National CineMedia, Inc.

Good day, and welcome to the National Cinemedia Inc. Q1 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Chan Park, VP of Finance. Please go ahead.

Good afternoon. I'm joined today by our Chief Executive Officer, Tom Leszczynski, and our Chief Financial Officer, Ronnie Ng. I'd like to remind our listeners that this conference call contains forward-looking statements within the meaning of 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. 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 relief or on the investor relations page of our website at ncm.com. Now, I'll turn the call over to Tom.

Thank you, Chan, and good afternoon, everyone. Welcome to our first quarter 2024 earnings call. The first quarter of 24, once again, demonstrated that consumer demand for the movies is strong. The domestic box office brought in $1.6 billion this quarter, exceeding expectations and ending with great momentum, showing areas of strong performance and enduring interest in cinema. Films such as Dune Part II and Kung Fu Panda IV led the box office during the quarter, bringing in $400 million collectively. Dune II's opening of $82.5 million was more than double the box office opening of the original Dune film. Additionally, several titles performed better than estimates, including Mean Girls and Bob Marley, One Love. Mean Girls eclipsed studio projections by 40% in its opening weekend, while Bob Marley, One Love finished nearly 70% above its first week projections. Additionally, this quarter we saw continued consumer interest in non-traditional content, including Cabrini and the fourth season of the Chosen series. Meanwhile, other titles were very successful in reaching targeted demographics, including Kung Fu Panda, where 56% of the audience was comprised of families, and the Demon Slayer sequel, which attracted an audience where 77% of the moviegoers were of diverse ethnicities. Although the first quarter reflected the lingering effects of the industry strikes, including limited product availability and postponed releases, a wide range of films delivered outsized results. Film production is up and running again, and we are optimistic about the growth of film volume in the coming years. While it is typical for the first quarter to be seasonally low for advertising, we are encouraged that NCM experienced strong revenue as the box office continues to recover. we have consistently proven that as a result of our differentiated offering and high ROI for advertisers, that our revenues are more resilient despite the overall advertising climate being slower as a whole. Additionally, as we look across the advertising industry, we have continued to see speeding bounce back across several categories, and coupled with the resilience of consumer spending, we expect a more significant rebound in the coming quarters. In the first quarter, NCM attendance was 75.8 million. As previously mentioned, the first quarter attendance levels were largely impacted by strike-related delays, which pushed titles like The Fall Guy and It Ends With Us and others out of the first quarter. These changes to the slate negatively impacted attendance by approximately 11 million. If these films had not been postponed, we estimated that our total first quarter evidence would have been on par to 23 levels. As we've noted on prior calls, when the movies are there, audiences consistently show up to the cinema due to its diverse range and wide array of highly anticipated releases. U.S. box office hits cater to all demographics and movie lovers in the quarter. Our core demographic, Gen Z millennials, represented 76% of our viewership in the first quarter, with a cumulative reach of approximately 35 million individuals. During this period, Gen Z compromised 44% of our audience, demonstrating a robust average weekly rating of 5.5, up 8% year over year. This rating continues to surpass other premium video offerings, including the current NBA playoffs, which draw an average of around 1.0. These engagement levels demonstrate Gen Z's interest in the theater experience, and reinforce why the biggest brands continue to turn to NCM to engage these hard-to-reach, young, diverse audiences. Turning to our results, NCM's first quarter 24 total revenue was $37.4 million, up 7.2% year-over-year, representing the highest first quarter revenue NCM has reported since before the COVID-19 pandemic. We are particularly pleased with these results given that the box office was actually down nine, nearly 7% compared to the same period of 23, reaffirming the appeal of our offerings, improving our ability to perform through different market conditions. More specifically, national revenue for the first quarter was up 31% compared to the same period in the prior year. Approximately 70% of the first quarter's national revenue was attributable to longer term of print commitments up nearly 16% compared to the same period in 2023. Success in the scatter market continued to drive revenue growth, utilization, and pricing in the first quarter, with scatter revenue of $8.8 million doubling year over year. Further, additional scatter inventory helped drive incremental revenue as movie attendance began to surpass expectations. Advertisers in the travel industry in particular continue to recognize the value of the movie-going audience, as travel advertisers compromised approximately 24% of total NCM national ad spending this quarter, up 41% year-over-year. Government spending also demonstrated strength, both nationally and locally, almost double compared to the prior year. Additionally, business outcome and attention metric-measured deals continue to drive growth in historically underrepresented cinema ad categories, including pharma up 142% year-over-year and CPG up 165% year-over-year. Our platinum advertising offering experienced growth as well this quarter. For those unfamiliar with platinum ads, they play after the announced showtime, ahead of the movie, right before the last two trailers typically, and have a longer runtime than a conventional 30-second TV spot. With more than $2.5 million of Platinum commitments, this was the best first quarter performance since we introduced Platinum back in 2019, up more than 130% compared to the first quarter of 2023. Longer form branded content in the first quarter also opened up additional avenues for advertisers to tell their brand stories, including the 15-minute short film from a leading cosmetics company that debuted ahead of the Mean Girls movie on January 12th. We are seeing these success metrics lead to greater appetite from advertisers to go beyond the traditional 30-second unit in future quarters. Additionally, we welcomed our latest courtesy partners who sponsored the silence your cell phone messaging prior to the trailer pack. This quarter, we made significant progress with data-driven, advanced targeted campaigns resulting in wins across various categories including retail, auto, and pharma. The positive impact Our advertising has on brands demonstrates why they continue to turn to NCM. One example is a leading auto brand that saw 22% lift in foot traffic to dealerships during a campaign, with 69% of visits occurring within five days of seeing the ad in theater and 53% of the visits within five miles of the theater. On a different note, for the past nine years, NCM has served as the U.S. representative of the Cannes Lions International Festival of Creativity, the most prestigious advertising award show in the world. This year, we announced that we are launching an official network with the U.S. Lions community, which will offer ongoing value as a vital hub of collaboration, thought leadership, and career growth opportunities to U.S. brands, agencies, media companies, and other organizations within the advertising industry. We also kicked off the start of 24 with NCM's new tagline, We Get Audiences, to better align with our evolution as a premium video advertising platform that reaches young, diverse audiences at scale. As you may know, NCM has been at the forefront of revolutionizing cinema measurement through our data intelligence platform, NCMX. Today, NCMX is the most powerful data platform in cinema, with heightened data intelligence driving strong business outcomes, and we are continuing to enhance its capabilities. Our new brand encompasses how we charge Transforming Cinema into a modern, full funnel media initiative that delivers brand building and performance marketing solutions and signals our continued commitment to innovation. As we look ahead, we're continuing to focus on our expanded solutions for our clients. February 24 marked the official launch of NCM's on-screen programmatic offering. Our programmatic platform provides additional opportunities for current NCM customers to seamlessly purchase incremental cinema audience on an as-needed basis. The new offering has now positioned cinema to serve as an attractive option for advertisers who have not historically purchased cinema on a direct basis, enabling NCM to access different agency buyers and parts of client budgets that were previously unavailable. We're seeing strong momentum with these offerings and have successfully secured programmatic guarantee deals that include business outcome measurements. During the first quarter, A total of 15 advertisers purchased programmatic offerings, ranging from small local government buys to well-known national advertisers. As we look to the remainder of the year, we have nine programmatic deals in the pipeline and two deals that have already closed in the second quarter of 24. We are continuing to build on our programmatic pipeline and actively looking at integrating with additional supply-side platforms to further increase our coverage. We are also seeing positive results with our new self-serve offering and are continuing to redefine the movie experience for advertisers throughout through sponsored content, alternative distributions, and experiential activations. According to research conducted by the Video Advertising Bureau, 89% of moviegoers eagerly anticipate a new movie and 95% of moviegoers recommend seeing a movie in theaters to friends and families based on these experiences, proving consumers are looking for a way to connect participate and share these experiences with others. Experiences remain the most prized possessions and no industry better exemplifies this phenomenon than the theater. NCM has seen firsthand the positive impact of the rise of the experience economy, amplifying the opportunity for brands to reach highly sought after audiences. Let's move on to guidance. For the second quarter of 2024, NCM expects to earn total revenue of $49.5 million to $51.5 million. We have already seen strong performance from Godzilla vs. Kong, The New Empire, and Civil War, and look forward to several upcoming major releases. Based on our first-hand experience at screenings at CinemaCon last month in Las Vegas, there is a lot to be excited about with the diverse 2024 movie slate. both original content and sequels, such as Deadpool 3, Inside Out, Gladiator 2, Joker 2, Mufasa, The Lion King, Despicable Me 4, Venom, Mad Max, the list goes on and on, including prequels like Twister and Kingdom of the Planet of the Apes, Wicked and If. Looking to 25, we expect the box office will pick up where 23 left off, given the number of high-profile films that have been pushed into that year, including Avatar 3, Superman, Mission Impossible 8, Wicked Part 2, Captain America, Brave New World, Snow White, Jurassic World 4, and many, many more. Last quarter, importantly, we announced a new $100 million share repurchase program, which runs through 2027, representing our confidence in our business now and into the future. Since then, our business has continued to perform. In fact, we reported free cash flow of $22.6 million marking the highest figure in the past 15 quarters. Given these results, we initiated share repurchases in the first quarter following the announcement. Ronnie will discuss this in greater detail later in the call. NCM continues to lead the cinema advertising business, launching impactful offerings to its advertisers, including business guarantees, programmatic, AI, transforming cinema advertising into a modern, full funnel media solution. There's no doubt that consumers are enthusiastic about experiencing films in an elevated cinematic setting, and cinema continues to be the premium video platform for consumer attention. We are encouraged by our momentum as we look ahead to the remainder of 24 and into 25. With that, I'll turn the call over to Ronnie to provide you with more details on our operating results and future outlook.

Thank you, Tom. And good afternoon, everyone. The first quarter was a solid start to the year, exceeding our expectations with improved revenue and profitability. Despite the first quarter being seasonally slow for both advertising and movie attendance, we are pleased that our key fundamentals continue to improve as revenue per attendee reached 95% of 2019 and inventory utilization surpassed 2019. These improving fundamentals led to national advertising being up 31% and advertising revenue per attendee up 35% when compared to the same period the prior year. Our ability to capture additional revenue per attendee and discipline expense management resulted in another quarter of stronger than expected adjusted EBITDA. First quarter 2024 total attendance also surpassed our expectations, largely due to the late additions of 17 titles with an opening weekend box office greater than $1 million. We were also able to drive higher monetization of impressions as a result of stronger demand in both the upfront and scatter markets. Utilized impressions per attendee increased 62% in the first quarter when compared to the same period the prior year. Despite lower year-over-year attendance in the first quarter due to the writers and actor strikes, we were able to significantly increase total advertising spend from certain key advertisers. The top 10 national advertisers from this quarter increased their spend by over 28% collectively compared to the first quarter of 2023. We saw strong growth across a number of traditional categories such as wireless, insurance, consumer packaged goods, and pharmaceutical. Although we continue to navigate through a choppy advertising market, We experienced growth in both the upfront and scattered markets due to improved utilization and firm pricing discipline throughout the quarter. In fact, the utilization for the quarter was 12% above 2019, while maintaining similar pricing levels. NCN's total revenue for the first quarter was $37.4 million, up 7% year-over-year. in exceeding our revenue guidance of $34.5 million to $35.5 million. National advertising revenue increased to $29.5 million compared to $22.5 million in the first quarter of 2023, driven by a 62% increase in national advertising utilization year over year, as well as a slight increase in national CPMs. Local and regional advertising revenue was 5.3 million, down 34% compared to 8 million in the first quarter of 2023. This was driven primarily by a 16% decrease in attendance due to a reduced movie slate as a result of the writer and actor strikes in 2023, and certain prior sales in government and travel categories not returning in the first quarter of 2024. Beverage revenue derived from the ESA party's beverage agreement decreased 1.8 million to 2.6 million, or 41%, compared to the prior year. This decrease was due to the termination of the Rego ESA in 2023 and the resulting discontinuation of their beverage revenue, combined with a 9% decrease in the remaining ESA parties' attendance year-over-year. Turning to our expenses. First quarter operating expenses were $60.1 million compared to $65.5 million in the prior year. Operating expenses in the first quarter included one-time charges such as $1.5 million related to our previously announced cost savings initiatives and $2.3 million related to fees and expenses from the company's financial restructuring in 2023. Excluding one-time items, depreciation, amortization, and non-cash share-based compensation, our adjusted operating expenses for the first quarter of 2024 were $43.1 million, 6% lower compared to $45.8 million during the same period last year. The decrease in adjusted operating expenses was primarily driven by lower network attendance, leading to decreased fees due to the ESA parties and network affiliates, coupled with lower personnel and overhead expenses from our cost savings initiatives. First quarter adjusted EBITDA, excluding non-cash charges and one-time items, was negative $5.7 million. of 48% compared to negative 10.9 million in the prior year. This result exceeded our guidance range of negative 7.5 million to negative 6.5 million. Turning to our consolidated balance sheet. At the end of the first quarter 2024, the company has 60.1 million of cash, cash equivalents, restricted cash, and marketable securities. compared to 37.6 million at the end of 2023, while our total debt balance remained unchanged at 10 million. As Tom mentioned, we reported our highest free cash flow in the last 15 quarters. Total free cash flow for the quarter was 22.6 million compared to 9.4 million in the same quarter the prior year. Last quarter, as Tom discussed, we announced that our board approved a new share repurchase program authorizing the company to purchase up to $100 million of shares of our common stock, demonstrating our confidence in the long-term strength of our business and our commitment to deploying capital in a disciplined manner to maximize shareholder value. Since the launch of this program, we have repurchased 649,164 shares for $3.2 million and an average share price of $5. This included the redemption of Cinemark's LLC units of 131,816 units. We plan to continue to opportunistically repurchase shares at prevailing market prices over the next three years, while also continuing to invest capital in growing our advertising network through new innovations such as programmatic and self-serve. Turning to guidance. For the second quarter of 2024, we expect revenue to be between $49.5 million and $51.5 million. In addition, we expect adjusted EBITDA for the second quarter of 2024 to be between $3.5 million and $4.5 million. With a strong financial foundation and unparalleled product lineup, NCM stands poised for future growth. Thanks to minimal capital expenditures, the company is primed to yield substantial free cash flow. With a combination of the share repurchase program and improved attendance monetization, NCM presents numerous avenues to create value for its shareholders. Operator, please open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Eric Wold of B. Reilly Securities. Please go ahead.

Thanks. Good afternoon, Tom and Ronnie. I guess first off, I guess maybe excluding kind of the ebbs and flows of the film slate and any impact that may have on decisions, Maybe talk a little bit about the visibility you're seeing with your advertising partners. Any shifts forward or back in terms of how far out they're willing to book and kind of how confident they are in kind of putting budget to work a quarter or two kind of down the road versus maybe where you stood a year ago?

I guess I would look at it this way, Eric. First of all, thanks for the question. The scanner market has definitely been picking up, and we're seeing – good visibility on that looking ahead in the next couple quarters. But what I would say is that the upfront is really just starting to take off right now, these past couple weeks. And over the next two months or so, we'll get a true indication of the market's bullishness on cinema, which we expect to be really good. It's really the first upfront that we've had since early 2019 that will actually have a unencumbered, non-threatened, non-pandemic affected outlook on the industry. And I think based on how the last couple quarters have gone, we're really optimistic about the commitments that we see people making in the long run against the movie cinema business.

Got it. And then... It's gonna fall up If you think about talking about the philosophy behind Your quarterly guides. I know you're focused on I'm quarterly guidance right now as opposed to Annual give me kind of the the uncertain environment, but maybe kind of what would you frame up? How you how you kind of build up to that guidance is you know Dynamics, it doesn't include what you're with what's included in there around you contractual upfront scatter How much kind of assumptions are you trying to make over the next two months in terms of kind of the real-time demand that comes in versus kind of what's already been booked to this point?

Yeah, so that's a good question, Eric. So like Tom said before, the upfront doesn't, you know, we don't really start getting in some confirmation of the upfront market for another couple of months. And although the scatter market is improving, This year was really difficult for us to kind of get back to annual guidance, just given the unknown of the movie slate while still moving around. Obviously, that's a big piece of providing guidance, not in terms of just the revenue, but also our operating expenses as well. So, we're really looking for a little bit more stabilization there. And we believe in 2025 that will be the case. So I think that coupled with the improved scatter market, you know, kind of tracks well to eventually getting back to giving annual guidance.

Okay. The question is more kind of on the Q2 guidance, you know, quarterly kind of frame up how you're kind of building up that, I guess, with one month in the bag for this quarter. kind of how do you kind of build up the next two months in terms of, you know, what's already been booked for those two months versus, you know, what may be kind of on the come, kind of how much you would kind of put into that.

Yeah, that's a very good question. Sorry. So, quite frankly, we have pretty good confidence right now in sort of the remainder of the second quarter. A lot of that is already booked and in place. I think the trajectory and momentum we're getting in the scatter market obviously gives us a little bit more confidence about what we still need to book. And so we believe most of that is baked into our guidance.

Helpful. Thanks, Ronnie. Sure. The next question comes from Jim Goss with Barrington Research. Please go ahead.

Okay. I was wondering about the national-local mix shift in favor of national. How much did the beverage contract have an impact on that? Can you talk about if you think there will be more of a national flavor going forward?

Yeah, so again, just to be clear, the beverage piece is separate from national and local. So beverage is obviously just tied to the attendance and our contracted CPMs with our ESA partners. In terms of the mix shift that we've seen here in the first quarter, I think, frankly, one, we're seeing a better marketplace for national. Again, just scatter doing much better. So I think that's why you're seeing, call it the increased pace in national. And in terms of local, it's really, as we said in the start of the call, it's really kind of two things that's happened in the first quarter. One is is really the attendance did, the lower attendance on a year-on-year basis for first quarter did negatively affect local sales, quite frankly. And then secondly, there were two notable contracts, mostly from the government space, that did not return. However, with that said, we do expect more of a mixed shift, shifting, at least for this year, a little bit more towards national, just given the confidence that we have in the scattered markets.

Okay, and I know one of your aspirations has been expansion beyond the cinema walls. I wonder if you could talk a bit about what you might expect, what do you think might be most exciting, how and where that would develop.

Jim, I missed the first part of your question. Can you repeat the first part of it?

Well, I think one of the things you mentioned have aspired to is to go beyond just advertising within the cinema to be in some related areas and I'm wondering what you, you know, if any plans are underway to do something like that. I think part of it is you have an ability to track who is where and where they're headed but perhaps there are other things that might be in your plans, and I'm just wondering if you might share any of that.

So we haven't given a lot of specificity around what we might do outside the cinema. You know, we have been in the digital out-of-home space for a couple years now. We're currently active in convenience stores, as well as in other digital out-of-home venues, including college campuses. We've learned a lot about those businesses. We find them as very perfectly corollary to what we're doing. At this point, though, we're focusing the lion's share of our attention really on the cinema business. It's only been a little over half a year since we came out. So we want to optimize really where we are with our existing cinema business. And then as we get through this next up front, I think we can really focus a little more potentially on diversifying the business But right now, our core focus is really on taking advantage of the momentum we have right now, particularly going into the critical upfront period over the next couple months.

Okay. Thank you very much.

You're welcome. Again, if you have a question, please press star, then 1. The next question comes from Mike Hickey with The Benchmark Company. Please go ahead.

Hey, Tom. Hey, Ronnie. Great quarter, guys. Thanks for taking our questions here. I guess the first one, Tom, just curious, kind of two X factors this year. One is the political ad environment, which obviously is going to get nutsy here soon, if it hasn't already. And you kind of wonder if it's going to kind of push out some of the inventory in traditional ad networks. And if you think that you're sort of in a position to benefit from that push out. And I think you're also doing no political ads. So does that sort of give you more of a clean, call it clean medium for your media buyers? And the second piece on that, on the economy, you know, it looks like the consumer is showing a little bit of headwinds here in certain categories. Just curious how resilient you think your top categories are to pull back in consumer spend.

in terms of impacting... Let me handle the first question, then I'll have Ronnie respond on the segmentation on the categories. So political has always been an opportunity for us, but not in the way you would think. What typically happens in swing states, in particular, is local inventory gets sold out. So we have a team of people that are focusing on all of those states and cities and major ADIs knowing that there are advertisers who will be blocked out of local advertising avails. And since we don't offer any political advertising option, we are always looking at how we can take advantage of sold-out inventory. So we're actually pretty optimistic that come November, and even before November, that much of that availability, which will be gone, will benefit us. And in fact, over the last couple elections, we've seen that effect. And it's real, and we know exactly where to go to those states and those ADIs where there are going to be sellout situations. As it relates to the economy and categories that are growing, I think, or declining, it's really tricky to look at a quarter to quarter because it isn't necessarily indicative of a trend. But, Ronnie, you can talk about the various categories and what's growing and what.

Yeah, so I would say just one. In terms of any pullback from consumer spend, I think the last time we've seen a major recession, call it, was back in 2008. The company actually fared fairly well through that recessionary period and was fairly resilient, especially compared to the rest of the media landscape. If we look at kind of our exposures and our typical top ten advertisers, Most of our advertisers are guys that are more stable to consumers that consumers always tend to spend money towards. So we feel we have an advertiser group, especially in the top 10, top 15 advertisers are pretty resilient in and of themselves in terms of their business model. In some of those categories, quite frankly, government is a good one where to spend is typically very stable. The insurance category is another one that's also very stable as well. So we feel we have a stable core of advertisers, frankly, that should be able to weather any type of consumer slowdown.

Nice, guys. Ronnie, on your 2Q guide, can you give us a little bit more color on the decline in revenue? I guess top line's fine. In terms of quarter over quarter, if Q2 last year is a fair comparable or if it needs to be adjusted in terms of understanding your growth outlook, and is this primarily just the presumed weakness in attendance given the slate in 2Q? Is that the major impact that's, you know, driving your guidance to be down year over year or any color, that would be great.

Thanks. Yeah, you're really spot on there. It's really the second quarter guide is more of a reflection of our current expectations of the overall attendance for the second quarter versus the prior year. Again, the slate's meaningfully down. And I think if you actually compared the second quarter slate this year versus last year, you'll see that. So if the attendance were to come in a little bit stronger than our expectation, then, you know, there's a chance for our, you know, for the actual revenue to maybe, you know, come in above that. But frankly, the reflection of our guidance is really driven by the attendance level.

Nice.

Thanks, guys.

You're welcome.

This concludes our question and answer session. I would like to turn the conference back over to Tom Lazinski for any closing remarks.

Well, thank you for your questions and your ongoing support of National CineMedia. Leveraging our unparalleled scale within the industry, NCM maintains its position as a frontrunner in the premium video ad space. And with our highest free cash flow in the last 15 quarters and our best first quarter since 2019, NCM demonstrated its perseverance in a down market and its ability to continue delivering sought-after audiences, driving new brands to our platform and, of course, existing ones to return. So I want to again thank the entire NCM team and board for their hard work. Thank you to our shareholders for their ongoing support. And we appreciate you all joining this call and look forward to seeing you all again at the movies. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.