremely valuable addressable first party customer data.
That we can monetize through advertising sales and sponsorships as well as leverage our cinema accelerator product.
Growing our digital products feeds into the fourth pillar in our growth strategy, which is building a data driven business. This is critical for us to be able to meet the needs of today's modern video advertising marketplace and we've been on significant data growth trajectory that has taken us from 20 million first and second party datasets at this time last year.
75 million today, and we expect to hit 100 million by the end of this year and we're projecting to double that by the end of next year.
These valuable Dale said datasets consist of both our own NCM first party data from our owned and operated digital products as well as a variety of key second party data addressable consumer records, including location based data that allows us to track when our audiences go to the movie theater to see our Doobie pre show and where they go into days and weeks afterwards.
This initiative will allow us to re target audiences it with digital advertising to our cinema accelerator product and more effectively support cinema campaign ROI for our advertisers.
With the data platform. Our team is developing we now know when a movie goer has walked into a theater what movie they saw and which adds they saw based on that movie in Showtime. We can also tell that that movie Goer later watch into a car dealership a cellphone story QSR restaurants.
After seeing these ads on the big screen. This is hugely valuable for all of our brands that are looking to attribute the results have been AD campaign to a customers' behavior.
Could also be the key to expanding our business with brick and mortar retailers and restaurants clients were looking to target customers when they're out of their homes in making buying decisions.
As well as online retailers are looking to improve recency on the weekends when consumers are making their online purchases.
It's important that would grow in scale, our theater audience data to a critical mass to be able to effectively used that audience data to leverage our value proposition to our clients.
It is that scale that will make our NCM digital capabilities increasingly attractive to advertisers and especially to national brands, who buy our national and regional inventory.
And finally, our fifth pillar of the strategy is to expand our affiliate network over the next couple of years by primarily focusing on adding key affiliates and more screens in select markets, which will increase our overall impression base and extend our reach two additional markets or strengthen our reach in markets, where our with yet.
As the largest cinema advertising network in the United States.
Brands look to us as an industry leader to provide the scale and reach they need for effective national campaigns. There are a handful of major exhibitors, who are currently part of our network and with cinema advertising projects will be coming up for renewal that we think will be terrific additions to our network and would strengthen our nationwide network even further.
Our affiliate partnerships team also has been meeting with our current exhibitor partners and had some good discussions about how their core businesses could benefit by implementing our new and improved Newby show format with lights down and platinum advertising.
Well adoption across our fleet networks is expected to take some time, we expect to have somewhere around 10 to 15 of our affiliates running with our post shell platform in 2020.
But you can tell I'm very optimistic about MCM sculpsure.
The movie slate for the rest of the year looks strong well several proven tenfold franchises, including melt ascent Charlie's angels frozen to jump onto the next level and of course Star Wars. The rise of Skywalker, We've launched our new movie Newby format with lights down and platinum inventory, our digital projects are resonating with.
It's brands and consumers are caused our consumer databases are expanding we are and we have continued great support from our exhibitor partners.
The 2020 up from AD market has been strong and we are seeing healthy demand from advertisers.
Heading into the key holiday season as brands continue to view, our unique cross platform package of in cinema advertising and digital offerings as a powerful way to reach Synta most valuable young engaged audiences both in the captive theater environment and anytime anywhere on their mobile devices.
We believe this positive market environment combined with the successful execution of our five strategic pillars for growth that had laid out positions NCM for a very bright future in 2020 and beyond.
Before I turn it over to Katie I wanted to welcome down, especially I'll also known as Donna Reisman to our board as you may have seen in our announcement. This afternoon, Don as a trailblazing advertising executive with extensive experience on both the advertising agency and media network side.
Most recently, serving as the president of advertising sales at Warner Media, you can read more about donner background in today's release, adding down into the board fills our open board seat and I look forward to working together worth or inventing from her fresh perspective on exhibition media strategy marketing and cinema advertising. So welcome Donna.
I'll now turn the call over to Kt to give you more details about our Q3 2019 operating performance and our 2019 guidance estimates. Thanks, Tom I'll walk through the operating results. The Tom highlighted in further detail discuss our thoughts on our Q3 results as well as our full year 2019 outlook. Then we'll open the call to your question.
Yes.
As always we'll be providing a supplemental presentation of these results on our website for your future reference.
For the third quarter, our total revenue was $110.5 million compared to $110.1 million in Q3 2018, an increase of 0.4%. This 400000 dollar change was driven by a 1.5 million dollar increase a national advertising revenue offset by a decrease in regional local and beverage revenue.
Total Q3, adjusted OIBDA was $51.7 million, a decrease of $1.9 million, our 3.5% versus Q3 2018.
The adjusted OIBDA margin for the quarter was 46.8% compared to 48.7% during the same period last year, primarily due to a 2.7 million dollar increase in operating expenses driven by onetime $2 million noncash impairment charge related to equity investments recorded in prior years in exchange for unused at.
We're tightening inventory as well as the increased investment in our digital team.
Our theater access fees increased $400000 or 10% to $20.1 million in Q3, this year compared to last year as a result of the 5.5% annual increase in digital screen fees, partially offset by founding member attendance decreasing 0.0, 0.3% versus the third quarter last year.
For the third quarter 2019 National AD revenue was $82.3 million, a 1.5 million dollar or 1.9% increase versus $8.8 million in Q3 2018.
Change was driven by 0.4% increase an impression fault and higher branded content revenue, partially offset by 9% decrease in Cps.
The increase in impressions sold was driven by a 1.2% increase in inventory utilization to 134.8% from 133.2% in Q3 2018, as we delivered a preference in the prior quarter and make good balance during the quarter, partially offset by is there a 0.8% decrease in attendance.
Versus prior year.
The decrease in Cpms is primarily driven by the shift in mix of the Q3 2019 revenue to more upfront revenue and lower scanner revenue that a year ago.
We now expect Cpms for the year to be down low single digit driven by the mix between scatter an upfront revenue for the full year.
Q3 regional AD revenue decreased $400000 from $4.5 million to $4.1 million versus the third quarter in 2018 and was primarily due to a decrease in average contract value.
The contract value decrease was driven mainly by a shift of several large clients that shifted from regional revenue and made larger national buys this year as well as a reduction in market spend of a few large regional customers compared to a year ago.
Q3, local AD revenue decreased slightly by $600000 from $17.4 million in 2018.
This decrease in local advertising revenue was due to a decrease in the volume of local contracts. This was mostly offset by the strengthen our local digital sales revenue.
Overall, our Q3 local digital revenue increased 12% with over 24% related to digital deals that were integrated with local onscreen ad buy.
While digital currently represents only a small part of our total AD revenue. It is becoming increasingly important that clients can integrate their digital product when they buy or onscreen products.
Q3 beverage revenue decreased $100000 from 7.4 million to $7.3 million versus Q3, 2018, driven by a decrease in founding member attendance, partially offset by a slight increase in beverage cpms year over year.
Q3, 2019 advertising revenue mix was 74% national 4% regional 15% local and 7% beverage.
First as 73 for 16 and seven respectively in Q3 2018.
For the first nine months of 2019, total revenue decreased 2.1% or $6.4 million $297.6 million from $304 million in the first nine month of 2018.
Adjusted OIBDA decreased $5.2 million or 4% to $124 million from $129.2 million in the first nine month of 2018, and adjusted OIBDA margin decreased to 41.7% from 42.5% versus the first nine months of 2018.
Excluding the 2 million dollar noncash onetime Q3 investment impairment adjusted OIBDA would have only decreased 2.5% versus the same nine months in 2018.
This non cash investment impairment charge recorded this year represents the final write off of these investments that we have recorded from several years ago.
For the first nine months of 2019 National AD revenue was $213.9 million, a 500000 dollar or 0.2% decrease versus the first nine months of 2018.
The decrease was driven by a 4.8% decrease in CPM.
0.8% decrease in impressions sold partially offset by an increase in branded content. The slight decrease in impressions sold was the result of an increase in utilization to 116.7% from 109.1% offset by network attendance the decreased 7.2% versus the first nine months of 2018.
I mean that was driven by a record record box office last year.
For the first nine months of 2019 regional AD revenue decreased by 2.4 million from $16.6 million in 2018.
This decrease was driven by the shift from regional advertising to national advertising by several large client.
You may recall that we had adjusted our regional sales strategy over the last couple of years by separating our regional business from our local business to allow each team to focus on their unique selling proposition constraints.
Going forward the regional team has refocusing its effort on both large regional advertising clients in the top 10, DNA and the national spot TV market and our local sales team will focus on the smaller markets as well as reactivating and creating new incentives to package there theaters into multi theater deals.
In both cases, there's a cost effective way for brands to acquire GRP is that TV can't provide.
This will be especially true in 2021 political AD dominate TV and digital AD inventory and when TV GRP has become scarce.
We expect to be able to take advantage of this next year by offering brands, a safe engaging entertaining environment free of politically net political negativity that provides reach and video GRP is for local and regional advertisers with no chance of Preemptions. Unlike TV.
Our audience is also appreciate the fact that their local movie theater is a haven from the bombardment of negative political advertising on TV and the Internet, which may also help with audience engagement throughout the year.
For the nine month of 2019 local AD revenue decreased 3.5% or 1.7 million from 49 million to $47.3 million compared to last year. The decrease in local advertising revenue, but due to a 10.4% decrease in the volume of contract, partially offset with 12% higher local digital sales revenue.
As previously discussed clients are looking to integrate their cinema AD buys with our regional Retargeting capabilities post the movie going experience, which provides for higher average contract values.
For the first nine month in 2019 beverage revenue decreased 7.5% or $1.8 million from 24 million to $22.2 million versus the first nine month of 2018 due to 6.7% decrease in founding member attendance, partially offset by a slight contractual increase in beverage cpms.
For the third quarter, we reported GAAP diluted earnings per share of 12 cents versus an earnings per diluted share 14 cents in Q3 of 2018.
For the nine month in 2019, we reported GAAP delivering diluted earnings per share of 22 cents compared to earnings per diluted share of 16 cents in the first nine months of 2018 as a result of deferred tax expense decrease in $10.7 million from the first nine month 2018 due to the remeasurement of our deferred tax assets in 2008 eight.
Team and as the as a result of state tax law change.
For the first nine months of 2019 capital expenditures were $10.5 million versus $11 million spent in 2018.
We are estimating that our full year 2019 capital expenditures will be in the $14 million to $15 million range or approximately 3% of revenue, including $7 million to $8 million of digital investment.
In the third quarter and effort for the first nine months of 2019, we recorded 5.6 million and $13.7 million, respectively of integration and other encumbered theater payments associated with AMC rave theaters, and AMC, Carmike theatres versus 5.5 million and $13.3 million respectively in Q.
In 2018.
As a reminder, these integration and other encumbered theater payments are added to adjusted OIBDA effort that compliance and partnership cash distributions purposes are not included in reported revenue or adjusted OIBDA as they are recorded as a reduction to net intangible assets on the balance sheet.
We expect to record approximately $20 million to $21 million of integration payments from our founding members during 2019.
It should be noted the rate AMC rave integration payments of approximately $1.5 million will continue through next year and the AMC Carmike theater integration payments of approximately $19 million will continue through the remaining term AMC Esa through 2037.
And moving onto our balance sheet early in the fourth quarter, we refinanced our 400 million dollar 6% senior secured notes due in 2022.
This refinancing extend the much extends the maturity date of those notes that were refinanced I nearly six years to April 2028, and reduces the interest rate from 6% to 5.875%.
We will pay interest on the note semi annually on April 15th in October 15th of each year.
We may redeem all or a portion of the note starting April 15th 2023 at 103% of the principal amount with the redemption cost declining 1% annually each year until 2026, when the company May then redeem the note at par value.
As a result of this transaction interest savings are expected to be $500000 annually versus the 6% notes.
The refinancing and positions us well for the future as it diversifies, our debt maturities and reduces the near term refinancing risk as the next maturity is coming due on a revolving line of credit in 2023.
Our total debt outstanding it NCM LLC at the end of Q3, 2019 was $23 million lower lower than the end of Q3 2018.
Our bank in Bonn termed out were $897 million versus $912 million at the end of Q3, 2018, and our revolver balance at the end of the current quarter was $6 million compared to $14 million at the end of Q3 2018.
Our average interest rate on all that was approximately 5.7% for both periods, including our $267 million floating rate term loan bank that and revolving credit facility. The had a rate of approximately 5.2%.
Excluding our bankrupt revolver balances, 70% of our total debt outstanding at the end of Q3 2019 had a fixed interest rate.
We have reminder, under our charter, we can pay down up to $15 million of our debt annually without founding member of board approval.
For the nine months 2019, we retired $5 million of our 2026 senior unsecured bonds for $4.6 million. In addition to the $15 million of these same bonds. We retired during 2018 for $14.2 million.
We are continuing to evaluate this discretionary reduction of our debt based on future free cash flow generation the related debt leverage level alternative investment opportunities and our public company dividend policy.
Our total net leverage at NCM LLC as of the end of Q3 was approximately 4.2 times trailing four quarter adjusted OIBDA, which is well below our consolidated net total leverage maintenance covenant of 6.25 time.
Our consolidated net senior secured leverage ratio was 3.1 times versus a covenant of 4.5 time.
Our consolidated cash and investment balances as of Q3, 2019 was $63 million with $61 million of this balance NCM bye bye.
We currently have enough cash available to cover more than four quarters of dividends that NCM high with approximately 75 cents per share cash on hand at the end of Q3 2019.
We announced today that the board of directors has authorized the company with regular quarterly cash dividend of 17 cents per common share of stock.
The dividends will be paid on November 29, 2019 to stockholders of record on November 14 2019.
With over four quarters of cash on hand, it NCR, Mike combined with the current dividend payout ratio of approximately 85% to 90% of available cash generated over the last seven quarters as part of our strategic planning process for 2020, our board intends to evaluate the appropriate level of our future dividend payout ratio in order to continue to maintain an appropriate level.
Our cash reserve it MCM API that will ensure the long term stability sustainability of our dividend while paying out a substantial portion of our available cash to shareholders.
The company intends to pair regular quarterly dividends for the foreseeable future at the discretion on the board of directors consistent with the company's intention to distribute overtime a substantial portion of its free cash flow the declaration payment timing and amount of future dividends payable, albeit the sole discretion of the board of directors, who will consider general economic and advertising.
Business conditions, the Companys 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 annual dividend yields currently 8% based on today's closing share price of $1.48 cents.
As a reminder, currently 100% of our dividend this tax deferred for income tax purposes.
Now turning to guidance.
But that third quarter, ending a bit softer than expected and a lower than expected result of selling our light down in platinum inventory for November due to the timing of getting in the market with this inventory we are adjusting our full year 2019 revenue guidance to $435 million to $445 million or down 1.5% up 1.1 person.
Yes.
And adjusted OIBDA guidance to $190 million to $195 million to $205 million or down 5% to flat.
This guidance includes the year end make good balance assumption of $8 million.
The ending make good balance could fluctuate up or down a few million dollars depending on the box office performance over the last one in two weeks of our fiscal year, which ends on December 20, SEC, which includes only opening week for the release of Star Wars.
The last five weeks of the year, our largest revenue period of the year and given the current market trends of a later breaking scatter market our revenue and adjusted OIBDA can be impacted meaningfully by one or two last minute deal. In addition to the fluctuation of our make good balance.
For instance, as Tom mentioned, we just recently sold our first 62nd Platinum unit for December .
We will be providing initial 2020 full year guidance on our 2019 earnings call in February .
Looking at NCM LLC is available cash calculation for 2019, starting with our updated adjusted adjusted OIBDA guidance of $195 million to $205 million you will add the following as a build to available cash one integration payments of $20 million to $21 million.
And to cash payments from the fab one note receivable of $5.7 million that will end at the end of this year.
As a reduction to available cash you will subtract the following.
Cash interest expense of approximately 5300 $54 million.
Annual scheduled debt principal amortization of $2.7 million, plus discretionary bond repurchases, a $5 million and approximately $8.5 million in fees related to our recent bond refinancing.
Three capital expenditures of $14 million to $15 million and for non cash stock comp for inc. employees of approximately $2 million.
These are the component that will allow you to arrive at a projection for available cash at NCM LLC at the end of 2019, we just paid to the founding member circuits and NCM Inc. at the end of each quarter based on their ownership at that time.
In addition to the available cash distributed to NCM Inc. from NCM, LLC and consistent with prior years, we project approximately $5 million to be paid NCM eyes from NCM LLC for management fees plus $1.5 million of interest earned on NCM I cash balances reduced by the expected payout 50 to 60 million.
Dollars for payments under the tax receivable agreement to our founding members.
This will allow you to calculate the net cash available to fund current annual dividend and the current annual payout ratio or approximately nine approximately 90% at our guidance midpoint.
This concludes our prepared remarks, and we will now open the lines for questions Daryl.
Thank you at this time, we will be conducting a question and answer session. We would like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question Q you May Press Star too if you would like to remove your question from the Q.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star Q1 moment. Please while we poll for questions.
Our first question comes from the line of Eric Handler of MKM Partners. Please proceed with your question.
Yes. Thank you very much for the question and good evening.
Tom just wonder if you could talk a little bit about customer reaction now that you've had some time too.
Speak with all these advertisers obviously.
It was good enough for one person to buy the the platinum spot, which is great, but I'm, just saying you know just thinking of.
Playing or trying to balance higher prices versus.
Close to the air time for movies, what's been the reaction from clients there.
The reaction to the platinum spot in particular has been really positive and the announcement about moving five minutes into the post Showtime period has also been really positive it's really been matter of timing, we've only been in the marketplace for a little over four or five weeks and candidly.
It was the ended the year, but we know that the 2020 interest level beyond what we've done in November and December is been really strong. So there's a lot of enthusiasm.
We probably talk to over 100 different advertisers already.
And we're confident that 2020 is going to be a big year for both post shell and for platinum.
So you think since the advertisers are fully buying into close.
Lights down close to the air time of the movie.
Hey, good value for.
Paying a higher price or higher CPM.
Yes, and I think whats important is that many of the advertisers have you been wondering what actually took so long.
And the acceptance is actually there hasn't been really push back on the pricing front and it's been more about excitement over the fact that the advertising inventory is closer.
To the actual movie and Thats been very attractive.
I would ask cliffs marks cliff if you want to make a comment or two on how you feel the program has been going this would be good time to do it.
Yes.
Okay.
We have or advertisers are very excited I've never seen reception to a product.
We've had in the market like we have had to platinum.
The problem was we were too late to get to the market. Most money was spent on it turns out to market, but the response Eric has been excellent.
Thats great congratulations.
Yes.
Our next question comes from the line of Mike Hickey Benchmark Company. Please proceed with your question.
Hey, Tom 80.
Thanks, Mike.
Sure.
All.
The question.
Yes.
More difficult.
Such huge China doll.
Yes sure.
Yeah.
Have you fall.
Hey, guys.
Okay.
Yes.
No.
Let me get Margaret.
Yes.
Yes.
That's helpful.
Thank you want to answer that.
Yep.
What was what we're still or is there is a network that is partially our oil program lineup, partially or new.
Our advertisers and agencies I understand that it would take some time to get volume across the whole network.
We're poised to get accordingly, so you know over 56% of our network has the new program lineup and we're pricing that accordingly.
The remainder of the network does not have.
So we're not placing a premium on that I think they're all very patient most advertisers understand that it's going to take exhibitions.
Some some exhibitors tied to you're comfortable and their respective has not been difficult at all.
Thank you and then.
Hello.
Parts or otherwise had a major storm wells.
I seem to remember demand.
Thank you.
You are sort of selling lots or inventory action strategy some of the bye.
Yes.
Quarter Q.
This time around that.
Somewhat normalized in Boston.
The other types of Star Wars, two too.
Well I Didnt, yes, I think what your AD and let me try to paraphrase because we're having a hard time hearing you. Mike. So you could tell me if I'm off base of life out every goodbye.
You are asking about it does the Q4 sellout bleed into Q1 with the demand in advertising are you talked about make good are you talking about the fact that star Wars is only running for the last week of year and people want to advertising front Star Wars moved to Q1 as well.
That's right yet.
Lumber demand.
Hi about that.
So I'll just want to Star Wars.
Some of that some of those by presence.
Well.
So that's sort of how are.
Demand.
Some of them.
Pronto.
Right now.
Sure.
Sure.
Matt its former what you've seen in prior quarters.
I'll now.
Yes, we would expect Q1 of 2020 to benefit from Star Wars for US only really the first week as is in our 2019 number. So Q1 would be that most benefiting of the star with that.
Okay.
Last question for me I guess.
Like down.
Inventory you also.
Local.
Each and Paul.
At spot quotes.
Are you seeing the positive impact from.
Hi.
Sure.
I think it's fair to say that we've been well Cook give me just say one thing I think that you can also add onto it.
We've certainly been highlighting the fact to our local and regional buyers that as our inventory moves nationally closer to the into actual advertise Showtime that the local and regional advertising becomes more valuable as well.
Clip why don't you talk to that as well.
Well remember just just started this past week on right. So it's new in the market the reception for more local clients has been excellent I mean, everyone likes the fact locally and regionally that will have inventory closer to Showtime now, but now Mike We got to go out and we educate people about this because it's been a long time that they've known I'll show to be.
No one format. So it's going to take some time for us to go reeducate, a lot of local and regional clients, but unequivocally it's looked at highly positively.
Thanks, guys.
Our next question comes from the line of Eric Wold of B. Riley and company. Please proceed with your question.
Thank you good afternoon, and few questions just on sugar stand dynamics around.
Scatter and timing of decisions vis-a-vis kind of what impact in Q3 and going to what you're seeing so far in Q4 I guess your first of all you noted that some of the fresh from Cpms in the quarter was due to lower scatter versus more of a mix shift too.
More kind of obstruct purchases, but then you also noted that average ideas are moving increasing moving to more last minute scatter purchases close your campaign I guess, I guess kind of two questions from that one.
When you would you expect that dynamic to trough.
And potentially start to benefit results from more of a mix shift towards scatter and then too.
I guess because.
Normally expect to ship the scatter to be more more positive for CPM. Just my guess is there.
You know to there's so many choices out there they can make this last minute management decision.
How much concern about staying or dollars does that indicate that airlines cpms are likely to be pressured.
Even with that should the scatter.
Okay. Good questions. There one is a timing of when we build the pipeline when we have scatter deals because of the nature of scatter there their place.
Very close to that campaign time. So that is is impacting Q3, because we had a fairly robust pipeline early in the quarter that really declined over time as we got closer to the ended the quarter and then from a CPM standpoint, the left scattered all as you have on a year over year basis is what drives the CPM.
What percentage down so when we thought we had about 27% decline in the CPM revenue year over year. So when you have that scatter revenue sorry, you have pressure on the CPM. So the scattered all is typically are higher premium price CPM, but when we saw the pipeline evaporating that impacted Q3 this year.
For us.
Okay Thats, Okay. I guess was on a go forward basins go if.
If advertiser increasingly having a lot more choices to make their last summer decisions on scatter that would seem to imply that there is.
Enough choices out there that they're not going to be frantic have the payout to get there needs to me that that's fair or do you still expect scatter into scatter pricing to continue to require you even in that environment.
I think we still think scatter will go higher I think it's more of a convenience and friction issue literally if you're on Facebook today, you can buy an add an hour before it runs and that doesn't exist in the cinema advertising business or in the television business, we're making a lot of efforts on the operational side.
Beginning hopefully as early as next year to be able to be much closer to the actual advertise time that we can place and add but I think they're two different things and I think one is a operational thing and once the pricing thing and we don't see those is being related.
But if you want to opine on that as well you Ken.
Yes, Gary what I would tell you is the good news is is that we've got a lot more of our scattered dollars to be committed up front. That's a good thing we lock it in we know it's on the books and and it's you know its hours now of course that comes at a lower CPM because it's moved up front, what you need is enough of a pipeline.
To follow it up and and.
More scatter comes higher Cpms and that's together Gopro, we're just waiting for it would more advertisers with more with more media companies.
There were.
But there's a lot of upside still to us, creating a lot of new scatter clients just don't exist today, especially with this new inventory. This new inventory is going to attract some brands.
I've talked to many of your myself, whereas it may not have thought about cinema and a long time that are interested in this inventory that I think we'll create new demand for scatter that'll be last minute and be premium.
Okay and then just final question my Mary.
Ladies changed in general I guess, what they're going to move to close rigs how how close is.
This spending happening to campaigns in general from your point of view I know you noted, obviously, some goodbye Facebook and our before they want to you, but that's not possible in theaters. So for for NCM. How close you. This spend happening to a campaign or same kind of screens because youre thinking about you started marketing the new pose showed.
I have a strategy in mid September but noted that it was too late to impact Q4 hundred dollars had been spent so I guess, how florida to answer that kind of cut off these days.
Well, well I think you're asking two different questions I mean, we're we write business.
A week before.
We'll write a deal on Thursday that I'll start on a Monday or Tuesday, I mean, thats not so one comment we just wanted to dig fourth quarter scattered deal like that.
The situation with.
The money you know the the money that we've got it kind of drive up for fourth quarter when you're looking for.
Big money for these platinum deals are big money for these posts Showtime deals you know that a lot of that was committed early it was committed upfront, but but there is a lot of scattered the brakes that we right, sometimes a week before or same week of.
And that of Tom's point, we'd we'd like to be even we'd like to be able to do it day over two days before but we're we're just not there yet.
Got it that's helpful. Thank guys.
Yes.
As a reminder, if you would like to ask your question. Please press star one on your telephone keypad.
Our next question comes from the line of Jim Goss of Barrington Research. Please proceed with your question.
Okay. A couple of them first in terms of the approach to selling the platinum spot.
Are you.
Looking at.
Generally a single single Advertiser to block all films for say, a consumer product with broad appeal across demographics or are you instead looking to.
Say multiple targeted ads that might fit whatever genre or ratings or whatever might differentiate the movies.
One other thing Thats flexible about our network is the ability to customize it by whether its demographically or by rating.
So we're really looking for big brands with Big budget set appreciate cinema and they want their kind of imagery and brand on a big screen.
And are willing to make a commitment.
Both financially and with a piece of creative.
So I think what you'll see it's a little early to tell since we're really just coming out with it but I think you'll see a number of advertisers coming in the platform on a regular basis.
Okay. So you might do serve a mix of those two approaches that what you're basically saying.
If somebody will buy everything obviously a ruling.
Okay.
I think you mentioned you are using some technologies for identifying moviegoers.
Entering into the theaters and following up with relevant ads and I'm wondering if you're.
Thinking about are experiencing a likelihood of some pushback as customers noticed this connection.
We have not gotten any pushback.
We've done a half a dozen sort of programs like this.
Using location based.
Resources.
And candidly most consumers who are seeing ads on their cell phones or on the internet are often.
Being attributed from another add or from another advertiser. So it's pretty common practice in the advertising business to attribute back.
And we haven't had any negative response.
I'm very importantly, we follow all the rules you know all the rules related to privacy. So if you walk into our theater. We don't know your name. We don't know who you are all we can do is identify your phone and know that you were in the theater. So everything we do is within the standard guidelines of the us.
Digital advertising medium.
Alright, thanks much.
No.
Our final question comes from the line of Jason Kim of Goldman Sachs. Please proceed with your question.
Great. Thank you for taking my questions. So in terms of the shorter lead cycle for for advertisements.
What sort of technology or other investments, you think envision making to to make the buying experienced a bit more seamless for advertisers any magnitude. It then definitely thinking you can share with us.
Well, we have a major initiative going on in our company.
That will really streamline the advertising process from the beginning to end, which will allow us to be nearly as dynamic as a digital advertiser and we've made a commitment.
In this process, starting almost two years ago really in the planning phases.
We haven't actually commented on the and size of that investments.
But I think we can get to that probably next year, when we actually get to our full year.
Forecast and guidance for 2020, but it can issue, it's a major initiative by our company.
And as significant opportunity and investment for our company as well and Jason just as a note as we continue to migrate our technology system and improve the system. Our focus is on cloud based application. So what you see with a cloud based application is significantly less capital investment than what we've traditionally had with our home grown.
On internally developed system and you'll see an increase in potentially an increase in our back and a decrease in capex. They see a benefit to the cash flow the business without having to make those large on initial investment because it's a software in the cloud application so that.
As we move forward in our technology platform, that's the direction we're heading.
Okay. That's helpful. And then in terms of the guidance reduction for the year center and an implied fourth quarter.
I didn't say after your third quarter results, how much of your sort of a guidance that take down as related to just being more conservative with scatter business versus just so much of the business just coming at the very last week of the year.
So just leaving some drill for conservatism like what are you attributing to in terms that adjustments to your assumptions there.
So let me say this just about about the fourth quarter. So we feel confident in our revised guidance and we've guided can certainly for the remainder of the year given how the backend.
Loaded film schedule looks.
And the potential for significant make goods depending on it. So as you know decembers one of the strongest months of the year. There's obviously, some really big movies happening during that time, including Star Wars, So, but we feel that our guidance is conservative.
And can you can add to that if you'd like yes, I mean I think.
There there are definitely some moving parts to the end of the year on which May drive that $8 billion make on either positive from that are negatively from that so it just depends on how star Wars are opens up against the projections that everybody is estimating.
And then where the full five weeks the last five weeks of the year are really were all the money is for us this quarter. So we want to be somewhat conservative given what we saw in Q3 with a robust pipeline that really tailed off toward the end of the quarter.
So we're being cautious about that I think is how I would put it.
Thanks for your thoughts.
Thanks, Jason.
Okay. Thanks for the question.
Well go ahead, sorry, I was going to say we have reached the end of the question and answer session.
And allocate will take over to thanks.
Thank you for your questions I'm very proud to be leaving NCM and its talented hardworking management team and staff into the future. Although third quarter was not as strong as we'd expected. We still grew our topline and a put a strategic growth plan in place that's designed to create shareholder value in many ways.
Number one increasing the quality and value when we do inventory number two upgrading our sales planning proposal and inventory tracking systems to make it easier and faster for advertisers to buy cinema.
And to continuing three to invest in digital entertainment products to improve consumer engagement and create new digital AD inventory and data.
For building, a data driven business to be able to meet the needs of today's modern video advertising marketplace and monetizing our digital products and five expanding our affiliate network by primarily focusing on adding key affiliates and more screens in select markets, which will increase our overall impression space and strengthen our network reach.
The strategic plan will allow us to return to our original focus of providing investors with a unique investment opportunity that delivers a combination of high current dividends and stock price growth potential I.
I look forward to working closely with our NCM team to continue to drive our strategic vision and leverage our unique position in the medium marketplace as the leading company.
Dining brands with the power of movies and engaging movie fans anytime in everywhere.
And accelerating NCM as growth and increasing the value of our company for our stockholders employees exhibition partners and advertising clients like.
Thank you for listening to our call.
And we'll see at the movies.
This concludes todays conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.