UPDATED with CEO comments:
National CineMedia – which puts ads on movie screens – said it may benefit from a delayed television upfront by grabbing advertisers first with theaters tentatively starting to open in July.
“Our national sales team is preparing for the 2020-2021 upfront season,” said CEO Tom Lesinksi. With broadcast sales moving later in the year – this year at least – it “may have the potential to benefit us as cinema will be first to market with fresh programming and we may be able to shift a few brands that would otherwise have gone to TV.”
Starting with Christophe Nolan’s Tenet, slated for release July 17, the third and fourth quarters are packed with big titles that studios have held until theaters reopened, he noted. And he thinks moviegoing may get a boost if the opening of schools and colleges are delayed in the fall.
The nation’s biggest cinema advertising network National CineMedia saw losses widen and sales dip as theater chains were shuttered for a chunk of the first quarter by the COVID-19 pandemic.
Revenue fell 16% to $65 million and net losses widened to $3.7 million, or 5 cents per diluted share from $1.1 million, or 1 cent, the year before. It’s the latest sad tale in the exhibition business to emerge this earnings season. Marcus, the country’s fourth-biggest chain, said earlier today it swung sharply into the red for the first quarter. At the biggest theater group, AMC Entertainment, business was so disrupted that it couldn’t even file quarterly results but is postponing them until the summer.
“While 2020 was off to a strong start, the COVID-19 pandemic and resulting temporary theater closures have placed unprecedented challenges on our business, and our cinema partners. The crisis has required us to adjust our business focus to both building liquidity and continuing to aggressively compete in the video advertising marketplace so we can hit the ground running when theaters reopen. Fortunately, we believe, our cash on hand, combined with outstanding receivables and the highly variable nature of our operating costs, we are well positioned to be able to weather this disruption to our business,” said National CineMedia CEO Tom Lesinski.
The results were significantly impacted by closures as theater attendance was less than expected beginning in March, initially as the public was told to practice social distancing, and then further when theaters were closed following stay at home orders issued by state and local governments. Almost all theaters remain closed and it’s not clear when they will reopen although some have said they are optimistic for a late-June or July target.
In this situation, cash to keep the doors open is key. The company noted that it drew down an additional $110 million on its revolving credit facility, increasing the company’s cash and marketable securities balance to $215. Its $132 million of cash on hand will be used to fund operations during the period of expected reduced cash flows It also has some $114 million of trade accounts receivable outstanding from customers, of which it’s collected approximately $66.7 million as of yesterday.
The company said that since it is unable to advertise in theaters, it will not generate any in-theater revenue for the duration of time that the theaters are closed. All of its theater access fees, network affiliate payments and Platinum Spot revenue share payments are driven by attendance, active screens and sales. and therefore, will not be incurred for the duration the theaters are closed. The company has been working to preserve Beyond preserving cash, other measures it’s taken include:
- Temporarily furloughed approximately one-third of staff and temporarily reduced the pay of the remaining employees by up to 50%, which in aggregate reduced wage expense by 50%;
- Temporarily reduced cash compensation of the Company’s Board of Directors by 20%;
- Suspended non-essential operating expenditures;
- Implemented a hiring freeze;
- Temporarily suspended the 401K employee match program;
- Terminated or deferred certain non-essential capital expenditures;
- Reached out to our landlords, vendors, and other business partners to manage, defer, and/or abate certain costs during the disruptions caused by the COVID-19 Pandemic; and
- Introduced an active cash management process, which, among other things, requires CEO approval of all outgoing payments.
“We believe that the exhibition industry has historically fared well during recessions, and management remains optimistic, though cannot guarantee, that the founding members and network affiliates will rebound and attendance figures will benefit from pent-up social demand as home sheltering subsides and people seek togetherness with a return to normalcy,” the company said.
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