National CineMedia, Inc. 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and good afternoon.

I am 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 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 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 will turn the call over to Tom.

Thank you, Chan, and good afternoon, everyone. We appreciate you joining us for today's call. Alongside our second quarter results, which we will get to shortly, I am excited to discuss NCM's announcement that the company has entered into a definitive agreement to acquire Captivate, the leading operator of digital video elevator and lobby advertising in North America. Captivate operates over 26,000 digital video screens in more than 11,000 buildings across more than 170 Designated Market Areas in the U.S. and Canada. Its core business is concentrated in over 1,600 Class A and B office buildings, where more than 12,000 screens reach a sought-after affluent professional audience. In 2023, Captivate expanded to residential and today operates a residential network across more than 9,700 locations.

Together, NCM and Captivate will create the leading premium video and digital out-of-home advertising platform with more than 48,000 digital screens across theaters, office buildings, and residential properties in 185 Designated Market Areas, including all of the top 100 markets. The combination brings together three complementary premium audiences that are highly sought after by advertisers. NCM's young, diverse moviegoing audience and Captivate's affluent professional audience in both office buildings and residential properties. The combined platform will provide a powerful force-multiplying solution for high-attention advertising delivery, allowing marketers to reach consumers and business decision-makers where they work, live, and play throughout the entire week, all through a single premium media partner. Captivate's workplace network also brings incremental access to business-to-business marketing budgets, enhancing our appeal to enterprise technology and financial and professional services advertisers.

At the same time, NCM's network gives Captivate's advertisers greater access to consumer reach on a national scale. This acquisition marks an important milestone in NCM's evolution and represents the next step in our strategy to build a market-defining specialty advertising platform. Captivate complements and expands NCM's core expertise in providing hard-to-reach video-enabled audiences, and this acquisition builds on the capabilities, customer relationships, and expertise we've developed over more than two decades. Captivate also accelerates NCM's existing lobby advertising business, operating a substantially larger in-lobby network on a purpose-built digital out-of-home technology platform. We will bring those capabilities in-house, allowing us to scale NCM's lobby network more efficiently. Like NCM, Captivate connects advertisers with highly sought-after premium audiences in high-attention environments, making it an exceptionally strong strategic fit. This transaction builds directly on the strategy we've been executing over the past several years.

Once closed, it will expand our national, local, and programmatic inventory and audience reach, deepen advertiser relationships, strengthen our technology platform, and create new avenues for long-term growth in complementary premium video and digital-out-of-home advertising environments. The ability to retarget audiences from buildings to theaters in key DMAs will create a dynamic advertising solution that does not exist today. Captivate is also a very strong financial asset. Over the past two years, it has grown revenue 40% and Adjusted EBITDA more than 50%, reflecting low capital intensity, high incremental margins, and strong cash generation. Captivate also brings a recurring subscription revenue component through its multiyear building agreements and 96% building retention. The business requires minimal ongoing capital investment, enabling profitable network growth.

The addition of Captivate is expected to strengthen NCM's financial profile, accelerating revenue growth and margin expansion, and support deleveraging following close, which Ronnie will walk through in a moment. Now, turning to NCM's second quarter results and the progress we're making across our business. The industry delivered its strongest second quarter box office performance since the pandemic, and attendance across our network increased approximately 19% year over year, reflecting sustained consumer demand across a broad and diverse slate of films. That strength, combined with our continued focus on execution, drove another quarter of strong financial performance. NCM delivered total revenue of $58.4 million, up 12.7% year over year, and Adjusted OIBDA of $2.1 million, up three times year over year, with results coming in within our guidance range.

Those results reflect healthy advertising demand, which continued to improve year over year as we lapped last year's performance and successfully navigated a competitive advertising environment as domestic advertising budgets shifted toward the FIFA World Cup 2026. This demand was driven by key advertising categories including insurance, retail, automotive, and pharmaceutical, and underlying advertising demand, reflecting a return toward more normalized spending patterns. The mix of films released during the quarter was also an important driver of advertising performance. April and May performed largely in line with expectations, supported by a strong lineup of franchise and family releases, including The Super Mario Galaxy Movie, Michael, The Devil Wears Prada 2, and Toy Story 5. Later in the quarter, breakout successes including horror hits Obsession and Backrooms generated exceptional moviegoer demand.

While those two films generated strong attendance and secured the number 2 and number 3 spots in the June box office, respectively, R-rated and horror films are typically more challenging to monetize than broad four-quadrant franchise releases. At the same time, several mainstream studio releases, including Supergirl and The Mandalorian & Grogu, underperformed compared to expectations, shifting the overall composition of the quarter's box office. As a result, the strength in moviegoing did not translate into the advertising yield typically associated with this level of audience. Even against that backdrop, our strategic investments continued to deliver meaningful results. Local revenue increased 48% versus the prior period, reflecting the continued investment we've made in rebuilding our local sales organization, expanding premium inventory, and improving pricing.

In addition to continuing to drive revenue for NCM, the investment in our local sales organization will drive meaningful opportunity for Captivate, which does not currently have a dedicated local sales team. NCM's local organization sells in each of Captivate's largest markets, and following close, we will leverage our local playbook to expand the combined local business and create new cross-selling and bundling offers across both platforms. Beyond local, we continue to invest in strengthening our programmatic offering and making it easier for advertisers to buy cinema alongside other premium digital media. During the past quarter, we added Magnite to our supply-side platform relationships, which now cover 90% of the programmatic digital out-of-home market. Programmatic revenue grew 45% year over year in the second quarter, driven by new buyers and a more diversified advertiser base. Though it remains a modest share of NCM's total advertising revenue.

Captivate is expected to create an opportunity to accelerate NCM's programmatic initiatives by bringing Captivate's technology platform and established supply-side partner relationships in-house. Together, we will have a larger pool of premium digital out-of-home inventory and enable buyers to transact across cinema, office, and residential environments through a single platform. Alongside these growth initiatives, we completed the execution of the operational transformation plan announced earlier this year, which Ronnie Ng will cover in additional detail. Those efforts have strengthened our operating foundation and created additional flexibility to invest in our highest-return growth initiatives. Looking ahead, we remain encouraged by the broader theatrical environment and the strength of the release schedule throughout the balance of the year. July has already delivered an encouraging start to the quarter, highlighted by the strong performance of Christopher Nolan's The Odyssey, which debuted to nearly $125 million domestically, the biggest live-action opening weekend of 2026.

The Odyssey" also demonstrates growing consumer demand for premium moviegoing experiences, with nearly 1,000 premium large-format screens in the NCM network representing approximately 70% of the industry's premium large-format inventory. We are well-positioned as this format continues to gain popularity. While the third quarter has seen softer-than-expected performances from titles including "Minions" and "Monsters" and "Moana," "Spider-Man: Brand New Day" delivered the highest domestic opening weekend in box office history and became the fastest film ever to surpass $400 million domestically. That performance, along with highly anticipated fourth quarter releases including "Cat in the Hat," "The Hunger Games: Sunrise on the Reaping," "Avengers: Doomsday," and "Dune: Part Three," gives us confidence in the trajectory of the quarter and the balance of the year. The second quarter reinforced what we have been building: a stronger local business, a growing programmatic offering, and a more efficient operating base.