Q1 2024 National Cinemedia Inc Earnings Call

Participants

Chan Park; Vice President of Finance; National Cinemedia Inc

Thomas Lesinski; Chief Executive Officer, Director; National Cinemedia Inc

Ronnie Ng; Chief Financial Officer; National Cinemedia Inc

Eric Wold; Analyst; B. Riley Securities, Inc.

Jim Goss; Analyst; Barrington Research Associates

Mike Hickey; Analyst; The Benchmark Company LLC

Presentation

Operator

Good day and welcome to the National CineMedia, Inc. Q1 2024 earnings conference call. (Operator Instructions) 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.

Chan Park

Good afternoon. I'm joined today by our Chief Executive Officer, Tom Lesinski; 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 27 A. 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 measurements. 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.

Thomas Lesinski

Thank you, Chan, and good afternoon, everyone. Welcome to our first quarter of 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 in part 2 and Kung Fu Panda 4, lead the box office during the quarter, bringing in $400 million collectively. During Dune to the 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 main girls and Bob Hurley. One Love mean growth clip 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 nontraditional content, including could bring any in 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 were 77% of the moviegoers who have diverse and necessities.
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 offer excuse me, differentiated offering and have a 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 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 have their audiences consistently show up to the cinema due to its diverse range and wide array of highly anticipated releases US box office, which 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 range continues to surpass other premium video offerings, including the current NBA Playoffs, which draw an average of around 1.0. These engagement levels demonstrate GNC'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 fourth quarter was up 31% compared to the same period in the prior year.
Approximately 70% of first quarter's national revenue was attributable to longer-term upfront 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 attendants began to surface expectations. Amortized in the travel industry, in particular continued to recognize the value of the moviegoing 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 doubled compared to the prior year. Additionally, business outcome and attention metric measured deals continued to drive growth in historically underrepresented cinema ad core 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 as they play after the announced, Showtime has a movie right before the last two trailers typically have a longer run time than a conventional 3o 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 opens up additional avenues for advertisers to tell different stories, including the 15 minute short film from a leading cosmetics company, a debate that debuted ahead of the main growth movie on January 12.
We are seeing the success metrics lead to greater appetite from advertisers to go beyond the traditional 30 second units in future quarters. Additionally, we welcomed our latest courtesy partners who sponsored the silence yourself with 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 where they continue to turn to NCM. One example is a leading auto brands that saw a 22% lift in foot traffic to dealerships during a campaign with 69% of visits occurring within five days of CMBS 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 Lion International Festival of Creativity, the most prestigious advertising award show in the world. This year, we announced that we are launching an official network to the U.S. Lions community, which will offer ongoing value as a vital public 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 tag line.
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 and CMX today and CMS just 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 are transforming cinema into a modern full funnel media initiative that delivers brand building and performance marketing solutions and signals our continued commitment innovation. As we look ahead, we're continuing to focus on our expanded solutions for our clients.
February 24th 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 is 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 bonds 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 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 anticipated new movie and 95% of moviegoers recommend single movie theaters to friends and families. Based on these experiences, Peruvian 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.
The theater NCM has been first hand. The pause has seen firsthand the positive impact of the rise of the experienced 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 versus Kong, the new Empire and civil war and look forward to several upcoming major releases.
Based on our first experience, first-hand experience at screenings at Semicon last month in Las Vegas, there was a lot to be excited about with the diverse 2024 movie slate both their original content and sequels such as Deadpool three Inside Out, Gladiator 2, Joker 2, Microsoft with the Lion King, Despicable Me 4, Venom, Mad Max. The list goes on and on, including pre equals like Twister and Kingdom on 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 prior to Captain America, Brave New World, snow like, Jurassic World for 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. Randy 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 and 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.

Ronnie Ng

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 continued 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 disciplined expense management resulted in another quarter of stronger than expected adjusted OIBDA. 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 riders.
And after strike, 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 continued to navigate through a choppy advertising market, we experienced growth in both the upfront and scatter markets due to improved utilization and firm pricing discipline throughout the quarter.
In fact, utilization for the quarter was 12% above 2019, while maintaining similar pricing levels. Ncm's total revenue for the first quarter was $37.4 million, up 7% year over year, 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 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 Regal EESA in 2023 and the resulting discontinuation of their beverage revenue combined with a 9% decrease in the remaining USA party's 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 EESA parties and network affiliates, coupled with lower personnel and overhead expenses from our cost savings initiative.
First quarter adjusted OIBDA, excluding non-cash charges and one-time items, was negative $5.7 million, up 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 had $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 at 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, and we have 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 OIBDA 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 cap capital expenditures.
The Company is primed to yield substantial free cash flow with a combination of the share repurchase program and improve attendance monetization. Ncm presents numerous avenues to create value for its shareholders. Operator, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Eric Wold, B. Riley Securities.

Eric Wold

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

Thomas Lesinski

I guess I would look at it this way, Eric, first of all, thanks for the question on the scatter market has definitely been picking up and we're seeing good visibility on that on looking ahead in the next couple of 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, some non-right stress non pandemic affected outlook on the industry. And I think based on how the last couple of quarters have gone on. We're really optimistic about the commitments that we see people making. And in the long run against the movie cinema business.

Eric Wold

Got it. And then on a follow-up on maybe when you talk about the philosophy behind your quarterly guidance, I know you're focused on quarterly guidance right now as opposed to annual given kind of the uncertain environment and then maybe kind of what you maybe frame up how you how you kind of build up to that guidance is still dynamic.
It does include what you're what's included in there around you contractual upfront scatter on your chart, you know, and you have how many how much what kind of assumptions you're 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 at this point?

Ronnie Ng

Yes. So that's a good question. Eric, Al. So like Tom said before, the upfront doesn't we don't really start getting in some confirmation of the upfront money market for another couple of months. And although the scatter market is improving. Our this year was really difficult for us to kind of call it 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, it kind of tracks well to eventually getting back to giving annual guidance.

Eric Wold

Okay. Because I've always with questions in the more kind of on the Q2 guidance, 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 what's already been booked for those two months versus what may be kind of on the comment on how much you're willing to kind of put into that?
And that's that remodel.

Ronnie Ng

Yes, that's a yes, that's Vegas.
The fresh side of sell, quite frankly, we have pretty good confidence right now. And for the remainder of the second quarter, a lot of that is already booked and in place all my 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 Bose of that is on its baked into our guidance.

Eric Wold

Helpful. Thanks, Ronnie.

Thomas Lesinski

Sure.

Operator

Jim Goss, Barrington Research. Please go ahead.

Jim Goss

Okay. And I was wondering about the national local mix shift in favor of national, how much of the US and how much did the beverage contract have an impact on that can you talk about what if you think they'll be more of a national flavor going forward?

Ronnie Ng

Yes. So the again, just to be clear, the beverage piece is completely separate from national and local. So leverage is obviously just tied to the attendants and our contracted CPMs with RESA. partners.
In terms of the mix shift that we've seen here in the first quarter of, 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, I'll 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 or one is really the attendance that the lower attendance on a year-on-year basis for first quarter did negatively affect the local sales, quite frankly all.
And then secondly, there were two notable contracts mostly from the government space that did not return all. But however, with that said, we do expect more of a mix shift shifting at least for this year, a little bit more towards national, just given the confidence that we have in the scatter market.

Jim Goss

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

Thomas Lesinski

Jim, can you if I missed the first part of your question, can you repeat the first part of it?

Jim Goss

Well, I think I think one of the things you have aspired to is to go beyond just advertising within the cinema to B and some related areas. And I'm wondering what 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, that perhaps there are other things that might be in your plans and I'm just wondering if the material that.

Thomas Lesinski

So we haven't given a lot of specificity around what we might do outside this. And you know, we have been in the digital out-of-home space for a couple of years now. We're currently active in convenience stores as well as in other digital out-of-home venues, including college campuses and down.
We've learned a lot about this business as we find them as very perfectly young 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, even though it's only been a lower half 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 upfront, Tom, I think we can really focus a little more potentially on diversifying the business more. But right now, our core focus is really on taking advantage of momentum we have right now, particularly going into the critical upfront period over the next couple of months.

Jim Goss

Okay. Thank you very much.

Thomas Lesinski

You're welcome.

Operator

(Operator Instructions) Mike Hickey, The Benchmark Company.

Mike Hickey

Hey, Tom. Hey, Ronnie, great corrugated same-store taking our questions here. I guess the first one, Tom just curious kind of two ex-factors this year was the political ad environment, which obviously is going to get not see here soon if it hasn't already.
And you kind of wonder if assume is going to push out some of the inventory and richer and traditional ad networks and that you think that you're sort of in a position the 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, 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 a pullback in consumer spend in terms of the impact impacting malignant?

Thomas Lesinski

Let me know the first question and then I'll let Ronnie respond on the segmentation on the categories. So political has always been an opportunity for us, but not 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 EDI.s, knowing that there are advertisers who will be blocked out of local advertising avails that we don't offer any political advertising option.
And we are always looking at how we can take advantage of some of that inventory. So we're actually pretty optimistic that come November and even before November, that much of that availability of which will be gone will benefit us.
And in fact, over the last couple of elections, we've seen that effect on and it's real and we know exactly where to go and to those states and those areas 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 it quarter to quarter because it isn't necessarily indicative of a trend. But Ron, you can talk about the various categories in and what's growing and what.

Ronnie Ng

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

Mike Hickey

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

Ronnie Ng

Thanks. Yes, that's so if 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 tenants versus for the second quarter versus the prior year. The again, the slate meaningfully down.
And I think if you actually compare the second quarter slate this year versus last year, you will see that on. So if the attendance were to come in a little stronger than our expectation, then there's a chance for our for the actual revenue to maybe come in above that. But frankly, the reflection of our guidance is really driven by the attendance level.

Mike Hickey

Nice. Thanks, guys.

Ronnie Ng

You're welcome.

Operator

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

Thomas Lesinski

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 front runner in 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 perseverance in a down market and its ability to continue delivering solid after audiences, driving new brands through 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.

Operator

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