National CineMedia, Inc. (NASDAQ:NCMI) Q1 2024 Earnings Call Transcript May 6, 2024
National CineMedia, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
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 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. Now, I’ll turn the call over to Tom.
Tom Lesinski: Thank you, Chan, and good afternoon everyone. Welcome to our first quarter 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: Part Two and Kung Fu Panda 4 led the box office during the quarter, bringing in $400 million collectively. During Dune 2’s 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 Mean Girls and Bob Marley, One Love.
Mean Girls eclipsed 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 consumerist and non-traditional content including Cabrini and 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 where 77% of the moviegoers were diverse ethnicities. Although the first quarter reflected the lingering effects of the industry strikes, including limited product availability and postpone 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 offering and higher 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 by 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 there, audiences consistently show up to the cinema due to its diverse range and wide array of highly anticipated releases. U.S. box office hits 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 rating continues to surpass other premium video offerings, including the current NBA playoffs, which draw an average of around 1.0. These engagement levels demonstrate Gen Z’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 9%, nearly 7% compared to the same period at ’23, reaffirming the appeal of our offerings, improving our ability to perform through different market conditions.
More specifically, national revenue for the first quarter was up 31% compared to the same period in the prior year. Approximately 70% of the 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 attendance began to surface expectations. Advertisers in the travel industry in particular continue to recognize the value of the movie going 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 double compared to the prior year. Additionally, business outcome and attention metric measure deals continue to drive growth in historically underrepresented cinema ad cord 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 ads, they play after the announced showtime ahead of the movie, right before the last two trailers typically, and have a longer runtime than a conventional 30 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.
A long reform branded content in the first quarter also opened up additional avenues for advertisers to tell their brand stories, including the 15 minute short film from a leading cosmetics company that debuted ahead of the Mean Girls movie on January 12th. We are seeing these success metrics lead to greater appetite for advertisers to go beyond the traditional 30 second unit in future quarters. Additionally, we welcome our latest courtesy partners who sponsored the silence yours cell phone 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 why they continue to turn to NCM.
One example is a leading auto brand that saw 22% lift in foot traffic to dealerships during a campaign, with 69% of visits occurring within five days of seeing the ad in theater, and 53% of 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 Lions 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 hub of 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 tagline, 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, NCMx. Today, NCMx is 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 chart transforming cinema into a modern, full funnel media initiative that delivers brand building and performance marketing solutions and signals our continued commitment to innovation. As we look ahead, we’re continuing to focus on our expanded solutions for our clients. February ’24 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 guaranteed deals that include business outcome measurements. During the first quarter, a total of 15 advertisers purchased programmatic offerings ranging from small local government lines 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 and are 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 anticipate a new movie and 95% of moviegoers recommend seeing a movie in theaters to friends and families based on these experiences. Proving 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 than the theater. NCM has been first-hand the positive impact of the rise of the experience economy, and providing 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-hand experience at Screenings at CinemaCon last month in Las Vegas, there’s a lot to be excited about with a diverse 2024 movie slate, both original content and sequels, such as Deadpool 3 Inside Out, Gladiator 2, Joker 2, Mufasa: The Lion King, Despicable Me 4, Venom, Mad Max, the list goes on and on, including prequels Lemme [ph] Twister and Kingdom of 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 Part 2, Captain America, Brave New World, Snow White, Jurassic World 4, 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. Ronnie 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 in an 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 continue 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 in 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 writers and actor strikes, we were able to significantly increase total advertising spend from certain key advertisers. The top 10 national advertisers from this quarter increased their spent by over 28% collectively compared to the first quarter 2023. We saw strong growth across a number of traditional categories such as wireless, insurance, consumer packaged goods, and pharmaceutical. Although we continue to navigate through a choppy advertising market, we experience growth in both the upfront and scatter markets due to improved utilization and firm pricing discipline throughout the quarter.
In fact, the 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 in 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 a 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 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 parties 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 ESA in 2023 and the resulting discontinuation of their beverage revenue combined with a 9% decrease in the remaining ESA parties 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 are 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 ESA parties and network affiliates coupled with lower personnel and overhead expenses from our cost savings initiatives. 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 has $60.1 million of cash, cash equivalent, 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 and an average share price of $5. This included the redemption of Cinemarks 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 through 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 capital expenditures the company is primed to yield substantial free cash flow. With the combination of the share repurchase program and improved attendance monetization NCM presents numerous avenues to create value for its shareholders. Operator, please open the line for questions.
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