David J. Oddo - SVP Finance, Co-Interim CFO and Principal Financial Officer Andrew J. England - Chief Executive Officer & Director.

James G. Dix - Wedbush Securities, Inc. Barton Crockett - FBR Capital Markets & Co. Julia Yue - JPMorgan Securities LLC Benjamin Mogil - Stifel, Nicolaus & Co., Inc. Michael Hickey - The Benchmark Co. LLC James Charles Goss - Barrington Research Associates, Inc..

Greetings, and welcome to the National CineMedia Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I'd now like to turn the conference over to your host, David Oddo, SVP of Finance. 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 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

All statements other than 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 at the end of today's earnings release, which may be found on the Investor page of our website at www.ncm.com. Now, I'll turn the call over to Andy England, CEO of National CineMedia..

Thanks, David. Good afternoon, everyone. Welcome and thank you for joining us for our second quarter 2016 earnings call. During this call, I will spend a few minutes highlighting the company's second quarter results and progress against that 2016 business plan.

David will then provide a more detailed discussion of financial performance for Q2 and provide guidance for Q3 and full year 2016. And then, as always, we will open the line for questions.

I'm pleased that we were able to deliver solid second quarter revenue and adjusted OIBDA results that exceeded the midpoint of guidance ranges, especially as we were up against the record Q2 2015, the total revenue and adjusted OIBDA growth of 22% and 30% respectively versus Q2 of 2014.

On the positive, our local and regional advertising business posted yet another record for second quarter revenue, growth of over 5% versus Q2 of 2015. However, as expected, the local and regional revenue growth was more than offset by lower national advertising and beverage revenue.

Our Q2 national revenue decreased approximately 6%, due primarily to low utilization, related to a lower amount of content partner commitments allocated to the second quarter of 2016 versus comparable content partner allocations in Q2 of 2015, as well as client churn that could not be fully replaced during the quarter.

This lower national utilization during the second quarter was partially offset by a 7% increase in CPMs that was primarily driven by higher upfront pricing versus Q2 of 2015. Well, I'm of course disappointed that we weren't able to grow our national revenue versus record national revenue in Q2 2015.

I'm encouraged by 6% growth in our total advertising revenue per attendee at industry box office pulls back versus record Q2 2015 box office. National CineMedia's presence during the main broadcast week at the May upfronts in New York continues to establish our company as a serious competitor in the video advertising marketplace.

And this year was no exception, as our 2016 upfront presentation was all about Millennials, content and data, highlighting NCM's highly desirable Millennial audience, our world-class movie studio content and improvements in data and targeting available to our national advertisers for this upfront cycle.

Our messaging and the unique role we play in today's fragmented media landscape really registered with buyers and, as in prior years, our national sales force continues to work with advertising decision-makers during the commitment process that is currently pacing well and typically runs through September.

While our upfront strategy has made it possible to more effectively compete in the larger pool of premium video advertising dollars and has allowed us to be a more central and timely part of these annual discussions with marketers, we are still in the process of working with agencies on integrating our avails into their planning and buying systems.

More effective integration will allow our high ratings and quality audience to receive greater visibility and consideration, as marketers decide how best to allocate their spend whether in the upfront or scatter markets.

I'm also pleased that we continue to expand and diversify our national client base during the second quarter, adding five new national clients in four different categories, bringing total new national clients to 22 so far in 2016.

The four categories added during the second quarter included movie studios, Internet sites, personal care products and toys. These new additions to our client roster and changes in that category mix means greater diversification of our national client base, which is good for the long-term health of our business.

As a part of the strategy to grow our client base, we're continuing to creatively seek out new ways to acquaint brands with our medium.

As discussed on prior calls, National CineMedia is now the official United States representative of the Cannes Lions Festivals, which provides us with the unique opportunity to build relationships with the creative community and potential clients.

In fact, I'm happy to report that our 2016 investment in the Cannes Lions partnership has already paid off by resulting in the booking of a meaningful national contract with a client that we met with during the festival in June.

Also during the second quarter, we expanded our client spend in the telecom category, with the launch of a unique promotion with AT&T, and two of our founding member circuits called Ticket Twosdays, whereby AT&T rewards its customers with a free movie ticket when they buy one at full price.

As a result, we have received a meaningful advertising commitment from AT&T for the remainder of 2016 and into 2017, and we hope to have additional circuit partners join the AT&T Ticket Twosdays promotion, as it continues to roll out across the country.

Moving on from national to the local and regional advertising portion of our business, this team posted yet another record for second quarter revenue, by growing over 5% versus a record Q2 of 2015.

But what's especially noteworthy is that we were able to grow overall local and regional revenue during the quarter with a softer film slate versus the record Q2 2015 film slate, and with approximately the same revenue from contracts greater than $100,000.

While the amount and timing of larger contracts can benefit or impact any given quarter versus prior year and ramp up for new sales directors takes some time, the second quarter growth reflects the benefits we're beginning to see from the expansion of our local sales force and the expansion and diversification of our local and regional client base.

As you may recall, we recently entered the national Spot TV advertising marketplace for the first time through our partnership with STRATA, a leader in media buying and selling software that allows its extensive client base of agencies to now buy select NCM inventory through their system.

Since our last call, we have continued to gain traction and have booked several regional deals with incremental advertisers through STRATA.

Lastly, as we move towards the November elections, I'm proud to say that the National CineMedia Network remains a politics-free zone, allowing our local and regional sales team help advertisers reach their customers in a positive and highly engaging entertainment environment.

It's not only the right thing for our circuit partners, but it allows NCM to be a haven for brands that may be forced out of TV, due to tight inventory, preemptions or desire to stay away from negative political ads.

Consistent with the growth of the overall online and mobile advertising marketplace, we experienced strong Q2 online and mobile revenue growth of 30% versus Q2 of 2015.

While it still remains a small part of our total advertising revenue, our strategy of packaging our in-theater inventory with our online and mobile inventory through our Cinema Accelerator product continues to be important, as it gives marketers a unique way to create a more cohesive cinema and digital marketing plan.

NCM theater networks' ongoing expansion and improvement continued to enhance our competitive positioning, as the remaining Texas-based Santikos Theatres affiliate screens joined our network during the second quarter.

At the end of Q2, we had nearly 20,500 network screens, an increase of 1.6% versus Q2 of 2015, and coverage in the 187 of the 210 TV DMAs. All of our network screens utilize digital projectors, and our FirstLook pre-show is delivered to approximately 99% of our network attendance over our digital distribution network.

As you know, one of the key strengths of our network continues to be the stable impression base provided by our exhibitor partners and by the world-class movie studio content created for their theaters.

While our current network provides strong national coverage, we believe that a focus on the expansion of our overall impression base and improved geographic coverage will allow us to compete more effectively with traditional and emerging video networks and help our national mass market clients solve the ever-present issue of reach.

In addition to Santikos Theatres joining our network this year, we continued to look for opportunities to add additional affiliates. I remain confident that National CineMedia and our FirstLook pre-show will continue to be the best advertising solution for movie theater circuits.

It's also important to remember that when our founding members acquire U.S. theater circuits, the acquired theaters immediately become part of the higher margin founding member fee structure and related long-term contracts, unless the acquired theater circuit is under contract with another advertising provider.

As such, there are 223 additional screens with approximately 8 million annual attendees acquired by our founding members in 2013 that will join our network in November 2018, once their contract with another advertising provider expires. Until then, the founding members will continue to make integration payments to NCM LLC for these screens.

And last but certainly not least as you know, we began increasing capital investment spending in 2015 to accelerate the timeline to complete the upgrade of our sales proposal and the inventory management systems, as well as the development of new audience targeting systems and data management platforms.

The integration of these improved systems with our digital distribution network will allow for the further shortening of campaign lead times and provide more targeted and efficient campaigns with detailed reporting to clients.

We're especially excited about the rollout of our new data management platform to our national advertisers during this upfront cycle, which will allow us to provide marketers with the expanded audience targeting and data analytics capabilities that are a necessity in today's competitive video advertising marketplace.

During my first seven months at National CineMedia, I've been focused on successfully transitioning into the business and getting to know many of our employees, advertising clients, theater circuit partners, investors and analysts.

All of this has reinforced my belief that we have a strong core cinema advertising business and has helped me think about how to move that business forward. To that end, we continue to work with our board on a formal strategy that will guide National CineMedia into 2017 and beyond.

This strategy as well as our newly established company values will flow through all levels within our organization to ensure business alignment with continued focus on our objectives. As we forge ahead, NCM will strive to deliver our vision of being the connector between brands and movie audiences.

And our NCM team will focus on strategies that strengthen and expand that core business where working on adjacent opportunities that align with this vision. Before I turn the call over to David, I want to thank our National CineMedia employees along with our stockholders for their continued support.

While our advertising business has been more volatile than I would've liked in the second quarter and third quarters of 2016, our updated annual guidance reflects a year that is relatively flat versus the record 2015 that grew revenue and adjusted OIBDA 13% and 15%, respectively versus 2014.

One thing is clear, given the ongoing fragmentation in the overall video advertising marketplace and building skepticism about the efficacy of many online and mobile platforms, NCM is in a unique position.

We believe that combination of broad national reach, reliable and high impact viewable impressions and engaged Millennial audience and high quality event programming positions us very well for the future.

Now, I will turn the call over to David to give you some more details concerning our Q2 operating performance and more specific color that supports our Q3 and 2016 guidance..

Thanks, Andy. For the second quarter, our total revenue decreased 5% versus Q2 2015, driven by a 6.2% decrease in national advertising revenue and a 21.1% or $1.9 million decrease in beverage revenue, partially offset by a 5.4% increase in local and regional advertising revenue.

Total Q2 adjusted OIBDA decreased 11.9% and adjusted OIBDA margin decreased to 51.5% from 55.5% versus Q2 2015. For the first six months of 2016, total revenue decreased 3.4%; adjusted OIBDA decreased 12.3%; and adjusted OIBDA margin decreased to 43.5% from 47.9% versus the first six months of 2015.

These Q2 and year-to-date declines are primarily driven by the decreases in high margin national advertising revenue and 100% margin beverage revenue and increases in selling expenses related to online publisher expense that is offset by lower margin revenue, investments in research and data required for upgraded sales proposal and inventory management systems and a $700,000 non-cash impairment charge on an investment obtained in prior years in exchange for remnant advertising inventory.

We also recorded $700,000 of AMC Rave and Cinemark Rave integration payments for the second quarter versus $800,000 in Q2 2015.

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

We now expect to record approximately $2.5 million of these integration payments from our founding members during 2016. Our Q2 2016 advertising revenue mix shifted slightly toward local and regional, and was 72% national, 22% local and 6% beverage versus Q2 2015 that was 73%, 20% and 7% respectively.

Q2 national ad revenue decreased 6.2% versus Q2 2015 and was driven by 16.2% decrease in impressions sold, partially offset by a 7.1% increase in CPMs versus Q2 2015.

The decrease in impressions sold was driven by a decrease in inventory utilization to 124.0% from 133.3% in Q2 2015 on a 10.2% decrease in network attendance that was impacted by difficult comp versus a record Q2 box office in 2015.

While Q2 impressions sold were impacted by content partner allocations and client churn versus Q2 2015; Q2 CPMs benefited from higher upfront pricing versus Q2 2015.

For the first six months of 2016, national ad revenue decreased 4.4%, driven primarily by decrease in utilization to a 102.6% from a 118.3% on network attendance that decreased 2.5%, partially offset by a 7.4% increase in CPMs versus the first six months of 2015. And lastly, our quarter end make-good balance was $4.3 million.

Q2 local and regional ad revenue increased 5.4% versus a record second quarter in 2015 and was driven by an increase in revenue from contracts less than $100,000 whereby these contracts had a 4.9% increase in average contract value and a 2.0% increase in average contract volume due to the expansion of our sales force and diversification of our client base.

Revenue from contracts greater than $100,000 remained consistent with Q2 2015.

For the first six months of 2016, local and regional ad revenue increased 3.8% driven by an increase in revenue from contracts less than $100,000 whereby these contracts had a 7.5% increase in average contract volume, partially offset by 3.9% decrease in average contract value.

Revenue from contracts greater than $100,000 remained consistent versus the first half of 2015.

Q2 beverage revenue declined 21.2% or $1.9 million versus Q2 2015, and was driven by decrease of $1.5 million related to the 30-second reduction in time by one of our founding members that began on July 1, 2015, and a 9.8% decrease in founding member attendance versus Q2 2015, partially offset by the 5.7% increase in beverage CPMs for 2016.

For the first six months of 2016, beverage revenue declined 13.9% or $2.3 million versus the first six months of 2015 and was driven by decrease of $3.0 million related to the 30-second in time by one of our founding members that began July 1, 2015, and a 1.3% decrease in founding member attendance versus the first half of 2015, partially offset by the 5.7% increase in beverage CPMs for 2016.

Looking briefly at diluted earnings per share, for the second quarter, we reported a GAAP diluted EPS of $0.11 versus $0.17 in Q2 2015. For the first six months of 2016, we reported GAAP diluted EPS of $0.04 versus $0.02 for the first six months of 2015.

Excluding terminated merger costs and amortization of derivatives recorded in 2015 and CEO transition related costs recorded in 2016, diluted EPS for the first six months of 2016 would have been $0.07 versus EPS of $0.19 for the first six months of 2015.

Our capital expenditures were $3 million for the second quarter, compared to $2.9 million for Q2 2015. As previously discussed, we continue to accelerate the development of our inventory management systems and audience targeting platforms to more effectively compete in the video advertising marketplace.

And we estimate that our full year 2016 capital expenditures will be approximately $14 million or just 3% of our total revenue guidance for the full year. Moving on to our balance sheet, our total debt outstanding at NCM LLC at the end of Q2 2016 was $942 million versus $936 million at the end of Q2 2015.

The increase in total debt was due to a $6 million increase in our revolver borrowings to $72 million from $66 million with the increase driven primarily by the timing of working capital needs and upfront payments to certain affiliates.

As discussed on our previous earnings calls, our revolver balance will decrease by $25.5 million when the remaining merger related expenses are reimbursed through a reduction in our Q2 2016 available cash distributions that will be paid on August 29, 2016, as required by our NCM LLC operating agreement.

In addition, during the second quarter, we increased our revolver commitment capacity to $175 million from $135 million in order to provide a more comfortable cushion above our seasonally high revolver balances.

Our average interest rate on all debt was approximately 5.4% at the end of Q2 including our $270 million floating-rate term loan bank debt and revolver credit facility that had an average rate of approximately 2.9%. Excluding revolver balances, 69% of our total debt outstanding at the end of Q2 2016 had a fixed interest rate.

Our consolidated cash and investment balances at the end of Q2 2016 were $64 million, a decrease of $5 million from the end of Q2 2015, with $58 million of this balance at NCM, Inc., and $6 million at NCM LLC.

Excluding tax reserves and after the payment of the recently announced $0.22 per share dividend to be paid on September 9, 2016, we would be able to pay our current dividend per share for approximately 3.5 additional quarters, even if no cash were distributed-up to NCM, Inc. from NCM LLC.

Our annual dividend yield is currently 5.5% based on today's closing share price of $15.92. Our pro forma net senior secured leverage at NCM LLC, as of the end of Q2 2016, was approximately 3.5 times trailing four-quarter adjusted OIBDA, 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 covenant, our total leverage at NCM LLC, net of NCM LLC cash balances, was approximately 4.4 times at the end of Q2 2016 versus 4.3 times at the end of Q2 2015. Turning to guidance.

For the third quarter, we expect total revenue to be in the range of $109 million to $116 million, or a decrease of 2% to an increase of 4%, and adjusted OIBDA to be in the range of $56 million to $63 million, or a decrease of 6% to an increase of 6%, versus a tough Q3 2015 comp that posted revenue and adjusted OIBDA growth of 11% and 14%, respectively, versus Q3 2014.

These Q3 guidance ranges project a low single digit increase in national advertising revenues that includes a projected increase in CPMs and a mid single digit increase in beverage revenue, partially offset by a mid single digit decrease in local and regional revenue versus Q3 2015.

The projected decrease in local revenue is related to fewer larger value contracts versus Q3 2015, and additional sales ramp-up time needed for new local sales directors resulting from the expansion and restructuring of our local and regional sales force.

Also, while Q3 industry box office continues to perform well, the lower end of our Q3 guidance ranges provide for some downside protection in the event that our quarter end make-good balance would exceed historical averages.

For the full year 2016, we now expect total revenue to be in the range of $440 million to $450 million, or a decrease of 1% to an increase of 1% versus 2015. And adjusted OIBDA to be in the range of $220 million to $230 million, or a decrease of 4% to approximately flat versus a record 2015 for both advertising revenue and adjusted OIBDA.

As Andy discussed, our second quarter and third quarters were impacted by lower content partner allocations that favor the fourth quarter in 2016 and client churn that was not fully replaced, some of which was related to the movement of a few of our Q3 2015 clients' spending against the Olympics in 2016.

As noted on our last earnings call, we expected our 2016 revenue to be weighted towards the fourth quarter of 2016. And while we have built in some downside protection in our annual guidance, our Q4 booking proposal activity remains healthy and we are currently pacing as expected toward our fourth quarter targets.

That concludes our prepared remarks, and we'll now open up the lines for questions..

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from James Dix from Wedbush Securities..

Good afternoon, gentlemen. I guess three things just related to the guidance for the first two. It looks like for the full year, revenue is looking to be around $20 million to $25 million, about 5% lower than your prior guidance.

Any color you could give on the components of that change and then similarly on EBITDA, looks like – OIBDA is around $20 million or so than your prior guidance. I'm curious on the incremental margins there what – anything else going on there than simply flowing through the impact of the revenue change to the bottom line.

And then finally, you mentioned in the release and then also in your remarks some client churn I think maybe in the national level for the 3Q, some moving to the Olympics, if I understood correctly.

Do you have any data on how many national advertisers are not returning this year? I think you gave already some statistics on new advertisers this year, just any – curious on the flip side there? Thanks..

James, I'll take the guidance change question. Most of it is due to Q3, not performing as expected. Again, I pointed out that the Olympics had most of the impact on that, some of our advertisers that advertised last year aren't advertising with us this year, just shifting their money towards the Olympics.

And then we just added some more conservatism to the fourth quarter. So, that's the remaining piece of that mostly on the national side, but on the local side as well, they both have record quarters last year.

So, we want to make sure that we're giving you guys conservative guidance that we have a lower probability of having to change later in the year. So, just a little bit more conservative in fourth quarter..

And then just on EBITDA, I mean it looks like most of it is flowing straight through to EBITDA, is that how we should be thinking about or are there any incremental costs that are going into that?.

No, there is no incremental costs, we have high margin national revenue and also high margin local revenue. When we move guidance ranges down, we keep the same ranges. So, when you get to the lower end of the ranges, it skews the margin a little bit, but we have implemented cost savings measures as well the last half of the year.

So, there is no incremental cost at all, it's just a factor of the way the numbers work when you have $10 million ranges..

Okay.

And then any data on the how many advertisers are being affected, I guess by – is all the churn basically related to the third quarter Olympics, I'm just trying to get a sense of that?.

Most of it is in the third quarter, I would say more than 50% and probably five advertisers or six advertisers..

Great. Thank you..

Thank you. Our next question comes from Barton Crockett from FBR Capital Markets..

Okay. Thanks for taking the question. I wanted to drill down a bit more on the guidance change.

Could you give us a little bit more precision around the $25 million you're taking out of revenues, would you say more than half of it was in the third quarter or was it even more skewed to the third quarter? How much of it was – can you give us some percentage breakdown there roughly?.

I'd say most of it, more than half is the third quarter..

Okay..

And then again, we're just bringing some conservatism in the fourth quarter guidance. And as Andy noted and I noted, we're on track to hit at this point in the year, it's still early, we've still got a lot to sell, November and December especially you sell more as you get closer.

But we are on track to hit our targets for the fourth quarter and Andy mentioned that we expect the flattish year..

Okay. Now on this kind of issue of Olympics, I mean this was predictable at some level, I mean the Olympics come up every four years.

Was the Olympics behavior here different than what you've seen in the past, is that what led to the surprise there on the guidance?.

Thanks Barton. This is Andy. I think firstly, I don't think we have very good information on that, because obviously the Summer Olympics happens once every four years. So, I don't think we have very good information from 2012 on exactly what happened there. But, I also think the world is totally different from 2012.

I mean if you look at the amount of fragmentation in media and the sheer amount of change that's gone in the media marketplace, I'm not sure detailed 2012 information would have informed us that well.

So, I think if you look at what advertisers are doing in terms of just look at year's upfront and some of the behavior you are seeing there in reaction to the brutal scatter market last year. I think, there's just a lot of change, and I think it was very difficult to predict. So, that's the overall take on it.

And obviously, we continue to build relationships and frankly add advertisers, so even in the second quarter, we're adding advertisers and then we're adding advertisers in the third quarter too, but I think it's chunky and that's what makes it difficult, it comes and goes in chunks..

Yeah. I mean, I guess just one final kind of just big picture thought here. This was supposed to be a medium that was gaining momentum with pressure building on TV. And instead, what we're seeing is TV seems to be recovering and your (32:17) momentum has really slowed here for the back half of the year.

Why shouldn't we look at that and be a little bit more cautious about the strength of the secular story at this point?.

Well, I'm perhaps little surprised that we don't see it that way, Barton. I think firstly, it's not clear to me the TV is strengthening.

I mean yes, the upfronts strengthened, but from some of the numbers I've seen if you're an advertiser and you're faced with the kind of scatter CPM increases that were happening earlier this year, you'd probably throw all your money into the upfront as well.

So, I think we should see how the whole TV market plays out, and this is one of the reasons frankly why we eschew the idea of giving upfront guidance, because I think it's not helpful.

I don't think it will actually be indicative of how the full year plays out, but we'll determine that here from now, right? So, I think there is some craziness going in TV, which I think is difficult to gauge. I remain very bullish on the cinema marketplace.

I think when you look at the Millennial mix that we have, I mean obviously we have as you document so well, we had very choppy quarters when it comes to attendance because obviously first quarter was a terrific quarter and the second quarter was a very poor quarter and third quarter looks to be substantially better and the numbers I'm hearing are slightly up in the fourth quarter.

So, it's a very choppy attendance medium, but on the other hand, those people who are attending are predominantly Millennial and are highly desirable audience and I think that's reflecting in the advertisers that continue to be drawn to our medium..

And just one final thing here, just again bigger picture. Do you have any sense that there might be any macro issue here, I mean I know we're simply getting some good data on the economy, but there are things like peaking auto sales potentially and some other kind of mixed choppy kind of retail environment at some places.

Is there any macro issue here that you're hearing when you talk to your advertisers?.

I certainly haven't heard that. I think when you look at the history of our net revenue, I think the reality is that we have historically struggled when we have been lapping a very, very good year and 2015 was a record year by any metric and that's part of what you're seeing.

So, I see it frankly as being more internal and most in churn that relates to specific things that are happening in 2016 rather than any underlying macro issue..

Okay, great. Thank you very much..

Thank you..

Thank you. Our next question comes from Alexia Quadrani from JPMorgan..

Hi. Thank you. This is Julia Yue on for Alexia. A few questions.

First, how your conversations with advertisers been different if at all this year in the upfront compared to previous years, particularly do you think that advertisers are seeing NCM data capabilities differently and really leveraging these new initiatives, or do you think it's more of an educational process right now as they become more comfortable.

And then secondly, could you also talk a little bit more about the local and regional business where I think like you continue to diversify the client base and what are the biggest drivers of that improvement? Are you seeing broad-based interest? Is it coming from the certain industries and how much of it is increased sales force efficiency?.

Thank you. I think the conversations we're having with advertisers this year, I think have been extraordinarily positive. I think, we are in a world where the earlier part of the conversation, some of the upfront CPMs getting written are in the low-double digit increases.

I think we begin to seem like a much more reasonably priced medium in the broader context of premium video. And I think that leads to very positive conversations, because I think for the most part advertisers want to be on that big screen. It's a matter of affordability and we appear to be getting more affordable, which I think is very encouraging.

I think the data piece of it is important. I think it is an ante (36:40) – it's something that you have to bring to the broader marketplace, and I think it's recognized that we are doing a significantly better job.

So just, with this upfront, we're going from selling just by rating to selling by genre, and the data that's there to back it up is strong and I think that enables our advertisers to be more efficient and they certainly appreciate that. So I think we're hearing just very good things.

And by the way, it's not lost on people that I think the conversations we're having now obviously are more about 2017 and it's not lost on people that the film slate is expected to be very strong in 2017, so that's part of the conversation as well.

I think when it comes to local and regional business, I don't know if you can add a perspective here David, but I think again, we continue to sort of diversify our client base. I think that we continue to have good conversations and be thought of as one of the more interesting options out there for local and regional.

I'm not sure I could talk to the specific categories.

Do you have any handle on that?.

Yeah. The categories are just very diversified. They're all over the map. So, there's really none that stick out as doing any better than others. They hit basically every category you can think of out there..

Okay, great. Thank you so much..

Thank you..

Our next question comes from Ben Mogil from Stifel..

Hi, good afternoon. Thanks for taking my question. So, the first question I've got really is with regards to the sort of Q&A that you had with Barton about what's changing in the Olympics and so the macro.

You talk about Millennials being a desirable audience, but when you look at sort of the MPAA stats, the Millennials are leaving the theaters in droves.

I mean is that playing anything, you think, in a role here in terms of some of the advertiser concern about the medium?.

I think there's some dispute over some of those stats. I think there's – I don't think candidly we're well aligned as an industry over what the actual stats are.

And so, if you look at the very long term, there is certainly some leakage of overall audience from movie theaters, but no way near the level of leakage you're seeing in TV, particularly around cable. So, I think 2015 proved that when you got a strong film slate, Millennials are there in droves.

So I'm not – provided that the studios are there developing great original content, I think we're going to have a great audience to sell..

And are you getting any kind of pushback from advertisers? I'm just concerned that even on the attendance numbers that you've got sort of lots of distractions in the theaters, people looking at phones, doing other stuff, like are you getting any kind of feedback or pushback the way you would see it with TV, with maybe sitting in front of the TV, that you obviously have distractions available, should you want them?.

Yeah.

We have the distraction conversation once in a while, but frankly, it doesn't tend to be a very long conversation, because all the evidence shows, particularly when it comes to Millennials that they are multi-screening very regularly, and it doesn't – if you draw the comparison, and most advertisers are comparing the movie theater to TV, right? They're comparing it in terms of premium video, and you literally can't block out the cinema screen with an iPhone.

It's right there and you're going to see it, but you sure can block out a TV screen with an iPhone. And so, I think the sheer size of the screen and the all-consuming nature of the cinema advertising medium actually makes it the dominant screen even if you got one in your hand as well versus TV where it's a fairer fight..

Okay. That's great. Thank you very much..

You're welcome. Thank you, Ben..

Thank you. Our next question comes from Mike Hickey from Benchmark..

Hey, Andy and David. Thanks for taking my questions, guys..

Hey, Mike..

I think you've hit on – hey.

Maybe just to clarify the – obviously, 2016 is a tough year for the box, tough comps, Olympics, politics, et cetera, obviously driving some churn in your business, but I guess we're close to 2017 here, and I'm sort of curious, the enthusiasm that you can sort of rebound here and drive growth, obviously there's some excitement for the box office, not just in 2017, for (41:21) 2018.

You have less disruptions, it sounds like you continue to get traction in the upfront, which should be an incremental positive and of course that the comps are easier. So, I'm just sort of curious to get your early take on 2017, if you have any data.

I know you're not wanting to supply (41:39) those much, but do you have any data in terms of bookings in 2017 compared to prior year? I think that's constructive at this point. Then I have a quick follow-up. Thanks..

Well, Mike, thank you for the question. We can't give you numbers on that at the moment. What we can tell you is that we're encouraged by our upfront discussions. What we will do is we'll provide 2017 guidance in our February call. So, we'll certainly fill it in then.

But I think to your point, there's a tremendous film slate coming in 2017 and I think that allied with the conversations we've been having in the upfront, make us certainly very optimistic. I should point out that, we will have an increase – every five years, we have an increase in that theater access fees.

So, that is a slight offset there, but nonetheless I think we feel very good about 2017..

Okay. Good. Thank you. The last question one of your founding members AMC has taken the growth path to look at international market in terms of expanding the network. And so, I'm sort of curious from your business looking at Europe, I think obviously there's a lot more fragmentation in Europe on film and advertising than we have domestically.

So I'm sort of thinking or curious if you could sort of reset your strategic view on perhaps international expansion, what you might see from Europe? Thank you..

Thank you for that question. I mean as we've reviewed our strategy with the board, obviously international is one of the discussions that come up. I can tell you it's not a priority, but the reason it's not a priority is, first, because we think we have an important and valuable things to get done in the U.S.

But secondly, because we haven't spotted a great synergistic opportunity as yet on the international landscape now, as you know that can change and we're certainly open to those opportunities. And at the same time, there might be a financial transaction that makes sense even without great synergies.

So, we're certainly open to that, but we don't see this being a priority today..

Okay. All right. Thanks, guys. Thanks a lot..

Thank you, Mike..

Your next question comes from Jim Goss from Barrington Research..

Thanks. I apologize if this was covered, since I came in early.

But did – if you look at reserved and receded situations, have you determined whether those aspects are plus or minus to what you offer?.

Thank you, Jim. I think frankly it's a mix bag. If you look at what's going on and how the exhibitors are investing capital in improving the experiences in their theaters, I think there is a mix bag. I think the overall improved experience in the theater is helping attendance.

I certainly think improved dining options et cetera or both improving attendance and driving people in early. But, it's – our sense is when you look at the reserve seating, it's a mix bag. It's probably not helping us overall, but nonetheless, is making the experience better for the attendee and driving attendance.

So when you added all up, we think it's somewhat neutral if you look at the package of things that are changing in movie theaters, but certainly we will watch it with a great deal of interest..

Okay.

And any thoughts on how you might incentivize audiences to get there early? For example, could you flip around a little and engage audiences using their iPhones in your time slot, maybe with a quick game, with a concession give away from an ad sponsor or something of that sort that would sort of play into what you're experiencing and maybe – may get a little more interest in to be there for your promos?.

Well, the short answer to that is, yes, Jim. I think somewhat longer answer is that, that we believe in general we have an opportunity to improve the engagement in our pre-show.

So to your point, it's getting bucks and seats is the key thing that we need to do in order to drive the value of that franchise, then one of the levels we have is dialing-up engagement in the pre-show.

We certainly think interactive is one of the ways in doing that, but we are exploring all sorts of different ways, in which we might dial-up that engagement level. So, net, yes..

All right. Thanks, very much..

Thank you, Jim..

Thank you. At this time, we have no further questions. I'll turn the call back over to Andy England for closing comments..

Good. Well, thank you very much. And thank you everyone for the questions. As discussed, I think we feel we had a solid Q2 given that guidance Q3 is not where would have liked it to be in, but the net of all of this is that we will have an overall year that given that 2015 was a record year, 2016 will be a reasonable follow-up.

But, as I said not where we wanted to be, but we have good grounds for optimism going forward with the film slate and conversations we're having heading into 2017. So, that's where we are. Thank you for tuning in and thanks for your investment..

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation..