National CineMedia, Inc.
Q4 2018 Earnings Call Transcript

Published: 22 Feb 2019

[Operator:]

Greetings, and welcome to the National CineMedia, Inc. Full-Year and Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Ms. Katie Scherping, Chief Financial Officer. Thank you. You may begin.

[Katherine Scherping:]

Thanks, Michelle. Good afternoon. I’m joined here in Denver by Cliff Marks, our President and Interim CEO; and Tom Lesinski, our Chairman of the Board. 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 fact 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, with that, I’ll turn the call over to Tom.

[Tom Lesinski:]

Thank you. Good afternoon, and welcome, everyone. Before I turn the call over to Cliff Marks to discuss our results, I’d like to take a few minutes to welcome – or should I say, welcome back our newest Board Member, Kurt Hall. As announced a few weeks ago, Kurt was unanimously approved by our Board of Directors. Those of you who’ve been following NCM for years know that Kurt has served as NCM’s President, Chief Executive Officer and Chairman of the Board until January of 2016, when he retired to spend more time with his family and pursue his many outdoor interest. He continued to work with NCM as a consultant from January 2016 until January 2018. After many years as a theatre company executive, Kurt Hall has found NCM and was instrumental in building it from the ground up, taking NCM from a media startup to a mature public company. He brings an unmatched level of experienced insight, historical perspective and the industry relationships at the table, and I’m pleased that he’s back on the NCM Board. We are continuing our CEO search to identify a visionary leader, who can capitalize on the strengths of our company and our unique cinema advertising medium and innovate around NCM’s core business to ensure that we’re best positioned for sustainable, profitable growth and value creation for our advertising partners and shareholders alike. We are actively interviewing candidates for this role, and we believe it’s important to take the necessary time to find the right fit for NCM. While we look for our next CEO, Cliff has been doing a great job in leading our company as Interim CEO and continuing to spearhead our media sales strategy. Cliff has also intimately been involved with our CEO search and will play an important role to ensure a seamless leadership transition when a new CEO is hired. With that, I’ll turn it over to Cliff for a few remarks on the business before Katie reviews the financial results for the fourth quarter and full-year 2018.

[Clifford Marks:]

Thanks, Tom, and thanks to everyone for joining us on today’s call. I will be reviewing the company’s fourth quarter and full-year 2018 operating results and highlights. And Katie will then provide a more detailed discussion of our financial performance and our 2019 revenue and adjusted OIBDA guidance. As always, we will then provide time for questions you may have. Our year began very strong with solid Q1 and Q2, but Q3 saw several clients shifting their spending to Q4. While we couldn’t totally capitalize on this high Q4 demand due to an unusual film slate rating mix, it has set us up strong for 2019. I’ll now walk you through fourth quarter of 2018. Despite the film mix challenges, demand was strong. Total revenue for the fourth quarter only decreased 2.3% from last year’s fourth quarter, which happen to be the second highest fourth quarter in our history. Our national sales revenue decrease of 3.7% versus fourth quarter 2017, excluding beverage was related to a higher percentage of the box office being generated by G and PG films like Mary Poppins rather than the PG-13 and R films like last year’s Star Wars, which were in higher demand by our advertising clients. So while our national sales team did great and we saw a strong demand for our inventory, especially in PG-13 and R categories, we just didn’t have enough impressions to satisfy demand in those ratings. Also, while attendance was up 3.7%, overall in fourth quarter, a sharp decrease in attendance in the last two weeks of December compounded the unfavorable ratings mix and adjusted in a record $8 million make-good, without which we would have been within the higher-end of our revenue guidance. Due to the high incremental margins of our national business, the shift of revenue in Q1 2019 contributed to an adjusted fourth quarter OIBDA decrease of 7.7%. The good news is that, this is only a timing issue, as those makers will benefit our Q1 2019 national revenue, which is currently trending above this year same time last year, which was a record Q1 2018 in advertising revenue. As a result of all the changes we’ve been making to the right – to right-size our local and regional sales structure, our team has began to turn things around in the fourth quarter, as revenue increased just under 1% versus fourth quarter 2017. Let’s talk about full-year 2018. 2018 reflected a year of progress on several fronts. Our national advertising business rebounded nicely over 2017, as we made significant strides in growing our national ad categories, including telecom, digital entertainment and online media, military and pharmaceutical. We also continue to strengthen our ability to provide marketers with digital extensions of our core business as we made our Noovie Digital ecosystem much more robust with the roll out of our augmented reality app, Noovie Arcade and the alpha release of our noovie.com, which I’ll get into more in a minute. Total revenue for full-year 2018 increased by 3.6%, but an increase in theatre access fees related to higher industry attendance and some one-time operating and administrative costs, resulted in only a small increase in adjusted OIBDA. Katie will discuss these higher costs in more detail later in the call. Our national advertising sales team had a very strong year overall, as national revenue grew by 5.3% versus 2017, excluding beverage. As the team expanded several key client categories and leverage a strong scatter market that continues to break closer and closer to campaign air dates. The $15.7 million increase in national advertising revenue was due primarily to a 2.2% increase in national advertising CPMs, excluding beverage and a 3% increase in impressions sold. The increase in impressions sold was primarily related to a 7.5% increase in network attendance, partially offset by a decrease in national inventory utilization from 118.5% in 2017 to 113.5% in 2018. The increase in national advertising CPMs was due primarily to an increase in scatter market demand and the completion of more contracts closer to the advertisement air dates, which are typically sold at higher CPS. We welcomed over 42 national brands to our Noovie pre-show in 2018 from top categories, including financial products and services, hotels and resorts, insurance, pharmaceutical, telecom, software and notably, digital entertainment and online media, which was up over 50% in the last – 50% in the last year and becoming an increasingly important category for us, as these brands are replacing more traditional entertainment media advertisers on the big screen. We’re also continuing to aggressively participate in the 2018/2019 upfront marketplace. And it’s worth noting that we are already pacing 13% ahead of our 2017/2018 upfront. This strong upward pacing is due to a fewer, but a larger 2018 scattered market customers placing significant 2019 dollars upfront, as they’ve come to recognize the value of locking up key cinema inventory in advance to align with our marking priorities. While our 2018 local and regional sales were down 1.9% versus 2017, as mentioned, we finished the year up as the changes we made to our sales team structure and selling strategies began to take hold. We had an 8.7% decrease in total contract volume, partially offset by a 6.2% increase in average contract value. The decrease in total contract volume was primarily related to the decrease in the number of contracts over $100,000 within the automobile and airline categories compared to the previous years. We have realigned our regional sales team to continue to build on the success of our National Spot TV strategy, as Spot buyers are increasingly turning to cinema in the Mediaocean and free world systems for media planning and buying to make up for their last [era piece] [ph] due to declining TV ratings. Also, with a leaner and more focused local sales team now in place and some growth already evident in first quarter, we have turned the corner and are optimistic that both our local and regional business as we head into 2019. The expansion of our Noovie Digital ecosystem to support our core on-screen business continue to be a bright spot throughout 2018, as nearly 43% of our national and 30% of our local and regional ad buys included a digital component. This is nearly 12% and 8% increase in our national and regional/local integrated ad buys, respectively, over 2017 and is proof that our digital products are helping to drive our core high-margin on-screen ad business. These integrated packages continue to be increasingly popular with advertisers and have helped us led several major on-screen buys from advertisers who are looking to engage more directly with our young, hard to reach movie audience throughout their online, mobile and in-theatre movie going experience. As mentioned earlier in the past, we launched Noovie ARcade, the revolutionary new companion app for Noovie pre-show the lets audiences play big screen interacted augmented reality games on their mobile phones. The biggest plan in the entertainment industry took advantage of this opportunity as moviegoers nationwide played along with Walt Disney Studios, Wreck-It Ralph in a new Wreck-It Ralph Breaks the Internet game, our first studio collaboration and an industry-first in-theater AI activation. Noovie ARcade now has been downloaded nearly 2 million times and that figure will continue to grow as we introduce new ARcade games and experiences in 2019. We also began a soft launch roll out of noovie.com, which will serve as our official Noovie search and discovery platform for movies and games, with more unique and interesting movie content being added everyday. And we’re currently working on a new Noovie Trivia game that will be rolled out in the first-half of 2019. Trivia [ph] remains one of the top gaming request from our young and games movie audiences according to our research. By having a suite of newly digital owned and operated properties, it allows us to capture unique and valuable first-party movie audience data that will also increase the operating margins of our digital revenue. And speaking of audiences, we reached an even larger cinema audience in 2018, growing our national theater network footprint over 21,100 screens and 750 million attendees as of the end of year 2018. We welcome several new affiliates such as Pecan Pie Productions and its independent theaters, Regal Cinemas, Foundation Stone Theaters and West Mall Theatre to America’s Movie Network. As you may have seen yesterday, we also just renewed our long-term affiliate partnership agreement for Movie Tavern theaters and that has recently been acquired by Marcus leaders. I’m very happy to be working alongside Rolando and his team to continue to bring the Noovie pre-show to these terrific Movie Tavern by Marcus Diamond theaters. We significantly strengthened our leadership team in 2018, with the addition of Senior Vice President and General Counsel, Sarah K. Hilty; Chief Digital Officer, Rick Butler; and Vice President Digital Ad Sales, Jerry Canning. 2018 was also significant for NCM on the financial side as we prepaid some of our debt for the first time since we became a public company. We intend to continue to opportunistically pay down debt going forward, while maintaining financial flexibility and deliver a sustainable dividend for NCM stockholders. We also currently have enough net cash available to cover five quarters of dividends in NCMI, with $0.90 per share of cash on hand at the end of 2018, $0.90 per share of cash on hand at the end of 2018. Katie will go more into that detail shortly. While there were some changes to our leadership and ownership in 2018, we continue to to bring value to our clients and shareholders. It was perhaps no [indiscernible] confidence in the future of our business than demonstrated by Cineworld and Cinemark’s increased investments in NCM this year. We are pleased to deepen the collaboration with two of our founding members on our future business plans and strategies for continued financial growth, while continuing to work closely with AMC and servicing their cinema advertising needs under our Exhibitor Service Agreement, which has approximately 18 years remaining. I’m also pleased that our management team stayed focused on growing revenue and adjusted OIBDA and improving our long-term prospects by continuing to increase and diversify our customer base and invest in our digital products to create an important extension of our core on-screen business. I look forward to 2019 and beyond as I work with Tom and our Board to bring on a new CEO and with our exhibitor partners to continue to drive our strategic vision of leveraging our unique position in the media marketplace as the connector of brands to highly desirable movie audiences throughout their entire moviegoing experience. And with that, I’ll now turn the call over to Katie to give you more details about our Q4 and full-year operating performance and talk about our 2019 guidance estimates. Katie?

[Katherine Scherping:]

Thanks, Cliff. I’ll walk through the results that Cliff highlighted in a further detail, discuss our thoughts on the quarter and year, as well as our outlook for 2019, then we’ll open the call for your question. We’ll be providing a supplemental presentation of these results on our website for your future reference. For the fourth quarter, our total revenue decreased 2.3%, or $3.3 million to $137.4 million versus $140.7 million in Q4 2017, driven by a 3.7%, or $3.8 million decrease in national advertising revenue, partially offset by a 0.9%, or $300,000 increase in local and regional advertising revenue and a 2.7%, or $200,000 increase in beverage revenue from $7.2 million to $7.4 million. Total Q4 2018 adjusted OIBDA decreased 7.7%, or $6.4 million to $76.2 million from $82.6 million in the fourth quarter of 2017 and adjusted OIBDA margin decreased to 55.5% from 58.7% in Q4 2017. The decline in adjusted OIBDA was driven by a decrease in the high-margin national business. As Cliff mentioned, we ended the year with an $8 million make-good, which was a record for us, but it also served to mute the impressive sales efforts of our team towards the end of the year since the impressions were not there to deliver the revenue. We do expect to fully deliver on this make-good in Q1. In the fourth quarter, we recorded $8.1 million of integration and other encumbered theater payments from Cinemark and AMC associated with Rave Theatres and Carmike Theatres versus $9.3 million in Q4 2017 and $21.4 million for 2018, compared to $20.9 million earned in 2017. As a reminder, these integration and other encumbered theater payments are added to adjusted OIBDA for debt compliance and partnership cash distribution purposes, but are not included in reported revenue or adjusted OIBDA as they are recorded as a reduction to net intangible assets on the balance sheet. Our Q4 2018 advertising revenue mix was 71% national, 24% local and 5% beverage versus Q4 2017 that was 72%, 23% and 5%, respectively. Q4 national ad revenue decreased 3.7% versus Q4 2017, primarily related to a 5.2% decrease in CPM, a 0.6% decrease in impressions sold, partially offset by an increase in branded content revenue. The decrease in impressions sold was a result of a 3.9% decrease in inventory utilization to 127.1% from 132.3% in Q4 2017. This was partially offset by a 3.5% increase in network attendance. Q4 local and regional ad revenue rebounded from a Q3 performance and increased 0.9%, or $300,000 versus the fourth quarter in 2017 and was driven by a 12% increase in average contract value, partially offset by a 10% decrease in contract volume due to decreases in the volume of contracts over $100,000. Q4 beverage revenue increased 2.8%, or $200,000 versus Q4 2017, driven by a 2.2% increase in founding member attendance and a 1.1% increase in beverage CPM. For the full-year, our total revenue increased 3.6%, or $15.3 million to $441.4 million from $426.1 million in 2017. Adjusted OIBDA slightly increased $300,000, or 0.1% to $205.4 million from $205.1 million in 2017, while adjusted OIBDA margin decreased to 46.5% from 48.1% in 2017. The dollar increase in adjusted OIBDA is driven by growth in high-margin national advertising revenue due to a significantly stronger scatter market, up 27% in 2018 compared to last year. Note that 2018 adjusted OIBDA results include $1.4 million of non-recurring legal and professional fees related to our settlement with standard general and a 7.6%, or $5.5 million increase in theater access fees, which are driven by founding member attendance related to the robust box office in 2018; and a 15.8%, or $4.3 million increase in affiliate fees related to our increased revenue in new affiliate partnerships this year. 2018 saw $1.5 million less capitalizable internal labor due to many of our internally-developed systems, reaching a maintenance phase in 2018 from the development phases for internal labor with capitalized on previous years. Finally, we incurred $300,000 of expenses related to our Denver headquarters office move in the spring of 2018. Full-year 2018 national ad revenue increased 5.3% due to a 2.9% increase in impressions sold and a 2.2% increase in CPM. The increase in impressions sold was driven by a 7.5% increase in network attendance, partially offset by a decrease in the utilization to 113.4% from 118.5% in 2017. Finally, to reiterate again, our quarter-end make-good balance was a record $8 million versus $5.5 million a year ago. For the full-year, local and regional ad revenue decreased 1.9%, or $1.9 million versus 2017. The increase in advertising revenue was driven by an 8.7% decrease in contract volume, partially offset by a 6.2% increase in average contract value. The decrease in total contract volume was primarily related to a decrease in the number of contracts over $100,000 within the automobile and airline categories in 2018, compared to 2017. Full-year beverage revenue increased 5%, or $1.5 million versus 2017, driven primarily by a 6.5% increase in founding member attendance and a 1.1% increase in beverage CPM. Looking briefly at diluted earnings per share for the fourth quarter, we reported GAAP diluted EPS of $0.21 versus EPS of $0.30 in Q4 2017. As adjusted for CEO transition cost and the impact for tax reform, diluted earnings per share for the fourth quarter of 2017 would have increased to $0.23, while the fourth quarter of 2017 would have decreased to $0.13 per diluted share. For the year, we reported GAAP diluted EPS of $0.37 versus EPS of $0.48 for 2017. As adjusted for CEO transition costs, the reversal of uncertain tax positions, early lease termination expense and the impact of tax reform, diluted EPS for 2018 would have remained $0.37 versus the EPS of $0.29 for 2017. Our capital expenditures for 2018 were $15.4 million versus $12.3 million for 2017, driven by a $6.9 million investment in our digital ecosystem, compared to $1 million a year ago, as well as a $1.8 million in 2018 for the growth cost of relocating our corporate headquarters. We plan to continue to invest in our digital product in 2019 at similar levels. Moving on to our balance sheet. Our total debt outstanding at NCM LLC at the end of 2018 was $931 million versus $932 million at the end of 2017. A revolver balance at the end of the fourth quarter in 2018 was $27 million versus $12 million outstanding at the end of the fourth quarter in 2017. Our average interest rate on outstanding debt was approximately 5.7% at the end of Q4, including our $269.4 million floating rate term loan bank debt. 68% of our total debt outstanding at the end of 2018 had a fixed interest rate. In Q4, we repurchased and retired $7.4 million of our 2026 senior unsecured bond for $7 million. We were able to repurchase these notes at a discount averaging 5.3%. For the full-year, we repurchased and retired $15 million of our 2026 note that will have annual interest rate savings of approximately $870,000, or $6.7 million over the remaining life of the bond. We may continue to opportunistically pay down debt as part of our strategy to maintain financial flexibility in a sustainable dividend to our stockholders. Our total net leverage at NCM LLC as of the end of the year was approximately 4.2 times trailing four quarter adjusted OIBDA plus integration payments versus 4.4 times in Q4 2017, which is well below our consolidated net total leverage maintenance covenant of 6.25 times. Our consolidated net senior secured leverage ratio was 3.1 times versus the covenant of 4.5 times. Our consolidated cash and investment balances out of Q4 2018 increased by approximately $16 million to $76 million from the end of Q4 2017, with $69 million of this balance at NCM Inc. We announced today that the Board of Directors have authorized the company’s regular quarterly dividend of $0.17 per share of common stock. The dividend will be paid on March 19, 2019 to stockholders of record on March 5, 2019. The dividend level was determined based on our plan to invest in the business over the next few years, while providing financial flexibility. The company intends to pay a regular quarterly dividend for the foreseeable future at the discretion of the Board of Directors consistent with the company’s intention to distribute over time a substantial portion of its free cash flow. The declaration, payment, timing and amount of any future dividends payable will be at the sole discretion of the Board of Directors, who will consider general economic and advertising market business conditions, the company’s financial condition, available cash, current and anticipated cash needs, and any other factors that the Board of Directors consider is relevant. Our annual dividend yield is currently 9.7% based on today’s closing share price of $7.02. Now turning to guidance. For the full-year 2019, total revenue is expected to be up between 1.9% and 5.3% versus 2018, or in the range of $450 million to $465 million. Adjusted OIBDA is expected to be up 1% to 5.6%, or in the range of $207 million to $217 million. Looking deeper into our adjusted OIBDA guidance for 2019, there are a couple of factors to consider. Our continued investment in our Noovie Digital ecosystem includes an additional $3 million to $4 million in operating expense on top of the expense we incurred in 2018. We expect these investments to generate incremental revenue for the second-half of 2019 and accelerating into 2020 and beyond. This includes the launch of our search and discovery platform for movies and games, noovie.com, and the roll out in the first-half of 2019 of our Noovie Trivia game. The contractual increase of 5% in theater access fees for our digital screen fees is expected to impact adjusted OIBDA by approximately $2.7 million in 2019. It should be noted that [combat these are] [ph] inflationary pressures and increased digital investments, management has actively worked to optimize the cost structure of the business by reducing total headcount from 647 people at the beginning of 2016 to 538 at year-end 2018. In addition, the following are other assumptions that were made in preparing the projections that underlie our 2019 guidance. We project beverage revenue to be flat to up 1% on a CPM increase of approximately 0.7%. We expect to receive $21 million to $23 million of integration payments and other income with theater payments from Cinemark and AMC associated with Rave Theaters and Carmike theaters. We expect 2019 CapEx to be in the $15 million to $16 million range, or a little over 3% of revenue. The digital capital investment portion will be $7 million to $8 million to invest in our Noovie digital platform and products and approximately $1 million related to additional capitalized labor. We expect 2019 interest on borrowings to increase approximately $3 million to $57 million, driven by higher average interest rates, partially offset by lower average debt outstanding, which includes approximately $54 million of cash interest and $3 million related to the non-cash amortization of deferred loan costs. Turning now to NCM LLC’s available cash calculation for 2019. Starting with our adjusted OIBDA guidance of $207 million to $217 million, you’ll add the following as a build to available cash. One, integration payments of $21 million to $23 million; two, cash payments from the Fathom note receivable of $5.7 million. Note, this is the last year we will receive payments for this note receivable. As a reduction to available cash, we will subtract the following

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Eric Handler with MKM Partners. Please proceed with your question.

[Eric Handler:]

Yes. Good afternoon, and thanks for taking my question. Katie, I wonder if we could just talk a little bit about the guidance and let’s just for round number purposes assume revenue of 2% to 5%. How much of that do you feel will be national versus local or maybe what will be stronger? And then as you think about your national outlook for the year, do you expect it to be driven more by CPMs or utilization?

[Katherine Scherping:]

So the mix, we don’t really expect to see change materially. So still about 70%, 71% national, 25% – 24%, 25% local/regional and the balance is beverage. From a national perspective, a lot of that depends on the pricing for CPM-wise. Scatter was very strong in 2018. We see a lot more money upfront in 2019. We set our upfront as up a little bit more. So that will put a little bit of pressure on CPM depending on where the scatter market ends up for the full-year. So on a national basis, I would say, CPM is up a little bit, but it all depends on the mix during the year.

[Eric Handler:]

Okay. And then as a follow-up. As we think about your first quarter, which is normally the slowest quarter of the year, you’ve got $8 million of make-goods coming through, which I imagine should help your utilization quite a bit and maybe leave you with less impressions to sell, is that a fair impression to – is there a fair statement to make?

[Katherine Scherping:]

I would say, Q1, we always have a lot of inventory, and we’re not worried about being able to both deliver on the make-good, as well as be able to sell into all the available inventory that we want to sell into.

[Eric Handler:]

Okay, great. And then one last quick question. As far as the affiliates are concerned for 2019, are there any plan new affiliates joining the network in the year, or how should we think about that?

[Tom Lesinski:]

This is Tom. I can talk about that specific question. Typically, we don’t comment on active discussions that we’re having with affiliates. We’re always evaluating new ones. So we don’t want to go on the record to talk about that at this point on this call.

[Eric Handler:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Mike Hickey with The Benchmark Company. Please proceed with your question.

[Mike Hickey:]

Hey, guys, congrats on a quarter and year. Thanks for taking my question. Just to clarify Q1, obviously, you have a solid make-good here. Consensus is a little bit below Q1 2018. Should we think of Q1 is growing this year over prior year?

[Katherine Scherping:]

Yes, Mike, we already – where we sit today versus where we were a year ago, we’re trending higher. So we’re really optimistic about Q1 of 2019.

[Mike Hickey:]

Good. Okay. The – obviously, you have an active CEO search. It sounds like you have a few candidates I’m guessing, maybe we have someone new in the position here short-term. But curious if any visibility on timing? And also sort of wondering, as you hit your numbers in 2018, cash looks good. We do think that you’re guiding to some growth in 2019 in both sales and OIBDA, just sort of how you reflect on your current strategy if you think that’s working that can sustain profitability, you sort of moving in the right direction and the investments that you made and how that sort of fits into a new CEO coming in, and any sort of visionary investment plan that they may have? Thank you.

[Tom Lesinski:]

This is Tom. The – right now, we’re not going to comment specifically on the timetable that we have for a CEO, but we’re optimistic that we’ll have at least a candidate identified sometime in May. Having said regarding your strategy question, we’re happy with the current strategy, and we know it’s doing well to drive at a business, both this year and going into next year. Having said that, our expectations is that a new CEO will add his own nuances and his own ideas going forward. So, [at order] [ph] for that matter, sorry. Thank you, Katie.

[Mike Hickey:]

Okay.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Jim Goss with Barrington Research. Please proceed with your question.

[James Goss:]

Thanks. One more thing about the make-goods issue and the development of it in recent quarters. Were there any particular issues you thought that drove the necessity from make-goods? Was it ad positioning or anything else should point to that created it? And well, maybe first go with that?

[Clifford Marks:]

Yes, it’s Cliff, I’ll answer that. The make-good issue was primarily a result of the last two weeks of the year, the box that we had projected didn’t achieve our numbers. So that was really what drove it for the – drove it up to $8 million.

[Tom Lesinski:]

…in addition to the ratings mix.

[Clifford Marks:]

Yes. For sure, the ratings mix made a big difference. When you lose this – when you have a lot less PG-13 in our content, you have more G and PG, that kind of put us in a little bit of a tougher sales position as well for sure.

[James Goss:]

And that – this is one time where the make-goods actually did pursue and that you couldn’t make up for – with either better pricing for the other available inventory or pushing it out to the next quarter when you had the available slots, where would it really had an impact?

[Clifford Marks:]

That’s true. Just the last two weeks should you know, you don’t have the opportunity to make-good in a year.

[James Goss:]

Okay. The other thing – you laid out a pretty compelling argument that there shouldn’t be any risk to the dividend, given that your leverage has declined and you have quite a bit of cash on the books. But as Katie was outlining, how you get to the cash available to pay the partners and pay dividends. I’m just wondering where the – are there any categories that aside from OIBDA, I guess, that she should be at risk or benefit as we’re looking out to give some assurance that you don’t really have a big concern about a dividend cut since, I think that’s very important to investors in the stock?

[Katherine Scherping:]

So, Jim, even – with the guidelines that I laid out with available cash, if you do the all – the math all the way down, the payout ratio of cash coming in this year to the dividend of $0.68 pays out somewhere an average of about 80% of the total incoming cash flow to NCMI. So I don’t – there’s no risk there. Ecos is potentially as high as 90% payout is depending on what your mix of those items or those variables that I outlined. But you could be anywhere between 90% and 70% payout, but we feel like it’s probably close to the 80% on average, which is a very comfortable dividend payment at NCMI.

[James Goss:]

Okay. And for the most part, it seems like you tried to match up what investors and NCMI get relative to what the founding members get. Is that sort of a conscious decision or kind of something that you try to do?

[Katherine Scherping:]

Well, we just want to illustrate kind of the cash flow coming from the partnership up to the three founding member – up to the founding members, Regal and Cinemark and then NCMI, so that everybody can do the math equally on whether adjusted OIBDA numbers in our models are coming out. So that flows all the way through to giving them confidence again that – with that dividend number.

[James Goss:]

Okay. And then last question, you made a special mention of Kurt’s involvement now at the Board level, which I’m glad to hear of quite frankly also. Is there anything special you expect him to bring aside from just being a regular working member of the Board?

[Tom Lesinski:]

I would say that, Kurt brings just an unbelievable wealth of history and experience in the company, both from a financial side and from an affiliate and exhibition side. So he’s going to involved across the company. But I think you know what his strengths are from all the years of working with them and we’re really happy to have him as one of our leaders on the Board going forward.

[James Goss:]

All right. Thanks.

[Operator:]

Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Marks for any closing remarks.

[Clifford Marks:]

Thanks, Michelle. We’ve made great progress on our overall strategy in 2018. In the past year, we continued to introduce new Noovie Digital products and to enhance our core business, pay down debt, strengthened our relationship with our exhibitor partners and continue to pave the way for growth for long-term growth into the future. With the first quarter already looking strong and an exceptional films like coming for the rest of the year, we continue to feel very optimistic about 2019. Thank you for participating in our Q4 and full-year 2018 earnings call, and I’ll see you at the Noovie’s.

[Operator:]

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.