National CineMedia, Inc. (NCMI) Earnings

Management highlights

### Strategic Acquisition of Captivate - NCM has entered a definitive agreement to acquire Captivate, the leading North American digital video elevator and lobby advertising operator, for an enterprise value of $275 million, representing 10x pro forma adjusted EBITDA including expected cost synergies. The transaction is expected to close in H2 2026. - Captivate operates 26,000+ screens across 11,000+ commercial/residential buildings in 170+ DMAs, reaching an affluent professional audience, with 40% revenue growth and 50% adjusted EBITDA growth over the past two years, a 30% adjusted EBITDA margin, and 96% building retention. - The combination creates a leading premium video/digital out-of-home (DOOH) platform with 48,000+ screens across 185 DMAs, combining complementary audiences (NCM's young moviegoing audience + Captivate's affluent professional/residential audience) to enable cross-environment reach (where consumers work, live, play) through a single partner, and unlocks new B2B advertising budgets. - NCM expects at least $3.5 million in annual run-rate cost synergies within one year post-close, with additional unmodeled upside from cross-selling and network expansion. The acquisition is financed via new $275 million committed term debt, with existing revolver refinanced through available cash. Net leverage at close is expected to be approximately 3.9x, with free cash flow prioritized for debt repayment post-close, leading to a pause in dividend and share repurchase programs. ### Core Cinema Business Performance - Q2 2026 industry box office was the strongest since the pandemic, with NCM network attendance up 19.3% YoY. Advertising demand improved YoY across core categories including insurance, retail, automotive, and pharmaceutical, but near-term headwinds from FIFA World Cup related national budget shifts and unfavorable Q2 film slate composition (overperformance of lower-yield R-rated horror films, underperformance of mainstream broad-appeal releases) limited advertising yield. - Local advertising growth was driven by rebuilt local sales organization talent, expanded premium inventory, improved pricing, and strong category growth in retail, entertainment, gaming, and travel. NCM's local sales team will be leveraged to expand Captivate's underpenetrated local business. - Programmatic advertising grew 45% YoY, with new supply-side partner Magnite bringing coverage of 90% of the programmatic DOOH market. Captivate's existing programmatic technology and partnerships will accelerate NCM's programmatic strategy across the combined inventory pool. ### Operational Transformation - NCM completed the operational transformation plan announced earlier in 2026, achieving $2.7 million in year-to-date cost savings. The company remains on track to hit $11 million in total annualized run-rate savings, with up to $6 million realized by end-2026. SG&A decreased 7% YoY from initial savings, offsetting some lower June utilization and creating capacity for high-return growth investments.

Guidance

- NCM is not providing forward guidance at this time, due to the expected H2 2026 closing of the Captivate acquisition, which would create potential partial period reporting complexities for Q3 2026. This pause does not reflect a change in management's view of underlying core business performance. - Management remains confident in the 2026 full-year theatrical slate trajectory, after a strong Q3 start led by *Spider-Man Brand New Day* (record domestic opening weekend) and *The Odyssey*, with highly anticipated Q4 releases including *Cat in the Hat*, *The Hunger Games*, *Avengers Doomsday*, and *Dune Part 3* supporting expected full-year performance. - Management expects the combined company to generate meaningful free cash flow post-acquisition, leading to meaningful deleveraging of the balance sheet over the next two to three years.

Segment performance

National CineMedia (NCM) reported total Q2 2026 revenue of $58.4 million, a 12.7% year-over-year (YoY) increase. Total advertising revenue was $54.4 million, up 14.3% YoY, making up 93.15% of total revenue. The national advertising segment generated $45 million in revenue, up 9% YoY, accounting for 77.05% of total revenue and 82.72% of total advertising revenue. The local advertising segment generated $9.5 million in revenue, up 48.4% YoY, accounting for 16.27% of total revenue and 17.48% of total advertising revenue. Programmatic advertising revenue grew 45% YoY, though it remains a modest share of total advertising revenue. Adjusted EBITDA for the quarter was $2.1 million, a 200% YoY improvement. Operating loss was $12.8 million, and unlevered free cash flow was negative $2.1 million, a 70% improvement YoY. Year-to-date 2026 total revenue is $92.4 million, up from $86.6 million YoY, with national and local revenue up 5% and 24% respectively; year-to-date adjusted EBITDA is negative $8.5 million.

Risks & headwinds

- Near-term advertising monetization risk from shifts in domestic advertising budgets tied to major events like the FIFA World Cup, and from unfavorable film slate composition that prioritizes lower-yield, narrow-audience films over broad four-quadrant releases that deliver higher advertising yields. - Integration risk associated with the Captivate acquisition, including execution of cost synergy targets, cross-selling initiatives, and business combination, as well as balance sheet leverage risk from the acquisition debt. Closing is subject to customary regulatory and other conditions, with uncertain timing. - Uncertainty around the upside of new initiatives including political advertising in theaters and commercial/residential buildings, which requires landlord and circuit approval and has unproven market demand. - Persistent competitive advertising environment that pressures yield and utilization even amid improving attendance and demand.

Analyst Q&A

• Q: With cinema recovery already strong, why diversify via the Captivate acquisition now instead of leaning into core cinema growth? /

  A: This acquisition is a complementary extension of NCM's core strategy of reaching hard-to-reach audiences in premium high-attention environments, not a departure from cinema. Cinema remains NCM's core business, and the company continues to invest in its recovery. The combination adds a second growth driver, increases overall platform scale, and enables closed-loop advertising reach: 80% of Captivate's New York City buildings are within one mile of an NCM cinema, allowing advertisers to target consumers across their daily routines from home to work to the theater, making NCM's existing cinema inventory more valuable.

• Q: What is the expected growth profile for Captivate, and how is return-to-office progressing for its core commercial buildings? /

  A: Return-to-office in Captivate's focused Class A buildings has normalized to pre-pandemic levels. Captivate has delivered 40% top-line growth and 50% EBITDA growth over the past two years, driven by return-to-office and early expansion into residential buildings. There is substantial untapped growth upside: 11,000 potential new commercial buildings and 10,000 new residential buildings can be added to the network, and Captivate's existing major market penetration is low (e.g. 17% in Los Angeles). Only ~30 of NCM's ~330 current advertisers overlap with Captivate, creating large cross-selling opportunities that are not modeled into current projections. The acquisition will leverage NCM's existing local sales team to drive new revenue that Captivate could not capture on its own.

• Q: What drove NCM's strong local advertising growth in Q2, and what is the local advertising opportunity with Captivate? /

  A: Local growth came from three main factors: targeted improvements to sales team talent (swaps and modest expansion to improve coverage), expanded premium inventory from the prior year's AMC deal that allowed higher-value pricing, and strong growth in key categories like retail, entertainment, gaming, and travel. Captivate currently only sells national/regional advertising and has no dedicated local sales team. NCM's established local sales organization can immediately expand monetization of Captivate's existing footprint, particularly its fast-growing residential segment, unlocking new upside.

• Q: What is Captivate's seasonality profile, and can its network accommodate political advertising? /

  A: Captivate's revenue is far less seasonal than NCM's cinema business, which is weighted to summer and holiday box office peaks. B2B advertising makes up a large share of Captivate's revenue, creating a more predictable, even cadence that will help smooth NCM's overall revenue across the year. Political advertising is not banned on Captivate's network, but building owners retain discretionary approval over content; political advertising is also a nascent, upside opportunity for NCM's theater network, as circuits gradually become more open to allowing the ad category.