Earnings Labs

National CineMedia, Inc. (NCMI)

Q1 2014 Earnings Call· Mon, May 5, 2014

$3.56

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Transcript

Operator

Operator

Greetings, ladies and gentlemen, and welcome to the National CineMedia Inc. First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Oddo. Thank you. Sir, you may begin.

David Oddo

Analyst · James Dix with Wedbush

Good afternoon. I'd 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 include some non-GAAP measures. In accordance 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, which may be found on the Investor page of our website at www.ncm.com. Now I'll turn the call over to Kurt Hall, CEO of National CineMedia.

Kurt Hall

Analyst · MKM Partners

Thanks, David. Good afternoon, everyone. Welcome, and thanks for joining us for our 2014 Q1 earnings conference call. Today, I'll provide a brief overview of our Q1 actual results and progress against our longer-term operating strategy. I'll also comment on signing of a merger agreement with Screenvision. David will then provide a more detailed discussion of our financial performance for Q1 and provide some more details regarding our guidance for Q2 and full -- and Q2 and some information on full year. And then, as always, we will open the lines for questions. Our Q1 revenue on adjusted OIBDA was just a little stronger than anticipated, driven primarily by stronger local and regional advertising revenue growth, offset by slightly lower than projected national advertising revenue. Excluding the Fathom Events business that we sold at the end of 2013, total Q1 revenue decreased 5% and adjusted OIBDA declined 18% versus Q1 2013 due primarily to the lower higher-margin national revenue that more than offset higher local and regional revenue and the benefit of tight cost controls. Our Q1 national revenue, excluding beverage, decline of 17% reflects a 10% decrease in our average CPM and a 13 percentage point decrease in inventory utilization that was offset somewhat by 8% higher network attendance related the strong box office compared to 2013. Despite these current quarter declines, we continue to make good progress towards expanding our business as we added 6 new national clients who spent during the quarter and have added 18 so far this year, ahead of the 2013 pace when we added 30 new clients during the whole year. These new client additions and increased spending by some of the existing clients did not offset the shift to later in the year of approximately $3 million in content partner commitments versus…

David Oddo

Analyst · James Dix with Wedbush

Thanks, Kurt. For the first quarter, our total revenue, excluding the Fathom Events division, decreased 4.7% versus Q1 2013 driven by a 17.1% decrease in national advertising revenue, including beverage, partially offset by a 36.1% increase in local advertising revenue. Total Q1 adjusted OIBDA, excluding Fathom Events, decreased 18.4% and adjusted OIBDA margin decreased to 32.2%, reflecting a decrease in high-margin national advertising revenue, partially offset by the acquisition by the founding members of certain of our network affiliates and the resulting shift from the affiliate revenue share cost structure to the higher-margin founding member theater access fee cost structure. We also recorded $200,000 of AMC rate and Cinemark rate integration payments for the first quarter, consistent with Q1 2013. You should note that these integration payments are added to adjusted OIBDA for debt compliance purposes but are not included in our reported revenue and adjusted OIBDA as they are recorded as a reduction to net intangible assets on our balance sheet. Assuming no change for the founding members resulting from the Screenvision transaction, we expect to record $2.5 million to $3 million of these integration payments during 2014. Our Q1 2014 advertising revenue mix shifted towards local and was 61% national, 26% local and 13% beverage versus Q1 2013 which was 70%, 18% and 12%, respectively. Q1 national ad revenue, excluding beverage, decreased 17.1% versus 2013 driven by a decrease in utilization to 72.6% compared to 86% in Q1 2013, and a 10.1% decrease in CPMs. These declines were partially offset by network attendance growth of 7.7% related to a strong slate of films in the quarter and the addition of new network affiliates. The utilization decrease was primarily driven by a $3 million shift in Q1 content partner must-spend allocation to later in the year versus 2013 and…

Operator

Operator

[Operator Instructions] Our first question comes from the line of Eric Handler with MKM Partners.

Eric Handler

Analyst · MKM Partners

Few things on the Screenvision transaction. The $30 million of synergies that you're talking about, are those immediate synergies? And then those seem to be on the cost side, do you foresee any revenue synergies as well? And then if you could just maybe talk a little bit about what's going on in the scatter market right now? I mean, do you feel like this is all related to the upfronts right now in sports? Or is there some bigger secular issue going on here with cinema?

Kurt Hall

Analyst · MKM Partners

Yes, I wouldn't say there's a secular thing going on with cinema, Eric. I think a lot of media buyers are pausing now as they analyze how the online video mobile stuff, all the new stuff, is sort of working. I think a lot of people are testing it. A lot of people are trying to figure out whether it does work. I've heard a lot of comments that are of saying, "I don't know whether it works or not, but it seems cool so I'm going to buy more." So I think there's a lot of -- confusion's probably too strong a word. But I do think there's a lot of uncertainty in the minds of CMOs and buyers right now on what the heck to do because there's so many new options, and so a lot of people are pausing. I think -- we mentioned the TV Upfronts because I think there is a lot more pausing, if you will, going on right now and a lot more positioning with the TV networks right now where people are saying, "Well, if you don't give me the deal that I want, I'll just put my money -- more of my money on video: on online video and mobile video." So clearly, and I've said this over the last 4 or 5 calls, there's a new competitive set out there in the video marketplace. I wouldn't say that it's necessarily something to do with cinema. And as we've talked before, if you look back at our 2013 versus '14 so far, the one Sprint upfront commitment we had gotten a year or so -- a year ago that's not there now related to our PSA, that obviously has a big impact on us. And I hate to keep looking at…

Operator

Operator

Townsend Buckles with JPMorgan Chase.

Townsend Buckles

Analyst

Kurt, any general expectation on when you think the transaction could close? I realize that the regulatory is a key factor here. And then once the deal closes, how quickly you can get Screenvision network on to your element of preshows aligned?

Kurt Hall

Analyst · MKM Partners

Yes, it's a great question. Obviously, I don't have control of it. The average process seems to be in the neighborhood of 6 or 7 months. But I've been told that given that our situation, we don't have diverse or diced geographic regions or geographic locations that we operate in, and the analysis should be pretty straightforward that we -- we're hopeful we can be on the shorter end of that. But again, you know these processes. You don't have much control over them. So I guess that's about the best guidance I can give you on that. And what was the second question? I'm sorry.

Townsend Buckles

Analyst

Just once you do close the deal, how quickly you can get the network's -- the Screenvision network onto your own and the preshows also aligned?

Kurt Hall

Analyst · MKM Partners

Yes, the facts are that about, I don't know, 75% or 80% of their network is network either through a satellite system or through a broadband system. So getting those theaters on to our network is a fairly straightforward process, and it's very analogous when we formed NCM to begin with. At the time, AMC had a different system in their theaters, and we were able to create an interface in effect between that system and our system, and we're still evaluating it. As you might expect, this process was such that we weren't able to go in theater by theater and check out all the theaters. We did get list of all the equipment. We know what's there and all that, of course. So now that it's announced, we'll be able to get a few other more details that we'll need to evaluate how long it's going to take. But the good news is that most of the theaters are on a network, and that was one of the more important things for us. They also have a number of networks that are digital, that there are thumb drives or disk drives being delivered to the theater with the advertising on it. We have a few of those left, as I mentioned in my comment. We have about 800 screens that have that. They have, I don't know, 4 or 5, 6 times more than that. But -- so the digital is already there, the projectors and all that. So we got to put some gear in the theaters and connect the satellites and so on. So we'll be evaluating that over the next time period till closing.

Townsend Buckles

Analyst

Got it. And on the core business, you mentioned the TV upfront is holding up Q2 dollars, if I heard you correctly. Is this more notable than you saw last year or you've seen in the past? And could you see -- would you expect to see some release in June after the upfronts get going? Or would you say that underlying scatter demand is clearly just coming in lower than you saw last year?

Kurt Hall

Analyst · MKM Partners

I would say it's lower than last year, although it picked up, I mentioned in my comments. We did see a pickup the last couple of weeks, like all of a sudden the scatter started to break a little bit. We also had a fairly big deal that was scheduled around in June and moved into July. Actually, that happened on Friday. So our guidance for Q2, we actually changed, I guess over the weekend, a little. We brought it down a little bit because that deal moved into Q3. So it's something that, as I've said before, I think there's a little more pausing going on right now in the marketplace because there's more people evaluating more platforms now to put their money. And clearly, the definition of the marketplace that we operate in right now is broader than it was 5 or 6 years ago because of the addition of the video online and mobile online. The unknown part of that right now is how effective those are. And the only thing I can sort of look at in history -- recent history is you look at banner ads and you look how popular they were 8 to 10 years ago and how much money was being spend around them and the CPMs were $10 to $15. And today, the CPMs for banners are $0.10 to $0.15, and there's an unlimited supply of them. And so the effectiveness obviously has some impact on that pricing. And so we'll see where it works out. I feel pretty good about where we're going to end up just because, as I said at the end of my comments, there is more and more control being put in the hands of the consumer on when they watch and what they watch and if they watch ads. So it's going to be interesting to see how consumers react to mobile video platforms that force them to watch ads before they talk to their friend or whatever it is that they want to see on their mobile device. I think the tolerance level on a mobile device is a little bit less than sitting in your living room for sure. So we'll see how that works out.

Townsend Buckles

Analyst

And on your pricing, we hear a lot from media buyers and advertisers who are big supporters of cinema that it's pricing that holds them back. So with your CPMs trending down pretty meaningfully, are you seeing that incremental demand or incremental conversations start to happen?

Kurt Hall

Analyst · MKM Partners

Yes, as I mentioned, we're getting a lot of really good response in our upfront conversations on this issue of being more competitive with TV 18 to 49 adult demos. And this was a bridge that we haven't crossed before. And we really came to the conclusion that in order to get a lot of advertisers, especially in the CPG and QSR, and people that are just buying GRPs, that if we're going to get that money, that we're going to have to price it even more analogous to television, which means we have to get into the demo world. And as I mentioned in my comments, we've been investing over the last 3 or 4 years in inventory management systems that are going to allow us to get to a place where we can start to sell cinema in a little more targeted way than just movie ratings, which is really the way cinema's being sold pretty much forever. And I think when we can get to a point over the next year or so to be able to optimize buys for clients, we can now bring the ROI up considerably. And clearly, we will get to a point where we will do a lot more contracts maybe at a lower value per contract, but we will be able to do a lot more of them and have a lot more clients. So there's no question that the future is really driven around technology and the way to deliver and the ability to deliver to clients what they want and more targeted. Everybody talks about programmatic buying, and really there's 2 aspects of that, one which I don't think high-priced and high-quality video will ever go to, which is putting your inventory into a blind bidding pool and let the market bid for your inventory. I don't think video will -- high-price video, television video, cinema video, I don't think it'll ever get to that point, except for maybe a very small part of your inventory that happens to be remnant, last-minute stuff. What there is going to happen and it's something we're working on is you're going to have to execute electronically or on an automated basis. And that is something that all the TV networks are working on and we're working on. And I think it may have come into the thinking of the Screenvision owners that, that next evolution of technology investment that was going to be required, which we're well along in making, was not something they wanted to do. And so we think once you get the network on to the same platform you can deliver to the theaters digitally or predominantly all the theaters digitally. And you can target through these optimizers that optimize your inventory, then you got a much better product. And the thesis is once you have that better product, more people will buy it. They'll buy it at a higher price and so on.

Operator

Operator

Our next question comes from the line of Barton Crockett with FBR Capital.

Barton Crockett

Analyst · Barton Crockett with FBR Capital

Just a couple other things about the merger, is there any breakup fee associated with it?

Kurt Hall

Analyst · Barton Crockett with FBR Capital

Any -- say that again? Breakup fee?

Barton Crockett

Analyst · Barton Crockett with FBR Capital

Any kind of breakup fee, yes.

Kurt Hall

Analyst · Barton Crockett with FBR Capital

Yes, there is. On our behalf, there's a $28.8 million, I think, or whatever the number is, a little over $28 million, breakup fee if we walk for any reason or Justice approval is not gotten. There's a $10 million dollar breakup fee on their side, which can be increased for another up to $18 million depending on whether they sell the business to somebody else. The theory there is obviously, they terminate with us because they got a higher price from somebody else. So -- but the basic termination fee for them is $10 million if they just walk. And we have a year to get approval, with a 3-month extension on that.

Barton Crockett

Analyst · Barton Crockett with FBR Capital

Okay. That's helpful. And then through this process, with all these synergies looming, do you have the structure in place to incent people to continue to sell, so that -- revenues aren't too badly affected with the uncertainty?

Kurt Hall

Analyst · Barton Crockett with FBR Capital

Structure for who to continue to sell? On our side or on Screenvision side?

Barton Crockett

Analyst · Barton Crockett with FBR Capital

On both sides. I mean, you have to keep people focused because obviously they're worrying about the synergies.

Kurt Hall

Analyst · Barton Crockett with FBR Capital

Well, Barton, I'm not sure that the synergies are based at all on the sales. In fact, the $30 million has nothing to do with revenue synergy. And I guess you could make the argument sound terrible but -- what? What happened?

Barton Crockett

Analyst · Barton Crockett with FBR Capital

My question was, are people -- are you giving incentives to the salespeople who might be worried about losing their jobs as you go through the cost cutting as part of the deal.

Kurt Hall

Analyst · Barton Crockett with FBR Capital

That's up to Screenvision. That's really not our risk. In fact, if their salespeople leave and the theory is that cinema advertising is going to be bought, chances are it may come to us, right? So in a weird way, it's not terrible. If people leave, it's not what I want. They're obviously putting in retention situations as well. So -- but if you assume that cinema is going to be bought and they're not selling it, then it comes to us, right?

Barton Crockett

Analyst · Barton Crockett with FBR Capital

Okay. That makes sense. And then one final question. The second quarter number down so much. Would this second quarter have been consistent with the guidance, which is now removed? But when you gave that guidance, were you contemplating a second quarter down this much?

Kurt Hall

Analyst · Barton Crockett with FBR Capital

Yes, we were. One of the things that we looked at when we gave our annual guidance was that softer first and second quarter. So yes, I guess the short answer is yes. Now I want to put a little thing in perspective. Last year's Q2 was the best Q2 we've ever had in our history. And in fact, I think it was up 14% or 17% from the previous year, 2012. And just to put that in perspective, there's $122 million, $123 million of revenue last year and some of that was Fathom, obviously. But -- and $110 million the year before that, and $100 million in 2010. So we're kind of in the range of the last 3 or 4 years except last year happened to be a really, really good year. And then as you know, we had a little bit of a soft third quarter last year. So that's -- it was taking into account when we gave our guidance at the beginning of the year.

Operator

Operator

Our next question comes from the line of James Marsh with Piper Jaffray.

James Marsh

Analyst · James Marsh with Piper Jaffray

Just wondering how Carmike fits into all of this, regarding being equity owner in Screenvision and a board seat. Where do they fit in all this when everything settles down?

Kurt Hall

Analyst · James Marsh with Piper Jaffray

Well, I don’t know. Their call actually is going on right now. They started exactly the same time we did, and we did plan to -- we released and then they released right after us because I know Dave is going to talk about this from their perspective. I don't know exactly what he's going to say, but I imagine that he's going to say that the unrealized benefit on their balance sheet of the investment in Screenvision is now this deal obviously monetizes that or crystallizes that. So you may want to look and see what he did say because I know he was going to comment on it.

Operator

Operator

Our next question comes from the line of Ben Mogil with Stifel.

Benjamin Mogil

Analyst · Ben Mogil with Stifel

A couple questions, how long is the Screenvision holders lock up for?

Kurt Hall

Analyst · Ben Mogil with Stifel

Lockup, you mean the exclusivity?

Benjamin Mogil

Analyst · Ben Mogil with Stifel

No, sorry, the 9.9 million shares receivable [ph].

Kurt Hall

Analyst · Ben Mogil with Stifel

Oh, no. There is no lockup.

Benjamin Mogil

Analyst · Ben Mogil with Stifel

No lockup, okay. And then the press release was not vague but sort of obviously cautious that you assume that you're going to vend in the asset but there's actually no assurance of that. Is this the founding members having final say on whether they theoretically say if they want Screenvision or not?

Kurt Hall

Analyst · Ben Mogil with Stifel

No, not at all. It's really structured as a 2-step process. And the first step is that the public company merges with their public company, and we merge their public company C corp -- their private company C corp rather, out of existence. One of the challenging parts of our structure is we have this flow-through mechanism at the LLC level. So we had to come up with a tax structure that would allow for the assets to be taken out of their C corp and into our C corp on a tax-free basis because the shares that are being issued to them are on a tax-free exchange basis. Once the assets are sitting then at Inc. level, the only way that we can capture the synergies associated with the deal is to then contribute the assets down to the LLC level in exchange for LLC shares, so that you'll have the same number of LLP shares issued to Inc. as you had issued to the public. So they'll be in that 1:1 ratio. And so the 2-step part of that was very, very important. And again, the only way we can capture the synergy benefit of the transaction is to contribute into LLC. So it would be, I think, probably not in the circuit's best interest to not to do that because all the synergy benefit is trapped at the LLC level because that's where all the operations are, right? And by contributing the assets down, if that's what happens, we contribute the assets down, they're now in an LLC, there's no corporate tax structure because putting a C corp that's taxable underneath an LLC, it gets double taxed. So it gets taxed before it gets distributed to the circuits and to the public company, and so the public company gets taxed again at the public company level. So there's a double taxation problem, and that's why we had to go through this 2-step structure.

Benjamin Mogil

Analyst · Ben Mogil with Stifel

And Kurt, I know you would not want to be double taxed, I'm assuming.

Kurt Hall

Analyst · Ben Mogil with Stifel

I don't think that's a good thing, is it?

Operator

Operator

Our next question comes from the line of Mike Hickey with The Benchmark Company.

Michael Hickey

Analyst · Mike Hickey with The Benchmark Company

Kurt, this is maybe difficult obviously, just on the regulatory side. I mean, do you expect any friction points there, or are you pretty confident?

Kurt Hall

Analyst · Mike Hickey with The Benchmark Company

Probably best that I not comment on that at this juncture. I've stated before that the primary reason that we're doing this are the expense synergies and the ability to make us more competitive in this bigger, broader advertising marketplace that we're operating in. I think that's probably -- those are the -- I mentioned all of those things. I think also for the advertiser, this platform is going to become a much efficient -- more efficient platform to buy than it has in the past. I've always viewed some of the gating factors to buying cinema is the complexity of buying cinema and the difficulty with buying cinema and the lead times. And all that stuff, we're going to make all that go way or at least bring it down to equalize with the way they buy TV and online. And so I think that is a big benefit. And then of course, if we're very successful in creating a new and better type of product, that will benefit our circuit partners because the advertising revenue to them will go up as well.

Michael Hickey

Analyst · Mike Hickey with The Benchmark Company

Yes, no, fair enough. And then on Screenvision itself, the -- I mean, obviously, it looks like they have a fair amount of attendance here and of course, you kind of split the market. Maybe any color on utilization or CPM, maybe how they compare? I mean, $32 million in OIBDA is obviously a lot less than what you're generating over a similar size network.

Kurt Hall

Analyst · Mike Hickey with The Benchmark Company

Yes, their network is around 14,000 screens. We're about 20,000 screens. And also, the average attendance per screen in our network is quite a bit higher than theirs. So our attendances is 700-plus million. Theirs is 400-plus million. And so you're probably at 1.1billion or something like that impressions, which again I think in this new market place is important because it gives you a heck of a lot more flexibility, the package and price and slice and dice your inventory than we currently do. So that's another obvious reason to do this.

Michael Hickey

Analyst · Mike Hickey with The Benchmark Company

Okay. And then on content partner side, I mean, how do you think this deal is going to impact?

Kurt Hall

Analyst · Mike Hickey with The Benchmark Company

It's a great question because if we just took our content partner deals and just spread them across this expanded network, they're getting kind of a free ride, right? So I would hope, and we're going to have to structure our existing deals, say, they have to go across the NCM network. So we're going to have to work on that. We've got a few content partner deals that we're working on that will be renewed for next year, so this will obviously be taken into consideration. And -- but it was a good question. I mean, it's something we're going to have to make sure that we take care of so that those content partners don't get all those incremental impressions for free.

Operator

Operator

Our next question comes from the line of Eric Wold with B. Riley & Co.

Eric Wold

Analyst · Eric Wold with B. Riley & Co

Maybe kind of walk us through -- I apologize if you've already covered this originally, but if the combination -- the acquisition does go through, what is the process with the existing kind of previous contracts with their exhibitors? Do those kind of play out as they are? Do they need to be restructured to fit more the National CineMedia mold? Does that kind of [indiscernible] negotiate roughly each of those? Or -- and what does that [indiscernible]?

Kurt Hall

Analyst · Eric Wold with B. Riley & Co

Yes, we'll obviously assume what we've got. And if there are any that are in-process to be renegotiated, it'd be nice to get them on a more consistent structure. But we have a lot of different structures in our group of affiliates that we have as well. They all have a basic structure, but they're different -- different parts of them are different depending on the circuit. So we have some flexibility there. Clearly, we'd like to get to a point where our preshow, the FirstLook, is played across all networks and it's basically got the same inventory scheduling and the same inventory slots and so on because one of the comments I made in my opening comment was we've got to have a consistent preshow and a consistent product across all of cinema to make it attractive to these big advertisers. One of the gating factors, especially for QSRs who want ubiqutous coverage across all the theaters so they have a theater close to all their stores, is that they need something they can buy efficiently and it just hasn't been that way. We tried over the years to kind of get together and allow them to buy us and Screenvision at the same time. It's just really complicated, and buyers just don't want it to be complicated. So I think we'll -- I think once we get the FirstLook across all for our platform, I think we'll be in a much better shape.

Eric Wold

Analyst · Eric Wold with B. Riley & Co

Okay. And then just last question, so assuming the deal goes through and you'll evaluate those contacts outstanding as they are, but from your 3 founding members' standpoint, the day the deal goes through, do all -- are all Screenvision's exhibitor partners essentially NCM success, they would get shares from acquiring AM [ph]? Or is there any kind of delay on that?

Kurt Hall

Analyst · Eric Wold with B. Riley & Co

Yes, it would be exactly the way it is today if they buy one of our affiliates. So in the case of Kerasotes or Hollywood or Rave, if those were existing affiliates, all we end up doing is flipping from the rev share model, which is lower cash flow for us and lower margins for us into the theater access fee structure where they get shares, obviously, LLC units, but they -- it's a much lower payment to us for access to the theater. So it increases our margin and reduces leverage and so on. So it would not matter whether they were Screenvision prior to the acquisition or not because they would all be treated the same. By the way, your research that came out last week made us laugh as we were working on the deal. We thought may be you had a bug in our office or something.

Operator

Operator

[Operator Instructions] Our next question comes from the line of James Dix with Wedbush.

James Dix

Analyst · James Dix with Wedbush

Well, Kurt, I guess just starting with kind of the fundamental core business. You mentioned the shifts of a buy from the June quarter back to the September quarter. Any rough magnitude of things which you think are kind of shifts as opposed to not knowing whether they're shifts at this point?

Kurt Hall

Analyst · James Dix with Wedbush

That was the only one that I can point to where we know what happened because it just happened on Friday. I mean, we had a little bit higher guidance set to go on Friday, and we confirmed -- our sales guys confirmed that the client wasn't ready to launch and so it got moved. So anyway, that's the only one I can point to.

James Dix

Analyst · James Dix with Wedbush

Any rough quantification on that, like how big that was?

Kurt Hall

Analyst · James Dix with Wedbush

$2 million.

James Dix

Analyst · James Dix with Wedbush

Okay. Great. And then in terms of the Screenvision deal, you mentioned a little bit about another round of investment necessary to upgrade networks and maybe that was something which the Screenvision owners were thinking about. Anything else going into the timing of the deal? Why now?

Kurt Hall

Analyst · James Dix with Wedbush

I had always said, and I think I mentioned this to you guys in the past, that if you look at their growth in their revenue and cash flow over the last year, they had a very, very poor first quarter of 2013. In fact, I think it was the worst first quarter by a long shot in the history of the business. They lost several million dollars of cash flow in that quarter. It was just a really bad quarter. And they will tell us -- or they did tell us that they had some sales team issues and some other stuff, they had to make some changes. And they did make some changes early last year, and so they were able to grow the revenue back up. But I always thought that when they make the replacement of the first quarter of '13 with the first quarter of '14, their cash flow was going to -- their trailing 4-quarter cash flow was going to jump up, and that might be a triggering point or a catalyst point for them to think about selling the company. It's also privately -- private-equity owned. They would've been in the deal for around 3.5 years at that point, so pressure starts to build a little bit from a exit strategy standpoint. So I think those 2 factors sort of triangulated into this was probably a time that they might entertain doing a deal.

James Dix

Analyst · James Dix with Wedbush

Okay. That's actually very helpful. And then just one other -- I apologize, I'm out of the office at the moment. So in terms of the impact on your founding members' ownership of you, [indiscernible] it's diluted down by the number of shares which get issued? And is there any extra dilution that occurs?

Kurt Hall

Analyst · James Dix with Wedbush

No. I mean, basically, it's pretty straightforward. There'll be 9 -- if we do the 2 steps that I talked about before, there'll be 9.9 million LLC units issued to match the 9.9 million shares in the market. And I think the ownership goes to basically 50-50 at that point in time.

David Oddo

Analyst · James Dix with Wedbush

49.5.

Kurt Hall

Analyst · James Dix with Wedbush

Yes, 49.5-50.5, something like -- it's close enough to 50-50, and that's where it will end up.

James Dix

Analyst · James Dix with Wedbush

Okay. Great. And then one last longer-term one, how important do you think a project -- Project Turbo and other things that make -- that we, I don't know, more digital speed I guess in terms of the ability for advertisers to get in and out and adjust is going to be sort of cinema in particular. Or do you think that cinema, as other media started the more from the ability to actually deliver ad reach will be able to kind of rise above the need to kind of be that fluid? Because I've heard a little bit about some of that maybe affecting like outdoor, right, which is almost at the other end in terms of its ability to be [indiscernible] by advertisers. I just want to know like what do you think of the long-term importance of that is to cinema at kind of the premium CPM medium?

Kurt Hall

Analyst · James Dix with Wedbush

Yes, one of the thesis I have about this acquisition is that I thought we were going to be able to apply a little capital to this asset combined with our asset and really make it a much more efficient network which will hopefully allow us to get the utilizations up over time. And so I do believe that the ability to deliver on an automated basis -- again, I like to stay away from that word programmatic. I think that word is overused today in the media world, and I'm not talking about letting machines in a marketplace sell our inventory. That's not what I'm not talking about. I'm talking about the ability to have the human beings, our salespeople, negotiate deals. And the deals can then be executed a lot more electronically than they are into various media plans that are either done by the agency exchanges or client private exchanges or other things that are happening out there to execute advertising contracts. And so I do believe that all mediums are going to have to have the ability to execute those things with shorter lead times and more efficiently. It's just happening, and everybody has to be able to do that. I'm not going to say that they won't buy you if you can't do that, but I clearly think you're at a disadvantage if you can't do that. And so that's one of the reasons we started -- I mean, we saw this coming a few weeks ago, and it's one of the reasons that we've already made the investments we have in our management systems, our inventory management systems. I may have mentioned on the last call, we just launched our inventory, new inventory proposal and inventory management system to our whole local sales force in the first quarter. And that system is going to continue to be upgraded and then eventually, we'll have even higher levels of automation to be able to optimize buys a lot better. Because it's all about trying to get less and less waste associated with demographic target that, or other characteristics, that the customer or client needs and wants. And the more and more you can target that demo or cut that demo into the pieces that the client wants, the better off you are and the more effective that buy is. So that's the direction we're going, and I do think that it's important, and we will be there.

James Dix

Analyst · James Dix with Wedbush

And do you think that affects the amount of inventory that you can sell through your upfront process over time? And is becoming flexible will make advertisers more or less interested in committing to you in an upfront type process?

Kurt Hall

Analyst · James Dix with Wedbush

So I think there's always going to be a certain aspect of upfront, and you also may get to a point where you have the agencies committing to actually more upfront inventory of various kinds just because they can execute it more efficiently across to all of their clients. Because if all of their clients are in their systems, their exchanges, that they can use to allocate inventory to all those various clients across all of various brands and intersect that, if you will, or interconnect that with all the suppliers, the networks who have the inventory and you can do that in an efficient way, it may actually lead to a situation where they're willing to commit more upfront. We're actually talking -- currently talking to agencies about that very thing with us is that we can get an agency to commit upfront, maybe they're a content partner, for instance, make other big commitments to us, but then they can allocate to all of their clients. And I think it makes it more efficient for them because they know how much supply they have then.

Operator

Operator

And ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back to management for any closing comments.

Kurt Hall

Analyst · MKM Partners

Okay. Thank you very much, everyone, for joining us today and as always, for your support. I know that we threw a lot at you today, especially with the Screenvision transaction. So we will be available, obviously, tonight and over the next few days if anybody has any follow-up question. So thank you very much, and I'm sure we'll be talking soon.

Operator

Operator

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.