National CineMedia, Inc. (NCMI) Q1 2021 Earnings Report, Transcript and Summary

Good day and welcome to the National CineMedia, Incorporation First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] 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 Lesinski. 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 and 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 in the risk factors contained in the Company's filings with the SEC. All forward-looking statements are expressly qualified and in their entirety by such factors. Further, our discussion today includes some non-GAAP measures. On accordance with Regulation G, we have reconciled these amounts back to the closest gap basis measurement. These reconciliations can be found at the end of today's earnings release or on the Investor Relations page of our website at ncm.com. 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 hope you're all continuing to stay safe and healthy as spring brings a period of recovery. Our companies as an industry are continuing to 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 Cinemark will continue to be an important launching pad for films. More than half of all adults in the U.S. now having had their first vaccine shot and movie audiences are expanding across the country with the strong opening weekends of Godzilla vs. Kong, Mortal Kombat and Demon Slayer. These encouraging trends and the recent positive outlooks of Cinemark and AMC all supported we've been saying since the pandemic started, that there's a strong pent up consumer demand, take it back to the unique social experience of 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 providing high level update on the steps we've taken to position our company to quickly restart and diversify our cinema ad business. While at the same time maintaining our liquidity position as we need the ongoing challenges presented by the COVID-19 pandemic, ted will then provide more detail and how we continue to manage our operating costs and our overall liquidity to ensure that our team is prepared to quickly benefits of 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 21 continues to be a challenging time for NCM's business and the entire out of home entertainment and advertising industries. Our in-theater advertising revenue remains adversely impacted in Q1 by both significantly lower movie theater audience attendance due to both government mandated closures and pay for capacity limits, and it continued to lay of new major motion picture releases. Fortunately, that began to change in Q2 with some strong openings and the firming of the release schedule for the remainder of '21. As theaters, including Regal begin to reopen and COVID-19 seating capacity restrictions have begun to loosen, approximately 77% of theatres in our national advertising networks are open versus 40% at the end of 2020. While many are continue to operate under COVID-19 restrictions with reduced capacity and operating hours that restrictions are loosening up and for the first time theaters are open in New York City and other key markets. Ted will continue discuss all this in more detail shortly. Fortunately, as you know NCM LLCs theater access fees, network affiliate payments and platinum spot revenue share payments are all variable costs that are driven by attendance, active screens and/or revenue and therefore would not incurred for the duration that the theaters were closed and we'll be lower than historical levels, while attendance remains down and for periods where theaters are operating with fewer film show times. The most encouraging thing is our National Theater network is continuing to open more every day, as exhibitors get ready for the release of many highly anticipated films throughout the Europe beginning on Memorial Day weekend. As mentioned, theater capacity restrictions are also being lifted in many parts of the country. In fact, 23 states currently have no capacity limits at all. And theaters in all top 10 DMAs are now open, in the key medium movie market of New York, the governor recently announced that they will be 100% open by May 19th, and theaters in LA also continue to open at 50% capacity was 75% capacity coming soon. With the recent positive U.S. theatrical film openings and theaters across Asia posting record attendance levels, we continue to be very optimistic about the future movie going. As mentioned our last earnings call in March, we closed the bank facility amendment that has provided covenant relief through Q3 of '22 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 this growth initiatives. We remain focused on the reemergence of cinema advertising as an important part of our clients marketing plans and the ongoing diversification of our media inventory offerings into existing, exciting new complimentary digital and digital out of home sales in convenience stores, grocery stores, 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 in movie theaters to how big of an advertising deal can add to attendance support. Marketers are very anxious for their brands to reach the hard to find theater audiences once again. While some of our great brand partners were back in our newbie presale as soon as theatres reopen. Many others have promised us that as soon as our audiences are back on a national scale, they too will be back. With The Grey's box office success of Godzilla, Mortal Kombat and Demon Slayer despite the experimental pandemic day and date streaming options clients and agencies who were taking a wait and see approach now have proof with the power of the unique big screen environment of movie theaters that make all world-class ads and content more impactful. We're also expecting these successes will result in the reestablishment of more flexible theatrical windows that allow streaming to benefit even more from the word of mouth and other marketing benefits provided by 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 and at home audiences have increasingly shifted to watching SVOD, non-ad supported streaming services instead of traditional ad supported linear television. This has resulted in a significant lack of available high quality video GRPs in the marketplace, especially among younger highly coveted demographics and its 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 TV GRP shortfalls. To capitalize on this great opportunity in 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 road show presentation that highlights our premium wrights-down and platinum postal inventory, which we continue to believe some of the best video ad real estate available anywhere. This strategy allows us to position our timely message to the right decision makers at the right time. We're beginning to see good momentum as media buyers recognize cinema as one of the best options in 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 now recognize what their linear TV and cable predecessors have always known that cinema advertising affectively drives tune in. Linear TV ratings have been in sharp decline since 2016. Continuing a precipitous fall off in broadcast cable, prime and sports audiences over the last decade, for the all the always important 18 to 49 demo, which continues to be cinema's largest audience. This broader market trends shifting consumer TV viewing habits will be a strong reason for top brands to return to cinema to reach our core young Gen Z and millennial audience. Joining brands have already begun to return in key national categories such as entertainment, insurance, QSR, digital and streaming services, retail 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 that at any time during the pandemic, which is highly encouraging. Our local business is also beginning to rebound. As local contact volume is beginning to increase and there are some local markets where movie theaters are already open at 100% capacity. While national advertising campaigns are planned further in advance, local advertising budgets are spent closer to run time. And thus over the last few weeks we've begun to see real upset in success in key local categories including real estate, financial services, travel and tourism, education, professional services and recruitment, home improvement, and especially in government in healthcare, where there's been a flurry of COVID-19 vaccine campaign messaging, budgets being spent in 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 movie goers allowed in theaters versus media buyer demand. We continue to be confident as government mandated restrictions continue to be lifted as the role of the vaccine progresses. The significant cabin fever that had been building for over a year now will drive consumers back to the theaters. This will once again allow movie studios and even some of the new streaming companies to rely on theaters to launch their films 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 to 2023, which should begin to stabilize and normalize our business in the second half of '21 and beyond. While our core in-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 NCM 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 deduction and staffers currently remain in place, we've begun to implement our return to work plans as we expect to bring people back to full salary and our says the cinema industry recovers. I cannot tell you how much I'm looking forward to welcome our great people back and I remain incredibly grateful to our entire NCM team for their unparalleled 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 have not only allowed NCM to survive but it's positioned us for success in 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 NCM digital out of home sales relationships. These new business opportunities have enabled us to diversify our revenue sources and allow us to create a unique bundle of our in-theater inventory with our digital and our digital out of home channels that will open the door to new advertisers and new pools of ad dollars. The 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 increase and starting more discussions than ever before. Marketplace reaction has been very positive, especially initially in the local arena, where there's new inventory has been has really opened up some new categories for us, including state lotteries. Advertiser interest in Coinstar and ATM TV has also benefited from the continued high traffic of supermarkets and 711 stores, and none of the restaurant and office building traffic is increasingly coming back, our NCM digital out of home network will soon be firing on all cylinders with the recent addition of Ziosk and 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 members that are supplied 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 offering significantly stronger enhancing our scale but our depth and meaningful increase in deterministic data. It also allows us to create custom closed loop attribution measurement for brands and movie studios alike. This new valuable movie ticket audience data is expected to grow our data sets to 300 million by year-end and power our newly audience accelerator digital product with what we believe will be the largest and most pristine movie audience data set available in the marketplace. As government regulation and policy changes by the dominant digital companies and third-party cookies and use of second and third-party data, our theater audience expertise and robust theater audience data will enhance our ability to compete with other larger digital advertising platforms for marketing dollars. We we've also formed an exclusive relationship with Vobile, a SaaS industry leader in content recognition protection, monetization and marketing to sell brand safe, reservable digital 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. Providing access to the hottest trailers and fan favorite clips provides their pages with premium brand safe ad opportunities. This partnership provides instant 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 in our strategy to make all marketing products easier to buy. Our capital investments in our new Cinema advertising management system that was launched in Q1 will lay the foundation for programmatic access to around screen inventory, which we expect will create additional monetization opportunities for our in theater inventory in the future. So as you can see, while the pandemic brought many difficult challenges, it also gives an opportunity think about our business differently and began to execute several new strategies. We were able to expand our cinema network with additional Harkins Theatres, the fifth largest theatre operator in the U.S. This cinema network expansion combined with acceleration of our digital strategy and the diversification to selling inventory in 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 NCM team, our board, our exhibitors and our advertising partners. And again, sincerely thank them for their continued support as we navigate this historic in 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 re-establish 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 dividends at $0.05 for the current quarter. Thanks to improving market conditions and the dedication and hard work our entire team, I can honestly say that the future is truly struggling to live right again, for the first time in 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 in 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 was 90% year-over-year, we recorded only $5.4 million in Q1 revenue down 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 with us in Q1 versus prior periods is not meaningful. As you will recall the pandemic only impacted the last few weeks of Q1 2020 thus current quarter results do not clearly represent our ongoing business. As such, I will focus much of my comments today on our current liquidity position, our 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 in theater advertising total Q1 adjusted OEBITDA was negative $16.2 million. 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 or OEBITDA losses in the current quarter and during the entire pandemic. Our Q1 average cash burn rate was approximately $10 million per month versus $11 million and $12 million in Q4 and Q3 of 2020, respectively. A significant amount of our operating cost reductions has been related to personnel. During Q1, over 75% of our employee base continue to be furloughed or had salary reductions of up to 50%, these cost reduction measures reduce our core operating expense in Q1 to $5.6 million per month compared to our pre-COVID run rate of $9.5 million or a savings of 42%. As we have discussed in the past due to our high growth operating margins as restaurant levels begin to build, we will achieve operating cash flow breakeven after debt service when our quarterly revenue reaches approximately 50% of 2019 levels, which we currently believe will be achieved as we exit Q3 of this year. For the first quarter, we reported a GAAP loss diluted share $0.25 versus a loss per diluted share $0.05 in 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. In the first quarter, we recorded zero integration and other encumbered theater payments primarily related to AMC Carmike theaters versus 1.4 million last year. The AMC integration payments are based on what NCM could have earned had advertisings unfold on those theaters by ourselves. As a reminder, these integration and other encumbered theater payments are added to adjusted OEBITDA for debt compliance and partnership test distribution purposes, but are not included in reported revenue or adjusted OEBITDA as they are recorded as reduction to the net intangible assets on the balance sheet. Moving to our balance sheet, our total debt net of cash at NCM LLC at the end of Q1 2021 increased $69 million the $917 million versus $848 million at the end of Q1 2020. Our average interest rate on old debt was approximately 5.2% at the end of Q1 compared to 5.1% at the end of Q1 2020 including our $313 million floating rate term loans bank debt and revolving credit facility that had a rate of approximately 5.6%. Excluding revolver balances 67% of our total debt outstanding at the end of Q1 2021 had a fixed interest rate. NCM LLC is current cash balance including the term loan B proceeds that was closed in March is $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 in June for the back half of 2021. We believe that we have sufficient liquidity until we begin to produce top positive cash flow after debt service later this year. As mentioned, we only need revenue to equal approximately 50% of 2019 to breakeven on a cash basis after debt service. As Tom mentioned, our Board of Directors has authorized an NCM in quarterly cash dividend of five cents per share of common stock. The dividend will be paid on June 7 2021. The stockholders of record on May 21 2021, this quarterly dividend will result in the current yield of 4.6% based on today's closing share price of $4.39. Given the current NCM cash balance of $52.8 million or current $0.05 dividend can be paid for the next three years, with no additional NCM LLC distributions to NCM Inc. This is well beyond the NCM LLC distribution restrictions contained in 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. The 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 overtime substantially all its free cash flow. As always, the declaration, payment, timing and amount of future dividends payable will be at the full discretion of the Board of Directors, who will consider general economic and advertising market business conditions, the Company's financial condition, available cash, current and anticipated cash needs, and any other factors that the Board of Directors considers relevant. This includes the impact to the Company related to the COVID-19 pandemic and restrictions under the NCM LLC credit agreements. 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 a web to guidance. So 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 in 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 the relying on the scatter market given we have substantially less upfront commitments due to our inability to participate in last year's upfront marketplace because of the continual shifting of the film slate. Fortunately, with film scheduled begin to firm up for the remainder of the year, we can now begin to compete more aggressively for scattered budgets and compete in 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 in TV ratings, we are very optimistic about our success in attracting meaningful levels of upfront commitments. Given this national booking outlook, and a continual ramping up of our 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 turning back towards 2019 revenue levels, assuming that the agriculture schedule remains firm COVID-19 cases further decline allowing government restrictions that continue to decrease and an upfront that is consistent with our expectations. With every passing week, we should have a better understanding of theater attendance trends, and our success in the scatter market in the upcoming TV upfront and we will provide an update to this general Q3 and Q4 business guidance during our second quarter earnings call. This concludes our prepared remarks and we will now open up the lines for questions. Operator.

[Operator Instructions] Our first question comes from Eric Wold with B. Riley Securities. Please go ahead.

A couple of questions. Just one, when we noted that some of the advertisers are kind of on the sidelines waiting for audiences to return kind of quote on a national scale, can you maybe define that a little bit more in terms of what they're looking for in terms of the markets open, maybe average capacity, what was kind of guiding their decisions there?

Yes, I don't think actually they are any longer looking for any more data. What they know now with almost 80% 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 or the audio levels, it's really just getting another couple of movies under our belt. But we're already seeing a lot of activity post just in the last week or two with more and more theaters opening. So, candidly, it's 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 Memorial Day in the next few weeks. And then we should be off and running, looking really towards, June, being, and July being important months, for the growth in the revenue side.

Got it. And you noted that the majority of Q4, the revenue driven by scatter. How would you balance wanting to entice advertisers back into the scatter market, with not wanting to drop CPMs to a point where they're not recoverable?

This is a funny. It's funny 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 are comfortable candidly with what's going on in terms of theater going. And all of that looks very positive. There has not been any meaningful discussions or even asks on the discounting of CPM. So we've built a premium CPM business over the last 21 years, and we plan on continuing to do that. So, we're not in the discount business academy, we don't have to be and we haven't been asked to be.

And then final question, anything more you can talk about what the movies, if you get data agreement terms of what level of data is coming to you in terms of what you had to give up in return for that?

Well, we made an economic licensing agreement to get better data. We're not going to disclose the specifics of that agreement. But it was a market based deal and an arm's length deal to get data from a third-party. I think it's important when you look at the quality of the data, to get information about movie theater goers in detail. Already wedded to the amount of data we've been getting ourselves. We believe 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 strengthen that data. But it's really providing two benefits. One is providing a significant additional piece of data for our salespeople to use when they go on making a pitch. And having that kind of data in the same way that Facebook and Google and others do and having deep knowledge about our consumer is really critical not just to maintaining CPM is, but growing CPM and growing the interest level, in our additional by. So we're really excited about the database, since it's about 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 data has gotten even better than we really plan to when we first set out to do this.

Our next question will come from Mike Hickey with The Benchmark Company. Please go ahead.

Just curious on your commentary on guidance improved by the end of '21, you expect to be trending back towards '19 revenue levels. Can you help size that a bit is that sort of implying that '22 is going to look like '19 on revenue? And you think it will be 70%, 80% there, I think just sort of double click on that commentary help supermodels that appreciate that?

Well, I'm going to lead heading into this as soon as I just say in general. We feel relatively confident and optimistic based on all the things that are happening in the marketplace, that towards the end of Q4, we'll start getting closer and closer to where we were in '19. I'm not going to give you a specific percentage today. I think it'd be appropriate for our next call, in the summer. But Ted, if you want to opine on that a little more feel free to.

Mike, it's clearly way too early to talk about 2022. I think for Q4 '21 really, 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 an optimistic projection that people thank you for attendance can be flat or in line with 2019. I've seen projections that maybe attendance is 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 sides. 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, we're feeling pretty good that as we exit 2021, we seem to 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 in delivering millennial Gen Z and teens, to advertisers. As that vaccine rolls out to that core teenage audience, we know that they're very highly indexing movie goers in that teenage group. And now that they're able to get vaccinated beginning immediately that will only help us bring more advertisers and more confidence to our great platform.

Nice. Thank you for that. I'm curious on the national side, when you look at sort of the top CMI markets. And how's the recoveries in there I guess specifically, I'm guessing, it's now happening, but curious, your view they're needing more broadly, where you're seeing the strongest recovery and attendance is purely just sort of virus related, or if it has to do with how long the theaters have been open, or if it's slate just sort of pockets of strength that you see across your network? And then specifically, what's happening in your top your main markets with national offices?

I can try to give you some specifics around that. But I think it's relatively intuitive, that the markets that opened the major markets that opened later obviously are not doing as well as the ones that have been open for a while. So you think what's been going on in the southwest and in the south, where markets like Miami and Dallas and Houston, have been far less restricted, then New York and Los Angeles and San Francisco. So I think, generally speaking, at least during this in this current COVID era, it's been the markets that haven't been restricted. We have seen a really great response though, already in theater attendance levels in New York, and Chicago, and recently in Los Angeles. So as these restrictions have opened up, we're seeing an immediate impact in New York and Los Angeles and Chicago, which are obviously the three biggest markets in our network. So for the past three months, it's mostly been the southeast and southwest. But I think now, just in the past month or so, all the major markets, particularly New York generally have recovered nicely.

Maybe last question for me, another very bullish commentary and guidance, listen to the cash flow positive here in the third quarter. What's your view on capacity constraints and how will that influence your ability to be cash flow positive? And should we be looking to sort of feeling that 70% level? Or can you think he can be there as sort of an average 50%? Maybe even other data as it relates to utilization CPM attendance in that third quarter? I know, I heard the 50% of revenue that seems to Google that sort of some of the deeper metrics would be interesting. Do you have any thoughts on that?

Ted, do you want to cover that one?

Yes, I would say, for my capacity restrictions, in many places already well, above 50%. But, we could be at 50% or better it, I think that allows us to be able to deliver on that. I think it was AMC that set on their earnings call the other day that, in 2019, they only utilize like 20% of their network over the course of the year. So, even with 50%, there's clearly, plenty availability, you might run into it on an opening weekend of a temple that, but generally, I think we're fine there. Again, without giving guidance, as Tom said, I don't see CPMs being an issue. 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 scattered market. But the one other point I would highlight that I want to emphasize, and I said it in the script is we'll be cash flow neutral from an accrual basis. And so, by that, I mean, clearly, if we get to 50% of the revenue, we're better on the P&L, but again, we call from a working capital perspective, it takes about 90 days to collect revenue. So, even if you're 50% revenue, by late Q3, it's still going to be Q4 before you start collecting that cash. So I would, caution folks not to assume that cash starts to build in Q3, it probably would bottom out in Q4 and then begin to build from there?

One quick one, last one, in terms of ag for categories bleeding you out auto, i.e., I think is pretty important fourth quarter. It looks like maybe that's challenged this fourth quarter compared to the others, given the chip shortage, issue from supply. You also mentioned, maybe some new categories. Can you just give us sort of a brief look at the mix that you'd expect in the fourth quarter and late into '22?

So the biggest category is still the entertainment category, particularly the streaming companies. Including those who were both in social media, but also in 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 is probably the next big category that's been supportive. QSR and then, of course, after that, probably CPG automotive and alcoholic beverages, not every automotive company is going to chip shortages. 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 gets cleared up. I think we've been fortunate particularly to have long standing relationships in all the major categories. And I think thanks to the team we have with cliff and Scott leaving it, that those relationships have continued. There's not a category that we've been in for the past decade. That's not going to be with us during the reopening in the second half. And I think we've had some really pleasant surprises on local. At least now, which has been, the heavy interest we've gotten from the lottery in most local markets, particularly for our digital business.

[Operator Instructions] Our next question will come from Jim Goss with Barrington Research. Please go ahead.

Let me start with the notion of premium experiences IMAX in particular and PLF have an over indexing with yearly screenings. And I'm wondering what that impact might be and semi as a recall. You don't necessarily have the same degree of exposure in IMAX and maybe have more in the PLF experiences? But that would disappear to blockbusters I'm just wondering how that might influence your business?

So, Jim, I can't tell you off the top of my head what percent of our network is in those widescreen or larger screen formats. I can tell you that we get paid based on attendance and whether someone attends a larger screen format or a smaller screen or medium screen, we count all those eyeballs are the same. So as theater goers return and if more index to the larger screen formats will 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 sort of trending we get credit for that and will be rewarded for that.

Okay, you're going to see they don't really see the ads because you had been shown in the screen?

What all depends, you know, some of the large screen formats do show advertising and some don't. So it really depends. Certainly I can I'll, when I talk to you later, I'll try to pull what percent of our screens fall in 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.

Coke and PSA ad, how long before those there's a renewal and either of those categories? And are you performing things here?

Just for clarity, so the Coke relationship or Pepsi, or whatever the beverage relationship really is one that is both negotiated and controlled by the exhibitors. And we certainly get a share of that revenue. As they're released, the length of time of those contracts some the negotiation that's something I don't have visibility to. It's really what our core founding members do with those key beverage companies. The PSA inventory is the exhibitor decides what they're going to do, often on a local or national basis. And those are not paid inventory. So it's effectively not an impact on our revenue.

Okay. You brought up the lifestyle inventory I wonder if you had any guidance about presales with any of those ads, the premium ads?

Without getting specific, I can tell you that there's a lot of interest in our post show and plan of inventory. I think when the next earnings call rolls around we'll be able to give you more specific visibility on that. But it would be premature to do that on this call. So if you're just patient for a few months, we can give you more visibility on that.

And Jim, this is Ted. Just to circle back to your first question on premium formats. We do serve ads on IMAX screens and other premium formats. So that's not an issue.

Okay. I was just trying to recall, I had noticed someone sent to me and I couldn't think they were part of developments.

Very few theaters that don't show advertising in them, our quite was one of them. But the vast majority of exhibitors across all of the spectrum in entertainment are carrying advertising in the pre show or post show.

Okay. Last one. When TV broadcasters overtime some of their pricing has gotten better as their audiences gotten smaller because it was still the only way to reach a mass market. I'm wondering if that phenomenon, if you have premium advertising, even if it's not as big as it was, it's still bigger than you might have otherwise and that could help your pricing. Have you seen that occur?

Let me follow that, Ted. Did you -- if you call that you could answer it or and some ask Jim just to expand.

Yes, Jim, I'm not sure. Did you expand on that?

Well, I just said overtime again in some of the upfront for example, some of the upfront pricing has increased at the network level, even when the audience levels declined because they were still a bigger audience if you could get otherwise and that sort of offset some of the decline in the absolute size of the audience. And I just wondered if there's any of best phenomenon during scarcity with involving scarcity value this helps pricing when your theaters even when you have less.

Over the pandemic period that hasn't been the case. What I can say is as we go into the new upfront, television upfront in Q4, we're just starting now where we'll 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 CPMs in the industry far more expensive in many cases than network television and broadcast cable. In the television world of scarcity has certainly driven CPMs up, just because Canada, 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 GRPs because of televisions under performance as we go through the next six months of scatter upfront.

Jim, I would just add that to your question on television, CPMs to the extent that television that's seeing a dramatic increase, it certainly doesn't hurt us. It's one of those that rising tide lifts all ships. So from that perspective, we'll see what we get as we get into the upfront, but from a pricing perspective, I certainly help provided tailwind.

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. As I 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, as the COVID-19 vaccine rolls out and accelerates and as the country begins to reopen in earnest and theater ads is returned. All of our research indicates strong consumer demand to see films on the big screen once again. And with all the 2020 films launch delays, the 2021 film say looks to be the strongest in years. So despite the challenges of the last year, the hard work of our team to expand our cinema network, strengthen our digital offerings and initiatives and begin to diversify our advertising impressions base, these are very optimistic about capturing additional video advertising market share, as declining TV GRPs and make our young audience even more attractive to media buyers. I'd like to thank our senior management team and staff and once again for all the hard working efforts during these difficult times and to thank our shareholders and lenders for their support and patience as well. We truly appreciate your joining us on the call and hope that everyone continues to stay safe and healthy. I look forward to seeing you soon again at the movies. Thank you.

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