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National CineMedia Inc (NASDAQ:NCMI)
Q2 2020 Earnings Call
Aug 3, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the National CineMedia, Inc., Q2 2020 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to your host, Mr. Ted, Senior Vice President.

Ted Watson -- Senior Vice President, Investor Relations

Thank you, Laura, and good afternoon, everyone. I am 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 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 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.

And now, I'll turn the call over to Tom.

Thomas F. Lesinski -- Chief Executive Officer

Thank you, Ted, and good afternoon, everyone. Welcome to our NCM second quarter earnings call. Before we get started, I would like to again thank everyone within and outside our NCM family for all they're doing during this challenging time. I hope everyone is staying safe and making every effort to keep yourself, your loved ones, your colleagues and your community healthy.

Today, I'll be providing a high-level update on what we've been doing to adjust our business in response to the ongoing challenges presented by the COVID-19 pandemic, Ted, will then provide more details about our second quarter and plans to continue to navigate these extraordinary and unprecedented times and position the Company to hit the ground running once studios begin to release new films and theaters reopen later this month. And then, as always, we will open the line for your questions.

After a strong start to the year, no one could have predicted how profoundly the COVID-19 pandemic would impact all our lives. As discussed during our last call when the theaters were forced by local governments to close and film release schedules began to be pushed back, we immediately took steps to build liquidity and cut our operating costs, while at the same time, selling in the advertising marketplace that continue to be very active. While almost all the theaters remained close throughout the entire second quarter, our sales team continued to work with clients to shift existing commitments to future periods and negotiate new business. I'm very appreciative and proud of all the hard work our team has been doing during the crisis, as it has positioned us very well for when theaters begin to reopen.

NCM continues to benefit from our highly variable cost structure and the aggressive steps we took to reduce non-essential costs beginning in late March when the pandemic reached the U.S. We also did not incur any theater access fees or affiliate revenue share cost, while theaters remained closed, as these expenses are driven by attendance metrics and active screens, which considerably reduced our monthly operating and administrative costs versus pre-COVID-19 levels. These significantly lower cost levels, combined with our successful account receivable collection efforts, have left us in a very strong liquidity position that should allow us to operate well beyond the negative impact of the COVID-19 pandemic.

We currently have a cash balance of $168.7 million and $13.2 million receivable balance at our operating company, NCM LLC. This strong liquidity position, combined with the reduction of our monthly operating expenses, debt service costs and nominal capital expenditures to $9 million to $9.5 million before any benefit from our digital revenue, provides enough cash to operate for approximately 18 months even if the theaters remain closed. We also currently have $68.5 million of cash at NCM, Inc., the public company, that could fund our current dividend level of $0.07 per share for another three years even with no additional cash distribution from NCM LLC.

As discussed during our Q1 earnings call in late March, we implemented a plan that established various cost savings measures including the temporary furlough of approximately 30% of our staff and reduced pay for the remaining employees up to 50%, which in aggregate reduced our total compensation expense by 50%. This in conjunction with the elimination or delay of non-essential operating cost through April reduced our core run rate expense by over 50% from $9.5 million per month to $4.7 million per month. It is important to note that this excludes approximately $5,000 to $6,000 per month of net cash benefit from our digital business during Q2.

As theaters in our network begin to reopen in anticipation of intended launching at September 3, we will continue to adjust our operating cost structure in a disciplined and phased approach to restart our business over the coming weeks. We are continuing to evaluate the needs of the business and our goals remain flexible with our long-term plans and react appropriately as the situation continues to evolve. Until we have a better visibility to the future film release schedule and the related pace of theater reopenings and network attendance levels, many of the measures outlined above will remain in place. Interestingly, throughout the remainder of 2020, we believe our challenge will be whether or not there'll be enough impressions to support our existing ad commitments as the ad market has been very active and there's been a reduction of available high-priced TV sports programming, along with TV production schedules getting delayed.

Throughout the pandemic, while theaters remain closed, our various sales teams have continued to engage clients and ad agencies to reschedule the existing commitments and look -- and book new business, so that ads are running on our network when theaters reopen. Our national and regional team has been working closely with our clients to adjust their cinema advertising budgets to align with the shifting movie slate to ensure that they will be back up on the big screen in front of our valuable movie audiences as soon as possible this year. Our local team has also been successful in getting clients to put their cinema campaigns on pause, ready to start up again when movie theaters reopen and they've also shifted many in-theater commitments to our digital platforms.

While there have been budget cuts across several client categories that have been most impacted by the pandemic, there continues to be an active marketplace as clients make advertising commitments for later this year and in 2021. Additionally, fewer professional games and the potential delay of the NFL and college football may force buyers to begin to look for other high-quality premium video platforms, which is a dynamic that we believe will benefit NCM. As I mentioned, it is critical that even though theaters are closed, we want to keep cinema and NCM top of mind with our clients and agencies. We've been very thankful for the support we've received from our clients so far, as many have been very flexible and supported to moving commitments originally planned for Q2 into Q3 and Q4, and into early 2021, especially within our key advertising categories that have not been affected negatively by COVID-19, including streaming companies, e-commerce companies and gaming companies to name a few.

Based on hundreds of video and other calls with clients, overall interest in cinema advertising remains strong. In fact, as mentioned a limiting factor for us throughout the remainder of the year is likely to be the level of movie attendance and corresponding number of impressions we can deliver. Given the momentum we experienced in Q1 in our sales activity over the last few months, we are confident that cinema will continue to be an important part of brand marketing plans going forward. With some live sports and other out-of-home entertainment canceled and much of the new TV production delayed, cinema will benefit from being one of the few entertainment options with fresh, high-quality programming to drawing audiences. There are many highly anticipated big budget films like Tenet, The King's Man, The New Mutants and Wonder Woman 1984, that are currently set for release very soon after theaters are allowed to reopen.

Our digital business has continued to bring in revenue by helping advertisers reach movie audiences at home across our NCM Digital and OTT offerings. It's notable that digital, which was designed to be a bundled complement to our core on-screen broadcast, continued to generate revenue on its own and allowed us to redirect some local commitments by shifting those client campaigns to our digital platforms. This will allow us the opportunity to grow our digital revenue year-over-year from 2019 to 2020 despite the pandemic, which is a promising sign. It's also important to note that our Q2 net digital revenue funded approximately 20% of our current lower monthly operating expenses. This highlights the importance of diversifying our media inventory to provide a stronger multi-platform product revenue stream that's not just tied to theater attendance. As such, in addition to the expansion of our digital business, we are continuing to explore out-of-home advertising corporate development opportunities that could augment both our core cinema and existing digital platforms.

Our digital platforms have also continued to help us expand our highly desirable moviegoer consumer database to nearly 150 million data sets, which is on track with our original business plan. As we continue to increase and improve both the quality and quantity of our consumer data, it will help us strengthen our Cinema Accelerator product and offer the kind of one-to-one targeting that today's advertisers demand. As we've discussed, this is a critical part of our plan to improve our overall cinema marketing offering and make it even more attractive than it already is. Throughout the remainder of 2020, we will be enhancing our NCM movie trivia platform, including the launch of a new Noovie trivia app later this summer. We will also continue to expand our cross-selling and data partnerships to further build our digital audience and increase our digital inventory and first-party data. We expect this growth will open monetization opportunities to both advertisers and studios, looking to reach the important and highly valuable movie-going audience.

In addition to all the other sales activities during Q2, our President, Cliff Marks, and Chief Revenue Officer, Scott Felenstein, along with the other of our senior sales management team, have held over 200 virtual back-to-the-movies video meetings with top executives at the biggest national brands and advertising agencies in the country to talk to them about the state of our industry and the many great films and advertising opportunities like our premium Platinum Spot and lights down inventory that they have to look forward to when theaters begin to reopen. The message that we're getting from all these conversations is that our clients understand the value of our medium and that they want to start advertising and cinema again just as soon as movie fans are back in theaters.

We've also been aggressively competing in the video upfront marketplace for the 2020 and 2021 upfront buying season, that's currently in process. Upfront deals are made several months to a year out from a campaign air date, so it is critical that our national sales team is out in the marketplace actively pursuing these commitments now to position NCM to be able to hit the ground running in the remainder of 2020 and through 2021. TV upfront discussions have slowed in the advertising marketplace overall due to the uncertainty surrounding the TV programming schedules and cancellation or delays and other high-CPM video offerings that cinema competes directly with, like live sports, concerts and other event programming. However, this delay in the October through September broadcast calendar upfront marketplace spending will actually be advantageous to us, as it will ship budgets to a more cinema-friendly calendar year, especially now that many of the big films moved out of 2020 and are expected to now be released in 2021.

Throughout this time, we have also engaged in conversation with several regional theater circuits about the possibility of joining our NCM network. With exhibitor operating cash flow being significantly impacted by theater closures, theater operators are looking for any way they can to increase their future cash flows. Our ability to generate higher advertising revenue per attendee and provide other financial incentives for long-term commitments to join our network looks more attractive than ever to regional theater operators in the current business environment.

Looking ahead, as I mentioned, due to the shift of many big movie titles, the theatrical release schedule for the next 40 quarters is very strong with titles like Warner Bros. and Chris Nolan's Tenet; Wonder Woman 1984; 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; the remake of Dune; West Side Story; Coming to America 2 closing out the year.

2021 looks even stronger now with tremendous box office potential, featuring hugely anticipated films like Cinderella; Ghostbusters: Afterlife; Disney's Raya and the Last Dragon; Fast & Furious 10; A Quiet Place II; Godzilla vs. Kong; Jurassic World: Dominion; Top Gun: Maverick; The Batman; and the sequel to the Spider-Man; and Mission: Impossible, to name just a few. Movies are one of the ultimate forms of escapes and we all know that, which is one of the reasons that cinema has historically done so well during difficult or recessionary times and we believe that will continue as we emerge from this pandemic. Our NCM research team readily pulls our exclusive behind-the-scenes panel of movie super fans and those that have already returned to see a movie on the big screen and over 98% reported a positive experience.

For those in the areas of the country where theaters are yet to reopen, the desire to get back to the big screen continues to grow stronger, as people are tired of watching movies at home or run out of streaming platform series to watch. 94% of respondents say they miss going to the movies -- to the theaters to watch movies. Most importantly, going to the movies ranks Number 1 as the top out-of-home activity. Survey respondents are most looking forward to doing -- to do once government restrictions are lifted.

Cinema has a long history of resilience and we remain confident that when theaters reopen, the studios start to release new films, that audience levels will begin to build back toward normal levels over the next few quarters. Of the moviegoers we surveyed, 75% plan to return to theaters either as soon as possible or within one months to three months after theaters reopen, with another 21% planning to return after four months or more for a total of 96% of our core demo of movie lovers planning to go back to the cinemas soon. There was also more recent news out of a study by UC Davis, which indicates that movie theaters may pose less COVID-19 risk than many other indoor venues as masks are being required and enhanced cleaning procedures are being performed by our theater partners. Theaters are also expected to be safer because people are not facing or talking to each other during a movie and social distancing can be maintained.

While there remain uncertainties related to the COVID-19 pandemic, we have positioned our company well and have good reason to be optimistic about NCM's future, as we have successfully balanced the two priorities of maintaining a strong liquidity position and a sales and operating plan that's very focused on making sure that we hit the ground running on Labor Day weekend with the announced release of Tenet. While not all of our clients will be back to spending at pre-COVID levels, we believe that our efforts to expand and diversify our client base, combined with the delay in sports and other TV scripted programming, will provide us with a strong client demand over the near to medium term.

Finally, our Board of Directors has left the NCM, Inc. dividend of $0.07 per share unchanged for the second quarter. It will be paid on August 31 to shareholders of record on August 17. This quarterly dividend will result in a current yield of over 11%, based on Friday's closing price of $2.47. After the Q2 2020 dividend payment of $5.5 million, the NCM, Inc. cash balance would allow us to pay dividends for approximately three years, regardless of any cash being distributed to NCM, Inc.

Before I turn the call over to Ted, I would like to thank everyone on the NCM team for their commitment, support, and hard work during this very difficult and unprecedented time. None of what we have accomplished over the last several months would have been possible without the dedication and resilience of our NCM team. I remain thankful for the strength and support of our executive leadership team. Our theater circuit partners and I want to especially acknowledge how hard it has been for all the people that have been furloughed or that have taken significant pay cuts for now more than four months. While this has been -- while it has helped NCM to make it through this crisis and be well positioned for the future. I look forward to the coming weeks when we can get back to work to deliver on our mission to unite brands with the power of movies and engage movie fans anytime and anywhere.

So, thank you all and thank you, Ted, for continuing to hold down the fort admirably, while we have temporarily delayed our CFO search until theaters begin to reopen and the business environment becomes more certain. I will now turn the call over to you to discuss our financial picture in more detail.

Ted Watson -- Senior Vice President, Investor Relations

Thanks, Tom. As Tom mentioned, with theaters closed, we only recorded a small amount of digital revenue during the current quarter and so I'll focus most of my comments on providing an update on our liquidity position and our monthly operating expense, along with capital expenditures and debt service obligations. Then, as always, we will open the call to your questions.

The impact of COVID-19 on our second quarter and year-to-date results makes an analysis of our revenue and Adjusted OIBDA not meaningful, as it does not represent fairly our ongoing business. Also, our 10-Q was filed this afternoon and we have provided a supplemental presentation of our Q2 and year-to-date results with comparison to prior periods on our website for your reference.

For the second quarter, our total revenue was $4 million compared to $110.2 million in Q2 of 2019 due to the temporary closure of almost all the theaters in our network in response to the COVID-19 pandemic. The revenue recognized in the second quarter of 2020 was primarily related to revenue associated with our digital service offerings. That revenue included both sales by our digital group as well as our local sales personnel. In fact, our local sales team was able to convert $1.3 million of on-screen ad business to our digital platform in the quarter. Due to the absence of any in-theater advertising revenue, total Q2 adjusted OIBDA was negative $12.7 million versus a positive $50.2 million in Q2 of 2019. It is important to note that NCM LLC's theater access fees, network affiliate payments, and platinum revenue share payments are driven by attendance, operating screens, and revenue, and therefore were not incurred while theaters were closed.

Aadditionally, through a disciplined and multifaceted approach, once all our initiatives were fully implemented in April, we reduced our core run rate operating expenses by over 50% to $4.7 million per month. Combined with our debt service obligations and nominal capital expenditures, we are averaging a total cash burn rate of approximately $9 million to $9.5 million per month before the benefit of any revenue. As Tom mentioned earlier, with the anticipated release of Tenet on September 3, over the next few weeks, we will begin a phased return of our teams from furlough which will allow us to have our network fully operational and generating revenue again. We continue to be thoughtful to this phased approach so as to minimize the impact of expenses during this transition.

For the six months of 2020, total revenue was $68.7 million versus $187.1 million for the first six months of 2019. Adjusted OIBDA decreased to $1.7 million from $72.3 million in the first six months of 2019 and adjusted OIBDA margin decreased to 2.5% from 38.6% versus the first six months of 2019, again, all driven by the temporary theater closures in response to the COVID-19 pandemic. It is important to note we had great momentum going early in Q1 as demonstrated by the fact that February year-to-date revenue was up 3% over the same period in 2019 before the theater closures began in late March.

For the second quarter, we reported a GAAP diluted loss per share of $0.18 versus an earnings per diluted share of $0.11 in Q2 of 2019. As adjusted to exclude the impairment of long-lived assets and CEO transition cost, GAAP diluted loss per share would have decreased to $0.17 per diluted share in the second quarter of 2020, while earnings per diluted share for Q2 of 2019 would have remained the same. For the six months of 2020, we reported a GAAP diluted loss per share of $0.22 compared to an earnings per diluted share of $0.10 for the first six months of 2019.

For the first six months of 2020, capital expenditures were $5.5 million versus $6.9 million spent in 2019 due to the halt of non-essential capital spending. We now expect total capital expenditures to approximate $11 million in 2020. It is important to note we continue to invest in our sales planning and inventory management platform that is in its testing phase. While we have been very focused on preserving cash while the theaters are closed, this inventory management tool is a critical part of our plan to improve our in-theater advertising product and we expect to launch this system in Q1 of 2021 as originally planned. Once launched, there will be immediate cost savings and other operating efficiencies that over time will more than offset the capital currently being invested.

In the second quarter and for the first six months of 2020, we recorded $0 and $1.4 million respectively of integration and other encumbered theater payments, primarily from AMC Carmike theaters versus $5.7 million and $8.1 million respectively last year. Because the encumbered theaters were temporarily closed during the second quarter 2020, no advertising cash flows could have been generated if the theaters were within NCM LLC's network and thus no integration payments were earned during the three months ended June 25, 2020. As a reminder, these integration and other encumbered theater payments are added to adjusted OIBDA for debt compliance and partnership cash distribution purposes, but are not included in reported revenue or adjusted OIBDA as they are recorded as a reduction to net intangible assets on the balance sheet.

Moving on to our balance sheet, our total debt outstanding at NCM LLC at the end of Q2 2020 was $1.1 billion versus $925 million at the end of Q2 of 2019, due primarily to the increase in our revolver balance that was fully drawn in late March when the theaters began to close. Our revolver balance at the end of the second quarter in 2020 was $167 million compared to $27 million at the end of Q2 2019. Our average interest rate on all debt was approximately 4.9% at the end of Q2 compared to 5.8% in Q2 of 2019, including our $265 million floating rate term loan bank debt and revolving credit facility that had a rate of approximately 3.6%. Excluding revolver balances, 70% of our total debt outstanding at the end of Q2 2020 had a fixed interest rate.

As mentioned on our Q1 earnings call, in anticipation of the impact of the pandemic and related theater closures, on our trailing four-quarter covenant calculations, we obtained a senior bank facility waiver from our NCM LLC net senior secured and total bank debt leverage covenants through the quarter ended July 1, 2021. The NCM LLC bank debt covenant waiver included a new requirement to maintain a minimum liquidity of $55 million, including cash and availability under our revolver. Also, NCM LLC will have new limitations on its ability during the waiver period to distribute to founding member theater circuits or NCM, Inc. any of its available cash, as defined in the LLC operating agreement.

Looking at our leverage, total net leverage at NCM LLC as of the end of Q2 2020 was approximately 6 times trailing four-quarter adjusted OIBDA versus 4.2 times in Q2 of '19 and a covenant of 6.25 times. Our consolidated net senior secured leverage ratio was 4.6 times versus 3.1 times in the comparable period 2019 and a covenant of 4.5 times. As Tom mentioned, we entered the COVID-19 crisis with a strong liquidity position and we have maintained that strong position today. At the end of Q2, NCM LLC had a cash balance of $168.1 million and an accounts receivable balance of $25.3 million. NCM, Inc. had a cash and investment balance of $82 million. Subsequent to the end of the second quarter, we paid 90% of our annual tax receivable obligation to our founding members, leaving NCM, Inc. with a current cash balance of $68.5 million. NCM LLC began the second quarter with a cash balance of $132.2 million and ended the second quarter with a cash balance of $168.1 million as we collected $90 million or 82% of our pre-COVID-19 accounts receivable balance.

In summary, at the end of the second quarter, NCM LLC, with $168.1 million of cash on hand, plus $25.3 million in accounts receivable, could fund its average monthly operating expense, nominal capital expenditures and debt service obligations totaling $9 million to $9.5 million for over 18 months. It is also important to note that given the variable cost, high-margin nature of our business, with the operating expense reductions we made, once theaters begin to reopen, NCM LLC can still cover debt service and operating costs with revenue that is approximately 40% of the 2019 total.

As Tom mentioned, we announced today that our Board of Directors has authorized NCM, Inc.'s regular quarterly cash dividend of $0.07 per share of common stock. The dividend will be paid on August 31, 2020 to stockholders of record on August 17, 2020. At this dividend level with $68.5 million of cash and short-term investments at NCM Inc., we currently have enough cash available to cover three years of dividends at NCMI with no other cash distributions being received from NCM LLC. You should note that the recent bank waiver I mentioned earlier currently prohibits distributions to its members, including NCM, Inc. and the new limitations remain through the quarter ended July 1, 2021, unless certain financial conditions are met. 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 nearly three years of dividend cushion is considerably longer than what we have historically targeted. We will continue to monitor this dividend cushion level as theaters reopen and we get a better read on what the level of the theater attendance and in-theater advertising revenue will be.

As mentioned, for the remainder of 2020, our revenue will be primarily dependent on how many theater attendees and related advertising impressions we can deliver. Therefore, as always, the declaration, payment, timing, and amount of future dividends payable will be at the sole discretion of the Board of Directors, who will consider general economic and advertising market 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 short-term and long-term impacts to the Company related to COVID-19 pandemic and restrictions under the NCM LLC credit agreement.

Finally, consistent with our comments during our Q1 earnings call, we still do not have enough future visibility about the timing of all film releases, related theater openings, and network attendance to provide a reliable future revenue and adjusted OIBDA guidance. We will only begin providing guidance when we have access to more reliable information regarding these key market data points.

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

Questions and Answers:

Operator

At this time we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from the line of Eric Wold with B. Riley. You may proceed with your question.

Eric Wold -- B. Riley -- Analyst

Thank you. Good afternoon, guys. A couple of questions. I guess, one, you talked about continuing to maintain and build up a healthy pipeline of ad commitments, while theaters remain closed along with kind of shifting those commitments from prior periods into kind of the upcoming periods. How do you expect that to be handled under an environment of limited impressions when the theaters begin to reopen in terms of how those dollars are allocated between what's going to be a diminished amount of impressions?

Thomas F. Lesinski -- Chief Executive Officer

Well, it's going to come down to who has commitments and who wants to use them regarding any period in time. Remember, flights have to line up ultimately to when a brand or an agency wants to use the inventory, so the first thing you got to do is marry up timing because not everybody wants to run the minute Tenet starts. Some people do, some people will want to wait. So, the first thing we have to do is look at it from a timing point of view. And then, we'll allocate it in the most fair way we possibly can across all of our clients. And obviously, we're going to start doing that now that we know the Tenet is what appears to be firm, we're in the process of doing that and Cliff and his team in the sales planning team are all working furiously on getting that balanced and worked out and that's going to be an ongoing process, week-to-week and month-to-months really for the rest of the year.

Eric Wold -- B. Riley -- Analyst

Okay. And how does that work kind of with new advertiser coming in? Obviously, someone wants to advertise, let's say, in January and February of next year, are they kind of -- if they come in now, are they kind of back of the line in terms of to kind of go back through everyone else, whose kind of in the commitment pool and see if they want to go there first before you kind of open to new people coming in or is that not the way it works?

Thomas F. Lesinski -- Chief Executive Officer

Cliff, do you want to answer that question?

Clifford E. Marks -- President

Yeah, sure. So, we'll be actively participating in the upfront, which a lot of people place calendar money for January through December of '21. And we have a gauge, our planning group has a gauge of what our current obligation is for people who have committed to us and we'll have a pretty good estimate based on what we think attendance will be based on how much new money we can take in. So, it's a little bit -- it's a little bit of juggling, but -- and everyone understands it. We're going to be transparent and share all the data with them and we'll do the best we can to maximize every dollar.

Eric Wold -- B. Riley -- Analyst

Clearly, it doesn't sound like that's impacting the ability to get new people to commit dollars. Even with that increased competition, they're willing to kind of get in the pool, so to speak.

Thomas F. Lesinski -- Chief Executive Officer

That's right, that's right. I think --I'd like to really shout out the relationship that Cliff and our senior ad sales guys have had with the ad community in many cases for 20 years to 30 years and it's at times like this, where there is still some uncertainty, but also a lot of potential that the relationships that he and Scott and the other key senior people have built, it gives us -- puts us in a really good position compared to other media companies that may not have the same experience level that we have. So, the relationships matter and in this particular case, you will see the benefits of it for NCM.

Eric Wold -- B. Riley -- Analyst

Okay. And final question from me, with the -- with kind of the big pool of committed ad dollars out there and obviously, competition for the impression, how should we think about CPMs and margins, given what I think would be -- I may be wrong, an inability kind of squeezed scatter ads into the mix, given the level commitments already there?

Thomas F. Lesinski -- Chief Executive Officer

It would be really difficult to give you an honest answer, but I'll try to give you a forecast. Having actually not been in the market with new inventory for four months, it's a little difficult to forecast what CPMs are going to be. What I will say is that the industry going into Q4, not just the cinema advertising industry, but the media industry overall, is expected to have lower budgets and lower CPMs. I think if you are going to be flat, you're going to be happy. I think across the board most CPMs are going to be down, at least, for the next probably quarter or two. Hard to say what's going to happen for the rest of 2021, but -- I don't know if you want to add anything to that, Cliff, based on your end market sort of experience lately.

Clifford E. Marks -- President

Yeah, the one thing I would add is, a lot of the business for fourth quarter is already pre-negotiated. So,CPMs are established. So, really your question is more relevant for '21 than it is for fourth quarter.

Operator

Okay. [Operator Instructions] Our next question comes from the line of Anthony De Rosa with ED Productions [Phonetic]. You may proceed with your question.

Anthony De Rosa -- ED Productions -- Analyst

Hey guys, thanks for taking my call. I just had a real quick question here. Since the theater is down and your theater experiences are nil, what's the additional revenue resources you guys have been tapping into on the online OTT markets?

Thomas F. Lesinski -- Chief Executive Officer

I'm going to let Cliff answer that first, but let me start by saying, we've been building a digital business for over three years now. And ironically, the only form of revenue we created on the digital side or -- our company created was monetizing both our own and owned assets as well as selling [Phonetic] them to third parties. So, Cliff, you can give a little more color on the digital revenue and where that's coming from and the benefit to our company.

Clifford E. Marks -- President

Yeah, the majority of the digital revenue came to our local sales team who were able to work with their clients to shift money that was committed to us on screen. With some of our digital product that could be mobile, we also sell over-the-top impressions for third parties. Our local team did a fantastic job of converting revenue and that's what a 100% of that revenue that Tom talked about is.

Anthony De Rosa -- ED Productions -- Analyst

Yeah, well, one last thing to tap-off from that. Now that most of the major studios are pushing toward the OTT for releases, are you guys looking at maybe possibly doing some synergies -- synergistic work with like Netflix, Prime, or SUNDANCE [Phonetic] or any of these other streaming networks that are growing by the month?

Thomas F. Lesinski -- Chief Executive Officer

Yeah. Streaming is probably our most important, if not our biggest category and we expect -- and I even mentioned this two quarters ago, we expect the biggest growth we have is going to come from the streaming players. They love the fact that they can reach millennial and Gen Z moviegoers in a very efficient way. Historically, people like Amazon and Hulu and others have always come to our platform. So, we expect as those industries continue to invest in marketing, that we will benefit more so than even our market share from those types of advertisers.

Anthony De Rosa -- ED Productions -- Analyst

Great. Thank you, guys. I'll be watching and following you guys. Thank you.

Thomas F. Lesinski -- Chief Executive Officer

Alrighty.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn this call back over to Mr. Tom Lesinski for closing remarks.

Thomas F. Lesinski -- Chief Executive Officer

Okay, thank you. Our NCM leadership team, our Board of Directors and our employees remain deeply committed to position our Company to weather this crisis and come out of this pandemic stronger than ever. As of today, our three founding members, the largest theater circuits in the US, AMC, Cinemark, and Regal are planning to reopen their doors and welcome audiences back to the movies beginning later this month. Once that happens and attendance levels begin to reach, and we believe that we're well positioned to deliver on the pillars of our growth strategy that we launched last year that included record Q4 2019 ad revenue and also generated free cash flow growth, stock price and dividend appreciation for our shareholders that existed prior to the start of the COVID crisis.

I'd like to close by once again thanking all of my NCM teammates, our Board of Directors, our cinema partners, lenders, and other business partners for their support through this difficult time. Film has always been a unique way of sharing stories of humanity, love, justice, and change that help bring people together and I look forward to the day soon when we can all get back together and go to the movies again.

Thank you for joining us on our call and I hope everyone continues to stay safe and healthy. Thank you.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Ted Watson -- Senior Vice President, Investor Relations

Thomas F. Lesinski -- Chief Executive Officer

Clifford E. Marks -- President

Eric Wold -- B. Riley -- Analyst

Anthony De Rosa -- ED Productions -- Analyst

More NCMI analysis

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