National CineMedia Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 11, 2026

Key Takeaways

  • Positive Sentiment: NCM agreed to acquire Captivate for $275 million, creating a premium video and digital out-of-home platform with more than 48,000 screens across theaters, offices, and residential properties.
  • Positive Sentiment: Second-quarter revenue rose 12.7% year over year to $58.4 million, while Adjusted OIBDA tripled to $2.1 million; local advertising revenue increased 48.4% and programmatic revenue grew 45%.
  • Positive Sentiment: Captivate generated $64 million of 2025 revenue and $19.3 million of Adjusted EBITDA, and management expects at least $3.5 million in annual cost synergies plus additional cross-selling and programmatic opportunities.
  • Negative Sentiment: The acquisition will be financed with $275 million of new term debt, bringing expected net leverage to approximately 3.9 times at close; NCM is pausing dividends and share repurchases to prioritize debt repayment.
  • Neutral Sentiment: NCM completed its operational transformation and remains on track for approximately $11 million in annualized cost savings, but it suspended forward guidance because the transaction could close during the third quarter and create partial-period reporting complications.
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Earnings Conference Call
National CineMedia Q2 2026
00:00 / 00:00

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Operator

Please note this event is being recorded. I would now like to turn the conference over to Chan Park, Senior Vice President of Finance. Please go ahead.

Chan Park
Chan Park
SVP of Finance at National CineMedia

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.

Chan Park
Chan Park
SVP of Finance at National CineMedia

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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

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 United States 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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

While those two films generated strong attendance and secured the number two and number three 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 Star Wars: The Mandalorian and 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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

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 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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

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," "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.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

The proposed acquisition of Captivate extends all three into a second premium network, and we look forward to closing the transaction in the second half of the year. Now I'll turn the call over to Ronnie to provide you with more details on our operating results and outlook.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

Thank you, Tom, and good afternoon, everyone. I'll cover our second quarter results first, then walk through the financial details of the Captivate transaction. As Tom discussed, our second quarter results were broadly in line with our expectations. Attendance increased 19.3% year-over-year, driven primarily by the strong performance of breakout R-rated horror films, "Backrooms" and "Obsession" late in the quarter. While the June film slate and FIFA World Cup created near-term monetization headwinds and reduced advertising yield, we continued to drive healthy advertiser demand throughout the period. Combined with continued momentum in our local advertising business and disciplined expense management, we delivered second quarter results within our guidance range. Total revenue for the second quarter was $58.4 million, up 12.7% year-over-year. Total advertising revenue was $54.4 million, up 14.3% from $47.6 million in the prior year period.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

Advertising performance was strongest during April and May, as healthy advertiser demand and favorable attendance trends drove higher utilization. As we've discussed, June followed a different pattern as attendance shifted toward breakout R-rated films, which historically generate lower advertising yield than broad mainstream studio releases with broader audience appeal. As a result, utilization moderated during the month despite continued healthy consumer attendance. Despite this trend, we drove a year-over-year increase in CPMs in each of the three months of the quarter. Turning to our national business. National advertising revenue totaled approximately $45 million during the quarter, up 9% from the prior year period. While the composition of the June release slate and a temporary budget shift toward the FIFA World Cup affected some advertising campaigns during the quarter, underlying advertiser demand remained healthy across our core categories, including insurance, retail, automotive, and pharmaceutical.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

At the same time, our continued investment in local advertising drove standout performance in that business. Local revenue increased 48.4% year-over-year to $9.5 million, reflecting our continued investment in rebuilding the local business, expanding premium inventory, improving pricing, and increasing participation from advertisers across our markets. Average local advertising revenue per attendee increased 24% to $0.07, demonstrating our ability to generate greater value from growing attendance while continuing to broaden our local advertiser base. As Tom noted, the progress we made in local advertising reinforces our enthusiasm for the acquisition of Captivate and the opportunity to leverage our local experience and advertiser relationships across its network. Alongside local, the transaction also meaningfully strengthens our long-term programmatic growth opportunities, as Tom shared. Turning to expenses.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

Operating expenses for the second quarter totaled approximately $71.2 million, reflecting higher attendance-driven exhibitor fees and $2.7 million in one-time costs related to our operational transformation. On an adjusted basis, operating expenses were $56.3 million, primarily driven by a 22% year-over-year increase in exhibitor fees related to the increase in attendance, and offset by a 7% year-over-year reduction in SG&A, reflecting initial savings achieved under the operational transformation. As Tom highlighted, we completed execution of the operational transformation initiative announced earlier this year. Year to date, we implemented additional cost reduction actions across the organization and realized $2.7 million of savings. We remain on track to achieve approximately $11 million in annualized run rate cost savings, with up to $6 million by the end of 2026. These actions helped offset the lower utilization we experienced during June while creating additional capacity to invest in our highest return growth initiatives.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

Turning to profitability. Operating loss for the quarter was approximately $12.8 million, while adjusted OIBDA totaled approximately $2.1 million. The 200% year-over-year improvement in adjusted OIBDA primarily reflects higher attendance, continued improvement in advertising revenue, disciplined expense management, and the early benefits of our operational transformation initiatives. These factors were partially offset by lower advertising yield resulting from the composition of the June film slate. Turning to cash flow. Unlevered free cash flow was $-2.1 million during the quarter, a 70% improvement compared with the prior year period, reflecting better working capital management and a slight improvement in profitability, partially offset by one-time costs related to the operational transformation. Year-to-date, NCM has generated total revenue of $92.4 million compared to $86.6 million in the same period last year.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

National and local advertising revenues increased 5% and 24% respectively, primarily reflecting a stronger advertising environment, increased attendance across NCM's network, and a higher mix of premium inventory. Total adjusted OIBDA for the period was $-8.5 million, compared to $-8.3 million in the prior year, driven by higher attendance-related exhibitor fees. Looking at our current balance sheet, NCM ended the quarter with approximately $46.1 million of cash equivalents, restricted cash, and marketable securities, while total debt remained approximately $12 million. During the quarter, we repurchased approximately 63,000 shares for a total of approximately $200,000 and an average price of $3.10 per share. Now, I'd like to discuss our announced transaction in more detail. We believe Captivate is a compelling strategic fit and an attractive financial asset.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

In 2025, Captivate generated approximately $64 million of revenue and $19.3 million of adjusted EBITDA, compared with approximately $45 million and $12.5 million, respectively, in 2023. Captivate operates at an adjusted EBITDA margin of 30% with only approximately $3 million of annual capital expenditures, producing strong free cash flow with meaningful operating leverage. These characteristics complement NCM's existing business while enhancing the combined company's margin profile and long-term financial flexibility. The transaction values Captivate at an enterprise value of $275 million, representing approximately 10 times Captivate's pro forma EBITDA. We expect to realize at least $3.5 million of annual run rate cost synergies within year one post-close. Importantly, those identified cost synergies do not include the additional commercial upside we expect to realize through cross-selling opportunities across the combined platform, leveraging NCM's local go-to-market strategy and sales organization to improve inventory utilization across Captivate's network and expanding our programmatic capabilities.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

The transaction will be financed through $275 million of new committed term debt with available cash used to refinance the company's existing revolver and fund transaction expenses. Including the transaction incurrence of the new term debt, expected synergies, and savings from NCM's operational transformation initiative, we expect net leverage at close to be approximately 3.9 times. The combined company's high gross margins and asset-light business model are expected to support meaningful free cash flow for debt repayment, which will be our primary use of free cash flow following the close. Accordingly, we are pausing our dividend and share repurchase programs. The acquisition received unanimous board approval but remains subject to customary closing conditions, including applicable regulatory approvals, and is expected to close during the second half of 2026. Until close, NCM and Captivate will continue operating as independent companies in the ordinary course.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

Following closing, our primary focus will be maintaining service continuity, preserving Captivate's operating strength, and realizing the strategic and financial benefits of the combination.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

In connection with the pending transaction, we are not providing a forward outlook at this time. This reflects the expected timing of the transaction, not any change in our view of the underlying business. We continue to view premium video and digital out-of-home advertising as a compelling long-term growth opportunity, and we believe the combined company scale, data and sales infrastructure will position us well within the market while creating substantial long-term value for advertisers, partners and shareholders. Operator, please open the line for questions.

Operator

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Mike Hickey with StoneX. Please go ahead.

Mike Hickey
Analyst at StoneX

Hey, Tom, Ronnie, and Chan. Thanks for taking our questions. I guess, Tom, first question on the deal here. Obviously, congratulations. But curious, why are you thinking of diversifying now? Cinema attendance and gross box office are probably the strongest we have seen since pre-pandemic. Why is now the right time to deploy, I guess, capital outside of your core cinema business rather than leaning harder into the recovery that you are seeing today?

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Let me answer that in a couple of different ways, and I appreciate the question. First of all, this acquisition represents really the next step in our strategy to build a market-defining premium video and digital out-of-home platform. It is actually a very highly complementary extension of our core business in that it delivers really a sought-after audience in the same premium type of high-attention environment. We expect Captivate to add a second layer of growth to NCM's national and local sales organization and grow our advertising relationships and our programmatic capabilities. We see the combination creating a much more scaled platform that really better serves advertisers and while really positioning NCM for longer-term growth. We are taking this as a step from a position of strength in cinema.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

This quarter obviously was a good quarter domestically at the box office, and cinema certainly remains our core business, and we continue to invest in it through initiatives, including just recently, the AMC Lobby initiative. But Captivate is an extension of what we already do best, and reaching hard-to-reach video-enabled audiences in a premium environment is very much our business model. We really see this combination making our cinema inventory more valuable as Captivate's footprint overlaps with our existing exhibitor markets and really enables us to reach the same consumer throughout the week.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Just to give you an example, picture in New York City, someone leaving their condominium, seeing an ad for a movie at a local theater, again, seeing the ad when they enter their office, again, seeing an ad when they leave their office, and then ultimately being directed to a theater right around the corner from their building. Another key sort of fact which is really worth noting is, for example, in New York, 80% of the buildings that we are buying into with Captivate are within 1 mi or less of a cinema. So we look at that closed loop, and we look at we are creating this high-value consumer relationship where they live, work, and play. So we look at it really as a complementary opportunity for our business.

Mike Hickey
Analyst at StoneX

Thanks, Tom. The next question may be just a bridge on the 10x multiple. I think you described the $275 purchase price, about 10 times pro forma EBITDA. But you look at Captivate's 2025 EBITDA, I think it is about $19 million, which implies about a 14.5 multiple. Can you just walk us through the bridge from $19 million to the EBITDA number underlying the 10x multiple?

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

Yeah, sure. The multiple actually also is inclusive of the $3.5 million of cost savings that we expect to achieve within the first year of closing the transaction. And then it is also what is underlying in that multiple is the outlook for the full year of 2026.

Mike Hickey
Analyst at StoneX

The last question on leverage tolerance. You guided about sub 4, 3.9 net leverage at close. Includes deal synergies, structuring savings at NCM, which I think you have realized now. I guess before those benefits, looks like leverage is sort of 5x here. Is that the right way to think about the starting point? And how quickly do you expect to realize those savings and see them flow through the P&L and cash flow? Thanks, guys.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

Yeah. So I think in terms of your comment about what leverage looks like pre-synergies, I will tell you it is definitely sub 5 times. Our expectation is that we are very similar to our business. Captivate is not very capital intensive. In fact, it only has capital expenditures about $3 million per year. So their CapEx requirements are even lower than ours. Their usage of working capital is also much more friendly than ours. So there is actually an expectation that we are going to generate quite a bit of meaningful free cash flow going forward, and that we expect the capital structure to meaningfully delever over the next two to three years.

Mike Hickey
Analyst at StoneX

Great. Thanks, guys. Best of luck.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

Welcome.

Operator

Again, if you have a question, please press star, then one. The next question comes from Patrick Sholl with Barrington Research. Please go ahead.

Patrick Sholl
Patrick Sholl
Analyst at Barrington Research

Hi, guys. Thanks for taking the question. Maybe just a couple questions on Captivate. Just given the multiple that you are paying for that, could you maybe just sort of talk a little bit about your expectations around revenue and EBITDA growth and maybe with some of the return to office areas, where that business kind of stands relative to pre-pandemic?

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Ronnie can talk specifically to the financial part of it. All of the data that we have is that the return to work in the Class A buildings that Captivate focuses on has normalized to pre-COVID levels. That is verified and supported by the impressions measurements that we are using. Much like the recovery that has happened in theaters, the actual return to work recovery has actually been even stronger in those buildings. I would also say before Ronnie gets into the specifics, that if you look at the growth potential, there is a significant amount of buildings, both on the residential side and on the commercial side, that can be part of this growth story. We have identified 11,000 potential new Class A buildings that could be added to Captivate's platform and another 10,000 buildings that could also be added to their residential platform.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

The other pieces of upside are really on the CPM side. We do believe there is a potential to increase CPMs on B2B as well as improve utilization, especially based on the fact that we have, obviously, a very large both national and local sales force that we believe will help supplement that. To give you an example, NCM today has around 330 or so advertisers. When you look at how many overlap actually with Captivate, there is only around 30. So there is a tremendous potential for our existing advertising relationships to grow the Captivate network. To be fair, they have got a significant number of advertisers that also will help migrate to the NCM platform. So those are what I would call some of the growth engines that we see with Captivate. Ronnie, you can talk a little bit more about the financial growth if you want.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

Yeah. I think if you look over the past two years, Captivate actually has grown their platform pretty significantly. The top line has grown approximately 40% over the last two years, with EBITDA growing almost over 50%. Obviously, a lot of that is due to the return to office environment. But there is actually a lot of room for expansion just growing outside of their network, so to speak. They really started the residential business about two years ago, and so that is still a small business for them, and there is a lot of meaningful upside to that business, especially when we are able to plug in our local sales force into their residential business. Right now, Captivate does not have a local sales team. So the good news is none of the, call it, revenue synergies is really modeled into our thinking in terms of numbers.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

But there is definitely a lot of upside in terms of expanding their residential business, expanding their existing commercial business, which, if you look at their footprint within the major DMAs, their owned footprint is not fully penetrated as well. For example, Los Angeles is only about 17% penetration, so there is plenty of room to grow, despite I think everybody, when they go into an elevator, feels like they see Captivate on the elevator screens. It also just goes to show that there is still a lot more to do.

Patrick Sholl
Patrick Sholl
Analyst at Barrington Research

Okay. Then maybe just on the advertiser overlap and some of the revenue benefits. So you've historically talked about your key cinema market of being the 18-44 range of Gen Z and millennial kind of area. Can you maybe just sort of talk about the audience characteristics? Because certainly the office market's probably going to skew a little bit older than that. Then lastly, since we're about past the peak period of well, maybe not. We're still going through some pretty strong box office in August, but just given where we are in the quarter, I realize there's uncertainty on the timing of closing, but just why not provide some Q3 expectations? Thank you.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Ronnie can handle the guidance question, but I think what you're getting at is the demographic difference is also a real benefit. Their core audience is very affluent high-income earners who are very attractive to advertisers. Their B2C business is very similar to our core business today. The buildings that they've selected from a residential side are obviously in major markets, higher income, really luxury buildings, which correlates nicely to our B2C business. So we think we'll be able to unlock business for them, and that'll also unlock some business for us. The most important thing is both of these demographics are hard to reach and valuable.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

That was one of the most important criterias that we looked at, is we have these two businesses that are very hard to reach, and we know that the combination of what Captivate brings to what NCM does will make for a great platform.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

Yeah. So in terms of the not providing a forward guide at this moment, obviously, by the time we report third quarter, there's a chance that we would have this deal also closed. So there could be some periods in there in the reported third quarter where you have partial periods of at the time when we close to the end of the quarter. So it makes providing a guide a little bit more difficult today. That's why we're pausing that for the moment.

Patrick Sholl
Patrick Sholl
Analyst at Barrington Research

Okay. Thank you.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

You're welcome.

Operator

The next question comes from Alicia Reese with Wedbush. Please go ahead.

Alicia Reese
Alicia Reese
Analyst at Wedbush

I'm curious if you could go into a couple things. First, on local, I wondered if you could dig in a little bit on what were the driving factors for the local growth for theaters in the second quarter. How much of that was just expanding the sales force to get new clients versus existing clientele spending more, and perhaps getting better returns in that? Then a second part, to what extent does Captivate already have local advertising? You had mentioned that they don't have a local sales force team. But if you could dig in on that opportunity a little bit deeper, and then I have a follow-up.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Let me take the second one first, and then we'll do the first one. Yes. Right now it's one sales team at Captivate, and they kind of sell more of a national, regional type of advertiser into their platform. As you know, we've got one of the better specialty local ad sales companies in the United States. We changed leadership in that group out this past year. We're now seeing the dividends and benefit of that team with new leadership also with a lot of new salespeople. So it's a mixture of both reaching new advertisers that came from prior relationships, and then also building off our current base of advertisers. And remind me again your first question, Alicia.

Alicia Reese
Alicia Reese
Analyst at Wedbush

It was just trying to-

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

The first one.

Alicia Reese
Alicia Reese
Analyst at Wedbush

Dig in on whether it was a factor of just building the sales force for local and building the clientele around that. Just adding new advertisers versus extracting more per advertiser on maybe higher ROI opportunities since-

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Yeah

Alicia Reese
Alicia Reese
Analyst at Wedbush

You've added a lot of capabilities within that.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Yeah. Alicia, the three points you summarized actually encapsulate really the whole entire driver of local actually in year to date. That's actually pretty good. But yes, you're right. It is actually a function of we did increase a little bit of the local sales team. More importantly, even though the total number of people selling in local is not meaningfully up, but it is up. More importantly, we did do some swaps in certain areas or coverages to, I would say, improve in talent is also a beneficiary of that. The other piece of it is that the local team was also, because we actually do have more premium inventory because of the new AMC deal last year, was able to monetize some of that at a much more attractive pricing, was also another beneficiary.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Because of all of those two things, as a result, we actually saw improvements in certain categories that we saw versus the prior year. For example, retail was a big beneficiary of that. Actually, retail was up substantially in the second quarter. Also, entertainment was another piece of category that was up quite a bit, along with gaming and travel. All of those things put together actually drove local's performance, not only in the second quarter, but year to date.

Alicia Reese
Alicia Reese
Analyst at Wedbush

Excellent. Thank you for all that detail. I have a couple other questions on Captivate. Is there any seasonality that you could help us with for Captivate? Would you just expect just typical advertising seasonality, or is there anything in there that we should be aware of?

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

I think it's different than the cinema advertising market in that it's not as seasonal in the summer and in the fourth quarter. The overall ad market, as you know, has its own cadence, but I think one thing that's attractive about Captivate, it'll help smooth out our ad revenue across the months. Generally speaking, they follow the ad calendar, whereas cinema advertising is much more weighted to the ad calendar, plus the heavy box office draws typically in the summer and in November and December.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

What I would add to that is-

Alicia Reese
Alicia Reese
Analyst at Wedbush

Go ahead.

Ronnie Ng
Ronnie Ng
CFO at National CineMedia

During diligence, what we found out is it's actually their mixture of advertisers are really sticky. If you really think about who they primarily cater to in those office buildings, it's a lot of what we call B2B advertisers. They tend to really spend on a more predictable cadence, I would say, than your typical B2C advertiser.

Alicia Reese
Alicia Reese
Analyst at Wedbush

Last one for me. I do not actually have a good sense at this point for whether or not office or residential buildings do political advertising. Could you answer that?

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

I think it is based typically on what the landlord or the owner of the building decides is appropriate. It is not banned, but obviously every agreement has the ability for the owner of that building to make a discretionary judgment on content. But it certainly would be an opportunity that we could look at.

Alicia Reese
Alicia Reese
Analyst at Wedbush

You had said, I think last quarter, correct me if I am wrong, that theater owners were beginning to be a little bit more open to political advertising in some parts of their circuits. Is that right?

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

That is correct.

Alicia Reese
Alicia Reese
Analyst at Wedbush

Okay.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Obviously, it's a new sort of ad opportunity, and everyone wants to make sure that it's presented in the right way, and that it's part of the experience, and it's not upsetting anyone in any way. So there's a review process of what's appropriate and what isn't. Obviously, there's quite a spectrum of political advertising from getting out the vote to other types of ads. So it's an area we're highly focused on, and we think it's going to create a lot of upside for our company going forward.

Alicia Reese
Alicia Reese
Analyst at Wedbush

Great. Thank you for taking my questions.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

You're welcome.

Operator

We now have a follow-up from Mike Hickey with StoneX. Please go ahead.

Mike Hickey
Analyst at StoneX

Hey, guys. Thanks for the follow-up. Tom, I am just curious on Captivate. Can you give us a better sense of the overall TAM for Elevator Advertising or their core business and what the competitive profile of that business is in the U.S. and their respective market share?

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

I do not have that at my fingertips. But when we get on our follow-ups, we can get that pulled together for you.

Mike Hickey
Analyst at StoneX

Okay. Thank you. And one more on sort of dirty math here, Ronnie, but it looks like to get to the multiple X cost synergies sort of implies getting close to about 30% EBITDA growth. Just wanted to clarify if you would expect that growth over, I think you said 2026. Just want to make sure I heard that right or if that is 2027. And then what is the situation, Tom, with the management team, basically, who is going to run this piece of your business now? And given the growth that is needed from Captivate to earn that pro forma multiple, why did you decide against an earn-out?

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Obviously, when you are doing an acquisition, Mike, it can be competitive. And the way the deal was structured and the price, that was the opportunity that was put before us and allowed us to compete for it in a competitive situation. I guess I will leave it at that for now. But in terms of the management structure, there is really single-digit numbers of people that are part of this synergy. The core skill set of Captivate and its sales team and the support of it will remain. Some of it will obviously get integrated into NCM in terms of the back office and other areas. But they have a very specialized business, particularly on the B2B side. On the B2C side, there is obviously a lot more overlap.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

But we will be updating you guys more after close on what the real integration looks like, and we will be happy to share that with you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Tom Lesinski for any closing remarks.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Okay. I just want to thank everybody for participating in the call. Thank you for your support of National CineMedia. This quarter demonstrates, again, our ability to execute against our priorities strategically, despite a less than favorable advertising environment and film mix. And I really want to thank NCM's team in particular for their continued hard work. Finally, Captivate, just to reiterate, is a very exciting extension of our core and a transformative next step in our growth strategy. Together, we expect to create a more diversified and comprehensive premium video and digital out-of-home advertising platform that expands our reach, strengthens our technology and programmatic capabilities, and creates new opportunities to better serve our advertisers.

Tom Lesinski
Tom Lesinski
CEO at National CineMedia

Looking ahead, we remain encouraged by the strong end-of-the-year slate, excited about the pending acquisition of Captivate, and we look forward to continuing to deliver value for our advertisers, our exhibitor partners, and our shareholders. Thank you.

Operator

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

Executives
    • Chan Park
      Chan Park
      SVP of Finance
    • Tom Lesinski
      Tom Lesinski
      CEO
    • Ronnie Ng
      Ronnie Ng
      CFO
Analysts
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