National CineMedia, Inc.

Good afternoon, and welcome to the National CineMedia Second Quarter 2025 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 your telephone keypad. 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, Vice President of Finance. Please go ahead.

Thank you, Operator. Good afternoon. I'm joined today by our Chief Executive Officer, Tom Lesinski, and our Chief Financial Officer, Ronnie Ng. 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 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 four looking statements are actually 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 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 second quarter earnings call. As we begin today's call, I want to take a moment to thank our team for their resilience and dedication to what has been a particularly demanding quarter in the face of a challenging economic and advertising environment. Their commitment and strength are what continue to drive our progress and position NCM for what's ahead. At the time of our last earnings call, we were encouraged by strong second quarter pacing while recognizing the ongoing uncertainty in the advertising market. Over the balance of the second quarter, we faced a more challenging operating environment than anticipated, caution among advertisers, especially in key categories, like government, consumer packaged goods, and automotive deepened in response to broader tariff-related market uncertainty and evolving government spending priorities. Further, this quarter's box office performance was driven by a handful of unexpected, though welcome, breakout hits, including a Minecraft movie, Lilo & Stitch, and Sinners. While the success of these films demonstrates the ongoing recovery of the box office and audience enthusiasm for cinema, their overperformance took place during a seasonally slower advertising period, limiting our ability to fully monetize those impressions. As a result of these headwinds, our second quarter performance did not meet our expectation. NCM's second quarter 2025 total revenue was $51.8 million, with adjusted labor of $0.7 million. While this wasn't the quarter we set out to deliver, we're approaching the back half of the year with optimism. We are actively taking steps to better capitalize on box office momentum and deliver against our strategic priorities, positioning the company for stronger performance and long-term growth. were encouraged by our third quarter momentum, ad sales commitments, our pacing ahead of last year's levels, and improved visibility into the pipeline gives us confidence in our ability to deliver a stronger start to the second half. To better position MCM to compete for growing premium video advertising budgets, we are continuing to scale our programmatic and self-serve offerings. These capabilities are core to our strategy of delivering a more responsive and nimble advertising platform as the industry shifts towards flexible, closer to campaign date solutions. In the second quarter, we continue to expand our programmatic distribution through new partnerships with two leading programmatic platforms, providing advertisers with additional efficient paths to purchase NCM's premier inventory. Notably, Programmatic Advertiser Volume grew by more than 50% quarter-over-quarter with approximately 70% of second-quarter programmatic advertisers new to NCM, underscoring the growing appeal of our platform to performance-focused buyers. Looking ahead, we expect to build on this momentum and triple our programmatic footprint by year-end, positioning us to accelerate further into 2026. Additionally, Our self-serve platform is also gaining traction, with second quarter revenue up more than 30% year over year, signaling strong adoption heading into the second half of 2025. On the local front, enhancing our sales capability remains a top priority. We are focused on onboarding new talent and taking a targeted approach to engage high-value advertisers at the local and regional levels. While we recognize this effort will take time, we are confident that a strategic rebuild in local will strengthen our market position and help maximize the local advertising recovery over the long term. We are also continuing to demonstrate the effectiveness of cinema as a performance advertising channel. To share one example, in the second quarter, a national telecom brand executed a campaign using our new Bullseye product, which featured 253 hyper-localized AI-generated apps. Powered by our NCMX data platform, the campaign successfully delivered double-digit gains in foot traffic to the locally promoted stores within the first two weeks of campaign launch. Following this success, the advertiser renewed their commitment with NCM, a powerful signal that when advertisers engage with our platform, we deliver impactful, measurable results. Our premium platinum ad spot also continues to generate strong demand from advertisers who recognize the value of cinema's high-attention environment and NCM's performance measurement capabilities. Our new agreement with AMC, which we announced last quarter, went into effect in the second quarter and standardized our show format across our exhibitor network, improving our ability to meet demand for both platinum and post-show ad inventory. To further drive utilization, we've also introduced added creative flexibility within the platinum offering at select theaters, enabling more dynamic use of the available ad windows. As we continue to invest in the business, we are also committed to accelerating new client acquisition with more targeted outreach and a more agile go-to-market approach. In the second quarter, NCM welcomed 12 new advertisers that placed major cinema campaigns for the first time since the pandemic. As we continue to demonstrate the unique value of cinema as a high-impact advertising channel, we will deepen existing advertiser relationships and strategically respland our client base. www.cinemedia.com and positions NCM to benefit from the strong content pipeline heading back into the second half of the year. Looking ahead, early indicators from the third quarter are encouraging. Supported by a strong slate, booked sales are pacing ahead of the same period last year, with demand normalizing across key categories including auto, wireless, retail and travel. Importantly, the third quarter is historically front-weighted, with the majority of revenue realized in July and August. This dynamic, combined with the strength we are already seeing in the marketplace, gives us meaningful, greater visibility into third quarter performance than we had at the same point last quarter. With a more robust sales pipeline and stabilization in the advertising market compared to the second quarter, we have increased confidence in our ability to deliver on our third quarter outlook, which Ronnie will share in a few moments. Overall, we're expecting continued box office momentum for full year 2025. While the third quarter box office is expected to be down year over year due to tough comparisons to last year's third quarter, which included hits such as Deadpool and Wolverine and Despicable Me 4, we expect the strong and well-paced theatrical slate to re-accelerate the box office during the critical fourth quarter holiday season. Adam Johnson, Brad Filbey, Rebirth, and Superman, this consistent cadence of high-profile releases drives the ongoing covering cinema attendance and reinforces cinema's appeal as a premium, high-impact advertising environment, supporting increased interest from both national and local advertisers as we close out the year. NCM remains uniquely positioned to capture and convert this momentum. The fundamental differentiators of our offering are Broad reach among highly desirable audiences, an immersive premium video format, and unmatched national scale continue to resonate with advertisers seeking performance, impact, and efficiency. As brands look to engage consumers at moments of peak attention and emotional resonance, NCM remains a trusted and proven partner. With a healthy slate of tentpole movies, improving visibility, and a strong start to the third quarter already underway, We are confident in our ability to perform. We're optimistic about the remainder of fiscal 2025 and the steps we're taking to deliver sustainable value for partners, clients, and shareholders. With that, I'll now turn it over to Ronnie. Thank you, Tom, and good afternoon, everyone. As Tom outlined, the second quarter presented a number of headwinds that impacted our results, most notably during the month of May. may saw heightened volatility in advertiser budgets across key verticals such as automotive, consumer packaged goods, and government, driven by broader economic uncertainty and shifting public sector spending priorities. In addition, ongoing tariff-related uncertainties have fueled further hesitation, evidenced by several submitted budgets being withdrawn as advertisers reassessed market conditions. While June showed early signs of stabilization in a more consistent inventory environment, the softness mid-quarter had a meaningful impact on our overall second quarter results. As a result of these factors, total revenue for the second quarter came in at $51.8 million, below our guidance range of $56 million to $61 million, and down 5% versus the prior year period. The scattered market continues to represent an increasing percentage of NCM's revenue mix, equating to 40% of national on-screen revenue in the second quarter. Inventory utilization was up 12%, partially offset by a decline in CPMs. National advertising revenue for the quarter was $41.2 million compared with $41.7 million in the second quarter of 2024. National ad revenue per attendee was 36 cents for the second quarter compared with 45 cents in the same period last year, reflecting the 24% increase in quarterly attendance. Local and regional advertising revenues totaled $6.4 million in the second quarter. down from $9.8 million in the second quarter of 2024, reflecting the cautious advertiser sentiment we've seen across the broader marketplace. Consistent with first quarter trends, we experienced reduced contract volume and smaller deal sizes, particularly across categories such as dining, automotive, wireless, and healthcare. Sectors that have remained sensitive to shifting economic signals. The year-over-year decrease also reflects the recategorization of certain clients from local to national, which, excluding that change, would have resulted in a less pronounced decline. These headwinds were partially offset by growth in the travel and professional services categories, demonstrating that, when aligned with the right audience and Value Proposition, local markets continue to present meaningful opportunities. We are encouraged by early signs of stabilization across the advertising market as brands adapt to ongoing tariff uncertainty, regain confidence, and begin to normalize their advertising budgets. Additionally, a robust slate of highly anticipated blockbusters is set to debut Over the balance of the year, with advertiser demand already materializing. These 10 poll releases are expected to be significant drivers of growth in the second half. Turning to our expenses. Second quarter operating expenses were $63.8 million, down slightly compared with the prior year. Operating income was negative $12 million, compared to negative $9.3 million in the same period last year. Excluding one-time items, depreciation, amortization, and non-cashier-based compensation, our adjusted operating expenses were $51.1 million, an increase of $4 million, or 8%, compared to the prior year. This increase was primarily attributable to higher attendance-driven costs with exhibitor fees rising $4.2 million, or 16%. while SG&A expenses declined slightly versus the prior year, reflecting our continued cost management efforts. Second quarter adjusted EBITDA, excluding non-cash charges and one-time items, was $0.7 million compared to $7.6 million in the prior year, driven primarily by the weaker top-line results. Total and lever-free cash flow for the quarter, as defined by cash flow from operations plus capital expenditures, was negative 6.8 million. As a reminder, our fourth quarter 2024 results included approximately 13 million in advance payment from clients for advertising scheduled to run throughout 2025, of which is attributable to the second quarter. As a result, these upfront payments will affect year-over-year comparability of free cash flow generation in 2025. Year-to-date, NCM has generated total revenue of $86.6 million compared to $92.1 million in the same period last year. National and local advertising revenues declined 4%, and 25% respectively, primarily reflecting softer advertiser demand amid ongoing economic uncertainty. Total adjusted EBITDA for the period was negative 8.3 million compared to 1.9 million in the prior year, driven by the revenue shortfall resulting from the weaker ad market. Turning to our consolidated balance sheet. At the end of the second quarter, NCM had 40.3 million of cash, cash equivalents, restricted cash, and marketable securities, and zero outstanding debt. We remain committed to a capital allocation strategy that delivers value by balancing investment in the future of NCM and returning capital to shareholders through our share repurchase and dividend programs. Under the dividend program we reinstated this year, we announced a quarterly dividend of $0.03 per share today, amounting to $2.8 million. This quarter's dividend will be paid on August 29, 2025 to stockholders of record on August 15, 2025. To provide an update on our $100 million share repurchase program, year-to-date, NCM has repurchased 3.3 million shares at an average price per share of $5.78 for a total of approximately 18.8 million. This brings our total shares repurchased under this program to 5.9 million shares at an average price of $5.51 for a total of approximately 32.5 million. We are encouraged by the momentum we've seen so far in the third quarter. The first two months, which historically accounted for the majority of third quarter revenue due to the summer box office slate and seasonal audience upticks, are driving strong performance with book sales commitments pacing ahead of last year's third quarter results. We also continue to invest in our inventory forecasting capability to enable us to price and package our inventory more dynamically, delivering greater value to advertisers while helping us drive higher utilization. With improved planning tools, increased visibility into advertiser pacing and category demand, and continued investment in our strategic priorities, we are confident in our ability to deliver a stronger third quarter. With this said, we expect their quarter revenue to be between $62 million and $67 million, reflecting improved advertiser commitment and sustained theatrical strength. We anticipate adjusted orbital in the range of $7.5 million to $11.5 million, supported by higher utilization, disciplined expense management, and improving market dynamics. As we look ahead, we are focused on disciplined execution of our strategic priorities from accelerating investment in programmatic and self-serve to deepening advertiser relationships at both the national and local level. With a robust film slate on deck and signs of strengthening advertiser demand, we believe we are well-positioned to drive improved performance in the back half of the year and lay the foundation for sustainable long-term growth. Operator, please open the line for questions.