NCMI - NASDAQ

Good day, and welcome to the National CineMedia, Inc. Second Quarter 2024 Earnings Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Chan Park, Senior Vice President of Finance. Please go ahead.

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 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 release or on the Investor Relations page of our website at ncm.com. Today, we will be discussing NCM LLC's operating results as they relate to the second quarter of 2024, which are largely similar to NCM Inc's results. We are reporting NCM LLC's operating results to provide an accurate comparison to the second quarter of 2023 when we also reported NCM LLC's results given fiscal year 2023 results were unconsolidated. Now, I'll turn the call over to Tom.

Thank you, Chan, and good afternoon, everyone. Welcome to our second quarter 2024 earnings call. The cinema industry saw consistent momentum throughout the second quarter of 2024 as we entered into the summer. The box office brought in $1.9 billion, driven by highly anticipated theatrical releases, including Inside Out 2, Kingdom of the Planet of the Apes, and Bad Boys: Ride or Die. Inside Out 2 earned the spot as the biggest movie of the first half of 2024 and became the second largest animated opening of all time, bringing in $469 million in the second quarter alone. Inside Out 2 was also the first film since Barbie to earn more than $1 billion globally, the first $100 million opening in 2024, and Pixar's top grossing movie of all time. Kingdom of the Planet of the Apes added to the success of its franchise, bringing in $168 million, 16% higher than its last installment. And finally, the sequel, Bad Boys: Ride or Die, brought in $165 million with the second highest R-rated opening since Oppenheimer. Deadpool & Wolverine built upon the strong box office momentum from the last several months, taking theatrical movie going to new heights and boosting moviegoer enthusiasm. Although the lingering effects of the industry strikes reduced and postponed releases in the second quarter, we were encouraged by the sequential improvement at the box office each month. Specifically, the 28% increase from April to May and the 75% increase from May to June reaffirmed that there is growing consumer demand for movie going, especially when the slate has broad demographic appeal. Inside Out 2 drew moviegoers of all ages to the theaters, reminding them the joy they feel from cinema and sparking the success of many other films to overperform against expectations. Furthermore, June brought in nearly $1 billion at the box office, the best month year-to-date. We have seen the box office continue to accelerate in recent weeks with the massive success of Deadpool & Wolverine breaking numerous records, including becoming the biggest July opening of all time. We are highly confident that the box office will continue to build upon this momentum in the latter half of 2024 and into 2025 as supply continues to normalize and with several highly anticipated films hitting the big screen. The box office, from family-friendly hits to new installments of franchise titles, catered to all demographics of moviegoers this quarter. Our core audience, Gen

Thank you, Tom. And good afternoon, everyone. Second quarter saw the continuation of our strong execution and momentum in the advertising marketplace, driving results that exceeded our expectations for both revenue and adjusted OIBDA. We are pleased that our key fundamentals continue to improve with inventory utilization increasing significantly as advertising revenue per attendee reached $0.56 ahead of 2019 and significantly surpassing 2023 levels. In fact, this marks the highest second quarter advertising revenue per attendee since 2017. This was achieved through our focus on improving inventory management as impressions sold per attendee was up 27% year-over-year, while slightly increasing pricing. NCM LLC’s total revenue for the second quarter was $54.7 million, exceeding our revenue guidance of $49.5 million to $51.5 million. Total revenue for the quarter declined 15% year-over-year due to the decline in attendance and the contracted decline in beverage revenue, which was offset by improved per-patron monetization. In fact, when excluding beverage revenue, total advertising revenue declined only 11% year-over-year despite a 31% decline in attendance. National advertising revenue was $41.7 million, down 6% due to the drop in attendance over the same period offset by significant 37% increase in revenue per attendee. The growth in per attendee monetization was a result of a 27% year-over-year increase in national advertising utilization as well as a 5% year-over-year increase in CPMs in the second quarter of 2024. Additionally, this quarter’s national revenue per attendee of $0.45 was the highest second quarter national revenue per attendee since 2016. Local and regional advertising revenue was $9.8 million, down compared to $13.4 million the previous year. The decrease in local and regional advertising revenue was primarily attributable to the decrease in attendance. However, the local and regional team continued to focus on the monetization of its inventory and recorded a revenue per attendee of $0.11 for the second quarter of 2024, which was slightly ahead of both 2023 and 2019. Turning to the categories, we experienced increased activity in average deal size within apparel, technology, and automotive. Local and regional also saw growing demand for its new programmatic offering. While still small, revenue for the second quarter exceeded expectations and continues to gain momentum. Beverage revenue derived from the ESA Parties beverage agreement decreased $3.5 million to $3.2 million compared to the prior year. This decrease was due to the termination of the Regal ESA in July of 2023 and the resulting discontinuation of their beverage revenue, combined with a decrease in the remaining ESA Parties attendance year-over-year. Turning to our expenses, second quarter total operating expenses were $64 million, down 4% versus the same period last year. Excluding one-time items, depreciation, amortization, and noncash share-based compensation, our adjusted operating expenses for the second quarter of 2024 were $47.1 million, down 9% year-over-year. The decline in adjusted operating expenses was driven by an 11% decline in theater access fees and affiliate expenses from lower attendance offset by higher per-attendee fees. In addition, adjusted SG&A expenses of $20.3 million were down 7% compared to the same period last year. The decrease in SG&A expenses was driven by 5% year-over-year reduction in personnel expenses as we continue to benefit from the $5.5 million annual cost savings plan we executed at the start of the year. We are currently on track to achieve the full cost savings for the year. Second quarter adjusted OIBDA excluding noncash charges and one-time items was $7.6 million, down compared to $12.5 million in the same period the previous year, but considerably exceeding our guidance range of $3.5 million to $4.5 million. Again, the decline in adjusted OIBDA was related to the 15% year-over-year decline in revenue and offset by a 9% decline in adjusted operating expenses. Unlevered free cash flow for the second quarter improved significantly to $6.7 million compared to $0.9 million in the same quarter the prior year, which reflected the absence of the restructuring expenses in the prior year. Year-to-date, NCM LLC’s total revenue is $92.1 million, compared to $99.3 million in the previous year. National advertising revenue increased 7% due to a 40% increase in national advertising utilization in the six months ended June 27, 2024, compared to the same period in the prior year. Local and regional advertising revenue decreased by 30%, largely due to the lingering effects of the 2023 writer and actor strike. NCM’s adjusted OIBDA year-to-date is $1.9 million compared to $1.6 million the previous year. Turning to our consolidated balance sheet. At the end of the second quarter, the company had $56.8 million of cash, cash equivalents, restricted cash, in marketable securities compared to $60.1 million at the end of the first quarter of 2024, while total debt balance remained unchanged at $10 million. On our fourth quarter 2023 earnings call, we announced that our board approved a $100 million share repurchase program. Since the launch of this program, we have repurchased nearly 2.1 million shares for $9.8 million and an average share price of $4.78. This also includes the redemption of Cinemark’s common membership units of approximately 130,000 shares. We plan to continue opportunistically repurchasing shares at prevailing market prices over the next three years, while also strategically investing capital in growing our advertising network through new innovations such as programmatic and self-serve. Turning to guidance. For the third quarter of 2024, we expect revenue to be between $56 million and $58 million. In addition, we expect adjusted OIBDA for the third quarter of 2024 to be between $6 million and $8 million. The outlook for the third quarter assumes a continuation of the attendance trends we’ve experienced year-to-date due to the lower slate count offset by our improved execution increasing revenue per attendee. Looking to the remainder of the year, there is a lot to be excited about as the movie slate continues to recover and generate momentum heading into 2025 and as we further deploy new products such as programmatic and NCMx to reach new clients. While industry strike related delays linger, production is fully up and running again, and we are bullish about the resurgence of film volume over the coming years. We most recently witnessed the huge success of Deadpool & Wolverine, and for the remainder of 2024, we are particularly excited about the releases of Joker 2, The Lord of the Rings prequel, Mufasa: The Lion King, and Gladiator II. 2025 promises another set of highly anticipated films, including Captain America: Brave New World, Mission: Impossible 8, Superman, and Avatar 3. NCM is uniquely positioned to continue to make positive gain in utilization and attendee monetization as we move forward and the box office recovers in the latter half of 2024 and into 2025. Operator, please open the line for questions.

Thank you. And at this time we will now begin the question-and-answer session. [Operator Instructions] And our first question today will come from Eric Wold with B. Riley Securities. Please go ahead.

Thanks. Good afternoon, Tom and Ronnie. Thanks for taking the questions. A couple questions. I guess, one, you talked about on the self-service platform, you talked about the improvements you’ve seen with that sequentially since launching it and kind of the 44 unique advertisers. Any way you can kind of quantify just how big that is right now, whatever range you want to give? But then also, are you seeing, with the usage of the self-service platform, are you seeing kind of the average window between when advertisers are kind of buying their spot, is that shrinking such that you can kind of fill up inventory that would have otherwise been unsold and it can be more reactionary? Or are you mainly seeing no change in that, but just they’re doing it more on their own versus using your services as a little bit more of a cost savings, or is it both?

So, a lot of questions just to unbundle there quickly. Let me try to answer the second half first. So, both programmatic and self-serve help us allow advertisers to buy inventory closer to the actual airtime. So that’s a good thing, and it creates a lot of efficiency as well in terms of just the resources we devote to it. So those are both very positive. And I can tell you that we’re doubling down all of our efforts on self-serve and on programmatic. It’s definitely one of the highest priorities we have both from an allocation of people and resources over the next six months. Can’t give you any specific revenue or metrics associated with self-serve just yet. I think given that it’s relatively new, same with programmatic, we will be in a position over the next couple quarters to provide more specifics on that. And I think especially with Catherine Sullivan joining us and all of her experience in programmatic, we’ll be able to give you a lot of insights on that, Eric. But I appreciate the question.

Thanks Tom. And then my last question, I know you’re only at this point providing Q3 or one quarter out guidance, but maybe now that we’re past the upfront meetings and you have a firmer sense of the commitments coming out of that, which will start in Q4. Maybe it’s just kind of a postmortem of those meetings, kind of how you felt coming out of them, maybe some sense of revenue increase as that box office starts to improve heading into next year.

So, I think the upfront is still an active negotiation. I think we’re about halfway through it, Eric. So, for this call, we’re not going to put a number and update on it. We’ll definitely be able to do it next quarter. We are actively in it right now. What you have noticed so far from the major media companies is not a lot of specifics so far, as those deals are just getting wrapped up. We’re obviously very competitive in the upfront. It’s an important part of our business. But it’s probably going a little slower this year from a timing point of view than it has in the past. But I can assure you coming next quarter, when we’ll have completed the upfront, we’ll give you a lot of specifics on it. And as you know, we’ve always created a lot of transparency around our performance in the upfront and in scatter. So, we’ll do that next quarter.

Go it. It was helpful.

You are welcome.

And our next question will come from Jim Goss with Barrington Research. Please go ahead.

All right, thank you. I’d like to talk a little more about the – you to talk a little more about the per patron monetization improving. What did you say the current level of national utilization is? You said it was up 27%. And you talked about a 5% increase in the CPM pricing attributable to it. How wide is the variance of pricing between say direct sales and programmatic and self-serve? Is it considerable based on when you buy and how you buy it?

I’m going to let Ronnie deal with the specifics and then I’m going to chime in more. So, Ronnie, why don’t you answer that?

Yes, so a lot of the better monetization, if you actually look at the actual total advertising revenue per attendee, again, it was down 11% year-on-year versus the attendance overall being down 31%. I feel again, a lot of that is just due to the ability to sell more through per unit or per attendee. And also, better at utilizing our inventory versus what our advertisers or agencies have contracted to do. And we have actually done those improvements over the last three quarters now, and that’s why you see – or that’s why our impressions per attendee, especially on the national side, is up 27%. Again, we’re not utilizing pricing to drive better utilization because pricing is up roughly 5% on a year-on-year basis. It’s literally just better execution and better inventory management from our side.

Okay. And I was wondering if you could talk about any shifts in the audience demographics you’ve noticed to either your benefit or detriment. And trends in the time which – during which they’re witnessing your ads. How are they getting – are the audiences arriving at theaters any earlier or later than they had before? And maybe you benefit a lot from having a lot of the advertising post to the stated showtime, and maybe that’s part of the improved situation as well.

Okay. So, demographics first. I mean, the one great thing about the cinema business, particularly cinema media, is the consistency of our young platform in terms of demographics. No one delivers the young 18 to 34-year-old demo better than cinema. And that has been consistent and in fact growing over time. And in a world where every marketer is anxious to reach that demo, Jim, no one does it better than us and no one does it more consistently than we do. If you compare our delivery on that demo to any of the major media networks in recent times, whether it was against sports or the Olympics, we are clearly the best way to reach those people today in terms of a attention-grabbing ad to a young demographic. So, we’re really happy about that. Remind me of what the second half of your question was?

Well, I was just asking about the arrival times relative to when your content is on display.

So, we do a good job monitoring this on a regular basis. The actual arrival times have been consistent for people for the last two years. And as you know, we have created a lot of inventory in almost every exhibitor in post-showtime advertising as well as platinum. But moviegoing, ever since reserved seating has been entrenched, has not really changed that much over the last three or four years. So, the arrival times are what they are. And clearly, we were monitoring that for a long time. So, we found a way to deliver the vast majority of that inventory in post-show and in platinum, and we’ll continue to keep doing that.

And I guess the other part of that was when you shifted to this having a lot of the advertising post the stated showtime, has that effectively been effective in terms of increasing the viewership of your ads?

Yes, it has, definitely. Remember, we did that back in 2019 in the fourth quarter. So, it’s been going on for a relatively long period of time, and we’ve seen a consistent growth in the delivery of impressions based on that new platform that we created in the fourth quarter of 2019.

Okay, thank you very much.

You are welcome, Jim.

And our next question will come from Mike Hickey with The Benchmark Company. Please go ahead.

Thanks. Hey Tom, Ronnie, Chan, nice quarter, guys. I guess just a few questions here on the Q2. I mean, I heard your prepared comments, guys, but obviously Q2, I mean, despite a nice little healing process towards the end of the quarter was brutal. And I imagine that attendance didn’t meet your expectations. Can you just – I guess summarize real quick what was it that drove the upside in Q2 and how we should think about, I guess, the Q3 guys?

That’s a good question. It’s a good question, Mike. And we’ll get to your other questions too. It was pretty simple. When you think about how well we performed despite the attendance being down, it was driven really by higher utilization, better platinum sales, slightly increased pricing, incremental programmatic, and a more diversified advertiser base. So, those combined is what drove the higher revenue per attendee in the performance, which was really impressive against a relatively down quarter attendance in box office-wise.

Good. That’s helpful. And then, I mean, are those – are you taking those trends into Q3? Or is Q3 sort of kind of conservative again, sort of build back the case, like, yes?

Yes, I mean, our priority is obviously in utilization optimization. Obviously, we want to keep pushing platinum because of the high CPMs and try to make sure we at least retain pricing levels or grow them a little bit. And more importantly, what we’ve been doing more than ever is creating more and more of a diversified ad base. We added more than a dozen new advertisers past quarter, and we have many more coming in in the third quarter and towards the fourth quarter. We’re optimistic about the second half of the year. Third quarter is obviously going a very tough comparable with Barbenheimer last third quarter, but fourth quarter looks really good. So, the whole second half from an attendance box office point of view looks very good compared to the prior year. So, I think we’ve got a good set of titles lined up with a really good performance of our sales team, particularly on utilization and our platinum sales.

The last question, you touched on up front, Tom, I don’t want to say you sounded guarded, but you didn’t give us a lot of details. Q2 obviously, box was for the most part doing awful. That couldn’t have been helpful for you. You’re a great salesman, but I mean, Q2 was rough, and all of a sudden, the box started working, and everyone is excited. So, I imagine through that progression, it helped Catherine, and her team and you in the upfront. And so, sort of maybe more color there, and then how you think about this macro picture that’s sort of is there now possible recession. You could sort of walk through the resilience of the box office and media buyer’s allocation and maybe how that could impact your upfront?

I think, Mike, you were asking about the progression in Q2, which started off obviously really slowly but grew towards the end. We were overly focused on making sure that even in a down quarter, that our utilization was higher. And I think our record platinum sales also was a testament to the sales team being able to sell in any kind of an environment. We’ve got a really senior season team that knows how to sell in any environment. In fact, we even had prices up slightly. It was positive. But I think the way we brought new people into this business, new advertisers, new clients, this is the most impressive thing, even in a quarter where the box office was down pretty significantly year-on-year. So, it’s really a testament to the company’s experience and just aggressiveness in optimizing the platform that’s really made me feel really confident about the second half of the year.

Thanks Tom. Appreciate it guys.

Welcome Mike.

And this will conclude our question-and-answer session. I’d like to turn the conference back over to Tom Lesinski for any closing remarks.

Okay, thank you all for joining us today, and particularly thanking you for your support of NCM. Heading into the second half of 2024 with really strong box office momentum, NCM’s differentiated and high-value offerings position us for continued growth at the forefront of this industry. We remain focused on our two pillars of utilization and inventory modernization as we demonstrate our unique ability to deliver young, hard-to-reach audiences at an unmatched scale. As we continue to assert our position as a frontrunner in the premium video advertising space, we are very excited for what the future holds for NCM. Given the strong commitments from the studios, early industry analyst forecasts, and buzz from media and consumer select, we are confident that 2025 will be the true indication of the box office’s ultimate resurgence. I’d like to thank the entire NCM team for all their hard work and thank our shareholders for their support. See you at the movies. Thank you.