National CineMedia, Inc.

Good day, and welcome to the National CineMedia, Inc. First Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chan Park, Senior Vice President of Finance.

Thank you, Operator, and good afternoon. I'm joined today by our Chief Executive Officer, Tom Lesinski, and our Chief Financial Officer, Ronnie Inc. I would like to remind our listeners that this conference call contains four looking statements within the meaning of 27A of the Securities Act of 1933 as amended and Section 21E of the Security Exchange Act of 1934 as amended. All statements other than statements of historical facts communicated during this conference call may constitute four looking statements. These four 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 FCC. All four 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 measurements. These recommendations can be found at the end of today's earnings release or on the investor relations page of our website at ncm.com. Now I'll turn the call over to Tom.

Thank you, Chan. Hello, everyone. And thank you for joining our fiscal 2025 first quarter earnings call. Before we dive into our highlights from the quarter, I want to thank everyone who attended our 2025 investor day in March. As we shared, NCM is well positioned to win as the leading platform in cinema advertising with an unmatched competitive edge, attractive industry tailwinds, a premium audience, end product, and a robust financial position. The key pillars of our growth strategy remain front and center as we move forward. We are diligently investing in both technology and top tier talent to enhance our platform and capitalize on opportunities within the premium video ad space. At the same time, we are committed to generating long-term value for our shareholders through our share repurchase program and the reinstatement of our dividend. We look forward to building on this momentum as we continue to execute our business strategy. Now, let's dive into the current dynamics we are seeing at the box office. In the first quarter of 25, the box office generated approximately $1.4 billion, representing an 11.6% decline compared to the same period last year. While the first quarter is a seasonally softer period for the box office, the year-over-year decline reflected both a weaker-than-anticipated slate with fewer tentpole films alongside the underperformance of several high-profile titles such as Snow White. This said, we are encouraged that audiences continue to show up for new features including Mufasa the Lion King, One of Them Days, and the animated comedy Dogman. Looking ahead, we are optimistic that attendance will recover throughout the year, supported by a strong start to the second quarter. Kicking off the second quarter, a Minecraft movie delivered the largest opening day of the year thus far and set a record for the largest debut ever for a video game feature. Looking at attendance, the robust contribution from a Minecraft movie has more than offset the slower first quarter, with NCM's year-to-date network attendance through April up 6% compared with the same period last year. The remainder of the quarter is expected to benefit from a stronger lineup of releases across a wide range of genres, including highly anticipated titles such as Mission Impossible The Final Reckoning, Ballerina, and How to Train Your Dragons. The second half of 25 is also shaping up to be very promising, with a rich and diverse slate of blockbuster sequels, original tentpoles, and award season contenders poised to drive increased attendance and advertiser engagement. Many of these highly anticipated films were on display at this year's CinemaCon in early April, which highlighted the enduring power and cultural resonance of cinema. Early previews of titles like Walt Disney Studios' Zootopia II, Universal Pictures' Wicked for Good, and Paramount Pictures' The Running Man captivated attendees and reaffirmed the depth and quality of the theatrical slate through 2026. Studio leaders continued to voice their commitment to the big screen, including Amazon MGM Studios, which made its CinemaCon debut this year. the content studio for the streaming giant announced 14 theatrical releases already planned for 26, a clear indicator of growing industry enthusiasm and momentum behind the theatrical model. The widespread support from across the entertainment ecosystem reinforces the enduring appeal to theatrical experience and further validates our long-term belief in the resilience of the industry. For NCM, This momentum represents an opportunity to connect brands with hard to reach audiences in one of the most immersive advertising mediums available today. With a strong slate of premium cinematic content expected to draw consumers to theaters, we believe we are well positioned to capture box office upside going forward. Next, I want to quickly discuss two trends we are currently seeing in the advertising marketplace. First, as we previewed on our last earnings call, Recent shifts in government policy have resulted in an overall reduction in government ad spend. Second, advertisers across a range of categories delayed ad spend decisions in response to tariff uncertainty in the first quarter. As this uncertainty has increased, advertisers are reevaluating their near-term marketing strategies. Consequently, we're seeing a trend toward fewer and smaller advertising campaigns, especially across local and regional channels. We are continuing to monitor these evolving trends and are working with our advertisers to help them place the right campaigns at the right time to continue to reach NCM's valuable audiences. With these dynamics in mind, NCM delivered results in line with our expectations. NCM's first quarter 2025 total revenue was $34.9 million within our guidance range. The 7% year-over-year decline reflects the slower first quarter at the box office and an expected degree of advertiser uncertainty regarding tariffs. Approximately 42% of first quarter national on-screen revenue was attributed to the scatter market, compared to 29% in the prior year period. reflecting the market shift toward real-time advertising solutions. Our core platinum offering continues to represent a high-quality and proven option for reaching sought-after audiences at scale, attracting category-leading advertisers in wireless insurance and dining. Adjusted OIBDA was negative $9 million, in line with our guidance, and primarily driven by reduced theater attendance and the impact to the top line. Our adjusted EBITDA also reflects investments in sales and operations, coupled with one-time investments that were not incurred last year. As we've stated previously, we do not expect our first quarter results to be indicative of our full-year performance. Based upon our current sales pacing, we expect to achieve year-over-year growth for the second quarter. Despite the headwinds we saw in the first quarter, the fundamentals of our business remain strong. NCM continues to be the largest cinema ad network in the U.S., providing advertisers unmatched reach to valuable, young, and diverse audiences in a brand-safe, high-impact environment. Across our entire network, NCM reached over 72 million individuals in the first quarter, primarily driven by Gen Z and millennials, who accounted for 64% of our viewership in the quarter. Gen Z alone comprised 36% of our total audience and maintained a strong weekly average rating of 4. This quarter, 30 million of the hard-to-reach 18- to 34-year-old demographic flocked to MCM theaters, resulting in a 3.9 average weekly rating, outperforming traditional media benchmarks and dominating entertainment in the first quarter. Our strength with these sought-after demographics, continues to attract advertisers who recognize the value of NCM's precision targeting, real-time insights, and measurable performance outcomes. Year-to-date, NCM has welcomed 14 new advertisers who have not placed cinema campaigns since prior to the pandemic. As we expand our client base and enhance our platform, we remain confident that advertisers will continue turning to NCM. even amid market uncertainties, to leverage our high-value audiences and maximize campaign performance. With strong fundamentals and a capitalized business model, we remain focused on investing in the business and executing on our growth strategy. And we have several exciting updates to share. I am pleased to announce that MCM agreed to a five-year extension of our contract with AMC Theaters, the world's largest theatrical exhibition company, Through the end of 2042, we're excited to further strengthen a relationship that's been foundational to our success. The revised agreement aligns the payment structure more closely with actual performance metrics, specifically attendance, screen count, and advertising revenue, ensuring more dynamic and scalable revenue generation starting July 1st of 2025. NCM retains exclusive rights to the lobby advertising at AMC Theaters and will collaborate with them to modernize lobby video screens, improving audience engagement and monetization potential. Additionally, the agreement strengthens the value of our advertising inventory at AMC Theaters. Through this new agreement, we further solidified our position as the national leader in cinema advertising. Ronnie will provide additional details on the economics of this agreement in a few moments. In addition to strengthening our network, we are prioritizing investing in our platform and enhancing its capabilities. At Investor Day, we introduced Bullseye, a new NCMX product powered by artificial intelligence that leverages and analyzes key audience signals to deliver dynamic, hyper-localized messaging at scale. Launched in Q1, Bullseye builds on the success of Boomerang and Boost, strengthening our growing portfolio of innovative solutions that drive measurable results across key consumer categories. Additionally, we are excited to announce the introduction of Blueprint, the newest addition to the NCMX product suite, alongside Boomerang, Boost, and Bullseye. Blueprint uses real-time renovation permit data to identify homeowners who are actively engaged in remodeling projects. giving brands the ability to reach high-intent consumers at exactly the right moment. Bullseye and Blueprint reflect our ongoing commitment to develop smart, scalable solutions that connect brands with valuable audiences during key moments. Beyond continued innovation within NCMX, we are accelerating our efforts to align our platform with broader shifts in the advertising landscape, particularly the growing demand for programmatic and self-serve solutions. This quarter, we took a significant step in positioning NCMX to capitalize on this trend by signing a new supply-side technology partner. The collaboration expands our addressable marketplace, enhances our targeting capabilities, and further strengthens our delivery of data-driven solutions. We are starting to see our programmatic business gain meaningful traction. In the first quarter, MCM partnered with 61 unique advertisers across our on-screen and in-lobby programmatic offerings. Programmatic contributed 3% of total revenue for the first quarter, capturing 48% of our 2024 full-year total programmatic revenue. This momentum has continued into the second quarter, with programmatic revenue currently pacing ahead of the first quarter. Turning now to self-serve. We are pleased to announce the relaunch of of our enhanced self-serve platform this quarter. The improved platform is a more user-friendly solution that enables advertisers to seamlessly activate cinema advertising, launch hyperlocal campaigns, and target specific geographic areas. By providing new on-ramps to cinema advertising for brands who previously may not have considered it, the self-serve platform unlocks new demand channels for NCM. As demand accelerates and we continue to invest in technology, partnerships, and inventory optimization, we expect to see continued adoption of programmatic self-serve with meaningful revenue contributions from these offerings expected beginning in 26. We also continue to recognize the potential in the local advertising space. The improvements we've made to our self-serve offering have significantly streamlined campaign execution at the local level. reducing friction for advertisers and enabling our sales team to shift focus toward higher value opportunities across these markets. As we shared at our 2025 Investor Day, we've been investing in experienced sales leaders to drive our local initiatives with a targeted approach. This includes dedicating resources to building relationships across the full spectrum of local advertisers, including national holding companies, placing regional buys, larger franchise operators, and small independent businesses looking to drive awareness and foot traffic. This multi-tiered strategy will allow us to tap into growth categories at the local level, including lottery, education, automotive, and professional services. As the local advertising space continues to evolve, and with our expanded capabilities and a clear focus on execution, We are optimistic about our ability to capture incremental revenue and unlock sustained local growth. As we look ahead to the second quarter, we are confident that we are taking the right steps to position MCM for the future. We are particularly encouraged by the robust upcoming movie slate and continue to deliver the most valuable, sought-after audiences with unmatched scale and reach in a uniquely immersive environment. While we expect continued headwinds for advertisers in certain categories impacted by tariffs, we are seeing solid sales spacing so far in the second quarter and into the second half of the year. And we're optimistic that advertisers will continue to turn to the unique value and ROI that NCM delivers. The remainder of 2025 will be pivotal as the box office continues to recover and we build on our competitive edge in the marketplace. We remain mindful of the dynamic macroeconomic environment and continue to believe in the resilience of the theatrical exhibition industry, supported by a compelling film slate and renewed commitments from key industry leaders. Now, I'll turn the call over to Ronnie to provide you with more details on our operating results and outlook. Thank you, Tom, and good afternoon, everyone. While the first quarter box office was seasonally slower than we typically see, we began the year with strong momentum, executing on value-enhancing transactions, including a new $45 million cash flow-based revolver, which significantly reduced our cost of financing and securing a revised AMC agreement that strengthens our value proposition to both clients and shareholders. As we continue to execute on the growth strategy we outlined at our 2025 Investor Day, we remain focused on capturing opportunities in the premium video marketplace, improving the monetization of our inventory, and managing our business with discipline. NCM's total revenue for the first quarter was $34.9 million. Within our guidance range of $34 to $36 million, but down 7% from $37.4 million in the same period last year. This decline was primarily driven by a 5% year-over-year reduction in attendance, stemming from the underperformance of select film titles, temporary pullbacks in government advertising in connection with recent cost-saving policy shifts, and delayed auto ad spending decisions in response to ongoing tariff announcements. These factors were partially offset by continued strength across travel, wireless, and entertainment. Importantly, we are keeping a close eye on these dynamics as we continue to invest in our business. Our team continued to expand our scatter participation which increased to 42% of the mix versus 29% in the same quarter last year to mitigate the shift away from the upfront marketplace. National advertising revenue decreased to $27.4 million, down from $29.5 million in the first quarter of 2024, driven primarily by lower March attendance. While we saw advertising delays in sectors such as government, automotive, and consumer packaged goods, increased demand from wireless, pharmaceutical, dining, and media helped mitigate some of this softness. The choppy environment did lead to lower inventory utilization for the quarter of approximately 8%, offset by slightly increasing CPMs. Attendance trends during the quarter also impacted our ability to monetize efficiently, with strong February moviegoer turnout driven by the release of Captain America during a seasonally softer advertising month. Conversely, March, which is a seasonally stronger advertising period during the quarter, experienced a 37% decline in attendance due to the underperformance of Snow White. The box office performance for these two months led to March accounting for less than 30% of the quarterly attendance, compared to over 40% historically. Despite these challenges, March demonstrated robust advertiser demand, highlighted by a 21% increase in inventory utilization and a 15% lift in CPMs, resulting in an oversold month. We remain vigilant on current market dynamics, but are also encouraged by the demand we experienced exiting the quarter. Local and regional advertising revenue totaled 4.9 million, down from 5.3 million in the first quarter of 2024. This decline was primarily driven by lower attendance and ongoing economic uncertainty. which led to lower contract volume and smaller deal sizes, particularly within the dining, automotive, wireless, and healthcare categories. These declines were partially offset by increased contract activity and larger deal sizes within the travel and professional services categories. Turning to our expenses, First quarter operating expenses were $58.8 million, a 2% decrease from $60.1 million in the prior year. Excluding one-time items, depreciation, amortization, and non-cash share-based compensation, our adjusted operating expenses were $43.9 million, up 2% year-over-year. This increase was primarily driven by the timing of our annual sales event, which did not occur in the prior year, partially offset by lower exhibitor fees attributable to decreased attendance. As we previously shared, we anticipate a high single-digit percentage increase in adjusted SG&A for the full year. reflecting higher sales commissions tied to revenue growth, continuing investment in our sales team and go-to-market initiatives, and the implementation of new sales technology to optimize inventory utilization. First quarter adjusted EBITDA, excluding non-cash charges and one-time items, was negative $9 million compared to negative $5.7 million in the prior year. That said, our adjusted OIDA result was in line with our guidance range of negative nine and a half million to negative seven and a half million. Total unlevered free cash flow for the quarter as defined by cash flow from operations less capital expenditures was five and a half million. As a reminder, our fourth quarter 2024 unlevered free cash flow benefited from approximately 13 million in client advance payments for advertising, scheduled to run throughout 2025. As a result, these upfront payments will impact the year-over-year comparability of free cash generation in 2025. Turning to our consolidated balance sheet. At the end of the first quarter, the company has 63.1 million of cash cash equivalents, restricted cash, and marketable securities, and zero outstanding debt with an undrawn revolver. As we shared at Investor Day, our capital allocation strategy reflects our commitment to delivering value by investing in the future of MCM and returning capital to shareholders. Strategic investments in our platform include including the improvements in programmatic and self-serve, new NCMX products, and the extended AMC partnership will enhance NCM's ability to drive growth. As mentioned, on April 24th, we announced a strengthened long-term partnership with AMC through a revised agreement that extends the term by five years through 2042. underscoring the value of our advertising inventory and securing a stable revenue stream. The revised EFA introduces an improved advertising show structure that aligns with our other major exhibitor partners, simplifying operations and creating additional high-value inventory, particularly during peak periods, while expanding pre-approved advertising categories. We have also entered into a new multi-screen lobby advertising and data sharing agreements, modernizing our lobby offerings and further enhancing our data products within the NCMX suite. As part of this agreement, our existing beverage arrangement remains in place, and we have established a revised payment structure with AMC, which continues to include per-patron and screen fees while introducing a potential revenue sharing component tied to performance. Regarding the revised fees, if we assume no incremental revenue from the agreement, the 2024 adjusted EBITDA margin would have been minimally impacted by approximately one and a half points. Through the course of the agreement, we expect adjusted EBITDA margins to be impacted between one and a half to two and a half points. That said, we do expect to see incremental revenue from the improved agreement, which we project to offset the increased fees and support potential adjusted oil growth. As part of the revised terms, NCM and AMC also agreed to terminate our joint venture agreements and dismiss ongoing litigation. This agreement positions NCM for creative growth and reaffirms the long-term strategic value of our AMC relationship. To complement these strategic initiatives, we have accelerated our share repurchase program. Year-to-date through April, NCM has repurchased 2.3 million shares and an average price per share of $6.06 for a total of approximately 14 million, almost matching the total number of shares repurchased throughout all of 2024. This brings our total shares repurchased under this program to 4.8 million shares at an average price of $5.60 for a total of $27 million. Looking ahead, we plan to continue repurchasing shares opportunistically throughout the remainder of this year. We also announced a quarterly dividend of $0.03 per share today amounting to $2.9 million. This dividend will be paid on May 29, 2025 to stockholders of record on May 16, This program provides a predictable baseline of capital returns for shareholders and aligns well with our high free cash flow conversion business model. With a balanced approach to investing in the business and returning capital to shareholders, we are committed to continuing to be a shareholder-friendly company. Turning to our outlook. We are excited about the upcoming major releases in the 2025 box office with a strong slate and demonstrated commitment from industry leaders. As we shared previously, we do not see the first quarter's results as indicative of our full year performance. The second quarter ad sales pipeline remains active, but has heavily shifted into the scatter markets. and we expect continued headwinds in categories impacted by government policy shifts. We expect second quarter revenue to be between $56 and $61 million, reflecting the ongoing impacts of tariff uncertainty on the advertising market. We expect adjusted EBITDA for the second quarter of 2025 to be between $2.5 and $7.5 million. In closing, we are encouraged by the industry momentum coming out of CinemaCon, where the upcoming film slate and unwavering support for theatrical exhibition from industry leaders were on full display. Looking at the remainder of the second quarter, we're particularly excited about Lilo & Stitch, 28 years later, and Karate Kid Legends. As audiences continue returning to theaters in great numbers, And as we deepen investment in our platform and capabilities, we believe advertisers will continue to recognize the value of MCM and turn to us to reach the most sought-after audiences. The combination of our strong execution, coupled with the share buyback and dividend programs, give us confidence in our ability to sustain growth. And we are committed to to delivering long-term value for our partners, clients, and shareholders. Operator, please open the line for questions.