National CineMedia (NCMI)

Q4 2012 Earnings Call

February 21, 2013 5:00 pm ET

Executives

David Oddo

Kurt C. Hall - Chairman, Chief Executive Officer and President

Gary W. Ferrera - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

James G. Dix - Wedbush Securities Inc., Research Division

Townsend Buckles - JP Morgan Chase & Co, Research Division

Stan Meyers - Piper Jaffray Companies, Research Division

Eric O. Handler - MKM Partners LLC, Research Division

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

James C. Goss - Barrington Research Associates, Inc., Research Division

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Greetings, and welcome to the National CineMedia Fourth Quarter and Full Year 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Oddo, Vice President of Finance for National CineMedia. Thank you. Mr. Oddo, you may begin.

David Oddo

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 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.

Now I'll turn the call over to Kurt Hall, CEO of National CineMedia.

Kurt C. Hall

Thanks, David. Good afternoon, everyone. Welcome, and thanks for joining us for our 2012 earnings call. Today, I'll provide a brief overview of our 2012 results and provide some thoughts about 2013. Gary Ferrera, our CFO, will then provide a more detailed discussion of our financial performance for Q4 and all of 2012 and provide some color around our guidance for Q1 and full year 2013 and then as always, we'll open the lines for questions.

Before I get started, I wanted to say a few things about Gary. As you know, he'll be leaving us on March 1. Gary has done a great job as our CFO over the last 7 years because he has built a strong financial team and leaves our company with a low-cost, long-term debt structure that provides us with ample liquidity to grow our business for many years to come. While I hate to see Gary go, we wish him luck on his new adventure. He will be missed, especially by me. While it's always difficult to replace a great CFO, we have had a very active interview schedule over the last several weeks, and I'm confident that we will be announcing a high-quality new CFO before the end of Q1.

Now onto our 2012 results and our outlook for '13. We had another great year of growth from our national advertising group and despite a slow start to the year, our local ad business had a record Q4 with growth of 19%, primarily due to an increase in regional contracts. The year could've been even better if it were not for several macro headwinds in November and December and the negative impact of Sandy in our local ad business in the all-important Northeast region. In fact, through October, national revenue was on plan and we were poised to post not only strong revenue growth for '12 but also adjusted EBITDA -- OIBDA growth.

Despite this economic slowdown to finish 2012 and the deep recession and slow economic recovery over the last several years, our business has performed very well relative to the rest of the media marketplace as our revenue and adjusted OIBDA have both grown at a compound annual growth rate of over 8% since our IPO, well ahead of the television marketplace.

While our 2012 adjusted OIBDA was slightly lower than 2011, due primarily to higher theater access fees, lower capital expenditures and the completion of favorable debt refinancing has allowed us to continue to return value to our share -- stockholders through a record $48.7 million or $0.88 per share 2012 dividend.

During 2012, our sales teams continue to make good progress towards our strategy of expanding our client base. Our national team added 30 new clients that have never spent with us or had not spent since 2006, 7 of which were added during Q4. The new national clients added during Q4 included businesses in the video game, cable TV, home audio equipment, Internet site and tourism categories. With these additions, we have increased our client base by nearly 60% over the past 3 years. While this is good progress, there is plenty of opportunity for future growth as we still do not sell advertising to many hundreds of high-quality brands that buy TV and we continue to be underpenetrated in several categories, including CPG, retail and QSR.

We have made progress to diversify our national client base. However, our 3-core client categories of telecom, auto and entertainment represented 68% of our total national and ad revenue in 2012 as we saw strength with video game and movie studio clients and spending declines in the credit card and home video DVD categories. While this concentration increased due to one significant telecom deal that I will discuss later, there are still too many clients that only buy when they have their product launched, a unique piece of creative or some other marketing priority.

So over the last year, we have initiated several longer-term strategies and tactics to further broaden our client base and reduce our quarter-to-quarter spending volatility, including developing a more unique integrated package of marketing products, including online to mobile, competing more aggressively in the TV upfront marketplace and provide a more creative and targeted pricing structures.

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