National CineMedia, Inc. Stock

Good day, and welcome to the National CineMedia, Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Chan Park, Vice President of Finance. Please go ahead.

Thank you, operator. Good afternoon. I'm 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. The company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events.

Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found at the end of today's earnings release or on the Investor Relations page of our website at ncm.com.

Now I'll turn the call over to Tom.

Thank you, Chan, and good afternoon, everyone. We appreciate you attending today's call. Before turning to the quarter, I want to address the announcement we made today. As part of a planned transition, I will retire as Chief Executive Officer with an anticipated departure date of December 31. It has been a tremendous privilege to lead NCM and work alongside such a talented and dedicated team. I've been part of NCM for 12 years, having joined the Board in 2014 and appointed as CEO in 2019. Over my career in media from Warner Brothers to Paramount to NCM, I can honestly say that serving as CEO of NCM has been one of the great honors of my life. It has been a privilege to lead NCM and its talented team, I'm incredibly proud of what we've accomplished together to transform the business and establish a strong and diverse foundation for the future.

I have tremendous confidence in the opportunities ahead for NCM. With the Captivate acquisition complete, the Board and I believe now is the time to pass the baton to a new leader who can carry our momentum forward. With this new chapter, the Board has retained Korn Ferry, a leading global executive search firm, to assist with the comprehensive search for NCM's next CEO. I will continue to lead the company and work closely with the Board and our leadership to ensure an orderly transition.

Now turning to the third quarter. The third quarter marked an important milestone for NCM as we completed our acquisition of Captivate on September 18. This acquisition brought together 2 complementary advertising networks and established a leading premium video and digital out-of-home advertising platform in the United States. With a combined network of approximately 48,000 digital screens spanning theaters, office buildings, and residential properties, we have significantly expanded our reach, diversified our advertising offerings, and created a new opportunity for advertisers to connect with consumers and business decision-makers where they work, live and play, all through a single premium media partner. I'd like to welcome the Captivate team to NCM. We're incredibly excited to be entering this next chapter together.

I will cover our integration priorities shortly, but first, I'd like to turn to our third quarter results. NCM reported total revenue of $61.4 million, including a $2.6 million contribution from Captivate following the closing date. Excluding Captivate, NCM generated $58.8 million, down approximately 7% year-over-year. Adjusted OIBDA was $3.3 million, including a $700,000 contribution from Captivate compared to $10.2 million in the prior year period.

These results were below our expectations, reflecting 2 factors: One, the timing of attendance relative to advertiser demand. And two, shifts in client advertising budgets toward the FIFA World Cup media event. Most national advertisers commit their third quarter spending in July and early August, time to the summer release schedule. While this was also true this year, attendance was softer than expected in early July as Minions and Monsters and Moana underperformed relative to expectation, which limited monetization during the period of peak ad demand.

Later in the quarter, however, the Odyssey and Spider-Man: Brand New Day substantially outperformed expectations. Spider-Man set an all-time domestic opening weekend record of $360 million, and both films sustained strong runs through August and into September. Those runs helped drive total attendance across our Cinema Network to approximately 126 million, up 16% versus the third quarter of last year or approximately 135 million, including the Spotlight network. While these breakout successes indicate robust consumer demand for theatrical entertainment, much of the incremental attendance arrived during the seasonally softer second half of the quarter, outside the peak window for advertiser demand.

Additionally, as we discussed on our second quarter call, the World Cup attracted substantial investment from many of the same national advertisers in categories that are core to cinema. The shift in spending was greater than we anticipated with U.S. advertisers having spent roughly $1.2 billion on the tournament's domestic broadcast, nearly 3x the 2022 World Cup. As a result, several major advertisers reduced or paused their cinema campaigns during the tournament window and scatter demand remained constrained for the rest of the quarter. We estimate that spending shifts among 6 major national advertisers alone reduced cinema advertising commitments by approximately $9 million.

Together, attendance timing and shifts in national advertising budgets limited our ability to translate better-than-expected attendance into advertising revenue. At the same time, higher attendance drove higher theater access fees, which weighed on profitability. While our results fell short of expectations, we believe these headwinds were specific to the quarter, and we anticipate a more favorable advertising environment in the fourth quarter and in 2027.

Looking ahead, we are focused on creating greater flexibility in how we package and sell our advertising inventory to better monetize cinema attendance. The addition of Captivate further strengthens our resilience by diversifying our revenue mix and expanding our reach into business-to-business and other advertising categories that are less dependent on the theatrical release calendar. We are encouraged by fourth quarter trends, supported by a robust upcoming theatrical slate and Captivate bookings pacing more than 30% ahead of the same point in the prior year with double the fiscal pipeline.

Together, these indicators reinforce our confidence that the effects felt in the third quarter were temporary and provide a more encouraging outlook for the fourth quarter, supported by expectations for stronger box office activity. We also continue to make progress on our strategic initiatives. Our operational transformation initiatives are delivering results ahead of expectations, and we anticipate exceeding our original 2026 savings target while remaining on track to realize approximately $11 million in annualized run rate cost savings.

In local, we continued investing in our sales organization, expanding premium inventory and strengthening advertiser relationships. These efforts have helped diversify our local advertiser base, reducing our reliance on large individual contracts that drove results in the prior year period, and building a more sustainable foundation for growth. Additionally, as I'll discuss shortly, bringing our local sales team to Captivate's network is one of the most significant opportunities in front of us. Our premium products continue to lead our cinema portfolio. Platinum delivered its strongest sales quarter on record, marking its second record-setting quarter this year. The quarter also reinforced the value of premium large-format advertising, where NCM represents approximately 70% of the industry's premium large-format screens.

As exhibitors continue investing in premium theatrical experiences, we expect these offerings to remain an important driver of long-term growth. We also continued rolling out our new premium lobby network with AMC, which brings multiple large-format digital screens to more than 280 AMC locations. Over 30 locations are now live, and we now expect to complete the rollout in the first half of 2027.

Turning to Captivate. This acquisition is a key step in our strategy to build a broader, more diversified advertising platform. As the leading operator of office and residential digital video advertising in North America, Captivate adds more than 27,000 screens across more than 11,000 buildings in over 170 markets in the U.S. and Canada. Its core business is concentrated in more than 1,500 Class A and Class B office buildings with approximately 30% penetration in its major markets, including New York, Chicago, and Boston. Captivate also brings a growing residential network that has expanded to more than 9,700 locations since launching in 2023.

Captivate's current footprint represents less than 10% of the addressable market of more than 140,000 office and residential buildings, presenting a meaningful opportunity for future growth. Across its network, Captivate expands our access to business-to-business budgets across technology, financial services, and professional services while bringing best-in-class programmatic capabilities. Captivate's business has a different seasonal profile than our cinema business and is less dependent on the theatrical release calendar and peak moviegoing periods. Its office network is driven primarily by B2B advertising in the second quarter and retail advertising in the fourth quarter. These complementary trends help diversify our revenue streams and balance seasonality across the combined platform.

Since the close, we have quickly turned our focus to strategically bringing the 2 networks together. This includes aligning back-office functions while maintaining continuity across sales operations and advertiser relationships. We are also planning for the migration of our theater lobby network on to Captivate's proven digital out-of-home technology platform, which we expect will enhance efficiency, streamline network management, and support future scalability. As I previewed, the most significant near-term opportunity is developing a combined local go-to-market strategy that delivers the strengths of both networks. Captivate's footprint closely aligns with our existing cinema network, creating opportunities to expand our reach and deliver more comprehensive advertising solutions.

In this top market, New York City, approximately 80% of Captivate's buildings are located within 1 mile or less of an NCM theater, highlighting the natural connectivity between our networks. By bringing together NCM's established local sales capabilities and Captivate's premium office and residential inventory, we see a meaningful opportunity to expand our advertising base and connect brands with highly sought-after audiences in premium, high attention video-enabled environments where they live, work, and play.

We are actively working with Captivate to execute this strategy and expect to begin rolling it out in the first half of 2027. We also remain on track to achieve more than $3.5 million in annual run rate cost synergies within the first year after close, which Ronnie will cover in further detail. While we are still in the early stages of the integration, we are encouraged by the progress to date and confident in the growth opportunities and financial benefits of the combined platform.

Turning to the fourth quarter. In cinema, November brings highly anticipated releases, including The Cat in the Hat and The Hunger Games: Sunrise on the Reaping. Later in the quarter, Avengers: Doomsday and Dune: Part Three are slated to open in the holiday window. We expect to carry moviegoing momentum into the early '27. At Captivate, we're seeing positive momentum across the network, driven by strong demand from technology advertisers, including companies investing in artificial intelligence as well as retail and financial services. Across our combined platform, we are excited to see fourth quarter advertising pacing ahead of the same point last year, with Captivate pacing significantly ahead and our cinema network tracking in line with the prior year.

As we move through the remainder of the year, we are prioritizing returning local advertising to growth, expanding premium inventory, improving how we monetize attendance, and successfully integrating Captivate. We also remain committed to realizing our targeted acquisition synergies while maintaining a disciplined approach to expenses and capital allocation. So despite the third quarter challenges, we are very optimistic about our fourth quarter performance and confident in the opportunities ahead. With our leading cinema network, Captivate's complementary advertising footprint, and continued investments in sales and technology, we believe we have a strong foundation for long-term growth.

Now I'll turn the call over to Ronnie to provide some details on the operating results and outlook.

Thank you, Tom, and good afternoon, everyone. Before I begin, I want to thank Tom for his leadership and partnership. He guided NCM through a period of significant change and positioned us for this next chapter with Captivate. We look forward to working with him to ensure a seamless transition.

As Tom discussed, our third quarter results reflected a challenging national advertising environment and the timing of stronger-than-expected moviegoing attendance. While attendance exceeded expectations, shifts in advertising spending toward the FIFA World Cup media event, and the timing of the quarter's strongest theatrical releases limited our ability to fully monetize that growth. Despite these challenges, we fully implemented our operational transformation initiatives and completed the acquisition of Captivate, marking important milestones in our efforts to further diversify our advertising platform.

Before discussing our results, I'd like to highlight a few reporting considerations. Our consolidated third quarter results include approximately 14 days of Captivate operations from the September 18 closing date through the end of our fiscal quarter on October 1. Prior year comparisons reflect NCM's historical business, excluding Captivate. Beginning with the fourth quarter, our results will reflect a full quarter of the combined company. Beginning this quarter, we have also extended our definition of adjusted OIBDA to exclude Captivate's acquisition and integration costs, consistent with our existing treatment of Spotlight acquisition and integration costs. Total revenue for the third quarter was $61.4 million, including a $2.6 million partial period contribution from Captivate.

Excluding Captivate, NCM generated revenue of $58.8 million, down approximately 7% year-over-year, reflecting the factors Tom outlined. Total cinema advertising revenue was $55.3 million, down 7% from $59.5 million in the prior year period. Advertising revenue per attendee declined approximately 25% to $0.41 compared to $0.55 in the prior year period, reflecting lower inventory utilization and higher attendance. Total attendance, excluding Spotlight, increased 16% year-over-year to 125.5 million compared to 108.7 million in the prior year period. Including Spotlight, attendance totaled 135.2 million, primarily driven by the Odyssey and Spider-Man: Brand New Day. As Tom highlighted, the strong performances of these 2 films occurred later in the quarter when advertising demand is seasonally softer, limiting our ability to monetize the additional attendance.

Turning to our national cinema business. National advertising revenue totaled $46.1 million during the quarter, down 8% from the prior year. Performance reflected increased competition for advertising spending from the FIFA World Cup media event and lower utilization resulting from the timing of stronger-than-expected attendance. As a result, national utilization declined 15% versus the prior year period, while CPMs decreased approximately 4%. Local cinema advertising revenue totaled $9.1 million, down 5% from $9.6 million in the prior year period. The decline primarily reflects one large film-specific campaign in the prior year period that did not recur. Excluding this campaign, local advertising revenue increased approximately 17% year-over-year, reflecting the strength of our core local business.

We continue to make progress diversifying our local advertiser base with a broader mix of customers and less reliance on individual advertising commitments. We saw growth across the professional and trade, retail and apparel, dining, health care, and entertainment categories. Looking ahead, we remain focused on driving sales productivity, expanding premium inventory, and deepening advertiser relationships to support future growth.

Turning to Captivate's performance. Its full third quarter revenue was $15 million, up 2.7% year-over-year. Despite facing similar advertising headwinds related to the FIFA World Cup, Captivate delivered year-over-year revenue growth in each month of the quarter. Performance was broad-based, supported by strength across the technology and consulting services categories, partially offset by softer spending by financial services and telecommunications brands. Total impressions sold increased 1% year-over-year, driven primarily by growth in the residential network. While greater mix of residential impressions contributed to slightly lower overall CPMs, pricing in the commercial network increased 3.5% compared to the prior year period.

Turning to expenses. Total operating expenses for the third quarter were $83 million compared to $65.2 million in the prior year period, reflecting higher attendance-driven exhibitor fees and costs associated with the Captivate acquisition. Adjusted operating expenses for our cinema business totaled $56.3 million, up 6% from $53.2 million in the prior year period, primarily reflecting higher attendance-driven exhibitor fees. Theater access fees increased 24% to $40.2 million compared to $32.3 million last year, reflecting higher attendance. These increases were partially offset by adjusted SG&A, which declined 23% year-over-year to $16.1 million compared to $20.9 million in the prior year period, reflecting continued savings from our operational transformation initiatives.

As Tom highlighted, we have now fully implemented the operational transformation initiatives announced earlier this year, marking a key milestone in our efforts to improve operating efficiency and establish a more streamlined cost structure. Given our efficient execution, we now anticipate exceeding our previously announced 2026 savings target of $6 million with an updated estimate of more than $7.5 million. We remain on track to achieve approximately $11 million in annualized run rate cost savings once fully realized and expect these savings to continue flowing through to our results over the coming quarters. These savings will help offset higher attendance-related expenses while creating additional flexibility to invest in our strategic growth priorities.

Turning to profitability. Operating loss for the quarter totaled $21.6 million compared to a loss of $1.8 million in the prior year period. Net loss was $17.2 million or $0.18 per diluted share compared to net income of $1.6 million or $0.02 per diluted share in the third quarter of 2025. Adjusted OIBDA totaled $3.3 million, including a contribution of $700,000 from Captivate compared to $10.2 million in the prior year period with adjusted OIBDA margin of 5.4%. Excluding Captivate, NCM generated $2.6 million in adjusted OIBDA during the quarter with adjusted OIBDA margin of 4.4%. The decline primarily reflects lower cinema advertising revenue and higher attendance-related exhibitor fees, partially offset by savings from our operational and transformation initiatives.

Despite a challenging advertising environment due to the Winter Olympics, World Cup, and the timing of theatrical attendance, NCM delivered modest year-over-year revenue growth year-to-date. Total revenue for the period reached $153.8 million, including Captivate's partial period contribution. Excluding Captivate, NCM generated revenue of $151.2 million, up approximately 1% compared to $150 million in the prior year period. Cinema advertising revenue increased approximately 1.6% year-over-year to $141.5 million, supported by higher attendance across NCM's network.

Adjusted OIBDA for year-to-date was negative $5.2 million compared to $1.9 million in the prior year period, with revenue largely in line with last year. The year-over-year decline primarily reflected a $17.4 million increase in theater access fees associated with higher attendance, partially offset by an $8.4 million reduction in SG&A, primarily driven by savings from our operational transformation initiatives as well as a $0.7 million partial period contribution from Captivate.

We remain on track to achieve more than $3.5 million in annual run rate acquisition synergies in the first year after close and have already realized more than 60% of the targeted synergies. We expect these savings to support improved profitability and cash flow generation over time.

Turning to cash flow. Unlevered free cash flow totaled negative $3.4 million during the quarter compared to negative $1.8 million in the prior year period, reflecting changes in working capital and lower profitability and excludes onetime acquisition-related cash outflows. Year-to-date, unlevered free cash flow was $12.9 million compared to negative $3.1 million in the prior year period. Capital expenditures totaled $1 million during the quarter compared to $1.6 million in the prior year period.

Turning to our consolidated balance sheet. At quarter end, NCM had approximately $35.8 million in cash, cash equivalents, and restricted cash, including approximately $8 million in restricted cash. In connection with the Captivate acquisition, we entered into a $275 million senior secured term loan and a $25 million revolving credit facility with $10 million drawn on the revolver at closing. These facilities mature on September 2031 and were used with cash on hand to fund the acquisition, refinance our previous credit facility, and cover related transaction and financing expenses.

Our trailing 12-month net leverage ratio was approximately 4.4x, including the pro forma impact of $3.5 million in anticipated cost savings related to the Captivate acquisition and the remaining $6.4 million in savings from our operational transformation initiative. Looking ahead, we remain focused on reducing leverage over time with a long-term net leverage ratio target of 2.5 to 3x. We are committed to strengthening our balance sheet, primarily through free cash flow generation and the realization of our synergy and operational transformation targets.

Now turning to our fourth quarter outlook. For the fourth quarter, we expect consolidated revenue within the range of $117 million to $124 million and adjusted OIBDA within the range of $42 million to $48 million, reflecting the first full quarter of Captivate's contribution and continued savings from our operational transformation initiative. This outlook also reflects the strength of the fourth quarter film slate, which we expect to drive year-over-year attendance growth. As we move through the rest of the year, we remain focused on disciplined execution, reducing leverage, and investing in the initiatives we believe will generate the strongest long-term returns.

Operator, please open the line for questions.

[Operator Instructions] The first question today comes from Mike Hickey with StoneX.

First topic, maybe Ronnie here, just free cash flow and debt reduction. What should we be thinking about in terms of free cash flow conversion, Ronnie, in terms of maybe an annual target now that you've got Captivate in your books here? And how much debt do you expect to repay over the next year? And I guess, why do you think 2.5 to 3x leverage is the right level for your business moving forward?

Thanks, Mike. So the Captivate's EBITDA to free cash conversion or unlevered free cash conversion is actually very similar to our profile. I think we stated that in our last call when we announced the deal. So we looked at it -- so which means that we look at the conversion around 70% to 80%, so call it 75% of EBITDA to unlevered free cash conversion. So when we state that, hello, we're looking at this thing with a long-term leverage target of 2.5 to 3x, it's somewhat a conservative look -- outlook that we believe like, hello, that's going to be easy to achieve. And that's why we have that as a target. Do we think this balance sheet can get lower than that? We absolutely think that can be achieved as we utilize all free cash flow to delever the balance sheet.

The next topic would be maybe guidance philosophy and growth outlook. Obviously, there's been a lot of volatility on a quarter-to-quarter basis. I think it's a challenge to really guide. Have you thought of giving more of an annual guidance? I guess the question is, would you plan to guide '27 on an annual and sort of move away from this forward quarter type strategy? And then how should we think -- it looks like Captivate is cranking here, but how should we think about growth from your elevator business and your core business in '27 on revenue? And then it looks like you're baking in here a lot of cost savings. You're realizing some of that already. How much operating leverage should we expect here in '27 and moving forward?

Yes. So in regards to the guide, we obviously paused the guide in the last quarter because of the acquisition and the timing of the close. And here, we have a full fourth quarter outlook for the guide because we own the -- we will have Captivate for whole entire fourth quarter. We will always review how we really communicate with the Street. We believe that having full and better transparency is of the most importance as we think through the guidance. And definitely, one of them is looking at it on an annualized basis, something that we as management will always review and would have potentially the possibility of doing that in the future, moving away from a quarterly guide.

In terms of your questions on the growth of Captivate, we're -- I think as the read-through from our fourth quarter guide, you can assume that the -- what we assumed in the fourth quarter at the time of announcement is playing out. So meaning the purchase multiple associated with Captivate from this point on, we feel very comfortable with what we provided about 2 months ago when we announced the acquisition. So meaning Captivate is on target to our expectations when we're diligencing the transaction. And it's obviously, I think, one of the reasons why we thought the acquisition made a lot of sense, with captivate sustaining that kind of growth trajectory.

And yes, we do think that there is operating leverage in -- between the 2 businesses that we will further uncover here. We're still, as Tom said on the call, that we do -- we're still getting underway in terms of the full integration. We did announce a $3.5 million cost savings plan at the time of the announcement. We obviously believe that's very achievable, and we'll see if we can do a little bit better than that, but we're definitely on track to do the $3.5 million of cost savings.

On your passing the baton here, when you look to the new CEO, what should their top priority be? What should their experience be? If you can comment on that in terms of putting National CineMedia in the best position for future growth.

It's a good question. And obviously, it's a collective discussion I'm having with the Board as we look for the new leader. I think the important thing is to focus on the integration and the synergy created between Captivate and NCM. I think that's the priority right now. Remember, the Captivate acquisition is only just a little over 6 weeks old. We're already seeing significant amounts of opportunities between those 2 platforms and the synergy being created, not just on the cost side, but also on the revenue side. And I think any great leader will tell you that it's about running an organization optimally, solving problems, and being able to create new opportunities. So I know that the Board is well underway with executive recruiters identifying people, and I'm confident we're going to find a great leader to take this company to its next phase.

The next question comes from Patrick Sholl with Barrington Research.

If I could follow-up on some of your commentary on guidance. With the Q4 guidance, can you maybe talk about what's sort of driving the -- I think you said 30% pacing ahead -- the Captivate pacing 30% ahead of a year ago. Is that just more inventory? Or is that part of the revenue synergies? Like how much of that would be revenue synergies you talked about as opposed to that being kind of still a future opportunity?

And then on the cinema side, how should we think about that segment's contribution to Q4? You said it was kind of pacing in line. I think, as you said, you expected overall attendance growth and it's been a solid start to the year. I was kind of curious how the -- how those 2 segments overall, you're thinking about their contribution to Q4.

Yes. So Patrick, on that, so Captivate is trending over 30% -- or their current booked business is 30% ahead of the prior year. We -- so in terms of if any of that has really come through with the synergy of the 2 business, the answer is no. So this is actually just on Captivate on its own. So we've -- again, we just closed the business about -- or closed the acquisition about a month ago or so. So we're still working through plans on how best to actually partner up between Captivate and NCM on creating sales or revenue synergies. So we're working -- still working through that. So none of the fourth quarter guide actually includes any synergies for Captivate.

In terms of NCM, on the fourth quarter, the guide does imply that on a revenue basis that NCM will be relatively flat in terms of revenue on a year-on-year basis versus fourth quarter of '25. So the -- so you can then kind of see what the contribution is between NCM and Captivate based on that commentary.

And then just a follow-up on Captivate. I guess, have you, I guess, identified much in the way of like the audience overlap and maybe just how those budgets are allocated in terms of like the opportunity -- like with buying cinema versus buying Captivate, maybe talk about how those different budgets are allocated? And what, I guess, investments in audience measurement kind of need to overlap or be replicated within those 2 businesses?

So there's really 3 different businesses when you look at it. So obviously, there's our core cinema business. And then Captivate has a B2B business, a B2C business, and they'll also be taking over our lobby business. The B2C business has a significant amount of overlap with the NCM business. It's very much the same type of customer. So we expect a significant amount of NCM's current advertisers to extend their reach and frequency as cinema advertisers into the B2C lobbies that are owned by Captivate.

On the B2B side, we're already seeing some overlap, particularly on the luxury side. We have half a dozen luxury advertisers in our cinema network that are also going to be participating in the B2B lobby network. So a key initiative that we're doing right now is identifying all of the overlap, not to mention our ability to actually package and bundle advertising across the 2 platforms. So we're already getting a lot of inbound calls from advertisers who want to buy both, which has really been part of the whole plan to begin with. So there's a lot of excitement in Madison Avenue over these combined assets.

And I think the last thing is our local network, we have one of the best small local advertising companies. And there was not a real Captivate local advertising presence. So we've already initiated the NCM local team on the ad side selling Captivate. So there's a lot of overlapping clients and in budgets, and we're looking at the combination of those driving a lot of synergy revenue across all the different verticals that we're in today.

[Operator Instructions] The next question comes from Drew Crum with B. Riley.

Maybe one for Ronnie and one for Tom. Ronnie, just to go back to the fourth quarter guidance, it looks like you're assuming some OIBDA margin compression. With the operational transformation and recognition of synergies from Captivate, what's driving that view? And then for Tom, just more broadly speaking, in your preamble, you talked about focusing on improving monetization of attendance. What specific initiatives or things are you doing to recognize that?

So Drew, on the fourth quarter guide, the margin compression that you're alluding to, you really see -- what we're baking into the guide is actually a continued increase in attendance on a year-on-year basis. So when you have, on the MCM side, relatively flat revenue on a year-on-year basis with attendance up, you're going to see some margin compression just from the attendance fees. That's what's driving the margin compression.

Can you just repeat your question again, Drew, for my half of it?

Yes, Tom, just in your preamble, you talked about focusing on improving monetization of your attendance. And I was curious whether or not you could share some of the initiatives you have underway or plan for next year.

Yes. So the biggest initiative we have is growing our new customer base. So what we've done is allocated a significant amount of overhead towards a new group within our sales department, whose exclusive job is to drive revenue from new customers and improve churn. That's a key part of it. I think the second key part of it is going to be this combined packaging of Captivate and NCM inventory. The third part of it is NCM's ad sales company helping support the B2C initiatives, the lobby initiatives at Captivate. And then lastly, there's a significant amount of overlap of advertisers that we've already identified that we believe we can get more out of.

So there's probably a half a dozen different things, Drew, that we're working on. They are going to help drive revenue. And I think, importantly, next year, too, we're not going to have the Olympics, and we're not going to have the World Cup to have to compete with. So we're optimistic about the 2027 numbers. We think the box office should be solid again. So we're looking forward to a really productive 2027.

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

Okay. Thank you all for joining us today and for your continued support of NCM. Although our third quarter presented challenges, we remain confident in the underlying strength of our business and the opportunities ahead as indicated in our fourth quarter guidance. So despite the headwinds, we continue to make progress on our strategic priorities, including expanding our premium advertising inventory, strengthening our local business and improving operational efficiency. These efforts remain central in our strategy as we look to capitalize on continued consumer demand for theatrical exhibition and strengthen our business over time.

Looking ahead, the addition of Captivate marks an important new chapter for NCM, expanding our reach to a complementary sought-after audience and diversifying our business and advertising platform beyond the Silver Spring. We are encouraged by early fourth quarter trends and the steps we've taken to make our business more efficient. We remain focused on successfully integrating Captivate and driving greater value for our advertisers, exhibitor partners, and shareholders.

I want to express my gratitude to our theatrical exhibition partners, our advertisers, the NCM Board, and all of our shareholders for their trust and support during my 7 years as CEO, and I'm proud of what we have accomplished together and grateful to everyone who has contributed to NCM's success. And lastly and most importantly, I want to thank the entire NCM and Captivate teams for their dedication, hard work, and commitment to our unique culture. I remain confident in the future outlook of the combined NCM and Captivate team's ability to accelerate our position as a leading premium video and digital out-of-home advertising platform. It is the unique combination of the special talent and assets of these 2 one-of-a-kind organizations that will drive significant synergy value and support the company's continued success.

Thank you again for your ongoing support and look forward to seeing you all at the movies.

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

Good day, and welcome to the National CineMedia, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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.

Thank you, operator, and good afternoon. I'm joined today by our Chief Executive Officer, Tom Lesinski; and our Chief Financial Officer, Ronnie Ng. I would like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors.

Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found at the end of today's earnings release or on the Investor Relations page of our website at ncm.com.

Now I'll turn the call over to Tom.

Thank you, Chan, and good afternoon, everyone. We appreciate you joining us for today's call. Alongside our second quarter results, which we will get to shortly, I'm 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.

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 3 complementary premium audiences that are highly sought after by advertisers: NCM's young diverse moviegoing audience and Captivate's affluent professional audience in both office buildings and residential properties. The combined platform will provide a powerful force-multiplying solution for high-attention advertising delivery, allowing marketers to reach consumers and business decision-makers where they work, live, and play throughout the entire week, all through a single premium media partner.

Captivate's workplace network also brings incremental access to business-to-business marketing budgets, enhancing our appeal to enterprise technology and financial and professional services advertisers. At the same time, NCM's network gives Captivate's advertisers greater access to consumer reach on a national scale. This acquisition marks an important milestone in NCM's evolution and represents the next step in our strategy to build a market-defining specialty advertising platform. Captivate complements and expands NCM's core expertise in providing hard-to-reach video-enabled audiences, and this acquisition builds on the capabilities, customer relationships, and expertise we've developed over more than 2 decades.

Captivate also accelerates NCM's existing lobby advertising business, operating a substantially larger in-lobby network on a purpose-built digital out-of-home technology platform. We will bring those capabilities in-house, allowing us to scale NCM's lobby network more efficiently. Like NCM, Captivate connects advertisers with highly sought-after premium audiences in high-attention environments, making it an exceptionally strong strategic fit.

This transaction builds directly on the strategy we've been executing over the past several years. Once closed, it will expand our national, local, and programmatic inventory and audience reach, deepen advertiser relationships, strengthen our technology platform, and create new avenues for long-term growth in complementary premium video and digital out-of-home advertising environments. The ability to reach target audiences from buildings to theaters and key DMAs will create a dynamic advertising solution that does not exist today.

Captivate is also a very strong financial asset. Over the past 2 years, it has grown revenue 40% and adjusted EBITDA more than 50%, reflecting low capital intensity, high incremental margins, and strong cash generation. Captivate also brings a recurring subscription revenue component through its multiyear building agreements and 96% building retention. The business requires minimal ongoing capital investment, enabling profitable network growth.

The addition of Captivate is expected to strengthen NCM's financial profile, accelerating revenue growth and margin expansion, and support deleveraging following close, which Ronnie will walk through in a moment.

Now turning to NCM's second quarter results and the progress we're making across our business. The industry delivered its strongest second quarter box office performance since the pandemic, and attendance across our network increased approximately 19% year-over-year, reflecting sustained consumer demand across a broad and diverse slate of films. That strength, combined with our continued focus on execution, drove another quarter of strong financial performance.

NCM delivered total revenue of $58.4 million, up 12.7% year-over-year, and adjusted OIBDA of $2.1 million, up 3x year-over-year, with results coming in within our guidance range. Those results reflect healthy advertising demand, which continued to improve year-over-year as we lapped last year's performance and successfully navigated a competitive advertising environment as domestic advertising budgets shifted toward the FIFA World Cup. This demand was driven by key advertising categories, including insurance, retail, automotive, and pharmaceutical, and underlying advertising demand reflecting a return toward more normalized spending patterns.

The mix of films released during the quarter was also an important driver of advertising performance. April and May performed largely in line with expectations, supported by a strong lineup of franchise and family releases, including the Super Mario Galaxy movie, Michael, The Devil Wears Prada 2, and Toy Story 5. Later in the quarter, breakout successes, including Horror Hits, Obsession and Backrooms, generated exceptional moviegoer demand.

While those 2 films generated strong attendance and secured the #2 and #3 spots in the June box office, respectively, R-rated and horror films are typically more challenging to monetize than broad 4-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. In addition to continuing to drive revenue for NCM, the investment in our local sales organization will drive meaningful opportunity for Captivate, which does not currently have a dedicated local sales team. NCM's local organization sells in each of Captivate's largest markets, and following close, we will leverage our local playbook to expand the combined local business and create new cross-selling and bundling offers across both platforms.

Beyond local, we continue to invest in strengthening our programmatic offering and making it easier for advertisers to buy cinema alongside other premium digital media. During the past quarter, we added Magnite to our supply-side platform relationships, which now cover 90% of the programmatic digital out-of-home market. Programmatic revenue grew 45% year-over-year in the second quarter, driven by new buyers and a more diversified advertiser base, though it remains a modest share of NCM's total advertising revenue.

Captivate is expected to create an opportunity to accelerate NCM's programmatic initiatives by bringing Captivate's technology platform and established supply-side partner relationships in-house. Together, we will have a larger pool of premium digital out-of-home inventory and enable buyers to transact across cinema, office and residential environments through a single platform. Alongside these growth initiatives, we completed the execution of the operational transformation plan announced earlier this year, which Ronnie will cover in additional detail. Those efforts have strengthened our operating foundation and created additional flexibility to invest in our highest return growth initiatives.

Looking ahead, we remain encouraged by the broader theatrical environment and the strength of the release schedule throughout the balance of the year. July has already delivered an encouraging start to the quarter, highlighted by the strong performance of Christopher Nolan's The Odyssey, which debuted to nearly $125 million domestically, the biggest live-action opening weekend of 2026. The Odyssey also demonstrates growing consumer demand for premium moviegoing experiences. With nearly 1,000 premium large-format screens in the NCM network, representing approximately 70% of the industry's premium large-format inventory, we are well positioned as this format continues to gain popularity.

While the third quarter has seen softer-than-expected performances from titles including Minions & 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 3, gives us confidence in the trajectory of the quarter and the balance of the year.

The second quarter reinforced what we had been building: a stronger local business, a growing programmatic offering, and a more efficient operating base. The proposed acquisition of Captivate extends all 3 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.

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. 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 3 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.

At the same time, our continued investments 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've 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. 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 initiatives 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.

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 negative $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. 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 negative $8.5 million compared to negative $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, 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 at 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. 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 10x Captivate's pro forma EBITDA. We expect to realize at least $3.5 million of annual run-rate cost synergies within year 1 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.

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 3.9x. 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. Following closing, our primary focus will be maintaining service continuity, preserving Captivate's operating strengths and realizing the strategic and financial benefits of the combination. 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's 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 Instructions] The first question today comes from Mike Hickey with StoneX. Please go ahead.

I guess, Tom, first question on the deal here. Obviously, congratulations. But curious, why are you thinking diversifying now? Cinema attendance and gross box office are probably the strongest we've seen since prepandemic. 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're seeing today?

So 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. And it's 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. So 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. So we see the combination creating a much more scaled platform that really better serves advertisers and while really positioning NCM for longer-term growth.

So we're taking this as a step from a position of strength in cinema. 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. So 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.

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 factor, which is really worth noting, is, for example, in New York, 80% of the buildings that we're buying into with Captivate are within 1 mile or less of a cinema. So we look at that closed loop, and we look at we're 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.

The next question, maybe just a bridge on the 10x multiple. I think you described the $275 million purchase price, about 10x pro forma EBITDA. But you look at Captivate's 2025 EBITDA, I think it's 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?

Yes, sure. So 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's underlying in that multiple is the outlook for the full year of '26.

The last question on leverage tolerance. You guided to about sub-4x, 3.9x net leverage at close, postdeal synergies, structuring savings at NCM, which I think you've realized now. I guess before those benefits, it looks like leverage is 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 then cash flow?

Yes. So I think in terms of your comments about what leverage looks like presynergies, I will tell you, it's definitely sub 5x. And that 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. And that their working capital -- usage of working capital is also much more friendly than ours. So there is actually an expectation that we're 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 2 to 3 years.

[Operator Instructions] The next question comes from Patrick Sholl with Barrington Research.

Maybe just a couple of questions on Captivate. Just given the multiple that you're paying for that, just can you maybe just talk a little bit about your expectations around revenue and EBITDA growth? Maybe with some of the return-to-office areas, where that business stands relative to prepandemic?

So Ronnie can talk specifically to the financial part of it. But 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. And that's verified and supported by the impressions measurements that we're using. So much like the recovery that's 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's a significant amount of buildings, both on the residential side and on the commercial side, that can be part of this growth story. We've 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.

The other pieces of upside are really on the CPM side. We do believe there's 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. And when you look at how many overlap actually with Captivate, there's only around 30. So there's a tremendous potential for our existing advertising relationships to grow the Captivate network. And to be fair, they've 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.

Yes. So I think if you look over the past 2 years, Captivate actually has grown their platform pretty significantly. The top line has grown approximately 40% over the last 2 years with EBITDA growing almost over 50%. So obviously, a lot of that is due to the return-to-office environment. But there's also the -- there's actually a lot of room for expansion, just growing outside of their network, so to speak. They really started the residential business about 2 years ago. And so, that is still a small business for them. And there's a lot of meaningful upside to that business, especially when we're 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, but there's 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 own footprint isn't fully penetrated as well. For example, Los Angeles, it's only about 17% penetration. So there's 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's still a lot more to do.

And 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 to 44 range of Gen Z and millennial area. Can you maybe just talk about the audience characteristics because certainly the office market is probably going to skew a little bit older than that. And then lastly, since we're about past the peak period of -- well, maybe not through, but we're still going through some pretty strong box office in August. But just given where we are in the quarter, and I realize there's uncertainty on the timing of closing, but just why not provide some Q3 expectations?

Well, 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 they'll also unlock some business for us.

The most important thing is both of these demographics are hard to reach and valuable. And that was one of the most important criteria that we looked at is we have these 2 businesses that are very hard to reach. And we know that the combination of what Captivate brings to and NCM does will make for a great platform.

Yes. 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, call it, some periods in there in the reported third quarter where you have, call it, 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, and that's why we're pausing that for the moment.

The next question comes from Alicia Reese with Wedbush.

I'm curious if you could go into a couple of 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? And 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.

So let me take the second one first and then we'll do the first one. Yes. So right now, it's one sales team at Captivate, and they 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?

I was just trying to 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 you've got a lot of capabilities within that.

Yes. So Alicia, the 3 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. But more importantly, even though the total number of people selling in local is not meaningfully up, but it is up. But more importantly, that 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 much more attractive pricing was also another beneficiary.

We also saw -- because of all of those 2 things, we saw -- as a result, we actually saw improvements in certain categories that we saw versus the prior year. So for example, retail was a big beneficiary of that. Actually, retail was up substantially in the second quarter. And then also, entertainment was another piece of category that was up quite a bit along with gaming and travel. So all of those things put together actually drove locals' performance not only in the second quarter but year-to-date.

And I have a couple of 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?

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. But 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.

What I would add to that is during diligence, what we found out is it's actually the 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. And they tend to really spend on a more predictable cadence, I would say, than your typical B2C advertiser.

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

I think it's based typically on what the landlord or the owner of the building decides is appropriate. It's 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.

And you had said, I think, last quarter -- correct me if I'm 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?

That's correct. That's correct. Obviously, it's a new 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. And 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.

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

Tom, I'm 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?

I don't have that at my fingertips, but when we get on our follow-ups, we can get that pulled together for you.

And one more on dirty math here, Ronnie, but it looks like to get to the multiple ex cost synergies implies getting close to about 30% EBITDA growth. Just wanted to clarify if you would expect that growth over -- I think you said '26. I just want to make sure I heard that right or if that's '27. And then what's the situation, Tom, with the management team, basically, who's going to run this piece of your business now? And given the growth that's needed from Captivate to earn that pro forma multiple, why did you decide against an earn-out?

Obviously, when you're 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. So I guess I'll leave it at that for now. But in terms of the management structure, there's really single-digit numbers of people that are part of the 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's obviously a lot more overlap. But we'll be updating you guys more after close on what the real integration looks like. And we'll be happy to share that with you.

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

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. So 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.

So 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.

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

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Good day, and welcome to the National CineMedia First Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chan Park, Senior Vice President of Finance. Please go ahead.

Thank you, operator, and good afternoon. I'm joined today by our Chief Executive Officer, Tom Lesinski, and our Chief Financial Officer, Ronnie Ng. I would like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors.

Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found at the end of today's earnings release or on the Investor Relations page of our website at ncm.com.

Now I'll turn the call over to Tom.

Thank you, Chan, and good afternoon, everyone. We appreciate you joining us for our first quarter 2026 earnings call. We entered the year with strong momentum from the holiday period, both in attendance and advertiser demand, and our first quarter played out largely as we anticipated. Our results reflected typical seasonality, heightened competition tied to the Winter Olympics, and the impact of the 1-week shift in the fiscal calendar that we highlighted last quarter. Adjusting for that timing difference, revenue would have increased modestly year-over-year, driven by moviegoer enthusiasm for box office hits at both ends of the quarter. On a reported basis, NCM delivered total revenue of $34 million and adjusted OIBDA of negative $10.5 million, both within the guidance ranges we provided last quarter.

In terms of the first quarter, the domestic box office grew approximately 25% year-over-year, with attendance across our network reaching 83 million, up 15% versus the prior year. The gap to the broader box office primarily reflects the 1-week calendar shift in our fiscal period and the impact of the Winter Olympics, neither of which impacted the first quarter of last year. Adjusting for that shift and including Spotlight in the prior year, attendance would have been up approximately 18% on a comparable basis.

Within the quarter, performance was anchored by carryover strength from fourth quarter tentpoles, including the new Avatar and SpongeBob movies, before picking up in the final 2 weekends, powered by Project Hail Mary and early contributions from the Super Mario Galaxy Movie. The late quarter acceleration reinforces our view that 2026 is shaping up to be a more consistent and durable year for theatrical exhibition and positions us well as we enter into the second quarter.

That momentum carried into our advertising results. Demand remained healthy, with 6 advertisers spending at or above the $1 million mark on cinema campaigns in the quarter. Total advertising revenue was $31.9 million, approximately in line with the prior year, driven by strength in insurance, media, automotive, and the pharmaceutical categories. This level of advertiser engagement is a testament to the value of NCM's industry-leading inventory and our demonstrated ability to deliver measurable, impactful outcomes for brands.

We remain focused on strategically expanding the breadth and quality of our inventory, unlocking new opportunities to deepen our engagement with advertisers. In April, we announced a partnership to deploy large digital displays in high-impact lobby placements across 77% of AMC theaters nationwide, focusing on its highest traffic locations. Theater lobbies are a valuable, high-dwell-time environment and represent a natural opportunity for brands to extend their engagement with receptive audiences further across the moviegoing journey. The new lobby format complements our existing networks and expands our access to digital out-of-home advertiser budgets alongside our core premium video business. This digital lobby expansion presents a meaningful opportunity to deepen exhibitor and advertiser relationships and further strengthen our value proposition across the full moviegoing journey.

We are continuing to develop our programmatic capabilities as well, and we continue to see the growing advertiser adoption and deeper engagement across our client base. In the first quarter, we saw approximately 2x more programmatic orders than in the prior-year period, reflecting the effectiveness of the just-in-time nature of this buying channel. However, due to a small number of larger advertisers not returning as they focused their budgets on the Winter Olympics, programmatic revenue was softer versus the prior-year first quarter. This variability is characteristic of a channel that's still maturing, where deal concentration and timing can have an outsized impact on any given period. That said, second quarter programmatic revenue is pacing ahead of the prior year, and the underlying trends give us confidence that we're building programmatic in the right direction for growth in 2026.

Local advertising revenue was $4.4 million in the first quarter. As we outlined on our last call, we are continuing to rebuild a stronger foundation for growth in our local business as we remain focused on the targeted investments in talent, structure, and execution underway to improve performance. While results will take time to reflect these efforts, we are encouraged by the progress we are making, as second quarter booked revenue is already ahead of last year's second quarter, and we remain confident in the long-term opportunity for local.

Turning to NCMx, our proprietary data platform. We continue to enhance targeting, planning, and measurement capabilities for advertisers. During the quarter, we announced a new partnership with VideoAmp, further integrating cinema into a unified cross-platform planning premium video ecosystem. This marks the first time advertisers and agencies can plan cinema alongside linear TV, CTV, and digital video within a single view. We also extended NCMx coverage to our recently acquired Spotlight inventory, an important step in unlocking the full value of that high-end inventory and deepening our appeal to premium and luxury advertisers.

Alongside these continued investments, we've taken proactive steps to better align our operating model with the evolving needs of the business. During the first quarter, we implemented an operational transformation to streamline the organization and accelerate our adoption of AI where it creates the most leverage. These efforts are concentrated in areas that enhance efficiency across our supporting infrastructure while preserving the strength and momentum of our revenue-generating teams and commercial initiatives. Collectively, these actions are expected to generate approximately $11 million in annualized cost savings on a run-rate basis, positioning us for more agile and efficient execution and create capacity to continue reinvesting in the platform for future growth. Ronnie will provide additional details on this in a few moments.

While we continue to evolve the business, our core value proposition remains unchanged, connecting advertisers with highly engaged, sought-after audience demographics in a premium environment on the biggest screens in America at scale. Looking ahead, we remain encouraged by a compelling 2026 film slate designed to reach diverse audience segments. This year's box office performance is expected to be weighted toward the back half of the year, supported by a mix of beloved franchise installments and reimagined classics with built-in audience appeal alongside a broader range of highly anticipated new IP titles. This robust slate, including such films as Toy Story 5, The Devil Wears Prada 2, The Mandalorian and Grogu, and Moana, is expected to draw a broad range of audience cohorts, further supporting advertiser demand.

Further, we are encouraged by strong exhibition industry sentiment at this year's CinemaCon in April, where each of the major studios voiced concerted support for the theatrical business, underscoring the importance of the big screen with the broader entertainment ecosystem. Notably, Amazon reconfirmed its commitment to at least 15 theatrical releases per year, while Paramount and Warner Bros. Discovery reiterated plans to release approximately 30 films theatrically, reinforcing confidence in a consistent cadence of future releases. Taken together, this year's CinemaCon commentary supports a positive outlook for the exhibition landscape. With strong industry tailwinds and continued focus on operational optimization, NCM is well positioned to capitalize on box office strength in the quarters ahead.

Now I'll turn the call over to Ronnie to provide you with more details on our operating results and outlook.

Thank you, Tom, and good afternoon, everyone. As Tom noted, first quarter performance was shaped by typical seasonal softness, increased competition for advertising spend driven by the Winter Olympics, and the 1-week shift in the fiscal period that we discussed on our last earnings call. Each of these factors was expected, and the quarter was broadly consistent with what we projected entering the year.

Total revenue for the first quarter was $34 million, within our guidance range and reflecting the anticipated factors I just outlined. First quarter total advertising revenue was $31.9 million, compared with $32.3 million in the prior-year period. On a comparable basis, when adjusted for the calendar shift and pro forma for the inclusion of Spotlight in the first quarter of 2025, total advertising revenue was approximately flat year-over-year, with national being more affected by the Winter Olympics and local exhibiting strong growth. National advertising revenue was $27.5 million, approximately flat versus the prior year, with strength in the insurance, automotive, and pharmaceutical categories.

Adjusting for the shifted fiscal period and pro forma to include Spotlight in the prior period, national revenue would have been down by approximately 2%. This was primarily due to certain deals within the Spotlight network not returning this quarter. Conversely, NCM's legacy network grew national revenue by 2% compared to the prior year, with utilization increasing over 20%, offset by a decline in CPMs. While pricing for national was positive in the first 2 months of the year, March experienced pricing declines due to budgets that were already allocated to the Winter Olympics, limiting demand at the end of the quarter.

Demand for our Platinum inventory remains strong, reflecting the continued benefit of standardizing our preshow format across the major exhibitor networks last year. On a calendar-adjusted basis, Platinum was up 83% versus the prior year, and revenue per attendee was up over 54% for the same period. Local advertising revenue totaled $4.4 million, down versus the prior year, primarily due to the calendar differences as discussed previously. However, adjusting for the shifted fiscal period and pro forma for the inclusion of Spotlight, local advertising revenue would have been up 12% in the comparable period, and revenue per attendee would have only declined approximately 4%.

Looking at the categories within local, we saw strength within travel and wireless, offset by reduced activity within government, education, and health care. As Tom noted, we are focused on rebuilding this business through a more structured and targeted approach. While this will take time, we believe we are taking the right actions to position local for more sustainable growth over the long term. And we are further encouraged by second quarter bookings, which are already ahead of last year's second quarter local revenue.

Operating expenses for the first quarter were $60.9 million versus $58.8 million in the prior-year period. The year-over-year increase was primarily driven by an increase in attendance-related exhibitor fees and approximately $3.6 million of onetime costs related to our operational transformation. On an adjusted basis, operating expenses were $44.5 million, primarily driven by a 13% year-over-year increase in exhibitor fees related to the increase in attendance, and offset by a 10% year-over-year reduction in SG&A.

To provide a bit more detail on the operational transformation, these efforts are focused on aligning our cost structure with the current needs of the business and creating capacity to continue investing in our highest return priorities. We are targeting the initiative to generate approximately $11 million in annualized cost savings, including synergies from our acquisition of Spotlight. This is measured against our 2025 adjusted SG&A of $89.5 million, pro forma for a full year of combined operations with Spotlight. Given the timing of the program's launch, the complete run rate benefit will be fully reflected in our results beginning in 2027. In the meantime, execution is well underway, and we have already actioned $3 million of the annualized savings to date and the remainder on track to be completed by mid-summer. As a result, we expect to realize up to $6 million of savings in full year 2026.

Operating loss for the first quarter was $26.9 million, reflecting the top line and operating expense drivers I just outlined. Adjusted OIBDA was negative $10.5 million, at the better end of our guidance range. Year-over-year performance reflects higher exhibitor fees driven by attendance growth, partially offset by disciplined cost management and early benefits from our operational transformation.

Turning to cash flow. First quarter unlevered free cash flow was $18.1 million, compared with $5.5 million in the prior-year period, supported by a normalization in working capital from the fourth quarter. At the end of the first quarter, NCM had $51.6 million in cash, cash equivalents, restricted cash, and marketable securities. Our total debt position at quarter end remained at $12 million.

Turning to shareholder returns, beginning with our dividend program. We announced a quarterly dividend of $0.03 per share today, amounting to $2.8 million. This quarter's dividend will be paid on June 4, 2026, to stockholders of record as of May 22, 2026. Turning to share repurchases. NCM repurchased approximately 210,000 shares in the first quarter for a total of approximately $820,000 at an average price of $3.93 per share. Share repurchases have historically been an important tool for returning capital to shareholders, and we are proud of the progress we have made. As we look ahead, our priorities are evolving in a way we believe is firmly aligned with shareholders' best interest as we continue to take a disciplined, returns-focused approach to capital allocation. We are seeing a compelling set of investment opportunities within the business, including rebuilding our local business, enhancing our programmatic and self-serve capabilities, and strengthening inventory across our network, where the return profile compares favorably to repurchases at current levels. As such, we intend to allocate capital accordingly.

Now turning to our guidance. For the second quarter, we expect revenue to be between $57 million and $63 million, and adjusted OIBDA to be between $1 million and $5 million. Our guidance reflects the strong outlook in the overall slate for the second quarter, which is expected to drive a year-over-year increase in attendance and higher theater exhibition fees. Additionally, we anticipate improved monetization in the quarter, driven by our unified Platinum network and stronger local performance. With an improving industry backdrop, a robust slate, and sustained advertiser demand, we remain optimistic about the year ahead. As we move through the year, we will remain focused on driving efficiency through disciplined execution and thoughtful capital allocation, positioning NCM to benefit from the stronger release slate and a more favorable demand environment.

Operator, please open the line for questions.

[Operator Instructions] The first question is from Patrick Sholl with Barrington Research.

Just maybe just a quick question first on your revenue outlook for Q2 and I guess maybe any commentary on the end of the second half of the year. Just any impact you're seeing just on the macro environment and how that's impacting advertisers on specific categories, especially comparing against the tariffs this past year and the Middle East conflict this year as to how that's shaping up the macro environment.

Let me start in more general response, and then Ronnie can be more specific. In terms of macro things like tariffs and/or what's happening with oil prices, I don't think we're seeing a significant impact from that so far, although we're, I would say, cautiously optimistic that it won't have an impact for the rest of the year. There are certainly some parts of our business that would be more affected by a sustained petroleum cost increase. So from a macro point of view, we haven't really seen it just yet, and we don't expect we're going to see anything material in the second half. But this conflict's only been going on for a short period of time. But I'll turn it to Ronnie on any more specific comments he might have about Q2.

Yes. Patrick, thanks for the question. So I think if you look at the 2 different markets that we're in, both in national and local, I'll start with local first. The local business in the first quarter was quite strong, like we said in the call. First quarter was up 12% year-on-year. The second quarter, we're continuously pacing -- continuing that momentum. And our expectation is the second quarter will do much better than last year. So in terms of the local market, we're seeing strong demand, great execution.

In terms of the national market, again, the NCM network for the first quarter for national was up actually 2% when you adjust for the right calendar periods. And I think right now what we're seeing in terms of pacing in national, it is pacing well. It's pacing ahead of last year. And even though right now, we're not seeing much impact, obviously, we're keeping a close eye on what's going on with the rest of the world.

Okay. And then on the in-lobby boards, can you maybe just talk about the ad formats those would be in, if it would be video or more static type of displays, or maybe just how you're maybe positioning that or selling that as part of the broader ad buy for the people utilizing the big screen?

Yes. So, Patrick, you're talking about the AMC initiative, which we're really excited about. It's going to be rolling out pretty soon. It's going to be in nearly 80% of AMC's theaters. In terms of the format, it is going to be primarily video. That's the business that we're in today on the big screen. We suspect that it will be largely video, and it will follow typically what people are currently doing either in digital out-of-home formats today or in traditional video premium formats. So there may be some new creative done specifically for these big screens. But as we roll it out, we expect this to be completed by the end of the year. We expect there'll be a lot of experimenting with different kinds of creative, including using interactive things like QR codes to link ads back to sponsor websites.

The next question is from Eric Wold with Texas Capital.

A couple of questions. I guess I'll start with a follow-up on the lobby initiative the last question was on. How should we think about that as an ability to unlock additional budgets? Is it -- do you expect it to be completely separate from the budgets that are on the theater screen? And then does this indicate a broader desire to diversify away from theaters eventually? And if you did that, would that need to be done by M&A or something that can be done organically?

So when we look at the lobby, we look at it as a new incremental business. Historically, it's been somewhat of an afterthought for movie theaters and for movie theater advertising companies. With this investment in the size of the screens and in the highest-traffic ones, we see it primarily as an incremental piece. While some will get sold with the big screen, much of it is going to be sold programmatically through digital out-of-home platforms, which will allow us to control literally pricing as well as the actual source in terms of the advertiser. So to answer your question, I would say, it's going to be largely incremental and separate.

Your second question as it relates to diversification, this was designed ultimately as a high-growth medium that's really adjacent to cinema. The lobby is different. It's a high-dwell-time area that we believe can be monetized. Yes, it's cinema goers, but it's cinema goers before and after the movie, often near a restaurant or a bar that might even be in the venue. So this is what I would call an adjacent diversification. And as it relates to M&A types of discussions, obviously, we're always looking at things, but we're not going to be commenting about any M&A specifics on the earnings call.

And then maybe update us on your thoughts of the ability to be involved with political ad spending, especially talking about the local market heading into the midterms. Any sense of what percentage of the network would be open to political ads? How much control the theaters are going to need to have in terms of what ads are shown on the screens politically versus the normal input they have? And maybe just give us general thoughts on if you think that could be a driver.

Yes. So it's an important opportunity for us. It truly varies by exhibitor in terms of who allows what type of political advertising. There's certainly been an openness that's more substantial than it has been in the past. It is very specific to certain markets. There's probably maybe a couple of dozen local markets that are truly desiring a saturation level of advertising. And fortunately, we're in most of those markets with our theaters. I can't really size the opportunity for you just yet. We're making a big push right now with a completely really different type of advertiser. This is not like going to your typical agency on Madison Avenue or a client. But we've been rapidly seeking out the lobbying-type agencies that actually control a lot of these budgets. So it's an area we care a lot about. We know that there's significant money being poured into the local elections. And we think cinema advertising, especially when it's done in a tasteful way politically, will be a great opportunity for us and for the exhibitors.

The next question is from Mike Hickey with StoneX.

On, I guess, the topic of CinemaCon, a lot of industry focus and excitement this year from attendance strength from the younger audiences, Gen Z, Gen Alpha. I think you guys have talked about that before, but it seems like growth-wise, it's elevating here. So just curious how important you think that broader shift is for your business and if you think it's fully resonated with media buyers yet.

Yes. So we've always been a very attractive medium demographically with our core demo, really the youngest of almost any type of medium at just over 30 years of age. The addition of Gen Alpha, which is the even younger demographic, is a really positive trend. Many of these people were affected by COVID and by staying at home during that time. And that resurgence is even going to lower our average demographic, which makes them even all the more valuable. So we're already talking to advertisers about it. It's a relatively new phenomenon. This new information is only, I would say, 3 to 6 months old in terms of quantifying it. But it's a really great trend for our business because the younger the advertiser in terms of going to cinemas, the more valuable they are. And we know there'll be a lot of active responses from our agencies and client partners for this new enhanced younger demographic.

2 questions on guidance. Your revenue growth, very strong, mid-teens for Q2. I think the debate, maybe, Tom, on this, is whether or not the box office grows in Q2. I think I heard you say that you're expecting attendance to grow year-over-year in Q2. If that, in fact, does disappoint, how would that impact your view for Q2? It seems like it could cut both ways, a positive or a negative, depending on how it breaks at the end of the quarter.

I'll respond to that generally, and Ronnie can do it more specifically. Attendance is obviously critical to driving overall impressions in our platform. Getting the attendance forecasted correctly and matching it with advertiser demand is really the secret sauce for our ability to monetize and to drive EBITDA. The attendance in Q2 right now, based on all of the different sources, appears to be really strong. And you never know for sure how these things are going to play out. I've been doing this for a long time in the movie business, and it's tricky to get it right. So I don't know, Ronnie, do you want to add anything more about...

Yes, I would say, like you said, Mike, on our call, we did say that our expectations for the second quarter is that attendance will be up versus the prior year. I think you see in our guidance. The range is, I would say, wide enough that if it falls short, it will be in the lower end of our guide. So we have considered different scenarios within the attendance. But currently, right now, our base case is that we expect increases in the second quarter.

Okay. Last question from us on guidance again, focusing this time on margin. If you look at a comparable level of business on revenue, Ronnie, you'd look back to Q3 '25, you did about $63 million in revenue and delivered $10 million in EBITDA, 16% margin. When you look at the high end of your Q2 guide, you're at a similar revenue range, but $5 million in EBITDA, 8% margin. So can you just walk us through what's structurally different in the business today and driving that margin delta?

Yes. I think one of the differences you have to consider is really the number of attendees. That's really by far the largest driver of expenses. So the implication, while you look back in the third quarter of last year, one of the nuances was that September was actually relatively strong versus prior years, which definitely helped in terms of revenue per attendee for the quarter. And as you know, September is typically like a lower attendance month. So you've got the benefit of that in terms of margin in the third quarter of last year. I think here in the second quarter, even though the revenue levels might seem similar, the attendance levels are different.

The next question is from Alicia Reese with Wedbush Securities.

I was wondering if you could talk a little bit about the expected impact of World Cup advertisers focusing on that and compare that to what you saw with the Olympics. And just what's embedded in guidance? And then if you could talk a little bit about the NCMx, the NCM Boost, Boomerang, Bullseye, Blueprint, all of the progress that you've made so far, where you see progress yet to be made over the course of the year? And then I have one follow-up, if there's time.

Okay. So on the World Cup front, inevitably, cultural moments like the Olympics or the World Cup do affect advertising budgets. And I don't think anyone is kind of immune to money that would ordinarily be spread across a lot of media platforms spreading more into things that are World Cup-related. We actually have a World Cup content in our preshow. So we're doing what we can to help monetize that. But I would say that the World Cup will have some impact on it. It's accounted for in what we believe is the existing forecast. Do you want to add anything more, Ronnie, about the World Cup?

I think in terms of the World Cup, any potential impact is also baked in within our guidance range for the second quarter. So I think right now, in terms of what we're seeing in the overall marketplace, the World Cup has definitely been talked about. But again, we're still continuing to pace strongly. And the impact, again, is more on national versus local. So in terms of the national business, we're pacing ahead of where we are at this point last year.

So on the NCMx front, I think we've been doing a pretty good job documenting the growth every quarter in this business. So literally, the last thing we just announced in today's earnings call was the new partnership with VideoAmp, which is going to further integrate cinema into another unified cross-platform ecosystem. We are currently way ahead of the curve to any of our competitors in this space as it relates to all of the digital products that we're offering that help validate the effectiveness of advertising as a full-funnel solution. So I look at this, we've also added the Spotlight inventory into our NCM mix. So NCMx is really an important initiative that we've been working on for almost 2 years now to really allow people to know that not only is cinema one of the best ways to get attention, it's also one of the best ways to create outcomes for advertisers. So we're really proud of it, and it's certainly drawing a lot of attention to cinema as a full-funnel solution.

Perfect. And to that point, anything to report back on this year's upfronts?

Yes. So the upfronts literally for the major networks start this week. We've already been talking ahead of this, going back almost 3 months. We've been already talking to advertisers about planning for cinema for the upfront market. It's way too early to get any sense of what's going on in the marketplace. Literally, the upfronts started on Monday for the big television advertisers and some of the big digital guys. But we'll provide an update in the next earnings call as to any feedback that we see in the upfront. We're expecting the upfront to be strong, and we have already gotten ahead of the curve on it. So we're optimistic about our share of the upfront growing year-on-year.

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

Okay. Thank you so much for joining us today, and we appreciate your continued support of National CineMedia. The first quarter reflects meaningful progress on our clear 2026 priorities: growing attendance, monetization, deepening our value to advertisers, and building a more efficient and scalable operating foundation. Underlying demand remains healthy, and we're confident that the steps we're taking will strengthen NCM's ability to capitalize on the opportunities that lie ahead.

Looking ahead, we're entering the balance of the year with a strong and diverse film slate, healthy advertiser demand, and a more efficient and productive organization. The actions we are taking today across utilization, inventory expansion, and cost structure are designed to position NCM to capture the opportunity more effectively and translate it into sustainable long-term growth. We remain confident in our strategy and in our ability to deliver increasing value for our exhibitor partners, our advertising clients, and our shareholders over time. Lastly, thank you to the NCM team for their continued hard work and commitment, and we'll see you at the movies. Thank you.

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

Good day, and welcome to the National CineMedia Q4 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the call over to Chan Park, Vice President of Finance. Please go ahead.

Thank you, operator, and good afternoon. I'm joined today by our Chief Executive Officer, Tom Lesinski; and our Chief Financial Officer, Ronnie Ng.

I would like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors.

Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found at the end of today's earnings release or on the Investor Relations page of our website at ncm.com.

Now I'll turn the call over to Tom.

Thank you, Chan. Hello, everyone, and thank you for joining our fourth quarter and full year 2025 earnings call. 2025 was a year of meaningful progress for National CineMedia. We executed against our strategic priorities by continuing to invest in our platform and capabilities, driving increased advertiser demand and further positioning NCM to perform against a broader range of attendance environments. We also strengthened our exhibitor relationships, most notably through a new deal with AMC that was announced in the second quarter.

The momentum we built throughout the year carried through the fourth quarter as we broadened our industry-leading reach with the acquisition of Spotlight, adding a new high-end luxury option to our network. These actions translated into year-over-year revenue growth, supported by healthy advertiser demand for our sought-after audiences and our continued focus on driving growth across the platform.

This strength was also reflected in our fourth quarter results. NCM delivered total fourth quarter revenue of $93 million, in line with our guidance range and growing nearly 8% year-over-year, outpacing attendance trends. Adjusted OIBDA for the quarter was $37 million, exceeding our guidance range and representing an increase of 6% versus the prior year, supported by solid revenue performance and the resilience of our asset-light model. These results were driven by healthy advertiser demand and continued improvements in inventory utilization across our network.

We generated and successfully captured strong interest against the slate of highly anticipated titles, including Wicked: For Good, Avatar: Fire & Ash, and Zootopia 2. This was made possible by our continued investment in strengthening our sales team, expanding our programmatic platform, and advancing data and measurement capabilities to meet modern advertisers' requirements. In particular, our focus on broadening and enhancing audience targeting and performance attribution continues to improve the value of NCM's platform, enabling us to attract new advertisers and deepen relationships with existing ones.

During the quarter, 18 advertisers placed cinema advertising campaigns at or above the $1 million level, reflecting growing confidence in cinema as a core advertising channel. Total advertising revenue increased 9% versus the prior year to $90 million, driven by continued performance in the retail, wireless, and travel categories, alongside growth in the entertainment and media, pharma, and technology categories.

Across the industry, advertiser budgets continue to shift toward premium, high-impact environments that drive engagement and brand recall. That shift was reflected in strong sell-through across our premium national inventory, led by our Platinum and post-show inventory. As advertisers allocate more spend toward high-impact brand-safe environments, these premium options supported stronger monetization of our inventory and fueled a 27% year-over-year increase in overall impressions sold per attendee in the fourth quarter.

We're also seeing tangible benefits from the standardization of our national footprint following our extended agreement with AMC. With a more consistent show structure, we are making campaign planning and scaling more efficient, strengthening our ability to drive demand and improve inventory monetization over time. Given the ongoing industry-wide tailwinds and our superior platform, we believe NCM is well positioned to capture a greater share of advertiser budgets, and we're seeing strong early demand indicators for 2026.

Looking at the domestic box office, performance was mixed this quarter. While the quarterly box office total fell shy of industry expectations, NCM saw meaningful revenue pickup in the middle and tail end of the quarter. This was driven by major franchise releases, including Wicked: For Good and Avatar: Fire and Ash, that supported solid bookings and campaign activities as moviegoers continue to demonstrate their enduring love for cinema in the critical holiday period.

Total attendance across NCM's network in the fourth quarter increased approximately 7% year-over-year to $107 million. With advertising revenue up 9% over that same period, we grew ahead of attendance, underscoring the value of our audiences, continuing appeal of our platform, and progress in efficiently monetizing open inventory across our network. As a reminder, NCM's year-over-year attendance growth also reflects the inclusion of an extra week in our fiscal fourth quarter this year. Despite this additional week of attendance, total advertising revenue per attendee increased in the fourth quarter, reflecting strong demand from advertisers.

Now turning to our programmatic and self-serve initiatives, which are critical components of our strategy in capturing more premium video ad spend and increasing on-screen and in-lobby inventory utilization. Programmatic revenue increased 100% year-over-year as the offering continued to unlock new portions of client advertising budgets, specifically earmarked for programmatic initiatives.

Compared to the prior year period, the total number of programmatic advertisers in the fourth quarter increased 2.4x, reflecting our continued investment in additional supply-side platform partnerships that further broaden access to our inventory and drive continued adoption by advertisers. Additionally, industry standardization continues to advance scalable access to cinema inventory, including recently updated inventory classifications that improve the discoverability of cinema within omnichannel programmatic workflows.

Turning to local. Self-serve also gained further traction following the launch of the upgraded platform earlier in the year. Our generative AI-enabled tools increased creative control and shorten time to market, driving particular value for small and midsized advertisers as well as large advertisers looking to localize their national campaigns for greater impact.

Looking at fourth quarter self-serve performance, we delivered 64% year-over-year growth. Self-serve remains a key driver of our long-term growth strategy, helping drive both national and local demand by making cinema advertising easier to access while allowing our sales team to prioritize larger, more strategic opportunities.

In the fourth quarter, we saw encouraging signs of improvement as the national market stabilization we experienced in the third quarter extended into local markets as well. Local revenue increased year-over-year, reflecting the progress we're making as we reset and rebuild the local business. Importantly, we're seeing that improvement transit into better operating momentum as we refocus the local organization.

We also made deliberate investments in local this quarter, including hiring a seasoned new senior leader to sharpen focus, improve operating discipline, and accelerate execution. We've also reengaged the local sales team around a clearer strategy and increasing day-to-day accountability with a more diversified list of targets and measurable outcomes.

Operationally, we continue to scale local data-driven advertiser targeting, deepen our category expertise, and prioritize key verticals, including government, automotive, home services, and local law firms. As part of that effort, we are increasingly directing higher-value relationship-driven accounts to our sales teams while routing smaller transactional opportunities to our self-serve and programmatic solutions. Our NCMx-powered local data capabilities provide greater visibility into where demand is strongest and where inventory is most attractive, improving planning discipline and execution at the market level.

In addition, our AI-enabled creative localization tool, Bullseye, continues to gain traction. For example, in the fourth quarter, one of the largest national retailers leveraged this capability to produce over 70 different local creative executions within one campaign, generating over 15 million impressions and demonstrating the power of our platform to enhance national campaigns with meaningful market-specific customizations. The campaign also drove measurable performance results with third-party measurement showing a 34% lift in foot traffic to retail locations.

Taken together, we believe these steps position us for continued improvement in local performance as market conditions improve. Our offering remains a differentiator, giving advertisers a highly effective geo-targeted way to reach desirable audiences in a captive opt-in environment at scale. We see local as a meaningful return to growth opportunity, supported by our recent leadership investments, a renewed focus on execution and the positive momentum we saw emerge in the fourth quarter.

This year, NCM continued to connect advertisers with sought-after engaged audiences in uniquely immersive ways. As production studios lean in on sequels and remakes to capitalize on fan favorite franchises, we're seeing particularly strong advertiser demand against these films. In addition to our existing premium inventory, we're meeting that demand through custom title-themed preshows designed to tap into moviegoer enthusiasm.

This quarter, alongside the tent pole release Wicked: For Good, we delivered branded preshow experiences featuring trivia and franchise flashbacks that celebrated fan engagement. These custom integrations enhance the value of our preshow inventory and helped offset the softer-than-expected box office performance.

Given their success, we plan to significantly expand our custom preshow activations in 2026, leaning into popular franchise installments such as Toy Story 5, Spider-Man: Brand New Day, Minions 3: Mega Minions and Dune Messiah. We are also leveraging AI-enabled creative tools to accelerate production and customization, allowing us to respond more quickly to early box office signals and capitalize on breakout hits.

We also made progress in our network expansion initiative this quarter. The strategic acquisition of Spotlight in November brings premium luxury screens and audiences to our platform, expanding our reach and appeal among high-end luxury advertisers while creating new revenue opportunities. Our Spotlight strategy is progressing as planned and is diversifying and deepening our appeal to new advertisers. As we head into 2026, our continued investments are strengthening NCM's ability to compete and win in the premium video advertising market. We remain focused on attracting new advertisers, deepening existing relationships, and continuing to prove the differentiated value of cinema advertising.

The upcoming 2026 slate is robust and balanced and represents a meaningful improvement versus recent years with a more consistent flow of major releases across all 4 quarters. This steadier cadence supports more predictable campaign planning for advertisers, assuming box office performance tracks current expectations and provides longer demand-generating runways for highly anticipated tent poles like the Super Mario Galaxy Movie, Christopher Nolan's The Odyssey and Avengers: Doomsday. 2026 is shaping up to be the first true benchmark year for the industry since the pandemic and the first normal box office year since the industry strike. As the market continues to return, we believe there is meaningful upside for NCM.

Looking to the first quarter, early visibility is encouraging. We are seeing continued contribution from December releases with titles such as Avatar: Fire & Ash, Zootopia 2, and The Housemaid carrying the holiday momentum into the start of the year. As Ronnie will explain in his remarks, NCM's first quarter results will reflect the absence of the first week of January, which was included in our fourth quarter this year. That said, we're encouraged by sustained demand for our inventory, driven by first quarter hits, including Send Help and Wuthering Heights.

Normalizing for the 53rd week, we estimate that total attendance for the fourth quarter would have been approximately 92 million, down 9% versus the prior year. Against that backdrop, NCM reported total fourth quarter revenue of $93.2 million, within our guidance range and up 8% year-over-year. This growth was driven by a strong recovery in demand across key advertising categories, including entertainment and media, pharma, and technology.

Advertisers also continue to adopt our programmatic platform, driving 100% year-over-year growth in programmatic revenue. Importantly, our programmatic platform continues to help fill available inventory and improve utilization across our network, enabling us to keep total revenue per attendee steady while supporting stronger overall performance.

National advertising revenue for the fourth quarter was $76 million, up nearly 10% from $69.2 million in the prior year. In the fourth quarter, we drove a 27% increase in national impressions sold per attendee, reflecting a 72% increase in Platinum impressions sold per attendee and a 53% increase in post-show impressions sold per attendee. This performance reflects healthy advertiser demand for our premium inventory and the continued benefits of the standardization of our national footprint following our amended agreement with AMC.

National revenue per attendee increased to $0.71 in the fourth quarter, supported by the increased advertiser demand and our ongoing efforts to optimize pricing. On a comparable basis, national revenue per attendee increased 10% versus the prior year period. Local and regional advertising revenue for the fourth quarter was $13.8 million, up 2% from $13.5 million in the prior year.

We are encouraged by the year-over-year improvement driven by the continued recovery of local advertising demand, coupled with our team's targeted approach and continued investments in our self-serve offering. We saw particular strength across the gaming, retail apparel, technology, and health care categories. Looking ahead, we expect this positive momentum to continue, supported by our focused local sales strategy.

Turning to our expenses. Fourth quarter total operating expenses were $69.4 million, up from $66.3 million in the prior year, reflecting onetime charges related to cost savings initiatives and spotlight transaction costs. Excluding one-time items, depreciation, amortization, and noncash share-based compensation, our adjusted operating expenses were $56.1 million, up from $51.3 million in the prior year, driven by higher attendance-related exhibitor fees and a slight increase in SG&A.

SG&A was up 5% in the fourth quarter, reflecting the inclusion of Spotlight's SG&A expenses and the extra week in the period as compared to the prior year. These additional expenses were partially offset by our continued cost management efforts. On a comparable basis versus the prior year, SG&A was down approximately 1% in the fourth quarter. Fourth quarter adjusted OIBDA was $37.2 million, exceeding our guidance range and up 6% from $35 million in the prior year, reflecting the strong holiday period demand, lower-than-anticipated attendance, and disciplined expense management.

Total unlevered free cash flow for the quarter, as defined by cash flow from operations adjusted for cash interest expense less capital expenditures was $6.1 million compared to $28.3 million in the prior year. This decrease was primarily driven by a shift in the timing of receivables collections from select agency partners as well as a tougher comparison to the prior year fourth quarter, which benefited from approximately $13 million in client advance prepayments for advertising scheduled to run throughout 2025.

Now turning to our full year results. NCM's full year 2025 total revenue was $243.2 million, up 1% from $240.8 million in 2024. Total revenue was primarily driven by national advertising revenue, which increased 3.5% to $194.5 million. The increase in national advertising revenue was primarily due to a 21% increase in national impressions sold per attendee and a 3% increase in attendance across our network due in part to the additional week in our fiscal year 2025.

As we focus on increasing utilization across our network, we continue to test price in the market to ensure we are optimizing both utilization and monetization to drive revenue growth. Based on the results we gathered, we strategically decreased national advertising CPMs by 18% year-over-year and are remaining mindful of our monetization rates to ensure NCM's inventory remains both competitive in the market and profitable for the company.

Local and regional advertising revenue for the full year was $34.6 million, down from $39.1 million in 2024. This decrease was driven primarily by the trade-related pullback in the pharmaceutical, travel, government, and automotive categories earlier in the year, which has since normalized. This impact was partially offset by an increase in contract activity and size within the gaming, technology, beverages, retail and apparel, and health care categories in 2025. Full year beverage revenue increased 2.9% to $14.1 million in 2025, reflecting the increase in attendance at ESA Party exhibitors across our network.

Turning to our full year expenses. Total operating expenses were $257.1 million, down from $260.3 million in the prior year. This decrease reflects lower amortization expense, administrative costs, and network operating costs in the year, partially offset by higher attendance-related exhibitor fees. Excluding one-time items, depreciation, amortization, and noncash share-based compensation, our adjusted operating expenses were $204.2 million, up from $195.1 million in the prior year, driven by higher attendance-related exhibitor fees and a slight increase in overhead expenses. Full year adjusted OIBDA was $39.1 million, down from $45.7 million in the prior year, primarily driven by the trade-related advertiser headwinds we saw in the first half.

Turning to our consolidated balance sheet. At the end of the fourth quarter, NCM had $37.6 million of cash, cash equivalents, restricted cash, and marketable securities. We had $12 million of total debt at quarter end, reflecting a draw on our revolver relating to the acquisition of Spotlight in the fourth quarter. Importantly, this was a deliberate and temporary use of the revolver to fund a strategic transaction.

Turning to shareholder capital returns. In 2025, we returned approximately $33.6 million to shareholders, which included $11.3 million through the dividend program we reinstated this year and $22.3 million contributed toward our ongoing share repurchase program. Under the dividend program, we announced a quarterly dividend of $0.03 per share today, amounting to $2.8 million. This quarter's dividend will be paid on March 23, 2026, to stockholders of record as of March 9, 2026.

After a period of seasonally higher use of cash for working capital in the third quarter, NCN resumed share repurchases in the fourth quarter, bringing our full year total to 4.1 million shares repurchased in 2025 at an average price of $5.41 per share.

Now turning to our guidance. For the first quarter of 2026, it is important to keep in mind that there are several factors to consider, which impact the comparability to prior periods. Since this past fourth quarter included a 53rd week, this shift in our calendar year would mean that the first quarter would not have the benefit of the week between Christmas and New Year's.

Secondly, we are expecting reduced beverage revenue due to contractual adjustments and the election by an exhibitor to change the number of beverage spots. If you were to pro forma these changes in beverage revenue for the full year of 2025, then the implied impact to total revenue would be slightly below 2%.

Lastly, the Winter Olympics this year makes February a tougher comparison as advertisers temporarily shift their focus to the quadrennial event. Importantly, our first quarter outlook does not reflect any change in underlying demand. Advertising momentum remains intact with revenue for the complete calendar month of January coming in line with the prior year despite the loss of the holiday week. With that said, for the first quarter, we expect revenue to be between $32.5 million and $36.5 million, with adjusted OIBDA between negative $13 million and negative $10 million.

In addition to the factors I just mentioned, our adjusted OIBDA outlook reflects higher expected attendance-related expenses than the prior year, driven by an increase in moviegoer activity. Looking ahead, we believe the investments we made in 2025 position NCM to capture continued growth in advertiser demand against a strong upcoming slate in 2026. Highly anticipated films, including The Super Mario Galaxy movie, The Devil Wears Prada 2, Star Wars: The Mandalorian & Grogu, and the live-action remake of Moana are driving strong interest from advertisers, and we believe we are positioned to capture that demand as it materializes.

In addition, our asset-light model provides operating leverage that further positions NCM to drive profitable growth as audiences return for these upcoming hits. With positive momentum in our business, a strong 2026 film slate, and a continued investment in our platform, we are well positioned to continue generating strong results for our shareholders.

Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Eric Wold with Texas Securities.

A couple of questions. I guess, first off, you talked about, obviously, with regards to Q1 guidance, no change in kind of what you're seeing in terms of advertising demand and the strength you saw in January. I guess looking further out, can you give us a sense of what you're seeing in terms of forward bookings later in the year versus maybe what you would have seen this time last year? I'm not looking for specific numbers or guidance, but maybe kind of indications around if advertisers are booking further out in the films to be more comfortable with campaigns later in the year or if they're still waiting a little bit closer to kind of planned advertising dates?

So I think we've commented on the upfront in the past and how that's booked already going forward into this year. And our upfront is -- was up year-on-year. So that's obviously a really positive sign correlated to the strength of the upcoming box office slate.

As it relates to scatter, we were only really 2 kind of months into the year. So it's really hard to forecast the Q1 first 2 months going out further. But we are seeing good signs of additional inventory being purchased in Q1 -- I mean, in Q2 and in Q3. So -- so far, the actual demand and the actual performance on the platform looks good, especially compared to last year.

Perfect. And then a follow-up question, obviously, with the strong demand you're seeing, strength you're seeing with both the Platinum and the post-show, especially now with AMC coming into the mix. How much of a benefit could that start to have or is having on kind of average revenue per impression? Has that become -- continues to grow as a portion of revenue? How much of a tailwind could that have on that metric?

Well, I think the AMC piece of the equation that you discussed is critical because obviously, you're comparing year-on-year where we didn't have it. Eventually, that will even out on a comp basis. But clearly, that inventory, both the post-show and the Platinum part of it are obviously much more expensive inventory. So that is definitely going to be a tailwind for us. So it was obviously one of the primary reasons we did that new agreement. So we're seeing the benefits of that. And so far, this year looks really good on the Platinum and on the post-show front, especially with the addition of AMC.

Our next question comes from Patrick Sholl with Barrington Research.

Just with the fourth quarter being a little bit softer than expected, did that create like any sort of issue in terms of like make goods? And I guess, is there any sense of how advertisers would fulfill that over the course of the year?

Yes. So Pat, I think you're referring to the box office in the fourth quarter coming lower than expected. So you're right. There's a few films that obviously contributed to that between Thanksgiving and Christmas. Now going -- exiting out the year, there was a higher amount of ADUs or make good than we traditionally had in other fourth quarters because of that. So which also, by the way, is a good representation of that demand. The tricky part is in terms of fulfilling that 80 to make good for 2026 is that it's not going to be all fulfilled in the first quarter. It will be over the course of the next 2 to 3 quarters, so anywhere between the first and the third quarter.

Okay. And can you provide any more detail just sort of sizing out that week between Christmas and New Year's and the contribution that that provides on a revenue basis? And just how you kind of view the film slate over the course of the year and creating kind of a critical mass of attendees to maintain consistent advertiser demand?

So -- yes. So what I will say about the last week because for us, the -- this year in terms of that week between Christmas and New Year's was really strong, much stronger than the one we experienced in 2024. The total ad revenue was multiples higher for that week. What I'll also say is that if you were to look at the fourth quarter period between '25 and '24 and you were to add that week into '24, the comparable revenue per attendee would have been up in the low double percentage area. So that should give you a sense of how strong that demand was in that last week.

Our next question comes from Mike Hickey with StoneX.

Great job on 4Q here. I guess just thinking about Q2, Q3, Q4, obviously, a pretty big expectation. I think everyone is afraid to put it in the math. I respect that, but the box office looks like we could get some real growth here this year. Just curious how correlated your ad business is, Tom, to the growth of the box. We see the box growing strong. Should we also expect your business to pick up?

And I'm also curious, I mean, are you seeing it on the media buyers? Like are they also excited for the slate, whether it's scatter or upfront, wherever they buy it, are you seeing -- I would imagine that given the demo that you serve, the excitement for the slate that their interest has picked up this year versus prior?

Yes. So there definitely is a lot of excitement in Q2 and Q3. Obviously, it's probably the best set of movies since 2019, and we're really optimistic about the performance of those movies. That enthusiasm we have has translated into the marketplace and advertisers are cleanly lining up for the Q2 and Q3 slate. So we've been talking about the return of a really healthy slate diversified across a lot of different genres. We have that in Q2 and Q3, obviously, some very well-known movies and some new ones.

So I can say that the confidence that we have with the box office and with the mix of titles has translated into what we believe are really good solid bookings in Q2 and Q3. Obviously, there's still the scatter market to play through over the next couple of quarters, but we're really optimistic about what the next 2 quarters look like for us.

Given that backdrop, Tom, and where your stock is, do you still have the balance sheet here to be more aggressive on a buyback?

I think in terms of the buyback, we've actually -- if you look back since the start of this program and plus the dividends that we paid, we've returned nearly $50 million of capital back to shareholders. And like every quarter and every month, we do take a look at our buyback program versus where we see, obviously, where free cash flow would be. So I think we'll continue to review that and utilize every tool at our disposal when the opportunity provides.

I think you said, Ronnie, that you took your CPM down by 18%. I'm not sure I heard that right. Was that for '25? Obviously, maintaining your rate card has been something you guys have done historically. Can you just talk about, if I'm right, if I heard that right, the decision to do that and how that sort of sets you up this year as more of a value product, I guess?

Yes. Right. So Mike, you did hear that correctly for the full -- on a full year basis. And part of that also relates to the strategy around utilizing programmatic in certain spots as well, right? So that will affect CPM to better inventory utilization or increased inventory utilization. So that did factor into that.

The other part of it as well is just being opportunistic in terms of opening up different categories in advertising categories. So certain advertising categories historically have always been lower CPMs. But the truth as well is that they have larger and deeper pockets. So when we actually broaden our advertising base, you'll naturally go into different advertising categories that just have lower CPMs for that market.

Last question, guys. It sounded like the Olympics was a negative for you. Is the World Cup a negative? Is the political spend anticipated here later mid-term? Is that also a negative or those positives?

I think the political monies have the potential to be an upside for us. We've been working heavily on courting that different kind of advertiser for a while now, and we certainly have the opportunity to monetize that. I don't think the World Cup is going to be comparable in my mind in the U.S. advertising impact. The U.S. Olympic advertising and sponsorship and I think it's just -- it's more pervasive and across more categories.

The World Cup obviously will be popular here, but the commitment that advertisers made with the network across all of the Olympics is really substantial. Obviously, we knew it was coming. So we planned around it. We even took advantage of it to some degree. But I wouldn't suspect it will be similar on the World Cup. Certainly, the World Cup is a big deal. But the advertising impact, I think, from the Olympics is more substantial in the industry than on the World Cup in the U.S.

Yes, Mike, I'll also add one thing to that is the Olympics happens in February, in the first quarter, where the total advertising demand across all markets is lower. So grabbing that extra pie or attention and trying to get that away from the Olympic event is just going to be harder versus the World Cup, which is going to be in June.

Our next question comes from Alicia Reese with Wedbush.

I'm wondering if you could talk a little bit more about the national advertising opportunity as you shift to local. If that is incremental ad dollars from those national advertisers who wish to do more local advertising or if there is a bit of cannibalization maybe on a different CPM rate. If you could talk a little bit more about that detail and remind us if that stays in the national bucket versus the local regional.

Yes. So we're definitely seeing some advertise -- and it's actually situation dependent with whoever the advertiser is, but we are seeing some national advertisers that are looking on a more regional basis, right? So obviously, that would be beneficial to local advertising.

I wouldn't think about it as cannibalization of one bucket versus the other or overall in our total advertising revenue. From our perspective, we'll always do business replace advertising when it's economically beneficial. Obviously, like there are some CPM differences between the local markets, regional markets and national. And in some instances, local market CPMs are actually at a premium to national CPMs. So it's going to be really dependent on what time of the year and what our advertisers are really looking for. But we believe that it's all accretive at the end of the day because it's all increasing demand throughout the show.

Perfect. Yes, that's what -- that was the implication of that. So I appreciate the clarity on it. And then for the political advertising, historically, correct me if I'm wrong, the exhibitors have not allowed political advertising. Has that changed?

I don't want to get into the specifics of it because it's a political issue, just kidding. The truth of it is there is an interest from select exhibitors, not all, to support political. And depending on who we're talking about in particular, some we have -- we can do quite readily. In some cases, there is a approval process required, but we've been working on that for a couple of years now. And I think more and more people are seeing it as an opportunity that's mutually beneficial, assuming it's the right kind of advertising. So we're optimistic about that. And I think in certain select markets, the key markets in swing states and whatnot, that there will be a lot of demand for political for our platform.

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

Thank you for joining us today. NCM's fourth quarter results reflect the hard work of our team and our continued focus on driving higher advertiser demand and efficiently monetizing inventory across our network. As advertiser enthusiasm for our platform strengthens, we are increasingly confident in our strategy and our ability to deliver differentiated value through premium immersive cinema advertising experiences. With a robust and balanced 2026 film slate ahead, we look forward to continuing to connect brands with highly sought-after engaged audiences while strengthening our competitive position through ongoing investments in our platform. Thank you for your support.

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

Good day, and welcome to the National CineMedia, Inc. Q3 2025 Earnings Conference Call. [Operator Instructions] 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.

Thank you, operator, and good afternoon. I'm joined today by our Chief Executive Officer, Tom Lesinski; and our Chief Financial Officer, Ronnie Ng. I would like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended.

All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors.

Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP basis measurement. These reconciliations can be found at the end of today's earnings release or on the Investor Relations page of our website at ncm.com. Now I'll turn the call over to Tom.

Thank you, Chan. Hello, everyone, and thank you for joining our fiscal 2025 third quarter earnings call. As we shared on our last call, advertiser sentiment stabilized through the summer as brands regained confidence navigating the broader economic landscape. We are encouraged to see that momentum carry into the third quarter, where we saw a clear rebound in demand across key advertising categories, including retail, automotive, wireless and government, reflecting a return to normalized spending patterns after the tariff-related pullback earlier this year.

Driven by July's strong slate, including Jurassic World Rebirth, Superman and the Fantastic 4 First Steps, we delivered results in line with our expectations, achieving top line growth despite a softer late summer box office and industry-wide decline in attendance. NCM's quarterly audience was 109 million across our network, down 11% compared with the third quarter of 2024, in line with the third quarter box office.

Our overall attendance was lower, 11 films in the quarter grossed more than 50 million domestically, up from 9 titles last year, highlighting the strength and continued draw of tentpole releases even in a slower market. The successes of July's hit releases underscored the continued cultural relevance of cinema and reaffirm the enduring power of our platform to connect brands with deeply engaged audiences. Importantly, attendance trends improved toward the back half of September, finishing on par with 2024 strong performance, which was the highest level since 2019. As such, we remain optimistic that the strong holiday slate ahead, featuring several highly anticipated titles will reignite theater attendance in the fourth quarter.

Despite the overall decline in both the domestic box office and attendance, NCM delivered year-over-year growth in the third quarter with total revenue of $63.4 million and adjusted OIBDA of $10.2 million, both in line with our expectations and primarily driven by an increase in inventory utilization. This performance reflects the resilience of our business, one that continues to translate audience engagement into meaningful advertiser value even in a weaker industry environment.

Throughout the third quarter, we continued to advance our key growth initiatives, scaling our Programmatic offering, expanding our self-serve platform and strengthening our local sales organization. On the Programmatic front, we continue to see strong year-over-year acceleration. This quarter, we delivered approximately 4x the Programmatic revenue compared to last year, achieving our strongest Programmatic quarter ever.

With additional platforms coming online early next year, we will significantly expand our Programmatic footprint and unlock an even larger addressable market. We anticipate the growth trajectory will continue as advertisers embrace our platform's ability to deliver targeted measurable campaigns at scale. In self-serve, we continue to gain traction with midsized and regional advertisers who value cinema's attention environment and the ease of direct booking. Our self-serve platform continues to accelerate adoption with third quarter revenue up 23% quarter-over-quarter, driven by expanded business development outreach and CRM-based activation.

Behind the scenes, predictive AI models now identify, score and route high-value local leads, powering scalable small and medium businesses and mid-market expansion and helping our teams engage advertisers more efficiently. Together, our Programmatic and self-serve channels are broadening NCM's reach, deepening relationships with brands and positioning us to capture a greater share of the evolving advertising landscape.

Our local sales transformation is also progressing. We continue to work to enhance our team's capabilities, adding senior talent with deep regional expertise and refining our structure to align more closely with market opportunities. These changes are enabling a more data-informed consultative approach to engaging high-value local and regional advertisers, helping us connect cinema scale and storytelling power with the precision of locally relevant campaigns. We believe this refined strategy positions us to reduce churn and attract new advertisers to our platform.

Across our network, NCM's valuable inventory led by our premium Platinum Spot continues to stand out among advertisers who recognize the environment, reach and measurement capabilities of NCM's unique platform. Platinum continues to deliver exceptional results, achieving an impressive 89% ad recall in a recent tech advertisers' campaign, surpassing industry benchmarks and driving strong gains across brand relevance, excitement and preference. These benchmarks reinforce its position as the most engaging and high-impact placement within the theatrical experience.

Additionally, we enhanced our Platinum offering at select theaters by reducing added flexibility within the ad spot, which has driven higher utilization and improved advertiser satisfaction. Our 4DX format is also exceeding expectations, achieving approximately 85% ad recall in a recent automotive advertisers' campaign and generating triple-digit lifts in awareness, reaffirming the power of immersive cinematic experiences in driving superior brand outcomes. Complementing this inventory is our NCMX data platform, which continues to enhance advertisers' campaigns with data-driven targeting, insights and digital extensions.

Last quarter, we announced the launch of our Bullseye product, which is already seeing strong traction in the marketplace and demonstrating the power of localized data-driven storytelling. A recent cellular campaign delivered more than 283,000 verified incremental store visits, representing a 110% lift, underscoring Bullseye's ability to seamlessly integrate into our tech stack and enable scalable, high-impact local activations.

Alongside Bullseye, our Boost solution leverages our proprietary moviegoing data and new geo-triggered capabilities to target consumers near campaign-specific locations, connecting brands with verified audiences in high purchase intent moments to drive measurable off-line actions. Together, these initiatives strengthen our differentiated position as a performance-driven media platform that combines the power of the movies with data-enabled precision.

As we invest in our platform and innovation, we also remain focused on expanding NCM's advertiser base. In the third quarter, we strengthened our full funnel attribution through our partnership with iSpot, a leading real-time TV and video ad measurement platform. This integration incorporates theatrical exposure data into iSPot's cross-screen measurement framework, enabling advertisers to quantify cinema's incremental reach and conversion velocity alongside linear and streaming channels.

Early results are very compelling. The recent travel industry advertisers campaign delivered 3x faster conversion rates than linear TV. 95% efficiency at 10% the cost of TV and more than 8.4 million incremental impressions among audiences unexposed to television. These results validate cinema's role as a high-performing cost-efficient channel within diversified media mixes and reinforce the measurable impact of the theatrical experience in driving both upper and lower funnel performance.

We are optimistic about the months ahead as we entered what is historically NCM's strongest period of the year. Upcoming tentpoles, including Wicked for Good, Avatar Fire & Ash and Zootopia 2 are already driving significant advertiser excitement and early commitments across multiple categories. Demand for Wicked for Good has been exceptionally strong with inventory approaching sellout levels a month ahead of the film's upcoming release date.

The robust lineup, coupled with steady improvements in pacing and demand reinforces our confidence in a strong finish to the year. Importantly, we expect sustained momentum through year-end to further reinforce advertiser confidence in cinema as a high-performing media channel that delivers both attention and measurable impact.

With increased advertiser demand, a healthy box office pipeline and continued traction across our Programmatic and self-serve platforms, we are well positioned to capitalize on expected strong attendance in the fourth quarter and execute against our strategic priorities for long-term growth. With that, I'll now turn the call over to Ronnie.

Thank you, Tom, and good afternoon, everyone. For the third quarter, NCM delivered results consistent with our expectations, reflecting the continued momentum we saw towards the end of the second quarter and stability in the demand for cinema advertising, which led to the highest third quarter monetization in the last 5 years.

As Tom noted, the tariff-driven uncertainty that weighed on earlier quarters subsided during the period, with brands showing renewed confidence navigating the current macroeconomic environment. That stability translated into improved advertiser demand, particularly across several key categories, signaling progress from the pullback we experienced earlier in the year.

NCM's total revenue for the third quarter was $63.4 million, within our guidance range of $62 million to $67 million and up 2% year-over-year. This increase was driven by stronger national advertising demand, improved inventory utilization and continued traction across our Programmatic and self-serve channels, partially offset by lower local and regional spending and softer beverage revenue.

While the third quarter box office underperformed versus industry expectations with inconsistent performance among new releases, the stabilization of advertiser demand drove higher monetization in July and August, offsetting some of the softness in attendance. National advertising revenue totaled $49.9 million, up 6.6% from $46.8 million in the prior year period. This was driven by strong scatter demand and improved utilization of inventory as well as increased adoption of our digital buying platforms, partially offset by a decline in CPMs and lower overall attendance.

Compared to the prior year, national CPMs held firm in the upfront marketplace, but declined in the scatter market due to an increase in Programmatic buying and improved demand in the seasonally slower September month when compared to historical periods. That said, the third quarter marks our strongest Programmatic performance since its launch, growing 82% sequentially.

Additionally, Platinum revenue was up 19% compared to the prior year, achieving the highest third quarter Platinum sales in NCM's history. Platinum monetization grew significantly with revenue per attendee up 33% year-over-year, driven by strong growth in inventory utilization and a slight increase in CPMs, an encouraging sign that our amended AMC deal, which has been in effect for only a short 3 months is already driving results.

Overall, national revenue per attendee was $0.46, up 20% year-over-year and the highest third quarter national ad revenue per attendee in the last 5 years, reflecting the success of our ongoing efforts to optimize pricing and yield through our Programmatic and self-serve capabilities. Local and regional advertising revenue was $9.6 million compared to $11.4 million in the prior year period.

While local markets continue to recover more gradually, we are encouraged by improving activity in government and travel categories, which partially offset lingering softness in health care and professional services. As Tom outlined, we remain focused on strengthening this channel by enhancing our sales talent, new coverage models and data-driven insights that better connect local advertisers with NCM's engaged audiences.

Turning to our expenses. Third quarter total operating expenses were $65.2 million, down from $69.9 million in the same period last year. Excluding onetime items, depreciation, amortization and noncash share-based compensation, our adjusted operating expenses were approximately $53.2 million, a slight decrease year-over-year, primarily attributable to lower attendance-driven costs. Due to our continued disciplined cost management efforts, SG&A expenses remained relatively flat in the third quarter as we strategically offset important investment dollars elsewhere in the business.

Personnel-related expenses were slightly lower compared to the prior year period and theater access fees decreased year-over-year, reflecting lower attendance levels. Third quarter adjusted OIBDA was $10.2 million, in line with our guidance range of $7.5 million to $11.5 million and exceeding $8.8 million in the same period last year, driven by the modest top line growth. Total unlevered free cash flow for the quarter, as defined by cash flow from operations less capital expenditures, was negative $1.8 million compared to negative $2.4 million in the prior year period, driven by slight year-over-year increases in capital expenditures and system optimization costs, offset by improved adjusted OIBDA.

Year-to-date, NCM has generated total revenue of $150 million compared to $154.5 million in the same period last year. National advertising revenues were flat, while local advertising revenues declined 22%, primarily reflecting macroeconomic uncertainty in the second quarter and offset by the third quarter stabilization in national advertising. Total adjusted OIBDA for the period was $1.9 million compared to $10.7 million in the prior year, driven by the top line headwinds, offset by normalization following prior year cost reductions.

Turning to our consolidated balance sheet. At the end of the third quarter, the company had $32.9 million of cash, cash equivalents, restricted cash and marketable securities compared to $40.3 million at the end of the second quarter of 2025. We had 0 total debt outstanding at quarter end. Our capital allocation priorities remain focused on returning capital to our shareholders, while investing in technology and talent to enhance our advertising platform.

Specifically, we continue to invest in expanding inventory monetization tools, improving our self-serve and Programmatic capabilities and deepening advertiser relationships through new sales initiatives and training. Under the dividend program, we reinstated this year, we announced a quarterly dividend of $0.03 per share today, amounting to $2.8 million. This quarter's dividend will be paid on November 26, 2025, to stockholders of record as of November 10, 2025.

There were no share repurchases during the third quarter as we had accelerated repurchases opportunistically in the first half of the year and manage liquidity through a seasonally higher use of cash for working capital. Year-to-date through September 25, 2025, NCM has repurchased 3.3 million shares at an average price per share of $5.78 for a total of approximately $18.8 million. Since quarter end, we've repurchased over 100,000 additional shares at an average price per share of $4.08, reflecting our continued confidence in the business.

We are optimistic that the advertising momentum from this quarter will continue heading into the fourth quarter. The remainder of the year includes a number of highly anticipated releases scheduled for the holiday release window. In particular, blockbuster events such as Wicked for Good, Avatar Fire & Ash and Zootopia 2 have each generated strong advertiser demand and upfront sponsorship commitments. These releases are expected to drive both attendance and related revenues, positioning us for a strong close to the year.

Turning to our guidance. For the fourth quarter, we expect revenue to be between $91 million and $98 million and adjusted OIBDA to be between $30 million and $35 million. Notably, our fiscal fourth quarter includes an additional week compared to the prior year. As a result, we expect total attendance growth to outpace industry trends and lead to a correspondingly lower revenue per attendee.

We anticipate a strong holiday box office slate with optimism that greater consistency in film release cadence and performance will continue to attract advertisers to NCM's platform for our differentiated offerings and unmatched reach with sought-after audiences. With advertisers already showing heightened interest in the Thanksgiving to Christmas slate, continued recovery at the box office and regaining advertiser confidence against the macroeconomic backdrop, we remain well positioned to capture demand and deliver value for our shareholders.

Operator, please open the line for questions.

[Operator Instructions] Your first question comes from Patrick Scholl from Barrington Research.

I just wonder if you could talk a little bit more about the Programmatic and the ad categories that are adopting that. I guess to the extent that you maybe talk about like just if you're seeing expanded budgets from existing partners or maybe just some of the ad categories that you are seeing, adopt that format.

So, Patrick, thanks for the question. So, we're really happy with the performance of Programmatic. We've been investing in it for over a year now. Our Programmatic business was approximately 4x higher than it was a year ago. And I think importantly, the vast majority of clients who are coming in from Programmatic are new clients. And the categories, I can tell you, are all over the map in terms of different segments.

But I think the most important thing is we're literally reaching people who had never been cinema advertisers before. And as Programmatic grows as an industry level phenomenon, as it continues to grow, we actually couldn't be happier with our investment in Programmatic and the growth we're seeing, especially driving new client relationships.

Okay. And then on the guidance that you provided with -- on EBITDA, with the revenue growth is the renewal with AMC kind of the main driver of like the maybe lower conversion of the revenue growth to profit growth? Or can you just maybe talk about like what sort of revenue increases you kind of need to get that positive trend on EBITDA?

Yes. So Patrick, this is Ronnie here. So thanks for the question. So as we noted in our prepared remarks that this quarter versus the prior year period -- prior year, there is an extra week here. And so, our fiscal quarter year will end this year on January 1 versus last year, it was December 26. So, what you have is this extra week between essentially Christmas and New Year's that will have really high attendance.

And so, because of that, we obviously would be paying more dealer access fees versus the prior year and thus, the margins will reflect that. As comparison, if you were to -- if you look back at last year, if you were to add that extra week, the attendance would increase almost 14%, when you look at last year's fourth quarter.

Your next question comes from Eric Wold from Texas Capital Securities.

A couple of questions. One quick one, just to follow up on that last comment, Ronnie, on the incremental attendance in the extra week between Christmas and New Year. Obviously, typically a high attendance period of the year with people hitting movies and high attendance. Is the assumption that it's just the mix of films and maybe the mix of attendance is just not as valuable of an advertising attendance. And so yes, it's high attendance may be not as valuable to advertisers for you to advertise in front of. Is that the thought process there in terms of the impact on the quarter?

So I think the way to think about it is that, obviously, the fourth quarter is very attractive to advertisers. That period really starts mid-November all the way up to Christmas essentially. And that's the high seasons. We have consistent sellout demand, especially in Platinum, post-show periods are mostly sold out.

And when you get past that Christmas holiday season, that demand tends to soften a little bit despite kind of a lot of more attendance showing up because a lot of families take their kids to the movies. So, the demand is not -- although still high, it's just not anywhere near the same as the weeks leading up to the holidays.

Got it. And then maybe a high-level question, but there's been obviously a lot of press, and this is obviously nothing new. There's always been the question of known franchises versus new IP at the theater. And recently, there's been a lot of press around smaller titles, new IP, not doing well at the theater. Are you seeing any trend from advertisers?

Obviously, the blockbuster films, you mentioned Wicked selling out almost a month ahead of time. And I assume that's the case in most blockbuster films. So with the new IP, are you seeing any patterns from advertisers maybe waiting a little bit closer now to release date and tracking and getting a better sense of tracking, especially now that they have the ability to use Programmatic to latch on to it before they want to maybe commit to a campaign to get a better sense of how that film is likely to do before they want to commit their advertising to it. And if that is the case, how are you kind of planning around that?

I actually think, Eric, it's really not the case. People generally are buying impressions and they're buying forecasts and estimates. People are not really being that specific when it comes to a smaller independent release or a new IP and avoiding it. Generally speaking, people are buying the entire flight across a variety of movies. So, while obviously, there's overperformance on things like Wicked and Avatar and Zootopia, there's not a reverse effect on unknown IP. So we're not seeing that phenomenon. And yes, when a movie does really well that no one's heard of, there is incremental buying happening on it the following week, weekend. And some of that's Programmatic or just bought in our regular scatter market.

Your next question comes from Mike Hickey from the Benchmark Company.

Just curious, Tom, when you look at -- obviously, we've got a pretty good view of '25 here. It's been some opportunities and challenges for you guys. Just when you think about '26, Tom, can you sort of paint the picture? I think you're probably optimistic on attendance, but I'm just curious how NCM from a growth perspective fits into '26, looking at national local, your Programmatic and maybe the key catalysts that we should look forward to in terms of driving growth and leverage from your model?

So, what I would say is that first thing first. So, the fourth quarter is pacing very well, up in a way -- not up -- up a fair amount from the prior year. So I see the momentum from Q3 going into Q4 and the advertisers are back. Any of the tariff issues that we highlighted in Q2 have gone away. So we're looking at really good momentum from Q3 going into Q4, and we expect that to follow in through '26. The box office estimates for next year look actually quite good. I think it's been pretty well documented that it's going to be another growth year in box office and attendance.

So I think, fortunately, the momentum is really good right now and the confidence we're seeing from advertisers and the relationships they're growing, especially with the addition of Programmatic and self-serve. And we're pretty confident that local is going to rebound as well. So, I think the third quarter and the fourth quarter are really setting up for momentum into next year. And we're confident that '26 is going to be a great year for us and for the box office.

Is your decision to put back the dividend here versus maybe a more aggressive buyback or M&A? Just curious, Ronnie, your view on capital allocation here and into '26.

Yes. So, on capital allocation, obviously, we're committed to our dividend, and we continue to do that this quarter. We believe that's an important part of our capital allocation strategy and more a way to reward our shareholders on a more consistent basis. In terms of the buybacks, like we always said, obviously, we're opportunistic when it presents ourselves with that. We were doing that fairly aggressively in the first half of the year, buying up to nearly $19 million worth of stock.

Obviously, we slowed down here, but that's really in cadence with the negative unlevered free cash flow that we're seeing in this period. And we're just mindful of the working capital needs of the company in the third quarter, especially in July and August is typically where we see a lot of uses of cash due to working capital.

I'll say that, though, like we said in our prepared remarks, post the third quarter after September 25, we were -- we did pick up additional over $100,000 -- or 100,000 shares in the market. So I think it's really -- we'll continue to utilize and look at all of the options available to us in terms of capital allocation and then also be mindful about the free cash flow nature seasonally throughout the year as well.

And then last question. How are you guys thinking about your cost structure here? Obviously, you've taken it down a lot. Are you comfortable with where you're at? Or do you think there's opportunities here, AI or otherwise in terms of getting maybe some incremental cost savings into '26?

Yes. I think it's a little early to really talk about '26, but I do think we've taken a hard look at efficiencies in AI. Every year, I think we've done a good job of managing our expenses. We've been fairly engaged with AI opportunities. So more on that soon. But clearly, there's some opportunities for us. I think not just for efficiencies, but also to generate more opportunity. AI is not just a cost savings tool. It's also a lead generation CRM tool that can enhance our ability to reach in clients. So we're looking at that and we'll be able to give you more update on that next quarter.

There are no further questions at this time. I would now like to hand the call back over to management for any closing remarks.

Yes. So I want to thank you guys all for joining us today. NCM continues to attract top advertisers with our unmatched reach among the most sought-after audiences and our differentiated inventory complemented by our industry-wide leading data capabilities. So after navigating a challenging second quarter, our clear focus and discipline in our strategic execution enabled us to deliver solid results as the advertising market stabilized in the third quarter.

Looking ahead, we're well positioned to capitalize on the exciting holiday film slate, and we're very optimistic that we'll carry positive momentum through the remainder of the year. We're grateful for your support, and we look forward to seeing you all at the movies. Thank you.

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