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National CineMedia, Inc. (NASDAQ:NCMI): Delivering Audiences at Scale Amidst Industry Headwinds
Published on September 24, 2024 | Ticker: NCMI

National CineMedia, Inc. (NASDAQ:NCMI) is the largest cinema advertising network in North America, dedicated to uniting brands with young, diverse audiences through the power of movies and pop culture. Despite facing industry-wide challenges, the company has demonstrated resilience and innovation, positioning itself as a premium video advertising platform that delivers sought-after audiences to its clients.

National CineMedia, Inc. (NCM, Inc.) is the holding company with the sole purpose of becoming the sole manager of National CineMedia, LLC (NCM LLC), a Delaware limited liability company. NCM LLC operates the largest cinema advertising network in the U.S., selling advertising under long-term exhibitor service agreements (ESAs) with major theater chains such as Cinemark, AMC, and Regal. As of March 28, 2024, the weighted average remaining term of the ESAs was approximately 14.8 years.

NCM LLC's network reaches movie audiences through its Noovie® show, a cinema advertising and entertainment program shown on movie screens across the U.S. The company also sells advertising on its lobby network (LEN), a series of strategically placed screens in movie theater lobbies, as well as other forms of advertising and promotions in theater lobbies. Additionally, NCM sells online and mobile advertising, including through Noovie Audience Accelerator, and through the company's digital gaming products.

Financials

For the fiscal year ended December 28, 2023, NCM reported annual revenue of $165.2 million and a net income of $705.2 million. The company's annual operating cash flow was -$7.9 million, and its annual free cash flow was -$11.2 million.

In the first quarter of 2024, NCM's total revenue increased 7.2% year-over-year to $37.4 million, representing the highest first-quarter revenue since before the COVID-19 pandemic. This growth was driven by a 31.1% increase in national advertising revenue, which reached $29.5 million. Local and regional advertising revenue, however, decreased by 33.8% to $5.3 million, primarily due to a 15.8% decrease in network attendance caused by a reduced movie slate.

Beverage revenue derived from the ESA Parties' beverage agreements decreased by 40.9% to $2.6 million, due to the termination of the Regal ESA in 2023 and a 9% decrease in the remaining ESA Parties' attendance.

Operating expenses for the first quarter of 2024 decreased by 8.2% to $60.1 million, primarily due to lower network attendance, leading to decreased fees paid to the ESA Parties and network affiliates, as well as lower personnel and overhead expenses from the company's cost-saving initiatives.

Adjusted OIBDA (a non-GAAP measure) for the first quarter of 2024 was negative $5.7 million, up 47.7% compared to negative $10.9 million in the prior-year period. This result exceeded the company's guidance range of negative $7.5 million to negative $6.5 million.

Liquidity

As of March 28, 2024, NCM had $60.1 million in cash, cash equivalents, restricted cash, and marketable securities, compared to $37.6 million at the end of 2023. The company's total debt balance remained unchanged at $10 million.

NCM reported its highest free cash flow in the last 15 quarters, with $22.6 million in the first quarter of 2024, compared to $9.4 million in the same period the prior year. This strong free cash flow, coupled with the company's $100 million share repurchase program announced last quarter, demonstrates NCM's commitment to maximizing shareholder value.

Outlook

For the second quarter of 2024, NCM expects to earn total revenue of $49.5 million to $51.5 million. The company also expects adjusted OIBDA for the second quarter of 2024 to be between $3.5 million and $4.5 million.

Looking ahead, the company is optimistic about the growth of film volume in the coming years, with a diverse and high-profile movie slate expected in 2025, including the return of major franchises such as Avatar, Mission Impossible, and Jurassic World.

Operational Highlights

During the first quarter of 2024, NCM continued to innovate and expand its offerings to advertisers. The company launched its on-screen programmatic advertising platform, providing additional opportunities for current NCM customers to seamlessly purchase incremental cinema audience on an as-needed basis. This new offering has positioned cinema as an attractive option for advertisers who have not historically purchased cinema advertising directly.

Additionally, NCM saw strong growth in its Platinum advertising offering, with more than $2.5 million in Platinum commitments in the first quarter, up over 130% compared to the same period in 2023. The company also saw success with longer-form branded content, including a 15-minute short film from a leading cosmetics company that debuted ahead of the Mean Girls movie.

NCM's data intelligence platform, NCMX, has become the most powerful data platform in cinema, driving strong business outcomes for advertisers. The company's new brand tagline, "WE GET AUDIENCES," better aligns with its evolution as a premium video advertising platform that reaches young, diverse audiences at scale.

Risks and Challenges

Despite the company's resilience and innovation, NCM faces several risks and challenges. The company's business is highly dependent on the performance of the movie industry and the attendance levels at its partner theaters. Any disruptions or changes in consumer preferences for movie-going could have a significant impact on the company's financial results.

Additionally, NCM's business is subject to intense competition from other advertising platforms, including television, online, and mobile video platforms, as well as other out-of-home advertising options. The company's ability to maintain and grow its market share will be crucial to its long-term success.

Conclusion

National CineMedia, Inc. has demonstrated its ability to navigate industry headwinds and deliver strong financial and operational performance. The company's focus on innovation, data-driven solutions, and its unparalleled reach to young, diverse audiences have positioned it as a premier advertising platform in the cinema space.

With a robust movie slate expected in the coming years, a strengthening liquidity position, and a commitment to shareholder value creation, NCM is well-positioned to capitalize on the growing demand for premium video advertising and continue delivering value to its clients and investors.

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