Market Overview

National CineMedia, Inc. Reports Results for Fiscal Second Quarter 2018

Share:

Announces Quarterly Cash Dividend of $0.17 per Share
Updates
Full Year 2018 Outlook

National CineMedia, Inc. (NASDAQ:NCMI) (the Company), the managing
member and owner of 48.8% of National CineMedia, LLC (NCM LLC), the
operator of the largest in-theater digital media network in North
America, announced today consolidated results for the fiscal second
quarter and first six months ended June 28, 2018.

Total revenue for the second quarter ended June 28, 2018 increased 17.1%
to $113.7 million from $97.1 million for the comparable quarter last
year. Operating income increased 42.0% to $40.2 million for the second
quarter of 2018 from $28.3 million for the second quarter of 2017.
Adjusted OIBDA increased 23.6% to $52.3 million for the second quarter
of 2018 from $42.3 million for the second quarter of 2017. Included in
Adjusted OIBDA and operating income were $0.0 million and $1.7 million
of non-cash impairment charges during the second quarter of 2018 and
2017, respectively, on investments obtained in prior years in exchange
for advertising services. Net income for the second quarter of 2018 was
$4.2 million, or net income of $0.05 per diluted share, compared to net
income of $5.2 million, or net income of $0.09 per diluted share, for
the second quarter of 2017. As adjusted to exclude CEO
transition-related costs and early lease termination expense, net income
per diluted share for the second quarter of 2017 and 2018 would have
remained the same.

Total revenue for the first six months ended June 28, 2018 increased
14.7% to $193.9 million from $169.0 million for the comparable period
last year. Operating income increased 53.3% to $51.2 million for the
first six months of 2018 from $33.4 million for the first six months of
2017. Adjusted OIBDA increased 26.2% to $75.6 million for the first six
months of 2018 from $59.9 million for the first six months of 2017.
Included in Adjusted OIBDA and operating income were $0.4 million and
$3.1 million of non-cash impairment charges during the first six months
of 2018 and 2017, respectively, on investments obtained in prior years
in exchange for advertising services. Net income for the first six
months of 2018 was $2.3 million, or net income of $0.03 per diluted
share, compared to net income of $3.9 million, or net income of $0.06
per diluted share, for the first six months of 2017. As adjusted to
exclude CEO transition-related costs and early lease termination
expense, net income for the first six months of 2018 would have remained
the same and net income for the first six months of 2017 would have
increased to $0.07 per diluted share. See the tables at the end of this
release for the reconciliations to the closest GAAP basis measurement.

The Company announced today that its Board of Directors has authorized
the Company's regular quarterly cash dividend of $0.17 per share of
common stock. The dividend will be paid on August 31, 2018 to
stockholders of record on August 16, 2018. The declaration, payment,
timing and amount of any future dividends payable will be at the sole
discretion of the Board of Directors who will take into account general
economic and advertising market business conditions, the Company's
financial condition, available cash, current and anticipated cash needs,
and any other factors that the Board of Directors considers relevant.
While it is the intention of the Company to continue its practice of
distributing a substantial proportion of its free cash flow, the Board
of Directors continues to review the factors listed above and others as
deemed relevant to determine a sustainable distribution rate which
balances the operating and strategic needs of the Company with those of
its lenders and stockholders.

Commenting on the Company's first six months of 2018 operating results
and second half of 2018 positioning, NCM CEO Andy England said, "It has
been a very productive second quarter, and a great first half of 2018.
We achieved strong revenue and Adjusted OIBDA growth and continued to
attract new and returning advertisers to cinema and to our new Noovie
digital ecosystem, all while successfully launching Noovie ARcade,
reaching an agreement with Standard General, refinancing our senior
secured credit facility, eliminating the AMC stock overhang, and moving
our corporate headquarters to a great new modern facility."

2018 Outlook

For the full year 2018, the Company updates its outlook of total revenue
to be up 1.0% to 5.6% and Adjusted OIBDA to be flat to up 4.8% from the
full year 2017. The Company expects total revenue in the range of $430.0
million to $450.0 million for the full year 2018, compared to total
revenue for the full year 2017 of $426.1 million and Adjusted OIBDA in
the range of $205.0 million to $215.0 million for the full year 2018
compared to Adjusted OIBDA for the full year 2017 of $205.1 million.
During 2018, the Company expects to record approximately $21.0 to $23.0
million in integration and other encumbered theater payments from
Cinemark and AMC associated with the Rave Theatres and Carmike Theatres
acquisitions, which are recorded as a reduction of an intangible asset.

Supplemental Information

Integration and other encumbered theater payments due from Cinemark and
AMC associated primarily with Rave Theaters and Carmike Theaters for the
quarter ended June 28, 2018 and June 29, 2017 and six months ended June
28, 2018 and June 29, 2017 were $5.6 million, $4.3 million, $7.8
million, and $4.7 million respectively. These payments were recorded as
a reduction of an intangible asset.

Conference Call

The Company will host a conference call and audio webcast with
investors, analysts and other interested parties August 6, 2018 at 5:00
P.M. Eastern Time. The live call can be accessed by dialing
1-877-407-9716 or for international participants 1-201-493-6779.
Participants should register at least 15 minutes prior to the
commencement of the call. Additionally, a live audio webcast will be
available to interested parties at www.ncm.com
under the Investor Relations section. Participants should allow at least
15 minutes prior to the commencement of the call to register, download
and install necessary audio software.

The replay of the conference call will be available until midnight
Eastern time, August 20, 2018, by dialing 1-844-512-2921 or for
international participants 1-412-317-6671, and entering conference ID
13681799.

About National CineMedia, Inc.

National CineMedia (NCM) is America's Movie Network. As the #1
Millennial weekend network in the U.S., NCM is the connector between
brands and movie audiences. According to Nielsen, more than 700 million
moviegoers annually attend theaters that are currently under contract to
present NCM's Noovie pre-show in 55 leading national and regional
theater circuits including AMC Entertainment Inc. (NYSE:AMC), Cinemark
Holdings, Inc. (NYSE:CNK) and Regal Entertainment Group. NCM's cinema
advertising network offers broad reach and unparalleled audience
engagement with over 21,100 screens in over 1,700 theaters in 188
Designated Market Areas® (49 of the top 50). NCM Digital goes beyond the
big screen, extending in-theater campaigns into online and mobile
marketing programs to reach entertainment audiences. National CineMedia,
Inc. (NASDAQ:NCMI) owns a 48.8% interest in, and is the managing member
of, National CineMedia, LLC. For more information, visit www.ncm.com.

Forward-Looking Statements

This press release contains various forward-looking statements that
reflect management's current expectations or beliefs regarding future
events, including statements providing guidance and projections for the
full year 2018. Investors are cautioned that reliance on these
forward-looking statements involves risks and uncertainties. Although
the Company believes that the assumptions used in the forward-looking
statements are reasonable, any of these assumptions could prove to be
inaccurate and, as a result, actual results could differ materially from
those expressed or implied in the forward-looking statements. The
factors that could cause actual results to differ materially from those
expressed or implied in the forward-looking statements are, among
others, 1) level of theater attendance or viewership of the Noovie
pre-show; 2) increased competition for advertising expenditures; 3)
changes to relationships with NCM LLC's founding members; 4) inability
to implement or achieve new revenue opportunities; 5) technological
changes and innovations; 6) economic conditions, including the level of
expenditures on cinema advertising; 7) our ability to renew or replace
expiring advertising and content contracts; 8) our need for additional
funding, risks and uncertainties relating to our significant
indebtedness; 9) reinvestment in our network and product offerings may
require significant funding and resulting reallocation of resources; 10)
fluctuations in operating costs; and 11) changes in interest rates. In
addition, the outlook provided does not include the impact of any future
unusual or infrequent transactions; sales and acquisitions of operating
assets and investments; any future non-cash impairments of intangible
and fixed assets; amounts related to litigation or the related impact of
taxes that may occur from time to time due to management decisions and
changing business circumstances. The Company is currently unable to
forecast precisely the timing and/or magnitude of any such amounts or
events. Please refer to the Company's Securities and Exchange Commission
filings, including the "Risk Factor" section of the Company's Annual
Report on Form 10-K for the year ended December 28, 2017, for further
information about these and other risks. Investors are cautioned not to
place undue reliance on any such forward-looking statements, which speak
only as of the date they are made. The Company undertakes no obligation
to update any forward-looking statement, whether as a result, of new
information, future events or otherwise, except as required by law.

       

NATIONAL CINEMEDIA, INC.

Condensed Consolidated Statements of Income

Unaudited

($ in millions, except per share data)

 
Three Months Ended Six Months Ended
June 28, 2018     June 29, 2017 June 28, 2018     June 29, 2017

Revenue (including revenue from founding

  members of $8.6, $7.6, $16.6 and $16.0,

  respectively)

$ 113.7 $ 97.1 $ 193.9 $ 169.0
OPERATING EXPENSES:
Advertising operating costs 9.2 7.5 16.2 12.5
Network costs 3.3 4.0 6.8 8.2
Theater access fees-founding members 21.5 18.7 42.1 39.3
Selling and marketing costs 16.7 18.9 32.7 37.0
Administrative and other costs 12.8 10.5 25.4 19.8
Depreciation and amortization   10.0     9.2     19.5     18.8  
Total   73.5     68.8     142.7     135.6  
OPERATING INCOME   40.2     28.3     51.2     33.4  
NON-OPERATING EXPENSES:
Interest on borrowings 14.1 13.1 27.9 26.3
Interest income (0.4 ) (0.4 ) (0.7 ) (0.8 )

Gain on re-measurement of the payable to
  founding members
under the tax receivable
  agreement (1)

 

(7.7 ) (0.6 ) (7.8 ) (0.6 )
Other non-operating expense (income)   1.2         1.2     (0.1 )
Total   7.2     12.1     20.6     24.8  
INCOME BEFORE INCOME TAXES (1) 33.0 16.2 30.6 8.6
Income tax expense (benefit) (1)   16.0     1.6     17.0     (0.2 )
CONSOLIDATED NET INCOME (1) 17.0 14.6 13.6 8.8
Less: Net income attributable to noncontrolling

interests

  12.8     9.4     11.3     4.9  

NET INCOME ATTRIBUTABLE TO NCM, INC. (1)

$ 4.2   $ 5.2   $ 2.3   $ 3.9  
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 76,912,086 60,609,975 76,776,250 60,459,531
Diluted 77,125,610 60,899,177 76,981,056 60,933,103
 
NET INCOME PER NCM, INC. COMMON SHARE: (1)
Basic $ 0.05 $ 0.09 $ 0.03 $ 0.06
Diluted $ 0.05 $ 0.09 $ 0.03 $ 0.06
 
Dividends declared per common share $ 0.17 $ 0.22 $ 0.34 $ 0.44

(1)

 

These 2017 balances have been adjusted to reflect 1) the change in
accounting principle adopted in the first quarter of 2018 and
applied retrospectively to all prior periods related to the
presentation of the Company's payable to founding members under
the tax receivable agreement whereby the Company is no longer
discounting the payable and 2) the correction of prior period
errors related to these accounts. These changes resulted in a
$0.07 and $0.12 increase in diluted earnings per share for the
three and six months ended June 28, 2017, respectively. Refer to
the Company's Form 10-Q for the quarter ended June 28, 2018,
expected to be filed with the SEC on August 6, 2018, for further
discussion of the nature and amount of the changes.

 
   

NATIONAL CINEMEDIA, INC.

Selected Condensed Balance Sheet Data

Unaudited ($ in millions)

 
As of
June 28, 2018     December 28, 2017
Cash, cash equivalents and marketable securities $ 65.6 $ 59.5
Receivables, net 125.7 160.6
Property and equipment, net 32.0 30.7
Total assets 1,132.7 1,173.1
Borrowings, gross 950.2 932.0
Total equity/(deficit) (95.1 ) (74.8 )
Total liabilities and equity 1,132.7 1,173.1
 
   

NATIONAL CINEMEDIA, INC.

Operating Data

Unaudited

 
Quarter Ended
June 28, 2018     June 29, 2017
Total Screens (100% Digital) at Period End (1)(6)   21,118   20,623
Founding Member Screens at Period End (2)(6) 16,791 16,716
DCN (Digital Content Network) Screens at Period End (3)(6) 20,720 20,033
             
Three Months Ended Six Months Ended
(in millions) June 28, 2018     June 29, 2017 June 28, 2018     June 29, 2017
Total Attendance for Period (4)(6) 194.1 160.0 371.1 341.5
Founding Member Attendance for Period (5)(6) 159.7 132.5 306.7 285.8
Capital Expenditures $ 3.7 $ 3.0 $ 7.2 $ 6.0

(1)

 

Represents the total screens within NCM LLC's advertising network.

(2)

Represents the total founding member screens.

(3)

Represents the total number of screens that are connected to the
Digital Content Network.

(4)

Represents the total attendance within NCM LLC's advertising network.

(5)

Represents the total attendance within NCM LLC's advertising network
in theaters operated by the founding members.

(6)

Excludes screens and attendance associated with certain AMC Carmike,
AMC Rave and Cinemark Rave theaters for all periods presented.
 
       

NATIONAL CINEMEDIA, INC.

Operating Data

Unaudited

(In millions, except advertising revenue per attendee, margin
and per share data)

 
Quarter Ended Six Months Ended
June 28,
2018
    June 29,
2017
June 28,
2018
    June 29,
2017
Revenue breakout:
National advertising revenue $ 78.8 $ 66.0 $ 133.6 $ 110.4
Local and regional advertising revenue   26.3     23.5     43.7     42.6  
Total advertising revenue (excluding beverage) $ 105.1   $ 89.5   $ 177.3   $ 153.0  
 
Total revenue $ 113.7 $ 97.1 $ 193.9 $ 169.0
 
Per attendee data:
National advertising revenue per attendee $ 0.406 $ 0.413 $ 0.360 $ 0.323
Local and regional advertising revenue per attendee $ 0.135 $ 0.147 $ 0.118 $ 0.125

Total advertising revenue (excluding beverage) per attendee

$ 0.541 $ 0.559 $ 0.478 $ 0.448
Total revenue per attendee $ 0.586 $ 0.607 $ 0.523 $ 0.495
Total attendance (1) 194.1 160.0 371.1 341.5
 
Other operating data:
Operating income $ 40.2 $ 28.3 $ 51.2 $ 33.4
OIBDA (2) $ 50.2 $ 37.5 $ 70.7 $ 52.2
Adjusted OIBDA (2) $ 52.3 $ 42.3 $ 75.6 $ 59.9
Adjusted OIBDA margin (2) 46.0 % 43.6 % 39.0 % 35.4 %
 
Earnings per share - basic $ 0.05 $ 0.09 $ 0.03 $ 0.06
Earnings per share - diluted $ 0.05 $ 0.09 $ 0.03 $ 0.06
 
Adjusted income per share - diluted (2) $ 0.05 $ 0.09 $ 0.03 $ 0.07

(1)

 

Represents the total attendance within NCM LLC's advertising
network. Excludes screens and attendance associated with certain
AMC Carmike, AMC Rave and Cinemark Rave theaters for all periods
presented.

(2)

OIBDA, Adjusted OIBDA, Adjusted OIBDA margin and adjusted income
per share are not financial measures calculated in accordance with
GAAP in the United States. See attached tables for the non-GAAP
reconciliations.

 

NATIONAL CINEMEDIA, INC.
Non-GAAP Reconciliations
Unaudited

OIBDA, Adjusted OIBDA and Adjusted OIBDA Margin

Operating Income Before Depreciation and Amortization ("OIBDA"),
Adjusted OIBDA and Adjusted OIBDA margin are not financial measures
calculated in accordance with GAAP in the United States. OIBDA
represents operating income before depreciation and amortization
expense. Adjusted OIBDA excludes from OIBDA non-cash share based
compensation cost, Chief Executive Officer transition costs, and early
lease termination expense. Adjusted OIBDA margin is calculated by
dividing Adjusted OIBDA by total revenue. Our management uses these
non-GAAP financial measures to evaluate operating performance, to
forecast future results and as a basis for compensation. The Company
believes these are important supplemental measures of operating
performance because they eliminate items that have less bearing on its
operating performance and so highlight trends in its core business that
may not otherwise be apparent when relying solely on GAAP financial
measures. The Company believes the presentation of these measures is
relevant and useful for investors because it enables them to view
performance in a manner similar to the method used by the Company's
management, helps improve their ability to understand the Company's
operating performance and makes it easier to compare the Company's
results with other companies that may have different depreciation and
amortization policies, non-cash share based compensation programs, CEO
turnover, early lease termination expense, interest rates, debt levels
or income tax rates. A limitation of these measures, however, is that
they exclude depreciation and amortization, which represent a proxy for
the periodic costs of certain capitalized tangible and intangible assets
used in generating revenues in the Company's business. In addition,
Adjusted OIBDA has the limitation of not reflecting the effect of the
Company's share based payment costs, costs associated with the
resignation of the company's former Chief Executive Officer, or early
lease termination expense. OIBDA or Adjusted OIBDA should not be
regarded as an alternative to operating income, net income or as
indicators of operating performance, nor should they be considered in
isolation of, or as substitutes for financial measures prepared in
accordance with GAAP. The Company believes that operating income is the
most directly comparable GAAP financial measure to OIBDA. Because not
all companies use identical calculations, these non-GAAP presentations
may not be comparable to other similarly titled measures of other
companies, or calculations in the Company's debt agreement.

The following tables reconcile operating income to OIBDA and Adjusted
OIBDA for the periods presented (dollars in millions):

    Three Months Ended     Six Months Ended     Year Ended
June 28,
2018
    June 29,
2017
June 28,
2018
    June 29,
2017
December 28,
2017
Operating income $ 40.2 $ 28.3 $ 51.2 $ 33.4 $ 153.9
Depreciation and amortization   10.0     9.2     19.5     18.8     37.6  
OIBDA $ 50.2 $ 37.5 $ 70.7 $ 52.2 $ 191.5
Share-based compensation costs (1) 2.1 2.8 4.9 5.5 11.2
CEO transition costs (2) 0.2 0.4 0.6
Early lease termination expense (3)       1.8         1.8     1.8  
Adjusted OIBDA $ 52.3   $ 42.3   $ 75.6   $ 59.9   $ 205.1  
Total revenue $ 113.7   $ 97.1   $ 193.9   $ 169.0   $ 426.1  
Adjusted OIBDA margin   46.0 %   43.6 %   39.0 %   35.4 %   48.1 %
 
Adjusted OIBDA $ 52.3 $ 42.3 $ 75.6 $ 59.9 $ 205.1
Carmike and Rave Theaters integration and other encumbered theater
payments accrued
  5.6     4.3     7.8     4.7     20.9  
Adjusted OIBDA after integration and other encumbered theater
payments
$ 57.9   $ 46.6   $ 83.4   $ 64.6   $ 226.0  

(1)

 

Share-based compensation costs are included in network
operations, selling and marketing and administrative expense in
the accompanying financial tables as shown in the following table
(dollars in millions).

 
        Three Months Ended     Six Months Ended     Year Ended
June 28,
2018
    June 29,
2017
June 28,
2018
    June 29,
2017

December 28,
2017

Share-based compensation costs included in network costs $ 0.1 $ 0.2 $ 0.3 $ 0.5 $ 1.0
Share-based compensation costs included in selling and marketing
costs
0.6 1.3 1.6 2.2 4.1
Share-based compensation costs included in administrative and other
costs
  1.4     1.3     3.0     2.8     6.1
Total share-based compensation costs $ 2.1   $ 2.8   $ 4.9   $ 5.5   $ 11.2

(2)

 

Chief Executive Officer transition costs represent consulting,
relocation and other costs and are included in administrative
expense in the accompanying financial tables.

(3)

Early lease termination expense represents an expense recorded
upon the early termination of the lease of our previous corporate
headquarters because the early termination payment made by the
Company was reimbursed by the landlord of the new building. This
expense is included in administrative expense in the accompanying
financial statements.

 

Outlook (in millions)

Year Ending

December 27, 2018

NCM, Inc.
    Low     High
Operating income $ 161.0 $ 163.0
Depreciation and amortization   36.0   40.0
OIBDA 197.0 203.0
Share-based compensation costs (1)   8.0   12.0
Adjusted OIBDA $ 205.0 $ 215.0
Total revenue $ 430.0 $ 450.0

(1)

 

Share-based compensation costs are included in network operations,
selling and marketing and administrative expense in the
accompanying financial tables.

 

Adjusted Net Income and Income per Share

Adjusted net income and income per share are not financial measures
calculated in accordance with GAAP in the United States. Adjusted net
income and income per share are calculated using reported net income and
income per share and exclude CEO transition-related costs and early
lease termination expense. Our management uses these non-GAAP financial
measures as an additional tool to evaluate operating performance. The
Company believes these are important supplemental measures of operating
performance because they eliminate items that have less bearing on its
operating performance and so highlight trends in its core business that
may not otherwise be apparent when relying solely on GAAP financial
measures. The Company believes the presentation of these measures is
relevant and useful for investors because it enables them to view
performance in a manner similar to a method used by the Company's
management and helps improve their ability to understand the Company's
operating performance. Adjusted net income should not be regarded as an
alternative to net income and should not be regarded as an alternative
to income per share or as indicators of operating performance, nor
should they be considered in isolation of, or as substitutes for
financial measures prepared in accordance with GAAP. The Company
believes that net income and income per share are the most directly
comparable GAAP financial measures. Because not all companies use
identical calculations, these presentations may not be comparable to
other similarly titled measures of other companies.

The following table reconciles net income as previously reported to net
income as reported reflecting the impact of the change in accounting
principle. In addition, as reported net income and income per share are
reconciled to adjusted net income and income per share excluding the CEO
transition-related costs and early lease termination expense for the
periods presented (dollars in millions):

    Three Months Ended     Six Months Ended
June 28,
2018
    June 29,
2017
June 28,
2018
    June 29,
2017
Net income (loss) as previously reported $ 4.2 $ 1.5 2.3 $ (3.5 )
Adjustment due to change in accounting principle and correction of
prior period error
    3.7       7.4  
Net income as reported $ 4.2 $ 5.2 $ 2.3 $ 3.9
CEO transition costs (1) 0.2 0.4
Early lease termination expense (2) 1.8 1.8
Effect of noncontrolling interests (51.2%, 60.7%, 51.2% and 60.7%,
respectively)
(1.2 )

(1.2

)
Effect of provision for income taxes (25.4%, 38.0%, 25.4% and 38.0%
blended rates, respectively)
(0.3 )

(0.4

)
               
Net effect of adjusting items       0.5         0.6  
Diluted net income excluding adjusting items $ 4.2   $ 5.7   $ 2.3   $ 4.5  
 
Weighted Average Shares Outstanding as reported and as adjusted
Diluted 77,125,610 60,899,177 76,981,056 60,933,103
 
Diluted income per share as reported (3) $ 0.05 $ 0.09 $ 0.03 $ 0.06
Net effect of adjusting items               0.01  
Diluted income per share excluding adjusting items $ 0.05   $ 0.09   $ 0.03   $ 0.07  

(1)

 

Chief Executive Officer transition costs represent consulting,
relocation and other costs and are included in administrative
expense in the accompanying financial tables.

(2)

Early lease termination expense represents a non-cash expense
recorded upon the early termination of the lease of our previous
corporate headquarters because the early termination payment made
by the Company was reimbursed by the landlord of the new building.

(3)

The impact of the change in accounting principle and correction of
a prior period error was a $0.07 and $0.12 increase in diluted
earnings per share for the three and six months ended June 29,
2017, respectively.

 

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