Logo of jester cap with thought bubble.

Image source: The Motley Fool.

National CineMedia Inc (NCMI)
Q1 2020 Earnings Call
May 5, 2020, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings and welcome to the National CineMedia, Incorporated Q1 2020 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to your host, Mr. Ted Watson, Senior Vice President, Finance. Please go ahead, sir.

Ted Watson -- Senior Vice President of Finance

Thank you, Jerry. Good afternoon, everyone. I'm joined today by our CEO, Tom Lesinski. I would 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, 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 risk 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 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 ncm.com.

Now I'll turn the call over to Tom.

Thomas F. Lesinski -- Chief Executive Officer

Thank you, Ted and good afternoon, everyone, and welcome to our first quarter earnings call. Before we get started, I'd like to thank everyone within and outside our NCM family for all they are doing to help us to get through this challenging time. I hope everyone is staying safe and making every effort to keep you and your loved ones healthy.

Today, I'll be sharing some high-level insights regarding our Q1 performance. And more importantly, I'll provide details of what we have done to adjust our business focus and our operating cost and financial structure in response to the challenges presented by the COVID-19 pandemic. During this unprecedented time, our primary focus has been to maintain liquidity, by operating as efficiently as possible to position our Company to get back to business as soon as possible as the country begins to normalize. Ted will then provide more details about our Q1 results and the financial impact of our operating and financial plan as we navigate these extraordinary and unprecedented times. And then as always, we'll open up the line for your questions.

It goes without saying that the world has changed since we had our Investor Day in New York on March 4th. As with almost all businesses, the COVID-19 pandemic has disrupted our industry in ways that were not even imaginable two short months ago. After ending 2019 with record national advertising revenue performance and the highest fourth quarter ad revenue in our Company's history, we started 2020 with great momentum. February year-to-date revenue was up 3% versus the same period in 2019. Then in March, the spread of the COVID-19 virus in the US forced theaters and all other non-essential businesses to close.

While our in-theater business was forced to shut down, our digital advertising business continues to operate, and there's been significant work for our sales and operational teams as agencies and brands look to move their near-term NCM ad commitments to flights later in the year. Brands are also actively looking for other sources of premium video GRPs to market their products after the cancellation or postponement of all professional sports and the huge media events such as the NCAA Final Four tournament and the Summer Olympics.

While some ad commitments will be canceled because of lower demand for their products, the absence of professional sports and these other big sporting events this year will require the reallocation of billions of ad dollars to other video programming into media platforms. As we compete aggressively in the video ad marketplace, particularly against high-CPM sports programming, it's critical that our sales, marketing and other NCM groups that support the sales process are actively competing in the advertising marketplace.

Our sales teams have also been participating in the early stages of the 2020, 2021 upfront selling process in addition to aggressively working to collect the over $100 million of outstanding accounts receivable that were on our books in mid-March. While we continue to aggressively compete in the video advertising marketplace, we are also working very hard to balance that business necessity with the need to reduce operating costs and maintain a strong liquidity position. While we've had to make some of the most difficult cost-cutting decisions of my career, we believe that the plan we have created has balanced these two priorities so that NCM will hit the ground running when theaters reopen.

Fortunately, given our current cash and investment balance of $169 million at NCM LLC and $83 million at NCM, Inc. respectively and changes we've made to our highly variable operating cost structure, we are very well positioned to succeed once the cinema business recovers in the second half of the year.

Over the medium term, we also would be able to ship some of our high-CPM premium video advertising dollars to NCM, as professional sports will need some time to get the athletes ready to play again and new scripted TV seasons will be delayed due to production shutdowns, cinema may very well be one of the few high-quality entertainment programming sectors with fresh content in the marketplace. There are many other new feature films sitting in the can right now, ready to release in the theaters after a short marketing period once state and local governments lift stay-at-home orders and restrictions done in the cinema industry and consumers feel comfortable returning to theaters.

I want to assure you that we are doing everything that we can to make sure there are ads playing on movie screens when theaters reopen. In the meantime, other than a small amount of digital revenue we continue to recognize, we are planning on no national, regional or local in-theater advertising until theaters reopen. Fortunately, movies have helped people get through tough times for over a century as they are always the ultimate form of escapism. That's one of the reasons that cinema has historically done so well during recessionary times. We are also encouraged by the White House's guidelines on reopening the economy, which include movie theaters as one of the first businesses that may open under phase 1 of these guidelines, which has already been implemented in a few states, including Georgia and Texas.

Given the reopening timing and cinema's history of resilience in bad times, combined with the unprecedented consumer cabin fever that is building, especially with the core younger cinema audience demographic, we are confident that once theaters reopen and the studio start to release new films, audience levels will again begin to build.

In fact, our internal NCM research team regularly pulls movie fans through our exclusive behind the scenes panel, a community of 5,000 movie super fans that allows us to gain a deep understanding of movie audiences' preferences and motivations. In a recent survey, movie fans told us that while streaming is helping them get their movie fix at home from the moment, nothing can replace the communal out-of-home experience that the cinema provides.

As I mentioned, we're off to a strong start in 2020 until mid-March of Q1 when the COVID-19 pandemic began to negatively impact theater attendance and then resulted in a complete shutdown of theaters. Since then, we have only recorded a modest amount of digital revenue due to our inability to deliver in-theater advertising impressions. Ted will discuss the impact that this has had on our overall Q1 results in more detail later.

Some of the pre-COVID-19 momentum was related to our ability to bring on several new clients in key categories, including health and fitness, entertainment, financial products and services, telecom, apparel and consumer products. Interestingly, as we've been working with ad clients after COVID-19 hit, we've had discussions with several clients and businesses that have not historically been big cinema advertisers that have done well during the pandemic such as healthcare, pharma and online retail. We are hopeful that campaigns for these new clients will run after the theaters reopen. Given the Q1 momentum we experienced and the sales activity even after theaters were closed, we are confident that when the theaters reopen with some of the only fresh, high-quality programming available, our business will begin to build quickly and drive.

As I mentioned, our sales team is also in the middle of preparing for the 2020-2021 upfront season that's in process. So far, the upfront momentum has been good as our national sales team is continuing to have many discussions with our clients to plan for the years ahead or for the year ahead. We are watching the TV upfront process closely, as there have been some pressure to shift the upfront annual TV commitments from the historical October start of the broadcast year to a calendar year format as TV programming production schedules for the fall season have been delayed. This may have the potential to benefit us, as cinema will likely be first to market with fresh Q4 programming, and we may be able to shift a few brands that would have otherwise bought TV. It may also allow us to simplify our upfront sales pitch with many clients that have historically purchased upfront on a broadcaster basis and then scatter on a calendar year basis.

During the temporary theater closures, our local sales team has been working very hard, keeping on-screen commitments in place for later in the year. In many cases, they've been able to save the existing commitment and even bring in new revenue by moving local ad campaigns from on-screen to our digital platforms. That is enabling local businesses to continue to engage online with our valuable movie audience at home across our movie trivia games and our other newly digital products.

Although digital is still a relatively small part of our business, the revenue we're continuing to generate in Q2 through our digital business will fund nearly 20% of our current lower monthly operating cost structure. As you can see, all our efforts right now are focused on making sure that we hit the ground running in the second half of the year. As almost all major films have moved out of the Q2 due to the COVID-19, the theatrical release schedule for the second half of the year is now packed with notable titles. Starting off in July 17th with Warner Brothers' Christopher Nolan-directed Tenet, followed throughout Q3 and Q4 by Disney's live action, Mulan, Wonder Woman 1984, thrillers like A Quiet Place Part II, Venom 2 and Halloween Kills. This year's big Marvel movie, Black Widow, the new animated movie, Soul, which is the first black-led Pixar feature; the James Bond film, No Time To Die; an exciting remake of Dune; and closing out the year with a long animated Top Gun: Maverick.

Interestingly, as no film has ever had July to themselves, while overall market attendance will likely be lower, the lack of competition among films may lead to better-than-expected openings for whatever films are in the marketplace. Also, as the timing of theater reopenings becomes more clear and attendance levels back -- begins to come back, it's likely that more films will be playing in the normally slower periods of September and October and early November as well as the holiday period -- as the holiday periods get overcrowded.

Delayed school and college openings this fall could also contribute to positive attendance during these normally slower moviegoing time periods. Early 2021 could also benefit as some films may get moved to Q1 or, if there's a strong carryover from films, from Q4. As I mentioned, we've been working diligently and proactively to increase our liquidity and operate more efficiently. When it was clear in mid-March that COVID-19 would have a near-term impact on our business, we moved quickly to begin to reduce our operating costs and aggressively collect accounts receivable.

Fortunately, much of the Company's cost structure is variable. Expenses such as theater access fees paid to the founding member circuits, network affiliate fees and platinum spot revenue share payments are predominantly driven by theaters being open and attendance and ad revenue being generated, and therefore, they will be eliminated entirely while the theaters remain closed and will be significantly reduced after theaters open as they build back their attendance levels.

In mid-March, even before the theaters were ordered to close, we began to reduce our operating expenses by implementing a comprehensive series of temporary cost-saving measures to preserve cash during this time, including, one, a hiring and personnel expense freeze that was instituted two weeks prior to the cinema closures; two, the suspension of all non-essential operating expenses; three, the termination or deferral of non-essential capital expenditures; four, the furlough of approximately one-third of our staff; five, a salary reduction of up to 50% for the two-thirds of our employees that remain, which, in aggregate, reduced wage expenses by 50% versus our run rate in February before the crisis began; six, reduced cash compensation of the Company's Board of Directors by 20%; and seven, suspension of the Company's 401(k) employee match program.

We also began to work strategically with our office-based landlords, vendors and other business partners to defer payments or abate certain costs altogether. Beginning in mid-March, we tightened the process for the payment of all major expenses which, among other things require CEO approval for all outgoing payments. Overall, this substantial and very difficult series of decisions has reduced our monthly core expense run rate, excluding our variable operating expenses, by nearly 50%.

In addition to reducing our use of cash to operate our business, we have also taken significant steps to build our cash balances. In mid-March, we drew down an additional $110 million from our revolving bank loan, which represented nearly all of our availability on that facility. And as mentioned, our sales and operating teams have been very focused on the collection of outstanding accounts receivable. I am pleased to report that since the end of Q1, we've been able to collect $66.7 million of accounts receivable. Between the temporary operating cash reductions we've made, the $169 million of NCM LLC current cash balance and our current accounts receivable balance of $47 million, we believe we have sufficient liquidity to sustain our operations for the next 18 months without any material in-theater advertising revenue.

Our plan during this crisis not only provides significant cushion to weather the theater closure and recovery period, it helps us maintain and possibly even gain video advertising market share when the economy normalizes. All of these liquidity-sustaining measures we have taken have also received the support of our lenders and have allowed us to finalize a key amendment to our bank covenants. On April 30th, we amended the NCM LLC senior secured credit agreement dated June 20th, 2018, to allow for the waiver of the financial leverage covenants for the quarter ending June 25th, 2020, through the quarter ending July 1st, 2021, provided that NCM LLC maintains a minimum cash liquidity balance. NCM will also not be permitted to distribute its currently available cash to NCM, Inc. and the other NCM LLC members during the waiver period, unless certain requirements are met.

Ted will get into more detail on this in a moment. This waiver will allow us plenty of time to return to our pre-COVID-19 covenant structure as our business returns to a normalized state. Fortunately, given our highly variable operating cost structure, NCM LLC can distribute available cash during the waiver period if it meets a minimum trailing 12-month adjusted EBITDA target and minimum credit facility balance.

We are also actively exploring the potential impact on our Company of a variety of relief and stimulus measures under the US government CARES Act. As the CARES Act makes changes to the US tax code that are intended to benefit companies, we are currently evaluating the provision of the CARES Act to determine any potential benefit to the Company. No impact to this legislation has been incorporated within our Q1 financial statements as the CARES Act enactment occurred during the second quarter of 2020. While no government funding is currently being pursued, we will also continue to monitor new programs that may be created by Congress that are beneficial to NCM.

Finally, our Board of Directors has approved the payment of a $0.07 per share first quarter dividend by NCM, Inc. to shareholders of record on May 18th, 2020. This lower quarterly dividend will result in a current yield of 9.1% based on yesterday's closing share of $3.08. After the Q1 '20 available cash distribution of $4 million, the NCM, Inc. cash balance would allow us to pay dividends for approximately 12 quarters. Given the current market uncertainty, our Board felt that it was prudent to create a larger dividend payment cushion than we have historically held to ensure that we can continue to pay a dividend for the foreseeable future. Having said that, the NCM, Inc. Board will as always, continue to review our dividend policy each quarter to ensure that we deliver on our plans to distribute substantially all of NCM, Inc.'s free cash flow to public shareholders.

As you can see, our singular goal at this time is to do everything we can to ensure that NCM can operate efficiently during the COVID-19 crisis and is well positioned to capitalize on an ad market recovery and the pent-up demand, out-of-home entertainment experience provided by our cinema partners as we return to a more normal state of business. We are focusing on maintaining a strong liquidity position while actively pursuing an increased share of the video advertising market and preserving the valuable relationships we have with our exhibition and advertising partners, the lending financial institutions that support NCM and our stockholders.

None of this would have been possible without the hard work and resilience of our NCM team during this unprecedented time. I'm especially thankful for the strength of our executive leadership team who've been working side-by-side with me every minute to keep our Company moving forward and planning for the future. I also want to acknowledge how hard it has been for all the people that have been furloughed or that have taken significant pay cuts. As I mentioned, those choices were the hardest of my life, and their absence from the NCM family is expected to be temporary as I'm confident that NCM will make it through this crisis, and we'll be well positioned moving forward.

Before I turn it over to Ted, I wanted to give you an update on our search for a new CFO at this time. We've temporarily suspended the search process as candidates help their existing employers work through the crisis and as we focus on more immediate corporate priorities. In the meantime, our recently retired CFO, Katie Scherping is continuing to provide her expertise and guidance to me and the team as a consultant. And of course, our Senior VP of Finance, Ted Watson has been working well holding down the fort admirably.

So thank you, Ted and I'll turn the call over to you.

Ted Watson -- Senior Vice President of Finance

All right. Thank you, Tom. I will walk through the Q1 results in further detail, provide some more details on how to think about the cost structure of our business during this COVID-19 pandemic. Then we will open up the call to your questions. We will be providing a supplemental presentation of these results and our COVID-19 update on our website for future reference.

For the first quarter, our total revenue was $64.7 million compared to $76.9 million in Q1 2019 or a reduction of 15.9%. This $12.2 million change occurred primarily in March as the COVID epidemic spread to the US, resulting in a $7.6 million decrease in national advertising revenue, a $3.4 million decrease in local advertising revenue and a $1.2 million decrease in beverage revenue for the current quarter versus Q1 '19.

Total Q1 adjusted OIBDA was $14.4 million compared to $22.1 million in Q1 2019, a decrease of $7.7 million or 34.8%. The adjusted OIBDA margin for the quarter was 22.3% compared to 28.8% during the same period last year due to a decrease in revenue, partially offset by $6.2 million in lower operating expenses, driven by a decrease in variable costs that include theater access fees, affiliate advertising payments, sales commissions and a decrease in performance-based compensation as a result of the COVID-19 related closures of theaters in March.

Our Q1 2020 advertising revenue mix was 77% national, 15% local and 8% beverage. This compares to Q1 2019 that was 74%, 17% and 9%, respectively. As a reminder, beginning in Q1, regional revenue is now being combined with our national revenue.

Because of the significant impact of COVID-19 on our March results, an analysis of our Q1 2020 revenue versus Q1 2019 is not meaningful as it does not represent fairly our ongoing operations. While Q1 national ad revenue was 13.2% lower than Q1 2019, all of the negative variance came in the month of March.

The Q1 change was driven by a 9.4% decrease in impressions sold and an 8.7% decrease in CPMs. Q1 2020 19% network attendance decrease was related to March's network attendance decrease of 54% due to COVID-19 and the eventual temporary theater closures as well as a weaker movie slate in the early part of the fiscal month compared to 2019. The decrease in theater attendance was partially offset by a Q1 2020 11.9% increase in inventory utilization to 104.5% versus 93.4% as our network was well sold when the virus hit.

The Q1 8.7% decrease in CPMs were driven by weakness in scatter CPMs throughout the quarter but especially exacerbated by the impact of COVID-19 during March, where scatter CPMs were down 19%. In addition, we had two customers with high upfront CPM spend in Q1 2019 that did not place any ads in Q1 this year. We expect much of the lower Q1 and March CPMs can be attributed to ad placement timing. And while we would expect some market CPM softness as the economy reopens and brands begin to bring their ad spending levels back to normal levels, we would expect our national CPMs to benefit from the lack of new sports and other fresh TV programming.

Q1 local revenue was down $3.4 million or 26.6% to $9.4 million due to a 14.9% decrease in contract -- in the volume of contracts sold and a 16.5% decrease in the average contract value, in part due to COVID-19. In some cases, we expect this local revenue to shift to later in 2020, or as Tom mentioned, some of it has been or will be shifted to our digital revenue. Q1 2020 beverage revenue was $5.5 million, a decrease of 17.9% or $1.2 million versus Q1 2019 driven by a 19.4% decrease in founding member attendance, almost all of which happened in March, partially offset by a slight increase in beverage revenue CPMs in the first quarter of 2020 compared to the first quarter of 2019.

For the first quarter, we reported GAAP diluted loss per share of $0.05 versus a loss per diluted share of $0.01 in Q1 2019. Our capital expenditures were $3.3 million for the first quarter of 2020 compared to $2.8 million for Q1 2019. The increase was driven by continued investment in our digital product development and the build-out of our consumer databases. Total capital expenditures are now expected to be between $11 million and $12 million in 2020 and versus our prior guidance of $14 million to $16 million or a decrease of 23% at the midpoint.

As Tom mentioned, much of our non-essential capital spending was delayed beginning in mid-March. However, we are continuing to invest in our new sales planning and inventory management platform that is in its testing phase and expected to launch in Q1 of 2021. Given the strategic importance of these systems and our desire to hit the ground running when the crisis passes, we felt it important to push through the testing phase and stay the course with the implementation as planned.

During the first quarter, we recorded $1.4 million of integration and other encumbered theater payments, primarily for the AMC-Carmike Theaters versus $2.5 million in Q1 2019. Integration and other encumbered theater payments decreased $1.1 million from the quarter ended March 28th, 2019, to the quarter ended March 26th, 2020. This decrease is due to Rave cinemas coming on to our network, and thus, no longer being encumbered, and the decrease in adjusted OIBDA quarter-over-quarter, which is the driver of the calculation of payments.

You should note all integration and other encumbered theater payments are added to adjusted OIBDA for debt compliance and available cash calculation purposes, but are not included in our reported revenue and adjusted OIBDA as they are recorded as a reduction to the net intangible assets on our balance sheet.

As Tom mentioned earlier, in anticipation of future non-compliance with our financial covenants, we have obtained a senior bank facility waiver to the extent we are not compliant with our net senior secured and total leverage covenants through the quarter ended July 1st, 2021. Our covenants are calculated using trailing 12 months of EBITDA as defined in the credit agreement. We are compliant with all our covenants at the end of Q1 2020, and we expect to be very close at the end of Q2.

Considering the impact of having virtually no revenue in Q2 2020 will have on our trailing four quarter covenant calculations, we and our banks felt it prudent to provide relief for a five-quarter period beginning Q2 2020. It is also important to note that we will be paying scheduled interest and principal payments on all of our indebtedness throughout the waiver period.

Conditions for the covenant waiver for NCM LLC include maintaining a minimum liquidity of $55 million. Also, NCM LLC will not be able to distribute any of its available cash as defined in the LLC operating agreement during the waiver period, unless at any quarter end, trailing fourth quarter defined adjusted EBITDA is at least 120% of the 2019 minimum compliance adjusted EBITDA or $277 million. And the amount outstanding of -- and the amount of outstanding loans underneath the revolver cannot exceed $39 million.

Conditions following the waiver include NCM LLC being in compliance with both its net consolidated senior secured and total leverage covenants, NCM LLC's consolidated net senior secured leverage ratio must be below 5 times for the distribution of available cash to its owners. We believe this waiver will allow us the flexibility needed to come back into compliance with our financial covenants as of the end of Q3 2021, and theaters open up and business operations normalize throughout the back half of 2020 and into 2021.

Looking specifically at our leverage, NCM LLC total net debt as of the end of Q1 2020 was approximately 4.3 times trailing four quarters adjusted OIBDA plus integration payments versus 4.3 times in Q1 2019, which is below our consolidated net total leverage maintenance covenant of 6.25 times. Our consolidated net senior secured leverage ratio was 3.3 times versus a covenant of 4.5 times.

Moving on to the balance sheet. Our total debt outstanding at NCM LLC at the end of Q1 2020 was $1.1 billion versus $936 million at the end of Q1 2019. During the quarter, we drew down $110 million in additional funds on the revolving credit facility, resulting in an increase in our revolver balance at the end of Q1 2020 to $167 million compared to $37 million at the end of Q1 2019. Our average rate on all debt outstanding was approximately 5.1% at the end of Q1 compared to 5.8% in Q1 of '19. This includes our $266 million floating term loan bank debt and our revolver credit facility that had a rate of approximately 3.9%.

It is important to note that there was no increase in our interest rate spread as a result of the bank amendment as we were only required to pay an amendment fee to banks that agreed to the amendment before the approval deadline. Excluding revolver balances, 70% of our total debt outstanding at the end of Q1 2020 had a fixed interest rate.

Our consolidated cash and investment balances as of Q1 2020 were $215 million with $83 million of this balance at NCMI. With the increased cash balances related to the revolver draw and the accounts receivable collections, the NCM LLC net debt balance at the end of Q1 2020 decreased slightly to $930.7 million versus $930.9 million at the end of Q1 2019.

As Tom mentioned earlier, our Board of Directors approved a Q1 dividend of $0.07 per share. The dividend will be paid on June 1st, 2020, to stockholders of record on May 18th, 2020. With this lower dividend, we currently have enough NCMI cash available to cover nearly 12 quarters of dividends at NCMI with no other cash distributions received from NCM LLC after the Q1 2020 distribution of approximately $4 million. The Company intends to pay a regular quarterly dividend for the foreseeable future at the discretion of the Board of Directors, consistent with the Company's intention to distribute over time substantially all its free cash flow.

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, which includes short-term and long-term impact to the Company related to the temporary theater closures for the COVID-19 pandemic and restrictions under the NCM LLC credit agreement.

Now I would like to provide you with some information regarding NCM LLC's cash burn rate, while theaters are closed due to the COVID-19 pandemic. As mentioned earlier, while theaters are closed, NCM LLC's variable operating costs such as theater access fees, which included attendance base and digital screen fees, platinum revenue share, affiliate revenue share and sales commission costs are significantly reduced or eliminated. Outside of these expenses, the Company typically has had approximately $9.5 million of monthly core operating expenses. These core operating expenses include headcount, marketing and research costs, professional fees, lease costs and other variable expenses.

Through a disciplined and multi-phased approach, we have reduced our core operating expenses by nearly 50% to a run rate average of under $5 million per month while the theaters are closed. As many of these costs can be delayed to later in this year, the average monthly cash burn rate will likely be lower in Q2 and Q3 of this year. Also, we continue to evaluate our remaining costs and will further adjust our decisions as conditions warrant.

In addition to our core operating expense run rate, the Company has a debt service obligation that averages a little over $4 million per month remainder of the year. With a total average cash burn rate of approximately $9 million per month, including debt service obligations and $169 million of cash on hand, plus $47 million in accounts receivable, the Company has more than 18 months of liquidity to effectively run the business with no meaningful new revenue.

As Tom mentioned, even during the temporary theater closures, we continue to recognize some amount of digital revenue that will help offset some of our negative operating cash flow. It is also important to note that given the variable cost, high-margin nature of our business, with the operating expense reductions we have made, once the theaters begin to reopen, NCM LLC can still cover debt service and operating costs with revenue that is approximately 40% of the 2019 level.

Finally, turning to guidance. As Tom mentioned, we have deliberately structured our operating and liquidity plans so that our advertising business can operate at a level necessary to aggressively compete in the advertising marketplace that is still very active so that we can be ready to hit the ground running when the theaters begin to reopen. Therefore, considering this uncertainty with respect to when and at what rate, we will be able to begin recognizing in-theater advertising revenue due to the COVID-19 pandemic. The Company has withdrawn its previously provided 2020 revenue, adjusted OIBDA and integration payment guidance until we have better clarity as to the COVID-19 related elements that impact our future revenue and adjusted OIBDA.

During this period of uncertainty, we will instead continue to provide important liquidity measures such as AR collections, cash and net debt balances and monthly operating and debt service cash usage rates that we are using to manage our business over the near-term during the crisis.

This concludes our prepared remarks, and we'll now open up the lines for questions. Operator?

Questions and Answers:


Thank you. At this time we'll be conducting a question-and-answer session. [Operator Instructions] The first question is from Eric Wold, B. Riley FBR. Please go ahead, sir.

Eric Wold -- B. Riley FBR -- Analyst

Thank you. Good afternoon, Tom and Ted. A couple of questions. I know you're talking to an uncertain environment out there, but you mentioned you're starting to head into the upfront buying season as it relates to next year, whether that next year ends up being kind of October, September over the calendar year. Any sense, early read into that -- into the ad buying environment you're getting from your customers? Is the sales cycles lengthening? Are they kind of little more hesitant to commit upfront? Any adverse impact of CPMs? Just kind of how do you think about kind of the light down tailwind you were going to have coming this year against kind of the COVID-19 budget headwind possibility?

Thomas F. Lesinski -- Chief Executive Officer

Okay. I'm going to turn that question over to Cliff Marks, who is also on the line, and he's the one literally day-to-day talking to customers. And I think he can give you a preview of how things are going right now and what the upfront looks like in terms of how our advertisers are looking at the industry as well as our platform.

Clifford E. Marks -- President

Hey, Eric. I think that you're going to have a kind of bifurcated upfront this year. There will still be an upfront for the general marketplace as well as the cinema marketplace. I think a lot of brands and a lot of clients are trying to figure out where they're going to flow. But we project that there will be an upfront. We have been very active in talking to clients and starting to present ideas. In traditional years, much more of our business happens in what we refer to as the broadcast upfront, the buying period in the late fall on October, November. And I'd project that, that will still be the majority of our upfront buying this year.

Thomas F. Lesinski -- Chief Executive Officer

I think the one thing I would add to that is the fourth quarter from a theatrical point of view may end up being one of the biggest attendance box office fourth quarters in a really long time, as some additional major movies have shifted into that. So we're optimistic about our fourth quarter. And hopeful that with theaters reopening in a really great fresh slate, that it will drive a lot of interest from advertisers.

Eric Wold -- B. Riley FBR -- Analyst

So on that, you mentioned before, you're optimistic that a favorable environment for in-theater ads, given fresh content, possible delays in sports and kind of scripted content. How would you expect to see that reflected in the ad mix kind of versus traditional years in terms of upfront versus scatter? And then would -- you still think it's a ripe environment kind of for the platinum ad buys in that fall-winter period? Or could there be some hesitancy among buyers kind of lock those in at this point?

Thomas F. Lesinski -- Chief Executive Officer

Let me start, and then I'll let Cliff continue. I mean it's obviously a very fluid situation out there as the upfront, the traditional broadcast upfront is moving in a fluid dynamic, and there's going to be a mixture between really June through the fall of a mixture of scatter and upfront. And it's obviously an unprecedented time. And I think as a result, there could be a mix that's different than historically has been between scatter and upfront. But every platform, including our own, is talking individually to our clients and to the agencies to come up with the right solutions from a timing point of view. I think -- what, you want to add to that, Cliff?

Clifford E. Marks -- President

Yeah. The other thing I would add is we've had a very, very loyal group of upfront partners who really like our medium. They've been loyal to the cinema medium. They've been loyal to NCM. And from all of the conversations we've had to date, most of our clients are not wigged out. They're very much -- they very much believe in our medium. Most of them are working with us and have been very cooperative in trying to shift. So it's hard to know exactly, of course. But I anticipate that most of our upfront partners will return.

And I can tell you that, I mean, obviously, it's early in the selling the post show advertising. So we're still working on establishing the value and the premium value of that. So it remains to be seen, what happens with that. But nobody dislikes better inventory. Anyone we've talked to, nobody dislikes better inventory. So I don't foresee it to be challenging to big [Phonetic] brands that they should be there. We'll have to have a lot of conversations about the value, but that's what was going to happen anyways.

Eric Wold -- B. Riley FBR -- Analyst

Perfect. Thanks, guys.


We have a question from Jim Goss at Barrington Research. Please go ahead, sir.

Jim Goss -- Barrington Research -- Analyst

Thanks. Continuing along the ad theme, to the extent that you have commitments right now that you obviously can't deliver, are you able to treat these effectively as make goods that you'll be able to deliver once theaters start to open and be able to maintain the revenue base you would have had, but deliver it later on? And what is the flexibility in delivering -- delivery, such that you don't have to pile everything up into periods where the demand might be greater and then it really would hurt to have to give the ad spots away at a lower rate than you'd be able to get later on?

Thomas F. Lesinski -- Chief Executive Officer

Jim, let me start, and then I'll have Cliff add some more flavor to it. There's -- you're asking really two different questions. The first question is, is the existing commitments that had happened in the prior upfront, we're having a significant success rolling those into later months and later quarters. So for example, commitments that were made in Q2 have been moved into Q3 and Q4. And we've had a very good success rate of maintaining those dollars. As it relates to the whole make good situation, we have an existing make good coming out of Q4 into Q1, which is about the same number. Some of that make good will get used as theaters open, and the rest will get used as the rest of the calendar year goes forward. Do you want to add anything to that, Cliff?

Clifford E. Marks -- President

Yeah. No, I think that's accurate. I mean we've been able to shift a lot of our business, so that's a good thing. Depending on when we open and how many rating points are available, that will determine how much money we're able to burn before we write new money, before we write new deals. So really, it's an unknown as to when do the theaters open and how many impressions we have. But we've done a really good job. Our team has really done a fantastic job of saving a lot of money.

Jim Goss -- Barrington Research -- Analyst

Okay. And maybe competitively, you've talked about trying to take some share from broadcasting, which you've already -- always attempted to do. Right now, broadcasters are having pretty good success in in-home viewership levels, but the ad demand in pricing has been down because of a lot of the troubled advertisers and reductions in ad commitments. And I'm wondering how that affects this whole process? And also, you might tie it into this shift in to national from local that seems to be continuing to take place in your math [Phonetic].

Thomas F. Lesinski -- Chief Executive Officer

Look, let me start. I think Jim, what I would say is that if you really look at current programming, there is so little on television today. Obviously, none of the sports is current. Most of what's on network television is reruns. We believe that as we start going into this with all new programming beginning as early as July, that we'll have a real opportunity from a volume and CPM point of view to drive the business. When you think about it, a lot of these movies have been sitting there finished in the can for months now waiting. So we think as people, particularly given how cooped up everybody is with the combination of that dynamic, plus really fresh programming and big programming that will open an opportunity to hopefully grow our business and steal share from traditional television and also to drive CPMs.

Jim Goss -- Barrington Research -- Analyst

Okay. Thanks. [Speech Overlap]

Clifford E. Marks -- President

And the greater -- the macro marketplace, as you noted, that's really not a cinema issue. That's just a marketplace issue. There's a -- the broadcast networks, while they have increased viewership, there's not enough money to cover all those rating points. That's in every one situation. Every network is going to deal with that.

Jim Goss -- Barrington Research -- Analyst

All right. Thanks. Appreciate it.


[Operator Instructions] Gentlemen, there are no further questions at this time. I'd like to turn the call back over to Tom Lesinski for closing remarks. Please go ahead, sir.

Thomas F. Lesinski -- Chief Executive Officer

Thank you, guys for the questions. I just want to close by saying, our NCM leadership team, our Board of Directors and our employees remain deeply committed to position our Company to weather this crisis and to come out the other end stronger than ever, so we can deliver on our mission to unite brands with the power of movies and engage movie fans anytime and anywhere. Once the COVID-19 pandemic alleviates, we'll be well positioned to continue to deliver the growth strategy that we launched last year and that was beginning to take hold before the crisis hit.

While our stock price is currently depressed, our unique corporate structure is providing an investment vehicle that is continuing to deliver a substantial dividend return even during the crisis. We are confident that all the steps we've taken will allow us to deliver free cash flow growth and stock price appreciation once the crisis is passed.

I'd like to close by once again thanking all my NCM teammates, our cinema partners, lenders and the other business partners for their hard work and support through this period of [Phonetic] time. I can assure you that all of us at NCM are working tirelessly to not only get through this crisis, but together, make NCM an even stronger company. Thank you all for joining us, and I hope that someday soon, I'll see you all at the movies. Until then, I hope everyone stays safe and healthy. Thank you.


[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Ted Watson -- Senior Vice President of Finance

Thomas F. Lesinski -- Chief Executive Officer

Clifford E. Marks -- President

Eric Wold -- B. Riley FBR -- Analyst

Jim Goss -- Barrington Research -- Analyst

More NCMI analysis

All earnings call transcripts

AlphaStreet Logo