National CineMedia, Inc.

Good day and welcome to the National CineMedia, Inc. First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ted Watson, Senior Vice President of Finance. Please go ahead.

Thank you, Matt, and good afternoon, everyone. I am joined today by our CEO, Tom Lesinski. I would 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, including our discussion about the future impacts of COVID-19, other than statements of historical facts communicated during this conference call, may constitute forward-looking statements. These forward-looking statements involve risk and uncertainties. Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors. Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found at the end of today's earnings release or on the investor relations page of our website at ncm.com. And now I'll turn the call over to Tom.

Thank you, Ted, and good afternoon, everyone. Welcome to our first quarter 2021 earnings call. I hope you're all continuing to stay safe and healthy as spring brings a period of recovery. Our company and the cinema industry are continuing the slow but steady recovery from the COVID-19 pandemic. During these early stages of the recovery, there are many indications that consumer demand is coming back, and cinema will continue to be an important launching pad for films. More than half of all adults in the U.S., Thank you for joining us. Some recent disappointing day-and-date streaming results have many content producers now considering the reestablishment of a new kind of exclusive theatrical window to help launch their films and other scripted content into the streaming services. With these positive trends as a backdrop, I'd like to now provide a high-level update on the steps we've taken to position our company to quickly restart and diversify our cinema ad business. while at the same time maintaining our liquidity position as we meet the ongoing challenges presented by the COVID-19 pandemic. Ted will then provide more detail on how we continue to manage our operating costs and our overall liquidity to ensure that our team is prepared to quickly benefit from the incredible movie slate backlog that will begin to drive movie audiences back to theaters this summer. And then, as always, we'll open the line for your questions. The first quarter of 21 continues to be a challenging time for NCM's business and the entire out-of-home entertainment and advertising industries. Our in-theater advertising revenue remains adversely impacted in Q1 by both significantly lower movie theater audience attendance due to both government-mandated closures and patron capacity limits and a continued delay of new major motion picture releases. Fortunately, that began to change in Q2 Thank you for joining us. While many are continuing to operate under COVID-19 restrictions with reduced capacity and operating hours, those restrictions are loosening up, and for the first time, theaters are open in New York City and other key markets. Ted will discuss all this in more detail shortly. Fortunately, as you know, NCM LLC's theater access fees, network affiliate payments, and platinum spot revenue share payments are all variable costs that are driven by attendance, active screens, and or revenue. and therefore would not encourage for the duration that the theaters were closed and will be lower than historical levels while attendance remains down and for periods where theaters are operating with fewer film show times. The most encouraging thing is our national theater network is continuing to open more every day as exhibitors get ready for the release of many highly anticipated films throughout the year beginning on Memorial Day weekend. As mentioned, Theater capacity restrictions are also being lifted in many parts of the country. In fact, 23 states currently have no capacity limits at all, and theaters in all top 10 DMAs are now open. In the key media and movie market of New York, the governor recently announced that a state will be 100% open by May 19th. And theaters in L.A. also continue to open at 50% capacity with 75% capacity coming soon. With the recent positive U.S. theatrical film openings and theaters across Asia posting record attendance levels, we continue to be very optimistic about the future of moviegoing. As mentioned on our last earnings call, in March we closed the bank facility amendment that has provided covenant relief through Q3 of 22 and a new $50 million debt facility. This amendment and funding of the new $50 million tranche Thank you for joining us today. that will allow advertisers to reach movie audiences before they arrive and after they leave the theaters. Our sales teams continue to have many positive conversations with clients and advertising agencies about getting their brands back on the big screen. The tenor of these discussions has now turned from when audiences will be back in movie theaters to how big of an advertising deal can attendance support. Marketers are very anxious for their brands to reach the hard-to-find theater audiences once again Thank you so much for joining us. have proof of the power of the unique big screen environment of movie theaters that make all world-class ads and content more impactful. We're also expecting that these successes will result in the re-establishment of more flexible theatrical windows that allow streaming to benefit even more from the word-of-mouth and other marketing benefits provided by theatrical exhibition. In fact, streaming has turned out to be a much bigger potential problem for linear ad-supported TV For cinema, ad-at-home audiences have increasingly shifted to watching SVOD, non-ad-supported streaming services, instead of traditional ad-supported linear television. This has resulted in a significant lack of available high-quality video GRPs in the marketplace, especially among younger, highly-covered demographics, and it's forcing advertisers to find new ways to reach large national audiences. www.cinemedia.com That highlights our premium Lights Down and Platinum Post Show inventory, which we continue to believe is some of the best video ad real estate available anywhere. This strategy allows us to position our timely message to the right decision makers at the right time. We're beginning to see good momentum as media buyers recognize cinema as one of the best options in this new media world to reach young, diverse, highly engaged audiences at scale. And not only that, but streaming companies are increasingly becoming some of our biggest advertisers, as they now recognize what their linear TV and cable predators have always known, that cinema advertising effectively drives tune-in. Linear TV ratings have been in sharp decline since 2016, continuing a precipitous falloff in broadcast cable prime in sports audiences over the last decade for the always-important 18-49 demo. CineMedia, Inc. While our national team remains focused on securing a base of upfront dollars, the scatter market is also becoming more attractive and we're seeing more RFPs and having more meaningful detailed conversations and negotiations than at any time during the pandemic, which is highly encouraging. Our local business is also beginning to rebound. As local contract volume is beginning to increase and there are some local markets where movie theaters are already open at 100% capacity. Thank you for joining us. It is clear that advertiser demand for cinema continues to be strong. The main limiting factor throughout the COVID-19 pandemic has been the lower number of moviegoers allowed in theaters versus media buyer demand. We continue to be confident as government-mandated restrictions continue to be lifted as the role of the vaccine progresses, the significant cabin fever that has been building for over a year now will drive consumers back to the theaters. This will once again allow movie studios and even some of the new streaming companies to rely on theaters to launch their films and other content into the marketplace. Recent announcements from Warner Bros. and others reflect a recommitment to new types of theatrical windows for future films. This is great news as film release delays caused by the pandemic has created an unbelievable lineup of big movies from now through 2023, which should begin to stabilize and normalize our business in the second half of 2021 and beyond. While our core in-theater advertising business has started to recover, we've continued to focus on maintaining liquidity by balancing cost reduction measures with the need to keep our talented MCM team in place so that we can begin to quickly ramp up our business to meet increasing advertising demand. While many of our temporary pandemic salary reductions and staff roles currently remain in place, we've begun to implement our return-to-work plans as we expect to bring people back to full salary and hours as the cinema industry recovers. I cannot tell you how much I'm looking forward to welcoming our great people back, and I remain incredibly grateful to our entire NCM team for their unparalleled resilience, dedication, and support during the past very difficult year. I'm very proud that all of our careful planning and management of our financial and human resources over the past year has not only allowed NCM to survive, but it's positioned us for success in a post-pandemic world. www.cinemedia.com This strategic expansion and diversification of our ad inventory to offer complementary and integrated ways for brands to reach our attractive audiences beyond the walls of the theater on digital devices and within other out-of-home venues is generating more inquiries and starting more discussions than ever before. Marketplace reaction has been very positive, especially initially in the local arena, where this new inventory has really opened up some new categories for us, including state lotteries. Advertiser interest in CoinStar and ATM TV has also benefited from the continued high traffic of supermarkets and 7-Eleven stores, and now that the restaurant and office building traffic is increasingly coming back, our NCM digital out-of-home network will soon be firing on all cylinders with the recent addition of Ziosk and Captivate. We also have a few other exciting new digital initiatives that are increasingly important to our future success. A new data partnership with one of our founding member exhibitors to supply movie ticket data will greatly expand our ability to leverage audience data and create more robust targeting solutions for advertisers. This new movie ticket data reinforces our current audience data pool and makes our data offering significantly stronger, enhancing not only our scale but our depth with a meaningful increase in deterministic data. It also allows us to create custom closed-loop attribution measurement for brands and movie studios alike. This new valuable movie ticket audience data is expected to grow our data sets to 300 million by year-end and power our movie audience accelerator digital product with what we would believe will be the largest and most pristine movie audience data set available in the marketplace. As government regulation and policy changes by the dominant digital companies and third-party cookies and use of second- and third-party data Our theater audience expertise and robust theater audience data will enhance our ability to compete with other larger digital advertising platforms for marketing dollars. We've also formed an exclusive relationship with Vobio, a SaaS industry leader in content recognition, protection, monetization, and marketing to sell brand-safe, reservable digital video inventory alongside movie content like movie clips and trailers, on top of video platforms, including YouTube. This allows us to offer digital audiences at scale to connect brands with movie fans while they're engaging with the best online movie content across the biggest video platforms. Providing access to the hottest trailers and fan-favorite clips provides advertisers with premium, brand-safe ad opportunities. This partnership provides Instant with over 120 million additional monthly digital ad impressions to sell with other valuable on-screen and digital out-of-home options. Our new digital out-of-home and social video platform inventory will also provide us with two entry points into the programmatic buying marketplace, which is an important step in our strategy to make all marketing products easier to buy. Our capital investments in our new cinema advertising management system that was launched in Q1 will lay the foundation for programmatic access to our on-screen inventory, which we expect will create additional monetization opportunities for our in-theater inventory in the future. So as you can see, while the pandemic brought many difficult challenges, it also gave us an opportunity to think about our business differently and begin to execute several new strategies. We were able to expand our cinema network with the addition of Harkins Theaters, the fifth largest theater operator in the U.S. This cinema network expansion, combined with the acceleration of our digital strategy and the diversification to selling inventory in other out-of-home venues beyond cinema, Thank you so much for joining us. Thank you so much for joining us. I'll now turn the call over to Ted to discuss more details about our cost savings measures, liquidity position, and outlook. Ted?