National CineMedia, Inc.

Good day, and welcome to the National Cinemedia First Quarter 2026 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. Please go ahead.

Thank you, Operator, and good afternoon. I'm joined today by our Chief Executive Officer, Tom Leszczynski, and our Chief Financial Officer, Ronnie Ink. I would like to remind our listeners that this conference call contains four looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts communicated during this conference call may constitute four looking statements. These four looking statements involve risks and uncertainties, important factors that can cause actual results, to defer 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 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, 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. We appreciate you joining us for our first quarter 2026 earnings call. We entered the year with strong momentum from the holiday period, both in attendance and advertiser demand, and our first quarter played out largely as we anticipated. Our results reflected typical seasonality, heightened competition tied to the Winter Olympics, and the impact of the one-week shift in the fiscal calendar that we highlighted last quarter. Adjusting for that timing difference, revenue would have increased modestly year over year, driven by moviegoer enthusiasm for box office hits at both ends of the quarter. On a reported basis, NCM delivered total revenue of $34 million, and adjusted OIBDA of negative 10.5 million, both within the guidance ranges we provided last quarter. In terms of the first quarter, the domestic box office grew approximately 25% year-over-year, with attendance across our network reaching 83 million, up 15% versus the prior year. The gap to the broader box office primarily reflects the one-week calendar shift in our fiscal period and the impact of the Winter Olympics, neither of which impacted the first quarter of last year. Adjusting to that shift and including spotlight in the prior year, attendance would have been up approximately 18% on a comparable basis. Within the quarter, performance was anchored by carryover strength from fourth quarter tentpoles including the new Avatar and SpongeBob movies, before picking up in the final two weekends, powered by Project Hail Mary and early contributions from the Super Mario Galaxy movie. The late quarter acceleration reinforces our view that 2026 is shaping up to be a more consistent and durable year for theatrical exhibition and positions as well as we enter into the second quarter. That momentum carried into our advertising results. Demand remained healthy, with six advertisers spending at or above the $1 million mark on cinema campaigns in the quarter. Total advertising revenue was $31.9 million, approximately in line with the prior year, driven by strength in insurance, media, automotive, and the pharmaceutical categories. This level of advertiser engagement is a testament to the value of NCM's industry-leading inventory and our demonstrated ability to deliver measurable, impactful outcomes for brands. We remain focused on strategically expanding the breadth and quality of our inventory, unlocking new opportunities to deepen our engagement with advertisers. In April, we announced a partnership to deploy large digital displays in high-impact lobby placements across 77% of AMC theaters nationwide, focusing on its highest traffic locations. Theater lobbies are a valuable, high dwell time environment and represent a natural opportunity for brands to extend their engagement with receptive audiences further across the movie-going journey. The new lobby format complements our existing networks and expands our access to digital out-of-home advertiser budgets alongside our core premium video business. This digital lobby expansion presents a meaningful opportunity to deepen exhibitor and advertiser relationships and further strengthen our value proposition across the full moviegoing journey. We're continuing to develop our programmatic capabilities as well, and we continue to see the growing advertiser adoption and deeper engagement across our client base. In the first quarter, we saw approximately two times more programmatic orders than in the prior year period. reflecting the effectiveness of the just-in-time nature of this buying channel. However, due to a small number of larger advertisers not returning as they focused their budgets on the Winter Olympics, programmatic revenue was softer versus the prior year first quarter. This variability is characteristic of a channel that's still maturing, where deal concentration and timing can have an outsized impact on any given period. That said, second quarter programmatic revenue is pacing ahead of the prior year, And the underlying trends give us confidence that we're building programmatic in the right direction for growth in 2026. Local advertising revenue was 4.4 million in the first quarter. As we outlined in our last call, we are continuing to rebuild a stronger foundation for growth in our local business as we remain focused on the targeted investments in talent, structure, and execution underway to improve performance. While results will take time to affect these efforts, we are encouraged by the progress we are making as second quarter booked revenue is already ahead of last year's second quarter, and we remain confident in the long-term opportunity for local. Turning to NCMX, our proprietary data platform, we continue to enhance targeting, planning, and measurement capabilities for advertisers. During the quarter, we announced a new partnership with VideoAmp, further integrating cinema into a unified cross-platform planning premium video ecosystem. This marks the first time advertisers and agencies can plan cinema alongside linear TV, CTV, and digital video within a single view. We also extended NCMX coverage to our recently acquired Spotlight inventory, an important step in unlocking the full value of that high-end inventory and deepening our appeal to premium and luxury advertisers. Alongside these continued investments, we've taken proactive steps to better align our operating model with the evolving needs of the business. During the first quarter, we implemented an operational transformation to streamline the organization and accelerate our adoption of AI where it creates the most leverage. These efforts are concentrated in areas that enhance efficiency across our supporting infrastructure while preserving the strength and momentum of our revenue-generating teams and commercial initiatives. Collectively, these actions are expected to generate approximately $11 million in annualized cost savings on a run rate basis, positioning us for more agile and efficient execution and create capacity to continue reinvesting in the platform for future growth. Ronnie will provide additional details on this in a few moments. While we continue to evolve the business, our core value proposition remains unchanged. Connecting advertisers with highly engaged, sought-after audience demographics in a premium environment on the biggest screens in America at scale. Looking ahead, we remain encouraged by a compelling 2026 film slate designed to reach diverse audience segments. This year's box office performance is expected to be weighed toward the back half of the year. supported by a mix of beloved franchise installments, and reimagined classics with built-in audience appeal, alongside a broader range of highly anticipated new IP titles. This robust slate, including such films as Toy Story 5, The Devil Wears Prada 2, The Mandalorian and Grogu, and Moana, is expected to draw a broad range of audience cohorts further supporting advertiser demand. Further, we are encouraged by strong exhibition industry sentiment at this year's CinemaCon in April, where each of the major studios voiced concerted support for the theatrical business, underscoring the importance of the big screen with the broader entertainment ecosystem. Notably, Amazon reconfirmed its commitment to at least 15 theatrical releases per year, while Paramount and Warner Brothers Discovery reiterated plans to release approximately 30 films theatrically, reinforcing confidence in a consistent industry cadence of future releases. Taken together, this year's CinemaCon commentary supports a positive outlook for the exhibition landscape. With strong industry tailwinds and continued focus on operational optimization, NCM is well positioned to capitalize on box office strength in the quarters ahead. 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. As Tom noted, first quarter performance was shaped by typical seasonal softness, increased competition for advertising spend driven by the Winter Olympics, and the one-week shift in the fiscal period that we discussed on our last earnings call. Each of these factors was expected, and the quarter was broadly consistent with what we projected entering the year. Total revenue for the first quarter was $34 million, within our guidance range and reflecting the anticipated factors I just outlined. First quarter total advertising revenue was $31.9 million, compared with $32.3 million in the prior year period. On a comparable basis, when adjusted for the calendar shift, and pro forma for the inclusion of Spotlight in the first quarter of 2025, total advertising revenue was approximately flat year over year, with national being more affected by the Winter Olympics and local exhibiting strong growth. National advertising revenue was $27.5 million, approximately flat versus the prior year, with strength in the insurance, automotive, pharmaceutical categories adjusting for the shifted fiscal period and pro forma to include spotlight in the prior period national revenue would have been down by approximately 2% this was primarily due to certain deals within the spotlight networks not returning this quarter conversely NCM's legacy network grew national revenue by 2% compared to the prior year, with utilization increasing over 20%, offset by decline in CPMs. While pricing for national was positive in the first two months of the year, March experienced pricing declines due to budgets that were already allocated to the Winter Olympics, limiting demand at the end of the quarter. Demand for our platinum inventory remains strong, reflecting the continued benefit of standardizing our pre-show format across the major exhibitor networks last year. On a calendar adjusted basis, platinum was up 83% versus the prior year, and revenue per attendee was up over 54% for the same period. Local advertising revenue totaled $4.4 million down versus the prior year, primarily due to the calendar differences as discussed previously. However, adjusting for the shifted fiscal period and pro forma for the inclusion of Spotlight, local advertising revenue would have been up 12% in the comparable period, and revenue per attendee would have only declined approximately 4%. Looking at the categories within local, we saw strength within travel and wireless, offset by reduced activity within government, education, and healthcare. As Tom noted, we are focused on rebuilding this business through a more structured and targeted approach. While this will take time, we believe we are taking the right actions to position local for more sustainable growth over the long term. And we are further encouraged by second quarter bookings, which are already ahead of last year's second quarter local revenue. Operating expenses for the first quarter were $60.9 million, versus 58.8 million in the prior year period. The year-over-year increase was primarily driven by an increase in attendance-related exhibitor fees and approximately 3.6 million of one-time costs related to our operational transformation. On an adjusted basis, operating expenses were 44.5 million. primarily driven by a 13% year-over-year increase in exhibitor fees related to the increase in attendance, and offset by a 10% year-over-year reduction in SG&A. To provide a bit more detail on the operational transformation, these efforts are focused on aligning our cost structure with the current needs of the business and creating capacity to continue investing in our highest return priorities. We are targeting the initiative to generate approximately $11 million in annualized cost savings, including synergies from our acquisition of Spotlight. This is measured against our 2025 adjusted SG&A of $89.5 million pro forma for a full year of combined operations with Spotlight. Given the timing of the program's launch, the complete run rate benefit will be fully reflected in our results beginning in 2027. In the meantime, execution is well underway, and we have already actioned $3 million of the annualized savings to date. and the remainder on track to be completed by midsummer. As a result, we expect to realize up to $6 million of savings in full year 2026. Operating loss for the first quarter was $26.9 million, reflecting the top line in operating expense drivers I just outlined. Adjusted EBITDA was negative 10.5 million, at the better end of our guidance range. Year-over-year performance reflects higher exhibitor fees driven by attendance growth, partially offset by disciplined cost management and early benefits from our operational transformation.