Q3 2023 National CineMedia Inc Earnings Call
Good day and welcome to the National Center Media, Inc. Q3, 2023 earnings Conference call.
Today, all participants will be in a listen only mode.
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At this time I would like to turn the conference over to Dan Thornton Director I was saying.
Please go ahead Sir.
Thank you good afternoon, I'm joined today by our Chief Executive Officer, Tom Lesinski, and our Chief Financial Officer, Ronnie Inc.
I would like to remind our listeners that this conference call contains forward looking statements within the meaning of 27 a of the Securities Act of 1933 as amended.
And section 21 E 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 and important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward looking statements are expressly qualified in their entirety by such factors.
Further our discussion today includes some non-GAAP measures in accordance with regulation G. We have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found at the end of today's earnings release or on the Investor Relations page of our website at <unk> Dot Com now I will turn.
The call over to Tom.
Two our third quarter 2023 earnings call.
It's been about a year since we've done a public earnings call I'd like to take a brief moment to give an overview of N. C. M. For those of you who are not who are new to our story is.
Is there its been a lot of positive changes over the past year.
So let's get started.
National Cinema media is the long term category leader in cinema advertising.
And with over 18000 screens in more than 1400 theaters. The company annually, we just over half of the highly desirable 18 to 34 year old demographic and 73% of the opening weekend box office of the biggest U S movie releases.
N C N maintains exclusive agreements with the three largest national cinema chains in the United States, AMC Cinemark and Regal along with approximately 40 other agreements with affiliate theatre chains.
We recently completed a successful renegotiation with Regal for a new 10 year agreement, which will continue to create growth and value for the company.
Two our industry, leading scale and see them continues to be a leader in the overall premium video advertising marketplace.
The development of N C M X, our leading data driven audience platform, along with a number of first to market data and attribution initiatives and see them as transport cinema into a medium that delivers both brand building and performance metrics, including advanced targeting and attribution capabilities.
As many of you already know since we last spoke.
She has gone through a significant balance sheet transformation, which has positioned the company for future cash flow growth and success. We are and will remain focused on deploying that cash to provide the greatest return to shareholders.
We successfully concluded our financial restructuring on August 7th of this past year, which was quickly and diligently completed in under four months.
We eliminated almost 1.2 billion of debt and approximately 90 million on annual fixed charges substantially.
Strengthening our balance sheet and improving our financial flexibility.
We also entered into a $55 million exit financing facility, which is being used to fund operations and growth initiatives further repowering mtm's momentum as we propel forward and continue to drive shareholder value.
With a strengthened balance sheet and is one of the very few NASDAQ listed media companies with no net debt and see them is now very well positioned to optimize your leverage its unmatched scale and offerings connecting the biggest brands with the sought after movie going audience is while at the same time, creating significant shareholder value in the process.
This quarter, we also announced a number of new board members, who bring extensive digital technology advertising media and financial experience to our company.
And see them strong executive team continues to lead the business and its partner closely and seamlessly with the new board to drive growth into chips initiatives and aggressively build a company back as cinema audience has returned to theaters.
Now, we will turn to our focus to third quarter results.
The cinema industry saw positive signs of recovery this quarter as network theater attendance exceeded $130 million, a 24% increase from the 106 million attendees in the prior year and roughly 80% of pre pandemic levels.
This recovery was largely propelled by the compelling movie slate led by Barbara and Ivor the simultaneous film release in July of the cultural and box office hits Barbie and Oppenheimer.
The third quarter of twenty-three has continued to demonstrate that Americans specifically those age 18 to 49 love going to the movies.
The key demographic accounts for 70% of our audience and we have reached 53 million of them to date.
The Gen Z demographic made a 54% of the audience in the third quarter with an average weekly rating up 6.6, demonstrating that this elusive influential young demographic remains excited about the in theater movie experience.
The third quarter also saw an approximately equal gender split among moviegoers with males, making a 52% of audience and females, making up 48% of the audience. Additionally, 59% of audiences. This quarter, we're multicultural with 28% of attendees being Hispanic 14% African American and 16% Asia.
It is clear that cinema creates a unique shared experience that brings people together of all ages genders and races.
Despite the continued slower pace of the scatter AD market N C. M. L. L. Six third quarter twenty-three total revenue was $69 6 million up 28% compared to the third quarter of 'twenty two when we generated $54.5 million. Our strong results were driven by both national and local sales and we are very <unk>.
<unk> by this performance.
The key to our National success. This quarter was the solid base of upfront business already written in this quarter from the 22022 23 upfront.
Approximately 73% of the third quarter's national revenue was attributed to those longer term upfront commitments.
Within three weeks of the announcement of the concert films premiere and see them fully sold out all available inventory for the initial four weeks at the run with category, leading brand partners, including United Airlines Capital One state farm at Burger King among many others across major categories looking to align with yet another cinematic cultural event.
And Sam generated 32 AD campaigns tied to the Taylor Swift, including 12, New advertisers, who retired who returned to cinema for the first time since COVID-19 and with more than half of our advertisers leading in the industry either as number one or number two in terms of market share within their category.
Almost all of these Taylor led sponsorships were packaged together with larger and see them commitments in court in Q4 trained waiting more than 25% of the total projected AD revenue for the quarter.
Taylor Swift the Arris tour movie has delivered a record breaking box office performance totaling over 166 million in sales. Thus far positioning itself was one of the biggest movies of the year. Furthermore, 22 of the top 25 theaters in the U S. During the Earth's two are opening weekend are part of N C M's network, helping bring.
<unk> reached a highly sought after audience of 82% women and 63% 18 to 34 year olds.
We expect this energy will continue with the Renaissance of film by Beyonce, which will be released globally in theaters. This December.
As part of an exciting fourth quarters slate, which also includes the marbles Aquaman and the loss Kingdom the.
The hunger games prequel.
Napoleon wish and Wagga.
This slate will lead to a stronger performance at the box office in the fourth quarter of 2023 compared to the same period in the prior year.
These films will provide brands with new valuable opportunities to place your message alongside the best professionally produced brand safe content in the world, reaching sought after audiences at scale not available any other premium video ad platform.
Further in the fourth quarter of 'twenty, three we will begin to launch our programmatic AD platform, making N C. I'm. The first player in cinema advertising in the U S to offer programmatic solutions on the big screen advancing our data centric approach.
Programmatic ads will provide media buyers with efficient data driven in high quality AD inventory in the marketplace. While also providing an opportunity for more advertisers to purchase fraud and battery impressions.
The biggest brands understand the power being United with millions of young diverse consumers, who had the movies each and every week and these brands are leveraging N C M to tap into the cultural phenomenon and the unique shared experience of cinema.
And Sam is unparalleled premium video advertising platform.
With continued growth of our industry are well positioned to enhance brand campaigns driving ROI on cinema advertising spent.
MCM is poised to grow year on year revenue again at the box office. The box office continues to move forward and audiences levels continue to rebound towards 2019 levels with that I'll turn the call over to Ronnie to provide you with more details on operating results and future outlook.
Thank you Tom and good afternoon, everyone.
Before I dive into the results I want to note that today I will be discussing N C. M. L. L. CS operating results, which would have been similar to N. C. M. Inks results. If the businesses were consolidated for the entirety of the third quarter of 2023 two.
Be clear during the chapter 11 process and see them, Inc. Was not consolidated with N C. M. L. L C.
<unk> will be going forward for.
For the third quarter N.
N C M's revenue and adjusted OIBDA were above street consensus.
We expect that these results coupled with strong industry tailwind will set us up for solid performance in the fourth quarter and finished the year strongly.
As Tom shared earlier.
The third quarter saw the continued recovery of the cinema industry led by Barbara Hammer driving a 28% increase in total revenue compared to the same period last year.
We also saw several major advertising categories show signs of recovery and momentum throughout the quarter.
Nationally the third quarter of 2023 saw the return of two historically top spending categories that were slower to come back into the cinema marketplace post pandemic wireless and insurance.
At the same time N C. M saw continued investment from the entertainment automotive and travel categories.
Which rely on the young diverse and affluent cinema audiences.
In lower local sales business, we saw productivity levels increase during the third quarter with average revenue per sales executive increasing 34%.
Impaired to the prior year, and increasing 50% compared to the same period in 2019.
Ncr's total revenue for the third quarter was 69 6 million compared to 54 and a half million for the same period in the prior year.
And as you know advertising revenue increased to 52 million up 31% compared to $39 7 million in the third quarter of 2022.
Driven primarily by an increase in impressions sold and attendance.
Local and regional advertising revenue increased to $12 9 million up 32% compared to $9 8 million in the third quarter of 2022.
Driven primarily by an increase in <unk>.
Contract activity and average deal size within the beverage government and health care service categories.
Turning to our expenses.
This quarter, we incurred a significant amount of one time expenses related to our chapter 11 restructuring.
Third quarter operating expenses were 200.
And 20 point 20 million compared to $58 7 million in the prior year.
Out of the $220 3 million in expenses in the third quarter, there were $162 million in charges related to our financial restructuring other one time items depreciation amortization and noncash share based compensation.
Excluding these charges.
Pro forma operating expenses were $58 3 million.
Compared to 47, and a half million in the prior year.
The increase in pro forma operating expenses was mostly related to higher theater access fee and a theory of costs from increased attendance.
The new Rigo affiliate agreement and increased commission costs from higher revenue compared to the prior year.
Since the new Regal relationship is an affiliate agreement the expense of the agreement was reclassified from ESA theater access fees and revenue share to advertising operating costs.
Which is where all the costs of our network affiliates reside.
Third quarter, adjusted OIBDA, excluding noncash charges and onetime items was $11 3 million.
Compared to $7 million in the prior year for a 61% increase.
Additionally margin improved by 340 basis points to 16, 2%.
Compared to 12, 8% in the third quarter of 2022.
Throughout our financial restructuring, we work diligently to keep expenses in line and we're ultimately able to operate more efficiently this quarter compared to the prior year.
Turning to our consolidated balance sheet.
At the end of the third quarter. The company had 23 million of cash and equivalents and total debt of $10 million.
Compared to total debt net of cash of 1.1 billion at the end of 2022.
Changes in that were related to our financial restructuring.
Which was completed in August of 2023, resulting in a reduction of approximately 90 million in annual fixed charges.
We also eliminated certain nonprofit won't exhibitor contracts and restructured or eliminate an office leases, which resulted in a combined $8 3 million in annual cost savings.
Additionally, we entered into a 55 million ABL facility with Citi I teed more Fritz with Northbridge.
Upon the effectiveness of the agreement, we drew 10 million from this facility, which represents the only amounts currently outstanding under the ABL and the minimum amount required to be drawn.
Okay.
Further our financial restructuring resulted in a simplified ownership structure through which N C M Inc.
Now owns 100%.
Of MCM LLC and continues to serve as its manager.
A year ago.
Prior to the Rigo agreement and our financial restructuring N C M Inc, 147.5%.
Of MCM LLC.
Following the completion of our financial restructuring in August the board of directors and our stockholders have approved a reverse stock split of our common stock at a one for 10 ratio.
N C. I'm currently has $96 8 million shares outstanding following the reverse stock split.
Insulation, a regal shares.
And the issuance of shares in accordance with N C. M. L. L C. Its plan of reorganization.
Each of which took place in August 2023.
Turning to guidance.
We will be guiding N C M. L. L C standalone for the fourth quarter of 2023 two.
To reiterate this quarter, we presented MCM LLC as operating results given the deconsolidation and Reconsolidation that occurred due.
Due to our financial restructuring.
Moving forward given the reconsolidation of the two entities.
N C M, Inc, and N C M. L. CS results will be very similar.
Looking ahead.
We expect revenue for the fourth quarter of 2023 to be between 85 million and $88 million.
In addition, we expect adjusted OIBDA for the fourth quarter of 2023 to be between 30 million and $33 million.
With no debt and unlevered balance sheet and industry tailwind.
N C M is well positioned for growth the.
The company generates significant free cash flow due to low capital expenditures and with an adjusted OIBDA to free cash flow conversion of greater than 80%.
N C. M has numerous opportunities to return value to shareholders as the industry recovers.
N C M simplified corporate structure will also enhance mcm's financial flexibility and promote growth for future success.
Operator, please open the line for questions.
Yeah.
We will now begin the question and answer session. As a reminder, today's event is being recorded if he would like to ask a question in the press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys. If you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Jim Goss with Barrington Research. Please proceed.
Okay, Yeah good afternoon.
I have a couple of questions first.
Given what you just said Ronny is there a reason to keep both MCM and CMA alive as it is there for future use in case, there might be some reason.
Why are they still separate.
So that Jen. Thank you for the question that that's a good question so.
It is it is a the company actually preserve the structure of both Inc, and <unk> LLC given the original for us.
When we originally founded the company back in 2007 for tax purposes, and so keeping that structure in place is still advantageous for the operations of the company.
Okay.
And perhaps.
Or do you think.
Is are there revamped business aspirations.
Hum.
The broadening of your area.
Sure you know what you intend to do our or should you be staying focused on restoring a.
A more robust performance of the existing platform before you make any other.
Steps are for example U.
Pharma as noted to be 18400 screens.
Thank you mentioned 1400, and 50 theaters 190 D M. As well this is very extensive.
The full U S screen basis about 40000.
And and Ah, while summer with the rival and some may not be worthwhile.
Should you be expanding the platform should be you'll be partnering and any other ways.
How are you looking at the business right now coming out of this.
Black period.
I think what you asked is a really important question I.
I think I would go back to looking at what happened.
In the restructuring and when you think about where we are we eliminated $90 million of.