Q1 2021 National Cinemedia Inc Earnings Call
Good day and welcome to the National Centre Media and Corporation first quarter 2021 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing Star then zero. After today's presentation, there will be and opportunity to ask questions to ask a question you May Press Star then.
One on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Ted Watson Senior Vice President of Finance. Please go ahead.
Thank you, Matt and good afternoon, everyone I am joined today by our CEO Tom Lapinski.
I would like to remind our listeners that this conference call contains forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended and section 20 <unk> of the Securities Exchange Act of 1934 as amended.
All statements, including our discussion about the future impacts of COVID-19, 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 and 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 N C. M Dot com and now I'll turn the call over to.
Tom.
Thank you Ted and good afternoon, everyone welcome to our first quarter 2021 earnings call I.
And I Hope you are all continuing to stay safe and healthy as springs, and spring brings a period of recovery.
Our company and the Senate Ministry are continuing the slow, but steady recovery from the COVID-19 pandemic.
During these early stages of the recovery there are many indications that consumer demand is coming back and Sinn will continue to be and important launching pad for films more than half of all adults and the U S. Now having had their first vaccine shot and movie audiences are expanding across the country with a strong opening weekends and Godzilla vs com.
Laurel combat and demons layer.
And is encouraging trends and the recent positive outlooks of Cinemark and AMC all support and we have been saying since the pandemic started that there is a strong pent up consumer demand to get back to the unique social experience on the big screen.
In fact, some recent disappointing day and date streaming results.
Have many content producers now considering the reestablishment of a new kind of exclusive theatrical window to help launch their films and other scripted content into the streaming services.
With these positive trends as a backdrop I'd like to now provide a high level and update on the steps we've taken to position our company to quickly restart and diversify our cinema AD business while.
And while at the same time, maintaining our liquidity position as we meet the ongoing challenges presented by the COVID-19 pandemic.
Ted will then provide more detail and how do we continue to manage our operating cost and our.
Overall liquidity to ensure that our team is prepared to quickly benefit from the incredible movie slate backlog that will begin to drive movie audiences back to theaters. This summer.
And then as always we'll open the line for your questions.
The first quarter of 'twenty, one continues to be a challenging time for and Sam's business and the entire out of home entertainment and advertising industries.
Our in theater advertising revenue remained adversely impacted in Q1 by both significantly lower movie theater audits attendance due to both government mandated closures and Patriot capacity limits and a continued delay of new major motion picture releases.
Fortunately that began to change and Q2 with some strong openings and the firming up on the film release schedule for the remainder of 'twenty one.
As theaters, including wriggles begin to reopen and COVID-19 seating capacity restrictions have begun to loosen approximately 77% of theaters and our national advertising network are open versus 40% at the end of 2020.
While many of our continued operating under COVID-19 restrictions with reduced capacity and operating hours that was restrictions are loosening up and for the first time theaters are open and New York City and other key markets Ted will discuss all of this in more detail shortly.
Fortunately as you know and Cm Llc's theater access fees network affiliate payments and platinum spot revenue share payments are all variable costs that are driven by attendance active screens and more revenue and therefore were not incurred for the duration at the theaters were closed and will be lower than historical levels while attendance.
<unk> down and prepares where theaters or are operating with fewer film show times.
The most encouraging thing as our National Theatre, and Africa is continuing to open more every day as exhibitors to get ready for the release of many highly anticipated films throughout the year, beginning and on Memorial day weekend.
And as mentioned theater capacity restrictions are also being lifted and many parts of the country. In fact 23 states currently have no capacity limits at all.
And theaters and all top 10, and <unk> are now open.
And the key media and moving market of New York, The Governor recently announced that the state will be 100% open by May 19th.
And theaters and La also continue to open at 50% capacity was 75% capacity coming soon.
With the recent positive USD Astragal film openings and theaters across Asia posting record attendance levels, we continue to be very optimistic about the future and moviegoing.
As mentioned on our last earnings call in March we closed the bank facility Amendment that has provided covenant relief through Q3 of 'twenty, two and a new $50 million debt facility.
This amendment and funding of the new $50 million tranche have positioned us to hit the ground running this summer and provided additional liquidity for the company to continue to execute on its growth initiatives.
We remain focused on the reemergence of cinema advertising is an important part of our clients' marketing plans and the ongoing diversification of our media inventory offerings into existing exciting new complementary digital and digital out of home channels and convenience stores grocery stores and office buildings and restaurant locations.
That will allow advertisers to reach movie audiences before they arrive and after they leave the theaters.
Our sales teams continue to have many positive conversations with clients and advertising agencies about getting their brands back on the big screen.
The tenor of these discussions has now turned from when audiences will be back and movie theaters to how big of an advertising deal can add and attendance support.
Marketers are very anxious for their brands to reach the hard to find theater audit and just once again.
And while some of our great brand partners, we're back and our <unk> pre show as soon as theaters reopen and many others have promised us.
And as soon as the audiences are back on a national scale and they too will be back.
With a great box office success of Godzilla Mortal Kombat and demons later, despite the experimental pandemic day and day streaming options clients and agencies, who were taking and wait and see approach now have proof of the power and unique big screen environment and movie theaters that make all world class ads and content and more.
Paul.
We're also expecting that these successes will result in the reestablishment of more flexible theatrical windows.
And that allows streaming to benefit even more from the word of mouth and other marketing benefits provided by the theatrical exhibition.
In fact streaming has turned out to be a much bigger potential problem for linear AD supported TV than it has.
For cinema as at home audiences have increasingly shifted to watching.
S Abad non AD supported streaming services instead of traditional AD supported linear TV.
This has resulted in a significant lack of available high quality video ERP and the marketplace, especially among younger highly coveted demographics.
And it's forcing advertisers to find new ways to reach large national audiences.
Fortunately for US cinema continues to be a great premium video marketing solution for marketers looking to replace their TVT ERP shortfalls.
To capitalize on this great opportunity and the new post pandemic World, we're aggressively competing in the TV upfront beginning next week.
Our strategy is to implement a very targeted personal approach by going agency to agency client by client with our new virtual upfront roadshow presentation that highlights our premium lights down and platinum Poeschel inventory, which we continue to believe that some of the best video AD real estate available anywhere.
This strategy allows us to position, our timely and message to the right decision makers at the right time, we're beginning to see good momentum as media buyers recognize cinema and that's one of the best options and this new media world to reach young diverse highly engaged audiences at scale.
And not only that but streaming companies are increasingly becoming some of our biggest advertisers as they know and recognize what they are and linear TV and cable predecessors have always known that cinema advertising effectively drive tune in.
Linear television ratings have been and sharp decline since 2016.
Continuing on a precipitous falloff and broadcast cable and prime and sports audiences over the last decade for the all the always important 18 to 49 demo.
Which continues to be cinemas largest audience.
This broader market trend of shifting consumer television viewing habits will be a strong reason for top brands to return to cinema to reach our core young Gen Z and millennial audience Joy.
Joining brands, who have already begun to return and key national categories, such as entertainment insurance <unk>.
Digital and streaming services retail and CPG gaming automotive and alcoholic beverages.
While our national team remains focused on securing a base of upfront dollars. The scatter market is also becoming more attractive and we're seeing more rfps and having more meaningful detailed conversations and negotiations and at any time during the pandemic.
Which is highly encouraging.
Our local business is also beginning to rebound as local contract volume is beginning to increase and there are some local markets where movie theaters are already open at 100% capacity.
And while national advertising campaigns are planned further and advance local advertising budgets are spent closer to run time and thus over the last few weeks, we've begun to see a real uptick and success and key local categories, including real estate financial services travel and tourism education professional services, and recruitment and home improvement and especially and.
Government and health care, where theres been a flurry of COVID-19 vaccine campaign messaging budgets being spent and local communities across the country.
It is clear that advertiser demand for cinema continues to be strong.
The main limiting factor throughout the COVID-19 pandemic has been the lower number of moviegoers allowed and theaters versus media buyer demand, we continue to be comp and as government mandated restrictions continue to be lifted as the relative the vaccine progresses. The significant cabin fever that has been building for over a year now will drive consumers.
Back to the theaters.
And this will once again allow movie studios and even some of the new streaming companies rely on theaters to launch their films and other content into the marketplace.
Recent announcements from Warner brothers, and others reflect a recommitment to new types of theatrical windows for future films. This is great news as film release delays caused by the epidemic has created an unbelievable lineup of big movies from now through 2023, which should begin to stabilize and normalize our business and the second half of 'twenty, one and beyond.
While our core and theater advertising business has started to recover we've continued to focus on maintaining liquidity by balancing cost reduction measures with the need to keep our talented <unk> team in place. So that we can begin to quickly ramp up our business to meet increasing advertising demand.
While many of our temporary pandemic salary reductions and staff for those currently remain in place we have begun to implement our return to work plans as we expect to bring people back to full salary and hours as the cinema industry recovers I cannot tell you how much I am looking forward to welcome Eric Great people back and I remain incredibly grateful to our entire and cm team for their unparalleled.
<unk> resilience dedication and support during the past very difficult year.
I'm very proud that all of our careful planning and management of our financial and human resources over the past year has not only allowed and seem to survive, but has positioned us for success and a post pandemic world.
Part of our new positioning relates to our strategy to diversify our media inventory beyond the big cinema screen to the expansion of our apps and other digital products and our new <unk> and cm digital out of home sales relationships.
These new business opportunities have enabled us to diversify our revenue sources and allowed us to create a unique bundle of our in theater inventory with our digital and our digital out of home channels and we'll open the door to new advertisers and new pools of AD dollars. This strategic expansion and diversification of our AD inventory to offer complementary and integrated.
Ways for brands to reach our attractive audiences beyond the walls of the theater on digital devices and within.
Other out of home venues is generating more inquiries and starting more and discussions than ever before.
Marketplace reaction has been very positive, especially and.
Initially and the local arena, where there's two inventory has been has really opened up some new categories for us, including state lotteries Advertiser interest and Coinstar and ATM. TB has also benefited from the continued high traffic of supermarkets, and 711 stores and now that the restaurant and office building traffic is increasingly coming back on.
<unk> digital out of home network will soon be firing on all cylinders with the recent addition of <unk> captivate.
We also have a few other exciting new digital initiatives that are increasingly important to our future success.
A new data partnership with one of our founding member exhibitors to supply and movie ticket data will greatly expand our ability to leverage audience data and create more robust targeting solutions for advertisers.
This new movie ticket data reinforces our current audience data pool, and makes our data offerings significantly stronger enhancing not only our scale, but our debt with a meaningful increase and deterministic data.
It also allows us to create custom closed loop attribution measurement for brands and movies movie Studios and alike.
This new valuable movie ticket audience data is expected to grow our datasets to $300 million.
By year end and power, our newly audience accelerator digital product.
With what we would believe will be the largest and most pristine movie audience data set available and the marketplace.
S government regulation and policy changes by the dominant digital companies and third party cookies and use of second and third party data our theatre audience expertise and a robust theater audience data will enhance our ability to compete with other larger digital advertising platforms for marketing dollars.
We've also formed and exclusive relationship with mobile <unk>.
SaaS industry leader and content recognition protection monetization and marketing to sell brand Safe Reserve ruble digital and video AD inventory alongside movie content like movie clips and trailers on top of the video platforms, including Youtube.
This allows us to offer digital audiences at scale to connect brands with movie fans, while they're engaging with the best online movie content across the biggest video platforms.
Dividing access to the hottest trailers and fan favorite clips provides advertisers with premium brand safe AD opportunities. This partnership provides and same with over 120 million additional monthly digital AD impressions to sell with other valuable on screen and digital out of home options.
Our new digital out of home and social video platform inventory will also provide us with two entry points into the programmatic buying marketplace, which is an important step and our strategy to make all marketing products easier to buy our.
Our capital investments and our new cinema advertising management system that was launched in Q1, we laid the foundation for programmatic access to around screen inventory, which we expect will create additional monetization opportunities for our and theater inventory and the future.
So as you can see while the pandemic brought many difficult challenges. It also gave us an opportunity to think about our business differently and begin to execute several new strategies.
We were able to expand our cinema network with the addition of Harkins theaters, the fifth largest theatre, operator, and the U S. This cinema and network expansion combined with the acceleration of our digital strategy and the diversification into selling video and selling inventory and AR.
Other out of home venues beyond cinema will allow us to become an even stronger media company with multiple and extremely compelling new ways to unite brands with the power of movies and engage movie fans anytime and anywhere.
I remain very grateful to our entire and cm team our board, our exhibitors and our advertising partners and against this yearly thank them for their continued support as we navigate this historic and turbulent time together.
While some uncertainties related to the COVID-19 pandemic remain we believe that we have positioned our company very well to quickly reestablish the growth momentum that we've created before the pandemic started.
With this strong feeling of optimism about the ongoing recovery. Our board has left our dividend at <unk> for the current quarter, thanks to improving market conditions, and the dedication and hard work to our entire team I can honestly say that the future is truly starting to look bright again for the first time and more than a year.
So with that I'll now turn the call over to Ted to discuss more details about our cost savings measures liquidity position and outlook.
Ted.
Thank you Tom.
As we begin to emerge from the COVID-19 pandemic, we are seeing encouraging signs that our business is positioned for a strong recovery and the second half of 2021.
As our network was still significantly impacted in Q1 with only 60% of our network theaters open and attendance down almost 90% year over year, we recorded only $5 $4 million of Q1 revenue.
And 92% for the comparable quarter last year.
Given the continued significant impact of the COVID-19 pandemic on our business throughout the current quarter.
And analysis of our revenue and adjusted OIBDA and Q1 versus prior periods was not meaningful.
And as you will recall the pandemic only impacted the last few weeks of Q1 2020, thus current quarter results do not fairly represent our ongoing business.
As such I will focus much on my comments today on our current liquidity position for continued success and limiting our monthly cash burn rate as well as providing some additional thoughts on how we see our business recovering through the remainder of 2021.
With the lack of any meaningful and theater advertising total Q1, adjusted OIBDA was negative $16 $2 million.
And as has been the case the last few quarters. The combination of our highly variable operating cost structure and our proactive overhead cost reductions have allowed us to limit our adjusted OIBDA losses, and the current quarter and during the entire pandemic.
Our Q1 average our Q1 average cash burn rate was approximately $10 million per month.
Versus $11 million and $12 million and Q4 and Q3 of 2020, respectively.
A significant amount of our operating cost reductions and has been related to personnel.
During Q1 over 75% of our employee base continued to be furloughed or had salary reductions of up to 50%.
These cost reduction measures reduced our core operating expense in Q1 to $5 $6 million per month.
Compared to our pre COVID-19 run rate of nine and a half million dollars savings of 42%.
As we have discussed in the past due to our high growth operating margins at the restaurant level to begin to build we will achieve operating cash flow breakeven after debt service on our quarterly revenue reaches approximately 50% of 2019 levels.
Which we currently believe we will be achieved as we exit Q3 of this year.
For the first quarter, we reported a GAAP loss per diluted share of <unk> 25 versus a loss per diluted share of <unk> and Q1 2020.
This earnings decrease was again the result of significant network attendance declines, resulting from the impact of the COVID-19 pandemic on the cinema business.
And the first quarter, we recorded zero integration and other encumbered theater payments primarily related to AMC Carmike theaters.
Or is this $1 4 million last year.
AMC integration payments are based on what <unk> could have earned had advertising been sold and those theatres by our sales teams.
As a reminder, these integration and other encumbered theater payments are added to adjusted OIBDA for debt compliance and partnership cash distribution purposes, but are not included in reported revenue or adjusted OIBDA as they are recorded as a reduction to net intangible assets on the balance sheet.
Moving to our balance sheet, our total debt net of cash at MCM LLC at the end of Q1, 2021 increased $69 million to $917 million versus 848 million at the end of Q1 2020.
Our average interest rate on all debt was approximately five 2% at the end of Q1 compared to five 1% at the end of Q1, two belt and 20 <unk>.
Including our 313 million floating rate term loan bank debt and revolving credit facility that had a rate of approximately five 6%.
Excluding revolver balances, 67% of our total debt outstanding at the end of Q1 2021 had a fixed interest rate.
And Llc's current cash balance, including the term loan B proceeds that was closed in March it was $118 $7 million, plus $3 9 million and accounts receivable.
Assuming an average of 11 5 million to $12 million per month cash burn rate with our high operating cash flow margins and revenue expected to begin to build and June through the back half of 2021, we believe that we have sufficient liquidity until we begin to produce positive.
Positive cash flow after debt service later this year.
And as mentioned, we only need revenue to equal approximately 50% of 2019 to breakeven on a cash basis after debt service.
And as Tom mentioned, our board of Directors has authorized and MCM, Inc. Quarterly cash dividend of <unk> <unk> per share of common stock.
Dividend will be paid on June seven 2021 to stockholders of record on May 21, 2021.
This quarterly dividend will result in a current yield of four 6% based on today's closing share price of $4 39.
Given the current and <unk> cash balance of $52 $8 million. Our current five cent dividend can be paid for the next three years with no additional MCM LLC distributions.
<unk>, Inc.
This is well beyond the MCM LLC distribution restrictions contained and the recent bank debt amendment that will terminate at the end of Q3 2022.
The company intends to pay a regular quarterly dividend for the foreseeable future at the discretion of the board of directors and.
Nearly three years of dividend cushion is considerably longer than what we have historically targeted.
We will continue to monitor this cushion and related dividend level consistent with the company's intention to distribute over time substantially all its free cash flow.
And as always the declaration payment timing and amount of future dividends payable will be at the sole discretion of the board of directors, who will consider general economic and advertising market business conditions, the company's financial condition avail.
Available cash current and anticipated cash needs and any other factors that the board of directors considered relevant.
This includes the impact to the company related to the COVID-19, pandemic and restrictions under the MCM LLC credit agreement.
Finally, while market conditions are improving rapidly there continues to be a number of uncertainties related to the impact of the COVID-19 pandemic on our business, making it difficult to provide reliable future revenue and adjusted OIBDA guidance.
And with that said I will leave you with a few qualitative thoughts regarding our business performance for the remainder of 2021.
Given everything we know today I would expect our revenue to begin to meaningfully increase and the month of June as network attendance levels are not expected to begin to pick up until memorial day weekend. When the first of several temple films is scheduled to open.
However, monthly revenue will still be below 2019 pre pandemic levels until Q4, as we will primarily be relying on the scatter market. Given we are substantially less upfront commitments due to our inability to participate and last year's upfront marketplace because of the continued shifting of the film slate.
Fortunately with film schedule, beginning to firm up for the remainder of the year. We can now begin to compete more aggressively per scatter budgets and compete and the TV upfront that is just beginning next week.
Those TV upfront commitments that we secure beginning in Q4 will be a significant driver of our Q4 revenue.
As Tom mentioned, given the significant decline and TV ratings, we're very optimistic about our success in attracting meaningful levels of upfront commitments gives.
Given this national booking outlook and a continual ramping up on a regional and local businesses. It is our expectation that by the end of Q3 2021, we will be at a monthly run rate of more than 50% of 2019 revenue levels required to achieve cash flow breakeven after debt service.
On an accrual basis.
And by the end of the year, we expect to be trending back towards 2019 revenue levels, assuming the theatrical schedule remains firm COVID-19 cases further decline, allowing government restrictions to continue to decrease.
And an upfront that is consistent with our expectations.
With every passing week, we should have better we should have a better understanding of theater attendance trends and our success and the scatter market and the upcoming TV upfront and we.
We will provide an update to those general Q3, and Q4 business guidance during our second quarter earnings call.
This concludes our prepared remarks, and we'll now open up the lines for questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at anytime and your question. That's been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Sure.
Okay.
Our first question comes from Eric Wold with B Riley Securities. Please go ahead.
Thank you and good afternoon guys.
Couple of questions I guess one.
And you noted that some of the advertisers are kind of on the sidelines waiting for audience has returned and quarter on a national scale.
We define that a little bit more intense on what theyre looking for in terms of <unk>.
Market is open maybe.
Average capacity and what were kind of guiding there just isn't there.
Yeah, I don't I don't think actually.
They are any longer looking for any more data and what they know now with almost 80 per cent of our network open.
And with three movies that have opened well I think it's just a matter not so much of the restrictions over the audience levels. It's really just getting another couple of movies under our belt.
But we're already seeing a lot of activity.
Post just and the last week or two with more and more theaters opening so.
And candidly its just a matter of time.
And I think a relatively short period of time based on the amount of meetings rfps and discussions that we're having I don't think there's anything fundamentally.
Wrong with the attendance levels right now, we just need to stitch together, a couple of more movies, which is going to happen right here towards the memorial day and the next few weeks.
And then we should be off and running looking really towards.
June.
Being you know and July being important months for the growth and the revenue side.
Got it.
And the majority of Q4 and the revenue can be driven by scatter and how would you balance.
And you know wanting to entice advertisers back into the scatter market.
Not wanting to drops Etfs, and so a point, where they're not recoverable and we and this is a funny. It's funny you asked it because I asked this question all the time to our sales team and candidly there is no issue with clients.
And agencies looking for discounts, it's purely about just making sure that they're comfortable with their release schedule and that they're comfortable candidly with.
And what's going on in terms of theater going and all of that looks very positive there has not been.
And any meaningful discussions or.
Even asks on the discounting of C. P M. So.
And we built a premium CPM business over the last 21 years and we plan on continuing to do that so we're not and the discount.
Business and candidly, we don't have to be and we haven't been asked to me.
And thank you and its final question.
And anything more you can talk about what the moving to get that agreement in terms of what what level of data.
And it's coming to you and tenants and what you had to give up and return for that.
Well, we made it and economic licensing agreement.
Two to get better data.
Not going to disclose the specifics of that agreement.
But it was a market based deal and and arms like deal to get data from.
From a third party.
I think it's important.
And when you look at the quality of the data to get.
Information about movie theater goers and.
In detail already wedded to the amount of data, we've been getting ourselves and.
We believe we will have the best cinema data business around and we plan on continuing this business and going to other third parties.
And possibly other exhibitors to strength and that data, but it's really providing two benefits one is providing us significant additional piece of data for our sales people to use.
And when they go on and make it a pitch and having that kind of data and the same way that Facebook and Google and others do and having deep knowledge about our consumer is really kept critical not just to maintaining C. P. M has been growing cpm's and growing the interest level in our AD buy.
So we're really excited about the day to business, it's and.
A year and a half old now.
It's growing as fast as we would have thought it would.
But candidly I would say that the quality of the day, that's gotten us even better than we really plan to when we first set off to do this.
Alright. Thanks.
Yeah.
Our next question will come from Mike Hickey with the benchmark company. Please go ahead.
Hey, Tom Chad and we'll see you guys got it thanks for taking my questions here just curious on.
Your commentary on guidance and sure by the end of 'twenty, one you expect to be trending back towards 19 revenue levels.
Can you help.
Good day.
And that sort of implying that look like 19 on revenues and Thanksgiving.
80%, there and you could just sort of.
Double click on that commentary.
So look on models I'd appreciate that.
Well I'm going to let Ted answer this as soon as I just say in general we feel relatively confident and optimistic based on all the things that are happening and the marketplace.
Debt towards the end of Q4, we will start getting closer and closer to where we were and 19 I'm not going to give you a specific percentage today.
I think it would be more appropriate for our next call and the summer, but Ted if you want to opine on that a little more appeal and feel free to.
Yeah, Hey, Mike.
And it's clearly way too early to talk about 2022, I think for Q4 'twenty one really.
And what underpins our belief that we can start trending towards the back 2019 levels is the movie slate. So I think we've been encouraged by what we've seen to date with people coming back to the movie theaters and our assumption is more and more people will continue to get vaccinated restrictions will be lifted and then with the movie slate.
I've seen everything from and optimistic projection that people think Q4 attendance could be flat and in line with 2019, I've seen projections that may be attendance was down 10% to 20% right, but either way I think it's.
Expected that it's going to be a strong quarter. So our belief is assuming that plays out on the attendance side and as Tom said with the upfront discussions we're having we do need to close a significant amount of upfront business, but we're feeling good about that and if those two things can happen.
And I'm pretty good debt as we exit 2021, we can be getting back towards the 2019 levels.
I think the other thing I would add as a relatively new piece of data is the.
Government recently literally today approved the vaccine for 12 to 15 year olds.
And as we are one of the leaders and delivering millennial Gen Z and teens to advertisers.
As that vaccine rolls out to debt core teenage audience, we know that they were very highly indexing moviegoers and that teenage group and.
And now that Theyre able to get vaccinated.
Beginning immediately and that will only help us.
Bring more advertisers and more confidence to our great platform.
Nice thank.
Thank you for that the curious on the National side. When you look at sort of the top DMA and markets housing and housing recovery been there I guess specifically.
Gasoline and jet.
Now happening.
Curious your view, there and maybe more broadly what are you seeing this.
Strongest recovery and and and then.
And if it's purely just sort of virus related or if it has to do with how long the theaters have been open and or if its Mike.
And sort of pockets of strength.
And that you see across your network and then.
And specifically, what's happening and you're talking and main markets with national obviously.
So I think I can try to give you some specifics around that but I think it's relatively intuitive that the markets had opened the major markets that opened later, obviously are not doing as well as the ones that have been opened for a while so you think whats been going on in the southwest and and the south.
And markets like Miami, and Dallas and Houston.
And have been far less restricted.
And then New York, and Los Angeles, and San Francisco.
So I think generally speaking and at least during this in this current COVID-19 era.
It's been the markets that haven't been restricted we have seen a really great response, though.
Already and theater attendance levels, and New York, and Chicago, and recently and Los Angeles. So as these restrictions have opened up.
We're seeing and the immediate impact and New York, and Los Angeles and Chicago.
Obviously, the three biggest markets and our network so.
Obviously for the past three months it smells he'd been the south and southwest, but I think now.
And in the past month, or so all the major markets, particularly New York Scout and really have recovered nicely.
Right.
And maybe last question for me.
And on.
Another very bullish commentary on guidance.
Cash flow positive this year.
And the third quarter.
And what's your view on it.
Capacity constraints and how will that influence your ability.
Free cash flow positive and should we be looking to sort of moving to that 70% level work and deal.
And can be there sort of on average.
50% and maybe any other.
Data as it relates to utilization and PM attendance and that third quarter, I know afterwards, and 60% and rather than investing cheaper, but sort of some of the.
Deeper metrics would be interesting.
And on that.
So do you want to cover that one and that.
Yes, I would say from a capacity restriction and many places already well above 50%, but we could be up 50% or better I think that allows us to be able to deliver on.
On that and I think it was AMC that said on their earnings call. The other day and <unk>.
<unk> thousand 19 day, only utilize like 20% of their network over the course of the year.
So even with 50% Theres clearly.
Plenty of availability you might run into and on opening weekend of a tentpole, but generally I think we're fine there.
And again without giving guidance as Tom said, I don't see <unk> being an issue.
You know I think it's just going to be the ability to close on the scatter business Q3. In particular Q4 will have the benefit of the upfront, but I think Q3 will be driven by the scatter market. The one other point I would highlight.
And I want to emphasize and I've said it and the script is we will be cash flow neutral from an accrual basis and.
And so by that I mean, clearly if we get to 50% of the revenue were better on the P&L, but again recall from a working capital perspective. It takes us about 90 days to collect revenue.
So even if you're a 50% revenue by late Q3, it's still going to be Q4 before you start collecting that cash so I would.
I would caution folks not to assume the cash starts to build and Q3 are probably would bottom out and Q4 and then begin to build from there.
Thanks, One quick one last one on the in terms of AD categories.
Leading you out.
Auto I think is pretty.
Pretty important fourth quarter, it looks like maybe that.
<unk>.
And this fourth quarter compared to others.
And given the chip shortage issue.
You also mentioned, maybe some new categories can be and so can you just give us a brief and work with the mix that you would expect and the fourth quarter and.
And just wanted to show.
So the biggest category is still the entertainment category, particularly the streaming companies.
Including those who are both and social media, but also and the streaming.
And they've been a core advertiser for us through the pandemic and we're in the upfront and having to continue to be supportive insurance I would say, it's probably the next big category that's been supportive.
Q S. R. And then of course after that probably CPG automotive and alcoholic beverages.
Not every automotive company is going to chip shortages and some are and some aren't.
We have deals on the books with automotive companies right now and we expect to have more of those as the chip shortage and.
It gets cleared up.
And I think we've been fortunate and particularly to have longstanding relationships and all the major categories.
And I think thanks to the team, we have with Cliff and Scott leading it that those relationships have continued there there's not a category.
We've been in for the past decade, that's not going to be with us.
During the reopening and the second half and.
And I think we've had some really pleasant surprises on local and at least and now which has been.
The heavy interest we've gotten from the lottery.
And most local markets, particularly for our digital out of home business.
Alright, Thanks, guys best of luck sure. Thank you.
Again, if you have a question. Please press Star then one our next question will come from Jim Goss with Barrington Research. Please go ahead.
Thanks, Let me start with.
The notion of the premium experiences IMAX, and particular and pls have and over indexing with yearly.
Screenings, and I'm wondering what that impact might be on on C&I.
And recall you don't necessarily have the same degree of exposure and IMAX and maybe you have more and the pls experiences.
But with this vir two blockbusters out and I'm just wondering if.
And how that might influence your business. So chip I can't tell you off the top of my head and what percent of our network is in those wide screen or a larger screen formats. I can tell you that we get paid based on attendance and whether someone to tens and larger screen format or a smaller screamer of medium screen.
And we count all of those eyeballs the same.
So as theater goers.
<unk> return and if more index to the larger screen formats.
And we'll benefit from that.
And if people choose to go to other size normal formats will benefit as well so.
Regardless of the consumer choice or what might be.
And sort of trending we get credit for that and we'll be rewarded for that.
Okay, even if they don't really see the ads because the ads are shown on the screens.
Well it all depends you know some of the large screen formats do show advertising and some don't.
And so it really depends.
And certainly I can all when I talk to you later on I'll tried to pool.
What percentage of our screens.
All of the category you're talking about.
But we haven't noticed anything so far as it relates to attendance.
Being different.
But we're certainly look into it.
Okay.
The coke and TSA and how.
And how long before that.
And there's a renewal and either of those categories.
And are you putting all these things.
And just for clarity so the the coke relationship or a pepsi or whatever the beverage relationship really is one that is.
Both and negotiated and controlled by the exhibitors.
And we certainly get a share of that revenue.
As it relates to the length of time on those contracts and the negotiation that's something I don't have visibility too and it's really.
What our core founding members.
Two with those keep average companies.
The PSA inventory is on the exhibitor decides what they're going to do.
Often on a local or national basis.
And those are.
Our non paid inventory so.
It's effectively not and.
And impact on our revenue.
Okay and you.
You brought up the lights down inventory I Wonder if you had and guidance about pre sales and any of those.
And so the premium ads without getting specific I can tell you that there's a lot of interest in our post show.
And platinum inventory.
I think when our next earnings call rules around we'll be able to give you a more specific visibility on that but it would be premature to do that on this call. So thank.
If you just patient for a few months, we can give you more visibility on that.
And Ngls.
Hey, Jim Sorry, this is Ted.
Circle back to your first question on premium formats, we do serve ads on IMAX screens and other premium formats. So that's.
And that's not an issue.
Okay.
And I was just trying to recall it said notice some on a center.
And I didn't think they were quite as relevant and there's very few theaters that don't show advertising and them you know arclight was one of them.
But the vast majority of exhibitors across all of the spectrum and entertainment.
Are carrying advertising and the pre share where post show.
Okay and a last one.
And.
TV broadcasters and overtime some of their pricing has gotten better as their audience has gotten smaller because they were still the only way to reach a mass market I'm wondering if you've had any of that phenomenon and so you have premium advertising given even if it's not as big as it was it's still bigger than you make it otherwise and that's.
And that could help your pricing have you seen that occur.
Okay and my follow that Ted did you. If you thought that you can ask tradeoffs and I would have to ask Jim just to.
Jim I'm not sure could you expand on that well I, just said overtime like and.
And some of the Upfronts for example, some of the upfront pricing is.
Increased at the network level and even when the audience levels declined because there is still a bigger audience you can get otherwise and that sort of offset some of the decline on the absolute size of the audience and I just wondered if there was any of that phenomenon during scarcity events involving scarcity value and itself.
Pricing and.
Yes.
And you've had less yeah, well so over the pandemic period that that hasn't been the case, what I can say is as we go into the new upfront the TV upfront and Q4.
And we're just starting now.
And where we will be anxious to see what the reaction is like as to our pricing strategy. As you know we've got some of the most expensive C. P M and the interesting industry far more expensive in many cases and network television and broadcast cable.
And the TV and world of scarcity.
Has certainly driven and cpm's up just because candidly there isn't enough impressions to go around.
So it's a supply and demand situation, but we're confident that we'll be able to take advantage of the lack of trp's because of televisions on their performance is as we go through the.
The next six months of scatter and upfront.
Yeah, and Jim I would just add that to your question on.
Television.
And <unk> to the extent that TV that seeing a dramatic and inquiries. It certainly doesn't hurt us and it's one of those the rising tide lifts all ships so from that perspective.
You know, what we'll see what we get as we get into the upfront, but from a pricing perspective that should only help provide a tailwind.
Alright.
Thanks.
And I'll talk to you later bye.
Great.
Thanks, Jim.
This concludes our question and answer session I would like to turn the conference back over to Tom Lesinski for any closing remarks.
Thank you.
Mentioned previously, we're very well positioned for the future as we leave a difficult last year behind us and focus on the opportunities ahead and that's it.
COVID-19 vaccine rolls out and accelerates and as the country begins to reopen and Ernest and theater on and just return.
All of our research indicates strong consumer demand to see films on the big screen once again.
And with all the 2020 and your film film lots to excuse me with all the 2020 film launch delays the 2021 film slate looks to be the strongest and years.
So despite the challenges of the last year of the hard work of our team to expand our cinema network strength, and our digital offerings and initiatives and begin to diversify our advertising impressions base leaves us very optimistic about capturing additional video advertising market share as declining T V. G. R peacemaker, our young audience, even more attract.
And it to media buyers.
I'd like to thank our senior management team and staff and once again for all the hard working for all the hard working efforts during these difficult times and to think.
Our shareholders and lenders for their support and patients as well.
We truly appreciate you joining us on the call.
And I'd hope that everyone continues to stay safe and healthy.
Look forward to seeing you soon again at the movies.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.