David J. Oddo - SVP Finance, Co-Interim CFO and Principal Financial Officer Kurt C. Hall - Chairman, President & Chief Executive Officer.

Eric O. Handler - MKM Partners LLC Stan X. Meyers - Piper Jaffray & Co (Broker) Barton Crockett - FBR Capital Markets James G. Dix - Wedbush Securities, Inc. Benjamin Mogil - Stifel, Nicolaus & Co., Inc. Michael Hickey - The Benchmark Co. LLC Eric Wold - B. Riley & Co. LLC.

Good day, and welcome to the National CineMedia, Inc. Third Quarter 2015 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to David Oddo, SVP of Finance for National CineMedia, Inc. Please go ahead..

Good afternoon. I'd like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933, as amended, and Section 21-E of the Securities Exchange Act of 1934, as amended.

All statements other than the statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties.

Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors. Further, our discussion today includes some non-GAAP measures.

In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP-basis measurement. These reconciliations can be found either at the end of today's earnings release, or on the Investor page of our website at www.ncm.com. Now, I'll turn the call over to Kurt Hall, CEO of National CineMedia..

Good afternoon, everyone. Thank you for joining us for our 2015 third quarter earnings conference call. Before we begin, I want to let you know that our CEO search process is progressing very well and we expect to complete the process before year-end.

As you can see from our Q3 operating performance and improved 2015 outlook, this leadership change process is clearly not impacted our ability to grow our business as favorable ad market trends and great execution by our management team have driven meaningful progress against our business plan, including the completion of a record upfront sales campaign.

Now I will provide you with a more detailed discussion about our Q3 results, including some color on our increased guidance for full-year 2015 and then, as always, we'll open the call – we open the lines for questions at the end.

The momentum for our business that began in Q4 2014 continued into the third quarter of 2015, as 11% revenue growth and margin expansion drove a 14% increase in adjusted OIBDA versus Q3 2014.

With this strong recent quarter we have now posted revenue and adjusted OIBDA growth for four straight quarters and while future comps will become somewhat more difficult, our Q4 2015 guidance reflects another strong quarter of growth.

Our Q3 revenue and adjusted OIBDA growth was driven primarily by a 27% increase in national advertising revenue that more than offset decreases in both local and beverage revenue.

The increase in our high margin national advertising revenue and continued cost containment were the primary drivers of our 160 basis point increase in Q3 adjusted OIBDA margin versus Q3 2014. The increase in Q3 national advertising revenue reflected a meaningful increase in inventory utilization and strong CPM growth.

The increase in both inventory sell-through and pricing reflect the impact of last year's successful national upfront campaign and strong scatter demand throughout the quarter as TV rating declines forced media buyers to look for video advertising alternatives.

The strong Q3 CPM growth was also driven by the success of our new dynamic scatter pricing strategy.

The shifting of pricing expectations week-to-week based on our inventory availability and market demand resulted in Q3 scatter pricing that was approximately 38% higher than Q3 2014 scatter pricing and 28% higher than Q3 2015 non-content partner upfront pricing.

Our Q3 CPM also benefited from the packaging of upfront commitments that adjusted pricing based on where campaigns were placed throughout the year.

While this upfront packaging strategy resulted in lower CPMs in Q1, CPMs in both Q2 and Q3 were higher than last year and we're projecting approximately 6% higher CPMs in Q4 that should result is similar CPM growth for all of 2015. Our successful upfront and strong scatter market demand also helped us to continue to broaden our client base.

So, far this year, we have added 42 new national clients from 21 different industries with 12 of those new clients spending during Q3. The new national client additions added since our Q2 earnings call in August included businesses in the computer software, computer game, toy, Internet, liquor, pet store, and pharmaceutical categories.

While this is great progress, there are still hundreds of national brands that spend on national TV networks that have not yet used our network.

After posting record quarterly revenue in each of the first and second quarters of this year, our local and regional advertising business took a brief pause in the third quarter with a revenue decline of approximately 12% versus Q3 2014, that it increased 16% versus Q3 2013.

In addition to Q3 2014 being a tough comp, our Q3 regional business was negatively impacted when several clients who ran regional campaigns with us in Q3 of 2014 chose to run larger national campaigns in 2015 or shifted their regional spendings to Q4 2015.

We also have only recently filled sales positions that have been left open for Screenvision personnel in anticipation of the merger closing.

With strong regional demand and these vacant local sales positions now substantially filled and the plan to expand and improve our local sales force that we announced on our August call well underway, we're confident that local revenue growth will return in Q4.

In fact, we're currently pacing significantly ahead for Q4 versus the same time last year and are projecting that Q4 2015 rather will be our highest local sales revenue quarter in our history.

The ongoing expansion improvement of our national network and better local and regional coverage continued to improve our competitive positioning across all of our ad businesses. At the end of the third quarter, we had over 20,000 network screens and coverage in 187 of the 210 TV DMAs.

With digital projectors in all of our network screens and approximately 98% of our network attendants now receiving our First Look Preshow over our digital distribution network.

As we begin to compete more aggressively with the shorter lead-times and more robust audience targeting capabilities of online and mobile networks, it is becoming increasingly important that our theatres are part of a digital distribution network so that they can be electronically connected to our proposal and inventory management systems and targeting and data management platforms that are being upgraded.

As mentioned earlier this year, we have recently increased our investment spending to accelerate the timeline to complete the upgrade of our proposal inventory management systems and development of our new audience target systems and data management platforms.

These more robust systems when integrated with our digital distribution network will allow us to further shorten campaign lead-times and provide more targeted and efficient campaigns and more robust data analytics to our clients.

We've also recently begun to build a robust database of first-party cinema audience data through relationships with suppliers of cinema audience data, including an exclusive relationship with Movio that was previously announced and through a wireless beacon network that we've recently installed in 115 theatres in our network.

All of this first-party cinema audience data will feed our new data management platform that will be in place early next year through a new relationship with a DMP partner that will be announced in the coming weeks.

This new DMP will allow us to provide marketers the expanded audience targeting and data analytics capability that is becoming a necessity in today's more competitive video advertising marketplace.

While our current cinema network provide strong national coverage, the continued expansion of our overall impression base and improve geographic coverage will allow us to accelerate our market share gains from traditional advertising networks and compete more effectively with the new online and mobile video networks as they seek to increase their video advertising market share.

In addition to the previously announced Cinetopia theatre circuit that was connected to our network this past April, and Santikos Theatres that will join our network in Q1 2016, we continue to have promising conversations with many additional theatre circuits that are interested in benefiting from the higher revenue per patron generated by our larger network.

During 2015, we have also renewed and extended agreements with 12 of our existing 44 affiliate theatre circuits, increasing our audience weighted average affiliate contract term to nearly seven years, including our founding member agreement that have approximately 21 years remaining, our attendance weighted average contract term across our entire network is over 19 years.

Our larger higher quality network has allowed us to generate meaningful increases in our overall advertising revenue that has continued to benefit our affiliates. In fact, our Q3 and year-to-date revenue share payments per average screen have increased approximately 12% and 14% respectively versus Q3 and year-to-date 2014.

With this strong growth in affiliate payments and the high quality entertainment experience that our First Look Preshow provides to theatre patrons, I am confident that we will continue to add new circuits to our network in the future.

Looking ahead to the remainder of the year, another strong upfront selling campaign by our sales team bodes well for Q4 2015 and 2016.

While this year's national TV upfront was down for the second consecutive year, we continue to gain video advertising market share as our total national upfront commitments for the media fiscal and calendar years increased approximately 13% versus our record upfront last year that had increased almost $100 million.

This increase was driven primarily by the addition of 16 clients that it never made an upfront commitment with us, a meaningful commitment increase by an agency that was an important part of our upfront success last year, a 23% net increase in non-content partner commitment, and an 11% increase in overall upfront CPMs versus last year, driven in part by a 25% increase in average non-content partner CPMs.

While we lost a handful of clients who committed upfront last year, that we're looking for more flexibility provided by the scatter market, it is important to note that the average CPM of our new upfront clients was nearly 50% higher than the average CPM of last year's upfront clients who chose not to book with us upfront this year.

You should also note that this year's upfront total could've been even higher had we not passed on a meaningful agency commitment that did not meet our upfront pricing expectations.

This strong upfront for the second year in a row while TV had another lower upfront provides clear evidence that we are not being negatively impacted by some of the same secular issues that are affecting TV and other traditional media businesses. In fact, those issues are actually enhancing our ability to gain video advertising market share.

As was the case last year, our total upfront commitments include both media calendar commitments that run from Q4 2015 through Q3 2016 and commitments for calendar year 2016. Our mid-year (11:58) commitments that include only a slight increase for Q4 2015 versus Q4 2014 were up approximately 7% while our 2016 calendar year commitments are up 15%.

This shift by buyers to a calendar year was good news given the strong film slate and strong scatter demand we're experiencing in Q4.

When the 2016 calendar year upfront commitments are combined with the 2016 scatter commitments booked between now and the end of the year, we expect to be comfortably within the range of 70% to 75% of our 2016 national target being booked before we start the year.

As you may recall, this national commitment range going into a year has been our target as it provides a good base of national commitments that will allow us to be more aggressive in the scatter market. Consistent with TV upfront commitments, a portion of our upfront commitments for flights after Q4 2015 have cancellation options.

Fortunately, our cancellation experience has been very low today with only approximately 2% of last year's total upfront commitments being optioned.

You should also note that our calendar year 2016 upfront year-over-year growth rate of 15% may not be reflective of our overall national growth for 2016 as some upfront commitments may simply be related to timing as agencies look to secure our best inventory upfront rather than buy in the scatter market.

In addition, the 11% increase in average upfront CPMs may not be indicative of overall 2016 CPM growth as some of our unsold inventory that will be sold in the 2016 scatter market is not as desirable as the inventory sold in the upfront.

With this strong national upfront and very strong Q4 scatter market demand for both our national and regional inventory, and the highly anticipated Q4 film schedule, we've increased both the bottom and top ends of our 2015 annual guidance range.

This annual guidance increase was driven primarily by an expected record fourth quarter for our local business that will benefit from several larger regional contracts and a stronger national scatter market than we had anticipated. Our national sales team is having a great Q4.

However, they are up against a tough 2014 comp that included 23% Q4 2014 growth over Q4 2013 and the additional week that was included in our fiscal Q4 2014 that was not in fiscal Q4 2015. These comp issues have been more than offset by higher Q4 2015 CPMs.

Before I turn the call over to David, I would like the NCM teams to know how proud I am of them for the strong 2015 growth we're projecting for our business and record annual revenue projected for each of our national and local advertising businesses. It is a fantastic comeback after a tough 2014.

With great sales momentum coming out of 2015 and the challenges that are negatively impacting the TV business, our launch of more robust targeting and data analytics systems early in 2016 and the expansion of our local sales force and online mobile businesses, we're positioned very well for continued growth in 2016 and beyond.

That's all I had for now. So now I'll turn the call over to David to give you more details concerning our Q3 results in Q4 and annual guidance..

Thanks Kurt. For the third quarter, our total revenue increased 10.8% versus Q3 2014 driven by a 26.9% increase in national advertising revenue, excluding beverage, partially offset by an 11.8% decrease in local advertising revenue and a 28.9% decrease in beverage revenue.

Total Q3 adjusted OIBDA increased 14.2% and adjusted OIBDA margin increased 53.4% from 51.8%, reflecting an increase in high margin national advertising revenue that was partially offset by the decreases in lower margin, local advertising revenue and 100% margin beverage revenue.

For the first nine months of 2015 total revenue increased 14.5%, adjusted OIBDA increased 22%, and adjusted OIBDA margin increased to 49.9% from 46.8% versus the first nine months of 2014 due to the higher revenue and cost containment.

We also recorded $700,000 of AMC Rave and Cinemark Rave integration payments for the third quarter versus $600,000 in Q3 2014.

You should note that these integration payments are added to adjusted OIBDA for debt compliance purposes, but are not included in our reported revenue and adjusted OIBDA as they are recorded as a reduction to net intangible assets on our balance sheet.

We expect to record approximately $800,000 of these integration payments from our founding members in the fourth quarter totaling approximately $2.6 million for all of 2015. Our Q3 2015 advertising revenue mix shifted due to the higher national growth to 71% national, 23% local and 6% beverage, versus Q3 2014 that was 62%, 29% and 9% respectively.

The 26.9% increase in Q3 national ad revenue excluding beverage versus Q3 2014 was driven primarily by an 18.4% increase in impressions sold and a 12.4% increase in CPMs.

The increase in impressions sold was driven by an increase in inventory utilization to 145.8% from 125.3% in Q3, 2014 on approximately flat network attendance due to an overall expansion of our client base related in part to the success of our strategy to compete in the national television upfront marketplace.

Our quarter-end make-good balance increased to $2.9 million from $1.8 million at the end of Q3 2014 due to the higher Q3 2015 national advertising revenue and lower August cinema industry attendance partially offset by the record September 2015 box office.

For the first nine months of 2015 national ad revenue excluding beverage increased 26.4% driven primarily by a 23.8% increase in impressions sold and a 5.6% increase in CPMs. The increase in impressions sold during the first nine months was driven by an increase in utilization to 127.0% from 107.3% on network attendance that increased 2.4%.

Our Q3 local and regional advertising revenue decreased 11.8% driven by a 6.9% decrease in total contract volume and a 5.4% decrease in average contract value versus Q3, 2014.

These decreases were driven by fewer larger regional contracts and an average of 14 unfilled local sales positions during the first nine months of the year related to delays in hiring during the Screenvision merger regulatory review in order to provide opening for Screenvision sales personnel upon consummation of the merger.

The reduction in regional contracts greater than $100,000 related in part to a shift in the timing of client commitments to other quarters within 2015 and a few larger regional clients that had increased their budgets and expanded thereby to buy our national network.

Q3 beverage revenue decreased 28.9% or $2.6 million versus Q3 2014 driven by the 14.4% decrease in beverage CPMs that is tied to the decrease in 2014 national segment one CPMs.

Approximately $1.3 million of the decrease in beverage revenue was due to one of our founding members reducing their beverage advertising from 60 seconds to 30 seconds beginning July 1, 2015.

You should note that this beverage inventory was available-for-sale to other national advertising clients and help contribute to our high inventory sell through. Looking briefly at diluted earnings per share for the third quarter we reported a GAAP diluted EPS increase of 63% to $0.13.

For the first nine months of 2015 we reported a GAAP diluted EPS increase of 67% to $0.15.

Excluding cost associated with the Screenvision merger and non-cash charges related to interest rate swap terminations in both 2014 and 2015, the diluted EPS for the first nine months of 2015 would have more than doubled to $0.32 versus $0.14 in the first nine months of 2014.

Our capital expenditures were $3.3 million or 3% of total revenue for the third quarter compared to $1.7 million or 2% of total revenue for Q3 2014.

As previously discussed, some of this increase related to the acceleration of the development of our inventory management and audience targeting systems to more effectively compete in the video advertising marketplace.

Including these incremental investments, we continue to expect full year 2015 capital expenditures to be in the $13 million to $15 million range. Moving on to our balance sheet, our total debt outstanding at NCM LLC as of the end of Q3 2015 was $936 million versus $892 million at the end of 2014.

This increase was due to the increase in our revolver borrowings that was driven by the payment of the Screenvision termination fee and merger related costs by NCM LLC, primarily in Q1 of 2015 and timing of receivables related to the higher national revenue in both the second and third quarters.

As discussed on our previous earnings calls, our revolver balances will decrease by $25.5 million when the remaining merger related expenses are reimbursed through a deduction in available cash distributions in the third quarter of 2016 as required by our NCM LLC Operating Agreement.

Our average interest rate on all debt was approximately 5.3% at the end of Q3, including our $270 million floating rate term loan bank debt and revolver credit facility that had a rate of approximately 2.5%. Excluding revolver balances, 69% of our total debt outstanding at the end of Q3 2015 had a fixed interest rate.

Our consolidated cash and investment balances as of the end of Q3 2015 increased by approximately $12 million to $81 million from the end of Q2 2015 with $74 million of this balance at NCM Inc. and $7 million at NCM LLC.

Excluding tax reserves and after the payment of the recently announced $0.22 per share dividend to be paid on December 4, 2015, we would be able to pay our current dividend per share for over four additional quarters even if no cash were distributed up to NCM Inc. from NCM LLC.

Our annual dividend yield is currently 6.1% based on today's closing share price of $14.45. Our pro forma net senior secured leverage at NCM LLC as of the end of Q3 was approximately 3.2 times trailing four quarter adjusted EBITDA, which is well below our senior secured leverage maintenance covenant of 6.5 times.

You should also note that while we have no NCM LLC total leverage or NCM Inc. consolidated maintenance covenant, our total leverage at NCM LLC net of NCM LLC cash balances has decreased to approximately 4.1 times at the end of Q3 2015 versus the end of Q2 2015. And our consolidated leverage net of NCM Inc.

and NCM LLC cash balances was 3.8 times at the end of Q3 2015. Turning to guidance, for the fourth quarter we expect total revenue to be in the range of $125 million to $131 million and adjusted OIBDA to be in the range of $68 million to $74 million.

This implies a total revenue increase of approximately 2% to 6% and an adjusted OIBDA decrease of 6% to an increase of 2% versus Q4 2014.

These Q4 guidance ranges assume national advertising revenue consistent with Q4 2014 at the midpoint range, local advertising revenue growth of approximately 25% to 35%, and an approximate 31% or $3.1 million decrease in 100% margin beverage revenue versus Q4 2014.

You should note that our fourth quarter of 2014 fiscal calendar included seven additional days versus our fourth quarter of 2015 fiscal calendar.

We estimate the total revenue attributed to the additional seven days in Q4 2014 was $6.0 million broken out as follows; $3.9 million national advertising, $1.5 million local advertising, and $600,000 of beverage advertising.

If you exclude the additional seven days from Q4 2014 revenue, Q4 2015 total revenue guidance would have implied an increase of 7% to 12% versus Q4 2014. Q4 2015 national revenue guidance would have implied an increase of 2% to 6% versus Q4 2014, and Q4 2015 local revenue guidance would have implied an increase of 32% to 43% versus Q4 2014.

Additionally, after related expenses are implied, we estimate approximately $3 million in adjusted OIBDA attributed to these seven additional days in Q4 2014. If you exclude this from Q4 2014 adjusted OIBDA, our Q4 2015 adjusted OIBDA guidance would have implied a decrease of 2% to an increase of 6% versus Q4 2014.

As a result of our strong finish to the third quarter and projected guidance for the fourth quarter, we're increasing our previously provided full-year 2015 revenue guidance to a range of $435 million to $441 million, or up 10% to 12% versus 2014.

And full-year 2015 adjusted OIBDA guidance to a range of $223 million to $229 million, or up 12% to 15% versus 2014. That concludes our prepared remarks and we'll now open the lines for questions..

And we'll go first to Eric Handler of MKM Partners..

Thanks for taking my question. Kurt, two questions for you.

First, given the success that you're seeing in the upfront, just wondering is there a way to quantify how much more maybe you sold with your shoulder periods for the coming 12 months versus last year's upfront? And then, secondly, as I think about beverage revenue for 2016, am I correct to assume that CPMs next year should be up around 4% for beverage, and will the number of units you have for beverage be the same year-over-year?.

Yes, the answer to the first question, Eric, is I don't know yet, because we're in the process of allocating those upfront commitments throughout the year. Usually the way that process goes is that you get the commitments and then you work with the agency to try to allocate it to various flights.

So I can't really tell you where a lot of the additions happened. I can tell you, however, that given the very high utilizations that we had this year in some of our core months (28:03) and flights, a lot of the growth is coming from some of the other flights.

As I mentioned, we've spent a lot of time packaging various flights together to try to get to people's CPM requirements. And so we've been able to put people into more of the slower periods to offset some of the higher CPMs that we're charging and some of the higher demand periods.

Obviously, that varies client-by-client but I think that's a fairly safe bet.

Your second question as far as the CPMs for next year, I think you can assume whatever you're using for our average CPM for the year increase, and we gave you a few data points around that, you can assume that the CPM increase for the beverage will be a little bit higher, maybe a couple of points higher give or take, and that's because we use our segment one or our best inventory to price the beverage, and that's usually got higher CPMs associated with it than our segment two inventory..

Great.

And would the units be the same next year for beverage?.

You should assume that and at least what we're assuming for now is that the one circuit that only bought 30 seconds is going to buy only 30 seconds for the whole year.

We are working with Coke and with that circuit to try to convince them that they should be buying the 60 seconds, but I think for now at least for forecasting purposes, you should use 30 seconds for that one circuit and 60 seconds for the other two..

Thanks, Kurt. Appreciate it..

Yes..

And we'll move next to James Marsh of Piper Jaffray..

Thanks, guys. This is Stan in for James. I was hoping to dig deeper into your guidance. It sounds like you guys are on track for a good Q4.

Do you feel it's largely due to demand given the slate or just sort of strong scatter market lifting all boats, or in the past Kurt you mentioned advertisers maybe coming back to more traditional platforms from digital.

Just kind of wanted to see where all the demand was coming from?.

Yes, I would say it's all the above. There's no question that the tentpole slate for the fourth quarter has given the platform a lot of attention clearly in the regional and local business, which you saw significant growth in the fourth quarter.

So there is no question that that part of our business is tied more closely to the film schedule, and as we've talked about in the past, that's primarily because that inventory is further back in our show and most of it is also priced on a screen per week basis.

So most people reason that people get in their seats earlier for tentpoles and thus the sort of return, if you will, on their spend is higher because there's more people in their seats. So that's clearly part of the story. Although look last year when we sold our upfront, we had a lot of demand for fourth quarter at that point in time.

There was a lot of heat around Star Wars obviously, but nowhere near what there is today. And I think the film schedule for the next two years looks quite strong as well. And I think you're seeing a lot of buyers look for other alternatives right now. Clearly, the capacity of TV to handle dollars has declined just because of the ratings declines.

There's obviously a lot of people concerned that their ads aren't even being seen. So all of those dynamics are positively impacting us. And then your last point, there's clearly a lot more questions being asked about the efficacy of digital in general.

And that's not to say that people aren't still moving a lot of money to digital, but I think for the first time in the last recent history, the first time that people have started to ask the question, does it really work, how well does it work, is the price I'm paying makes sense? You are also seeing a continuing phenomenon where the top four or five sites – Facebook, Google, YouTube and so on, those sites are garnering a higher and higher percentage of the overall digital spend, which is a troubling trend I think for a lot of the smaller digital sites.

But I think this whole issue of fraud and other things, efficacy in general is going to be a continuing trend that should benefit us and actually start benefiting TV as well..

Great thank you..

And we'll go next to Barton Crockett of FBR Capital Markets..

Okay, thanks for taking the question. I was wondering if you could update us on the percentage that you book at the midpoint of your guidance relative to what you had booked last year versus your full-year actual. I mean (33:00) 39% kind of actual last year versus booked this year at the third quarter call.

How does that kind of look now?.

I don't know if we actually did that. I can't remember doing it at the third quarter call. I know we do that with our yearend call. But we haven't given any numbers on that, Barton.

What are you trying to get at? Maybe I can get at it in a different way for you?.

I mean, one of the statement about confidence in your guidance was how much you had already booked relative to last year. I think you booked a lot more relative to last year.

I'm just trying to get that update at this point?.

Yes, we haven't finalized our budgets yet, but as I said in my comments, we're very comfortable that when we get to the first of the year we will have booked somewhere in the range of 70% to 75% of our national budget. And again we haven't....

If I could....

Yes..

I was asking about the fourth quarter, not for next year?.

Oh, fourth quarter. I'm sorry. I missed that..

Yes..

Let me put it this way, our inventory is very, very tight for fourth quarter. So the guidance that we've given for fourth quarter is pretty solid. And is there a potential for some upside on that as we move closer to December and we have a tiny bit of remnant inventory left? Yes, sure, but our range that we gave you is pretty solid..

Okay..

Got it..

I And if I could switch gears a little bit. You're pushing pricing in the upfront. One of the, I think, good things about theater advertising over the past year has been that your pricing had gotten down to a level (34:44) with the high end of TV.

Now you're going up 11%, so are you pricing yourself out of the high end of TV? Does that have any implication for sustainability do you think?.

No, I don't actually think so, because one of the things that is driving that is that we are being a lot more proactive about pricing week-to-week, and as I said in my comments, this whole dynamic pricing strategy that we've employed this year in scatter, we're also now employing actually in the upfront as well.

And for the first time this year, we spent a lot of time with clients going week-by-week based on when they wanted the media, what our knowledge was of the film schedule and other demand characteristics, and we really tried to push it. We also had a number of – I think I mentioned it, we had a few clients that didn't rebook with us this year upfront.

Generally their CPMs were very, very low. I think I mentioned in my comments, those CPMs were almost 50% lower than all the combined average CPMs of all of our new upfront clients this year.

So there was this process that we went through this year of making some decisions where certain people were dropping out, certain new people were coming in at much higher CPMs. That obviously is a good phenomenon for us. So, again, I can't tell you all the reasons people are coming back and having an interest at a higher price.

All I can tell you is I think that it does have something to do with what's going on in the TV marketplace. And look, the TV guys are having a very strong fourth quarter as well.

So even though they booked less in their upfront, what we may be seeing is we may be seeing some money come back into the traditional video marketplace that had gone over to digital and maybe it's coming back a little bit.

You're obviously seeing a tightening of inventory in general in the TV market because of the continued ratings declines, so that may be bringing pricing up as well. In an odd way, it's actually a very good thing for pricing. The TV ratings have been falling pretty dramatically, because it means there is less of that prime inventory available.

So as that floor comes up in the TV pricing, that's obviously good for us as well..

Okay, great. Thanks for the color..

You're welcome..

And we'll go next to James Dix of Wedbush Securities..

Hey, good afternoon, guys. I guess the first is just any color you can give, Kurt, on the verticals that came in on the upfront. Where you saw the growth? I think that would be interesting.

And then just what do you think in terms of the dynamic of getting more agency deals in the upfront? I'm curious as to how you see that as part of the growth of that part of your selling strategy? Is that important? Do you expect that to just start to fall in line with how the television market has gone overtime? I'm curious on that just because there is definitely some pretty big dollars associated with those?.

Yes. As I mentioned in my comments, there was one other fairly sizable agency commitment that we passed on, because it just didn't meet our pricing expectations. The one big agency that we had last year increased their commitment this year nicely, and so we're very happy with that. The deal with them during the year went very, very well.

That helped bring a lot of new clients into our business.

So we will clearly continue to focus on the agency route, but what we're finding is, is that if we can get enough clients to get us into that 70% to 75% range by doing those more direct deals, if you will, they are still done through agencies, but it's just not a big agency unidentified client deal, if you will, then we're going to continue to do that.

Again, we're really focused on kind of maintaining that 70% to 75% of whatever our upcoming target or budget for the year is going to be. That seemed to work really well for us in 2015. As you can see from the sizable increases in CPMs we were able to get in the scatter market, I don't really see any reason to go much beyond that 70% to 75%.

As far as the categories, I think in general we've got a lot more attention from the casual dining industry. We've gotten more attention from CPG than we had in the past. Some of those I think in both cases some of our changes in expectations around pricing over the last few years has helped in those categories.

We're still doing quite a bit of business with some of the technology companies. That's been a very good growth category for us. And I mentioned a number of other categories during my comments that have started to come into our business that have been very good.

Some of the gaming companies we haven't announced it yet, but we had three new content partners. Two of them are in sort of the new media world.

We haven't announced it so I can't tell you who they are yet, but so we're getting I think – we're actually following the money, if you look at where the money is moving in the media business from traditional media companies and television networks into these new media companies, some of those type companies have started to become our content partners.

You saw in the past Yahoo! came on board, Microsoft before them, and so on. We brought a few more on board for 2016..

I just got one follow-up. I just wanted to make sure I understood your comments on pricing the CPMs in the upfront versus with data for next year. I mean, you know, generally are you envisioning that in terms of equivalent inventory, the upfront will be at a discount and therefore the scatter pricing will be at a premium as you go forward.

And that you are just simply indicating to us that some of your best inventory went in the upfront, so it isn't apples-to-apples.

I just want to make sure I understand that?.

Yes, what I don't want people to do is listen to two numbers that we stated that our upfront for the calendar years were up 15% and our upfront CPMs were up 11%. I just don't want people to run with those numbers.

I wanted them to make sure they had the background that a lot of our best inventory is sold in the upfront, and so that's going to affect both CPM and potentially utilization. So I just didn't want people to just take those and plug those into their model. Obviously, we haven't finished our budgets for next year.

We're obviously not giving any 2016 guidance today. But I didn't want people to just run with those numbers. Having said that, it's hard to predict what the scatter market is going to be. We obviously didn't predict that our scatter pricing would be up 20%, 30% when we did our budgets for this year.

And that's been some of the reason that we are trending ahead of our internal plans for the year..

Great, thanks very much..

Yeah, you're welcome..

And we'll go next to Ben Mogil of Stifel Financial..

Hi. Good evening and thanks for taking my question. So just a quick one.

Obviously you have left the M&A space vis-à-vis Screenvision, are you getting more inbound calls from companies that you think – you know sort of some are interested in doing more stuff with you on that end? Are you looking at more stuff?.

We've really tried to focus on getting our systems in order of the way I talked about improving them, making the data analytics and the targeting a much more robust. I would say that, we're taking a bit of a breather on the M&A front right now.

Having said that, as I indicated in my comments we've gotten a lot of inbound calls from exhibitors, which is obviously a good thing. And so we're going to continue to pursue that and pursue the expansion of our impression base which was really what the Screenvision acquisition was all about to begin with..

That's great. Thanks guys..

Yep..

And we'll go next to Mike Hickey of The Benchmark Company..

Hey Kurt and David, congrats on what looks to be a really strong Q4 for you guys and year, quite a turnaround from prior year. Thinking about 2016, curious if you anticipate TV political spend and maybe also the Olympics with provider network and the potential benefits. Secondarily, curious why you determined to not allow political spend on cinema.

It would seem to provide some sort of low hanging fruit for you or maybe the push back was more from the exhibitors? And I have a quick follow up..

Yeah, no, the pushback wasn't from exhibitors at all.

In fact, the whole strategy was really built around some of the feedback that we have been getting from advertisers where the risk of preemption, the risk of being squeezed out of certain inventory that they'd like, there were a lot of negative comments about all the negativity that goes along with all the political advertising, and after hearing these comments for a few years, I just felt that why fight it.

Why not be the one network in the United States that is not taking political advertising. I actually view that as a very strong marketing point when it comes to talking to the advertising marketplace. And you will continue to see increased marketing on that for us as we move more into the election cycle.

And obviously for us, it's a good thing for the audience and we've gotten a lot of really good feedback from the circus, we've gotten a lot of good feedback from just patrons, people that are frequent moviegoers. It's just not the right environment to show political advertising unless you could get positives.

And you know last year we tried to get positive political ads from campaigns, and in most cases they sort of laughed at us because that just isn't the way these guys go about it..

Yes, fair enough. I'm certainly not going to miss them, I will tell you that.

The first part of the question is if you feel that the political spend on TV and maybe the push out there and then the added demand with the Olympics, if that is theoretically a direct benefit to your network?.

Florida, Ohio, Colorado and so on. And so, our local and regional business actually maybe benefited even more than the national business in those swing states. So, we've even thought about putting together a swing state package as a regional buy, special regional buy where you could buy just the swing states.

So there's a lot of cool things that we can do there. I just think, in general, the tightness of inventory is going to help us. I also think there's going to be a lot of advertisers that are not going to want to be in TV advertising pods that have a lot of political advertising in it.

You could also see a pickup in DVR usage where in if the first or second ad in a pod is a political ad that people are going to be more – they're going to more often just skip the whole pod.

Nielsen keeps telling us that a high percentage of ads that are recorded are viewed, which we obviously look at somewhat skeptically, I think those numbers could go down dramatically as people skip through the first couple of ads and then just keep going. So all of those dynamics around politics for 2016, I think, are good for us..

Okay, good. I know you touched on it briefly in your prepared remarks, but on your CEO search, just sort of curious if you have a final list of candidates at this point. If you still have – I believe you noted before, you may have an internal candidate, if that is still the case. I guess any more clarity on that would be appreciated..

Yeah. I'm not going to comment on the specifics. We have gotten the field narrowed down to a pretty small group. So there would be no way of getting from where we are today to having somebody on board by the end of the year if we didn't have it down to a pretty small group, especially when you consider Thanksgiving holiday and Christmas and all that.

So, yeah, we do have it down to a pretty small group..

All right, guys, best of luck. Happy holiday..

Thank you. You too..

And we'll go next to Eric Wold of B. Riley..

Thank you. A couple of questions. One, I guess, Kurt, you mentioned that some of the advertisers that decided not to opt back in for this upfront dropdown and you guys came in at 50% higher CPMs.

Any reason you heard from the ones that decided not to re-up, was it that they didn't see the return they're looking for with original (48:53), were they kind of testing the market last year with kind of a more opportunistic pricing, maybe not optimistic on the 2016, so any color there?.

Yeah.

I think the general response we got from people, and this is a trend not just with us, I think this is a trend in general that people are looking for more and more flexibility, and one of the things digital has given people, and especially in the video market as there's been a significant increase in digital video impressions out there, that people can wait longer.

And a lot of clients were coming to us and say, look, don't feel bad, we're not committing as much upfront as we have in the past, just because we want the flexibility to wait.

Now, we've seen this for years, even before digital came along that in a year where people didn't commit as much money upfront and then they kind of got hit with much higher pricing in the scatter market, the next year they tended to increase their upfront buys.

So, we'll see how this cycle goes, but I do think the trend with more and more digital has been to – it allows advertisers to wait longer, make last-minute decisions if they have to – I think the one exception to that in general on TV has been sports.

I think clearly sports has been the big winner in this upfront season and in media in general and TV in general as there's been very high demand for sports programming, I guess based on the theory that people didn't record sports as much and didn't skip the ads as much.

So, I just think we're seeing a trend right now where the advertisers have the ability to have more flexibility, and if you can have more flexibility why not take it?.

Understood and then lastly, you mentioned you're hopeful you're going to achieve this year kind of with that 70% to 75% booked range for upfront commitment as you look to get.

I know you don't try to play box office predictor in terms of the strength of the slate and try to play that in Europe versus scattered, but I'm sure this plays into what the clients are willing to pay to kind of push you in that range.

I guess, what I'm trying to say is, are you willing to do what it takes CPM-wise to get into that range, if it ends up being a little bit below, are you comfortable kind of taking that risk into the scatter market next year?.

Yes, I think based on what we saw; I'm comfortable taking the risk. Based on my comments before, I hope you get the impression I don't think there's a lot of risk there. Given how strong our last year's was, we still got some time between now and the end of the year to book other deals.

I think we're going to be very comfortably within that 70% to 75% if not above..

Perfect. Thank you..

Yep..

And that concludes today's question-and-answer session. At this time, I'll turn the call back to Kurt Hall, CEO of National CineMedia for any additional or closing remarks..

Great. Thanks everyone for everyone's support. I don't know if this will be my last call or whether next call will be a transition call, but I really appreciate the relationship over the years. I really appreciate the way you guys were fair with us through good times and through bad.

So, thank you for all of that and as always, if there are any follow-up questions, Dave and I will be around for a while and hopefully I'll be talking to you soon. Take care. Thanks..

And this does conclude today's conference. We thank you for your participation. You may now disconnect..