National CineMedia Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 5, 2024

There are 8 speakers on the call.

Operator

Good day, and welcome to the National CineMedia Inc. Third Quarter 2024 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chen Park, Senior VP of Finance. Please go ahead.

Speaker 1

Good afternoon. I'm joined today by our Chief Executive Officer, Tom Lesinski and our Chief Financial Officer, Ron Ying. 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.

Speaker 1

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.

Speaker 1

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 Q3 of 2024, which are largely similar to NCN Inc. Results. We are reporting NCN LLC's operating results to provide an accurate comparison to the Q3 of 2023, when we also reported NCM LLC's results given fiscal year 2023's results were unconsolidated. Now, I'll turn the call over to Tom.

Speaker 2

Thank you, Chan,

Speaker 3

and good afternoon, everyone. Welcome to our Q3 2024 earnings call. We're excited to report our 4th consecutive quarter of solid performance as the market continues to recognize NCM's improving execution and delivery of consistent results as the box office generates further meaningful growth. The cinema industry once again built on its momentum through the Q3 of 2024 outperforming almost all expectations. The box office brought in almost $2,700,000,000 this quarter, up slightly compared to the same period last year, with Deadpool and Wolverine, Despicable Me 4, Twisters and Beetlejuice Beetlejuice leading the way.

Speaker 3

Supported by the success of smaller films including It Ends With Us and Long Legs. Several of these late summer hits broke records with Deadpool and Wolverine cementing itself as the highest grossing R rated film ever and Beetlejuice Beetlejuice ranking as the 2nd highest grossing September movie of all time. We also are encouraged by strong performance in alternative content as Long Legs became 20 24s highest grossing indie horror film. The increase at the box office year over year amidst tough comparisons given last summer's blockbuster hits including Barbie, Oppenheimer, Sound of Freedom and Mission Possible 7 is a tremendous sign of sustainable growth and a testament to moviegoers desire to go to the theaters and experience the content they love in the best viewing environment. In the Q3 alone, 7 films earned over $100,000,000 highlighting the breadth of the box office recovery.

Speaker 3

The last time 7 or more films exceeded 100,000,000 at the box office in a single quarter was back in the Q4 of 2019.

Speaker 1

Looking month to month,

Speaker 3

July brought in almost $1,200,000,000 the best month year to date. August surpassed both 2023 2019 levels and September was up 25% compared to the same period the previous year. In fact, the 3rd quarter's Deadpool and Wolverine and Despicable Meat 4 performances cumulatively outperformed the barbedheimer, a true indication of box office momentum this quarter along with the consistent success of the film slate each summer. We are highly confident that the cinema industry will continue its positive momentum through the end of the year leading to an exciting and highly anticipated 2025 slate. Once again, cinema demonstrate its ability to cater to all demographics of moviegoers this quarter with strength across a wide range of genres from family friendly movies to R rated films and the horror genre.

Speaker 3

Movie theaters continue to draw young, diverse and multi generational audiences within a median age of just 30, much younger than the popular platforms like 10 FL, which has a median age of 54 or the NBA with a median age of 47. Advertisers see the value in NCM's ability to reach elusive audiences as Gen Z and Millennials made up 64% of NCM's 3rd quarter viewership. For major titles, Gen Z and Millennials represented 69% of the audience for Deadpool and Wolverine, 67% for Beetlejuice Beetlejuice and 58% for Despicable Me 4 highlighting cinema's unique ability to reach the most sought after consumers. Gen Z alone accounted for 38% of our quarterly audience, averaging a strong 7.4 weekly rating compared to a 2.4 weekly rating for NFL Sunday Night Football and the 1.6 average rating across all 5 games of the recent World Series where Gen Z comprised only 6% of the audience. NCM theaters also drew nearly 72,000,000 of the hard to reach 18 to 34 year old demographic with an average weekly rating of 7.9.

Speaker 3

Finally, It Ends With Us exemplified the box office appeal to younger audiences with 18 to 34 year olds comprising 60% of the opening weekend audience with women comprising 84% of that group. In an evolving marketplace, cinema stands out apart from streaming and legacy linear TV and its ability to reach the desirable incremental audiences that marketers seek. And NCM continues to cater to the ad marketplaces changing demands. Given our unique ability to capture diverse audience, we are poised to continue growing and scaling the business through the ongoing shift in the premium video marketplace away from legacy linear broadcast and cable networks. In the Q3, we saw a continuation of recent trends in how advertisers are thinking about allocating their future spend.

Speaker 3

Recognizing investment in video and streaming marketplaces continues to reach the same limited audiences with truly underwhelming attentiveness. Given these trends, it's no surprise that we saw increasing interest in the highly measurable and flexible buying options and inventory that NCM provides. Through our differentiated and high value offerings, we are continuing to expand our client base across key national and local ad categories, demonstrating our ongoing attractiveness to a full spectrum of advertisers. Year to date NCMS welcomed 14 advertisers that are new or have placed their 1st major cinema advertising campaign since 2019 with new clients in the CPG, QSR, alcoholic beverages and beauty industries. We expect to drive continual growth in new client engagement through our innovative offerings, differentiated platform and delivery of hard to reach audiences.

Speaker 3

Now on to our results. In the Q3 of 2024, revenue was $62,400,000 exceeding our guidance range of $56,000,000 to $58,000,000 and adjusted OIBDA was $8,800,000 exceeding our guidance range of $6,000,000 to $8,000,000 Approximately 59% of the 3rd quarter's national revenue was attributable to longer term upfront commitments, while approximately 41% was attributable to the scatter market. Amidst an industry wide challenged upfront market, we benefited from strong scatter market performance, which experienced a substantial increase in revenue per attendee year over year as advertisers are showing greater interest in closer to campaign real time solutions. NCM saw strength across multiple categories this quarter with wireless, automotive, retail and apparel, entertainment and travel representing nearly 60% of revenue. Several categories also demonstrated meaningful growth including tech, which was up more than 10 times year over year, retail and apparel which was up 123% year over year and pharma up 59% year over year.

Speaker 3

This demonstrates how NCM's diverse portfolio of offerings appeals to a broad range of brands whether through our continued strong performance in top verticals such as wireless and automotive or engagement with newer categories including pharma. Our category diversification further reduces our sensitivity to market volatility ensuring a more stable and resilient revenue stream across varying economic conditions. Platinum, NCM's premier ad unit in the trailer pack is a coveted placement for advertisers because of its exclusivity and the offering is showing impressive signs of growth with sales up 2.4 times compared to the Q3 of 2023. Platinum is becoming a key driver of interest with advertisers and we are continuing to see major advertisers leverage Platinum to gain moviegoer engagement and attention. Our newly introduced retargeting platforms Boomerang and Boost have already shown strong incremental value to advertisers with Boomerang increasing post senior engagement by 20% with 15 deals to date and Boost expanding audience reach by 3x across premium video channels.

Speaker 3

For those unfamiliar with Boost, it is NCMX's digital offering that enables advertisers to retarget the elusive movie going audiences at the national, regional and local level. Boost connects cinema to TV audiences combining exclusive cinema ad exposure data with leading identity graphs to create targeted CTV campaigns. Boost has been gaining notable traction in the marketplace while reaching multiple categories including automotive, government and healthcare. Furthermore, we are increasing our innovative experiential marketing efforts due to positive momentum providing new avenues for demand drivers combined with non traditional longer form content on the big screen. Because we are the number one medium for consumer attention compared to linear, digital, social, podcast and others, advertisers are presented with a high value opportunity to extend their ads through live experiences, creating a new way to convey their brand messages to sought after audiences.

Speaker 3

NCM has a unique ability to maximize creativity beyond the screen to in person activations in movie theater lobbies and nearby locations in addition to the most premium video experience in an immersive theater environment. Some examples include a new in lobby holographic activation for an entertainment client which brought to life their highly anticipated new series and a customized original content segment linking an automotive client to Twisters. NCM also partnered with 1 of the largest multinational retail corporations to activate a 5 minute long form content campaign which included a theatrical segment promoting back to school shopping layered with our boomerang technology to create a shoppable experience. Among moviegoers who scanned the code an impressive 81% took action by shopping for back to school deals while viewing the content and the remaining 19% opted to set a reminder for later. These experiential and long form content initiatives exemplify our flexibility and effectiveness in delivering engaging activations and effective shoppable ads and reinforce the shareable nature of the movie going experience.

Speaker 3

Through breakthrough technology partnerships, NCM is continuing to democratize cinema data In collaboration with our newest data cloud partner, Snowflake, we will utilize data clean rooms to securely share and analyze audience information, while safeguarding sensitive data. Integrating our robust 1st and second party deterministic cinema audience data with advertisers proprietary data in Snowflake's clean room environment enables precise audience targeting, performance measurement and attribution. This approach allows advertisers taking deeper insights into campaign effectiveness to optimize their strategies and achieve KPIs all while ensuring compliance with data privacy regulations. NCMS continues to be the leader of revolutionizing cinema measurement as we continue enhancing the most powerful data platform in cinema, NCMX. Year to date 47% of our sales are directly tied to our advanced measurement capabilities provided by NCMX.

Speaker 3

We are leveraging NCMX to drive measurable results for clients' business growth, offering strategic audience insights, performance attribution, continued engagement and cross channel reach. Our targeted insights have proved to lead to more than 30% higher engagement and a directly attributable 50% sales lift. Driven by NCMX, our innovative approach to merging national awareness campaigns with local messaging and consumer retargeting marks a significant advancement for franchise categories. Throughout the Q3, we have been collaborating with a major automotive company to assess campaign impact at key local dealerships in critical regions. This is essential to demonstrate the campaign's return on investment and encourage participation from additional auto dealership groups that did not engage in the current initiative.

Speaker 3

Looking ahead, we are exploring ways to further develop our new and innovative client solutions, including expanding our programmatic and self serve offerings to help unlock new demand channels for NCM. We continue to expand and invest in our programmatic offering and see an opportunity to build it into a meaningful revenue contributor in the coming years. Self serve, our fully automated cinema advertising solution that empowers local and regional companies to plan, buy, schedule and create their ads to run on the big screen has continued to generate leads and deliver significant growth quarter to quarter due to its user friendly characteristics, providing advertisers the ability to create ads in new and diverse ways. In the Q3, our self serve offering had 59 unique advertisers and we saw a sizable uptick in all aspects of the offering compared to the Q2 of 2024. In fact, self serve had its biggest quarter since launch with sales up 96% quarter over quarter.

Speaker 3

Additionally, in July, we added a new AI feature to answer customers' questions and have already seen strong initial results with an automation rate of 72% and over 28 hours of agent time saved. We continue to see a great opportunity to bolster local ad sales to an additional focus on self serve. We expect it to keep growing and contributing to higher commercial utilization across the NCM network. Together these offerings enable us to more efficiently capitalize on the shifting advertising marketplace dynamics. With that, I'll turn the call over to Ronnie to provide you with more details on our operating results and future outlook.

Speaker 2

Thank you, Tom, and good afternoon, everyone. For the Q3, our revenue and adjusted OIBDA exceeded our guidance, resulting in higher than projected margin. This marks the 4th consecutive quarter where our results exceeded our expectations, demonstrating our commitment to executing on both ends of the P and L and driving predictable financial results. As Tom previously mentioned, while the overall advertising marketplace navigates through a challenged and evolving upfront market, our team continued to grow our scatter business, which was up 35% compared to the prior year. NCM LLC's total revenue for the 3rd quarter was $62,400,000 exceeding our revenue guidance of $56,000,000 to 58,000,000 dollars Total revenue for the quarter decreased 10% year over year, primarily due to an unusual high mix of harder to monetize G and PG rated movies in July, impacting what is typically our highest revenue month of the quarter.

Speaker 2

Excluding beverage revenue, total advertising revenue was $58,200,000 which was down 10% compared to the same period the previous year, while attendance declined 8% year over year. National advertising revenue was $46,800,000 compared to $52,000,000 the previous year, down 10% due to lower attendance in the quarter and a low single digit percentage decrease in national advertising CPMs. As previously mentioned, July had an outsized mix of G and PG audiences, which typically experienced lower advertising demand than other ratings categories. While July is historically the highest advertising demand month in the quarter, typically accounting for nearly half of third quarter revenue. This July contributed only 31%.

Speaker 2

As a result, revenue was weighted toward August September, months with seasonally lower CPMs, resulting in the year over year decline in CPMs and a slight decrease of national revenue per attendee of 3%. This said, our sales team was able to capture upside in advertising revenue this quarter by optimizing pricing and packaging and deepening relationships with our advertisers. Local and regional advertising revenue was $11,400,000 down compared to $12,900,000 the previous year, primarily driven by lower attendance. While revenue was down, local and regional sales experienced an increase in contract activity and size within the automotive, healthcare, wireless and insurance categories. Additionally, we saw a 10% increase in average local client revenue and the continued adoption of our programmatic offerings across new categories.

Speaker 2

Turning to our expenses. 3rd quarter total operating expenses were $69,900,000 down 68% versus the same period last year, primarily driven by one time expenses related to our Chapter 11 restructuring. Excluding one time items, depreciation, amortization and non cash share based compensation, our adjusted operating expenses for the Q3 of 2024 were $53,600,000 down 8% year over year. The decrease in adjusted operating expenses was primarily due to lower attendance related expenses, resulting from an 8% decrease in network attendance and our overhead cost savings initiatives, partially offset by higher per attendee fees. 3rd quarter adjusted OIBDA excluding non cash charges and one time items was $8,800,000 down compared to $11,300,000 in the same period the previous year, exceeding our guidance range of $6,000,000 to $8,000,000 The decrease in 3rd quarter adjusted OIBDA was due to lower revenue, partially offset by an 8% decline in adjusted operating expenses driven by lower attendance and SG and A expenses.

Speaker 2

Unlevered free cash flow for the 3rd quarter improved significantly to negative $2,400,000 compared to negative $43,900,000 in the same quarter of the prior year, reflecting the absence of restructuring expenses from the bankruptcy proceeding we exited in August of 2020 3. Year to date, NCM LLC's total revenue is $154,500,000 compared to $168,900,000 in the previous year. National advertising revenue of $117,900,000 remained flat due to a 22.1% increase in national advertising utilization, offset

Speaker 3

by a

Speaker 2

slight decrease in CPMs in the 9 months ended September 26, 2024 compared to the same period in the prior year. Local and regional Local and regional advertising of $26,500,000 decreased by 24%, largely due to the lingering effects of 2023 rider and actor strikes that impacted the film slate and reduced advertising inventory. NCM's total adjusted OIBDA year to date is $10,700,000 compared to $12,900,000 the previous year. Turning to our consolidated balance sheet. At the end of the Q3, the company had $52,500,000 of cash, cash equivalents, restricted cash and marketable securities compared to $56,800,000 at the end of the Q2 of 2024, while total debt balance remained unchanged at $10,000,000 NCM continues to opportunistically make strategic investments.

Speaker 2

And shortly after the end of this quarter, we invested $1,000,000 in cash to acquire equity interest in an advertising related company and also entered into an agreement with an entertainment company to exchange $2,000,000 of on screen advertising to be provided over a 3 year term for equity interest. While these were minor investments, we believe they are additive to our portfolio and we will continue to evaluate other opportunities as they arise. To provide an update on our $100,000,000 share repurchase program, since the launch of the program, we have repurchased 2,500,000 shares or $12,800,000 at an average share price of $5.07 as we continue to focus on returning value to our shareholders. This also includes the redemption of Cinemark's common membership units of approximately 130,000 shares. While we plan to continue to opportunistically repurchase shares at prevailing market prices through April of 2027, we are also focused on strategically investing capital and growing our advertising network through new innovations such as programmatic and self serve.

Speaker 2

Turning to guidance. For the Q4 of 2024, we expect revenue to be between $82,000,000 $86,000,000 In addition, we expect adjusted OIBDA for the Q4 of 2024 to be between 28,000,000 and $30,000,000 Our guidance reflects a challenging year over year comp with Taylor Swift's The Era's tour in October 2023 and higher theater access fees as attendance continues to recover. We also expect a similar audience mix shift in the Q4 to what we experienced in the Q3. That said, we are confident that this is a temporary trend that will revert with the 2025 film slate. Looking ahead to 2025, there is a lot to be excited about with the upcoming slate filled with highly anticipated films from a diverse range of studios.

Speaker 2

We have already seen great success in the 4th quarter through the Wow! Robot and Terrifier 3 and we are confident this momentum will carry into 2025 for a resilient year at the box office. We are particularly excited about the 2025 releases of Superman Legacy, Avatar 3, Mission Impossible 8, Captain America Brave New World. NCM is uniquely positioned with its strong appeal to its high value audience and we are optimistic advertisers will continue to turn to NCM and the valuable audiences we provide as the box office builds momentum in the years to come. Operator, please open the line for questions.

Operator

Thank you. We will now begin the question and answer session. Today's first question comes from Eric Wold with B. Riley Securities. Please go ahead.

Speaker 4

Thank you. Good afternoon, Tom and Ronnie. A couple of questions.

Speaker 5

I guess, one, as we head towards the end of the year, can you update us on kind

Speaker 4

of your upfront visibility as we kind of head into next year? I guess, not looking for specific guidance, but maybe any metrics you can share around kind of demand and pricing coming out of the upfronts and what you saw and kind of you noted that at least in the Q3, I forget what if you gave a year to date number, Ronnie, but 59% of national revenue was longer term commitments in the quarter. What would be your goal going forward for long term commitments as you look to grow programmatic and sell through platforms? And I have a follow-up on to that as well.

Speaker 3

Well, let me touch a little bit more in general about the evolving upfront marketplace here, and then I'll try to be a little more specific with metrics. What we're seeing now for 2 straight years is an evolving size of the upfront market. And what's happening is candidly more and more advertisers are actually looking to buy closer to scatter. So the mix between upfront and scatter is changing. And while it's relatively immaterial on a percentage basis, it is worth noting.

Speaker 3

But at the end of the day, we've been performing really well in scatter. And what's really happening is brands and agencies are really looking at spending closer to the actual campaign date than they have in the past. I think what's most notable and this was literally published in Ad Age in the last 2 days, of all the big streaming companies out there, whether it's Hulu, Max, Netflix, Paramount Plus, etcetera, the average decay in CPMs during the upfront was anywhere from 10% to 30%. We did much better in the upfront. I'm not going to quote you how we did, but we actually are quite happy with how Synov performed.

Speaker 3

But what's evolving in the upfront marketplace across all these big platforms, it's not just us, is less reliance on the upfront than in the past. Having said that, our pricing in the upfront was basically stable year on year and we're actually doing better on a pricing basis in scatter. I can't tell you how that's impacting the other industry players, but I can tell you that our performance in the upfront was actually really solid. And I can tell you there's some other companies, major media companies that had a much harder time sustaining pricing and revenue during the upfront.

Speaker 4

Thank you. That's helpful. And then my second question, obviously, Ronny, you highlighted obviously what's looking to be a very attractive year next year for the film slate. It's going to have a very favorable slate for IMAX and other premium formats. Any early success or read on the demand you're seeing with the new kind of premium format ad package you're launching?

Speaker 4

And how is that market? I'm assuming that's marketed fairly well ahead of time. We think that's also going to play into the move to purchase a little closer to the campaign? So on

Speaker 3

the premium formats, Eric, there's we have a lot of momentum in building that new ad package. Not ready to give you any specific visibility on it yet, but clearly, you're seeing advertisers gravitate to the wider screens and also literally the biggest movies are playing on those bigger screens in a much higher proportion. So we expect a lot of traction on that. It's truly a way to differentiate the movie business even further versus television or streaming. So we have a lot of momentum and we're putting lot of effort behind that and it's certainly riding a trend that we like.

Speaker 3

We're not it doesn't really have anything to do honestly with how the upfront is doing that piece of it, but it is a separate initiative that we're actually really focused on and that the brands and agencies are responding to. So more of an update on that probably next quarter, but so far that's been going really well.

Speaker 4

And just one quick follow-up on that. Given that the IMAX and kind of premium format runs tend to be relatively short runs of a film before it moves on to the next film. Would those premium ad packages be sold kind of an exclusive basis to an advertiser?

Speaker 3

Actually, we could do that, but it's more likely given the amount of inventory, that it would go to multiple advertisers.

Speaker 4

Got it. Thank you. Appreciate it.

Speaker 1

You're welcome.

Operator

Thank you. The next question is from Patrick Scholes with Barrington Research. Please go ahead.

Speaker 5

Thank you. I was wondering with some of the different ad formats that you had, like the extent that you're able to maybe integrate like this is like the QR scanning was like the extent that you're able to integrate some of those advertising formats with your cinema partners, whether it's like alcohol with concession purchasing or retail with some of their merchandise offerings?

Speaker 3

So almost all the ad units we run are capable of running a QR code. And one of the significant changes over the last couple of years has been the percent of ads that run with the QR code. Many of them are used as part of our NCMx platform and allow us to not just retarget, but to monitor actual behavior from the theater into a fast food restaurant for instance, or to any venue that's trying to actually match the viewership to real attribution or an outcome. So ironically, the QR code, which was just kind of birthed out of COVID restaurants has now migrated to a very popular form of follow-up with consumers. We've been taking a lot of advantage of that.

Speaker 3

And then one thing I will say is our QR code download rates are by far the highest that we're aware of in the industry compared to television or any other digital platform. So we're getting a lot of traction from advertisers using QR codes and the uptake on actually using the code, is really impressive compared to what we're seeing in the rest of the industry.

Speaker 5

Okay. And then I guess on the screen base, I guess could you maybe talk about like the competitiveness of or openness of exhibitors in terms of I guess yes, just the market for the changing screen advertising providers?

Speaker 3

I didn't quite get your question. Can you just rephrase that again Pat?

Speaker 5

I guess I'm just kind of wondering if the financial position of the exhibitors has sort of stabilized to the point that there's maybe going to be less exhibitors moving in or out of relationships kind of based upon whatever financial restructurings they're going in?

Speaker 3

It's funny. During the course of the last 10 years, there hasn't been a significant amount of shifting between exhibitors in and out of various advertising companies. I would say there's just a lot more renewals than there are changes. I would say that every now and again, a midsize or large exhibitor comes up. And obviously, we compete for that.

Speaker 3

We're quite happy with our existing footprint. We are getting 70% of the opening weekend attendance. Having said that, there are still some attractive markets available, and there's certainly some exhibitors that we would like to be in business more with or even fresh with. So it's something we focus on every quarter, and we're actively talking to the exhibitors to opportunistically evolve our footprint into markets that we care a lot about and that advertisers care about.

Speaker 5

Okay. Thank you.

Speaker 2

You're welcome.

Operator

Thank you. The next question is from Mike Hickey with The Benchmark Company. Please go ahead.

Speaker 6

Hey, Tom, Ronnie, Chan. Great quarter, guys. Thanks for taking our questions. Just curious on the 4Q guide, Tom, are you looking for attendance growth in the Q4? Because it looks like the box office is set up here pretty good for 4Q growth.

Speaker 6

So just a little perplexed on your guide down in terms of total revenue. I know you gave a brief explanation, but wonder if you can double click on that. And then in terms of kind of segues into 2025, I think we're all really excited to see the continued recovery of the box office in terms of attendance, 2025, 26, 27 until we sort of get back towards pre pandemic levels. I mean, how much of your growth, I guess, is dependent upon attendance coming back here, which seems pretty certain versus sort of your ability to sell those impressions?

Speaker 3

Let me cover the 25 part and then Ronnie can cover the guides in the Q4 a bit. We are very optimistic about 25. I mean the slate in 2025 and 2026, by the way, with a lack of any COVID overhang, a lack of any strike issue, we are looking at some really robust numbers for next year. And I can tell you it's really being borne out by industry forecast, by all the analysts that cover the industry. So more on that next quarter for sure in January, but we are looking at attendance growth that's very attractive for next year.

Speaker 3

We also believe that the revenue per attendee will also increase a little bit. So we're set up for a really good 2025. And it will probably be the first, what I would call, normalized year of consumer behavior that we can measure against what was 2019. What percent it will be at 2019? I'm not really willing to go out of the limb just yet on that.

Speaker 3

But I can tell you it's going to be the best year since 2019 that we've had in a really long time. So Ronny, you want to cover the

Speaker 2

other point? Yes. So Mike, on the Q4 guidance, so there's a few things to point out. So last year in Q4, we had a fairly challenging comp on a year on year basis as Taylor Swift came out in October, which is typically a very soft advertising month. And so Taylor Swift really kind of helped pull forward demand into the quarter in a way that we just haven't seen before.

Speaker 2

So that's one thing that's affecting the comp on a year on year basis. The second thing that we're seeing in the 4th quarter is very similarly to the Q3 in July where there was a lot of GPG rated audiences. We're seeing a lot of that in December actually even much more so in the Q4 in December than even in July. So that's those two things are affecting I'll call the comparable on a revenue per attendee basis for the year I mean sorry for the Q4. So you take those things and then factor in you're right, we are expecting an increase in overall tenants in the 4th that would then translate into slight margin compression on a year on year basis.

Speaker 6

Thanks, Ronny. Tom, are you as optimistic about your ability to grow in 2025 as you are the box office? And is there a assuming that you are expecting to grow in 2025, is there a leverage opportunity here? I know you mentioned some cost pressures as attendance unlock you have in 2025? I guess with the backdrop of the first question I just asked on your enthusiasm for 2025 growth.

Speaker 3

I think one thing you have to just as you try to model this, is you have to look at the box office estimated growth and then the attendance. So obviously, the box office growth is higher based on the mix of wider screen, big screen formats as well as higher pricing. But the attendance growth is still a significant driver. And when you look at the estimates that we have and what others have provided, married to our high CPMs and potentially growing CPMs, we're in a really good position. I don't know, Ronny, you want to talk a little bit about the operating leverage question?

Speaker 3

Yes.

Speaker 2

So I think there's definitely still a significant amount of operating leverage that we can get heading into 2025. There's obviously still a lot more we can do even on a revenue per attendee basis. We've done a good job this year, especially in the first half of the year. And so and next year we'll have a more normalized slate, so giving us even better opportunity to improve that. So when you factor that in and where some of our deals, have fixed screen feed built in them that's actually helpful for operating leverage.

Speaker 2

So there's still I think a lot of opportunities to improve margin going into next year.

Speaker 6

Thanks, guys. Last question. On your capital allocation, looks like I didn't do the math. It looks like the quarter maybe it slowed sort of implied that given the average price you've been buying it back. And you mentioned some smaller investments here.

Speaker 6

It was kind of nebulous. But sort of are you at this point maybe just given the success your stock has had as you've grown your business, bouncing more towards the sort of smaller M and A opportunities, could there be larger ones, Tom, here in the future? Or I guess just your enthusiasm here on the buyback versus the M and A? Thanks, guys.

Speaker 3

Good question. I think the things we did, the small ones are opportunistic. Our focus is still on doing what's best for shareholders. Right now that's focused on our share buyback program. We certainly are going to look at other things that would make shareholders even more interested in the equity value of the company.

Speaker 3

We're having ongoing discussions with our Board about that. We do look at some of these additive things that we're doing as relatively small. I mean, I think we spent a total of $3,000,000 on the 2 opportunities, which is really not a material thing, but both of them fit strategically into our business and will allow us to grow revenue and also be better at doing certain things, including data gathering, attribution and outcome guarantees. So I wouldn't read that much into the small investments we made. They're exciting and interesting, but they're small.

Speaker 3

And I think our focus right now is on the current shareholder base and making sure that they see the potential of this and continue to be attracted to it. And right now 2025 is the best story we have. We'll continue our buyback program, but that's really the plan right now.

Speaker 7

All

Speaker 6

right. Thanks guys. Best of luck. Great quarter again.

Speaker 3

Thank you.

Operator

Thank you. The next question comes from Alicia Reece with Wedbush. Please go ahead.

Speaker 7

Thank you. Thanks for taking my question guys. I wanted to ask about the performance guarantees given the shift, the mix shift from fewer from upfront contracts a bit more toward the scatter contracts closer to the air date. So I'm just wondering, are you able to offer the performance guarantees just as much in the scatter market, if at all, as you did in the upfront?

Speaker 3

Yes, absolutely. Good question and a fair question. There's no difference really, in offering a guarantee, whether it's in an upfront or a scatter market, as long as we have enough time to execute on it, and typically we can put a performance guarantee package together in a really short period. So that expertise that we've built through NCMx, which by the way has gotten a tremendous amount of traction, a significant amount of advertisers at NCM are using, outcome guarantees and attribution in our data analytics package. And as it relates to the mix between scatter and upfront, we can execute in either market on those kind of performance metrics.

Speaker 7

Excellent. And as a follow-up, I'm wondering also because of the shift again for the upfronts towards the scatter market that should positively impact gross margins, assuming that perhaps there's some also puts and takes on more or less expense related to building and maintaining the programmatic booking platforms that you have now that you didn't necessarily have before?

Speaker 2

Yes. I think, Alicia, you're pointing to the fact that typically the scatter market has higher CPMs versus the upfront. So you're absolutely right. There's an opportunity there as the market continues to shift. Again, obviously, that's all with the backdrop of sustainability of demand and all that, which we expect demand to improve going into 2025.

Speaker 2

So that could be a helpful setup going into next year.

Speaker 3

As it relates to programmatic, your follow-up on to that. Obviously, we're very bullish on the potential of programmatic in the marketplace. More and more money is shifting into programmatic every day. In some cases, advertisers are allocating 50% of their open to buy dollars into programmatic. Obviously, it's much more complicated doing it in a movie theater environment than it is in digital out of home or in CTV.

Speaker 3

But I can tell you we're devoting a lot of time, effort and resources towards getting programmatic rolled out as broadly as possible. And it's definitely one of the most important initiatives we have in the company right now.

Speaker 7

Excellent. And one last question, if I may. I'm curious to know if you're able to participate with any of your partners, exhibitor partners or potentially even IMAX on some of the live events that they're starting to do. Obviously, you did with Taylor Swift concert movie, but IMAX just announced that it's going to do a live football game. So I'm curious to know if you're able to participate in that and if not this one anything in the future?

Speaker 3

Yes. For the most part, all the advertising rights that garnered to us are also available for live events and live programming. Obviously, we did a great job monetizing Taylor Swift and Beyonce and the other concerts. We're very interested in helping develop and evolve that business. And we have some active business development discussions going on both with content providers as well as with exhibitors to grow that business.

Speaker 3

We believe we can be a key part of facilitating it. And it's part of the business that also has a new idea and new business we're really focused on trying to develop. So we think that seeing certain things in theaters and the communal experience is very attractive and it's particularly attractive to advertisers. You might recall during Taylor Swift, we had the most sold out inventory position we've ever had around that movie And we also had probably the highest pricing we've ever had. So we see those opportunities with rabid fans being in a venue as a great opportunity to sell advertisers and sell through at a very premium price point.

Speaker 7

Right. A tough comparison, of course, in the Q4, but excellent work on that. And it seems like there's quite a bit more you could do in that arena going forward. Thanks for taking my questions today.

Speaker 3

You're welcome. Thank you.

Operator

Thank you. This concludes our question and answer session. I would now like to turn the call back over to Tom Lesinski for closing remarks.

Speaker 3

Well, thank you everyone for joining the call today and your ongoing support of National CineMedia. And we're confident that 2024 is on solid footing finishing the year and we carry significant momentum into what everyone expects to be a great year of movies in 2025. So before we wrap up, I'm pleased to Shailah will be hosting an Investor Day in the spring of 2025 in New York City. More details will be forthcoming, but we look forward to doing our 1st Investor Day in a very long time. And importantly, I want to thank the entire NCM team for their hard work and thank our shareholders for their support.

Speaker 3

See you at the movies. Thank you.

Operator

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

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Earnings Conference Call
National CineMedia Q3 2024
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